AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL ___, 2002
REGISTRATION NO. ____________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
I-TRAX, INC.
------------------------------------------
(Name of small business issuer in its charter)
Delaware 7389 23-3057155
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
ONE LOGAN SQUARE, SUITE 2615
130 N. 18TH STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 557-7488
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(Address and telephone number of principal executive offices)
FRANK A. MARTIN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
I-TRAX, INC.
ONE LOGAN SQUARE, SUITE 2615, 130 N. 18TH ST.
PHILADELPHIA, PA 19103
(215) 557-7488 x110
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(Name, address and telephone number of agent for service of process)
COPIES TO:
YURI ROZENFELD, ESQ. JUSTIN P. KLEIN, ESQ.
GENERAL COUNSEL GERALD GUARCINI, ESQ.
I-TRAX, INC. BALLARD SPAHR ANDREWS & INGERSOLL, LLP
ONE LOGAN SQUARE, SUITE 2615 1735 MARKET STREET, 51ST FLOOR
130 N. 18TH ST. PHILADELPHIA, PA 19103
PHILADELPHIA, PA 19103 (215) 665-8500
(215) 557-7488 x116
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Title of each class of Amount to be Proposed maximum aggregate Amount of
securities to be registered registered (1) offering price (2) offering price registration fee
Common stock, value $.001
per share 5,307,692 shares $1.26 $ 6,687,692 615.27
Common stock, value $.001
per share 240,000 shares $1.26 $ 302,400 27.82
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Total 5,547,692 shares $ 6,990,092 $ 643.09
======================================================================================================================
(1) The number of shares of common stock registered in this registration
statement represents a good faith estimate of the Company of the number of
shares of common stock issuable upon conversion of a senior convertible
debenture and upon the exercise of a related warrants. In addition to the shares
covered in the table, the amount to be registered includes an indeterminate
number of shares issuable upon conversion of or in respect of the debentures and
the warrants, as such number may be adjusted as a result of stock splits, stock
dividends and similar transactions in accordance with Rule 416.
(2) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933. The registration fee
is calculated on the basis of the average of the closing bid and ask prices for
our common stock as quoted on the Over-the-Counter Bulletin Board on April 23,
2002, $1.26.
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Acts of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
2
The information in this prospectus is not complete and may be changed
without notice. We may not issue these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any jurisdiction where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 26, 2002
PROSPECTUS
I-TRAX, INC.
5,547,692
SHARES OF
COMMON STOCK
This prospectus may be used only in connection with the following resales
of our common stock:
o up to 3,000,000 shares may be offered and sold, from time to time,
by Palladin Opportunity Fund LLC, who will originally receive these
shares upon conversion of the $2,000,000 principal amount of our 6%
Convertible Senior Debenture;
o up to 2,307,692 shares may be offered and sold, from time to time,
by Palladin Opportunity Fund LLC, who will originally receive these
shares upon the exercise of a Warrant to Purchase Common Stock;
o 40,000 shares may be offered and sold, from time to time, by JG
Capital, Inc.; and
o 200,000 shares may be offered and sold, from time to time, by JG
Capital, Inc., who will originally receive these shares upon the
exercise of a Warrant to Purchase Common Stock;
We refer to Palladin and JG Capital, who may offer and sell shares of our
common stock under this prospectus, as "Selling Security Holders."
We will not receive any proceeds from the sale of shares by the Selling
Security Holders.
Our common stock currently trades on the OTC Bulletin Board under the
symbol "IMTX." The last reported selling price of our common stock on April 23,
2002 was $1.29.
Investing in our common stock involves risks, which are described in the
"Risk Factors" section beginning on page ____ of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is ____ __, 2002
TABLE OF CONTENTS
Prospectus Summary........................................................... 3
Selected Historical Financial Data........................................... 5
Unaudited Pro Forma Financial Statements..................................... 6
Risk Factors................................................................. 9
Statement Regarding Forward-Looking Information..............................16
Use of Proceeds..............................................................16
Selling Security Holders.....................................................16
Plan of Distribution.........................................................18
Directors and Executive Officers.............................................20
Stock Ownership of Certain Beneficial Owners and Management..................23
Description of Capital Stock.................................................25
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities............................................................26
Business.....................................................................27
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................39
Certain Relationships and Related Transactions...............................47
Market for Common Equity and Related Stockholders Matters....................50
Executive Compensation.......................................................50
Legal Opinion................................................................56
Experts......................................................................56
Where You Can Find More Information..........................................56
Financial Information.......................................................F-1
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PROSPECTUS SUMMARY
The following is a summary of certain information found elsewhere in this
prospectus. Reference is made to, and this summary is qualified by, the more
detailed information set forth in this prospectus, which should be read in its
entirety.
Our Company
I-trax has historically developed enterprise and client server
applications for collecting disease specific data at the point-of-care for
several large hospitals and medical centers. In 2001, we expanded our product
lines by developing additional software applications, adding services and
completing several strategic acquisitions. We now offer total population health
management solutions. Our mission is to combine real time Internet-based
software technology and targeted personal interventions by healthcare
professionals to improve the quality of care, increase patient satisfaction,
improve clinical outcomes, reduce practice variances, improve operating
efficiencies and lower medical costs.
Our products range from stand-alone software applications to total health
management solutions. Our stand-alone software applications assist physicians,
patients and the entire healthcare community in assessing, preventing and
managing all stages of disease and wellness. Currently, our stand-alone software
applications include four clinical applications: AsthmaWatch(R), an asthma
tracking tool, Health-e-Coordinator(TM), a disease management tool, C-trax(TM),
a cardiovascular point-of-care tool, and eImmune(TM), an immunization management
system; and two web portals: MyFamilyMD(TM) for consumers and CarePrime(TM) for
physicians. We license our software applications as client-managed integrated
applications or as an application service provider from our secure web hosting
facility.
Our population health management solutions assist public health agencies,
hospitals, health plans, self-insured employers, and colleges and universities
to manage the healthcare of their populations as outsourced services through
I-trax. We deliver these service solutions by integrating
Health-e-Coordinator(TM) disease management tool, our web portals Care Prime(TM)
and MyFamilyMD(TM) and our patient contact center staffed by skilled nurses and
other healthcare professionals 24 hours per day, 7 days per week. Our service
solutions are flexible and adaptable. Without significant modifications to our
software applications, our solutions address the specific needs of several
segments of the healthcare industry, including, as examples, university and
college student health plans, indigent care coordination and disease management
initiatives and disease management of acutely ill patient with co-morbidities.
Our principal executive offices are located at One Logan Square, 130 N.
18th Street, Suite 2615, Philadelphia, Pennsylvania 19103. Our telephone number
is (215) 557-7488. Our telephone number is: (513) 398-4344 and our fax number is
(215) 557-7420. We maintain an Internet Web site located at
http://www.i-trax.com. Information contained on our Web site is not part of this
prospectus.
WellComm Acquisition
On February 6, 2002, we acquired WellComm Group, Inc. WellComm is a
healthcare services company that offers a broad array of expertise including a
nurse contact center specializing in disease management, triage, health
information survey, and research services for the healthcare industry.
The WellComm acquisition was a two-step reorganization pursuant to a
Merger Agreement dated as of January 28, 2002 by and among I-trax, WC
Acquisition, Inc., an Illinois corporation and a wholly-owned subsidiary of
I-trax, WellComm, John Blazek and Carol Rehtmeyer. The initial step of the
reorganization transaction involved a merger of WC Acquisition with and into
WellComm, in which merger WellComm continued as the surviving corporation. The
second step of the reorganization transaction involved a statutory merger of
WellComm with and into I-trax, in which merger I-trax continued as the surviving
corporation.
At the closing of this merger, we delivered to the WellComm stockholders
$2,000,000 in cash and 7,440,000 shares of our common stock and to each of Ms.
Rehtmeyer and Jane Ludwig, both senior officers of WellComm prior to this
merger, options to acquire 280,000 shares of our common stock at an exercise
price of $0.001 per share. We also agreed to deliver to the WellComm
-3-
stockholders additional contingent merger consideration either in cash or, at
the election of John Blazek as a representative of the WellComm stockholders, in
shares of our common stock. The additional contingent merger consideration will
be equal to 10% of revenues that may be generated by sales of new services to an
existing WellComm client during a 12-month period beginning on the date such new
services begin to be delivered. The new services, however, must commence by
February 5, 2003, but have not been commenced as of April 17, 2002. If the
additional contingent merger consideration is paid in shares of our common
stock, the shares will valued at the lesser of $1.23 per share and the average
of the closing price of our common stock for twenty 20 consecutive trading days
ending on the day prior to the day a contingent merger consideration payment is
due. Any additional shares distributed will be recognized as compensation
expense in the period earned.
After the merger, each of Mr. Blazek and Ms. Rehtmeyer joined us as
Members of our Office of the President and Ms. Ludwig joined us as a Vice
President pursuant to employment agreements with I-trax Health Management
Solutions, Inc. ("Health Management"), our wholly owned operating subsidiary. In
addition, Mr. Blazek and Ms. Rehtmeyer were elected to our Board of Directors.
We granted to the WellComm stockholders the following registration rights
under the Securities Act of 1933, as amended, with respect to the shares of our
common stock issued in the merger: (a) two demand registration rights
exercisable after February 5, 2005; and (b) unlimited "piggy back" registration
rights (subject to underwriter cut back) in the event we register our common
stock for our own account.
The Offering
We funded the acquisition of WellComm by selling a 6% convertible senior
debenture in the aggregate principal amount of $2,000,000 to Palladin
Opportunity Fund LLC, Selling Security Holder, pursuant to a Purchase Agreement
dated as of February 4, 2002 between I-trax and Palladin. Pursuant to the
Purchase Agreement, we also issued Palladin a warrant to purchase an aggregate
of up to 1,538,461 shares of our common stock at an exercise price of $1.10 per
share. The outstanding principal and any capitalized interest under Palladin's
debenture are payable in full on or before February 3, 2004. Further,
outstanding principal and any capitalized interest may be converted at any time
at the election of Palladin into our common stock at an initial conversion price
of $1.00 per share. The initial conversion price is subject to "reset" as of the
dates that are 12 months and 18 months after the issue date. On each reset date,
the conversion price will only be reduced if the closing bid price for our
common stock, averaged during a period of 20 consecutive trading days ending on
the date that immediately precedes the applicable reset date, is less than the
then applicable conversion price, in which case, the reset conversion price will
be equal to the new average.
Under a related registration rights agreement, we also agreed to register
all of the shares of our common stock underlying the debenture and the warrant.
This prospectus is part of a registration statement we filed to fulfill our
commitment to Palladin in the registration rights agreement.
Under the Purchase Agreement, Palladin also received an option to purchase
an additional 6% convertible senior debenture in the face amount of $1 million
and received an additional warrant to purchase an aggregate of up to 769,230
shares of our common stock. The terms of the optional debenture and warrant will
be substantially similar to those of the now outstanding debenture and warrant.
Josephberg Grosz & Co., Inc. helped us close the Palladin financing. In
exchange for their services, we issued to JG Capital, Inc., an affiliate of
Josephberg Grosz, 40,000 shares of our common stock and a warrant to purchase
200,000 shares of our common stock at an exercise price of $1.00 per share.
-4-
Number of shares of common
stock outstanding prior to
this offering 46,625,522
Common stock offered by
Selling Security Holders 52,173,214
Use of Proceeds We will not receive any proceeds from
the sale of the shares of our common
stock offered under this prospectus.
We may receive proceeds from the
exercise of warrants by the Selling
Security Holders if they do not use
the warrants' "cashless exercise"
feature.
Plan of Distribution The Selling Security Holders may sell
our common stock in the open market
or in privately negotiated
transactions and at fixed prices or
negotiated prices.
Risk Factors There are substantial risk factors
involved in investing in our common
stock. For a discussion of certain
factors you should consider before
buying shares of our common stock,
see the section entitled "Risk
Factors."
OTC Bulletin Board Symbol "IMTX"
SELECTED HISTORICAL FINANCIAL DATA
The following financial information is derived from our audited financial
statements as of December 31, 2000 and 2001. This information should be read in
conjunction with the more detailed financial statements (including accompanying
notes) appearing elsewhere in this prospectus and should be read along with the
section entitled Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Statement of Operations Data
2001 2000
---------------- ----------------
Revenue $ 613,070 $ 260,645
Total Operating expenses 13,057,144 6,511,923
Operating loss (12,444,074) (6,251,278)
Total other income (expenses) (1,915,358) (164,206)
Loss before provision for income taxes (14,359,432) (6,415,484)
Net loss $ (14,359,432) $ (6,415,484)
Basic and diluted Loss per common share (.54) (.36)
Weighted average number of shares outstanding: 26,457,013 18,037,879
Balance Sheet Data
December 31,
2001
----------------
Cash $ 1,029,208
Office equipment and furniture, net 279,635
Goodwill, net 2,224,726
Total assets 3,774,062
Total current liabilities 1,827,668
Total liabilities 2,195,896
Total stockholders' equity 1,578,166
-5-
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The first table below sets forth our unaudited pro forma balance sheet as
of December 31, 2001 reflecting the issuance of a $2,000,000, 6% debenture and
debt issuance costs and the acquisition of WellComm Group, Inc., which occurred
on February 6, 2002, as if all transactions had occurred on December 31, 2001.
The second table below sets forth the unaudited pro forma statement of
operations, giving effect to the issuance of the debenture, the incurrence of
debt issuance costs and the acquisition of WellComm as though the transactions
had occurred on January 1, 2001.
For purposes of the following pro forma financial statements, the
valuation and allocation of the purchase price we paid for WellComm is
preliminary since a formal allocation of the purchase price is not yet complete.
We intend to obtain a formal valuation of the assets acquired and liabilities
assumed and the allocation of a portion of the purchase price before December
31, 2002.
Pro Forma Balance Sheet (Unaudited)
Assets
WellComm Adj. Pro Forma Pro Forma
I-trax, Inc. Group, Inc. Ref. Adjustments Balances
---------------- ----------------- ------- ------------- ------------
Current assets
Cash $ 1,029,208 $ 491,576 A $2,000,000 $1,330,784
H (2,190,000)
Accounts receivable -- 439,698 439,698
Prepaid expenses 99,245 13,828 113,073
Deferred income taxes -- 117,700 117,700
Other current assets 1,915 -- 1,915
Note receivable 72,437 -- 72,437
----------- ----------- ----------- ------------
Total current assets 1,202,805 1,062,802 (190,000) 2,075,607
----------- ----------- ----------- ------------
Property and equipment, net 279,635 279,698 - 559,333
----------- ----------- ----------- ------------
Other assets
Security deposits 66,896 3,507 70,403
Debt Issuance Costs -- -- C 248,000 248,000
Goodwill 2,224,726 -- H 4,647,457 6,872,183
Intangible assets - -- H 6,971,186 6,971,186
----------- ----------- ----------- ------------
Total other assets 2,291,622 3,507 11,866,643 14,161,772
----------- ----------- ----------- ------------
Total assets $ 3,774,062 $ 1,346,007 $11,676,643 $ 16,796,712
=========== =========== =========== ============
(Continued on following page.)
-6-
Liabilities And Stockholders' Equity
WellComm Adj. Pro Forma Pro Forma
I-trax, Inc. Group, Inc. Ref. Adjustments Balances
---------------- ----------------- ------- ------------- ------------
Current liabilities
Accounts payable $ 619,612 $ 76,959 $ 696,571
Accrued expenses 276,750 588,898 865,648
Deferred revenue 148,830 24,408 173,238
Capital lease payable 42,878 51,596 94,474
Due to related parties 739,598 -- 739,598
----------- ----------- ----------- ------------
Total current liabilities 1,827,668 741,861 2,569,529
Long term debt, net of discount 55,901 32,789 A 2,000,000 1,228,690
A (860,000)
B (1,140,000)
E 1,140,000
Promissory notes, net of discount 312,327 -- 312,327
----------- ----------- ----------- ------------
Total liabilities 2,195,896 774,650 1,140,000 4,110,546
----------- ----------- ----------- ------------
Common stock - 100,000,000 shares
authorized, 34,939,464 actual issued
and outstanding, 42,979,464 issued
and outstanding on a pro forma basis 34,939 223 C 40 42,419
H 7,440
I (223)
Additional paid-in capital 22,964,778 750,339 A 860,000 35,205,298
B 1,140,000
C 247,960
H 9,992,560
I (750,339)
Accumulated deficit (21,421,551) (179,205) I 179,205 (22,561,551)
E (1,140,000)
----------- ----------- ----------- ------------
Total stockholders' equity 1,578,166 571,357 10,536,643 12,686,166
----------- ----------- ----------- ------------
Total liabilities and stockholders'
equity $ 3,774,062 $1,346,007 $11,676,643 $ 16,796,712
=========== =========== =========== ============
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Pro Forma Statement of Operations (Unaudited)
WellComm Adj. Pro Forma Pro Forma
I-trax, Inc. Group, Inc. Ref. Adjustments Balances
------------- ------------ ------- ------------- ------------
Revenue $ 613,070 $ 5,287,702 $ 5,900,772
----------- ------------ ------------
Operating expenses:
Cost of revenue 99,584 2,510,279 2,609,863
General and administrative 1,711,430 597,265 2,308,695
Salary & related benefits 6,996,108 1,771,183 8,767,291
Research and development 818,176 -- 818,176
Acquired in progress research & 1,642,860 -- 1,642,860
development
Depreciation & amortization 799,014 74,406 J 2,323,729 3,197,149
Marketing and advertising 989,972 4,912 994,884
----------- ------------ ----------- ------------
Total operating expenses 13,057,144 4,958,045 2,323,729 20,338,918
----------- ------------ ----------- ------------
Operating (loss) Income (12,444,074) 329,657 (2,323,729) (14,438,146)
----------- ------------ ----------- ------------
Other income (expenses):
Debt issuance & conversion costs (1,424,688) -- F (124,000) (1,548,688)
Interest income 33,962 9,896 43,858
Interest expense (524,632) (12,394) D (430,000) (2,227,026)
G (120,000)
E (1,140,000)
----------- ------------ ----------- ------------
Total other income (expenses) (1,915,358) (2,498) (1,814,000) (3,731,856)
----------- ------------ ----------- ------------
(Loss) Income before provision for
income taxes (14,359,432) 327,159 (4,137,729) (18,170,002)
----------- ------------ ----------- ------------
Provision for income taxes -- 130,600 -- 130,600
----------- ------------ ----------- ------------
Net (loss) Income $(14,359,432) $ 196,559 $(4,137,729) $(18,300,602)
============ ============ =========== ============
Earnings per share:
Basic and diluted $(.54) $(.54)
Weighted average common shares outstanding 26,457,013 K 7,480,000 33,937,013
Footnotes to Pro Forma Balance Sheet and Statement of Operations
A To record the issuance of a 6% convertible senior debenture in the
aggregate principal amount of $2,000,000 with a maturity date of February
3, 2004 utilized to fund the acquisition of WellComm Group and to record
the value of 1,538,461 warrants granted therewith exercisable at $1.10 per
share valued at $860,000 utilizing the Black-Scholes pricing model.
B To record the beneficial conversion value of the debenture.
C To record debt issuance costs of $248,000 resulting from the issuance of
40,000 shares of common stock and the granting of 200,000 warrants to
purchase 200,000 shares of the Company's common stock at $1.00 per share
to an unrelated entity for facilitating and securing the $2,000,000
debenture. The Company has valued its common stock at the fair market
value on the date of issuance ($50,000) and has valued the warrants
utilizing the Black-Scholes pricing model ($198,000).
D To amortize to interest expense the value assigned to the 1,538,461
warrants granted over a two-year period.
E To recognize the beneficial conversion charge as the 6% convertible
debenture is convertible immediately.
F To amortize the debt issuance costs over the life of the debenture of two
years.
G To record 6% interest on the $2,000,000 debenture for the year.
H To record the issuance of 7,440,000 shares of common stock and the
granting of 560,000 options with a nominal exercise price as consideration
for the acquisition of the WellComm Group. For purposes of these pro forma
financial statements, the Company has assigned a value of $1.25 per share
to the common stock and options in the acquisition, or $10,000,000 in the
aggregate. The Company also paid $2,190,000 in cash. Accordingly, the
aggregate acquisition price is $12,190,000. The Company is in the process
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of obtaining an independent third-party allocation of the purchase price
in connection with the acquisition. For purposes of this pro forma, the
Company allocated 60% of the excess purchase price to intangibles and 40%
to goodwill.
I To eliminate the stockholder's equity of WellComm upon consolidation.
J To recognize amortization of intangibles over an estimated 3-year life.
K To reflect the issuance of 7,440,000 shares of common stock in connection
with the WellComm Group acquisition and the issuance of 40,000 shares in
connection with the debenture.
RISK FACTORS
In addition to other information in this prospectus, you should carefully
consider the following risks and the other information in evaluating I-trax and
its business. Our business, financial condition and results of operations could
be materially and adversely affected by each of these risks. Such an adverse
effect could cause the market price of our Common Stock to decline, and you
could lose all or part of your investment.
Risk Related to I-trax
We May Not be Able to Raise Necessary Capital to Continue as a Going
Concern
Additional funds are required to complete our planned product development
efforts, expand our sales and marketing activities, and to cover cash shortfalls
until our current and projected pipeline materializes. At present, we have funds
to cover our operating expenses. However, we will probably need additional funds
in the future. We are continuously seeking out investors who will provide
additional funds, but there is no assurance that we will succeed in obtaining
sufficient amounts of capital. In addition, we have incurred losses from
operations and although we have stockholders' equity of approximately $1.6
million as of December 31, 2001, because our expenses continue to exceed our
sales there is substantial doubt that we will be able to continue as a going
concern.
Our future operating requirements and the adequacy of available funds will
depend on numerous factors, including:
o successful commercialization of our existing services and products,
o progress in our product development efforts,
o the growth and success of effective sales and marketing activities,
and
o the cost of filing, prosecuting, defending and enforcing
intellectual property rights.
We will have to obtain such funds through an equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. We do not have any committed sources of additional financing, and we
cannot provide assurance that additional funding, if necessary, will be
available on acceptable terms, if at all. If adequate funds are not available,
we may have to delay, scale-back or eliminate certain aspects of our operations
or attempt to obtain funds through arrangements with collaborative partners or
others. Moreover, if we continue to have operating losses and are unable to
obtain capital to cover them, we may be unable to remain in business. These
results, in turn, could cause the relinquishment of our rights to certain of our
technologies, products or potential markets, dilution of your ownership in our
business, or our loss of what we believe is a current competitive advantage in
technology enabled population health management field. Therefore, the inability
to obtain adequate funds could have a material adverse impact on our business,
financial condition and results of operations.
We Have a History of Operating Losses, Anticipate We Will Incur Continued
Operating Losses for the Following Twelve Months and Therefore May
Eventually Be Unable to Continue Our Operations
We have used substantial cash to fund our operating losses, and we have
never earned a profit. Through December 31, 2001, we have used approximately $10
million of cash to fund our operating activities. Moreover, we expect to use
-9-
additional cash to fund our operating losses for the reasonably foreseeable
future. Our ability to achieve profitability will depend, in part, on:
o the market's accepting our service and software applications;
o successful deployment and retention of our services and software
applications by our customers; and
o our sales and marketing activities.
The success of our business model depends on customers, such as public
health agencies, hospitals, health plans, self insured employers, and colleges
and universities being attracted to and using our population health management
solutions. Although we believe that this business model will be successful, we
cannot assure you that we will achieve or sustain profitability or that our
operating losses will not increase in the future. There is substantial
uncertainty as to our ability to continue as a going concern due to our
historical negative cash flow and because we may not have access to sufficient
capital to meet our projected operating needs for at least the next twelve
months.
The Segment of the Healthcare Industry in Which We Operate Is Relatively
New and Our Sales Cycle Is Long and Complex
Disease and population health management business, which is growing
rapidly, is a relatively new segment of the overall healthcare industry and has
many entrants which are marketing various services and products labeled as
disease and population health management. Many companies use the generic label
of "disease management" to characterize a wide range of activities from the sale
of medical supplies and drugs to services aimed at managing demand for
healthcare services. Because this segment of the industry is relatively new,
potential purchasers take a long time to evaluate and purchase such services,
lengthening our sales cycle. Further, the sales and implementation process for
our services and software applications is lengthy, involves a significant
technical evaluation and requires our customers to commit a great deal of time
and money. Finally, the sale and implementation of our solutions are subject to
delays due to our customers' internal budgets and procedures for approving large
capital expenditures and deploying new services and software applications within
their organizations. The sales cycle for our solutions, therefore, is
unpredictable and has generally ranged from three to twenty-four months from
initial contact to contract signing. The time it takes to implement our
solutions is also difficult to predict and has lasted as long as eighteen months
from contract execution to the commencement of live operation. During the sales
cycle and the implementation period, we may expend substantial time, effort and
money preparing contract proposals, negotiating the contract and implementing
the solution without receiving any related revenue.
Our Limited Operating Experience May Cause Us to Misjudge the Segment of
the Healthcare Industry in Which We Are Operating
We have only recently begun to design, build and offer technology enabled
population health management solutions. Our enterprise software applications
have been operational for less than three years, our web-based solutions have
been operational for less than one year, and we have just begun to offer
technology enabled population health management solutions. Accordingly, we have
a limited operating history in our business. Furthermore, we are also facing
other risks and challenges, including a lack of meaningful historical financial
data upon which to plan future budgets, increasing competition, the need to
develop strategic relationships, and other risks described below. We cannot
guarantee that we will be able successfully to implement our business model. An
investor in our common stock must consider the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages of
development. As a result of the absence of meaningful history and experience in
our business, we may easily misjudge the nature or size of our perceived
markets, or the amount of work or capital necessary to complete our pending
products or implement our business plan.
-10-
We May Be Unable to Implement Our Business Strategy, Which Requires Us to
Deploy Our Products Effectively and Attract Customers
Although we believe that there is significant demand for our services and
products in the over all healthcare market, there are many reasons why we may be
unable to execute on our business strategy, including our possible inability to:
o deploy our services and software applications on a large scale;
o attract a sufficiently large number of public health agencies,
hospitals, health plans, self-insured employers and colleges and
universities to subscribe for our services and software
applications;
o increase awareness of our brand;
o strengthen user loyalty;
o develop and improve our services and software applications;
o continue to develop and upgrade our services and software
applications; and
o attract, retain and motivate qualified personnel.
The Healthcare Industry Is Subject to Cost Pressures And Government
Regulation
The healthcare industry is currently subject to significant cost reduction
pressures as a result of constrained revenues from governmental and private
revenue sources as well as from increasing underlying medical care costs. These
pressures will continue and possibly intensify. Although we believe that our
services and software applications assist public health agencies, hospitals,
health plans and self-insured employers to control the high costs associated
with the treatment of chronic diseases, the pressures to reduce costs
immediately may have a negative effect in certain circumstances on our ability
(or the length of time we require) to obtain new contracts. In addition, the
focus on cost reduction may pressure our customers to restructure contracts and
reduce our fees.
Many of our existing and potential clients are subject to considerable
state and Federal government regulation. Many of these regulations are vaguely
written and subject to differing interpretations that may, in certain cases,
result in unintended consequences that may affect our ability to effectively
deliver our services. The current focus on regulatory and legislative efforts to
protect the confidentiality of patient identifiable medical information, as
evidenced by the Health Insurance Portability and Accountability Act of 1996
("HIPAA"), is one such example. While we believe that our ability to obtain
patient identifiable medical information for disease management purposes from
certain of our clients is protected in recently released Federal regulations
governing medical record confidentiality, state legislation or regulations will
preempt Federal legislation if it is more restrictive. Accordingly, new Federal
or state legislation or regulations that restricts the availability of this
information to us or leaves uncertain whether disease management is an allowable
use of patient identifiable medical information would have a material negative
effect on us.
Government Regulation Could Adversely Affect Our Business
Although we are not directly subject to many of the governmental and
regulatory requirements affecting healthcare delivery, our clients, such as
public health agencies, hospitals, health plans, and self-insured employers must
comply with a variety of regulations including the licensing and reimbursement
requirements of Federal, state and local agencies. Further, certain of our
professional healthcare employees, such as doctors and nurses, are subject to
individual licensing requirements. All of our healthcare professionals who are
subject to licensing requirements are licensed in the state in which they are
physically present. Multiple state licensing requirements for healthcare
professionals who provide services telephonically over state lines may require
us to license some of our healthcare professionals in more than one state. We
continually monitor the developments in telemedicine. There is no assurance,
however, that new judicial decisions or Federal or state legislation or
regulations would not increase the requirement for multi-state licensing of all
-11-
central operating unit call center health professionals, which would
significantly increase our administrative costs.
We are indirectly affected by changes in the laws governing health plan,
hospital and public health agency reimbursement under governmental programs such
as Medicare and Medicaid. There are periodic legislative and regulatory
initiatives to reduce the funding of the Medicare and Medicaid programs in an
effort to curtail or reduce overall Federal healthcare spending. Federal
legislation has and may continue to significantly reduce Medicare and Medicaid
reimbursements to most hospitals. These reimbursement changes are negatively
affecting hospital revenues and operations. There can be no assurance that such
legislative initiatives or government regulations would not adversely affect our
operations or reduce the demand for our services.
Various Federal and state laws regulate the relationship among providers
of healthcare services, other healthcare businesses and physicians. The "fraud
and abuse" provisions of the Social Security Act provide civil and criminal
penalties and potential exclusion from the Medicare and Medicaid programs for
persons or businesses who offer, pay, solicit or receive remuneration in order
to induce referrals of patients covered by Federal health care programs (which
include Medicare, Medicaid, TriCare and other Federally funded health programs).
Although we believe that our business arrangements with our clients are in
compliance with these statutes, these fraud and abuse provisions are broadly
written and the full extent of their application is not yet known. We are
therefore unable to predict the effect, if any, of broad enforcement
interpretation of these fraud and abuse provisions.
Our Dependence on the Internet and Internet Related Technologies Subjects
Us to Frequent Change and Risks
Our web-based software applications depend on the continuous, reliable and
secure operation of Internet servers and related hardware and software. In the
past, several large Internet commerce companies have suffered highly publicized
system failures, which resulted in adverse reactions in their stock prices,
significant negative publicity and, in certain instances, litigation. It is
possible that we may also suffer service outages from time to time. To the
extent that our service is interrupted, our users will be inconvenienced and our
reputation may be diminished. If access to our system becomes unavailable at a
critical time, users could allege we are liable as a result. Some of these
outcomes could directly result in a reduction in our stock price, significant
negative publicity and litigation. Although our computer and communications
hardware is protected by physical and software safeguards, they are still be
vulnerable to fire, storm, flood, power loss, telecommunications failures,
physical or software break-ins and similar events. We will not have one hundred
percent redundancy for all of our computer and telecommunications facilities. A
catastrophic event could have a significant negative effect on our business,
results of operations, and financial condition.
We also depend on third parties to provide certain of our clients with
Internet and on-line services necessary for access to our servers. It is
possible that our clients will experience difficulties with Internet and other
on-line services due to system failures, including failures unrelated to our
systems. Any sustained disruption in Internet access provided by third parties
could have a material adverse effect on our business, results of operations and
financial condition.
Finally, we retain confidential healthcare information on our servers. It
is, therefore, critical that our facilities and infrastructure remain secure and
that our facilities and infrastructure are perceived by clients to be secure.
Although we operate our software applications from a secure facility managed by
a reputable third party, our infrastructure may be vulnerable to physical
break-ins, computer viruses, programming errors or similar disruptive problems.
A material security breach could damage our reputation or result in liability to
us.
If Our Platform Infrastructure and its Scalability Cannot be Proven,
Customers May Be Reluctant to Purchase our Products
We are just beginning to implement our Internet based products. If the
system is used by an increasing number of users, we will need to expand our
network infrastructure from time to time. In addition, we will need to
accommodate changing consumer and customer requirements. We are unable to
project accurately the rate or timing of increases, if any, in the use of our
website and may be unable to expand and upgrade our systems and infrastructure
to accommodate such changes on a timely basis, at a commercially reasonable
cost, or at all. Our systems may not accommodate increased use while maintaining
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acceptable overall performance. Service lapses could cause our users to instead
use the on-line services of our competitors.
We May Be Sued by Our Users if We Provide Inaccurate Health Information on
Our Website or Inadvertently Disclose Confidential Health Information to
Unauthorized Users
Because users of our website will access health content and services
relating to a medical condition they may have or may distribute our content to
others, third parties may sue us for defamation, negligence, copyright or
trademark infringement, personal injury or other matters. We could also become
liable if confidential information is disclosed inappropriately. These types of
claims have been brought, sometimes successfully, against on-line services in
the past. Others could also sue us for the content and services that will be
accessible from our website through links to other websites or through content
and materials that may be posted by our users in chat rooms or bulletin boards.
Any such liability will have a material adverse effect on our reputation and our
business, results of operations or financial position.
Our Business Will Be Adversely Affected If We Lose Key Employees or Fail
to Recruit and Retain Other Skilled Employees
Our Chairman, Frank A. Martin, is an integral part of our business and our
future success greatly depends upon his retention. Similarly, other officers and
directors provide us with key relationships, such as Dr. Michael O'Connell with
Walter Reed Medical Center and Dr. Craig Jones with Breathmobile and the
University of Southern California School of Medicine. Finally, our Chief
Technology Officer, David C. McCormack is an essential part of our technology
development efforts. Our failure to retain these individuals could have a
significant adverse impact on our ability to compete and succeed in the future.
Our future success also depends to a significant extent on our ability to
attract, retain and motivate highly skilled employees. As we secure new
contracts for our services and implement our products, we will need to hire
additional personnel in all operational areas. We may be unable to attract,
assimilate or retain such highly qualified personnel. We have from time to time
in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications. If we do not succeed in attracting new personnel or retaining
and motivating our current personnel, our business will be adversely affected.
We May Be Unable to Compete Successfully Against Companies Offering
Similar Products
A large number of health care companies are offering disease management
services and healthcare focused software solutions. Further, the number of
Internet websites offering users health care content, products and services is
vast. In addition, traditional health care providers compete for consumers'
attention both through traditional means as well as through new Internet
initiatives. Although we believe our technology enabled service solutions are
unique and better than our competitors', we compete for customers with numerous
other businesses.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to us, including:
o greater name recognition and larger marketing budgets and resources;
o larger customer and user bases;
o larger production and technical staffs;
o substantially greater financial, technical and other resources; and
o the ability to offer a wider array of on-line products and services.
To be competitive, we must continue to enhance our products and services,
as well as our sales and marketing channels and our financial condition.
-13-
We May Be Exposed to Uninsured Liability Claims
We maintain professional malpractice, errors and omissions and general
liability insurance for all of our locations and operations. Although we believe
that these insurance policies are adequate in amount and coverage for our
current operations, there can be no assurance that coverage is sufficient to
cover all future claims or will continue to be available in adequate amounts or
at a reasonable cost.
Health Management, our operating subsidiary, had engaged in the physician
practice management business. While we are no longer engaged in that business,
Health Management may be subject to unknown liabilities arising from such prior
business operations, which may have a material adverse effect on our business,
operations, financial condition, or prospects.
Prior to the merger with Health Management, Member-Link was engaged in the
business of marketing, selling and installing eImmune(TM) and AsthmaWatch(R).
Since beginning its operations in 1996 until March 15, 2000, Member-Link and
Health Management did so without obtaining product or professional liability
insurance. Accordingly, if any customer of Member-Link or Health Management
should in the future claim that the software applications Member-Link and/or
Health Management sold prior to obtaining insurance on March 15, 2000 was
defective, we would not have the protection of insurance in satisfying or
defending against such claims. At this time we are not aware of any such claims.
Any such claims, however, could have a material adverse effect on our business,
results of operations, financial condition and prospects.
Our clients may sue us if any of our software applications or services is
defective, fails to perform properly or injures the user. Even though we
currently have insurance, claims could require us to spend significant time and
money in litigation, to pay significant damages and to reserve for such
liability on our financial statements. At this time we are not aware of any such
claims. However, any such claims, whether or not successful, could seriously
damage our reputation and our business, results of operations or financial
position.
If Our Intellectual Property Rights Are Undermined by Third Parties Our
Business Will Suffer
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. Our
efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of some
foreign countries do not protect proprietary rights as well as the laws of the
United States do, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation would probably be time-consuming and costly. We could be subject to
intellectual property infringement claims as the number of our competitors grows
and the content and functionality of software applications and services overlap
with competitive offerings. Defending against these claims, even if not
meritorious, could be expensive and divert our attention from operating our
company. If we become liable to third parties for infringing their intellectual
property rights, we could be required to pay a substantial damage award and
forced to develop noninfringing technology, obtain a license or cease selling
the applications that contain the infringing technology. We may be unable to
develop noninfringing technology or obtain a license on commercially reasonable
terms, or at all. We also intend to rely on a variety of technologies that we
will license from third parties, including any database and Internet server
software, which will be used to operate our applications to perform key
functions. These third-party licenses may not be available to us on commercially
reasonable terms. The loss of or inability to obtain and maintain any of these
licenses could delay the introduction of enhancements to our software
applications, interactive tools and other features until equivalent technology
could be licensed or developed. Any such delays could materially adversely
affect our business, results of operations and financial condition.
-14-
Provisions of Our Certificate of Incorporation Could Impede a Takeover of
Our Company Even Though a Takeover May Benefit Our Stockholders
Our Board of Directors has the authority, without further action by the
stockholders, to issue from time to time, up to 2,000,000 shares of preferred
stock in one or more classes or series, and to fix the rights and preferences of
such preferred stock. We are subject to provisions of Delaware corporate law
which, subject to certain exceptions, will prohibit us from engaging in any
"business combination" with a person who, together with affiliates and
associates, owns 15% or more of our common stock (referred to as an interested
stockholder) for a period of three years following the date that such person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. Additionally, our bylaws establish an advance notice
procedure for stockholder proposals and for nominating candidates for election
as directors. These provisions of Delaware law and of our certificate of
incorporation and by-laws may have the effect of delaying, deterring or
preventing a change in our control, may discourage bids for our common stock at
a premium over market price and may adversely affect the market price, and the
voting and other rights of the holders of our common stock.
Our Officers Have Effective Control of the Company and Other Stockholders
May Have Little or No Voice in Corporate Management
Our Chairman, Vice-Chairman, the venture capital firm with which our
Chairman is affiliated, and three members of our Office of the President
beneficially own, in the aggregate, approximately 34% of the outstanding shares
of our common stock. As a result, these stockholders, acting together,
effectively control the election of directors and matters requiring approval by
our stockholders. Thus, they may be able to prevent corporate transactions such
as future mergers that might be favorable from our standpoint or the standpoint
of the other stockholders.
The Loss of Any of Our Very Limited Number of Customers Will Have a
Material Adverse Effect on Our Business
Historically, a very limited number of customers has accounted for a
significant percentage of our revenues. In 2000, our largest customers, Office
of the Attending Physician and Walter Reed Army Medical Center, accounted for
55% and 25% of our revenues, respectively. In 2001, our largest customer, Walter
Reed Army Medical Center, accounted for 84% of our revenues. We anticipate that
our results of operations in any given period will continue to depend to a
significant extent upon revenues of a small number of customers. Accordingly, if
we were to lose the business of even a single customer, our results of
operations would be materially and adversely affected.
Investment Risks
The Price of Our Common Stock Is Volatile
Our stock price has been and we believe will continue to be volatile. The
stock's volatility may be influenced by the market's perceptions of the
healthcare sector in general, or other companies believed to be similar to us or
by the market's perception of our operations and future prospects. Many of these
perceptions are beyond our control. In addition, our stock is not heavily traded
and therefore the ability to achieve relatively quick liquidity without a
negative impact on our stock price is limited.
Some of Outstanding Shares Are Restricted From Immediate Resale But May Be
Sold Into the Market In The Future And Could Cause The Market Price Of Our
Common Stock To Drop Significantly, Even If Our Business Is Doing Well
As of April 17, 2002 46,625,522 shares of our common stock were issued and
outstanding, of which approximately 25,000,000 are "restricted securities." If
the information we file with the Securities and Exchange Commission is current
and a holder has held these restricted securities for more than one year, the
holder may sell, every three months, an amount equal to the greater of (a) one
percent of a our issued and outstanding shares, or (b) the average weekly volume
of sales of our common stock during the four calendar weeks preceding the sale.
In addition, if the information we file with the Securities and Exchange
Commission is current and the holder is not an affiliate and has held the
-15-
"restricted securities" for more than two years, the holder may sell an
unlimited amount of the "restricted securities." If many of the holders of our
"restricted securities" elect to sell them at the same time, the market price of
our common stock could drop significantly.
Shares Eligible for Future Sale Upon the Conversion of the Debentures and
Upon the Exercise of Issued Options and Warrants
As of April 17, 2002, $2,000,000 in principal amount of Palladin's
debentures were issued and outstanding. The debentures are convertible into such
number of shares of our common stock as is determined by dividing the principal
amount thereof by the then current conversion price. If converted on April 17,
2002, the debentures would convert into approximately 2,000,000 shares of our
common stock. But this number of shares could prove to be significantly greater
if the conversion price of the debentures is reset on the "reset" as of the
dates that are 12 months and 18 months after the issue date. Purchasers of our
common stock could therefore experience substantial dilution of their investment
upon conversion of the debentures. The debentures are not registered and may be
sold only if registered under the Securities Act of 1933, or sold in accordance
with an applicable exemption from registration, such as Rule 144. This
prospectus covers the shares of our common stock into which the debentures
convert.
As of April 17, 2002, warrants to purchase 1,538,461 shares of our common
stock issued to Palladin, a Selling Security Holder, in connection with the
debenture were outstanding. These warrants are exercisable over the next five
years at a price equal of $1.10. This prospectus covers the shares of our common
stock issuable upon exercise of these warrants.
As of April 17, 2002, approximately 14,200,000 shares of our common stock
were reserved for issuance upon exercise of our outstanding warrants and options
other than the shares of our common stock covered by this prospectus, and an
additional 5,307,692 shares of our common stock were reserved for issuance upon
conversion of the debentures and exercise of the warrants issued in connection
with the debentures.
STATEMENT REGARDING FORWARD LOOKING INFORMATION
This prospectus includes forward-looking statements. All statements, other than
statements of historical facts, included in this prospectus regarding our
strategy, future operations, financial position, future revenues, projected
costs, prospects, plans and objectives of management are forward-looking
statements. The words "anticipates," "believes," "estimates," "expects,"
"intends," "may," "plans," "projects," "will," "would" and similar expressions
are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. We cannot guarantee
that we actually will achieve the plans, intentions or expectations disclosed in
our forward-looking statements and you should not place undue reliance on our
forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking
statements we make. We have included important factors in the cautionary
statements included or incorporated in this prospectus, particularly under the
heading "Risk Factors" below that we believe could cause actual results or
events to differ materially from the forward-looking statements we make. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments we may make.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our common
stock offered under this prospectus. We may receive proceeds from the exercise
of outstanding warrants by the Selling Security Holders if they do not use the
warrants' cashless exercise feature. If we receive any cash upon the exercise of
Selling Security Holders' warrants, we will use it for working capital and other
general corporate purposes.
-16-
SELLING SECURITY HOLDERS
We are registering for offer and sale by the applicable holders up to
5,547,692 shares of our common stock held by the Selling Security Holders, which
includes:
o up to 3,000,000 shares may be offered and sold, from time to time,
by Palladin, who will originally receive these shares upon
conversion of the $2,000,000 principal amount of our 6% Convertible
Senior Debenture;
o up to 2,307,692 shares may be offered and sold, from time to time,
by Palladin, who will originally receive these shares upon the
exercise of a Warrant to Purchase Common Stock;
o 40,000 shares may be offered and sold, from time to time, by JG
Capital; and
o 200,000 shares may be offered and sold, from time to time, by JG
Capital, who will originally receive these shares upon the exercise
of a Warrant to Purchase Common Stock;
The Selling Security Holders may offer their shares for sale on a
continuous basis pursuant to Rule 415 under the Securities Act of 1933. See
"Risk Factors."
None of the Selling Security Holders or their principals have held a
position or office, or have any other material relationship, with us.
All of the Selling Security Holders' shares registered hereby will become
tradable upon conversion on the effective date of the registration statement of
which this prospectus is a part.
Based on information provided to us by the Selling Security Holders, the
following table sets forth ownership and registration information regarding the
shares held by the Selling Security Holders.
Number of Shares Common Stock Owned After
of Common Stock Number of Shares Offering Is Complete
Name and Address of Selling Owned Before of Common Stock Number of
Security Holder Offering Offered Shares Percentage
------------------------------------------- ---------------- ---------------- ----------- -------------
Palladin Opportunity Fund, LLC (1)(2) 5,307,692 5,307,692 -0- -0-
c/o The Palladin Group
195 Maplewood Avenue
Maplewood, New Jersey 07040
JG Capital, Inc.(3) 240,000 240,000 -0- -0-
c/o Josephberg Grosz & Co., Inc.
633 Third Avenue
New York, NY 10017
---------------------------------------------
(1) The number of shares set forth in the table for the Selling Security
Holders represents a good faith estimate of the number of shares of common
stock to be offered by the Selling Security Holders. The actual number of
shares of common stock issuable upon conversion of the debentures and
exercise of the related warrants is indeterminate, is subject to
adjustment and could be materially less or more than such estimated number
depending on factors which cannot be predicted by us at this time
including, among other factors, the future market price of our common
stock. The actual number of shares of common stock offered in this
prospectus, and included in the registration statement of which this
prospectus is a part, includes such additional number of shares of common
stock as may be issued or issuable upon conversion of the debentures and
exercise of the related warrants by reason of any stock split, stock
dividend or similar transaction involving the common stock, in accordance
with Rule 416 under the Securities Act of 1933. Under the terms of the
debentures, if the debentures had actually been converted on April 23,
2002, the conversion price would have been $1.00 and the shares of our
common stock issuable upon conversion would have been 2,000,000. Under the
-17-
terms of the Palladin warrants, if the warrants had actually been
converted on April 23, 2002, the exercise price would have been $1.10.
(2) Palladin Opportunity Fund, LLC may not convert its debentures or exercise
its warrants for shares of common stock in excess of that number of shares
of common stock that, upon giving effect to such conversion or exercise,
would cause the aggregate number of shares of common stock beneficially
owned by POF and its affiliates to exceed 9.99% of the outstanding shares
of the common stock following such conversion or exercise; therefore, POF
disclaims beneficial ownership of any shares of common stock in excess of
such amount.
(3) Under the terms of the JG Capital warrants, if the warrants had actually
been converted on April 23, 2002, the exercise price would have been $1.00
and the shares of our common stock issuable upon conversion would have
been 1,538,461.
PLAN OF DISTRIBUTION
The shares being offered by the Selling Security Holders or their
respective pledgees, donees, transferees or other successors in interest, will
be sold from time to time in one or more transactions, which may involve block
transactions:
o on the Over-the-Counter Bulletin Board or on such other market on
which the common stock may from time to time be trading;
o in privately-negotiated transactions;
o through the writing of options on the shares;
o short sales; or
o any combination thereof.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to such prevailing market price;
o at negotiated prices; or
o such other price as the selling stockholders determine from time to
time.
The shares may also be sold pursuant to Rule 144. The Selling Security
Holders shall have the sole and absolute discretion not to accept any purchase
offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The Selling Security Holders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the shares directly
to market makers acting as principals or broker-dealers acting as agents for
themselves or their customers. These broker-dealers may be compensated with
discounts, concessions or commissions from the selling stockholders or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both. The compensation as to a particular
broker-dealer might be greater than customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. The Selling Security Holders may sell shares of common stock in
block transactions to market makers or other purchasers at a price per share,
which may be below the then market price. The Selling Security Holders cannot
assure that all or any of the shares offered in this prospectus will be issued
to, or sold by, the Selling Security Holders. The Selling Security Holders and
-18-
any brokers, dealers or agents, upon effecting the sale of any of the shares
offered in this prospectus, may be deemed "underwriters" as that term is defined
under the Securities Act of 1933 or the Securities Exchange Act of 1934 or the
rules and regulations under such acts.
The Selling Security Holders, alternatively, may sell all or any part of
the shares offered in this prospectus through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into. If a Selling
Security Holders enters into such an agreement or agreements, the relevant
details will be set forth in a supplement or revisions to this prospectus.
The Selling Security Holders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the Securities Exchange Act of 1934 and the rules and regulations under the
Exchange Act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the Selling Security Holders or any other such person.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.
We have agreed to indemnify the Selling Security Holders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act of 1933 or to contribute to payments the Selling
Security Holders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
-19-
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors currently consists of eleven directors. All eleven
directors are to be elected at the 2002 Annual Meeting, expected to take place
on May 22, 2002, and to serve until the 2003 Annual Meeting. The Board's
nominees for election as directors are John Blazek, David R. Bock, Philip D.
Green, Michael M.E. Johns, M.D., Craig Jones, M.D., Hans C. Kastensmith, Arthur
N. Leibowitz, M.D., Frank A. Martin, John R. Palumbo, Carol Rehtmeyer, Ph.D.,
and William S. Wheeler, each of whom currently serves on the Board.
The following table lists the name and age, as of April 2, 2002, of each
director and executive officer of I-trax.
Name Age Position
--------------------------------------- ------------------ ----------------------------------------------------
Frank A. Martin 51 Chairman, Chief Executive Officer, Treasurer and
Director
John Blazek 47 Member of the Office of the President and Director
David R. Bock 58 Director
Philip D. Green 51 Director
Michael M.E. Johns, M.D. 60 Director
Craig Jones, M.D. 43 Director
Hans C. Kastensmith 42 Vice-Chairman and Director
Arthur N. Leibowitz, M.D. 55 Director
John R. Palumbo 51 Director
Carol Rehtmeyer, Ph.D. 52 Member of the Office of the President and Director
William S. Wheeler 45 Director
Gary Reiss 51 Member of the Office of the President
Anthony Tomaro, CPA 37 Chief Financial Officer
David C. McCormack 32 Chief Technology Officer
Michael O'Connell, M.D. 42 Chief Medical Officer
Yuri Rozenfeld 33 General Counsel and Secretary
Frank A. Martin has been a director, Chairman and Chief Executive Officer
of I-trax since September 2000. Mr. Martin has been a director of Health
Management, one of our predecessors, since 1996. Mr. Martin founded, and has
been a Managing Director of, The Nantucket Group, LLC ("Nantucket"), a health
care venture capital firm specializing in investing in early stage healthcare
service and technology companies since December 1998. He currently serves on the
Board of Directors of Saddletude, Inc., an Internet-based equestrian sports
network. Mr. Martin served as the Chief Executive Officer and director of
EduNeering, Inc., an electronic knowledge management company, from April 1999 to
April 2000. In November 1992, Mr. Martin founded Physician Dispensing Systems,
Inc. ("PDS"), a health care information technology company that developed
pharmaceutical software for physicians' offices. Mr. Martin assisted in the sale
of PDS to Allscripts Healthcare Solutions, Inc. ("Allscripts"), a provider of
point-of-care solutions to physicians, in December 1996 and joined its Board of
Directors on which he served until 1998.
John Blazek, MBA, RPh, has been a director and Member of the Office of the
President of I-trax since February 2002. Mr. Blazek joined I-trax when I-trax
acquired WellComm Group, Inc. ("WellComm"), a disease management company, in
February 2002. From May 2000 to February 2002, Mr. Blazek served as the Chief
Executive Officer of WellComm. From 1998 to 1999, Mr. Blazek served as an
Assistant to Mayor Hal Daub, City of Omaha, in which capacity he oversaw
economic development for the City of Omaha. From 1996 to 1999, Mr. Blazek served
as President of Blazek & Associates, Inc., a consulting firm. Mr. Blazek was
co-owner of a company that was twice named among Omaha's "25 fastest growing
companies" before it was sold to Coram Healthcare in 1992.
David R. Bock has been a director of I-trax since February 2001. Mr. Bock
was a director of Health Management from February 2000 to February 2001. Mr.
Bock has been the Executive Vice President and Chief Financial Officer of
Pedestal, Inc., an Internet-based company providing information on the secondary
mortgage marketplace, since January 2000. Prior to that, Mr. Bock was a managing
partner in Federal City Capital Advisors, LLC, an investment-banking firm
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located in Washington, D.C. Mr. Bock is also a Managing Director of Nantucket.
From 1992 to 1995, Mr. Bock was a Managing Director in the London corporate
finance group of Lehman Brothers and was responsible for developing Lehman
Brothers' investment banking business in a wide range of emerging markets,
including India, Russia, Turkey and Central Europe. Mr. Bock also served in a
variety of management positions at the World Bank, including as Chief of Staff
for the Bank's worldwide lending operations. From 1995 to 1997, he was President
of Maitland-Ruick & Company, a predecessor firm to Federal City. Mr. Bock has
extensive experience in economic policy, capital markets and corporate strategy
across a wide range of sectors, including financial services, healthcare, real
estate, energy and natural resources.
Philip D. Green has been a director of I-trax since February 2001. Mr.
Green was a director of Health Management from March 2000 to February 2001.
Since July 2000, Mr. Green has been a partner of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., a leading international law firm. From its formation in 1989 until
it merged with Akin Gump in July 2000, Mr. Green was the founding principal of
the Washington, D.C. based law firm of Green, Stewart, Farber & Anderson, P.C.
From 1978 through 1989, Mr. Green was a partner in the Washington, D.C. based
law firm of Schwalb, Donnenfeld, Bray and Silbert, P.C. Mr. Green practices
healthcare law and assists entities in corporate planning and transactions. Mr.
Green represents a significant number of major teaching hospitals and integrated
healthcare delivery systems. Mr. Green also represents a number of public and
private for-profit healthcare companies. Mr. Green is currently a member of the
Board of Directors of Allscripts and Imagyn Medical Technologies, Inc., a
medical device manufacturer.
Michael M.E. Johns, M.D., has been a director of I-trax since February
2001. Dr. Johns was a director of Health Management from October 2000 to
February 2001. Since 1996, Dr. Johns has served as an Executive Vice President
for Health Affairs of Emory University, overseeing Emory University's widespread
academic and clinical programs in health sciences. In this position, Dr. Johns
leads strategic planning initiatives for both patient care and research. In
addition, since 1996, Dr. Johns has served as the Chairman of the Board and
Chief Executive Officer of Emory Healthcare, a comprehensive healthcare system
in metropolitan Atlanta. Emory Healthcare includes two physician practices,
three wholly owned hospitals and a jointly owned fourth hospital, as well as
numerous affiliated hospitals in Atlanta and throughout Georgia. Dr. Johns also
is Chairman of the Board of EHCA, LLC, a company overseen jointly by Emory
Healthcare and HCA Corporation. Through EHCA, Emory is responsible for clinical
performance improvement and quality assurance in six local hospitals and five
surgery centers owned by HCA Corporation. From 1990 to 1996, Dr. Johns served as
the Dean of the Johns Hopkins School of Medicine and Vice President of the
Medical Faculty at Johns Hopkins University.
Craig A. Jones, M.D., has been a director of I-trax since February 2001.
Dr. Jones was a director of Health Management from January 2000 to February
2001. Dr. Jones is currently Director of the Division of Allergy & Immunology
and the Allergy & Immunology Residency Training Program at the Los Angeles
County and University of Southern California Medical Center and an Assistant
Professor of Pediatrics at the University of Southern California School of
Medicine. Since November 1996, Dr. Jones has served as Director of the
Breathmobile Mobile Asthma Clinic Program, a program that he developed. The
Company's AsthmaWatch(R) system is currently installed and in use in the
Breathmobiles. Because of its clinical impact, the program is serving as a model
for community-based preventive healthcare and disease management. From January
1997 to December 1997, Dr. Jones served as President of the Los Angeles Society
of Asthma, Allergy & Immunology. Currently, he is designing and implementing a
program for the Los Angeles County Department of Health Services, which
integrates clinical operations and patient flow in four Breathmobiles serving
more than eighty-five school sites, County Comprehensive Health Centers, and
Pediatric Services at the LAC+USC Medical Center.
Hans C. Kastensmith has been a director of I-trax since February 2001 and
Vice-Chairman of I-trax since March 2001. Mr. Kastensmith was a director and
President of Health Management from September 1999 to February 2001. Mr.
Kastensmith founded Member-Link Systems, Inc. ("Member-Link"), a company
acquired by Health Management in 1999. Mr. Kastensmith formed Member-Link in
1992 and served as its Chief Executive Officer until it merged with Health
Management. Mr. Kastensmith is currently leading a business development effort
for Medical Archival Systems at the University of Pittsburgh Medical Center
Health System.
Arthur (Abbie) N. Leibowitz, M.D., FAAP, has been a director of I-trax
since March 2002. Since 2001, Dr. Leibowitz has been the Executive Vice
President for Business Development and Chief Medical Officer of Health Advocate,
a health services company, which he helped form. Health Advocate helps consumers
navigate the healthcare system. In 2000, Dr. Leibowitz served as Executive Vice
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President for Digital Health Strategy and Business Development and director of
Medscape, Inc., a clinical information company. Dr. Leibowitz's experience
includes his tenure at Aetna U.S. Healthcare from 1987 to 2000 where he served
in several senior positions, including as Aetna's Chief Medical Officer for over
four years. As Aetna's Chief Medical Officer, he was responsible for directing
the company's patient management and clinical activities and relationships with
numerous physicians, hospitals and other heathcare providers. Dr. Leibowitz is a
nationally recognized leader in the healthcare industry and an authority on
managed care, clinical management and medical information systems. He is also a
popular speaker and has appeared frequently on national and regional television
and radio.
John R. Palumbo has been a director of I-trax since February 2001. Mr.
Palumbo was a director of Health Management from March 2000 to February 2001.
Mr. Palumbo has been a Vice President of Siemens Medical Solutions Health
Services, a provider of solutions and services for integrated healthcare, since
July 2001. From 1996 until it was acquired by Siemens, Mr. Palumbo served as
Area Vice President of Shared Medical Systems Corporation, a worldwide leader of
health information solutions serving over 5,000 providers in the United States,
Europe and the Pacific Rim. At Shared Medical Systems, Mr. Palumbo oversaw the
start-up of the National Health Services division, which markets to and services
the for-profit and not-for profit national health systems, such as Tenant, UHS,
and Ascension, and in 1999 assumed additional responsibilities for the Western
Operations division. From 1995 to 1996, Mr. Palumbo served as an Executive Vice
President and Chief Operating Officer of Allscripts. From 1990 to 1995, Mr.
Palumbo was the Executive Vice President of Healthworks Alliance, Inc., a
company he founded specializing in point-of-care technology and reengineering
services allowing physicians to process patients through the healthcare delivery
system.
Carol M. Rehtmeyer, Ph.D., MSN, RN, has been a director and Member of the
Office of the President of I-trax since February 2002. Ms. Rehtmeyer joined
I-trax when I-trax acquired WellComm in February 2002. Ms. Rehtmeyer formed
WellComm in 1997 after determining there was a need in healthcare for clinically
based, customer oriented telehealth information services. Ms. Rehtmeyer served
as the President of WellComm from its formation until February 2002. Ms.
Rehtmeyer has more than twenty-five years of healthcare experience in areas of
practice teaching, administration and leadership in clinical and managed care
settings.
William S. Wheeler has been a director of I-trax since February 2001. Mr.
Wheeler was a director of Health Management from September 1999 to February
2001. Mr. Wheeler has been the Chief Operating Officer and Chief Financial
Officer of Net2Voice, a telecommunications company, since March 2001. In May
1999, Mr. Wheeler co-founded an Internet communications business that was
launched in April 2000. Mr. Wheeler was a Vice President at Cable & Wireless USA
from June 1989 until February 1999. During this period, Mr. Wheeler held the
positions of Vice President and Controller, Senior Vice President, Finance and
acting President of the Dial Internet Services division. While leading the Dial
Internet Services division, Mr. Wheeler oversaw aspects of Cable & Wireless'
acquisition of MCI's Internet business. In this capacity, Mr. Wheeler had full
responsibility for marketing, finance, a customer service center and all
operational support systems. He developed a marketing and financial plan to
increase the customer base and improve profitability in a very short time frame
and directed the launch of Cable & Wireless USA's first consumer Internet
service (www.cwix.com). The business was sold to Prodigy Internet in 1999.
Gary Reiss has been a Member of the Office of the President of I-trax
since March 2002. From February 2001 to March 2002, Mr. Reiss was the Chief
Operating Officer of I-trax. Mr. Reiss was the Chief Operating Officer of Health
Management from March 2000 to February 2001. Mr. Reiss has over nine years of
experience as the chief operating officer of health and medical information
management companies. From November 1999 to March 2000, Mr. Reiss served as the
Chief Operating Officer of EduNeering, Inc., an electronic knowledge management
company, where he was responsible for positioning the company as a web provider
and portal. From 1996 to 1999, Mr. Reiss served as the Chief Operating Officer
of Allscripts. From 1992 to 1995, Mr. Reiss was an Executive Vice President and
Chief Operating Officer of PDS, a company he founded with Mr. Martin and which
was later acquired by Allscripts.
Anthony Tomaro, CPA has been the Chief Financial Officer of I-trax and
Health Management since January 2001. Prior to joining I-trax, Mr. Tomaro was a
partner in the New York certified public accounting firm of Massella, Tomaro &
Co., LLP. He is a member of the American Institute of Certified Public
Accountants and New York State Society of Certified Public Accountants. Since
1994, Mr. Tomaro has served as a partner in accounting firms specializing in
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Securities and Exchange Commission accounting and auditing services along with
domestic taxes and consulting services. Prior to 1994, he was a manager with a
large regional accounting firm specializing in the real estate industry.
David C. McCormack has been the Chief Technology Officer of I-trax since
February 2001 and of Health Management since January 2000. Mr. McCormack was the
Vice President of Engineering of Member-Link from January 1999 until it was
acquired by Health Management in December 1999. Mr. McCormack oversees all of
I-trax's software development efforts. He has developed and deployed systems in
most major programming languages. From April 1997 until January 1999, Mr.
McCormack served as a partner in a Virginia based consulting firm, where he
oversaw all software developed by the firm, including: an inventory management
system; an EDI transaction processing system; and an electronic document
management system. From January 1995 until April 1997, Mr. McCormack acted as a
consultant to Lockheed Martin Mission Systems during its development of the
Global Transportation Network (GTN) for the Air Force. Mr. McCormack prior
responsibilities have included the design, development and integration of
mission critical systems for the Army, Navy and Air Force. Mr. McCormack has a
U.S. Government Top Secret clearance.
Michael O'Connell, M.D., has been the Chief Medical Officer of I-trax
since February 2001 and of Health Management since November 1999. In this role,
he oversees the content of numerous I-trax software applications and population
health management programs. He is responsible for intellectual content and
successful compliance with current Center for Disease Control and other national
immunization guidelines. Dr. O'Connell has served as the Assistant Chief of the
Allergy-Immunology Department at Walter Reed Army Medical Center and as a
Co-Consultant to the Army Surgeon General for Allergy & Immunizations since May
1997. Dr. O'Connell has served as a United States Army Medical Officer since
1985.
Yuri Rozenfeld has been the General Counsel of I-trax since July 2000 and
Secretary of I-trax since March 2002. From July 2000 to March 2002, Mr.
Rozenfeld served as the General Counsel and Assistant Secretary of I-trax and of
Health Management. From April 1997 to July 2000, Mr. Rozenfeld was an associate
in the Business and Finance Group at Ballard Spahr Andrews & Ingersoll, LLP,
where he represented small- and mid-cap public companies and venture capital
funds in a broad range of corporate matters, including stock and asset
acquisitions, mergers, venture capital investments, venture fund formations,
partnership and limited liability company matters and securities law matters.
From 1995 to April 1997, Mr. Rozenfeld was an associate specializing in product
liability litigation with Riker, Danzig, Scherer, Hyland & Perretti LLP.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of April 2, 2002, the number of shares and
percentage of our common stock beneficially owned by:
o our Chief Executive Officer, four other most highly compensated
executive officers based on compensation earned during 2001 and one
former executive officer;
o each director;
o all directors and executive officers as a group; and
o each person who is known to us to own beneficially 5% or more of our
outstanding common stock.
Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire the shares (for example, upon exercise of an option or warrant) within
sixty (60) days of April 2, 2002, the date as of which the information is
provided. In computing the percentage ownership of any person, the amount of
shares is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of such acquisition rights. As a result,
the percentage of outstanding shares of any person as shown in the following
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table does not necessarily reflect the person's actual voting power at any
particular date.
To our knowledge, except as indicated in the footnotes to this table and
under applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of our common stock
shown as beneficially owned by them.
Shares of Options and
Common Stock Warrants
Beneficially Exercisable Percent of
Named Executive Officers and Directors* Owned Within 60 Days Total Class
------------------------------------------ ------------ -------------- ------------- ------------
Frank A. Martin (1) 5,578,050 1,312,808 6,890,858 14.5
John Blazek (2) 4,925,071 -- 4,925,071 10.6
Hans C. Kastensmith 2,921,178 231,615 3,152,793 6.8
David R. Bock (1) 2,833,408 -- 2,833,408 6.1
Gary Reiss 687,308 1,924,203 2,611,511 5.4
Carol Rehtmeyer (3) 1,676,620 280,000 1,956,620 4.2
David C. McCormack 782,680 471,899 1,254,579 2.7
Yuri Rozenfeld (4) 82,902 413,270 496,172 1.1
Anthony Tomaro 30,684 368,671 399,355 **
Philip D. Green (5) 6,000 305,000 311,000 **
John R. Palumbo 25,000 175,000 200,000 **
Michael M.E. Johns, M.D. -- 150,000 150,000 **
William S. Wheeler 50,000 68,750 118,750 **
Craig Jones, M.D. 130,000 -- 130,000 **
Arthur N. Leibowitz, M.D. -- -- -- --
All executive officers and directors as a 17,495,493 5,850,797 23,346,290 44.7
group (16 persons)
Warrants and
Shares of Convertible
Common Stock Securities
Beneficially Exercisable Percent of
5% Stockholders Owned Within 60 Days Total Class
------------------------------------------ ------------ -------------- ------------- ------------
Nantucket Healthcare Ventures I, L.P. (1) 2,333,408 -- 2,333,408 5.0
Woodglen Group, L.P. (6) 3,155,540 1,125,000 4,280,540 9.0
Palladin Opportunity Fund, LLC (7) -- 3,538,461 3,538,461 7.3
* Named executive officers and directors can be reached at I-trax, Inc., One
Logan Square, Suite 2615, 130 N. 18th Street, Philadelphia, Pennsylvania
19103.
** Less than 1% of the outstanding shares of Common Stock.
(1) The Nantucket Group, LLC is the general partner of Nantucket Healthcare
Ventures I, L.P. ("Ventures"). The Nantucket Group has sole voting and
sole dispositive power with respect to the shares held by Ventures.
Messrs. Martin and Bock are members and Managing Directors of The
Nantucket Group. Therefore, Messrs. Martin and Bock may be deemed to have
beneficial ownership of the shares held by Ventures. Messrs. Martin and
Bock disclaim beneficial ownership of the shares held by Ventures, except
to the extent of their respective pecuniary interest in Ventures. Messrs.
Martin and Bock own directly 3,244,642 and 500,000 shares, respectively.
The address for Ventures is c/o The Nantucket Group, LLC, One Logan
Square, Suite 2615, 130 N. 18th Street, Philadelphia, Pennsylvania 19103.
(2) Includes 661,972 shares held in escrow for the benefit of Mr. Blazek.
(3) Includes 225,352 shares held in escrow for the benefit of Ms. Rehtmeyer.
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(4) Mr. Rozenfeld is a partner of The Spartan Group Limited Partnership
("Spartan"), an owner of 30,000 shares. Mr. Rozenfeld has shared voting
and shared dispositive power with respect to the shares held by Spartan.
Mr. Rozenfeld may be deemed to have beneficial ownership of the shares
held by Spartan. Mr. Rozenfeld disclaims beneficial ownership of the
shares held by Spartan, except to the extent of his pecuniary interest in
Spartan. Mr. Rozenfeld owns 52,902 directly.
(5) Mr. Green is an affiliate of Health Industry Investments, LLC, a holder of
130,000 options exercisable as of June 1, 2002.
(6) Woodglen Associates, LLC is the general partner of Woodglen Group, L.P.,
and, as such, has sole voting and sole dispositive power with respect to
the shares it holds. Its address is 101 East Street Road, Kennett Square,
Pennsylvania 19348.
(7) Palladin Asset Management, L.L.C. ("PAM") is the managing member of
Palladin Opportunity Fund, LLC ("POF"). Palladin Capital Management, LLC
("PCM"), is the sole general partner of The Palladin Group, L.P.
("Palladin"). Palladin is the investment advisor of POF. PAM and PCM have
shared voting and shared dispositive power with respect to the shares held
by POF. Because its beneficial ownership arises solely from its status as
the investment advisor of POF, Palladin expressly disclaims equitable
ownership of and pecuniary interest in any shares. POF may not convert its
debentures or exercise its warrants for shares of common stock in excess
of that number of shares of common stock that, upon giving effect to such
conversion or exercise, would cause the aggregate number of shares of
common stock beneficially owned by POF and its affiliates to exceed 9.99%
of the outstanding shares of the common stock following such conversion or
exercise; therefore, POF disclaims beneficial ownership of any shares of
common stock in excess of such amount. The business address of POF is c/o
The Palladin Group, 195 Maplewood Avenue, Maplewood, New Jersey 07040.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of I-trax is 102,000,000 shares, of which
100,000,000 shares are designated as common stock, par value $.001 per share,
and of which 2,000,000 shares are designated as preferred stock, par value $.001
per share.
Common Stock
I-trax stockholders are entitled to one vote for each share held of record
on all matters submitted to a vote of I-trax stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably any dividends as may be declared
by I-trax's Board of Directors out of funds legally available for dividends. In
the event of a liquidation, dissolution or winding up of I-trax, I-trax
stockholders are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of
preferred stock. Holders of common stock have no preemptive rights.
Preferred Stock
I-trax's preferred stock is issuable in series upon resolution of its
Board of Directors. The Board of Directors is authorized to establish the
relative terms, rights and other provisions of any series of preferred stock. No
preferred stock is outstanding, and I-trax's Board of Directors has no current
intention of issuing any preferred stock. However, unless otherwise required by
law in a particular circumstance, the Board of Directors can, without
stockholder approval, issue preferred stock in the future with voting and
conversion rights which could adversely affect the voting power of the common
stock. The issuance of preferred stock could be expected to, and may have the
effect of, delaying, averting or preventing a change in control of I-trax.
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I-trax's Certificate of Incorporation provides that directors of I-trax
will not be personally liable to I-trax or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to I-trax or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the Delaware General
Corporation Law relating to prohibited dividends, distributions and repurchases
or redemptions of stock or (d) for any transaction from which the director
derives an improper personal benefit. However, such limitation on liability
would not generally apply to violations of the Federal securities laws, nor does
it limit the availability of non-monetary relief in any action or proceeding.
Dividend Policy
We have not paid any dividends on our common stock since our inception and
do not intend to pay dividends on our common stock in the foreseeable future.
Any earnings that we may realize in the foreseeable future will be retained to
finance the growth of I-trax.
Transfer Agent
The transfer agent for our common stock is StockTrans, Inc., Ardmore,
Pennsylvania.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Section 145(a) of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides that a
Delaware corporation may also indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine that, despite
such adjudication of liability, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 of the Delaware General Corporation Law further provides that
to the extent a director or officer of a Delaware corporation has been
successful in the defense of any action, suit or proceeding referred to in
subsections (a) or (b) of Section 145 or in the defense of any claim, issue or
matter therein, he shall be indemnified against any expenses actually and
reasonably incurred by him in connection therewith; that the indemnification
provided for by Section 145 shall not be deemed exclusive of any rights to which
the indemnified party may be entitled and the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the Delaware General Corporation Law permits a
Delaware corporation to include a provision in its Certificate of Incorporation,
and I-trax's Certificate of Incorporation contains such a provision, to the
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effect that, subject to certain exceptions, a director of a Delaware corporation
is not personally liable to the corporation or its stockholders for monetary
damages for a breach of his fiduciary duty as a director.
I-trax's By-laws also provide that I-trax shall indemnify its directors
and officers and, to the extent permitted by the Board of Directors, I-trax's
employees and agents, to the full extent permitted by and in the manner
permissible under the laws of the State of Delaware. In addition, I-trax's
By-laws permit the Board of Directors to authorize I-trax to purchase and
maintain insurance against any liability asserted against any of I-trax's
directors, officers, employees or agents arising out of their capacity as such.
I-trax has purchased this insurance.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
I-trax pursuant to the foregoing provisions, we have been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore unenforceable.
BUSINESS
Overview
I-trax, Inc. has historically developed enterprise and client server
applications for collecting disease specific data at the point-of-care for
several large hospitals and medical centers. In 2001, we expanded our product
lines by developing additional software applications, adding services and
completing several strategic acquisitions. We now offers total population health
management solutions. Our mission is to combine real time Internet-based
software technology and targeted personal interventions by healthcare
professionals to improve the quality of care, increase patient satisfaction,
improve clinical outcomes, reduce practice variances, improve operating
efficiencies and lower medical costs.
Our products range from stand-alone software applications to total health
management solutions. We believe that our software applications and total
healthcare management solutions enable true coordination of care through
utilization of shared records by all caregivers--specialists, primary care,
critical care, nursing staff, diagnostic providers, pharmacy and, most
importantly, patients. This is made possible by our flexible disease management
engine and database architecture. We believe that our software is the key
ingredient in effective population health management because we deliver the
right information to the right person at the right time.
Our stand-alone software applications assist physicians, patients and the
entire healthcare community in assessing, preventing and managing all stages of
disease and wellness. Currently, our stand-alone software applications include
four clinical applications: AsthmaWatch(R), an asthma tracking tool,
Health-e-Coordinator(TM), a disease management tool, C-trax(TM), a
cardiovascular point-of-care tool, and eImmune(TM), an immunization management
system; and two web portals: MyFamilyMD(TM) for consumers and CarePrime(TM) for
physicians. We license our software applications as client-managed integrated
applications or as an application service provider from our secure web hosting
facility.
Our population health management solutions assist public health agencies,
hospitals, health plans, self-insured employers, and colleges and universities
to manage the healthcare of their populations as outsourced services through
I-trax. We deliver these service solutions by integrating
Health-e-Coordinator(TM) disease management tool, our web portals Care Prime(TM)
and MyFamilyMD(TM) and our patient contact center staffed by skilled nurses and
other healthcare professionals 24 hours per day, 7 days per week. Our service
solutions are flexible. Without significant modifications to our software
applications, our solutions currently serve the diverse needs of university and
college student health centers, indigent care coordination programs and disease
management programs for acutely ill patient with co-morbidities.
Our approach to the delivery of healthcare services is multi-disciplinary
and promotes wellness, proactively identifies individuals at risk for or with a
disease and empowers such individuals to become an integral part of their
healthcare team. We believe that this approach supports the individual-physician
relationship, emphasizes the importance of prevention of complications by
utilizing evidence based practice guidelines and continuously evaluates
clinical, behavioral and economic outcomes with the goal of improving health. We
believe that we have particularly strong expertise in managing the care for
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individuals suffering from asthma, coronary artery disease, diabetes, heart
failure, lower back pain and hypertension.
All of our software applications and health management solutions are built
on a common platform--Medicive(R) Medical Enterprise Data System--our
proprietary, intelligent software architecture. Medicive(R) is a proprietary
system developed to collect, store, retrieve and analyze a broad range of
information used in the healthcare industry. Medicive(R) is capable of handling
all data necessary to operate one or many medical treatment facilities. We
believe that this software architecture provides the platform for development of
many additional healthcare applications. Medicive(R) facilitates the real time
delivery of the right information to the right person at the right time. The
Company has not capitalized any software development costs. Commencing with the
first quarter of 2002, the Company expects to start capitalizing some of its
software development costs based on the expected completion of working models
for several of its software products.
We have identified three groups of users for our software applications and
health management solutions: (1) Federal and state governments and
quasi-governmental institutions; (2) managed care organizations, such as health
plans, self-insured employers and insurers; and (3) colleges and universities.
We are focusing our marketing and sales resources on these groups.
Corporate History
I-trax, Inc.
I-trax was incorporated in the State of Delaware on September 15, 2000 at
the direction of the Board of Directors of Health Management, I-trax's then
parent company. On February 5, 2001, I-trax became the holding company of Health
Management at the closing of a reorganization pursuant to Section 251(g) of
Delaware General Corporation Law. The holding company reorganization was
described in greater detail in I-trax's registration statement on Form S-4
(Registration Number 333-48862). At the effective time of the reorganization,
all of the stockholders of Health Management became the stockholders of I-trax
and Health Management became a wholly owned subsidiary of I-trax. Further, all
outstanding shares of Health Management were converted into shares of I-trax in
a non-taxable transaction. Health Management no longer files reports with the
Securities and Exchange Commission, and the price for its common stock is no
longer quoted on the Over-the-Counter Bulletin Board. However, I-trax does file
reports with the Securities and Exchange Commission, and the price for its
Common Stock is quoted on the Over-the-Counter Bulletin Board under the symbol
"IMTX." The shares of the Company are represented by the same stock certificates
that represented shares of Health Management prior to the holding company
reorganization.
The holding company structure has allowed us greater flexibility in our
operations and expansion and diversification plans, including in the acquisition
of iSummit Partners, LLC, doing business as "MyFamilyMD" ("iSummit"), on
February 7, 2001 and WellComm Group, Inc., an Illinois corporation ("WellComm"),
on February 6, 2002.
I-trax acquired iSummit effective as of February 7, 2001 in an exchange
transaction pursuant to a Contribution and Exchange Agreement dated as of
September 22, 2000, as amended. In the contribution and exchange, the Company
issued a total of 4,222,500 shares of its Common Stock to the owners of iSummit
and the owners contributed to the Company all of the issued and outstanding
ownership interests in iSummit. At closing, of the total 4,222,500 shares I-trax
agreed to issue, 2,086,250 shares were delivered to the owners of iSummit and
2,136,250 shares were deposited with an escrow agent. Effective as of December
31, 2001, a total of 1,289,184 shares held in escrow were returned to the
Company and cancelled. Accordingly, the aggregate number of shares issued by
I-trax to acquire iSummit has been reduced to 2,933,316 shares. This number may
be further reduced by an additional 50,000 shares, as negotiations regarding
such a further reduction are ongoing.
I-trax Health Management Solutions, Inc.
Health Management is a predecessor to I-trax. It was incorporated in the
State of Delaware under the name of Marmac Corporation in May 1969. In December
1979, it changed its name to Ibex Industries International, Inc. On April 1,
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1996, Health Management purchased the assets of certain physician practices,
changed its name to U.S. Medical Alliance, Inc., and commenced operations as a
physician practice management company.
As U.S. Medical Alliance, Health Management completed one additional
physician practice acquisition. However, it did not have adequate liquidity or
capital resources to withstand the downturn in the physician practice management
industry, nor the ability to acquire profitable physician practices. In January
1997, the Board of Directors, in an effort to reorganize Health Management,
elected Frank A. Martin as its President. Mr. Martin negotiated the return of
the previously acquired physician practice assets to the physicians in exchange
for the cancellation of any Health Management capital stock or notes associated
with those acquisitions. Health Management changed its name to I-Trax.com, Inc.
on August 27, 1999.
On September 3, 1999, Health Management entered into a Software and
Proprietary Product Corporate License Agreement with Member-Link Systems, Inc.,
a health information technology company. The license agreement gave Health
Management the exclusive right to use certain software in an immunization
tracking system (which we now call eImmune(TM)), and to develop an application
allowing public and private health systems, among others, to track immunizations
over the Internet. Concurrently with entering into the license agreement, the
parties also entered into a technical services agreement, related to the
technology licensed pursuant to the license agreement, and a management services
agreement, related to the management and implementation of our business plan. As
consideration for these agreements, Health Management issued 3,000,000 shares of
Health Management common stock to Member-Link and 2,000,000 shares of Health
Management common stock to certain executive officers of Member-Link.
Effective as of December 30, 1999, Member-Link merged with and into Health
Management pursuant to a Merger Agreement dated as of December 14, 1999. In the
merger, Health Management issued an aggregate of 7,771,841 shares (as adjusted)
of its common stock. The 3,000,000 shares of Health Management common stock held
of record by Member-Link at the time of the merger were cancelled. Also, each of
the license agreement, the technical services agreement and management services
agreement were canceled.
On February 7, 2001, Health Management and I-trax completed the previously
described holding company reorganization. Health Management assumed its current
name on March 21, 2001.
WellComm Acquisition
On February 6, 2002, I-trax acquired WellComm. WellComm is a healthcare
services company that offers a broad array of expertise including a nurse
contact center specializing in disease management, triage, health information
survey, and research services for the healthcare industry.
The WellComm acquisition was a two-step reorganization pursuant to a
Merger Agreement dated as of January 28, 2002 by and among I-trax, WC
Acquisition, Inc. ("Acquisition"), an Illinois corporation and a wholly-owned
subsidiary of I-trax, WellComm, John Blazek and Carol Rehtmeyer. The initial
step of the reorganization transaction involved a merger of Acquisition with and
into WellComm, in which merger WellComm continued as the surviving corporation.
The second step of the reorganization transaction involved a statutory merger of
WellComm with and into I-trax, in which merger I-trax continued as the surviving
corporation.
At the closing of this merger, we delivered to the WellComm stockholders
$2,000,000 in cash and 7,440,000 shares of our common stock and to each of Ms.
Rehtmeyer and Jane Ludwig, both senior officers of WellComm prior to this
merger, options to acquire 280,000 shares of our common stock at an exercise
price of $0.001 per share. We also agreed to deliver to the WellComm
stockholders additional contingent merger consideration either in cash or, at
the election of John Blazek as a representative of the WellComm stockholders, in
shares of our common stock. The additional contingent merger consideration will
be equal to 10% of revenues that may be generated by sales of new services to an
existing WellComm client during a 12-month period beginning on the date such new
services begin to be delivered. Such new services, however, must commence by
February 5, 2003, but have not been commenced as of March 25, 2002. If the
additional contingent merger consideration is paid in common stock, the shares
will valued at the lesser of $1.23 per share and the average of the closing
price of our common tock for twenty 20 consecutive trading days ending on the
day prior to the day a contingent merger consideration payment is due.
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After the merger, each of Mr. Blazek and Ms. Rehtmeyer joined us as a
Managing Director and Ms. Ludwig joined us as a Vice President pursuant to
employment agreements with Health Management. In addition, Mr. Blazek and Ms.
Rehtmeyer were elected to our Board of Directors.
We granted to the WellComm stockholders the following registration rights
under the Securities Act of 1933, as amended, with respect to the shares of our
common stock issued in the merger: (a) two demand registration rights
exercisable after February 5, 2005; and (b) unlimited "piggy back" registration
rights (subject to underwriter cut back) in the event we registers our common
stock for our own account.
We funded the acquisition of WellComm by selling a 6% convertible senior
debenture in the aggregate principal amount of $2,000,000 (the "Debenture") to
Palladin Opportunity Fund LLC ("Palladin") pursuant to a Purchase Agreement
dated as of February 4, 2002 between us and Palladin. Pursuant to the purchase
agreement, we also issued Palladin a warrant to purchase an aggregate of up to
1,538,461 shares of our common stock at an exercise price of $1.10 per share
(the "Warrant"). The outstanding principal and any interest under the Debenture
are payable in full on or before February 3, 2004. Further, outstanding
principal and any interest may be converted at any time at the election of
Palladin into our common stock at an initial conversion price of $1.00 per
share. The initial conversion price is subject to "reset" as of the dates that
are 12 months and 18 months after the issue date (each such date, a "Reset
Date"). With respect to each Reset Date, the conversion price will only be
reduced if the closing bid price for our common stock, averaged during a period
of 20 consecutive trading days ending on the date that immediately precedes the
applicable Reset Date, is less than the then applicable conversion price, in
which case, the reset conversion price is equal to such average.
Pursuant to the Purchase Agreement, Palladin also received an option to
purchase an additional 6% convertible senior debenture in the face amount of $1
million and received an additional warrant to purchase an aggregate of up to
769,230 shares of our common stock. If issued, the terms of the optional
debenture and warrant will be substantially similar to those of the Debenture
and the Warrant. Finally, pursuant to a related registration rights agreement,
we agreed to register all of the shares of common stock underlying the Debenture
and the Warrant on a registration statement on Form SB-2 or, if I-trax is then
eligible, on a registration statement on Form S-3.
Our Products and Services - Technology Solutions
Our software applications are both enterprise network and web-enabled.
They provide a secure and confidential repository of clinical health information
for public health agencies, private health organizations, health care providers,
and the public at large. Our applications provide a platform for collecting
certain disease-specific data at the point-of-care and offer a secure and
confidential repository of clinical health information, which is fully
accessible with proper authorization by any branch of the health care community.
More specifically, our software applications can enable every individual or
entity, such as the family physician, the specialist, the school nurse, the
emergency room nurse or the pharmacist, who may be called upon to administer
care to an individual, or the individual, with proper authorization, to enter
data into or view such individual's medical records. As further described in
Management's Discussion and Analysis, the Company did not generate significant
sales of these products in 2001.
Although each of our software applications is designed to manage a
particular disease or clinical situation, all of our applications integrate with
one another. Further, all of our software applications are built on a common
platform--Medicive(R) Medical Enterprise Data System--our proprietary,
intelligent software architecture.
Medicive(R) Medical Enterprise Data System
The Medicive(R) Medical Enterprise Data System is a proprietary software
architecture developed to collect, store, retrieve and analyze a broad range of
information used in the healthcare industry. This architecture was created from
the Functional Area of Management for Data and Activity data model (FAM-D and
FAM-A), originally designed under U.S. Government contract.
Medicive(R) is capable of handling all data necessary to operate one or
many medical treatment facilities. It is also designed to receive information
for both the most complex and the simplest tasks encountered in a medical
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setting. It currently accommodates over 1,000 standard data elements containing
in excess of 4,000 data sub-elements. We believe that this software architecture
provides the platform for development of many additional healthcare
applications. A key feature of Medicive(R) is its open architecture, which
permits it to accept new data elements, and is an important feature for an
industry experiencing rapid advances in clinical and laboratory research, as
well as changes in treatment protocols.
The flexibility of Medicive(R) Medical Enterprise Data System's
construction is due primarily to the effort that went into its architecture
design. Medicive(R) has been structured to capture information about the general
health care process or activity and then to narrow the health care process or
activity to the most specific level. Thus, the architecture permits new data to
be added to the database because in the predominate majority of instances new
data elements are extensions of data already addressed in the database. We
believe that Medicive(R) Medical Enterprise Data System's flexibility in easily
accommodating new health care processes or activities gives us an advantage over
competitors which may need to spend far more time to modify their systems to
accommodate new healthcare processes or activities. The Medicive(R) Medical
Enterprise Data System contains and organizes several industry standard medical
data elements and is capable of producing ICD9 diagnosis codes, CPT procedure
codes, SNOMED, or Medcin coded medical data. These codes are commonly used in
the medical profession to identify specific disease states.
Medicive(R)'s schema is completely platform independent. Deployed systems
have utilized Microsoft SQL Server 7.0. However, I-trax can create execution
files to put Medicive(R) on any SQL platform available today, including,
Oracle(R) 8i, Sybase(R) Adaptive Server, or IBM(R) DB2.
eImmune(TM)
eImmune(TM) is the first product we designed and built. It is a
comprehensive immunization software product for processing, recording and
tracking all immunizations and related adverse events. The application was
developed in conjunction with Walter Reed Army Medical Center, Allergy and
Immunology Department, in Washington, DC to maintain all military immunizations
at that site. First installed at Walter Reed Medical Center in January 1998, it
now handles medical records for over 2.5 million individuals, with over 2
million immunization entries. The Intranet and Internet enabled version of
eImmune(TM) was released in August 2001 and has been updated regularly since
then to add functionality. eImmune(TM) is designed for use by state registries,
physician networks, managed care plans, school nurses and individual physicians.
Further, public health agencies and private health organizations can use
eImmune(TM) to create secure online immunization records that can be accessed
over the Internet by parents, schools, primary care physicians, and other health
providers. Finally, we believe that eImmune(TM) can also serve as a foundation
for a bio-terrorism surveillance system as states begin to improve their
healthcare applications.
eImmune(TM) supports information flow required during the patient
encounter and facilitates many aspects of the immunization process. eImmune(TM):
o retrieves and records vital patient information such as medical
history, medication history and allergies;
o orders vaccines, tracks administration of vaccines, generates
vaccination schedules and records adverse events;
o allows for quick reminders and recall of patients who are behind on
vaccinations;
o captures standardized data that can be later used to generate
outcome studies;
o generates a record of all immunizations, makes those records
permanently available and thereby avoids lost records and consequent
re-immunizations; and
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o orders, records and tracks testing for Tuberculosis (PPD testing),
including results and related reporting for Occupational Health to
comply with Occupational Safety and Health Administration
regulations.
AsthmaWatch(R)
AsthmaWatch(R) asthma and respiratory disease management system is the
second application we designed and built. AsthmaWatch(R) was developed in
conjunction with the University of Southern California Los Angeles County
Medical Center and the Asthma and Allergy Foundation of America and is based on
National Institute of Health guidelines. AsthmaWatch(R) is an information system
developed to support community based asthma intervention programs. This
information system models the flow of the health process so data is entered at
time of the encounter, at point-of-care. AsthmaWatch(R):
o captures complete medical and asthma history, including current and
past medical conditions, medications and diagnostic results;
o tracks disease related morbidity, asthma and allergy triggers, lung
function testing and the relationship between health status and
changes in therapy over time;
o supports comprehensive staff assessments, including documentation of
vital signs, medication, materials and device training and
environmental assessment;
o generates printed and electronic forms, including prescriptions,
diagnostic tests, encounter reports, multi-lingual asthma action
plans and patient education guidelines;
o captures a comprehensive provider assessment which includes asthma
activity, asthma severity, and upper airway disease assessment;
records results of general medical exam and ICD9 and CPT coding; and
orders skin tests and medications; and
o automates development of personalized care plans and pharmaceutical
plans.
This application facilitates team asthma care management by permitting
specialists, nurses, care managers, acute and primary care providers and
pharmacists up-to-the-minute access to disease and patient information. Because
our software permits real-time access to each patient's complete history by
logging into AsthmaWatch(R), none of the participants in the asthma care
delivery process makes a decision in a vacuum. AsthmaWatch(R) delivers to all
participating providers all data necessary to make the best patient care
decision in real-time. Furthermore, AsthmaWatch(R) is designed to match the
protocol expected to be followed by the applicable provider, thus preventing
skipped steps.
C-trax(TM)
C-trax(TM) is a comprehensive client server software application designed
to manage delivery of cardiovascular care and all related information at the
point-of-care. C-trax(TM) was developed in conjunction with Walter Reed Army
Medical Center. C-trax(TM) supports numerous clinical functions within a
cardiology practice, which enables efficient collection and accurate
reproduction of information and results in significant savings of time and
clinical and administrative resources. The system can meet the needs of large
and small hospitals as well as individual cardiology practices. C-trax(TM):
o supports and properly documents patient encounters, diagnostic
tests, patient-flow through the clinic, pharmacological therapy
plans, exam orders, and lab results reviews;
o provides the cardiologist with the ability to access digital
imaging, echocardiography tests, electrophysiologic studies, and
nuclear lab tests;
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o completes charts and notes, generates repots, including longitudinal
data graphing, and facilitates analysis of outcomes data; and
o documents risk for cardiac disease using a risk assessment tool
based on the Framingham study.
MyFamilyMD(TM)
MyFamilyMD(TM) is a web-based software application that allows individuals
to chronicle their daily health progress, medications, allergies, exercise and
health goals and communicate with their physician or other health care provider
via secure, private messaging. MyFamilyMD(TM)'s health assessment tools, called
MedWizards(R), allow users to determine their level of risk for various health
conditions and provide users with guidelines on early risk prevention.
MyFamilyMD(TM) empowers users to monitor and control their health by reviewing
trends in their healthcare regimen by using dynamic and easy-to-use graphs and
reports. MyFamilyMD(TM):
o provides each user a secure personal home page, inbox and personal
health profile to record health interests, medical conditions,
symptoms, medications, diet and exercise habits, immunizations and
other health related issues;
o helps users, utilizing interactive MedWizards(R), to monitor every
area of users' health, including blood glucose, insulin dosing,
blood pressure, weight, height, pulse, peak flow, lab values and
other variables; users can design customized journals or daily
diaries to keep track of symptoms and other healthcare issues;
o supports secure messaging between users, I-trax's clinical staff
and, if desired, the users' physicians or other care providers;
o delivers to users daily personalized content about their medical
concerns and health interests, alerts about medication and consumer
product recalls and notifications and reminders about upcoming
appointments, refills, prevention and screening tests; and
o automatically completes health forms, including state mandated
immunization forms.
CarePrime(TM)
CarePrime(TM) is a web-based software application that allows physicians
and their staff to enhance relationships with, and improve the care of, their
patients. CarePrime(TM) permits secure messaging between the physicians and
their staff and patients, facilitates on-line appointment requests and
referrals. In addition, CarePrime(TM) promotes informed and therefore better
management of health activities by enabling providers, with patient
authorization, to access patient's MyFamilyMD(TM) personal health profile and
health tracking tools and streamline office procedures with automated forms and
notifications. CarePrime(TM) and MyFamilyMD(TM) promote a partnership between
patients and physicians. CarePrime(TM):
o permits physicians and their staff to send patients secure
individualized messages, group notices, messages and alerts and
custom automated notifications, such as exam reminders, at specific
times based on patient demographics, medical condition, or health
concerns;
o allows physicians and their staff to view and edit the patient's
personal health profile and MedWizard(R) generated health assessment
results, with the information entered by the patient and the
physician easily distinguishable;
o accepts electronic information contained on health forms and
immunization records completed by patients using MyFamilyMD(TM),
and, after physician's verification, adds such information to the
patients' electronic medical record;
o tracks vaccine dosing schedules and generates reports when patients
are not compliant; and
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o tracks and reports easy-to-use vaccine recalls, adverse reactions
and practice compliance.
Health-e-Coordinator(TM)
Health-e-Coordinator(TM) is a web-based software application designed to
support the disease management process including referral, enrollment,
assessment, documentation and care coordination, according to current published
clinical guidelines. At this time, Health-e-Coordinator(TM) supports congestive
heart failure ("CHF") and diabetes disease states. The application facilitates
the recording of medications, immunizations, problem lists, diet and exercise
histories, and disease-specific parameters, such as weight, New York Heart class
(a common parameter for evaluating the patient's functional status), ejection
fraction (a measurement of heart function), blood pressure, hemoglobin A1c (a
blood test that reflects control of blood glucose levels), and lipid panel,
during patient assessments. The recorded information can be viewed from a
variety of screens. In addition, the application's patient snapshots and flow
sheets allow users a quick look at the patient profile over time.
Health-e-Coordinator(TM) serves as an over-arching application to view and
manage all information that resides in our Medicive(R) Medical Enterprise Data
System, irrespective of which of our other software applications was used to
store the information. For example, one I-trax client uses a combination of
Health-e-Coordinator(TM) and C-trax(TM) to manage CHF patients in a clinic
setting to standardize the health assessment process, maximize data collection
for outcomes reporting and optimal patient care.
Health-e-Coordinator(TM) enables disease management by providing
caregivers with assessment questions, printable education material, and
recommendations for interventions to prevent morbidity and improve outcomes for
patients with chronic illnesses such as CHF and diabetes.
Health-e-Coordinator(TM) also supports workflow by incorporating a schedule task
list to alert users to activities that are due for a given patient population
based on the care plan for that disease management program. A client can
customize activities such as follow up visits and educational interventions. The
Resource Library included in Health-e-Coordinator is specific to each disease
and can also be customized by each client. It provides clients with live links
to on-line resources such as national guidelines, professional education, and
consumer education. Health-e-Coordinator(TM):
o allows the system to be tailored to the needs of individual
healthcare systems, accepting customized protocols for referrals and
supporting disease management programs for chronic illness such as
asthma, cardiovascular care and eventually diabetes; and
o when combined with the MyFamilyMD(TM), helps healthcare
professionals to identify and assess health risks and if necessary
enroll patients into health management program(s), thus providing
for them the ability to observe the patient's progress and
development.
Our Products and Services -- Service Solutions
Health-e-Life Program--Disease and Population Health Management Programs
I-trax's health management solutions are total solutions. Through our
Health-e-Life Program, we can:
o using our existing software applications and data interfaces with
third party applications, collect and aggregate raw healthcare data
of a defined population, including hospital, emergency department,
outpatient, pharmacy and similar data, into single data
platform--Medicive(R) Medical Enterprise Data System;
o analyze aggregated data using proprietary and licensed electronic
modeling tools, and stratify the defined population into categories
based on risk of certain health related conditions;
o allow individuals using MyFamilyMD(TM), primary care physicians and
their staff using CarePrime(TM) and specialists using our specialist
applications including AsthmaWatch(R), C-trax(TM) and eImmune(TM),
to access the aggregated data, supplement that data with current
information, which may include current results, emerging health
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conditions and results self risk assessments and other data
collected by our MedWizards(R);
o allow individuals using MyFamilyMD(TM) and primary care physicians
and their staff using CarePrime(TM) to implement individual care
initiatives using secure messaging and population health management
using automatic group alerts and notifications;
o allow individuals using MyFamilyMD(TM)to request prescription
refills and make medical appointments;
o allow I-trax's care management professionals, based on nationally
recognized disease management protocols, to coordinate the care of
any subgroup of a defined population utilizing
Health-e-Coordinator(TM), telephonic interventions, audiofax, mail
and other outreach programs, which may include health education
about disease recognition and disease progression, with specific
emphasis on asthma, coronary artery disease, diabetes, heart
failure, low back pain and hypertension;
o allow members of the defined population access to I-trax's care
management professionals 24 hours per day, 7 days per week;
o provide triage service; and
o integrate our program with electronic home monitoring devices and
home visits as needed.
We tailor our program to serve various segments of the healthcare
community, including public health agencies, hospitals, health plans,
self-insured employers and colleges and universities. We can scale our
applications and operations to serve a broad range of needs.
Student Health Solutions
I-trax has adapted a combination of MyFamilyMD(TM) and CarePrime(TM)
software applications to serve America's colleges and universities. The
combination of the two products provides a powerful and valuable means for
student health centers to execute their missions of education and outreach,
prevention, and care management for their students. Our student health solutions
provide a mechanism to streamline data management at student enrollment, improve
communications between the health centers and students after they are enrolled,
aggregate health information seamlessly and provide a secure, confidential and
open communication channel between student health centers and students about
their health. Our student health applications:
o permit students to complete required immunization records and
medical history forms online, replacing manual distribution of
forms, handling their return, and manually inputting the data;
o provide private, secure electronic communication for all student
health services including online appointment requests and
prescription refill requests;
o automate routine student health service tasks, including
intercollegiate athletic physical and re-certification forms,
initial and annual women's health visit information requirements,
routine pre-visit forms or related information requirements,
o provide students with a home health web page with personal health
record;
o deliver news, articles, and health/wellness education based on
demographic and health profile criteria, using students preferred
mode of communication;
o provide students online health risk assessments based on the
American College Health Association- National College Health
Assessment, Center for Disease Control-National College Health Risk
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Behavior Survey and, if necessary, the institutions specific needs,
with aggregated outcomes reported to the student health services;
and
o if agreed upon, provide access to our other population health
management solutions and software applications.
Our Market and Business Strategy
We believe that the market for our population health management solutions
is large and continues to grow. The Disease Management Purchasing Consortium &
Advisory Council ("DMC2") estimates that in 1997, the disease management
industry generated $77 million in contracted fees. DMC2 also estimates that in
2001, those contracted fees grew to $480 million. As the costs of medical care
continue to grow and medical errors increase, there is a growing recognition
throughout the healthcare community of the need for targeted, coordinated, and
effective healthcare management solutions. Because our solution is scalable and
can be tailored to fit into most healthcare organizations, we feel we have a
competitive advantage. We have identified, and are targeting, the following
segments of the healthcare industry as purchasers of our solutions:
o Self-Insured Employers. As the ultimate payor for health related
costs, self-insured employers have a significant stake in making
sure that employees and their dependents are empowered with tools to
make the best and most educated healthcare decisions. We believe
that correct and informed decisions will not only reduce direct
healthcare costs, but also reduce employee absenteeism and improve
employee's focus at work. Where employees are older or retired and
at risk for chronic diseases, the ability to do early risk
identification and targeted interventions will not only help reduce
costs, but improve quality of life as well.
o Military and Government. eImmune(TM) is the first application we
designed and built. It now serves as a repository of immunization
records for 2 million individuals. With recent increased funding to
state health programs, this application is now very expandable.
o Public Health Agencies. Public health agencies are charged with
coordinating care to a significant portion of America's uninsured
population. Our care coordination tools and disease management
programs are well suited to benefit this segment of the healthcare
market. Furthermore, eImmune(TM) and our other software applications
are ideally suited for aggregating and analyzing vast of amounts of
data required to, among other things, track immunizations and detect
trends that can provide important surveillance information in the
event of an outbreak of infectious diseases associated with
bio-terrorism.
o Health Plans and Health Insurers. We believe that the era of Health
Maintenance Organizations denying access to care as a measure to
reduce costs is over. We believe that health plans and health
insurers are under increasing pressure to revise their methods to
reduce medical errors, coordinate care and implement technology
enabled population health management solutions and disease
management programs. We believe that denial of access was a
short-term solution that is now causing escalated costs. Population
health management is a long-term solution with proven return on
investment.
o Colleges and Universities. Students are the most Internet enabled
segment of our population and America's colleges and universities
have an increasing need to communicate with their students,
streamline and automate the collection of medical histories during
the enrollment process, and improve communication between the
student and student health services in a secure, confidential
manner.
We make our services available to our clients on a periodic subscription
basis or, for certain software applications, on a subscription or for a one-time
license fee basis. Although we have historically licensed out software
applications on a one-time licenses fee basis, we believe that the subscription
sales will represent a more significant portion of our sales in the future. We
typically price self-insured employer solutions on a per covered member per
month basis. A single covered member typically includes an employee and the
employee's dependents. The actual per covered person price typically reflects
the level of services we are contracted to provide. Solutions offered to health
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plans and health insurers are priced on a per member per month basis. And
college health services products are priced with reference to the number of
enrolled students in a given semester. Finally, we seek to price products we
offer to public health agencies and military and government installations with
reference to the number of records that will be retained in the system.
Customer Service
We obtain new business, in part, based upon referrals from satisfied
customers, such as Walter Reed Army Medical Center and Los Angeles County. We
have received referrals from Walter Reed Medical Center in two primary forms.
First, the immunology department at Walter Reed has referred its own departments
to us for possible product purchase. Second, Walter Reed has provided some of
our prospective customers with positive information relating to our products and
our commitment to customer service. In addition, customers, such as Walter Reed
Army Medical Center, have returned to purchase some of our new products and
upgrades on our existing products. We attribute this success, in part, on our
high level of customer service. We intend to continue this high level of
customer service, as we believe it is a key factor for its success in this
market. Management has recently implemented a staffing plan in advance of growth
to assure that premier standards in customer service are met.
Competition
Numerous companies are operating in the disease management segment of the
larger healthcare industry. Many of these companies are larger than we are and
have greater resources, including access to capital. We believe, however, that
our total population health management solutions are unique. We also believe
that our software applications and our broad based expertise in designing and
deploying scalable, military grade software applications allow us to compete
effectively against these larger competitors. We consider the following types of
companies to compete with us in providing a similar product:
o Disease management and care enhancement companies, such as American
Healthways, Lifemasters, Matira, Allere and McKesson HBOC.
o Established providers of existing, healthcare information
technology. These firms have competencies in hospital information
systems but also offer general electronic medical records, practice
management systems, clinical data repositories, hospital information
systems, accounting systems. E.g. Cerner Corporation, Siemens,
McKesson HBOC, GE Medical Systems, Philips, IDX and Epic.
o Health-related, on-line services or websites targeted at consumers,
such as careenhance.com, drweil.com, healthcentral.com,
healthgate.com, intelihealth.com, mayoclinic.com, thriveonline.com,
webmd.com and wellmed.
o Established software and computer companies that have publicly
expressed plans to develop medical information software, such as
IBM, Oracle and Microsoft.
o Hospitals, HMOs, pharmaceutical companies, managed care
organizations, insurance companies, other healthcare providers and
payors that offer disease management solutions.
One or more of these companies could choose to expand their markets so as
to compete more directly with us. Most of them are better capitalized than we
are, and therefore such an entry into our niche would add to the competitive
pressures of our business. Nonetheless, we believe we enjoy two primary
competitive advantages. First, we have standing strategic relationships with two
early adopters of our technology: Walter Reed Army Medical Center and LA
County/USC Medical Center, two entities that have used our custom applications
since 1995 and 1996, respectively. We believe the use of our software
applications by these customers has proved that our products add value to the
delivery of healthcare to patients with specific diseases. Second, we have a
time advantage in software and database development over any new direct
competitor.
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Intellectual Property
Our proprietary software applications are protected by United States
copyright laws. We have registered the use of certain of our trade names and
service names in the United States. We also have the rights to a number of
Internet domain names, including I-trax.com and .net, MyFamilyMD.com and .net,
eImmune.com and .net, AsthmaWatch.com and .net, CarePrime.com and .net and
healthecoordinator.com. In addition, we continuing to explore potential
availability of patent protection for our business processes and innovations.
Research and Development
We conduct research and development on three levels on a continuing basis.
First, we continually study the business process in the medical community. A
pivotal part of the success of our products is understanding the exact needs of
our customers, and applying that knowledge to the graphic user interface, thus
allowing our systems to integrate into the user's workflow without disruption.
The Company was founded on this principle. We are constantly studying the
changing work environment and clinical landscape of our customers and the
industry as a whole. New disease modules, such as a diabetes-tracking module,
are under development and modifications and additional functionality will
continue to be added to currently available software applications.
Second, as a by-product of the business process study, the invention and
development of unique problem solving tools embedded in our software
applications make possible the process of entering and retrieving vast amounts
of information in short periods of time. Constant development, re-engineering
and implementation of these tools is a priority of the design and engineering
staff and will continue to be our focus, allowing us to maintain a leading role
in information systems development.
Third, further technology platform research, development and engineering
are conducted on a continual basis. New technologies, such as Internet
applications and the commercial software that support it, lack certain
capabilities and functionalities required to allow the medical and health care
industry to migrate to a total eHealth strategy. We believe we are in the
process of creating software components to solve these problems and are
constantly educating ourselves on available and emerging technologies that will
help support and enhance our products.
We have spent approximately $ 1.4 million on research and development
activities over the past two fiscal years, the majority of which was
attributable to the build out of the MyFamilyMD(TM) health assessment tools
called MedWizards(R), Health-e-Coordinator(TM) and CarePrime(TM). We expect to
continue to spend funds on adding functionality to MyFamilyMD(TM) by adding
MedWizards(R), on CarePrime(TM), which interacts with MyFamilyMD(TM) and its
MedWizards(R), and on Health-e-Coordinator(TM) by adding additional disease
capabilities.
Employees
We believe our success depends to a significant extent on its ability to
attract, motivate and retain highly skilled, vision-oriented management and
employees. To this end, we focus on incentive programs for our employees and
endeavor to create a corporate culture that is challenging, rewarding and fun.
As of April 17, 2002, we had 64 full-time and 42 part-time employees.
Properties
Our executive, administrative and sales offices are located in
Philadelphia, Pennsylvania, where we lease approximately 4,659 square feet of
office space pursuant to a lease expiring in June 2005 at a current annual rate
of $123,463. The property is in good condition.
Our technology development offices are located in Reston, Virginia, where,
effective as of February 2, 2002, we lease approximately 1,381 square feet of
office space pursuant to a lease expiring in August 2003 at a current annual
rate of $41,430. The property is in good condition.
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Our call center is located in Omaha, Nebraska, where, subsequent to the
closing of the WellComm acquisition on February 6, 2002, we lease approximately
3,751 square feet of office space pursuant to a lease expiring in August 2003,
at a current annual rate of $48,000. The property is in good condition.
We do not invest in real estate, interest in real estate, real estate
mortgages or in persons primarily engaged in real estate activities
Legal Proceedings
In 1998, a former Chief Executive Officer, stockholder and creditor of
Health Management (the "Plaintiff") commenced an action in New Jersey state
court against, among others, the present Chief Executive Officer of Health
Management. Health Management is identified in the caption as a defendant. The
complaint alleges breach of contract, breach of fiduciary duty, breach of the
covenant of good faith and fair dealing, securities fraud, common law fraud,
negligent misrepresentation and racketeering activity. See Nazir Memon v. Frank
Martin, et al, CAM-L-04026-98. The allegations in this action reference
circumstances relating to Health Management's prior line of business of
physician practice management. In 1999, the court entered two orders dismissing
the action "without prejudice" for procedural reasons. Furthermore, in 1999 the
Plaintiff filed for bankruptcy protection. As part of the bankruptcy
proceedings, the Plaintiff, the present Chief Executive Officer and Health
Management entered into a stipulation limiting the period within which the
Plaintiff can bring a new action alleging Plaintiff's claims. Plaintiff sought
to reactivate his prior state court action in January 2001 (within the
stipulated period), rather than commence a new action. The stipulated time
period for commencing a new action has expired. By Opinion-Letter/Order dated
August 22, 2001, the New Jersey Superior Court, Civil Division, ruled that
Plaintiff is barred from reactivating the civil action by the bankruptcy
stipulation. The Plaintiff is appealing the Civil Division Opinion-Letter/Order
and the appeal is pending. As of December 31, 2001, the Company made no accrual
for accounting purposes because the Plaintiff's success in this matter is not
deemed probable nor could the Company reasonably estimate any adverse effect
based on the current facts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
financial statements and the notes to our financial statements included
elsewhere in this report.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, which are based upon
current expectations and involve a number of risks and uncertainties. In order
for I-trax, Inc. (the "Company" or "I-trax") to utilize the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, investors
are hereby cautioned that these statements may be affected by important factors,
which are set forth below and elsewhere in this report, and consequently, actual
operations and results may differ materially from those expressed in these
forward-looking statements. The important factors include the Company's ability
to continue as a going concern and the Company's ability to execute contracts
for disease management services and software technology.
The Company's financial statements have been prepared assuming that it
will continue as a going concern. As of December 31, 2001, the Company's working
capital deficiency amounted to $624,863. During the past two years, cash flow
deficits have amounted to approximately $400,000 per month on average. Through
December 31, 2001 and the date of this report, the Company has been able to
secure financing to fund these deficits. Most recently, the Company secured such
funding from unrelated parties, and in the past, from its Chief Executive
Officer, Chief Operating Officer and other employees of the Company. In the near
future, additional cash will be required to enable the Company to finish the
development of its core products, liquidate its short-term liabilities and
continue to implement its marketing strategy. Management is optimistic that it
will be able to raise additional capital to fund these initiatives and also to
fund cash flow deficits; however, there can be no assurance that it will be able
to do so.
Further, during the fourth quarter of 2001 and immediately subsequent
thereto, the Company executed several sales contracts and two joint marketing
agreements with organizations that have the ability to market the Company's
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products and services to their existing clients. The Company expects that these
key agreements will generate revenue in 2002 and that in the second half of 2002
the Company will have sufficient cash flow to fund its cash flow deficits.
Nonetheless, the Company may require additional funding to fund its cash flow
deficits until then. The financial statements do not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should the Company be unable to continue in
operation.
Corporate History Overview
I-trax was incorporated in the State of Delaware on September 15, 2000 at
the direction of the Board of Directors of I-trax Health Management Solutions,
Inc. ("Health Management"), I-trax's then parent company. On February 5, 2001,
I-trax became the holding company of Health Management at the closing of a
reorganization pursuant to Section 251(g) of Delaware General Corporation Law.
The holding company reorganization was described in greater detail in I-trax's
registration statement on Form S-4 (Registration Number 333-48862). At the
effective time of the reorganization, all of the stockholders of Health
Management became the stockholders of I-trax and Health Management became a
wholly owned subsidiary of I-trax. Further, all outstanding shares of Health
Management were converted into shares of I-trax in a non-taxable transaction.
Health Management no longer files reports with the Securities and Exchange
Commission, and the price for its common stock is no longer quoted on the
Over-the-Counter Bulletin Board. However, I-trax does file reports with the
Securities and Exchange Commission, and the price for its Common Stock is quoted
on the Over-the-Counter Bulletin Board under the symbol "IMTX." The shares of
the Company are represented by the same stock certificates that represented
shares of Health Management prior to the holding company reorganization.
The holding company structure has allowed us greater flexibility in our
operations and expansion and diversification plans, including in the acquisition
of iSummit Partners, LLC, doing business as "MyFamilyMD" ("iSummit"), on
February 7, 2001 and WellComm Group, Inc., an Illinois corporation ("WellComm"),
on February 6, 2002.
I-trax acquired iSummit effective as of February 7, 2001 in an exchange
transaction pursuant to a Contribution and Exchange Agreement dated as of
September 22, 2000, as amended. In the contribution and exchange, the Company
issued a total of 4,222,500 shares of its Common Stock to the owners of iSummit
and the owners contributed to the Company all of the issued and outstanding
ownership interests in iSummit. At closing, of the total 4,222,500 shares I-trax
agreed to issue, 2,086,250 shares were delivered to the owners of iSummit and
2,136,250 shares were deposited with an escrow agent. Effective as of December
31, 2001, a total of 1,289,184 shares held in escrow were returned to the
Company and cancelled. Accordingly, the aggregate number of shares issued by
I-trax to acquire iSummit has been reduced to 2,933,316 shares. This number may
be further reduced by an additional 50,000 shares, as negotiations regarding
such a further reduction are ongoing. Since February 7, 2001, iSummit has been a
passive, wholly-owned entity of the Company with certain intellectual property
as its only assets.
Business Overview
I-trax has historically developed enterprise and client server
applications for collecting disease specific data at the point-of-care for
several large hospitals and medical centers. In 2001, the Company expanded its
product lines by developing additional software applications, adding services
and completing several strategic acquisitions. The Company now offers total
population health management solutions. Our mission is to combine real time
Internet-based software technology and targeted personal interventions by
healthcare professionals to improve the quality of care, increase patient
satisfaction, improve clinical outcomes, reduce practice variances, improve
operating efficiencies and lower medical costs.
Our products range from stand-alone software applications to total health
management solutions. Our stand-alone software applications assist physicians,
patients and the entire healthcare community in assessing, preventing and
managing all stages of disease and wellness. Currently, our stand-alone software
applications include four clinical applications: AsthmaWatch(R), an asthma
tracking tool, Health-e-Coordinator(TM), a disease management tool, C-trax(TM),
a cardiovascular point-of-care tool, and eImmune(TM), an immunization management
system; and two web portals: MyFamilyMD(TM) for consumers and CarePrime(TM) for
physicians. We license our software applications as client-managed integrated
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applications or as an application service provider from our secure web hosting
facility.
Our population health management solutions assist public health agencies,
hospitals, health plans, self-insured employers, and colleges and universities
to manage the healthcare of their populations as outsourced services through
I-trax. We deliver these service solutions by integrating
Health-e-Coordinator(TM) disease management tool, our web portals Care Prime(TM)
and MyFamilyMD(TM) and our patient contact center staffed by skilled nurses and
other healthcare professionals 24 hours per day, 7 days per week. Our service
solutions are flexible and adoptable. Without significant modifications to our
software applications, our solutions address the specific needs of several
segments of the healthcare industry, including, as examples, university and
college student health plans, indigent care coordination and disease management
initiatives and disease management of acutely ill patient with co-morbidities.
Recent Developments
Recent Acquisition
On February 6, 2002, I-trax acquired WellComm. WellComm is a healthcare
services company that offers a broad array of expertise including a nurse
contact center specializing in disease management, triage, health information
survey, and research services for the healthcare industry. For the fiscal year
ended December 31, 2001, WellComm recognized revenue of $5,287,702 and earnings
before provision for income taxes of $327,159. For the fiscal year ended
December 31, 2000, WellComm recognized revenue of $979,142 and a loss of $
119,954.
The WellComm acquisition was a two-step reorganization pursuant to a
Merger Agreement dated as of January 28, 2002 by and among I-trax, WC
Acquisition, Inc. ("Acquisition"), an Illinois corporation and a wholly-owned
subsidiary of I-trax, WellComm, John Blazek and Carol Rehtmeyer. The initial
step of the reorganization transaction involved a merger of Acquisition with and
into WellComm, in which merger WellComm continued as the surviving corporation.
The second step of the reorganization transaction involved a statutory merger of
WellComm with and into I-trax, in which merger I-trax continued as the surviving
corporation. The parties to the Merger Agreement intend to treat the initial
step and the second step of the reorganization as part of an integrated plan,
such that the two steps constitute a single transaction described in Rev. Rule
2001-46, 2001-42 Internal Revenue Bulletin 321 (Sep. 24, 2001), and thus a
tax-free reorganization pursuant to Section 368 of the Internal Revenue Code of
1986, as amended.
At the closing of this merger, I-trax delivered to the WellComm
stockholders $2,000,000 in cash and 7,440,000 shares of common stock and to each
of Ms. Rehtmeyer and Jane Ludwig, both senior officers of WellComm prior to this
merger, options to acquire 280,000 shares of common stock at an exercise price
of $0.001 per share. I-trax also agreed to deliver to the WellComm stockholders
additional contingent merger consideration either in cash or, at the election of
John Blazek as a representative of the WellComm stockholders, in shares of
common stock. The additional contingent merger consideration will be equal to
10% of revenues that may be generated by sales of new services to an existing
WellComm client during a 12-month period beginning on the date such new services
begin to be delivered. Such new services, however, must commence by February 5,
2003, but have not been commenced as of March 25, 2002. If the additional
contingent merger consideration is paid in shares of common stock, the shares
will valued at the lesser of $1.23 per share and the average of the closing
price of common stock for twenty 20 consecutive trading days ending on the day
prior to the day a contingent merger consideration payment is due. Any
additional shares distributed will be recognized as compensation expense in the
period earned.
After the merger, each of Mr. Blazek and Ms. Rehtmeyer joined I-trax as a
Managing Director and Ms. Ludwig joined I-trax as a Vice President pursuant to
employment agreements with Health Management. In addition, Mr. Blazek and Ms.
Rehtmeyer were elected to I-trax's Board of Directors.
I-trax granted to the WellComm stockholders the following registration
rights under the Securities Act of 1933, as amended, with respect to the shares
of I-trax Common Stock issued in the merger: (a) two demand registration rights
exercisable after February 5, 2005; and (b) unlimited "piggy back" registration
rights (subject to underwriter cut back) in the event I-trax registers I-trax
Common Stock for its own account.
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I-trax funded the acquisition of WellComm by selling a 6% convertible
senior debenture in the aggregate principal amount of $2,000,000 (the
"Debenture") to Palladin Opportunity Fund LLC ("Palladin") pursuant to a
Purchase Agreement dated as of February 4, 2002 between I-trax and Palladin.
Pursuant to the purchase agreement, I-trax also issued Palladin a warrant to
purchase an aggregate of up to 1,538,461 shares of I-trax Common Stock at an
exercise price of $1.10 per share (the "Warrant"). The outstanding principal and
any capitalized interest under the Debenture are payable in full on or before
February 3, 2004. Further, outstanding principal and any capitalized interest
may be converted at any time at the election of Palladin into I-trax Common
Stock at an initial conversion price of $1.00 per share. The initial conversion
price is subject to "reset" as of the dates that are 12 months and 18 months
after the issue date (each such date, a "Reset Date"). With respect to each
Reset Date, the conversion price will only be reduced if the closing bid price
for I-trax Common Stock, averaged during a period of 20 consecutive trading days
ending on the date that immediately precedes the applicable Reset Date, is less
than the then applicable conversion price, in which case, the reset conversion
price is equal to such average.
Under the Purchase Agreement, Palladin also received an option to purchase
an additional 6% convertible senior debenture in the face amount of $1 million
and received an additional warrant to purchase an aggregate of up to 769,230
shares of I-trax Common Stock. The terms of the optional debenture and warrant
will be substantially similar to those of the Debenture and the Warrant.
Finally, pursuant to a related registration rights agreement, I-trax agreed to
register all of the shares of I-trax Common Stock underlying the Debenture and
the Warrant on a registration statement on Form SB-2 or, if I-trax is then
eligible, on a registration statement on Form S-3.
Results of Operations
For the two years ended December 31, 2001, the Company did not generate
significant sales. During the period, the Company expended a predominant portion
of its resources to build and deliver eImmune(TM) and C-Trax(TM) to Walter Reed
Army Medical Center in accordance with prior contractual obligations. Further,
during such period, the Company re-focused its efforts to changing from
developing custom software applications for few clients to: (1) commercializing
existing software applications including eImmune(TM), AsthmaWatch(R) and
C-Trax(TM), (2) web-enabling new applications including MyFamilyMD(TM),
CarePrime(TM) and Health-e-Coordinator(TM), and (3) and attempting to
commercialize these products as a total population health management solution.
This process began in May 2000 when the Company brought together its current
management team. The process continued in 2001, when, in response to demand in
the marketplace, the Company supplemented its technology solutions with disease
management services. The Company has now focused its marketing efforts on three
main markets: (1) college and university student health services; (2) the
Department of Defense/public health sector; and (3) health plans and
self-insured employers.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.
Total revenues for 2001 amounted to $613,070, which represents an increase
of $352,425 or 135% from $260,645 for 2000. This increase was primarily
attributable to: (i) a software license for eImmune(TM) to Walter Reed Army
Medical Center and (ii) C-trax(TM) software application, likewise for Walter
Reed Army Medical Center. Although revenue increased, cost of revenue decreased
by 36% from $156,034 for 2000 to $99,584 for 2001. The decrease in the cost of
revenue is directly attributable to the fact that contracts executed in 2001
require delivery of software applications rather than hardware, as was the case
with contracts fulfilled in 2000. In 2002 and beyond, the Company expects to
generate revenues by (i) licensing its software applications on a subscription
basis to customers that rely on their own capabilities to deliver disease
management service or (ii) delivery of total population health/disease
management solutions, encompassing technology and services. Management expects
that its cost of sales will fluctuate depending on the type of contract.
Management also expects that technology based contracts will yield a low cost of
sales whereas disease management contracts coupled with services will increase
the cost of sales. The Company also expects that many of its future licenses
will require the Company to make its software applications accessible by
Internet on a subscription basis to self-insured employers, health plans and
colleges and universities.
The product development costs amounted to $818,176 for 2001, representing
an increase of approximately 15% from prior year. The majority of this sum is
attributable to the build out of the MyFamilyMD(TM) health assessment tools
called MedWizards(R), Health-e-Coordinator(TM) and CarePrime(TM). We expect to
continue to spend funds on adding functionality to MyFamilyMD(TM) by adding
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MedWizards(R), on CarePrime(TM), which interacts with MyFamilyMD(TM) and its
MedWizards(R), and on Health-e-Coordinator(TM) by adding additional disease
capabilities. All product development costs in 2000 and 2001 were expensed.
General and administrative expenses (excluding salary and related benefits
which are explained separately below) equaled $1,711,430 for 2001, a decrease of
25% from $2,286,594 for 2000. The decrease was attributable to several factors.
First, in 2000, the Company incurred certain expenses related to the Company's
changed management structure. In addition, the Company incurred substantial
expenses related to its holding company reorganization, acquisition of iSummit
and related Securities and Exchange Commission filings, including a registration
statement on Form S-4. These costs were primarily recruiting fees, consulting,
legal and other professional fees. In the third quarter of 2001, in order to
conserve cash, the Company reassessed its spending budget and implemented
certain cost cutting measures, including an employee head count reduction.
Management anticipates that in 2002 the Company's spending will increase because
of the additional expenses assumed by the Company following the WellComm
acquisition. The Company does believe that with the addition of WellComm's
personnel, the Company will have the resources to handle increased revenue with
minimal incremental costs. The Company will also incur additional expenses in
the area of dues, filing fees and maintenance fees in connection with applying
for the listing of its securities on the American Stock Exchange.
Salary and related benefits increased by 140% from $2,903,071 for 2000 to
$6,996,108 for 2001. A major component of such increase, $3,100,000, is
attributable to a non-cash charge associated with the Company's issuing stock
purchase warrants to employees and officers in exchange for surrender of accrued
salary under the Company's Salary Deferment Program. The Salary Deferment
Program commenced in November 2000 and terminated on December 31, 2001.
Approximately $1,000,000 was accrued by the Company pursuant to the Salary
Deferment Program. In December 2001, the Company gave program participants the
option of converting their accrued salary into equity or being paid out over
time if and when the Company generated positive cash flows from operations.
Employees that deferred approximately $825,000 agreed to covert this amount into
equity. The Company converted this amount by granting each employee a warrant to
purchase one share of Common Stock at an exercise price of $.15 per share, for
each $.35 of deferred salary. For accounting purposes, the Company valued such
warrants utilizing the Black-Scholes pricing model, which takes in to account
current market price and volatility of the Company's securities along with other
key factors. Such valuation resulted in a charge to earnings of approximately
$3,100,000. The remainder of the increase amounting to a approximately $993,000
(inclusive of payroll taxes and related benefits), relates to the Company adding
senior personnel to, among others things, market the Company's population health
management services and student health solutions. Management believes that the
added expense has improved the Company's marketing strategy significantly and
that the Company is well positioned for the roll out of its products in 2002.
Acquired in progress research and development amounted to $1,642,860 for
2001. This amount was directly attributable to the acquisition of iSummit on
February 7, 2001. An independent, third party, valuation company derived this
amount after a detailed analysis of all the underlying facts.
Debt issuance and conversion costs along with interest expense amounted to
$1,949,320 for 2001. This was a result of the Company's valuing warrants granted
in connection with (i) the conversion of $2,200,000 in principal amount of
convertible promissory notes, (ii) the conversion of certain officer advances,
and (iii) the re-pricing of the exercise price of certain warrants issued in
connection with the convertible promissory notes from $2.00 to $.50 each.
Depreciation and amortization amounted to $799,014 for 2001 as compared to
$75,089 for 2000. This increase of $723,925 is primarily a result of the
amortization of goodwill in connection with the acquisition of iSummit on
February 7, 2001.
Marketing and advertising expenses equaled $989,972 for 2001, an increase
of 160% from $380,277 for 2000. The increase was attributable to the Company
expanding its marketing campaign to penetrate the markets it has identified
along with promoting itself in the financial community for the purposes of
raising additional equity.
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The Company recorded a net loss of $ 14,359,432 for 2001 as compared to a
loss of $6,415,484 for 2000. The majority of this loss was attributable to the
aggregate non-cash charges in connection with the issuance and granting of
equity securities.
Liquidity and Capital Resources
Working Capital Deficiency
The Company ended 2001 with over $1,000,000 in cash on its balance sheet.
As of December 31, 2001, the Company has a working capital deficiency amounting
to $624,863. Since December 31, 2001, the Company has raised an additional
$1,425,000 through March 20, 2002, and has received commitments for additional
$575,000 by the first week of April 2002. The Company is optimistic, although no
assurance exists, that if the Company requires additional funding before its
operations produce positive cash flow, it will be able to raise such funding.
Sources and Uses of Cash
Despite its negative cash flows from operations, which amounted to
approximately $4,900,000 for 2001 and $4,700,000 for 2000, the Company has been
able to secure funds to support its operations to date. During the third quarter
of 2001 and first quarter of 2002, such funds have been received from unrelated
investors. Prior to the fourth quarter of 2001, the Company received such funds
from Frank A. Martin, the Company's Chief Executive Officer, Gary Reiss, the
Company's Chief Operating Officer, and certain other senior officers. Management
believes that additional cash will be required to finish the development of the
Company's products and to implement its revised marketing strategy.
For 2001 and 2000, the Company funded its cash needs primarily from
financing activities (sales of Common Stock and issuance of convertible and
non-convertible promissory notes), which amounted to approximately $5,400,000
for each of 2001 and 2000. In the future, the Company expects to rely less on
equity financing and more on cash flows from operations. The operations of
WellComm are expected to provide a portion of the Company's operating cash flow
needs.
With regards to investing activities for 2001, the Company collected
$312,500, representing a major portion of amounts due under a note issued to the
Company by Diabetex Corporation (as further discussed below) in December 2000.
The original amount of the note before all applicable interest and out-of pocket
costs equaled $350,000. During 2001, the Company's investment in office
equipment and furniture was nominal. The Company invested $324,585 in office
equipment and furniture in 2000.
As of December 31, 2001, the Company's current liabilities amounted to
approximately $1,800,000, of which approximately $700,000 is due to Messrs.
Martin and Reiss, the Company's Chief Executive Officer and Chief Operating
Officer, respectively, for which no repayment terms have been established.
However, management does not expect to repay these loans until the Company
begins to generate cash flows from operations and obtains the consent of
Palladin pursuant to the terms of the Debenture and related documents. The
remainder of current liabilities of approximately $1,100,000 is made up,
primarily, of trade payables amounting to approximately $620,000 and accrued
expenses of approximately $277,000, of which $225,000 is accrued salaries not
converted into warrants pursuant to the Company's salary deferment program. The
Company has good relationships with its vendors and past and current employees.
The Company's long-term debt is made up of 6% convertible senior debenture
in the aggregate principal amount of $2,000,000 held by Palladin, for which
principal and capitalized interest is not due until February 3, 2004, and
$692,809 held by a group of investors led by Psilos Group Partners, L.P., which
includes Nantucket Healthcare Ventures I, L.P., a venture fund managed by Mr.
Martin, our Chief Executive Officer, for which, principal and interest is not
due until March 2006. The Company expects that it will be able to repay these
obligations if they are not converted into equity prior to their due date.
-44-
Advances by Officers & Key Employee and Issuance of Securities to Related
Parties
During 2001, Mr. Martin and Mr. Reiss and a key employee of the Company
periodically advanced funds to fund the Company's working capital deficiency. As
of December 31, 2001, the Company owed these individuals $739,598 (inclusive of
accrued interest). As consideration for the advances, the Company issued to such
individuals, detachable stock purchase warrants to acquire an aggregate of
1,093,000 shares of Common Stock at exercise prices ranging from $.50 to $1 per
share. The Company valued the detachable warrants using the Black-Scholes
pricing model, thereby recording a charge to earnings for financing costs of
$630,469.
In connection with the Company's Chief Executive Officer and Chief
Operating Officer converting a total of $618,663 of advances at $.50 per share,
the Company issued an aggregate of 1,237,326 shares of its Common Stock.
From November 2000 through May 2001, the Company issued several
convertible promissory notes with an aggregate face amount of $2,200,000. Of
such total, $500,000 was from the Company's Chief Executive Officer and Chief
Operating Officer during October 2000, which was subsequently converted into the
Company's Common Stock.
As of December 31, 2001, a venture fund managed by the Company's Chief
Executive Officer loaned the Company $75,000 and received warrants to purchase
197,400 shares of the Company's Common Stock at $.10 per share.
In connection with signing of their employment agreements, the Company's
Chief Executive and Operating Officers had each purchased from the Company
250,000 shares of Common Stock for a purchase price of $2 per share. The shares
were purchased pursuant to a subscriptions agreement and a note and pledge
agreement. Each note was for a principal amount of $499,750 (net of a $250
bonus), bearing interest at approximately 6% per annum, and provided that the
unpaid principal amount shall be due in five equal installments on each December
29, 2001 and thereafter. Effective during the second quarter 2001, pursuant to
board resolutions, such notes and pledge agreements were canceled. Further, on
April 10, 2001, each of such executive officers was granted 350,000 incentive
stock options pursuant to the Company's 2001 Equity Compensation Plan. Pursuant
to FASB Interpretation No. 44, variable accounting at the end of each interim
period must be applied to 250,000 of the 350,000 options granted on April 10,
2001 since they are deemed a re-price of the cancelled pledge and note
agreements. Accordingly, since the Company's fair market value was $1.25 at
December 31, 2001 and such options have an exercise of $.55, the Company
recorded the intrinsic value of $.70 or a total of $350,000 as compensation
expense on account of the re-pricing. The Company will continue to
mark-to-market these options at the end of each respective interim period until
they are exercised.
On December 31, 2001, the Company's issued 470,066 shares of Common Stock
in connection with the Chief Executive officer exercising 470,066 warrants by
converting $70,510 of advance into equity. Such warrants were granted in
connection with the salary deferment program previously discussed.
Critical Accounting Policies
Legal Contingencies
We are currently involved in a certain threatened litigation. As discussed
in Note 13 of our consolidated financial statements, as of December 31, 2001, we
have not accrued a loss contingency because the plaintiff's success in this
matter is not deemed probable nor could the Company reasonably estimate any
adverse effect based on the current facts. We do not believe this proceeding
will have a material adverse effect on our consolidated financial position. It
is possible, however, that future results of operations for any particular
quarterly or annual period could be negatively and materially affected by
changes in our assumptions, of the effectiveness of our strategies, related to
these proceedings.
-45-
Impairment of Goodwill
We have evaluated goodwill for impairment indicators and will continue to
do so in the future. Our judgments regarding the existence of impairment
indicators are based on legal factors, market conditions and operational
performance of our acquired businesses. Future events could cause us to conclude
that impairment indicators exist, requiring a write-down of goodwill, which may,
in turn, negatively affect our earnings for any particular period.
Revenue Recognition
We derive our revenue pursuant to different type contracts, including
perpetual software licenses, subscription licenses and custom development
services, all of which may also include support services revenue such as
licensed software maintenance, training, consulting and web hosting
arrangements. As described below, significant management judgments and estimates
must be made and used in connection with the revenue recognized in any
accounting period. Material differences may result in the amount and timing of
our revenue for any period if our management made different judgments or
utilized different estimates.
We license our software products for a specific term or on a perpetual
basis. Most of our license contracts also require maintenance and support. We
apply the provisions of Statement of Position 97-2, "Software Revenue
Recognition," as amended by Statement of Position 98-9 "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions" to all
transactions involving the sale of software products and hardware transactions
where the software is not incidental. For hardware transactions where software
is not incidental, we do not bifurcate the fee and we do not apply separate
accounting guidance to the hardware and software elements. For hardware
transactions where no software is involved we apply the provisions of Staff
Accounting Bulletin 101 "Revenue Recognition." In addition, we apply the
provisions of Emerging Issues Task Force Issue No. 00-03 "Application of AICPA
Statement of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entity's Hardware" to our hosted software service
transactions.
We recognize revenue from the sale of software licenses when persuasive
evidence of an arrangement exists, the product has been delivered, the fee is
fixed and determinable and collection of the resulting receivable is reasonably
assured. Delivery generally occurs when product is delivered to a common
carrier.
At the time of the transaction, we assess whether the fee associated with
our revenue transactions is fixed and determinable and whether or not collection
is reasonably assured. We assess whether the fee is fixed and determinable based
on the payment terms associated with the transaction. If a significant portion
of a fee is due after our normal payment terms, which are 30 to 90 days from
invoice date, we account for the fee as not being fixed and determinable. In
these cases, we recognize revenue as the fees become due.
We assess collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer.
We do not request collateral from our customers. If we determine that collection
of a fee is not reasonably assured, we defer the fee and recognize revenue at
the time collection becomes reasonably assured, which is generally upon receipt
of cash.
For arrangements with multiple obligations (for example, undelivered
maintenance and support), we allocate revenue to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements. This means that we defer revenue from the arrangement fee
equivalent to the fair value of the undelivered elements.
We recognize revenue for maintenance services ratably over the contract
term. Our training and consulting services are billed based on hourly rates, and
we generally recognize revenue as these services are performed. However, at the
time of entering into a transaction, we assess whether or not any services
included within the arrangement require us to perform significant work either to
alter the underlying software or to build additional complex interfaces so that
the software performs as the customer requests. If these services are included
as part of an arrangement, we recognize the entire fee using the percentage of
completion method. We estimate the percentage of completion based on our
-46-
estimate of the total costs estimated to complete the project as a percentage of
the costs incurred to date and the estimated costs to complete.
Material Equity Transactions
For the years ended December 31, 2000 and 2001, the Company executed
numerous equity transactions with related and unrelated parties in connection
with the raising funds for working capital along with issuing securities in lieu
of compensation for services received. The Company believes that it has valued
all such transaction pursuant to the various accounting rules and that they
ultimately represent the economic substance of each transaction. In connection
with issuing Common Stock for services and granting warrants to compensate debt
holders to convert debt into equity and to compensate various individuals for
deferring salaries in order to help the Company succeed, the Company has
recognized non-cash costs in excess of $6,700,000 of costs which increased its
loss in excess of $14,000,000.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Dr. Craig A. Jones, a director of I-trax, is the Director of the Division
of Allergy & Immunology at the Los Angeles County and University of Southern
California Medical Center, which is operated by the Los Angeles County
Department of Health Services (DHS). The Los Angeles County DHS purchased an
information system from I-trax to support implementation of a clinical disease
management program for which it paid I-trax approximately $100,000 in 2000 and
$61,000 in 2001. Dr. Jones is the director of that clinical program. In
September 2000, I-trax also entered into a verbal consulting agreement with Dr.
Jones. Under the agreement, in addition to attending Board meeting, Dr. Jones
agreed to assist I-trax with product development efforts, attend trade shows on
its behalf and originate business leads. Under the agreement, Dr. Jones was to
be compensated at a rate of $3,000 per month. The payments were suspended in
November 2000.
In May 2000, Health Management entered into a consulting agreement with
Health Industry Investments, LLC, an affiliate of Philip D. Green, a director of
I-trax. Under the consulting agreement, Health Industry agreed to perform
certain services for Health Management, which include arranging introductions
with potential customers. In turn, Health Industry received the right to
purchase 20,000 shares of common stock of Health Management at a purchase price
of $2 per share. The beneficial owners of Health Industry exercised this right
and purchased these shares in September 2000 pursuant to a private placement
conducted by Health Management. In addition, Health Industry received options to
acquire up to 80,000 shares of common stock of Health Management at an exercise
price of $0.625 as compensation for performing services under the consulting
agreement. The options were to vest in equal monthly installments over the
one-year term of the consulting agreement. All options were accelerated in
October 2000. In April 2001, Health Industry received options to acquire an
additional 200,000 shares of Common Stock at an exercise price of $0.55 as
compensation for continuing to perform services under the consulting agreement.
These options vest over two years.
Effective as of December 29, 2000, Health Management issued to each of
Messrs. Martin and Reiss 250,000 shares of common stock of Health Management at
a per share purchase price of $2. The aggregate purchase price was payable
pursuant to a Promissory Note and Pledge Agreement in the principal amount of
$499,750. The principal amount of each Promissory Note and Pledge Agreement
accrues interest at an annual rate of 5.87%. The principal and interest on each
Promissory Note and Pledge Agreement was payable in five annual installments of
principal and interest beginning on December 29, 2001. Furthermore, in the event
these officers were performing their duties adequately and were accomplishing
I-trax's goals, I-trax's Compensation Committee had the option of waiving and
forgiving any of the annual payments of principal and interest in lieu of
granting such officers a cash bonus. This transaction was rescinded in 2001.
From November 2000 through May 2001, I-trax completed an offering of
convertible promissory notes and stock purchase warrants. I-trax raised
$2,000,000 in this offering. Of this total, $700,000 was loaned to I-trax by
Woodglen Group, L.P., a 5% stockholder of I-trax, $250,000 was loaned to I-trax
by Frank A. Martin, its Chief Executive Officer, and $250,000 was loaned to
I-trax by Gary Reiss, a Member of I-trax's Office of the President. The
convertible promissory notes had a maturity date of one year from the date of
issue and accrue interest at an annual rate of 8% with a default annual rate of
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12%. The principal amount of, and accrued and unpaid interest under, the
convertible promissory notes were convertible into Common Stock. The stock
purchase warrants grant the holders a right to purchase two shares of Common
Stock for each $1 in original principal amount of convertible promissory notes.
The initial conversion price of the convertible promissory notes and the
exercise price of the stock purchase warrants were $2 per share, subject, in
each case, to full-ratchet anti-dilution adjustment in the event of a subsequent
offering with an effective per share price of less than $2.
On June 25, 2001 and pursuant to an Exchange Agreement dated May 14, 2001,
the holders of the convertible promissory notes, including Woodglen Group, L.P.,
a 5% stockholder of I-trax, Mr. Martin, our Chief Executive Officer, and Mr.
Reiss, a Member of I-trax's Office of the President, agreed to exchange the
principal of, and accrued interest through May 15, 2001 under, the promissory
notes in the aggregate amount of $2,280,157 for Common Stock at the exchange
price of $.50 per share. As consideration for the exchange, I-trax reset the
exercise price of the warrants to acquire 2,200,000 shares of Common Stock,
originally issued together with the convertible promissory notes, to $.50 per
share. Accordingly, in the transaction, Woodglen Group, L.P. received 1,455,540
shares and warrants to acquire 700,000 shares, Mr. Martin received 523,452
shares and warrants to acquire 250,000 shares and Mr. Reiss received 521,808
shares and warrants to acquire 250,000 shares.
Effective as of June 25, 2001, I-trax completed a private placement of
2,200,000 shares of Common Stock at $.50, yielding to I-trax a total of
$1,100,000. Woodglen Group, L.P., a 5% stockholder of I-trax, invested $850,000
in this private placement. As consideration for completing the private
placement, I-trax issued to the participating investors stock purchase warrants
to purchase one share of Common Stock for each $2 invested in this private
placement at an exercise price of $1.00 per share. I-trax, therefore, issued
warrants to acquire a total of 550,000 shares of Common Stock, of which warrant
to acquire 425,000 shares of Common Stock was issued to Woodglen Group, L.P.
During the first and second quarters of 2001, Mr. Martin, I-trax's Chief
Executive Officer, loaned I-trax $515,000 to fund I-trax's working capital
deficiency. Of this amount, I-trax repaid $240,000 in June 2001. On June 25,
2001, Mr. Martin exchanged the remaining $275,000 of the loan, and accrued
interest of $9,163, into Common Stock at the exchange price of $.50 per share.
I-trax issued 568,324 shares in this exchange. In addition, I-trax issued Mr.
Martin a stock purchase warrants to acquire 515,000 shares at an exercise price
of $.50 per share as consideration for this bridge financing. The terms of this
exchange transaction and warrant issuance, including the exchange price and the
calculation of the number of warrants granted, were intended to be identical to
those applicable to the debt exchange transaction closed by I-trax on June 25,
2001 and described above.
During the first and second quarters of 2001, Mr. Reiss, a Member of
I-trax's Office of the President, loaned I-trax $240,000 to fund I-trax's
working capital deficiency. I-trax repaid this amount in June 2001. On June 25,
2001, as consideration for the loan, I-trax issued Mr. Reiss stock purchase
warrants to acquire 240,000 shares of Common Stock at an exercise price of $.50
per share. The terms of the warrant issuance, including the calculation of the
number of warrants granted, were intended to be identical to those applicable to
the debt exchange transaction closed by I-trax on June 25, 2001 and described
above.
On March 2, 2001, I-trax entered into an Amended and Restated Promissory
Note and Warrant Purchase Agreement with a group of investors led by Psilos
Group Partners, L.P. (collectively, the "Psilos Group") pursuant to which the
Psilos Group agreed, among other things, to loan I-trax up to $1,000,000. The
Psilos Group included Nantucket Healthcare Ventures I, L.P., a 5% stockholder of
I-trax and a venture fund managed by Mr. Martin, I-trax's Chief Executive
Officer. As consideration, I-trax granted the Psilos Group warrants to acquire
2.632 shares of its Common Stock at $.10 per share for each $1 of the face
amount of the loan. The loan accrues interest at an annual rate of 8%, with an
annual default rate of 12%, and is due five years from original date of
issuance. The Psilos Group funded $692,809 of the $1,000,000 and received
warrants to purchase 1,823,474 shares of Common Stock. Of such total amounts,
Nantucket Healthcare Ventures funded $75,000 and received warrants to purchase
197,400 shares of Common Stock. Effective as of January 4, 2002, all Psilos
Group investors exercised their warrants using a cashless exercise feature and
received an aggregate of 1,701,584 shares of Common Stock.
Beginning in November 2000, in an effort to conserve cash, I-trax
established a salary deferment program whereby certain executive officers,
including Messrs. Martin, Reiss, Tomaro, McCormack and Rozenfeld and Dr.
O'Connell, and other employees agreed to defer all or a portion of their
salaries. To induce employees to participate in the salary deferment program
-48-
I-trax agreed to pay interest at an annual rate of 8% on the deferred salary. In
addition, I-trax promised participating employees that they would receive (1) an
option to convert deferred salary into equity on the same basis as third-party
investors in I-trax and (2) "coverage warrants" to the extent they were also
granted to third-party investors while participating employees were deferring
pay. I-trax ended the salary deferment program on December 31, 2001. As of
December 31, 2001, I-trax accrued $1,038,876 on account of deferred salaries and
interest thereon. Certain participating employees, including Messrs. Martin,
Reiss, Tomaro, McCormack and Rozenfeld, agreed to exchange a total of $814,595
of accrued salary, together with interest thereon, for warrants to acquire
2,327,415 shares of Common Stock with an exercise price of $0.15 per share. The
number of warrants issued to each employee electing to surrender accrued salary
was calculated by dividing the employee's total accrued salary and interest
thereon by $0.35. Accordingly, if an employee elected to exchange accrued salary
for warrants and later exercised these warrants, the effective per share price
for the shares of Common Stock that the employee would receive would be $.50.
The price of $.50 per share was intended to equal the price per share paid by
third-party investors purchasing Common Stock in several private placements
completed by I-trax in 2001. I-trax also granted the participating employees
warrants to acquire an aggregate of 710,983 shares of Common Stock at an
exercise price of $.50 per share and warrants to acquire an aggregate of 102,073
shares of Common Stock at an aggregate of $1.00 per share. These extra warrants
were issued to all employees that participated in the salary deferment program
because similar warrants were issued by I-trax to third-party investors in
connection with the several private placement completed by I-trax in 2001.
During the third and fourth quarters of 2001, Mr. Reiss, I-trax's Chief
Operating Officer, loaned I-trax $296,000, Mr. Martin, I-trax's Chief Executive
Officer, loaned I-trax $280,000 and Alan Sakal, I-trax's Senior Vice President,
loaned I-trax $100,000, in each case, to fund I-trax's working capital
deficiency. I-trax repaid Mr. Sakal's loan in January 2002. The outstanding
loans accrue interest at an annual rate of 8%. On December 20, 2001, as
consideration for the loans, I-trax issued Messrs. Reiss, Martin and Sakal stock
purchase warrants to acquire 148,000 shares, 140,000 shares and 50,000 shares of
Common Stock, respectively, at an exercise price of $1.00 per share. The terms
of these warrants, including the calculation of the number of warrants granted,
were intended to be identical to the warrants issued by I-trax in a private
placement of $1,100,000 of Common Stock and warrants closed on June 25, 2001 and
described above.
In addition to advances to I-trax made by Messrs. Martin and Reiss
described elsewhere in this section, Messrs. Martin and Reiss also advanced to
I-trax an aggregate of $380,000 during the course of 2001. These advances accrue
interest at an annual rate of 8%. I-trax and Messrs. Martin and Reiss have not
yet agreed on repayment terms.
Effective as of December 31, 2001, Mr. Martin, I-trax's Chief Executive
Officer, exercised 470,066 warrants by agreeing to cancel a portion of a loan in
the amount of $70,510 payable by I-trax to Mr. Martin. The exercised warrants
were originally issued to Mr. Martin under the salary deferment program
described above.
Lauren Reiss-Pollard is employed by I-trax as a Vice President. Mrs.
Reiss-Pollard received cash compensation of $78,000 in 2001. Ms. Reiss is the
daughter of Mr. Reiss, a Member of I-trax's Office of the President.
-49-
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market and Stockholder Information
Our common stock is quoted on the OTC Bulletin Board under the symbol
"IMTX." The following table sets forth the high and low closing bid information
for our common stock for the periods indicated:
High Low
---- ---
2002
First Quarter $1.4700 $1.0200
2001
Fourth Quarter $1.6500 $0.3600
Third Quarter 0.7000 0.3600
Second Quarter 0.7800 0.5500
First Quarter 1.7500 0.5625
2000
Fourth Quarter $3.0000 $1.7500
Third Quarter 5.0000 2.3770
Second Quarter 3.5000 1.2500
The information presented above was supplied to I-trax by Nasdaq Trading
and Market Services and reflects inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
As of March 1, 2002, there were approximately 855 registered holders and
approximately 527 "street name" holders of our common stock. On April 17, 2002
the last reported sales price of our common stock was $1.28.
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
earned by the following individuals:
o our Chief Executive Officer,
o our four other most highly compensated executive officers who were
serving as such as of December 31, 2001, and
o our former President.
Compensation for fiscal years 2001 and 2000 was received by the named
executive officers from Health Management and for fiscal year 1999 from
Member-Link.
-50-
Summary Compensation Table
Annual Compensation Long-Term
Compensation
Name and Position Year Salary Other (6) Number of Options
------------------------------------------------------------------------------------------------------------------
Frank A. Martin 2001 $ 175,000 (1)(2) $ 6,000 350,000
Chairman, Chief Executive 2000 146,063 (1) 4,500 350,000
Officer and Treasurer 1999 25,000 (3) -- --
Hans C. Kastensmith 2001 $ 105,671 (1)(2) -- --
Vice-Chairman and former 2000 149,910 (1) -- --
President 1999 202,250 (4) -- --
Gary Reiss 2001 $ 175,000 (1)(2) $ 6,000 700,000
Member of the Office of the 2000 134,965 (1) 4,500 700,000
President 1999 -- -- --
David C. McCormack 2001 $ 125,000 (1)(2) -- --
Chief Technology Officer 2000 119,750 (1) -- --
1999 142,234 (5) -- --
Anthony Tomaro 2001 $ 150,000 (1)(2) -- 200,000
Chief Financial Officer 2000 -- -- 200,000 (7)
1999 -- -- --
Yuri Rozenfeld 2001 $ 124,375 (1)(2) -- 200,000
General Counsel and Secretary 2000 49,271 (1) -- 200,000
1999 -- -- --
----------------------------------
(1) Salary includes amounts deferred under I-trax's 401(k) Plan. Salary also
includes amounts deferred pursuant to I-trax's salary deferment program in
effect from November 2000 to December 31, 2001. Pursuant to the salary
deferment program, Mr. Martin deferred $29,166 in 2000 and $135,357 in
2001; Mr. Kastensmith deferred $25,000 in 2000 and $70,005 in 2001; Mr.
Reiss deferred $29,166 in 2000 and $135,357 in 2001; Mr. McCormack
deferred $20,834 in 2000 and $112,844 in 2001; Mr. Tomaro deferred $70,665
in 2001; and Mr. Rozenfeld deferred $8,958 in 2000 and $65,132 in 2001.
Further, effective as of December 31, 2001, all of the named executive
officers, excluding Mr. Kastensmith, surrendered the deferred salary in
exchange for warrants to acquire Common Stock. These officers received a
warrant to acquire one share of Common Stock exercisable at $.15 per share
for each $.35 of deferred salary. Accordingly, if an officer elected to
exchange accrued salary for warrants and later exercised these warrants,
the effective per share price for each share of Common Stock that such
officer would receive would be $.50. The price of $.50 per share was
intended to equal the price per share paid by third-party investors
purchasing Common Stock from I-trax in 2001 private placements.
Accordingly, Messrs. Martin and Reiss each received 470,066 warrants, Mr.
McCormack received 381,937 warrants, Mr. Tomaro received 201,900 warrants,
and Mr. Rozenfeld received 211,686 warrants.
(2) Effective as of December 31, 2001 and pursuant to the salary deferment
program described above, the executive officers were granted a total of
404,164 warrants to acquire Common Stock at an exercise price of $.50 per
share and a total of 99,080 warrants to acquire Common Stock at an
exercise price of $1.00 per share. The warrants exercisable at $.50 were
allocated as follows: Mr. Martin, 98,435; Mr. Kastensmith, 73,896; Mr.
Reiss, 98,435; Mr. McCormack, 68,919; Mr. Tomaro, 31,250; and Mr.
Rozenfeld, 33,229. The warrants exercisable at $1.00 were allocated as
follows: Mr. Martin, 21,876; Mr. Kastensmith, 7,719; Mr. Reiss, 21,876;
Mr. McCormack, 21,043; Mr. Tomaro, 13,023; and Mr. Rozenfeld, 13,543.
These extra warrants were issued to all employees that participated in the
salary deferment program because similar warrants were issued by I-trax to
third-party investors in connection with the several private placement
completed by I-trax in 2001. As a condition to deferring pay in the salary
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deferment program, the employees were promised by I-trax that they would
be treated in the same manner as third-party investors in I-trax.
(3) Salary includes 250,000 shares of Common Stock, valued at $0.10 per share,
issued as payment for services.
(4) Salary includes 1,000,000 shares of Common Stock, valued at $0.125 per
share, issued as payment for services.
(5) Salary includes 330,000 shares of Common Stock, valued at $0.125 per
share, issued as payment for services.
(6) Automobile and parking allowance.
(7) Grant approved by the Board of Directors on December 29, 2000, effective
as of January 1, 2001.
The following table contains information concerning the stock option
grants made to each of the identified executive officers during the fiscal year
ended December 31, 2001. No stock appreciation rights were granted in 2001.
Option Grants in Last Fiscal Year
Number of
Securities Percent of Total
Underlying Options Granted to Exercise Price
Options Employees in (Dollars per
Name Granted Fiscal Year (1) Share) Expiration Date
-------------------------------------------------------------------------------------------------------------------------
Frank A. Martin 350,000 15.2% $ .55 4/9/2011
Hans C. Kastensmith -- -- N/A N/A
Gary Reiss 700,000 30.4% .55 4/9/2011
David C. McCormack -- -- N/A N/A
Anthony Tomaro 200,000 8.7% .55 4/9/2011
Yuri Rozenfeld 200,000 8.7% .55 4/9/2011
------------------------------------
(1) Based on an aggregate of 2,302,500 options granted in the fiscal year.
-52-
The following table contains information about each of the identified
executive officers option exercises in fiscal year 2001 and option holdings as
of December 31, 2001. No stock appreciation rights were outstanding at the end
of that year.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of
Shares Underlying Unexercised Unexercised
Acquired on Value Options at Year End In-the-Money Options
Name Exercise Realized Exercisable/Unexercisable at Year End (1)
----------------------------- --------------- ----------------- ----------------------------- -----------------------
Frank A. Martin -- -- 216,666 / 483,334 $315,000
Hans C. Kastensmith -- -- -- --
Gary Reiss -- -- 499,998 / 900,002 787,500
David C. McCormack -- -- -- --
Anthony Tomaro -- -- 116,666 / 283,334 180,000
Yuri Rozenfeld -- -- 166,666 / 233,334 180,000
-----------------------------
(1) Based on the closing price of the Common Stock on December 31, 2001 of
$1.45 per share, less the exercise price payable for such shares.
Employment Contracts
Health Management is party to an employment agreement with each of Frank
A. Martin, Gary Reiss, Hans C. Kastensmith and David C. McCormack.
Frank A. Martin and Gary Reiss
On December 29, 2000, Health Management entered into an employment
agreement with each of Frank A. Martin, the Chief Executive Officer of I-trax
and of Health Management and Gary Reiss, the Chief Operating Officer of I-trax
and of Health Management. Each agreement is for an initial term of three years
ending on December 28, 2003. Thereafter, each employment agreement extends
automatically for successive periods of one year, unless the applicable
executive officer elects not to renew the agreement. Each agreement provides for
an annual base salary during the initial term of $175,000 and such bonuses and
option grants as may be approved by the Board of Directors or its Compensation
Committee from time to time.
I-trax may terminate Mr. Martin or Mr. Reiss's employment with or without
cause at any time. In addition, Mr. Martin or Mr. Reiss may terminate his
employment upon 90 days notice or upon shorter notice for good reason. Good
reason includes the failure by I-trax to continue the executive officer in his
executive position, material diminution of the executive officer's
responsibilities, duties or authority, assignment to the executive officer of
duties inconsistent with his position or requiring the executive officer to be
permanently based anywhere other than within 25 miles of Philadelphia,
Pennsylvania.
In the event either employment agreement is terminated without cause or
for good reason I-trax will pay the applicable executive officer severance,
equal to one year's salary, payable over one year. In addition, in the event
either employment agreement is terminated without cause or for good reason, the
executive officer will remain subject to the non-competition restrictions
described below only so long as he is receiving severance payments. Finally, one
hundred percent (100%) of options granted to such executive officers shall
accelerate and vest immediately.
With the exception of the circumstances described in the immediately
preceding paragraph, each executive officer agreed not to compete against I-trax
for a period of one year following the expiration of the initial term or any
renewal term, even if the actual employment is terminated prior to such
expiration. Each executive officer also agreed not to use or disclose any
-53-
confidential information of I-trax for at least five years after the expiration
of the original term or any additional term, even if the actual employment is
terminated prior to such expiration. Finally, each executive officer also agreed
that any invention he develops during his employment relating to the business of
I-trax will belong to I-trax.
Hans C. Kastensmith
On June 1, 1999, Member-Link, a company acquired by Health Management in
1999, entered into an employment agreement with Hans C. Kastensmith, the
Vice-Chairman and director of I-trax. The term of the agreement is three years
ending on May 31, 2002. Health Management is bound by the agreement as a
successor-in-interest to Member-Link. The agreement provides for an annual base
salary of $175,000 and cash bonuses from time to time as I-trax's Board of
Directors may deem appropriate.
The agreement prohibits Mr. Kastensmith from using or disclosing any of
I-trax's confidential information at any time in the future and he has agreed
that any inventions he develops during his employment relating to I-trax's
business will become I-trax's property. He is also prohibited from competing
with I-trax for a period of one year following the termination of the agreement,
unless the resulting termination is due to I-trax's breaching the agreement.
Mr. Kastensmith and I-trax agreed to terminate Mr. Kastensmith's full-time
employment in August 2001 without a formal amendment of his employment
agreement. Mr. Katensmith, in his capacity as the Vice-Chairman and director of
I-trax, continues to assist I-trax on an as needed basis.
David C. McCormack
On September 28, 2000 and effective as of January 1, 2000, Health
Management entered into an employment agreement with David C. McCormack, the
Chief Technology Officer of I-trax and of Health Management, for an initial term
of three years ending on December 31, 2002. Thereafter, the employment agreement
renews automatically for successive periods of one year, unless either party
elects not to renew. The agreement provides for an annual base salary during the
initial term of $125,000 and bonuses and option grants that may be approved by
I-trax's Board of Directors or its Compensation Committee from time to time.
In the event I-trax terminates Mr. McCormack's employment without cause at
any time during his employment, I-trax will pay Mr. McCormack severance, equal
to one year's salary, payable over one year. In the event the employment
agreement is terminated without cause, the executive officer will remain subject
to the non-competition restrictions described below only so long as he is
receiving severance payments.
With the exception of the circumstance described above, Mr. McCormack
agreed not to compete against I-trax for a period of one year following the
expiration of the original term or any renewal term, even if the actual
employment is terminated prior to such expiration. Mr. McCormack also agreed not
to use or disclose any confidential information of I-trax for at least five
years after the expiration of the original term or any additional term, even if
the actual employment is terminated prior to such expiration. Mr. McCormack also
agreed that any invention he develops during his employment relating to the
business of I-trax will be its sole and absolute property.
Mr. McCormack may terminate the agreement at any time upon at least 60
days written notice.
Change of Control Arrangements
The Compensation Committee, as administrator of I-trax's 2000 Equity
Compensation Plan and 2001 Equity Compensation Plan, can provide for accelerated
vesting of the shares of Common Stock subject to outstanding options in
connection with certain changes in control of I-trax.
-54-
Stock Option Plans
I-trax has two equity compensation plans adopted in 2000 and 2001 (the
"Plans"). The purpose of the Plans is to provide the opportunity to grants of
incentive stock options, nonqualified stock options and restricted stock to
employees of I-trax and its subsidiaries, certain consultants and advisors who
perform services for I-trax or its subsidiaries and non-employee members of the
Board of Directors of I-trax. The 2001 Plan has several additional features,
including, a salary investment option grant program that permits eligible
employees to reduce their salary voluntarily as payment of two-thirds of the
fair market value of the underlying stock subject to the option, with the
remaining one-third of the fair market value payable as the exercise price for
the option and, if specifically implemented, automatic grant program for
non-employee members of the Board of Directors at periodic intervals.
The Board of Directors believes that equity awards under the Plan will
play an important role in I-trax attract, employ and retain employees, directors
and consultants of outstanding ability.
There are 3,000,000 shares of common stock authorized under the 2000 Plan
and 6,000,000 shares of common stock authorized under the 2001 Plan. The number
of available shares subject to the 2001 Plan increases automatically on the
first day of each year beginning with the year 2002 by an amount equal to the
lesser of (a) three percent (3%) of the shares of common stock then outstanding
and (b) 1,000,000 shares. The 2002 increase raised the number of shares
available under the 2001 Plan from 5,000,000 to 6,000,000.
The maximum aggregate number of shares of Common Stock that be granted to
any individual during any calendar year is 350,000 shares under the 2000 Plan
and 400,000 shares and under the 2001 Plan.
All employees of I-trax and its subsidiaries, including employees who are
officers or members of the Board, and members of the Board who are not employees
shall be eligible to participate in both Plans. Consultants and advisors who
perform services for the Company or any of its subsidiaries are also eligible to
participate in the Plans if they render services to I-trax or its subsidiaries,
the services are not in connection with the offer and sale of securities in a
capital-raising transaction, and such key advisors do not directly or indirectly
promote or maintain a market for I-trax's securities.
The Compensation Committee of the Board administers the Plans. A secondary
committee comprised of one or more members of the Board of Directors may also
administer the 2001 Plan with respect to optionees who are not executive
officers subject to the short-swing profit rules of the federal securities laws.
The Compensation Committee (or Board or secondary committee to the extent acting
as plan administrator) has full authority (subject to the express provisions of
the Plan) to determine the eligible individuals who are to receive awards under
the Plan, the number of shares to be covered by each granted option or other
award, the date or dates on which the option is to become exercisable or the
award is to vest, the maximum term for which the option or award is to remain
outstanding, whether the granted option will be an incentive stock option that
satisfies the requirements of Section 422 of the Internal Revenue Code or a
non-statutory option not intended to meet such requirements and the remaining
provisions of the option grant or award.
Recipients of stock options under either Plan have the right to purchase
shares of common stock at an exercise price, during a period of time and on such
other terms and conditions as are determined by the Compensation Committee or a
secondary committee. For incentive stock options, the recipient must be an
employee, the exercise price must be at least 100% (110% if issued to persons
owning 10% or more of the common stock) of the fair market value, as defined in
the Plan, of the common stock on the date of grant and the term cannot exceed
ten years (five years if issued to persons owning 10% or more of the common
stock) from the date of grant. If permitted by the Compensation Committee and
subject to certain conditions, an option exercise price may be paid by delivery
of shares of common stock that have been outstanding, a promissory note, a
broker's undertaking to deliver promptly the necessary funds or by a combination
of these methods. If permitted by the Compensation Committee, options may be
settled by I-trax paying to the recipient, in cash or in shares of common stock
valued at the then fair market value of the common stock, an amount equal to
such fair market value minus the exercise price of the option shares.
-55-
Generally, upon termination of a recipient's employment or other
relationship with I-trax, stock options remain exercisable for a period of three
months (one year if termination is due to death or disability) to the extent the
stock options were exercisable at the date of expiration, except as otherwise
agreed between the employee and I-trax.
As of December 31, 2001, the Board had granted 2,617,223 options,
exercisable at $1.00 or $2.00 per share, under the 2000 Plan, 2565,632 options,
exercisable at $.55 per share, under the 2001 Plan and 1,045,000 non-plan
options, exercisable at prices ranging from $.55 to $2.00.
Compensation of Directors
During 2001, directors of I-trax did not receive any cash payments.
Messrs. Green and Palumbo and Dr. Johns each received an option grant of 100,000
shares and Mr. Wheeler received an option grant of 50,000 shares. These option
grants are exercisable over a period of two years. Each director is also
reimbursed for out-of-pocket expenses incurred in connection with attending
Board meetings.
LEGAL OPINION
The validity of the shares of our common stock offered by this prospectus
will be passed upon for us by Ballard Spahr Andrews Ingersoll, LLP,
Philadelphia, Pennsylvania.
EXPERTS
The financial statements of I-trax, Inc. and subsidiaries as of December
31, 2001 and for each of the two years in the period ended December 31, 2001
included in this Prospectus have been so included in reliance on the report
(which contains an explanatory paragraph relating to the Company's ability to
continue as a going concern as described in Note 2 to the financial statements)
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of WellComm Group, Inc. as of December 31, 2001
and 2000, and for each of the years in the two-year period ended December 31,
2001, included in this document and in the registration statement have been
audited by Lutz & Company, P.C., independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission (SEC File No. 0-30275). Copies of these
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Securities and Exchange
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549.
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements and other
information regarding our company. The address of this website is
http://www.sec.gov.
We have filed a registration statement under the Securities Act with the
Securities and Exchange Commission with respect to the shares of our common
stock of covered by this prospectus. This document constitutes the prospectus of
I-trax filed as part of that registration statement. This document does not
contain all of the information set forth in the registration statement because
some parts of the registration statement are omitted as provided by the rules
and regulations of the Securities and Exchange Commission. You may inspect and
copy the registration statement at any of the addresses listed above.
-56-
FINANCIAL INFORMATION
The following financial information represents historical financial
information of I-trax, Inc. and its subsidiaries on a consolidated basis and the
historical financial information of WellComm Group, Inc.
I-TRAX INC & SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
AND
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item Page No.
Independent accountants' report.............................................F-2
Balance sheet at December 31, 2001..........................................F-3
Statements of operations for the years ended December 31, 2001and 2000......F-4
Statement of stockholders' equity (deficiency) for the years ended
December 31, 2001 and 2000................................................F-5
Statements of cash flows for the years ended December 31, 2001 and 2000.....F-7
Notes to financial statements...............................................F-8
-F-1-
Report of Independent Accountants
To the Board of Directors and
Stockholders of I-trax, Inc:
We have audited the accompanying consolidated balance sheet of I-trax,
Inc. & Subsidiaries (the "Company") as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the years ended December 31, 2001 and 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 2001, and the results of its operations and cash
flows for the two years ended December 31, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has a working capital deficiency and
incurred losses from operations for the years ended December 31, 2001 and 2000,
which raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 29, 2002
-F-2-
I-TRAX, INC. AND SUBSIDIARIES
BALANCE SHEET
DECEMBER 31, 2001
ASSETS
Current assets
Cash $ 1,029,208
Prepaid expenses 99,245
Note receivable 72,437
Other current assets 1,915
------------
Total current assets 1,202,805
------------
Office equipment and furniture, net 279,635
Goodwill, net 2,224,726
Security deposits 66,896
------------
Total assets $ 3,774,062
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 619,612
Accrued expenses 276,750
Deferred revenue 148,830
Capital lease payable 42,878
Due to related parties 739,598
------------
Total current liabilities 1,827,668
------------
Capital lease obligation, net of current portion 55,901
Promissory notes payable, net of discount 312,327
------------
Total liabilities 2,195,896
------------
Commitments and contingencies (Note 13) --
Stockholders' equity
Preferred stock - $.001 par value, 2,000,000 shares authorized,
-0- issued and outstanding --
Common Stock - $.001 par value, 100,000,000 shares authorized,
34,939,466 shares issued and outstanding 34,939
Additional paid in capital 22,964,778
Accumulated deficit (21,421,551)
------------
Total stockholders' equity 1,578,166
------------
Total Liabilities and Stockholders' Equity $ 3,774,062
============
See accompanying notes to financial statements.
-F-3-
I-TRAX, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
------------ ------------
Revenue $ 613,070 $ 260,645
------------ ------------
Operating expenses:
Cost of revenue 99,584 156,034
General and administrative 1,711,430 2,286,594
Salary & related benefits, including $3,915,232 for 2001
of stock based compensation 6,996,108 2,903,071
Research and development 818,176 710,858
Acquired in progress research & development 1,642,860 --
Depreciation & amortization 799,014 75,089
Marketing and advertising 989,972 380,277
------------ ------------
Total operating expenses 13,057,144 6,511,923
------------ ------------
Operating loss (12,444,074) (6,251,278)
------------ ------------
Other income (expenses):
Miscellaneous income -- 119,689
Settlements of judgments -- (176,500)
Debt issuance & conversion costs (1,424,688) --
Interest income 33,962 15,011
Interest expense (524,632) (122,406)
------------ ------------
Total other income (expenses) (1,915,358) (164,206)
------------ ------------
Loss before provision for income taxes (14,359,432) (6,415,484)
------------ ------------
Provision for income taxes -- --
------------ ------------
Net loss $(14,359,432) $ (6,415,484)
============ ============
Loss per common share:
Basic and diluted (.54) (.36)
============ ============
Weighted average number of shares outstanding: 26,457,013 18,037,879
============ ============
See accompanying notes to financial statements.
-F-4-
I-TRAX, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Total
Common Stock Additional Notes Stockholders'
------------ Paid-in Accumulated Receivable Equity
Shares Amount Capital Deficit Officers (Deficiency)
------ ------ ------- ------- -------- ------------
Balances at January 1, 2000 15,799,843 $ 15,800 $ 1,043,527 $ (646,635) $ -- $ 412,692
Sale of common stock,
net of costs (note 12) 1,800,000 1,800 1,793,080 -- -- 1,794,880
Sale of common stock,
net of costs (note 15) 862,500 863 1,724,160 -- -- 1,725,023
Issuance of common stock in
connection with services
rendered to the Company 25,000 25 49,975 -- -- 50,000
Issuance of commons stock in
connection with conversion
of related party debt 17,500 17 34,983 -- -- 35,000
Grant of Non-qualified and Non-plan
options to consultants as
considerations for services
Rendered -- -- 256,035 -- -- 256,035
Fair market value of detachable
purchase warrants issued with
convertible promissory notes -- -- 743,027 -- -- 743,027
Issuance of common stock in
connection with exercise of
stock options 250,000 250 24,750 -- -- 25,000
Issuance of common stock in
connection with officers
Note & Pledge Agreements 500,000 500 999,500 -- (999,500) 500
Net loss for the year ended
December 31, 2000 -- -- -- (6,415,484) -- (6,415,484)
---------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 2000 19,254,843 $ 19,255 $ 6,669,037 $(7,062,119) $ (999,500) $(1,373,327)
========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
-F-5-
I-TRAX, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Total
Common Stock Additional Notes Stockholders'
------------------------- Paid-in Accumulated Receivable Equity
Shares Amount Capital Deficit Officers (Deficiency)
------ ------ ------- ------- -------- ------------
Balances at December 31, 2000 19,254,843 $19,255 $ 6,669,037 $ (7,062,119) $ (999,500) $(1,373,327)
Common Stock issued in
connection with acquisition
of iSummit Partners, LLC 3,368,000 3,368 5,250,712 -- -- 5,254,080
Fair market value of detachable
warrants issued in connection
with amended and restated
promissory notes -- -- 459,854 -- -- 459,854
Sale of common stock, June 2001
Private Placement 2,200,000 2,200 1,097,800 -- -- 1,100,000
Grant of non-qualified and
non-plan options to
consultants as consideration
for services rendered -- -- 29,741 -- -- 29,741
Cancellation of Note and
Pledge Agreements (500,000) (500) (999,500) -- 999,500 (500)
Issuance of Common Stock and
warrants in connection with
conversion of convertible
promissory notes 4,560,314 4,560 2,547,224 -- -- 2,551,784
Issuance of Common Stock and
warrants in connection
with conversion of
advances from officers 1,237,326 1,238 1,247,894 -- -- 1,249,132
Sale of Common Stock, net of
costs October 2001, Private
Placement 4,211,976 4,212 2,038,746 -- -- 2,042,958
Issuance of Common Stock and
warrants as consideration
for services rendered to
the Company 601,533 601 1,012,297 -- -- 1,012,898
Granting of warrants to
employees as consideration
for deferring and
converting accrued salary
amounting to $814,595 into
equity 3,915,232 -- -- 3,915,232
Cancellation of shares in
connection with purchase
price adjustment for iSummit
Partners, LLC (464,592) (465) (724,299) -- -- (724,764)
Issuance of common stock in
connection with exercise
of warrants 470,066 470 70,040 70,510
Mark-to-market of options
granted to Officers in lieu
of canceling Note &
Pledge agreement 350,000 350,000
Net loss for the year ended
December 31, 2001 -- -- -- (14,359,432) -- (14,359,432)
---------- ---------- ------------ ------------ ------- -----------
Balances at December 31, 2001 34,939,466 $ 34,939 $ 22,964,778 $(21,421,551) $ -- $ 1,578,166
========== ========== ============ ============ ======= ===========
See accompanying notes to financial statements.
-F-6-
I-TRAX, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
------------ ------------
Operating activities:
Net loss $(14,359,432) $ (6,415,484)
Adjustments to reconcile net loss to net
cash used for operating activities:
Purchase research & development 1,642,860 --
Accretion on discounts charged to interest expense 463,551 --
Depreciation and amortization 799,014 75,090
Issuance of various securities for consideration of services 6,576,003 429,125
Decrease (increase) in:
Accounts receivable 217,145 194,893
Prepaid expenses (62,539) (11,936)
Other current receivables 2,666 (4,581)
(Decrease) increase in:
Accounts payable 192,462 260,172
Accrued expenses (167,592) 418,742
Customer Deposits (226,404) 375,234
------------ ------------
Net cash used for operating activities (4,922,266) (4,678,745)
------------ ------------
Investing activities:
Purchase of office equipment and furniture (1,990) (324,585)
Security deposits made (refunded) 61,486 (88,220)
Collection of (investment) in promissory note receivable 312,500 (350,000)
------------ ------------
Net cash provided by (used for) investing activities 371,996 (762,805)
------------ ------------
Financing activities:
Repayments of convertible debentures -- (37,500
Proceeds from issuance of promissory note payable 692,809 --
Repayments to related parties -- (31,048)
Proceeds from officers advances 1,180,990 --
Repayments of officers advances (480,000) --
Principal payments on capital leases (40,095) (2,727)
Proceeds from sale of common stock, net of expenses 3,822,968 3,519,903
Proceeds from issuance of convertible promissory notes 270,000 1,930,000
------------ ------------
Net cash provided by financing activities 5,446,672 5,378,628
------------ ------------
Net increase (decrease) increase in cash 896,402 (62,922)
Cash and cash equivalents at beginning of year 132,806 195,728
------------ ------------
Cash and cash equivalents at end of year $ 1,029,208 $ 132,806
============ ============
Supplemental disclosure of non-cash flow information:
Cash paid during the year for:
Interest $ 7,468 $ 4,537
============ ============
Income taxes $ -- $ --
============ ============
Schedule of non-cash investing activities:
Acquisition of office equipment in connection with
capital lease obligations $ -- $ 141,578
============ ============
Schedule of non-cash financing activities:
Issuance of common in connection with converting promissory notes
and related party advances $ 2,551,784 $ 35,000
============ ============
Acceptance (cancellation) of promissory note in connection with sale of
Common stock $ (999,500) $ 999,500
============ ============
See accompanying notes to financial statements.
-F-7-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 1--ORGANIZATION
History
I-trax, Inc. (the "Company") was incorporated in the State of Delaware on
September 15, 2000. On February 5, 2001, the Company and I-trax Health
Management Solutions, Inc. (formerly known as I-Trax.com, Inc.) ("Health
Management") completed a holding company reorganization. At the effective time
of the reorganization, all of the stockholders of Health Management became the
stockholders of the Company and Health Management became a wholly owned
subsidiary of the Company. The holding company structure allows the Company
greater flexibility in its expansion and diversification plans. Additionally,
the holding company structure facilitated the acquisition of iSummit Partners,
LLC (D/B/A "MyFamilyMD"), which was consummated on February 7, 2001 as further
discussed in Note 6 and the acquisition of WellComm Group, Inc on February 6,
2002, as discussed in Note 17. The Company's common stock is quoted on the
Over-the-Counter Bulletin Board under the symbol "IMTX".
The Company, through its subsidiary, Health Management, offers population health
management solutions to the medical industry by utilizing its suite of
technology products. The Company's mission is to combine real time
Internet-based software technology, smart electronic health information and
education, electronic health risk assessments and risk stratification, seamless
messaging and targeted electronic and personal interventions by healthcare
professionals to improve the quality of care, increase patient satisfaction,
improve clinical outcomes, reduce practice variances, improve operating
efficiencies and lower medical costs. The Company has also developed a powerful
disease management software engine and database architecture, which can be
expanded into unlimited health care applications.
As of December 31, 2001, the Company has two wholly owned subsidiaries, Health
Management as described above, and is the sole member of iSummit Partners, LLC,
a limited liability company acquired in February 2001. iSummit Partners, LLC
does have any operations other than maintaining ownership of certain
intellectual property.
NOTE 2--GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. For the years ended 2001 and 2000 the
Company used cash in operations of $4,900,000 and $4,700,000 million
respectively. As of December 31, 2001, the Company's accumulated deficit
amounted to $21,421,551 of which $14,359,432 resulted from losses generated
during the year ended December 31, 2001. Of the total loss of $14,359,432 for
2001, $1,642,860 was a non-cash charge to operations for the acquired in
progress research and development in connection with iSummit acquisition and
$6,576,003 of non-cash charges as consideration for payments for services
rendered to the Company and for the granting and re-pricing of warrants
associated with the conversion of debt into equity and for the borrowing of
funds from related parties. As of December 31, 2001, the Company's working
capital deficiency amounted to $624,863.
Beginning in the fourth quarter of 2000, in an effort to conserve cash, the
Company established a salary deferment program whereby certain executive
officers and certain other senior level employees agreed to defer all or a
portion of their salaries until the Company reached positive cash flows or
secured significant financing either from equity or debt instruments. The
program remained in effect until December 31, 2001. As consideration for
individuals deferring salaries, the Company agreed to pay interest at the rate
of 8% per annum on the deferred salary and offered warrants with exercise prices
paralleling the same exercise prices granted to outside investors during the
year. The Company agreed to repay such accrued salary to individuals not
electing to convert into equity over a twelve-month period commencing
immediately upon generating excess cash flows from operations.
-F-8-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 2--GOING CONCERN (cont'd)
Through December 31, 2001 and the date of this report, the Company has been able
to secure financing to support its working capital deficiency. Such support has
been received from unrelated parties and its Chief Executive and Operating
Officers. In the near future, additional cash will be required to enable the
Company to finish the development of its core products, liquidate its short-term
liabilities and continue to implement its marketing strategy based on its
re-defined markets.
Management is optimistic that it will be able to raise additional capital,
however, there can be no assurance that it will be able to do so. During the
fourth quarter of 2001 and immediately subsequent thereto, the Company executed
several sales contracts and two joint marketing agreements with organizations
that have the ability to market the Company's products and services to their
existing clients. The Company expects that these key agreements will generate
revenue in 2002 and that in the second half of 2002 the Company will have
sufficient cash flow to fund its cash flow deficits.
Regardless of these positive events, the Company will require additional funding
to bridge the gap until these agreements and contracts materialize into cash.
These facts raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include adjustments relating to
the recoverability and realization of assets and classification of liabilities
that might be necessary should the Company be unable to continue in operation.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash And Cash Equivalents
The Company considers highly liquid investments with maturities of three months
or less at the time of purchase to be cash equivalents.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" which
requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
respective periods' taxable income for federal and state income tax reporting
purposes.
Loss Per Common Share
Loss per common share is computed pursuant to Financial Accounting Standards
Board, "SFAS No. 128," "Earnings Per Share". Basic loss per share is computed as
net income (loss) available to common shareholders divided by the weighted
average number of common shares outstanding for the period. Diluted loss per
share reflects the potential dilution that could occur from common shares
issuable through stock options, warrants, and convertible debt. As of December
31, 2001, 11,743,718 options and warrants were excluded from the diluted loss
per share computation, as their effect would be anti-dilutive.
-F-9-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Use Of Estimates
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
which affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value Disclosure At December 31, 2001
The carrying value of cash, accounts payable and accrued expenses are a
reasonable estimate of there fair value because of the short-term maturity.
Office Equipment And Furniture
Office equipment and furniture are recorded at cost less accumulated
depreciation which is provided on the straight line basis over the estimated
useful lives of the assets which range between three and seven years.
Expenditures for maintenance and repairs are expensed as incurred.
Accounts Receivable
The Company utilizes the allowance method for recognizing the collectibility of
its accounts receivable. The allowance method recognizes bad debt expense based
on a review of the individual accounts outstanding based on the surrounding
facts.
Research And Development Costs
Research and development costs are expensed as incurred. Such costs amounted to
$818,176 and $710,858 for the years ended December 31, 2001 and 2000,
respectively.
Revenue Recognition
The Company recognizes revenues in accordance with Statement of Position 97-2
"Software Revenue Recognition" as further modified by Statement of Position 98-9
"Modification of SOP 97-2, "Software Revenue Recognition with Respect to Certain
Transactions". SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements such as software products, upgrades,
enhancements, post-contract customer support, installation and training to be
allocated to each element based on the relative fair value of the elements.
Revenue from software development contracts is recognized on a
percentage-of-completion method with progress to completion measured based upon
labor hours incurred or achievement of contract milestones. Revenue from re-sale
of hardware and software, obtained from vendors, is recognized at the time
hardware and software is delivered to customers. Customer deposits represent
funds received in advance in excess of revenue recognized. The Company has
adopted the provisions of the Securities & Exchange Commission Staff Accounting
Bulletin (SAB) 101, ("Revenue Recognition in Financial Statements") in the
fourth quarter of 2000, retroactively to January 1, 2000, as required by the
Securities & Exchange Commission. The adoption had no impact on the Company's
financial statements.
-F-10-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Software Development Costs
In accordance with the provisions of Statement of Financial Accounting Standard
(SFAS) No. 86, Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed, the Company will capitalize software development and
production costs once technological feasibility has been achieved. Software
development costs incurred prior to achieving technological feasibility are
included in research and development expense in the accompanying statement of
operations. As of December 31, 2001, the Company has not capitalized any
software development costs. Commencing with the first quarter of 2002, the
Company expects to start capitalizing some of its software development costs
based on the expected completion of working models for several of its software
products.
Comprehensive Income
The Company has adopted SFAS No. 130, "Accounting for Comprehensive Income."
This statement establishes standards for reporting and disclosing of
comprehensive income and its components (including revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. The items of
other comprehensive income that are typically required to be disclosed are
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity securities. The
Company had no comprehensive income for the years ended December 31, 2001 and
2000.
Reclassification
Certain reclassifications of operating expenses in the statement of operations
for the year ended December 31, 2000 have been made to conform to 2001
presentation.
Stock-Based Compensation
The Company accounts for employee stock options using the intrinsic value method
as prescribed by Accounting Principles Board Opinion No. 25 "Accounting or Stock
Issued to Employees". The Company follows the disclosure provisions of Statement
of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock Based
Compensation" for valuing common stock issued to non-employees, which recommends
the utilization of the Black Scholes option-pricing model for valuing the
underlying securities to be issued.
Segment Reporting
The Company evaluates segment performance based on income from operations.
Through December 31, 2001, the Company does not measure segment performance as
it operates in only one segment.
New Accounting Pronouncements
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, "Accounting for Derivatives Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133," and SFAS No. 138, "Accounting for Certain Derivatives Instruments and
Certain Hedging Activities." The standards require an entity to recognize all
derivatives as either assets or liabilities measured at fair value. The
accounting for the changes in fair value of a derivative depends on the use of
the derivative. The Company does not have any derivatives subject to these
pronouncements at this time.
-F-11-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
New Accounting Pronouncements (cont'd)
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
financial accounting and reporting for business combinations and supercedes APB
Opinion No. 16, "Business Combinations." Changes made by SFAS No. 141 include
(1) requiring the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and (2) established specific
criteria for the recognition of intangible assets separately from goodwill.
These provisions are effective for business combinations for which the date of
acquisition is subsequent to June 30, 2001. SFAS No. 142 addresses the
accounting for goodwill and intangible assets subsequent to their acquisition.
The provisions for SFAS No. 142 will be effective for fiscal years beginning
after December 15, 2001. The Company will adopt SFAS No. 142 in the first
quarter of calendar year 2002 and accordingly will cease amortization of
goodwill. From February 7, 2001 through December 31, 2001, the Company recorded
$640,851 of amortization. The impact of the impairment provisions, if any, of
FAS 142 cannot be estimated at this time.
In October 2001, the FASB issued SFAS No. 144 " Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets and supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
assets to be Disposed Of". SFAS 144 is effective for fiscal years beginning
after December 15, 2001 and the interim periods within. The adoption of SFAS 144
is not expected to have a material impact on the financial statements of the
Company.
NOTE 4--NOTE RECEIVABLE
Pursuant to a promissory note and a security agreement dated December 19, 2000,
the Company loaned Diabetex Corporation ("Diabetex"), which is in the business
of managing the healthcare of diabetes patients, $350,000 with a maturity date
of February 19, 2002 or within 60 days of termination of merger discussions,
bearing interest at 8% per annum. In March 2001, the parties terminated the
merger discussions. Further, on April 30, 2001, the Company demanded that,
pursuant to the terms of the promissory note, Diabetex repay the principal
amount of the promissory note and all accrued interest thereon on or before June
29, 2001. As of December 31, 2001, Diabetex and certain of its related parties
have paid the Company a total of $312,500, which has been first applied to
accrued interest and reimbursable expenses and the balance to principal. As of
December 31, 2001, the principal and interest outstanding under the promissory
note equaled $72,437, of which $37,500 was paid on February 11, 2002. The
parties anticipate that the outstanding balance along with all accrued interest
will be repaid by May 15, 2002.
NOTE 5--OFFICE EQUIPMENT AND FURNITURE
Office equipment and furniture are as follows at December 31, 2001:
Office equipment $ 420,171
Furniture 100,364
-----------
520,535
Less: accumulated depreciation 240,900
-----------
$ 279,635
===========
-F-12-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 5--OFFICE EQUIPMENT AND FURNITURE (cont'd)
Certain office equipment is pledged as collateral for related capital lease
obligations. (See Note 9.)
Depreciation expense for the years ended December 31, 2001 and 2000 amounted to
$158,162 and $75,090 respectively.
NOTE 6--ACQUISITION OF ISUMMIT PARTNERS, LLC
Effective February 7, 2001, the Company completed the acquisition of iSummit
Partners, LLC, doing business as MyFamilyMD ("iSummit") by issuing a total of
4,222,500 shares of its common stock to the owners of iSummit in exchange for
all of the issued and outstanding limited liability company membership interests
of iSummit. For purposes of recording the acquisition, of the total 4,222,500
shares, the Company originally recorded 3,368,000 shares (valued at $1.56 per
share or $5,254,080) (non-contingent) as consideration. Furthermore, of the
total 4,222,500 shares, 854,500 shares would have been released to the former
owners of iSummit, and recorded as an expense for accounting purposes, upon the
Company reaching certain revenue targets generated by iSummit's products.
Contemporaneously with recording 3,368,000 shares, the Company recorded goodwill
of $3,590,341 after allocating $1,642,860 to in-progress research and
development (representing undeveloped software) and $20,879 to tangible assets.
The allocation of purchase price was prepared based on a formal valuation by an
independent entity.
Effective December 31, 2001, 1,289,184 of the total 4,222,500 shares have been
mutually cancelled based on additional unexpected costs the Company incurred in
building out the technology it had acquired from iSummit. iSummit has been a
passive wholly owned entity of the Company, which holds certain intellectual
property of the Company and it does not engage in any operations. For accounting
purposes, the Company has reversed 464,592 of the total shares surrendered with
a recorded value of $724,764, since the remaining 854,500 were shares
contingently issuable upon reaching certain revenue targets, which were not met
and therefore were not previously recorded.
The Company is amortizing the goodwill over a five-year period on a
straight-line basis. Accordingly, from February 7, 2001 (date of acquisition)
through December 31, 2001, the Company recorded amortization expense of
$640,851.
The following summarized table sets forth the pro-forma statements of operations
as if the acquisition was consummated at the beginning of the year for each of
the respective periods.
Year ended
December 31,
2001 2000
------------- ------------
Total revenue $ 613,070 $ 260,645
============= ============
Total expenses $ 14,972,502 $ 7,466,426
============= ============
Net loss $ (14,359,432) $ (7,205,781)
============= ============
Pro forma basic and diluted net loss per share (.54) (.34)
============= ============
Weighted average number of shares outstanding 26,457,013 20,941,287
============= ============
-F-13-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 7--DEPOSIT ON ACQUISITION OF INTELLECTUAL PROPERTY
On March 9, 2001 the Company entered into an intellectual property letter of
intent with Disease Management Holdings, Inc., doing business as CardioContinuum
("CardioContinuum"), a company in the business of providing disease management
services to patients suffering from cardiac disease. Among other things, the
letter of intent contemplated a license by CardioContinuum to the Company of
certain protocols and workflows that facilitate efficient treatment of patients
suffering from cardiac disease. The letter of intent also contemplated a loan to
CardioContinuum of $100,000 in the form of a promissory note, and all accrued
but unpaid interest there under, issued by CardioContinuum to the Company on
January 8, 2001 would be surrendered by the Company to CardioContinuum for
cancellation as an up front license fee for the intellectual property license.
As a result of CardioContinuum filing for bankruptcy during 2001, the Company
wrote off the deposit on the intellectual property since it wouldn't have been
able to realize any value and repayment of the note was unlikely.
NOTE 8--ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2001:
Interest 49,469
Salaries 224,281
Other 3,000
--------
Total $276,750
========
NOTE 9--CAPITAL LEASE OBLIGATIONS
During April 2000, the Company acquired a telephone system for $34,290 by
entering into capital lease obligations with interest at approximately 10% per
annum, requiring 60 monthly payments of $731, which include principal and
interest. The related equipment secures the lease.
During October 2000, the Company acquired web hosting equipment for $107,288 by
entering into a capital lease obligation with interest at approximately 9% per
annum, requiring 36 monthly payments of $3,572, which include principal and
interest. The related equipment secures the lease.
The future minimum lease commitments under the capital leases as of December 31,
2001 are as follows:
For the year
ended December 31:
------------------
2002 $ 51,636
2003 44,492
2004 8,772
2005 2,924
---------
107,824
Total future payments
Less amount representing interest (9,045)
---------
Present value of minimum lease payments 98,779
Less current portion 42,878
---------
Net long term portion $ 55,901
=========
-F-14-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 9--CAPITAL LEASE OBLIGATIONS (cont'd)
At December 31, 2001 equipment under capital leases is carried at a book value
of $93,824.
NOTE 10--RELATED PARTIES TRANSACTIONS
During the year ended December 31, 2001, the Company's Chief Executive Officer,
Chief Operating Officer and a key employee have periodically advanced/repaid
funds to/from the Company for working capital. As of December 31, 2001, the
Company was advanced a net of $739,598 after certain repayments and the
conversion. As consideration for the advances, the Company issued to such
individuals, detachable stock purchase warrants to acquire an aggregate of
1,093,000 shares of common stock at exercise prices ranging from $.50 to $1 per
share. The Company valued the detachable warrants using the Black-Scholes
pricing model, thereby recording a charge to earnings for financing costs of
$630,469.
In connection with the Company's Chief Executive Officer and Chief Operating
Officer converting a total of $618,663 of advances at $.50 per share, the
Company issued an aggregate of 1,237,326 shares of its common stock.
From November 2000 through May 2001, the Company issued several convertible
promissory notes with an aggregate face amount of $2,200,000. Of such total,
$500,000 was from the Company's Chief Executive Officer and Chief Operating
Officer during October 2000, which was subsequently converted into common stock
as further discussed in Note 12.
As of December 31, 2001, a venture fund managed by the Company's Chief Executive
Officer loaned the Company $75,000 and received warrants to purchase 197,400
shares of the Company's Common Stock at $.10 per share. (See Note 11 for
additional information.)
In connection with signing of their employment agreements, the Company's Chief
Executive and Operating Officers had each purchased from the Company 250,000
shares of common stock for a purchase price of $2 per share. The shares were
purchased pursuant to a subscriptions agreement and a note and pledge agreement.
Each note was for a principal amount of $499,750 (net of a $250 bonus), bearing
interest at approximately 6% per annum, and provided that the unpaid principal
amount shall be due in five equal installments on each December 29, 2001 and
thereafter. Effective during the second quarter 2001, pursuant to board
resolutions, such notes and pledge agreements were canceled. Further, on April
10, 2001, each of such executive officers was granted 350,000 incentive stock
options pursuant to the Company's 2001 Equity Compensation Plan. Pursuant to
FASB Interpretation No. 44, variable accounting at the end of each interim
period must be applied to 250,000 of the 350,000 options granted on April 10,
2001 since they are deemed a re-price of the cancelled pledge and note
agreements. Accordingly, since the Company's fair market value was $1.25 at
December 31, 2001 and such options have an exercise of $.55, the Company
recorded the intrinsic value of $.70 or a total of $350,000 as compensation
expense on account of the re-pricing. The Company will continue to
mark-to-market these options at the end of each respective interim period until
they are exercised.
On December 31, 2001, the Company issued 470,066 shares of common stock in
connection with the Chief Executive Officer exercising 470,066 warrants by
converting $70,510 of advance into equity. Such warrants were granted in
connection with the salary deferment program previously discussed in Note 2.
Dr. Craig A. Jones, a director of I-trax, is the Director of the Division of
Allergy & Immunology at the Los Angeles County and University of Southern
California Medical Center, which is operated by the Los Angeles County
Department of Health Services (DHS). The Los Angeles County DHS purchased an
information system from I-trax to support implementation of a clinical disease
management program for which it paid I-trax approximately $100,000 in 2000 and
$61,000 in 2001. Dr. Jones is the director of that clinical program. In
-F-15-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
September 2000, I-trax also entered into a verbal consulting agreement with Dr.
Jones. Under the agreement, in addition to attending Board meeting, Dr. Jones
agreed to assist I-trax with product development efforts, attend trade shows on
its behalf and originate business leads. Under the agreement, Dr. Jones was to
be compensated at a rate of $3,000 per month. The payments were suspended in
November 2000.
In May 2000, Health Management entered into a consulting agreement with Health
Industry Investments, LLC, an affiliate of Philip D. Green, a director of
I-trax. Under the consulting agreement, Health Industry agreed to perform
certain services for Health Management, which include arranging introductions
with potential customers. In turn, Health Industry received the right to
purchase 20,000 shares of common stock of Health Management at a purchase price
of $2 per share. The beneficial owners of Health Industry exercised this right
and purchased these shares in September 2000 pursuant to a private placement
conducted by Health Management. In addition, Health Industry received options to
acquire up to 80,000 shares of common stock of Health Management at an exercise
price of $0.625 as compensation for performing services under the consulting
agreement. The options were to vest in equal monthly installments over the
one-year term of the consulting agreement. All options were accelerated in
October 2000. In April 2001, Health Industry received options to acquire an
additional 200,000 shares of Common Stock at an exercise price of $0.55 as
compensation for continuing to perform services under the consulting agreement.
These options vest over two years.
NOTE 11--PROMISSORY NOTES PAYABLE
On March 2, 2001 the Company entered into an Amended and Restated Promissory
Note and Warrant Purchase Agreement with Psilos Group Partners, L.P. and its
affiliates (the "Psilos Investor Group") pursuant to which the Psilos Investor
Group agreed to loan the Company up to $1,000,000. As consideration, the Company
granted the Psilos Investor Group detachable warrants to acquire shares of the
Company's common stock at $.10 per share. The loan bears interest at 8% per
annum, with a default rate of 12% per annum, and is due five years from original
date of issuance. As of December 31, 2001, the Psilos Investor Group (which
includes a venture fund managed by the Company's Chief Executive Officer) funded
an aggregate of $692,809 of the $1,000,000 and received warrants to purchase
1,823,473 shares of the Company's common stock.
The Company valued the detachable warrants issued at $459,854 using the
Black-Scholes pricing model, thereby allocating a portion of the proceeds from
the debt to the warrants utilizing the relative fair value of the debt and
warrants to the actual proceeds from the debt. This amount was recorded as a
discount to the related promissory notes and netted against the related debt.
Furthermore, the discount is being accreted to interest expenses over the
five-year term of the underlying promissory notes. As of December 31, 2001,
$79,372 of such discount is accreted to interest expense.
NOTE 12--CONVERTIBLE PROMISSORY NOTES PAYABLE
From November 2000 through May 2001, the Company issued several Convertible
Promissory Notes ("Promissory Notes") with an aggregate face amount of
$2,200,000. Of such total, $500,000 represented bridge financing provided to the
Company by its Chief Executive Officer and Chief Operating Officer in October
2000. The principal amount of the Promissory Notes and accrued and unpaid
interest thereon were convertible into common stock at $2.00 per share. The
Promissory Notes were to mature one year from the date of issuance and bore
interest at 8% per annum or 12% per annum in an event of default. Furthermore,
the Company issued to the holders of the Promissory Notes detachable warrants to
purchase an additional 2,200,000 shares of the Company's common stock at an
exercise price of $2.00.
-F-16-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 12--CONVERTIBLE PROMISSORY NOTES PAYABLE (cont'd)
The proceeds allocated to the detachable purchase warrants amounted to $845,650,
which was arrived at using the Black-Scholes pricing model. Such amount was
recorded as a discount to the Promissory Notes. The discount has been accreted
as interest expense over the life of the underlying Promissory Notes. On May 14,
2001, the holders of the Promissory Notes and the Company entered in to the
Exchange Agreement. As of May 15, 2001, the date the holders of the Promissory
Notes and the Company entered in to the Exchange Agreement discussed below, the
Company accreted $365,143 of the discount to interest expense.
Pursuant to an Exchange Agreement dated May 14, 2001 between the Company and the
holders of the Promissory Notes, the holders agreed to exchange $2,200,000,
representing the principal amounts of the Promissory Notes, and $80,157, the
interest accrued thereon through May 15, 2001, into common stock at the exchange
price of $.50 per share. In addition, as consideration for the exchange, the
Company reset the exercise price of the warrants to $.50 per share. Accordingly,
the Company issued a total of 4,560,314 shares of the Company's common stock in
the exchange. For accounting purposes, the Company recorded the conversion at
$2,551,784 (net of the un-amortized discount) into equity. In connection with
the Company reducing the conversion price from $2 to $.50 for the purpose of
inducing note holders to convert, during the second quarter, the Company
recorded debt conversion costs amounting to $794,219 which represented the
difference between the adjusted conversion price and the fair market value of
the Company's securities on the date of conversion.
NOTE 13--COMMITMENTS AND CONTINGENCIES
Nature of Business
The Company is subject to risks and uncertainties common to growing technology
companies, including rapid technological developments, reliance on continued
development and acceptance of the Internet and health care applications
utilizing the Internet, intense competition and a limited operating history.
Significant Customers
Financial instruments, which may potentially expose the Company to
concentrations of credit risk, consist primarily of accounts receivable.
Although as of December 31, 2001, the Company did not have any accounts
receivables, it did generate revenue from a small concentration of customers.
For the years ended December 31, 2001 and 2000, the Company had one and two
unrelated customers, respectively, which accounted for 84% and 75%, respectively
of total revenues.
Office Leases
On October 22, 1999, the Company entered into a lease agreement for its
technology and product development offices. The lease was to expire on October
31, 2004 with annual rent of approximately $162,000 before annual escalations.
During December 2001, the Company was successful in negotiating out of this
lease by entering into an amendment\relocation lease agreement with the same
landlord for materially less space. The Company entered into an eighteen-month
lease, which requires monthly payment of approximately $3,600.
The Company's approximate future minimum annual rental payments (as revised)
including annual escalations under the non-cancelable operating leases in effect
as of December 31, 2001 are as follows:
-F-17-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 13--COMMITMENTS AND CONTINGENCIES (cont'd)
For the year
ended December 31,
------------------
2002 $166,200
2003 144,600
2004 123,000
2005 61,000
2006 --
--------
$494,800
========
Rent expense for the years ended December 31, 2001 and 2000 amounted to
approximately $312,000 and $249,000, respectively.
Employment Agreements
The Company over the course of its history has entered into various employment
agreements with certain of its officers and key employees. Such employment
agreements range between three to five years with annual salaries ranging from
$75,000 to $175,000.
Judgments
During 1998, several judgments were entered against Health Management while it
was operating as U.S. Medical Alliance, relating to, among other things, the
Company's prior line of business of managing physician practices. The
allegations made in the underlying suits related to wrongful discharge, general
breach of contract, breach of equipment lease agreements and miscellaneous
vendor claims. The aggregate gross amount of such judgments entered against the
Company and certain associated physicians were approximately $600,000. Between
1999 and 2000, the Company settled and paid all such judgments for approximately
$214,000.
Threatened Litigation
In 1998, a former Chief Executive Officer, stockholder and creditor of Health
Management (the "Plaintiff") commenced an action in New Jersey state court
against, among others, the present Chief Executive Officer of Health Management.
Health Management is identified in the caption as a defendant. The complaint
alleges breach of contract, breach of fiduciary duty, breach of the covenant of
good faith and fair dealing, securities fraud, common law fraud, negligent
misrepresentation and racketeering activity. See Nazir Memon v. Frank Martin, et
al, CAM-L-04026-98. The allegations in this action reference circumstances
relating to Health Management's prior line of business of physician practice
management. In 1999, the court entered two orders dismissing the action "without
prejudice" for procedural reasons. Furthermore, in 1999 the Plaintiff filed for
bankruptcy protection. As part of the bankruptcy proceedings, the Plaintiff, the
present Chief Executive Officer and Health Management entered into a stipulation
limiting the period within which the Plaintiff can bring a new action alleging
Plaintiff's claims. Plaintiff sought to reactivate his prior state court action
in January 2001 (within the stipulated period), rather than commence a new
action. The stipulated time period for commencing a new action has expired. By
Opinion-Letter/Order dated August 22, 2001, the New Jersey Superior Court, Civil
Division, ruled that Plaintiff is barred from reactivating the civil action by
the bankruptcy stipulation. The Plaintiff is appealing the Civil Division
Opinion-Letter/Order and the appeal is pending. As of December 31, 2001, the
Company made no accrual for accounting purposes because the Plaintiff's success
in this matter is not deemed probable nor could the Company reasonably estimate
any adverse effect based on the current facts.
-F-18-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 13--COMMITMENTS AND CONTINGENCIES
Profit Sharing Plan
During the second quarter 2000, the Company established a 401(k) profit sharing
plan covering qualified employees, which includes employer participation in
accordance with the provisions of the Internal Revenue Code. The plan allows
participants to make pretax contributions and the Company to match certain
percentages of employee contributions depending on a number of factors,
including the participant's length of service. The profit sharing portion of the
plan is discretionary and noncontributory. All amounts contributed to the plan
are deposited into a trust fund administered by an independent trustee. As of
December 31, 2001, the Company has made no contributions.
NOTE 14--PROVISION FOR INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to differences between the financial statement and tax bases of assets
and liabilities for financial statement and income tax reporting purposes.
Deferred tax assets and liabilities represent the future tax return consequences
of these temporary differences, which will either be taxable or deductible in
the year when the assets or liabilities are recovered or settled. Accordingly,
measurement of the deferred tax assets and liabilities attributable to the
book-tax basis differentials are computed at a rate of 34% federal and 6% state.
The only material tax effect of significant items comprising the Company's
current deferred tax assets as of December 31, 2001 is its net operating loss
carry forwards, which amounted to approximately $11,600,000. The deferred tax
asset associated with the Company's net operating losses amounted to
approximately $4,200,000 as of December 31, 2001.
In accordance with SFAS No. 109, the Company has recorded a 100% valuation
allowance for such deferred tax asset since management could not determine that
it was "more likely than not" that the deferred tax asset would be realized in
the future. The Company's net operating losses will expire between 2011 and 2016
if not utilized.
NOTE 15--STOCKHOLDERS' EQUITY
Amendment of the Company's Certificate of Incorporation
The Board of Directors of the Company also approved an amendment to the
Company's Certificate of Incorporation increasing the number of authorized
shares of common stock from 50,000,000 to 100,000,000 shares. The holders of the
majority of the Company's then outstanding shares of common stock approved this
amendment on May 21, 2001.
2000 Issuances of Common Stock and Warrants
During January and February 2000, the Company sold an aggregate of 1,800,000
shares of its common stock at $1 per share yielding net proceeds of $1,794,880
after certain offering expenses. Such shares were sold pursuant to Rule 506 of
Regulation D promulgated under the Securities Act of 1933.
In May 2000, the Company commenced a private placement pursuant to Rule 506 of
Regulation D under the Securities Act of 1933. The offering was initially
comprised of 1,000,000 shares of its common stock at $2 per share. Pursuant to
such offering, the Company sold an aggregate of 862,500 shares yielding proceeds
of $1,725,023 as of December 31, 2000.
-F-19-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 15--STOCKHOLDERS' EQUITY (cont'd)
In August 2000, the Company issued 25,000 shares of its common stock at $2.00
per share for recruiting expenses in connection with expanding its sales force.
Accordingly, the Company recorded recruiting expense amounting to $50,000 in
connection with such issuance.
In September 2000, the Company issued 17,500 shares of its common stock to a
former officer of Member-Link in connection with a $35,000 advance made by such
officer in prior year.
2000 Issuances of Common Stock and Warrants (cont'd)
For the year ended December 31, 2000, the Company recorded $256,035 of
consulting expenses as a result of granting 280,000 non-plan/non-qualified stock
options utilizing the Black-Scholes option-pricing model.
Concurrently with the sale of the Convertible Promissory Notes discussed in Note
12, the Company issued detachable purchase warrants to purchase an additional
share for every dollar invested of the Company's common stock at an initial
exercise price of $2 per share. As of December 31, 2000, the proceeds allocated
to the detachable purchase warrants amounted to $743,027, which was valued using
the Black-Scholes pricing model. Such amount was recorded as a discount to the
Promissory Notes. The discount is being accreted as expense over the life of the
underlying Promissory Notes. For the year ended December 31, 2000, the Company
recorded $97,590 of the discount accreted to interest expense. In addition, as
of December 31, 2000, the Company has accrued $20,278 of interest on such
outstanding notes payable.
2001 Issuances of Common Stock and Warrants
In connection with the issuance of the Promissory Notes payable discussed in
Note 11 the Company granted the C2 Investor Group detachable warrants to acquire
2.632 shares of the Company's common stock at $.10 per share for each $1 of the
face amount of the loan. As of December 31, 2001, the C2 Investor Group (which
includes a venture fund managed by the Company's Chief Executive Officer) funded
an aggregate of $692,809 of the $1,000,000 and received warrants to purchase
1,823,473 shares of the Company's common stock. The Company valued the
detachable warrants issued at $459,854 using the Black-Scholes pricing model,
thereby allocating a portion of the proceeds from the debt to the warrants
utilizing the relevant fair value of the debt and warrants to the actual
proceeds from the debt. This amount was recorded as a discount to the related
promissory notes and netted against the related debt.
Effective as of June 25, 2001, the Company completed a private placement of
2,200,000 shares of its common stock at $.50, yielding to the Company a total of
$1,100,000. As consideration for completing the private placement, the Company
issued to the participating investors detachable stock purchase warrants to
acquire a total of 550,000 shares of common stock at an exercise price of $1.00
per share.
In connection with signing of their employment agreements, the Company's Chief
Executive and Operating Officers had purchased from the Company a total of
500,000 shares of common stock for a purchase price of $2 per share. The shares
were being purchased pursuant to a subscriptions agreement and a note and pledge
agreement. The note was for a principal amount of $999,500 (net of a $500
bonus), bearing interest at approximately 6% per annum, and provided that the
unpaid principal amount shall be due in five equal installments on each December
29, 2001 and thereafter. Effective during the second quarter 2001, pursuant to
board resolutions, such notes and pledge agreements were canceled. Subsequent
thereafter, such executive officers were granted an aggregate of 700,000
incentive stock options pursuant to the Company's 2001 Equity Compensation Plan.
Pursuant to FASB Interpretation 44, variable accounting at the end of each
interim period must be applied to such options since they are deemed a
re-pricing of the cancelled pledge and note agreements. Accordingly, since the
Company's fair market value was $1.25 at December 31, 2001 and such options have
an exercise of $.55, the Company recorded the
-F-20-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 15--STOCKHOLDERS' EQUITY (cont'd)
intrinsic value of $.70 per option or $350,000 of compensation expense. The
Company will continue to mark-to-market these options at the end of each
respective interim period until they are exercised.
2001 Issuances of Common Stock and Warrants (cont'd)
Effective as of June 25, 2001 and pursuant to an Exchange Agreement dated as of
May 14, 2001 between the Company and the holders of the Convertible Promissory
Note as discussed in Note 12, the holders agreed to exchange $2,200,000, the
principal amount of the Promissory Notes, and $80,157, the interest accrued
thereon effective as of May 15, 2001, into common stock at the exchange price of
$.50 per share. Accordingly, during the second quarter, the Company issued a
total of 4,560,314 shares of the Company's common stock for conversion of such
debt. In addition, as consideration for the conversion, the Company reset the
exercise price of 2,200,000 warrants previously issued to such holders to $.50
per share from $2.00. For accounting purposes, the Company recorded the
conversion at $2,551,784 (net of un-amortized discount) into equity. In
connection with the Company reducing the conversion price from $2 to $.50, the
Company recorded debt conversion costs amounting to $794,219, which represents
the difference between the adjusted conversion price and the fair market value
of the Company's securities on the date of conversion.
During the year, the Company's Chief Executive and Operating Officers, and a
Vice President of Sales (and a shareholder), lent the Company funds for working
capital purposes. At various dates during the year, the Officers elected to
convert a portion of their advances to the Company into equity. As consideration
for the advances, the Company granted such individuals, detachable stock
purchase warrants to acquire 1,093,000 shares of common stock at exercise prices
ranging from $.50 to $1 per share. The Company valued the detachable warrants
issued to such individuals using the Black-Scholes pricing model, thereby
recording a charge to earnings for financing costs of $630,469. Lastly, the
Company issued an aggregate of 1,237,326 shares of its common stock to its Chief
Executive and Operating Officer in exchange for the conversion of a portion of
their advances amounting to $618,663.
During November and December, pursuant to a private placement, the Company sold
an aggregate of 4,211,976 shares of common stock for cash and services for
$2,042,958 (net of $50,640 of direct costs).
During the year, pursuant to various agreements and board resolutions, the
Company issued an aggregate of 601,533 shares of its common stock to various
consultants for consideration of services received. The common stock was valued
at the fair market value of the stock on the date of issuance or $907,598 in the
aggregate. In addition, in July 2001, the Company granted an investment banker
180,000 five year warrants with an exercise price of $0.75 for services from
July 2001 to July 2002. The Company valued such warrants at $72,000 by utilizing
the Black-Scholes pricing model. Pursuant to EITF 96-18, the Company, at the end
of each reporting period, must apply variable accounting treatment and re-value
these warrants. As of December 31, 2001, the Company recorded a charge to
earnings of $33,300 as an investor relations expense.
-F-21-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 15--STOCKHOLDERS' EQUITY (cont'd)
2001 Issuance of Common Stock and Warrants (cont'd)
Effective December 31, 2001, the Company terminated the salary deferment program
and granted each participant as consideration for participating in the program,
one warrant for each dollar deferred with exercise prices ranging between $.50
to $1. Accordingly, the Company granted 710,983 warrants with an exercise price
of $.50 each and 102,703 warrants with an exercise price of $1 each.
Additionally, individuals were given the option to convert the actual deferred
salaries into warrants with an exercise price of $.15 or elect to be paid in
cash over time. As of December 31, 2001, the Company had accrued $1,038,876 of
deferred salary of which $814,595 was converted into equity by granting such
individuals 2,327,415 warrants exercisable at $.15. Accordingly, the Company
granted an aggregate of 3,141,101 warrants for which it utilized the
Black-Scholes pricing model resulting in an additional charge to earnings of
$3,100,635 representing additional compensation cost.
On December 31, 2001, the Company's issued 470,066 shares of common stock in
connection with the Chief Executive Officer exercising 470,066 warrants by
converting $70,510 of advance into equity. Such warrants were granted in
connection with the salary deferment program as discussed above.
As of December 31, 2002, the total number of warrants outstanding amounted to
8,517,509 with exercise prices ranging from $.10 to $1.00.
NOTE 16 - STOCK OPTIONS
2001 Equity Compensation Plan
On March 20, 2001, the Company's Board of Directors adopted the 2001 Equity
Compensation Plan (the "2001 Plan"). The Board of Directors amended the 2001
Plan on April 10, 2001 and the Company's stockholders adopted the 2001 Plan on
May 21, 2001. Four separate types of equity compensation may be issued under the
2001 Plan. First, stock options may be granted to eligible individuals,
including employees, consultants, advisors and non-employee members of the Board
of Directors. Stock options give optionees the right to purchase shares of
common stock at an exercise price determined at the time the option is granted.
Second, a salary investment option grant program may be implemented under the
2001 Plan. The salary investment option grant program permits eligible employees
to reduce their salary voluntarily as payment of two-thirds of the fair market
value of the underlying stock subject to the option, with the remaining
one-third of the fair market value payable as the exercise price for the option.
Third, direct issuances of stock may be made to eligible persons under the 2001
Plan. Persons receiving direct issuances of restricted stock may purchase shares
of common stock at a price less than, equal to or greater than the fair market
value of the common stock or may receive such shares of common stock for past
services rendered or as a bonus for the performance of services. In addition, if
specifically implemented, the Plan permits non-employee members of the Board of
Directors to automatically receive options to purchase shares of common stock at
periodic intervals.
The number of shares of common stock that may be currently issued under the 2001
Plan shall not exceed 5,000,000. The number of available shares subject to the
2001 Plan will increase automatically on the first day of each calendar year
beginning with the year 2002 by an amount equal to the lesser of (i) three
percent (3%) of the shares of common stock then outstanding and (ii) 1,000,000
shares. No one person participating in the 2001 Plan may receive options for
more than 400,000 shares of common stock per calendar year.
As of December 31, 2001, the Company had granted an aggregate of 2,565,632
options with an exercise prices of $.55.
-F-22-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 16 - STOCK OPTIONS (cont'd)
2000 Equity Compensation Plan
As of December 31, 2001, the Company had granted an aggregate of 2,617,223
options pursuant to the 2000 Equity Compensation Plan, of which 905,000 options
have an exercise price of $1.00 per share and 1,712,223 options have an exercise
price of $2.00 per share.
Non-Plan Stock Option Grants
As of December 31, 2001, the Company had granted an aggregate of 1,045,000
options outside of any stock option plan with exercise prices ranging from $0.55
to $2.00 per share.
A summary of the status of the Company's plan and non-plan options as of
December 31, 2001 and during the two years then ended is as follows:
Non-Qualified Non-Plan Non-
Incentive Options Options Qualified Options Total
------------------------------------------------------------------------------------------------------------
Outstanding as of
January 1, 2000 -- -- -- --
Granted 1,715,000 902,223 695,000 3,312,223
Exercised - - (250,000) (250,000)
-----------------------------------------------------------------------------------
Outstanding as of
December 31, 2000 1,715,000 902,223 445,000 3,062,223
Granted 602,500 1,734,632 600,000 2,937,132
Exercised -- -- -- --
-----------------------------------------------------------------------------------
Outstanding as of
December 31, 2001 2,317,500 2,636,855 1,045,000 5,999,355
-----------------------------------------------------------------------------------
Vesting Dates:
December 31, 2002 606,242 908,310 308,324 1,822,876
December 31, 2003 444,254 575,031 345,836 1,365,121
December 31, 2004 145,422 -- 62,508 207,930
December 31, 2005 50,000 -- -- 50,000
December 31, 2006 50,000 -- -- 50,000
Thereafter 225,000 -- -- 225,000
As of December 31, 2001, there were outstanding an aggregate of 2,278,428 of
exercisable plan and non-plan options with exercise prices ranging from $.55 to
$2.00.
For the year ended December 31, 2001 and 2000, the Company recorded $29,741 and
$256,035, respectively, of consulting expenses as a result of granting
non-plan/non-qualified stock options utilizing the Black-Scholes option-pricing
model.
-F-23-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 16 - STOCK OPTIONS (cont'd)
Had compensation expense for the options issued to employees under the plan been
determined based on the fair market value of the options at the grant dates
consistent with the provisions of SFAS 123, the Company's net loss per common
share would have been changed to the pro forma amounts indicated below.
2001 2000
---------------------------------------------------------------------------
Net loss as reported $ (14,359,432) $ (6,415,484)
Pro forma net loss $ (15,551,369) $ (11,615,150)
Basic and diluted net loss per
share as reported $ (.54) $ (.36)
Pro forma basic and diluted
net loss per share $ (.58) $ (.50)
The above pro forma disclosure may not be representative of the effects on
reported net operations for future years as options vest over several years and
the Company may continue to grant options to employees.
The fair market value of each option grant is estimated at the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions
Dividend yield 0.00%
Expected volatility 153%
Risk-free interest rate 6%
Expected life 1 year
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
Sale of Debenture
The Company, prior to acquiring WellComm as discussed below, sold a 6%
convertible senior debenture in the aggregate principal amount of $2,000,000
(the "Debenture") to Palladin Opportunity Fund LLC ("Palladin") pursuant to a
Purchase Agreement dated February 4, 2002. Pursuant to the Purchase Agreement,
the Company also issued a warrant to Palladin to purchase an aggregate of up to
1,538,461 shares of the Company's common stock (the "Warrant"). The outstanding
principal and any capitalized interest under the Debenture are payable in full
on or before February 3, 2004. Further, outstanding principal and any
capitalized interest may be converted at any time at the election of Palladin
into the Company's common stock at an initial conversion price of $1.00 per
share. The initial conversion price is subject to "reset" as of the date that is
12 months and 18 months after the issue date (each such date, a "Reset Date").
With respect to each Reset Date, the conversion price will only be reduced if
the average of closing bid prices for the Company's common stock during a period
of 20 consecutive trading days ending on the date which immediately precedes the
applicable Reset Date is less than the then applicable conversion price, which
is currently $1.00. The Warrant entitles Palladin to purchase shares of the
Company's common stock at the price of $1.10 per share.
-F-24-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED) (cont'd)
Sale of Debenture (cont'd)
Pursuant to the Purchase Agreement, Palladin also received an option to purchase
an additional 6% convertible senior debenture in the face amount of $1 million
and receive an additional warrant to purchase an aggregate of up to 769,230
shares of the Company's common stock. Finally, pursuant to a related
registration rights agreement, the Company agreed to register all of the shares
of common stock underlying the Debenture and the Warrant on a registration
statement.
Acquisition of WellComm Group, Inc.
On February 6, 2002, the Company completed the acquisition of WellComm Group,
Inc. ("WellComm"), as stipulated in the Merger Agreement dated January 28, 2002,
by issuing 7,440,000 shares of its common stock and granting 560,000 options
with a nominal exercise price. In addition, the Company also paid $2,190,000 in
cash for an aggregate acquisition value of approximately $12,000,000. The
WellComm acquisition was a two-step reorganization pursuant to the Merger
Agreement by and among I-trax, WC Acquisition, Inc., an Illinois corporation and
a wholly owned subsidiary of I-trax ("Acquisition"), WellComm, and WellComm's
two main shareholders. The initial step of the reorganization transaction
involved a merger of Acquisition with and into WellComm, in which merger
WellComm continued as the surviving corporation. The second step of the
reorganization transaction involved a statutory merger of WellComm with and into
the Company, in which merger the Company continued as the surviving corporation.
WellComm is a healthcare service company that offers a broad array of expertise
including a nurse contact center specializing in disease management, triage,
health information survey, and research services for the healthcare industry.
The acquisition will be accounted for as a purchase. As such, the purchase will
be allocated to the estimated fair values of the assets acquired and liabilities
assumed. The Company is in the process of obtaining third-party valuations of
certain intangible assets.
The following unaudited pro forma results of operations of the Company give
effect to the acquisition of WellComm as though the transaction had occurred on
January 1, 2000.
Year ended Year ended
December 31, December 31,
2001 2000
--------------- --------------
Sales $ 5,900,772 $ 1,239,787
Expenses 24,201,374 11,874,554
Net loss (18,300,602) (10,634,767)
Earnings per share
Basic and Diluted $ (.54) $ (.41)
Weighted average shares outstanding
Basic and Diluted 33,937,013 25,517,879
-F-25-
I-TRAX, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED) (cont'd)
Private Placement
The Company has received a $2,000,000 verbal commitment from an asset manager
for the purchase of common stock. As of March 20, 2002, the Company has received
$1,425,000 for the purchase of 1,900,000 shares of Common Stock at $.75 per
share.
Stock Options
On January 4, 2002, the Company granted 228,500 stock options with an exercise
price of $1.25 pursuant to the 2001 Equity Compensation Plan. On February 12,
2002, the Company granted 600,000 stock options with an exercise price of $1.21
pursuant to the 2001 Equity Compensation Plan to the former employees of
WellComm.
-F-26-
WELLCOMM GROUP, INC.
FINANCIAL STATEMENT AND
INDEPENDENT ACCOUNTANTS' AUDIT REPORT
DECEMBER 31, 2001 AND 2000
-----------------------------------------------------
-F-27-
WELLCOMM GROUP, INC.
--------------------------------------------------------------------------------
INDEX
Page
-------------------------------------------------------------------------------
Independent Accountants' Audit Report F-29
Balance Sheets F-30
Statements of Operations F-32
Statements of Stockholders' Equity F-33
Statements of Cash Flows F-34
Notes to Financial Statements F-35
-F-28-
[LUTZ & COMPANY, PC - LETTERHEAD]
INDEPENDENT ACCOUNTANTS' AUDIT REPORT
Board of Directors and Stockholders
WellComm Group, Inc.
Omaha, Nebraska
We have audited the accompanying balance sheets of WellComm Group, Inc., an
Illinois corporation, as of December 31, 2001 and 2000, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WellComm Group, Inc. as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for the years ended in conformity with accounting principles generally accepted
in the United States of America.
/s/ Lutz & Company P.C.
January 23, 2002
Omaha, Nebraska
-F-29-
WELLCOMM GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
ASSETS (Note 2)
2001 2000
---- ----
CURRENT ASSETS
Cash and Cash Equivalents $ 491,576 $ 16,719
Trade Accounts Receivable (Note 6) 439,698 192,827
Prepaid Expenses 13,828 17,749
Deferred Income Taxes (Note 8) 117,700 248,300
--------------------------------------------------------------------------------
Total Current Assets 1,062,802 475,595
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Furniture and Fixtures 40,346 37,235
Computer Software 76,680 46,680
Equipment 192,571 136,438
Equipment under Capital Lease (Note 4) 157,380 198,345
--------------------------------------------------------------------------------
Total Cost 466,977 418,698
Less Accumulated Depreciation 187,279 113,388
--------------------------------------------------------------------------------
Net Book Value 279,698 305,310
--------------------------------------------------------------------------------
OTHER ASSETS
Deposits 3,507 3,507
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL ASSETS $1,346,007 $ 784,412
================================================================================
--------------------------------------------------------------------------------
See Notes to Financial Statements.
-F-30-
------------------------------------------------------------------------------------------------------
LIABILITIES
2001 2000
---- ----
CURRENT LIABILITIES
Notes Payable, Related Parties (Note 3) $ $ 24,625
Current Portion of Long-Term Debt (Note 4) 51,596 72,915
Accounts Payable 76,959 13,641
Accrued Salaries and Wages 54,382 48,532
Payroll Taxes Accrued and Withheld 534,516 5,967
Customer Deposits 24,408 125,787
------------------------------------------------------------------------------------------------------
Total Current Liabilities 741,861 291,467
------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-Term Debt, Less Current Portion (Note 4) 32,789 118,147
------------------------------------------------------------------------------------------------------
Total Liabilities 774,650 409,614
------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 9)
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
$1 Par Value, Authorized, 1,000 Shares
Issued and Outstanding, 223 Shares 223 223
PAID IN CAPITAL 750,339 750,339
ACCUMULATED DEFICIT (179,205) (375,764)
------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 571,357 374,798
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,346,007 $ 784,412
======================================================================================================
--------------------------------------------------------------------------------
See Notes to Financial Statements.
-F-31-
WELLCOMM GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------------------------
2001 2000
---- ----
REVENUES (Note 6) $ 5,287,702 $ 979,142
COST OF REVENUES 2,510,279 529,509
--------------------------------------------------------------------------------------------------
GROSS PROFIT 2,777,423 449,633
OPERATING EXPENSES 2,449,409 581,433
--------------------------------------------------------------------------------------------------
Earnings (Loss) from Operations 328,014 (131,800)
--------------------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSE
Interest Income 9,896 802
Other Income 1,643 28,995
Interest Expense (12,394) (17,951)
--------------------------------------------------------------------------------------------------
Total Other Income and Expense (855) 11,846
--------------------------------------------------------------------------------------------------
Earnings (Loss) Before Provision for Income Taxes 327,159 (119,954)
PROVISION FOR INCOME TAXES (Note 8) 130,600 (38,400)
--------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 196,559 $ (81,554)
==================================================================================================
--------------------------------------------------------------------------------
See Notes to Financial Statements.
-F-32-
WELLCOMM GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
---------------------------------------------------------------------------------------------------------------
Total
Common Paid In Accumulated Stockholders'
Stock Capital Deficit Equity
--------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1999 $100 $ 252,456 $(294,210) $ (41,654)
--------------------------------------------------------------------------------------------------------------
Purchase and Retirement of 24 Shares
of Common Stock (24) (101,976) (102,000)
Issuance of 147 Shares of Common Stock 147 599,859 600,006
Net Loss (81,554) (81,554)
--------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2000 223 750,339 (375,764) 374,798
--------------------------------------------------------------------------------------------------------------
Net Earnings 196,559 196,559
BALANCES, December 31, 2001 $223 $ 750,339 $(179,205) $571,357
--------------------------------------------------------------------------------
See Notes to Financial Statements.
-F-33-
WELLCOMM GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
------------------------------------------------------------------------------------------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ 196,559 $ (81,554)
Adjustments to Reconcile Net Earnings (Loss) to
Net Cash Provided by (Used in) Operating Activities
Depreciation 73,891 72,292
Changes in Current Assets and Liabilities
Increase in Trade Accounts Receivable (246,871) (173,247)
Decrease (Increase) in Prepaid Expenses 3,921 (15,887)
Decrease (Increase) Deferred Income Taxes 130,600 (38,400)
Increase (Decrease) in Accounts Payable 63,318 (17,092)
Increase in Accrued Salaries and Wages 5,850 36,509
Increase in Payroll Taxes Accrued and Withheld 528,549 5,967
Increase (Decrease) in Customer Deposits (101,379) 125,787
-----------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 654,438 (85,625)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (48,279) (19,621)
Increase in Deposits (3,507)
-----------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (48,279) (23,128)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Long-Term Debt 30,487
Repayments of Long-Term Debt (106,677) (419,024)
Advances on (Repayments of) Notes Payable, Related Parties (24,625) 15,000
Purchase and Retirement of Common Stock (102,000)
Proceeds from Issuance of Common Stock 600,006
-----------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (131,302) 124,469
-----------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 474,857 15,716
Cash and Cash Equivalents, Beginning of Year 16,719 1,003
-----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 491,576 $ 16,719
===========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid $ 12,394 $ 17,951
NONCASH INVESTING AND FINANCING ACTIVITY
Long-Term Debt Incurred to Purchase Equipment under Capital Lease 206,921
--------------------------------------------------------------------------------
See Notes to Financial Statements.
-F-34-
WELLCOMM GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
--------------------------------------------------------------------------------
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements is set forth
below.
Organization and
Nature of Business WellComm Group, Inc. (the "Company") was incorporated
in January of 1997. The Company is a national health
management organization committed to improving
performance, quality and access to care and wellness
through its "Telehealth" service program, which
provides patients covered by health insurance
policies, 24-hour access to professional, telephonic
health advice and wellness information and support.
The Company is located in Omaha, Nebraska.
Use of Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash
Equivalents For purposes of the Statement of Cash Flows, the
Company considers all investments with maturities of
three months or less to be cash and cash equivalents.
Trade Accounts
Receivable The Company considers trade accounts receivable to be
fully collectible; accordingly, no allowance for
doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations
when that determination is made.
Concentration of
Credit Risk The Company has two financial instruments that
potentially subject the Company to credit risk. The
Company maintains bank accounts in which the balances
sometimes exceed federally insured limits. The
Company's trade accounts receivable also subject the
Company to credit risk.
Property and
Equipment Property and equipment are recorded at cost.
Expenditures for additions and betterments are
capitalized; expenditures for maintenance and repairs
are charged to expense as incurred. The costs of
assets disposed and the related accumulated
depreciation are eliminated from the accounts in the
year of disposal. Gains or losses from property
disposals are recognized in the year of disposal.
--------------------------------------------------------------------------------
-F-35-
WELLCOMM GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies - Continued
--------------------------------------------------------------------------------
Property and
Equipment - Cont. Depreciation is computed using the straight-line
method over the following estimated useful lives:
Years
-----
Furniture and Fixtures 7
Computer Software 3
Equipment 5-7
Equipment under Capital Lease 7
Revenue Recognition Revenue is recognized as services are rendered. The
Company contracts with its customers to provide
services based on an established monthly fee, a
per-call charge or a combination of both. The Company
invoices its customers in arrears of rendering these
services.
Income Taxes Deferred income tax assets and liabilities are
computed annually for differences between the
financial statement and tax bases of assets and
liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and
rates applicable to the periods in which the
differences are expected to affect taxable income.
Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change
during the period in deferred tax assets and
liabilities.
2. Financing Arrangements
--------------------------------------------------------------------------------
The Company has a $308,108 revolving bank line of credit, with interest at
.5% over the national prime rate as published by the Wall Street Journal
(4.75% at December 31, 2001) and payable monthly. This line of credit is
collateralized by all assets of the Company. There were no amounts
outstanding against this line of credit at December 31, 2001 and 2000.
3. Notes Payable, Related Parties
--------------------------------------------------------------------------------
Notes payable, related parties consisted of two unsecured notes to the
Company's vice president of operations, also a stockholder, and her sister.
Both notes were non-interest bearing and paid in full during the year ended
December 31, 2001.
4. Long-Term Debt
--------------------------------------------------------------------------------
Long-term debt at December 31, consists of the following:
2001 2000
---- ----
Capitalized equipment lease payable to a corporation, payable in monthly
installments of $4,856, including imputed interest at 10.91%, through July
2003,
collateralized by the equipment being leased. $84,385 $131,059
--------------------------------------------------------------------------------
-F-36-
WELLCOMM GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
4. Long-Term Debt - Continued
--------------------------------------------------------------------------------
2001 2000
---- ----
Capitalized equipment lease payable to a corporation, payable in monthly
installments of $1,372, including imputed interest at 13.4%, collateralized
by the equipment being leased. This lease was paid in
full during the year ended December 31, 2001. $31,833
Installment note payable to a bank on behalf of the Company's president and
stockholder, payable in monthly installments of $1,400, including interest
at 9.5%. This note was paid in full during the year ended
December 31, 2001. 28,170
----------- ------------
Total Long-Term Debt 84,385 191,062
Less Current Portion 51,596 72,915
Long-Term Debt, Less Current Portion $32,789 $118,147
=========== ============
5. Commitments and Contingencies
--------------------------------------------------------------------------------
Lease Obligations
-----------------
The Company has entered into various operating leases for office space and
certain equipment used by the Company. The future minimum lease payments
under these noncancelable operating leases as of December 31, 2001 are as
follows:
Year Ending December 31,
------------------------
2002 $42,057
2003 28,923
2004 1,420
-------
$72,400
=======
Lease expense under these operating leases was approximately $43,000 and
$28,000 for the years ended December 31, 2001 and 2000, respectively.
Employment Agreements
---------------------
The Company entered into two employment agreements with its president and
vice president of operations, both stockholders of the Company, in April
2000 that provides for a minimum annual salary. Subsequent to December 31,
2001, these agreements were terminated and new agreements were signed as a
result of the Company being acquired (See Note 9).
--------------------------------------------------------------------------------
-F-37-
WELLCOMM GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
5. Commitments and Contingencies - Continued
--------------------------------------------------------------------------------
Stockholder Agreements
----------------------
The Company and its stockholders have entered into an agreement, which
restricts the stockholders from selling their shares to any entity other
than the Company or remaining stockholders unless approved by the Company
and its stockholders. The Company and remaining stockholders have the first
option to purchase the shares, except in the case of death, whereby the
Company and remaining stockholders are required to purchase the shares, at
purchase price as defined in the agreement.
6. Economic Dependency - Major Customers
--------------------------------------------------------------------------------
Major customers whose revenue exceeded 10% of the total revenues were as
follows:
2001 2000
---- ----
Number of Major Customers 1 2
Percentage of Revenues 82% 92%
Percentage of Trade Accounts
Receivable at December 31 74% 59%
These revenues consist of several contracts with each customer that have
specific terms. Additionally, these contracts have a termination clause
without cause of 30 days.
7. 401(k) Plan
--------------------------------------------------------------------------------
The Company implemented a 401(k) plan in December 2001, which covers
substantially all employees upon the completion of three months of service
and attainment of 21 years of age. Matching contributions to the plan are
at the Company's discretion. The plan goes into affect beginning January
2002.
8. Income Taxes
--------------------------------------------------------------------------------
Components of the provision for income tax expense (benefit) are as
follows:
Federal State Total
------- ----- -----
2001
Current $ 108,300 $ 22,300 $ 130,600
--------- --------- ---------
Deferred $ 108,300 $ 22,300 $ 130,600
========= ========= =========
2000
Current $ (31,800) $ (6,600) $ (38,400)
--------- --------- ---------
Deferred $ (31,800) $ (6,600) $ (38,400)
========= ========= =========
--------------------------------------------------------------------------------
-F-38-
WELLCOMM GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
8. Income Taxes - Continued
--------------------------------------------------------------------------------
As of December 31, net deferred income taxes include the following
components:
2001 2000
---- ----
Deferred Tax Assets
Net Operating Loss Carryforward $ 92,000 $228,300
Temporary Differences
Accrued Vacation 19,600
Depreciation and Amortization 6,100 20,000
--------- --------
$ 117,700 $248,300
========= ========
The Company has available at December 31, 2001, unused operating loss
carryforwards of approximately $224,000, which may be applied against
future taxable income expiring in December 2019 and 2020.
9. Subsequent Event
--------------------------------------------------------------------------------
On February 6, 2002, the existing stockholders of the Company sold 100% of
their shares to I-trax, Inc. for a combination of cash and stock. As a
result of this transaction the Company was merged into a subsidiary of
I-trax. As of February 6, 2002, the Company no longer exists as a legal
entity.
--------------------------------------------------------------------------------
-F-39-
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145(a) of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine that, despite
such adjudication of liability, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 of the Delaware General Corporation Law further provides that
to the extent a director or officer of a Delaware corporation has been
successful in the defense of any action, suit or proceeding referred to in
subsections (a) or (b) of Section 145 or in the defense of any claim, issue or
matter therein, he shall be indemnified against any expenses actually and
reasonably incurred by him in connection therewith; that the indemnification
provided for by Section 145 shall not be deemed exclusive of any rights to which
the indemnified party may be entitled and the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the Delaware General Corporation Law permits a
Delaware corporation to include a provision in its Certificate of Incorporation,
and I-trax's Certificate of Incorporation contains such a provision, to the
effect that, subject to certain exceptions, a director of a Delaware corporation
is not personally liable to the corporation or its stockholders for monetary
damages for a breach of his fiduciary duty as a director.
I-trax's By-laws also provide that I-trax shall indemnify its directors and
officers and, to the extent permitted by the Board of Directors, I-trax's
employees and agents, to the full extent permitted by and in the manner
permissible under the laws of the State of Delaware. In addition, I-trax's
By-laws permit the Board of Directors to authorize the Company to purchase and
maintain insurance against any liability asserted against any of the Company's
directors, officers, employees or agents arising out of their capacity as such.
-II-1-
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by I-trax in
connection with the sale of the securities being registered. All amounts are
estimates except the SEC registration fee:
SEC registration fee $ 643
Printing and engraving expenses 2,500
Accounting fees and expenses 2,500
Attorneys' fees and expenses 2,500
Transfer agent's fees and expenses 1,500
Miscellanies 857
Total: $ 10,500
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On July 1, 1999, we issued an aggregate of 685,000 shares of our common
stock to certain individuals in lieu of salary and compensation for services. In
issuing such shares, we relied on an exemption from registration under Section
4(2) of the Securities Act and Regulation D thereunder.
On July 15, 1999, we sold an aggregate of 4,000,000 shares of our common
stock to certain stockholders at a per share price of $.10, for an aggregate
consideration of $400,000 to raise working capital. In issuing such shares, we
relied on an exemption from registration under Section 4(2) of the Securities
Act and Regulation D thereunder.
On November 30, 1999 we sold an aggregate of 220,000 shares of our common
stock to certain individuals at a per share price of $.50, for an aggregate
consideration of $110,000 to raise working capital. In issuing such shares, we
relied on an exemption from registration under Section 4(2) of the Securities
Act and Regulation D thereunder.
On September 3, 1999, we issued to Member-Link 3,000,000 shares of our
common stock and to certain executive officers of Member-Link an aggregate of
2,000,000 shares of our common stock as consideration for the execution and
delivery by Member-Link of a license agreement, a management services agreement
and a technical services agreement and as consideration for certain key
Member-Link executives performing services in connection with such agreements.
The 3,000,000 shares issued to Member-Link were subsequently canceled effective
as of December 30, 1999 pursuant to the terms of the merger of Member-Link with
and into Health Management. The aggregate consideration deemed received by the
executives of Member-Link in this transaction was $250,000. In issuing such
shares, we relied on an exemption from registration under Section 4(2) of the
Securities Act and Regulation D thereunder.
Effective as of December 30, 1999, Member-Link merged with and into Health
Management pursuant to a Merger Agreement dated as of December 14, 1999. In the
merger, we issued an aggregate of 7,71,841 shares of our common stock.
Furthermore, 3,000,000 shares of our common stock held of record by Member-Link
were canceled. As a further consequence of the merger, each of the license
agreement, the technical services agreement and management services agreement
between Health Management and Member-Link were canceled. In issuing the shares
in this merger, we relied on an exemption from registration under Section 4(2)
of the Securities Act and Regulation D thereunder.
On February 20, 2000, we completed the sale of 1,830,000 shares of our
common stock for an aggregate consideration of $1,830,000, at a price of $1.00
per share, in a series of closings pursuant to a private placement to accredited
investors. The proceeds of this private placement, with the exception of a
portion of the proceeds used to cover related expense, were used by us for
working capital. In issuing the shares in this private placement, we relied on
an exemption from registration under Section 4(2) of the Securities Act and
Regulation D thereunder. We filed with a Form D with the Securities and Exchange
Commission in connection with the issuance of our shares in this private
placement.
-II-2-
From May 2000 through November 12, 2000, we issued 905,000 shares our
common stock to accredited investors for an aggregate consideration of
$1,810,000. The funds raised in this private placement, with the exception of a
portion of the proceeds used to cover related expense, were used to fund
operations and to working capital. In issuing the shares in this private
placement, we relied on an exemption from registration under Section 4(2) of the
Securities Act and Regulation D thereunder. We filed with the Securities and
Exchange Commission a Form D in connection with the issuance of our shares in
this private placement.
Effective as of December 29, 2000, we issued to each of Frank A. Martin,
our Chief Executive Officer, and Gary Reiss, our Chief Operating Officer,
250,000 shares of our common stock pursuant to a Promissory Note and Pledge
Agreement for an aggregate principal amount of $499,750. The per share purchase
price for these shares was $2.00. In undertaking this issuance, we relied on an
exemption from registration under Section 4(2) of the Securities Act and
Regulation D thereunder. The principal amount of each Promissory Note and Pledge
Agreement accrues interest an annual rate of 5.87%. The principal and interest
on each Promissory Note and Pledge Agreement was payable in five annual
installments of principal and interest beginning on December 29, 2001.
Furthermore, in the event these officers were performing their duties adequately
and were accomplishing our goals, our Compensation Committee would have an
option to waive and forgive any of the annual payments of principal and interest
in lieu of granting to such officers a cash bonus. This transaction was
rescinded in 2001.
From November 2000 through May 2001, we completed an offering of
convertible promissory notes and stock purchase warrants to accredited
investors. In undertaking this offering, we relied on an exemption from
registration under Section 4(2) of the Securities Act and Regulation D
thereunder. The convertible promissory notes had a maturity date of one year
from the date of issue and accrue interest at 8% per annum with a default rate
of 12% per annum. The principal amount of, and accrued and unpaid interest
under, the convertible promissory notes were convertible into our common stock.
The stock purchase warrants grant holders a right to purchase 1 shares of I-trax
Common Stock for each $1 in original principal amount of convertible promissory
notes. The initial conversion price of the convertible promissory notes and the
exercise price of the stock purchase warrants were $2 per share, subject, in
each case, to full-ratchet anti-dilution adjustment in the event of a subsequent
offering with an effective per share price of less than $2. An individual and an
affiliated fund, which collectively purchased convertible promissory notes with
an aggregate principal amount of $1,000,000, led this private placement. In
addition, $250,000 previously advanced to us by Frank A. Martin, our Chief
Executive Officer, and $250,000 previously advanced to us by Gary Reiss, our
Chief Operating Officer, in each case in October 2000, was converted into this
offering. As of June 30, 2001 the Company raised a total of $2,200,000 pursuant
to this offering. The Company filed a Form D with the Securities and Exchange
Commission in connection with the issuance the convertible promissory notes and
stock purchase warrants.
We acquired iSummit effective as of February 7, 2001 in an exchange
transaction pursuant to a Contribution and Exchange Agreement dated as of
September 22, 2000, as amended. We issued a total of 4,222,500 shares of our
common stock to acquire iSummit. Effective as of December 31, 2001, this number
of shares was reduced to 2,933,316 shares on account of post-closing adjustments
to the purchase price. In undertaking this offering, we relied on an exemption
from registration under Section 4(2) of the Securities Act and Regulation D
thereunder. All iSummit members are accredited investors. We filed a Form D with
the Securities and Exchange Commission in connection with the issuance of our
common stock in this transaction.
On June 25, 2001 and pursuant to an Exchange Agreement dated May 14, 2001,
the holders of the convertible promissory notes, including Mr. Martin, our Chief
Executive Officer, and Mr. Reiss, our Chief Operating Officer, agreed to
exchange the principal amount of such promissory notes and interest accrued
thereon through May 15, 2001 in the aggregate amount of $2,280,157 for our
common stock at the exchange price of $.50 per share. As consideration for the
exchange, we reset the exercise price of the warrants to acquire 2,200,000
shares of our common stock, originally issued together with the convertible
promissory notes, to $.50 per share. Accordingly, we issued a total of 4,560,314
shares of our common stock in the exchange. In undertaking this exchange, we
relied on an exemption from registration under Section 4(2) of the Securities
Act and Regulation D thereunder.
During the first and second quarters of 2001, Mr. Martin, the Company's
Chief Executive Officer, loaned the Company $515,000 to fund the Company's
working capital deficiency. Of such amount, the Company repaid $240,000 in June
-II-3-
2001. On June 25, 2001, Mr. Martin exchanged the outstanding portion of the loan
in the amount of $275,000, and interest thereon in the amount of $9,163, into
I-trax Common Stock at the exchange price of $.50 per share. We issued an
aggregate of 568,324 shares of our common stock in this exchange. In addition,
we issued Mr. Martin a stock purchase warrants to acquire 515,000 shares of our
common stock at an exercise price of $.50 per share as consideration for this
bridge financing. The terms of this exchange transaction and warrant issuance,
including the exchange price and the calculation of the number of warrants
granted, were intended to be identical to those applicable to the debt exchange
transaction closed by I-trax on June 25, 2001 and described above. In
undertaking this offering, we relied on an exemption from registration under
Section 4(2) of the Securities Act and Regulation D thereunder.
During the first and second quarters of 2001, Mr. Reiss, the Company's
Chief Operating Officer, loaned us $240,000 to fund our working capital
deficiency. We repaid this amount in June 2001. On June 25, 2001, as
consideration for the loan, we issued Mr. Reiss stock purchase warrants to
acquire 240,000 shares of I-trax Common Stock at an exercise price of $.50 per
share. The terms of the warrant issuance, including the calculation of the
number of warrants granted, were intended to be identical to those applicable to
the debt exchange transaction closed by the Company on June 25, 2001 and
described above. In undertaking this offering, we relied on an exemption from
registration under Section 4(2) of the Securities Act and Regulation D
thereunder.
On March 2, 2001, we entered into an Amended and Restated Promissory Note
and Warrant Purchase Agreement with a group of investors led by Psilos Group
Partners, L.P. (collectively, the "Psilos Group") pursuant to which the Psilos
Group agreed, among other things, to loan the Company up to $1,000,000. The
Psilos Group included Nantucket Healthcare Ventures I, L.P. ("Nantucket"), a
venture fund managed by Mr. Martin, our Chief Executive Officer. As
consideration, we granted the Psilos Group warrants to acquire 2.632 shares of
our common stock at $.10 per share for each $1 of the face amount of the loan.
The loan bears interest at 8% per annum, with a default rate of 12% per annum,
and is due five years from original date of issuance. The Psilos Group funded
$692,809 of the $1,000,000 and received warrants to purchase 1,823,474 shares of
our common stock. Of such total amounts, Nantucket funded $75,000 and received
warrants to purchase 197,400 shares of our common stock. In undertaking this
offering, we relied on an exemption from registration under Section 4(2) of the
Securities Act and Regulation D thereunder. All Psilos Group investors are
accredited investors. Effective as of January 4, 2002, all Psilos Group
investors exercised their warrants using a cashless exercise feature and
received an aggregate of 1,701,584 shares of I-trax Common Stock.
In May 2001, we issued 9,000 shares of our common stock to an investment
banker, representing a portion of such banker's fees. The investment banker is
an accredited investor. In undertaking this offering, we relied on an exemption
from registration under Section 4(2) of the Securities Act and Regulation D
thereunder.
Effective as of June 25, 2001, we completed a private placement of
2,200,000 shares of our common stock at $.50 to two investors, yielding to us a
total of $1,100,000. As consideration for completing the private placement, we
issued to the participating investors stock purchase warrants to purchase 1 one
share of common stock for each $2 invested in this private placement at an
exercise price of $1.00 per share. The Company, therefore, issued warrants to
acquire a total of 550,000 shares of common stock. Both participants in the
private placement are accredited investors. In undertaking this offering, we
relied on an exemption from registration under Section 4(2) of the Securities
Act and Regulation D thereunder. The Company filed a Form D with the Securities
and Exchange Commission in connection with the issuance of its Common Stock in
this transaction.
Effective as of July 13, 2001, the Company issued 107,560 shares of its
Common Stock to an investment banker. These shares were issued in satisfaction
of accrued consulting fees of $76,798. For purposes of this issuance, each
shares of Common Stock was valued at $.71 per share. In addition, the Company
granted the investment banker a five year warrant to purchase up to 180,000
shares of common stock at a per share price of $.75. The investment banker is an
accredited investor. In undertaking this issuance, we relied on an exemption
from registration under Section 4(2) of the Securities Act and Regulation D
thereunder.
Effective as of September 30, 2001, the Company issued 10,973 shares of its
Common Stock to a consultant. These shares were issued in satisfaction of
accrued consulting fees of $21,946. For purposes of this issuance, each share of
common stock was valued at $2.00 per share. The consultant is an accredited
investor. In undertaking this issuance, we relied on an exemption from
-II-4-
registration under Section 4(2) of the Securities Act and Regulation D
thereunder.
In October 2001, we initiated a private placement of up to 6,000,000 shares
of our common stock to accredited investors at $.50 per share, seeking to raise
approximately $2,500,000 in cash and to convert into common stock approximately
$500,000 accrued on account of services rendered to the Company by certain of
its consultants and vendors. As of December 31, 2001, we sold an aggregate of
3,901,000 shares, yielding to us $1,950,500, issued an aggregate of 784,975
shares in exchange for previously rendered services and issued an aggregate of
669,000 in exchange for surrender of debt held by the our Chief Executive
Officer and Chief Operating Officer. During the month of January 2002, we sold
an additional 110,000 shares, yielding to us $55,000. We closed the private
placement on January 31, 2002. The funds raised in this private placement, with
the exception of a portion of the proceeds used to cover related expense, were
used to fund our operations. In issuing shares in this private placement, we
relied on an exemption from registration under Section 4(2) of the Securities
Act and Regulation D thereunder. We filed with the Securities and Exchange
Commission a Form D in connection with the issuance of our shares in this
private placement.
Beginning in November 2000, in an effort to conserve cash, I-trax
established a salary deferment program whereby certain executive officers,
including Messrs. Martin and Reiss, and other employees agreed to defer all or a
portion of their salaries. To induce employees to participate in the salary
deferment program the Company agreed to pay interest at the rate of 8% per annum
on the deferred salary. In addition, I-trax promised participating employees
that they would receive (a) an option to convert deferred salary into equity on
the same basis as third-party investors in the Company and (b) "coverage
warrants" to the extent such were granted to third-party investors while
participating employees were deferring pay. I-trax ended the salary deferment
program on December 31, 2001. As of December 31, 2001, trax accrued $1,038,876
on account of deferred salaries and interest thereon. Certain participating
employees, including Messrs. Martin and Reiss, agreed to exchange a total of
$814,595 of accrued salary, together with interest thereon, for warrants to
acquire 2,327,415 shares of Common Stock with an exercise price of $0.15 per
share. The number of warrants issued to each employee electing to surrender
accrued salary was calculated by dividing such employee's total accrued salary
and interest thereon by $0.35. Accordingly, if an employee elected to exchange
accrued salary for warrants and later exercised these warrants, the effective
per share price for the shares of I-trax Common Stock that such employee would
receive would be $.50. The price of $.50 per share was intended to equal the
price per share paid by third-party investors purchasing I-trax Common Stock in
several private placements completed by I-trax in 2001. I-trax also granted the
participating employees warrants to acquire an aggregate of 710,983 shares of
Common Stock at an exercise price of $.50 per share and warrants to acquire an
aggregate of 102,073 shares of Common Stock at an aggregate of $1.00 per share.
These extra warrants were issued to all employees that participated in the
salary deferment program because similar warrants were issued by I-trax to
third-party investors in connection with the several private placement completed
by I-trax in 2001. In undertaking these private placements, I-trax relied on an
exemption from registration under Section 4(2) of the Securities Act.
Effective as of December 31, 2001, Mr. Martin, I-trax's Chief Executive
Officer, exercised 470,066 warrants by surrendering to I-trax for cancellation a
portion of a loan in the amount of $70,510 payable by I-trax to Mr. Martin.
I-trax issued the warrants to Mr. Martin as part of I-trax's salary deferment
program described above. In undertaking this issuance, I-trax relied on an
exemption from registration under Section 4(2) of the Securities Act.
During the third and fourth quarters of 2001, Mr. Reiss, I-trax's Chief
Operating Officer, loaned I-trax $296,000, Mr. Martin, I-trax's Chief Executive
Officer, loaned I-trax $280,000 and Alan Sakal, I-trax's Senior Vice President,
loaned I-trax $100,000, in each case, to fund I-trax's working capital
deficiency. I-trax repaid Mr. Sakal's loan in January 2002. On December 20,
2001, as consideration for the loans, I-trax issued Messrs. Reiss, Martin and
Sakal stock purchase warrants to acquire 148,000 shares, 140,000 shares and
50,000 shares of I-trax Common Stock, respectively, at an exercise price of
$1.00 per share. The terms of the warrant issuance, including the calculation of
the number of warrants granted, were intended to be identical to those
applicable to the warrants issued in connection with I-trax's private placement
of $1,100,000 of I-trax Common Stock and warrants on June 25, 2001 and described
above. In undertaking this offering, I-trax relied on an exemption from
registration under Section 4(2) of the Securities Act and Regulation D
thereunder.
-II-5-
ITEM 27. EXHIBITS
NUMBER EXHIBIT TITLE
------ -------------
2.1 Agreement and Plan of Merger dated December 14, 1999
between I-Trax.com, Inc. and Member-Link Systems,
Inc. (Incorporated by reference to Exhibit 2.1 to
I-Trax.com, Inc.'s Registration Statement on Form
10-SB, Registration No. 000-30275.)
2.2 Form of Agreement and Plan of Merger by and among
I-Trax.com, Inc., I-trax, Inc. and I-Trax.com
Acquisition Co. (Exhibit A to the prospectus
incorporated in I-trax, Inc.'s Registration Statement
on Form S-4, Registration No. 333-48862.)
2.3 Merger Agreement dated as of January 28, 2002 by and
among I-trax, Inc., WC Acquisition, Inc., WellComm
Group, Inc., John Blazek and Carol Rehtmeyer.
(Incorporated by reference to Exhibit 2.1 to I-trax,
Inc.'s Current Report on Form 8-K, filed on February
20, 2002.)
2.4 Amendment dated as of February 5, 2002 to Merger
Agreement dated as of January 28, 2002 by and among
I-trax, Inc., WC Acquisition, Inc., WellComm Group,
Inc., John Blazek and Carol Rehtmeyer. (Incorporated
by reference to Exhibit 2.2 to I-trax, Inc.'s Current
Report on Form 8-K, filed on February 20, 2002.)
3.1 Certificate of Incorporation of I-trax, Inc. filed
September 15, 2000 (Incorporated by reference to
Exhibit 3.1 to I-trax, Inc.'s Registration Statement
on Form S-4, Registration No. 333-48862.)
3.2 Certificate of Amendment to Certificate of
Incorporation of I-trax, Inc. filed June 4, 2001.
(Incorporated by reference to Exhibit 3.2 to I-trax,
Inc.'s Annual Report on Form 10-KSB, filed on April
4, 2002.)
3.2 By-laws of I-trax, Inc. (Incorporated by reference to
Exhibit 3.2 to I-trax, Inc.'s Registration Statement
on Form S-4, Amendment No.1, Registration No.
333-48862.)
4.1 Form of Common Stock certificate of I-trax, Inc.'s
Common Stock. (Incorporated by reference to Exhibit
4.1 to I-trax, Inc.'s Annual Report on Form 10-KSB,
filed on April 4, 2002.)
4.2 6% Convertible Senior Debenture dated February 4,
2002 issued by I-trax, Inc. to Palladin Opportunity
Fund LLC. (Incorporated by reference to Exhibit 4.1
to I-trax, Inc.'s Current Report on Form 8-K, filed
on February 8, 2002.)
5.1* Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
10.1 Office Lease dated October 22, 1999 by and between
Reston Plaza I & II, LLC and Member-Link Systems,
Inc. (Incorporated by reference to Exhibit 10.3 to
I-Trax.com, Inc.'s Registration Statement on Form
10-SB, Registration No. 000-30275.)
10.2 Amendment Office Lease (Relocation) made as of
January 31, 2002 by and between TMT Reston I & II,
Inc. (as successor to Reston Plaza I & II, LLC) and
I-trax Health Management Solutions, Inc. (as
successor to Member-Link Systems, Inc.).
10.3 Lease Agreement dated April 10, 2000 between
I-Trax.com, Inc. and OLS Office Partners, L.P.
(Incorporated by reference to Exhibit 10.1 to
I-Trax.com, Inc.'s Quarterly Report Form 10-QSB for
the quarter ended June 30, 2000.)
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10.4 Contribution and Exchange Agreement dated as of
September 22, 2000 by and among I-Trax.com, Inc.,
I-trax, Inc., iSummit Partners LLC (d/b/a
MyFamilyMD), and Stuart Ditchek, A. David Fishman,
and Granton Marketing Nederland BV. (Incorporated by
reference to Exhibit 10.7 to I-trax, Inc.'s
Registration Statement on Form S-4, Registration No.
333-48862.)
10.5 Side Letter Agreement dated September 22, 2000 to the
Contribution and Exchange Agreement dated as of
September 22, 2000 by and among I-Trax.com, Inc.,
I-trax, Inc., iSummit Partners, LLC (d/b/a
MyFamilyMD), and Stuart Ditchek, A. David Fishman,
and Granton Marketing Nederland BV. (Incorporated by
reference to Exhibit 10.8 to I-trax, Inc.'s
Registration Statement on Form S-4, Registration No.
333-48862.)
10.6 Amendment, effective as of February 7, 2001, to the
Contribution and Exchange Agreement by and among
I-Trax.com, Inc. and I-trax, Inc., on the one hand,
and Stuart Ditchek, A. David Fishman, Granton
Marketing Nederland BV and iSummit Partners, LLC
(d/b/a MyFamilyMD), on the other hand, dated as of
September 22, 2000. (Incorporated by reference to
Exhibit 10.1 to I-trax, Inc.'s Current Report on Form
8-K, filed on February 22, 2001.)
10.7 Amendments, effective as of December 31, 2001, to the
Contribution and Exchange Agreement by and among
I-Trax.com, Inc. and I-trax, Inc., on the one hand,
and Stuart Ditchek, A. David Fishman, Granton
Marketing Nederland BV and iSummit Partners, LLC
(d/b/a MyFamilyMD), on the other hand, dated as of
September 22, 2000.
10.8 Employment Agreement dated November 29, 1999 between
I-Trax.com, Inc. and Michael O'Connell, M.D.
(Incorporated by reference to Exhibit 10.13 to
I-Trax.com, Inc.'s Registration Statement on Form
10-SB, Registration No. 000-30275.)
10.9 Employment Agreement dated June 1, 1999 between
Member-Link Systems, Inc. and Hans C. Kastensmith.
(Incorporated by reference to Exhibit 10.14 to
I-Trax.com, Inc.'s Registration Statement on Form
10-SB, Registration No. 000-30275.)
10.10 Employment Agreement entered into on September 28,
2000, effective as of January 1, 2000 between
I-Trax.com, Inc. and David C. McCormack.
(Incorporated by reference to Exhibit 10.15 to
I-trax, Inc.'s Registration Statement on Form S-4,
Registration No. 333-48862.)
10.11 I-Trax.com, Inc. 2000 Equity Compensation Plan.
(Incorporated by reference to Exhibit 10.16 to
I-Trax.com's Registration Statement on Form 10-SB,
Registration No. 000-30275.)
10.12 I-trax, Inc. 2001 Equity Compensation Plan.
(Incorporated by reference to Attachment to I-trax's
2001 Preliminary Proxy Statement on Schedule 14A,
filed on April 20, 2001.)
10.13 Employment Agreement effective as of December 29,
2000 between I-Trax.com, Inc. and Frank A. Martin.
10.14 Employment Agreement effective as of December 29,
2000 between I-Trax.com, Inc. and Gary Reiss.
10.15 Amended and Restated Amended and Restated Promissory
Note and Warrant Purchase Agreement dated as of March
2, 2001 among I-trax, Inc. and the Lenders (as
defined therein) including form of Stock Purchase
Warrant issued to Lenders attached thereto as Exhibit
A and form of Stock Purchase Warrant issued to
Lenders attached thereto as Exhibit B. (Incorporated
by reference to Exhibit 10.21 to I-trax, Inc.'s
Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2000, filed on April 2, 2001.)
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10.16 Purchase Agreement dated as of February 4, 2002
between I-trax, Inc. and Palladin Opportunity Fund
LLC. (Incorporated by reference to Exhibit 10.1 to
I-trax, Inc.'s Current Report on Form 8-K, filed on
February 8, 2002.)
10.17 Registration Rights Agreement dated as of February 4,
2002 between I-trax, Inc. and Palladin Opportunity
Fund LLC. (Incorporated by reference to Exhibit 10.2
to I-trax, Inc.'s Current Report on Form 8-K, filed
on February 8, 2002.)
10.18 Warrant to Purchase Common Stock of I-trax, Inc.
dated February 4, 2002 issued by I-trax, Inc. to
Palladin Opportunity Fund LLC. (Incorporated by
reference to Exhibit 10.3 to I-trax, Inc.'s Current
Report on Form 8-K, filed on February 8, 2002.)
10.19 Registration Rights Agreement dated as of February 5,
2002 by and among I-trax, Inc., and John Blazek, as
an attorney-in-fact, for each stockholder of WellComm
Group, Inc. (Incorporated by reference to Exhibit
10.1 to I-trax, Inc.'s Current Report on Form 8-K,
filed on February 20, 2002.)
10.20 Employment Agreement dated as of February 5, 2002
between I-trax Health Management Solutions, Inc. and
John Blazek. (Incorporated by reference to Exhibit
10.2 to I-trax, Inc.'s Current Report on Form 8-K,
filed on February 20, 2002.)
10.21 Employment Agreement dated as of February 5, 2002
between I-trax Health Management Solutions, Inc. and
Carol Rehtmeyer. (Incorporated by reference to
Exhibit 10.3 to I-trax, Inc.'s Current Report on Form
8-K, filed on February 20, 2002.)
10.22 Employment Agreement dated as of February 5, 2002
between I-trax Health Management Solutions, Inc. and
Jane Ludwig. (Incorporated by reference to Exhibit
10.4 to I-trax, Inc.'s Current Report on Form 8-K,
filed on February 20, 2002.)
21 Subsidiaries of I-trax, Inc. (Incorporated by
reference to Exhibit 21 to I-trax, Inc.'s Annual
Report on Form 10-KSB, filed on April 4, 2002.)
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP.
(Included in Exhibit 5.1.)
23.2** Consent of PricewaterhouseCoopers LLP.
23.3** Consent of Lutz & Company, P.C.
24 Power of Attorney. (Included in signature page.)
_____________________________
* To be filed by amendment.
** Filed with this registration statement.
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ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the commission
pursuant to Rule 424(B) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing of this registration statement on Form SB-2 and
authorized this registration statement to be singed on its behalf by the
undersigned, in the City of Philadelphia, Commonwealth of Pennsylvania on April
26, 2002.
I-TRAX, INC.
By: /s/ Frank A. Martin
----------------------------------------
Frank A. Martin, Chairman and
Chief Executive Officer
By: /s/ Anthony Tomaro
----------------------------------------
Anthony Tomaro, Chief Financial Officer
(Principal Financial and Accounting
Officer)
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In accordance with the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 report was signed by the following persons
in the capacities and on the dates stated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Frank A. Martin and Anthony Tomaro and each of them,
his or her true and lawful attorney-in-fact, with full power of substitution,
for him or her in any and all capacities, to execute and cause to be filed with
the Securities and Exchange Commission any and all amendments and post-effective
amendments to this Registration Statement and any related registration statement
(and any and all amendments and post-effective amendments thereto) contemplated
by Rule 462 under the Securities Act of 1933, as amended, in each case with
exhibits thereto and other documents in connection therewith and hereby ratifies
and confirms all that said attorney-in-fact or his or her substitute or
substitutes may do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Frank A. Martin Chairman, Chief Executive Officer, April 26, 2002
----------------------------------- President and Director
Frank A. Martin
/s/ Carol Rehtmeyer Director April 26, 2002
-----------------------------------
Carol Rehtmeyer
/s/ John Blazek Director April 26, 2002
-----------------------------------
John Blazek
/s/ Hans Kastensmith Director April 26, 2002
-----------------------------------
Hans Kastensmith
/s/ David R. Bock Director April 26, 2002
-----------------------------------
David R. Bock
/s/ Philip D. Green Director April 26, 2002
-----------------------------------
Philip D. Green
/s/ Craig A. Jones Director April 26, 2002
-----------------------------------
Dr. Craig A. Jones
/s/ Michael M.E. Johns Director April 26, 2002
-----------------------------------
Dr. Michael M.E. Johns
/s/ Arthur N. Leibowitz Director April 26, 2002
-----------------------------------
Dr. Arthur N. Leibowitz
/s/ John R. Palumbo Director April 26, 2002
-----------------------------------
John R. Palumbo
/s/ William S. Wheeler Director April 26, 2002
-----------------------------------
William S. Wheeler
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