I-Trax 10Q
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
[X]
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the quarterly period ended: March 31, 2006
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[
]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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Commission
File Number: 001-31584
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I-TRAX,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
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23-3057155
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification Number)
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4
Hillman Drive, Suite 130
Chadds
Ford, Pennsylvania 19317
(Address
of principal executive offices)
(Zip
Code)
(610)
459-2405
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
[X] No
[
]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and large accelerated filer in Rule 12b-2 of Securities Exchange Act of
1934. (Check one):
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-Accelerated
filer [X]
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). Yes
[
] No
[X]
As
of May
1, 2006, there were 36,321,421 shares of the registrant’s $0.001 par value
common stock outstanding.
TABLE
OF CONTENTS
Item
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Page
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Part
I - Financial Information
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Part
II - Other Information
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PART
I. FINANCIAL
INFORMATION
Item
1. Financial
Statements
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and
Stockholders
of I-trax, Inc.
We
have
reviewed the accompanying condensed consolidated balance sheet of I-trax, Inc.
(a Delaware corporation) and Subsidiaries as of March 31, 2006, and the related
condensed consolidated statements of operations and cash flows for the
three-month periods ended March 31, 2006 and 2005. These interim financial
statements are the responsibility of the company’s management.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board, the objective of which is
the
expression of an opinion regarding the condensed consolidated financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based
on
our reviews, we are not aware of any material modifications that should be
made
to the condensed consolidated financial statements referred to above for them
to
be in conformity with United States generally accepted accounting
principles.
We
have
previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the balance sheet as of December
31,
2005, and the related consolidated statements of operations, stockholders’
equity and cash flows, for the year then ended (not presented herein); and
in
our report dated February 3, 2006, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in
the accompanying condensed consolidated balance sheet as of December 31, 2005,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
As
disclosed in Note 4, the Company changed its method of accounting for
stock-based compensation, effective January 1, 2006.
GOLDSTEIN
GOLUB KESSLER LLP
New
York,
New York
April
19,
2006
CONDENSED
CONSOLIDATED BALANCE SHEET
(in
thousands, except share data)
ASSETS
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March
31, 2006 (Unaudited)
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December
31, 2005
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Current
assets
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Cash
and cash equivalents
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$
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6,944
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$
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5,386
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Accounts
receivable, net
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16,693
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15,490
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Other
current assets
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1,464
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1,899
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Total
current assets
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25,101
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22,775
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Property
and equipment, net
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4,007
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4,042
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Goodwill
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51,620
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51,620
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Customer
list, net
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19,270
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19,641
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Other
intangible assets, net
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744
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864
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Other
long-term assets
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41
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41
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Total
assets
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$
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100,783
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$
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98,983
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities
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Accounts
payable
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$
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9,543
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$
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8,069
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Accrued
payroll and benefits
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4,064
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3,961
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Net
liabilities of discontinued operations
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1,299
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1,299
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Accrued
loss contracts
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276
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419
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Current
portion of accrued restructuring charges
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241
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312
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Other
current liabilities
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10,500
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11,782
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Total
current liabilities
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25,923
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25,842
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Senior
secured credit facility
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9,057
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8,649
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Note
payable
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171
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--
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Accrued
restructuring charges, net of current portion
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--
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14
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Other
long-term liabilities
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2,315
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2,315
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Total
liabilities
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37,466
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36,820
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Stockholders’
equity
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Preferred
stock - $.001 par value, 2,000,000 shares authorized, 570,253 and
853,039
issued and outstanding, respectively; Liquidation preference: $14,256,000
and $21,326,000 at March 31, 2006 and December 31, 2005,
respectively
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1
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1
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Common
stock - $.001 par value, 100,000,000 shares authorized 36,268,386
and
32,818,955 shares issued and outstanding, respectively
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35
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32
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Additional
paid in capital
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136,044
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134,864
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Accumulated
deficit
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(72,763
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(72,734
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Total
stockholders’ equity
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63,317
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62,163
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Total
liabilities and stockholders’ equity
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$
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100,783
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$
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98,983
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The
accompanying notes are an integral part of these financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For
the three months ended March 31
(Unaudited)
(in
thousands, except share data)
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2006
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2005
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Net
revenue
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$
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30,525
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$
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27,465
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Costs
and expenses
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Operating
expenses
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23,443
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21,151
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General
and administrative expenses
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5,992
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5,503
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Depreciation
and amortization
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859
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1,052
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Total
costs and expenses
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30,294
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27,706
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Operating
income/(loss)
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231
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(241
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Other
expenses
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Interest
expense
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114
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127
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Amortization
of financing costs
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56
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45
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Other
expenses
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-- |
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--
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Total
other expenses
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170
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172
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Income/(loss)
before provision for income taxes
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61
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(413
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)
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Provision
for income taxes
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90
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7
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Net
loss
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(29
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(420
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)
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Less
preferred stock dividend
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(337
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(525
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)
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Net
loss applicable to common stockholders
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$
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(366
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)
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$
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(945
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Loss
per common share, basic and diluted
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$
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(0.01
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$
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(0.04
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Weighted
average number of shares outstanding, basic and diluted
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34,788,257
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26,319,748
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The
accompanying notes are an integral part of these financial
statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the three months ended March 31
(Unaudited)
(in
thousands)
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2006
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2005
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Operating
activities:
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Net
loss
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$
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(29
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$
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(420
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)
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Adjustments
to reconcile net loss to net cash provided by/(used in) operating
activities:
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Depreciation
and amortization
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859
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1,052
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Stock-based
compensation
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285
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--
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Issuance
of warrants for services
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16
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--
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Amortization
of financing costs
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56
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45
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Changes
in operating assets and liabilities:
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Accounts
receivable
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(1,328
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)
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(5,719
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)
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Deferred
tax asset
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--
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144
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Other
current assets
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435
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560
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Accounts
payable
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1,474
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897
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Accrued
payroll and benefits
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165
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1,124
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Accrued
restructuring charges
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(85
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)
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--
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Accrued
loss on contracts
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(143
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)
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--
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Other
current liabilities
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(491
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)
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1,808
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Net
cash provided by/(used in) operating activities
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1,214
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(509
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)
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Investing
activities:
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Purchases
of property, plant and equipment
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(389
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)
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(967
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)
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Net
cash used in investing activities
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(389
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)
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(967
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)
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Financing
activities:
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Principal
payments on capital leases
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--
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(5
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)
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Proceeds
from stock option exercises
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132
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--
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Repayments
of note payable
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(13
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)
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--
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Proceeds
from exercise of warrants
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22
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--
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Proceeds
from bank credit facility
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592
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2,450
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Net
cash provided by financing activities
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733
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2,445
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Net
increase in cash and cash equivalents
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1,558
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|
969
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Cash
and cash equivalents at beginning of period
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5,386
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3,805
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Cash
and cash equivalents at end of period
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$
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6,944
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$
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4,774
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Supplemental
disclosure of cash flow information:
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Cash
paid during the period for:
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Interest
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$
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159
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$
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157
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Income
taxes
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$
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130
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$
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115
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Schedule
of non-cash investing and financing activities:
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Issuance
of warrants for services
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$
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16
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$
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--
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Reduction
in accrued purchase price
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$
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--
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$
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1,346
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Preferred
stock dividend
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$
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337
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$
|
525
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Conversion
of accrued dividends to common stock
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$
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1,068
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$
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22
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The
accompanying notes are an integral part of these financial
statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization
I-trax,
Inc. (the “Company”)
was
incorporated in the State of Delaware on September 15, 2000. On March 19, 2004,
the Company consummated a merger with Meridian Occupational Healthcare
Associates, Inc., a private company, which did business as CHD Meridian
Healthcare (“CHD
Meridian”).
The
Company offers health-related services such as on-site health centers that
deliver primary care, acute care corporate health, occupational health, and
pharmacy care management services, as well as integrated disease management,
wellness and disability management programs.
The
Company conducts its on-site services through CHD Meridian Healthcare, LLC,
a
Delaware limited liability company (“CHD
Meridian LLC”),
and
its subsidiary companies, and its integrated disease management and wellness
programs through I-trax Health Management Solutions, LLC, a Delaware limited
liability company, and I-trax Health Management Solutions, Inc., a Delaware
corporation.
Physician
services at the Company’s on-site locations are provided under management
agreements with affiliated physician associations, which are organized
professional corporations that hire licensed physicians who provide medical
services (the “Physician
Groups”).
The
Physician Groups provide all medical aspects of the Company’s on-site services,
including the development of professional standards, policies, and procedures.
The Company provides a wide array of business services to the Physician Groups,
including administrative services, support personnel, facilities, marketing,
and
other non-medical services.
2.
Basis of Presentation and Interim Results
The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries and have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes that the disclosures are adequate to make the financial
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2005, filed with the Securities and
Exchange Commission on March 22, 2006 (“2005
Annual Report”).
All
adjustments were of a normal recurring nature unless otherwise disclosed. In
the
opinion of management, all adjustments necessary for a fair statement of the
results of operations for the interim period have been included. The results
of
operations for such interim periods are not necessarily indicative of the
results for the full year.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2.
Basis of Presentation and Interim Results (continued)
The
accompanying condensed consolidated financial statements include the
accounts of the Company and its direct and indirect subsidiaries,
which
include CHD Meridian LLC, Green Hills Insurance Company (see Note 9), and the
Physician Groups. All
material intercompany accounts and transactions have been eliminated.
The
financial statements of the Physician Groups are consolidated with CHD Meridian
LLC in accordance with the nominee shareholder model of Emerging Issues Task
Force (“EITF”)
Issue
No. 97-2, “Application of FASB Statement No. 94 and APB Opinion No. 16 to
Physician Practice Management Entities and Certain Other Entities with
Contractual Management Arrangements.” CHD Meridian LLC has unilateral control
over the assets and operations of the Physician Groups.
Consolidation
of the Physician Groups with CHD Meridian LLC, and consequently, the Company,
is
necessary to present fairly the financial position and results of operations
of
the Company. Control of the Physician Groups is perpetual and other than
temporary because of the nominee shareholder model and the management agreements
between the entities. The net tangible assets of the Physician Groups were
not
material at March 31, 2006 and December 31, 2005.
The
Company records pass-through pharmaceutical purchases on a net basis in
compliance with EITF Issue No. 99-19, “Reporting Gross Revenue as a Principal
vs. Net as an Agent.” The amounts of pass-through pharmaceuticals purchased by
the Company for the three months ended March 31, 2006 and 2005 were $37,442,000
and $31,800,000, respectively.
3. Earnings/Loss
Per Share
The
Company presents both basic and diluted earnings/loss per share on the face
of
the condensed consolidated statement of operations. As provided by Statement
of
Financial Accounting Standards (“SFAS”)
No.
128, “Earnings per Share,” basic earnings/loss per share is calculated as income
available to common stockholders divided by the weighted average number of
shares outstanding during the period. Diluted
earnings/loss per share reflects the potential dilution that could occur from
common shares issuable through stock options, warrants and convertible preferred
stock. As of March 31, 2006 and 2005, 12,496,987 and 17,868,999 shares,
respectively, issuable upon exercise of options, warrants, and convertible
securities were excluded from the diluted loss per share computation because
their effect would be anti-dilutive.
4.
Share-Based
Compensation
The
Company has two equity compensation plans for employees, non-employee directors
and certain consultants. The plans authorize the granting of stock options
consistent with the purpose of the plans (see Note 13 to the Company’s
consolidated financial statements included in the 2005 Annual Report). The
number of shares authorized for issuance under the Company’s plans as of March
31, 2006 totaled 4,800,000, of which 1,213,146 shares were available for future
issuance. Stock options granted under these plans are typically granted with
an
exercise price equal to the market price of the Company’s stock at the date of
grant. Options also generally vest over a period of three years with respect
to
grants made to employees and consultants and over a period of two years with
respect to options granted to directors. Options typically expire ten years
from
the date of grant.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
Share-Based
Compensation (continued)
Prior
to
January 1, 2006, the Company accounted for its stock based compensation under
the recognition and measurement principles of Accounting Principles Board
(“APB”)
Opinion
No. 25, “Accounting for Stock Issued to Employees,” and related interpretations,
the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation” and the disclosures required by SFAS No. 148, “Accounting for
Stock-Based Compensation-Transition and Disclosure.” In accordance with APB
Opinion No. 25, no stock-based compensation cost was reflected in the Company’s
prior year net income for grants of stock options to employees because the
Company granted stock options with an exercise price equal to the market value
of the stock on the date of grant.
Had
the
Company used the fair value based accounting method for stock compensation
expense prescribed by SFAS Nos. 123 and 148 for the first quarter ended March
31, 2005, the Company’s consolidated net loss and net loss per share would
have been reduced to the pro-forma amounts illustrated as follows:
|
|
2005
|
|
|
|
|
|
Net
loss as reported
|
|
$
|
(420,000
|
)
|
|
|
|
|
|
Deduct
total stock-based employee
compensation expense determined under fair
value based methods for all awards
|
|
|
(339,000
|
)
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(759,000
|
)
|
|
|
|
|
|
Net
loss per common share as reported, basic and diluted
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
Pro
forma net loss per common share, basic and diluted
|
|
$
|
(0.05
|
)
|
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of
SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
123R”)
using
the modified prospective method. Under this method, compensation cost in the
first quarter of 2006 includes the portion vesting in the period for (1) all
share-based payments granted prior to, but not vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123 and (2) all share-based payments granted subsequent
to January 1, 2006, based on the grant date fair value estimated in accordance
with the revised provisions of SFAS 123R. Before adoption of SFAS No. 123R,
pro
forma disclosures reflected the fair value of each option grant estimated on
the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
Dividend
yield
|
0.00%
|
|
Expected
volatility
|
94.44%
|
|
Risk-free
interest rate
|
3.99%
|
|
Expected
life
|
5
years
|
|
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
Share-Based
Compensation (continued)
Under
the
Black-Scholes option-pricing model, the Company estimated volatility using
only
its historical share price performance over the expected life of the option.
Under SFAS No. 123R, however, the Company estimates expected volatility using
historical volatility of the Company’s common stock as well as historical
volatility of the common stock of comparable companies over the expected life
of
the options. The expected life of the options has been determined using the
simplified method as prescribed in SEC Staff Accounting Bulletin No. 107
(“SAB
107”).
Results of prior periods do not reflect any restated amounts and the Company
had
no cumulative effect adjustment upon adoption of SFAS No. 123R under the
modified prospective method. The Company’s policy is to recognize compensation
cost for awards with only service conditions and a graded vesting schedule
on a
straight-line basis over the requisite service period for the entire award.
Additionally, the Company’s policy is to issue new shares of common stock to
satisfy stock option exercises.
Compensation
cost for share-based payment arrangements recognized in general and
administrative expenses for the first quarter of 2006 was $285,000 for stock
options. No income tax benefit was recognized in the income statement for the
first quarter of 2006 for share-based compensation arrangements.
The
fair
value of each option award is estimated on the date of grant using a
Black-Scholes option-pricing valuation model. The ranges of assumptions for
inputs shown in the following table are as follows:
· |
The
expected volatility is based on a combination of the historical volatility
of the Company’s and comparable companies’ stock over the contractual life
of the options.
|
· |
The
Company uses historical data to estimate employee termination behavior.
The expected life of options granted is derived from SAB 107 and
represents the period of time the options are expected to be outstanding.
|
· |
The
risk-free interest rate is based on the U.S. Treasury yield curve
in
effect at the time of grant for periods within the contractual life
of the
option.
|
· |
The
expected dividend yield is based on the Company’s current dividend yield
as the best estimate of projected dividend yield for periods within
the
contractual life of the option.
|
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
Share-Based Compensation (continued)
Dividend
yield
|
0.00%
|
|
Expected
volatility
|
75.41%
|
|
Risk-free
interest rate
|
4.45%
|
|
Expected
life
|
6
years
|
|
A
summary
of the Company’s stock option activity as of March 31, 2006, and changes during
the first quarter of 2006 is presented in the following table:
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
|
Options
Exercisable
|
|
Weighted
Average Exercise Price
|
|
December
31,
2005
|
|
|
3,841,652
|
|
$
|
1.79
|
|
|
1,382,185
|
|
$
|
2.33
|
|
Exercised
|
|
|
(147,330
|
)
|
$
|
0.89
|
|
|
|
|
|
|
|
Granted
|
|
|
140,000
|
|
$
|
2.65
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(84,468
|
)
|
$
|
1.42
|
|
|
|
|
|
|
|
March
31, 2006
|
|
|
3,749,854
|
|
$
|
1.87
|
|
|
1,731,526
|
|
$
|
2.21
|
|
The
weighted-average grant-date fair value of options granted during the first
quarter of 2006 was $1.83. The intrinsic value for a stock option is defined
as
the difference between the current market value and the grant price. The total
intrinsic value of options exercised during the first quarter of 2006 was
$376,000.
As
of
March 31, 2006, there was $1,844,000 of total unrecognized compensation cost
related to unvested share-based compensation arrangements that is expected
to be
recognized over a weighted-average period of 1.85 years. During the first
quarter of 2006, cash received from options exercised was $132,000.
On
January 25, 2006, the Company granted options to acquire 75,000 and 40,000
shares of common stock to certain employees and a director, respectively, with
an exercise price of $2.64, which approximated the market value at the date
of
grant.
On
February 16, 2006, the Company granted options to acquire 25,000 shares of
common stock to an employee with an exercise price of $2.70 per share, which
approximated the market value at the date of grant.
Information
regarding options outstanding at March 31, 2006 was as follows:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
|
$0.00-$2.00
|
|
|
3,002,502
|
|
|
8.71
|
|
$
|
1.42
|
|
|
1,149,478
|
|
$
|
1.37
|
|
$2.01-$4.00
|
|
|
590,788
|
|
|
6.63
|
|
$
|
2.84
|
|
|
434,703
|
|
$
|
2.88
|
|
$4.01-$6.00
|
|
|
61,565
|
|
|
5.67
|
|
$
|
4.74
|
|
|
52,344
|
|
$
|
4.80
|
|
$6.01-$8.00
|
|
|
52,800
|
|
|
5.12
|
|
$
|
6.33
|
|
|
52,800
|
|
$
|
6.33
|
|
$8.01-$10.00
|
|
|
42,200
|
|
|
3.58
|
|
$
|
10.00
|
|
|
42,200
|
|
$
|
10.00
|
|
|
|
|
3,749,854
|
|
|
8.22
|
|
$
|
1.87
|
|
|
1,731,525
|
|
$
|
2.21
|
|
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5.
Restructuring and Related Activities
During
2005, the Company completed an in-depth analysis of its structure and product
development efforts. This analysis led to the conclusion that certain products
and services that the Company had been offering were no longer essential to
its
integrated business model. The Company then implemented a restructuring of
its
operations and related activities, which was substantially completed as of
June
30, 2005. A summary of the activity and balances of the restructuring and
provision for loss contract reserve accounts was as follows:
|
|
Balance
at
December
31, 2005
|
|
Cash
Payments
|
|
Balance
at
March
31, 2006
|
|
Restructuring
|
|
|
|
|
|
|
|
One-time
termination benefits
|
|
$
|
185,000
|
|
|
(84,000
|
)
|
$
|
101,000
|
|
Contract
termination costs
|
|
|
141,000
|
|
|
(1,000
|
)
|
|
140,000
|
|
Restructuring
total
|
|
|
326,000
|
|
|
(85,000
|
)
|
|
241,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loss contracts
|
|
$
|
419,000
|
|
|
(143,000
|
)
|
$
|
276,000
|
|
6.
Long Term Debt
The
Company’s senior credit facility with Bank of America, N.A., which is secured by
substantially all of the Company’s tangible assets, provides financing up to
$15,000,000 through a revolving credit line.
The
Company amended the facility on May 4, 2006 (effective March 31, 2006). Under
the amendment, the maturity of the facility was extended from April 1, 2007
to
October 1, 2007. The amendment also reset the “Fixed Charge Coverage Ratio” and
redefined “EBITDA” to exclude non-cash stock-based compensation expense. Minimum
EBITDA targets for periods ending March 31, 2006 through December 31, 2006
remain:
Period
|
|
Minimum
EBITDA
|
|
|
|
|
|
July
1, 2005 - March 31, 2006
|
|
$
|
2,560,000
|
|
Last
four fiscal quarters ending June 30, 2006
|
|
|
3,580,000
|
|
Last
four fiscal quarters ending September 30, 2006
|
|
|
3,960,000
|
|
Last
four fiscal quarters ending December 31, 2006
|
|
|
4,450,000
|
|
At
March
31, 2005, the Company had $9,057,000 of debt outstanding under the senior credit
facility and was in compliance with all covenants included in the facility.
In
addition, based on the borrowing base calculation, the Company had access to
an
additional $4,750,000 under the revolving line of credit.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.
Stockholders’ Equity
Warrants
On
March
12, 2006, the Company issued a warrant to purchase 100,000 shares of the
Company’s common stock at an exercise price of $2.70 per share to a consultant.
The warrant vests over fifteen months and expires on March 12, 2009. The warrant
was valued at $140,000, with $5,000 included as general and administrative
expense in the accompanying condensed consolidated statements of operations.
The
following table summarizes the Company’s activity as it relates to
warrants:
|
|
Shares
Underlying Warrants
|
|
|
|
|
|
Balance
outstanding at December 31, 2005
|
|
|
3,069,514
|
|
Granted
|
|
|
100,000
|
|
Exercised
|
|
|
(112,911
|
)
|
Expired
|
|
|
(12,000
|
)
|
Balance
outstanding at March 31, 2006
|
|
|
3,044,603
|
|
At
March
31, 2006, all outstanding warrants were exercisable at a weighted average
exercise price of $2.87 per share.
Series
A Convertible Preferred Stock
During
the three months ended March 31, 2006, 282,786 shares of Series A Convertible
Preferred Stock, and $1,068,000 in dividends accrued on such stock, were
converted into an aggregate of 3,229,761 shares of common stock.
As
of
March 31, 2006, 570,253 shares of Series A Convertible Preferred Stock were
issued and outstanding. Each share of Series A Convertible Preferred Stock
converts into 10 shares of common stock. Each share of Series A Convertible
Preferred Stock also accrues dividends at the rate of 8% per year on $25.00
per
share, the original sale price. The Company accrued dividends of $337,000 for
the three months ended March 31, 2006.
As
of
March 31, 2006, the Company had accrued aggregate dividends of $2,319,000,
which
at the Company’s option are payable in cash (subject to the consent of the
senior secured creditor) or common stock valued at market price. If such
dividends were paid in common stock at $3.39, the closing price of the common
stock on March 31, 2006, the Company would be required to issue approximately
684,000 additional shares of common stock.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.
Commitments and Contingencies
Litigation
The
Company is involved in legal disputes on a variety of matters related to the
ordinary course of the Company’s business. After reasonable diligence, the
Company’s management believes that the estimated losses of the Company from such
legal disputes have been adequately provided for in other current and other
long-term liabilities to the extent probable and reasonably estimable and
management expects these disputes will be resolved without a material adverse
effect on the Company’s consolidated financial position or results of
operations. Nonetheless, it is possible that the Company’s future results of
operations for any particular quarterly or annual period may be materially
affected by changes in the status of such legal disputes.
Compliance
with Healthcare Regulations
Because
the Company operates in the healthcare industry, it is subject to numerous
laws
and regulations of Federal, state, and local governments. These laws and
regulations include, but are not limited to, matters regarding licensure,
accreditation, government healthcare program participation requirements,
reimbursement for patient services, and Medicare and Medicaid fraud and abuse.
Government activity has stayed high with respect to investigations and
allegations concerning possible violations of fraud and abuse laws and
regulations by healthcare providers. Violations of these laws and regulations
could result in, among other things, expulsion from government healthcare
programs, fines, penalties, and restitution for billed services.
The
Company’s management believes that the Company is in compliance with laws and
regulations applicable to the Company’s business. Further, compliance with such
laws and regulations is subject to future government review and interpretation
as well as regulatory actions unknown or unasserted at this time.
Significant
Customers
As
of
March 31, 2006, two customers represented 14% and 13% of the Company’s accounts
receivable as reflected on the condensed consolidated balance sheet. As of
March
31, 2005, two customers represented 21% and 12% of the total accounts
receivable.
For
the
three months ended March 31, 2006, one customer accounted for 11% of the
Company’s revenue. For the three months ended March 31, 2005, one customer
accounted for 13% of the Company’s revenue.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.
Professional Liability and Related Reserves
Since
2004, the Company has secured medical malpractice and general liability
insurance for certain of its direct and indirect subsidiaries through Green
Hills Insurance Company, a Risk Retention Group (“GHIC”),
incorporated as a subsidiary of CHD Meridian LLC under the laws of the State
of
Vermont. In years prior to 2004, the Company secured such insurance in the
commercial market.
On
an
annual basis, the Company uses independent actuaries to estimate its exposures
for claims obligations (for both asserted and unasserted claims) related to
deductibles and exposures in excess of coverage limits. The Company maintains
reserves for these obligations. Loss and loss adjustment expense reserves are
recorded monthly and represent management’s best estimate of the ultimate net
cost of all reported and unreported losses incurred. The reserves for unpaid
losses and loss adjustment expenses are estimated using individual case-basis
valuations and statistical analyses. Those estimates are subject to the effects
of trends in claim severity and frequency. Although considerable variability
is
inherent in such estimates, management believes the reserves for losses and
loss
adjustment expenses are adequate. The estimates are reviewed and adjusted
continuously as experience develops or new information becomes known; such
adjustments are included in current operations.
At
March
31, 2006, the Company’s estimated loss reserve for cost and settlement of
reported claims predating GHIC was $1,362,000, which is included in other
current liabilities on the condensed consolidated balance sheet. The Company
also maintains a reserve for incurred but not reported losses and loss
adjustment expense predating or otherwise not assumed by GHIC. At March
31, 2006, this reserve was $2,000,000,
which
is included in other long-term liabilities on the condensed consolidated balance
sheet.
During
the three months ended March 31, 2006, GHIC increased its reserves for reported
claims and incurred but not reported losses and loss adjustment expense by
$274,000 to $2,179,000, which is included in other current liabilities on the
condensed consolidated balance sheet.
I-TRAX,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations of I-trax, Inc. and its subsidiaries should be read in
conjunction with our unaudited condensed consolidated financial statements
and
related notes appearing on the preceding pages as well as our audited financial
statements and related notes included in our Annual Report on Form 10-K for
the
year ended December 31, 2005 filed on March 22, 2006 (“2005
Annual Report”).
Forward
Looking Statements
The
following discussion also contains forward-looking statements. All statements,
other than statements of historical facts, included in this quarterly report
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 readers of this report should
not place undue reliance on our forward-looking statements. Actual results
or
events could differ, possibly materially, from the plans, intentions and
expectations disclosed in our forward-looking statements. We have identified
important factors in the cautionary statements below and in our 2005 Annual
Report that we believe could cause actual results or events to differ, possibly
materially, from our forward-looking statements. Our forward-looking statements
do not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments we may make. We undertake no duty
to
update these forward-looking statements, even though our situation may change
in
the future.
Risk
Considerations
You
are
cautioned not to place undue reliance on the statements and other discussion
set
forth in this quarterly report. These statements and other discussion speak
only
as of the date this quarterly report is filed with the Securities and Exchange
Commission, and these statements are based on management’s current expectations
and are subject to uncertainty and changes in circumstances. Factors that may
cause actual results to differ materially from management expectations include,
but are not limited to:
· |
effects
of increasing competition for contracts to establish and manage
employer-dedicated pharmacies and clinics;
|
· |
loss
of advantageous pharmaceutical pricing;
|
· |
inability
to meet covenants and financial tests related to our senior secured
credit
facility;
|
· |
long
and complex sales cycles;
|
· |
loss
of a major client;
|
· |
cost
pressures in the healthcare industry;
|
· |
exposure
to professional liability claims and a failure to manage effectively
our
professional liability risks;
|
· |
economic
uncertainty; and
|
· |
each
of the factors discussed under “Item 1A. - Risk Factors” in our 2005
Annual Report.
|
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information, the instructions to Form 10-Q and Regulation S-X. In
our
opinion, the unaudited condensed consolidated financial statements have been
prepared on the same basis as the annual financial statements and reflect all
adjustments necessary to present fairly our financial position as of March
31,
2006 and the results of the operations and cash flows for the three months
ended
March 31, 2006. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during the covered
periods. We base our estimates and judgments on our historical experience and
on
various other factors that we believe are reasonable under the circumstances.
We
evaluate our estimates and judgments, including those related to revenue
recognition, bad debts, and goodwill and other intangible assets on an ongoing
basis. Notwithstanding these efforts, there can be no assurance that actual
results will not differ from the respective amount of those estimates.
Business
Overview
I-trax
is
an integrated health and productivity management company formed by the merger
on
March 19, 2004 of I-trax, Inc. and Meridian Occupational Healthcare Associates,
Inc., which did business as CHD Meridian Healthcare. We offer a range of health
and productivity-related services to large, self-insured employers. Our services
can be integrated or blended as necessary or appropriate based on each client’s
needs. The
services include on-site health centers, which deliver primary care, acute
care
corporate health, occupational health and pharmacy care management services,
as
well as integrated disease management, wellness, and disability management
programs.
We
believe we are the nation’s largest provider of on-site healthcare on an
outsourced basis.
We
believe our services improve the health status of employees and mitigate the
upward cost trend experienced by employers, employees, and government agencies.
By proactively managing the healthcare needs of our clients’ employees and their
families, we believe our programs improve health, increase productivity, reduce
absenteeism, reduce the need for future critical care, and manage overall costs.
We
also
believe the breadth of our services allows our clients the flexibility to meet
each of the following needs in a cost-effective and professional manner:
pharmacy; primary care; occupational health; corporate health; wellness;
lifestyle management; and disease management.
We
deliver our services at or near the client’s work site by opening, staffing and
managing a health center or pharmacy dedicated to the client and its eligible
population. We also provide support services to enhance our on-site health
centers by using the Internet and our call center services. In all, we provide
care “face to face,” telephonically, and via the Internet. We believe that our
integrated care delivery model enhances the trusted relationship established
by
our clinical providers on-site with their patients, using the support services
of our call center and our Internet programs.
As
of
March 31, 2006, we were providing services to clients that include large
financial institutions, consumer products manufacturers, health plans,
integrated delivery networks, automotive and
automotive
parts manufacturers, and diversified industrial companies. For 92 of these
clients, we operated 196 on-site facilities in 32 states, providing a variety
of
health management programs. Our client retention rate is high due to strong
client relationships that are supported by the critical nature of our services,
the benefits achieved by employer and employee constituents, and the utilization
of multi-year service contracts.
Critical
Accounting Policies
A
summary
of significant accounting policies is disclosed in Note 2 to the consolidated
financial statements included in our 2005 Annual Report. Our critical accounting
policies are further described under the caption “Critical Accounting Policies”
in Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our 2005 Annual Report.
Effective
January 1, 2006, we adopted Statement of Financial Accounting Standards No.
123
(revised 2004), “Share-Based Payment” (“SFAS
123R”),
using
the modified prospective method. Under this method, compensation cost in the
first quarter of 2006 included the portion vesting in the period for (1) all
share-based payments granted prior to, but not vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123 and (2) all share-based payments granted subsequent
to January 1, 2006, based on the grant date fair value estimated in accordance
with the revised provisions of SFAS 123R. Prior to adoption of SFAS 123R, we
accounted for stock based compensation under the recognition and measurement
principles of Accounting Principles Board (“APB”)
Opinion
No. 25, “Accounting for Stock Issued to Employees,” and related interpretations,
the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation” and the disclosures required by SFAS No. 148, “Accounting for
Stock-Based Compensation-Transition and Disclosure.” In accordance with APB
Opinion No. 25, no stock-based compensation cost was reflected in prior year
net
income for grants of stock options to employees because we granted stock options
with an exercise price equal to the market value of the stock on the date of
grant.
As
of
March 31, 2006, there was $1,844,000 of total unrecognized compensation cost
related to unvested share-based compensation arrangements that is expected
to be
recognized over a weighted-average period of 1.85 years.
Other
than the adoption of SFAS 123R, there have been no changes in the nature of
our
critical accounting policies or the application of those policies since December
31, 2005.
Key
Financial Trends and Analytical Points
Milestones.
During
the quarter ended March 31, 2006, we:
· |
reported
net revenue of $30,525,000, an increase of 11.1%, from $27,465,000
for the
quarter ended March 31, 2005;
|
· |
generated
$231,000 of operating income as compared to last year’s operating loss of
$241,000 for the comparable period;
|
· |
increased
our earnings before interest, taxes, depreciation and amortization,
or
EBITDA, to $1,090,000 from $811,000 for last year’s first quarter (2006
EBITDA includes $285,000 of share-based compensation resulting from
the
implementation of SFAS 123R);
|
· |
reduced
our net losses to $29,000 in the first quarter of 2006 from $420,000
for
the first quarter of 2006; and
|
· |
implemented
SFAS 123R, resulting in additional general and administrative expense
of
$285,000 during this quarter.
|
In
managing our business, we make use
of
EBITDA, which is a non-GAAP financial measure. We believe that EBITDA is a
reliable and useful performance indicator for measuring the growth of our core
operations. It also allows us to monitor the trend in our core operations.
Our
results of operations for the three months ended March 31 and reconciliation
of
net income to EBITDA for those periods follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Revenue
|
|
|
30,525,000
|
|
|
27,465,000
|
|
Total
costs and expenses
|
|
|
30,294,000
|
|
|
27,706,000
|
|
Operating
income (loss)
|
|
|
231,000
|
|
|
(241,000
|
)
|
Other
expenses
|
|
|
170,000
|
|
|
172,000
|
|
Income
before taxes
|
|
|
61,000
|
|
|
(413,000
|
)
|
Provision
for taxes
|
|
|
90,000
|
|
|
7,000
|
|
Net
loss
|
|
|
(29,000
|
)
|
|
(420,000
|
)
|
|
|
|
|
|
|
|
|
Reconciliation
of net income to EBITDA
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(29,000
|
)
|
|
(420,000
|
)
|
Add:
Depreciation and amortization
|
|
|
915,000
|
|
|
1,097,000
|
|
Add:
Provision for income taxes
|
|
|
90,000
|
|
|
7,000
|
|
Add:
Interest
|
|
|
114,000
|
|
|
127,000
|
|
EBITDA
|
|
|
1,090,000
|
|
|
811,000
|
|
Working
Capital.
We rely
on our senior credit facility to meet our working capital needs. At March 31,
2006, we had $4,750,000 available under our credit facility to fund our working
capital deficit of $822,000. Our working capital deficit at December 31, 2005
was $3,067,000. While our current liabilities have remained fairly consistent,
increasing $81,000 from December 31, 2005, our current assets have increased
by
$2,326,000 due to higher client receivables and increased cash balances. In
addition, as a result of the conversion of certain of our Series A Convertible
Preferred Stock, accrued dividends payable upon conversion of such Series A
Convertible Preferred Stock, which we pay in shares of common stock, decreased
to $2,319,000 at March 31, 2006 from $3,048,000 at December 31, 2005.
During
the three months ended March 31, 2006, we increased the outstanding balance
under our credit facility by $592,000, from $8,465,000 at December 31, 2005
to
$9,057,000 at March 31, 2006.
Operating
trend. We
intend
to increase revenue by strengthening and expanding our core business and by
emphasizing our market position as the leading provider of outsourced on-site
healthcare.
Results
of Operations
Three
Months ended March 31, 2006 Compared to Three Months ended March 31, 2005
Revenue
for the three months ended March 31, 2006 was $30,525,000,
an increase of $3,060,000,
or 11.1%, from $27,465,000 for the three months ended March 31, 2005. Comparable
site sales for the first quarter increased 8% compared with the year-ago
quarter. Our sites under management have increased from 181 as of March 31,
2005
to 197 as of March 31, 2006.
Operating
expenses, which represent our direct costs of servicing our clients, amounted
to
$23,443,000
for the three months ended March 31, 2006, an increase of $2,292,000,
or 10.8%, from $21,151,000 for the three months ended March 31, 2005. This
increase is attributable to expenses associated with revenue growth quarter
over
quarter, as operating expenses as a percentage of revenue marginally improved
to
76.8% for the first quarter of 2006 from 77.0% for the first quarter of 2005.
General
and administrative expenses, which represent our corporate costs, increased
by
$489,000 to $5,992,000 for the three months ended March 31, 2006 from $5,503,000
for the three months ended March 31, 2005. Our general and administrative
expenses as a percentage of revenue decreased modestly from 20.0% to 19.6%
for
the three months ended March 31, 2005 and 2006, respectively. The implementation
of SFAS 123R resulted in additional general and administrative expenses of
$285,000, or 0.9% of revenue.
Depreciation
and amortization expenses were $859,000 for the three months ended March 31,
2006, a decrease of $193,000 as compared to $1,052,000 for the three months
ended March 31, 2005.
In 2005,
we amortized $67,000 of software development costs, which were subsequently
impaired in our restructuring activities during the second quarter of 2005.
The
remaining difference is due to fully depreciated or amortized
assets.
Interest
expense for the three months ended March 31, 2006 was $114,000, representing
a
decrease of $13,000, from $127,000 for the three months ended March 31, 2005.
Interest expense primarily includes interest payable under our senior secured
credit facility. Our average balance outstanding during the three months ended
March 31, 2006, was $7,154,000 as compared to $8,105,000 for the comparable
period in 2005.
Amortization
of financing costs for the three months ended March 31, 2006 was $56,000,
representing an increase of $11,000 from $45,000 for the three months ended
March 31, 2005. The increase is due to additional financing costs capitalized
in
connection with our senior secured credit facility amendments during
2005.
For
the
three months ended March 31, 2006, our net loss was $29,000, as compared to
a
net loss of $420,000 for the three months ended March 31, 2005.
Liquidity
and Capital Resources
Operating
Activities
Cash
provided by operating activities during the three months ended March 31, 2006
was $1,214,000. The following factors accounted for our operating cash surplus:
(1)
Our
net
loss for the quarter was $29,000, which included non-cash charges of $285,000
for stock-based compensation, $915,000 of non-cash depreciation and amortization
and $16,000 for other non-cash charges.
(2) Our
accounts receivable and other current assets balances increased by $893,000
reflecting continued growth in pharmaceutical purchases and revenue, partially
offset by a reduction of prepaid insurance related to Green Hills Insurance,
our
Risk Retention Group.
(3) Our
liabilities (which include accounts payable, accrued expenses, accrued
restructuring charges and other current and long term liabilities) increased
by
$920,000. Contributing
factors
to this increase were increased pharmaceutical purchases in accounts payable
offset by the satisfaction of previously accrued other current liabilities.
Investing
Activities
Net
cash
used in investing activities was $389,000 for the three months ended March
31,
2006, which consists primarily of capital expenditures on technology upgrades.
Financing
Activities
Net
cash
provided by financing activities was $733,000 for the three months ended March
31, 2006, driven primarily by additional draws of $592,000 under our senior
secured credit facility and cash received upon stock option exercises of
$132,000. We used these funds to finance our working capital requirements (which
increased due to additional revenue, expenses and accounts receivable generated
from increases in same-site operations as well as the addition of new facilities
during the quarter), capital expenditures and development expenses.
Our
senior secured credit facility provides financing up to the lesser of
$15,000,000 or the credit facility base calculation, in each case less
outstanding letters of credit. We amended the facility effective March 31,
2006.
The amendment (1) extended that maturity date of the facility from April 1,
2007
to October 1, 2007, (3) re-set the “Fixed Charge Coverage Ratio” covenant, and
(3) redefined “EBITDA” to exclude non-cash stock-based compensation expense.
Minimum EBITDA requirements for periods ending March 31, 2006 through December
31, 2006 are as follows:
Period
|
|
Minimum
EBITDA
|
|
|
|
|
|
July
1, 2005 - March 31, 2006
|
|
$
|
2,560,000
|
|
Last
four fiscal quarters ending June 30, 2006
|
|
|
3,580,000
|
|
Last
four fiscal quarters ending September 30, 2006
|
|
|
3,960,000
|
|
Last
four fiscal quarters ending December 31, 2006
|
|
|
4,450,000
|
|
As
of
March 31, 2006, we were in compliance with our credit facility covenants. As
of
March 31, 2006, $9,057,000 was outstanding under the credit facility, which
was
classified as long-term, and $1,000,000 was outstanding under a letter of
credit. We had $4,750,000 available under the credit facility at March 31,
2006.
Our
ratio
of current assets to current liabilities (excluding dividends payable on Series
A Convertible Preferred Stock in shares of common stock) was 1.06 at March
31,
2006, as compared to 1.00 at December 31, 2005. We believe that these ratios
demonstrate adequate financial liquidity and we believe that availability under
our credit facility and our cash and cash equivalents of $6,944,000 at March
31,
2006 (which includes approximately $5,729,000 held at Green Hills) will be
sufficient to meet our anticipated cash needs for the next 12
months.
Future
Capital Requirements
Our
primary future cash needs will be to fund working capital and pay for
anticipated capital expenditures.
We had
capital expenditures totaling $389,000 during the three months ended March
31,
2006 and anticipate similar quarterly expenditures throughout 2006.
We
cannot, however, provide assurances that our actual cash requirements will
not
be greater than we currently anticipate. We will, from time to time, consider
the acquisition of, or investment in,
complementary
businesses, products, services and technologies, which would most likely effect
our liquidity requirements or cause us to issue additional equity or debt
securities.
If
sources of liquidity are not available or if we cannot generate sufficient
cash
flow from operations during the next 12 months, we might be required to obtain
additional sources of funds through additional operating improvements, capital
market transactions (including the sale of common stock), asset sales or
financing from third parties, or a combination thereof. We cannot provide
assurance that these additional sources of funds will be available or, if
available, would have reasonable terms.
Material
Commitments
We
have
various contractual obligations which are recorded as liabilities in our
condensed consolidated financial statements. Other items, such as operating
lease contract obligations are not recognized as liabilities in our condensed
consolidated financial statements but are required to be disclosed.
The
following table summarizes our significant contractual obligations at March
31,
2006, and the effect such obligations are expected to have on our liquidity
and
cash in future periods:
|
|
Payments
due by period
|
|
Contractual
obligations:
|
|
Total
|
|
Less
than
1
year
|
|
1-3
years
|
|
3-5
years
|
|
More
than
5
years
|
|
Operating
leases
|
|
$
|
5,926,000
|
|
$
|
1,737,000
|
|
$
|
2,648,000
|
|
$
|
1,540,000
|
|
$
|
1,000
|
|
Less:
Amounts reimbursed by clients
|
|
|
897,000
|
|
|
617,000
|
|
|
252,000
|
|
|
28,000
|
|
|
--
|
|
|
|
$
|
5,029,000
|
|
$
|
1,120,000
|
|
$
|
2,396,000
|
|
$
|
1,512,000
|
|
$
|
1,000
|
|
From
time
to time, we enter into operating leases for offices and equipment leases on
behalf of our clients in order to facilitate the delivery of our services at
client locations. In such cases, our clients agree to reimburse us for the
expenses incurred related to these operating leases.
As
of
March 31, 2006, we did not own any derivative instruments, but we were exposed
to market risks, primarily due to changes in U.S. interest rates. Our credit
facility bears a variable interest rate, and accordingly, the fair market value
of the debt is sensitive to changes in interest rates.
Item
4. Controls
and Procedures
Our
management, under the supervision and with the participation of the principal
executive officer and principal financial officer, has evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of March 31, 2006, which is the end of the period
covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the
principal executive officer and principal financial officer have concluded
that
our disclosure controls and procedures are effective.
There
were no changes that occurred during the fiscal quarter ended March 31, 2006
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
PART
II. OTHER
INFORMATION
Certain
of our subsidiaries are involved in various claims and legal actions arising
in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on our
overall consolidated financial position, results of operations or
liquidity.
There
were no material changes during the quarter ended March 31, 2006 from the risk
factors as previously disclosed in our 2005 Annual Report.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
Issuance
of Unregistered Securities
On
January 30, 2006, two investors exercised warrants to purchase an aggregate
of
8,000 shares of our common stock at an exercise price of $2.50 per share. In
lieu of paying the exercise price in cash, such investors used the warrants’
cashless exercise feature, such that the investors received 248 shares of our
common stock and surrendered to us for cancellation 7,752 shares of our common
stock. In undertaking this issuance, we relied on an exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (“Securities
Act”).
On
February 6, 2006, two former employees exercised warrants to purchase an
aggregate of 54,945 shares of our common stock at an exercise price of $0.75
per
share. In lieu of paying the exercise price in cash, such former employees
used
the warrants’ cashless exercise feature, such that the former employees received
39,788 shares of our common stock and surrendered to us for cancellation 15,157
shares of our common stock. In undertaking this issuance, we relied on an
exemption from registration under Section 4(2) of the Securities Act.
On
February 6, 2006, a former employee exercised a warrant to purchase 11,250
shares of our common stock at an exercise price of $2.50 per share. In lieu
of
paying the exercise price in cash, such former employee used the warrant’s
cashless exercise feature, such that the former employee received 906 shares
of
our common stock and surrendered to us for cancellation 10,344 shares of our
common stock. In undertaking this issuance, we relied on an exemption from
registration under Section 4(2) of the Securities Act.
On
March
7 and 8, 2006, as part of a conversion of the Series A Convertible Preferred
Stock, we issued an aggregate of 185,626 shares of our common stock to 11
investors in payment of accrued dividends on shares of our Series A Convertible
Preferred Stock. The shares issued upon conversion, including the shares
representing payment of the dividends, were exempt from registration under
Section 3(a)(9) of the Securities Act.
Effective
as of March 12, 2006, we issued a warrant to acquire 100,000 shares of our
common stock at an exercise price of $2.70 to a consultant as consideration
for
consulting services. We valued the warrant at $140,000. The consultant is an
accredited investor. In undertaking this issuance, we relied on an exemption
from registration under Section 4(2) of the Securities Act.
On
March
17, 2006, an officer exercised a warrant to purchase an aggregate of 28,800
shares of our common stock at an exercise price of $.75 per share or $21,600
in
the aggregate. In undertaking this issuance, we relied on an exemption from
registration under Section 4(2) of the Securities Act.
On
March
27, 2006, a former employee exercised a warrant to purchase 9,916 shares of
our
common stock at an exercise price of $2.50 per share. In lieu of paying the
exercise price in cash, such former employee used the warrant’s cashless
exercise feature, such that the former employee received 2,598 shares of our
common stock and surrendered to us for cancellation 7,318 shares of our common
stock. In undertaking this issuance, we relied on an exemption from registration
under Section 4(2) of the Securities Act.
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
We
did
not submit any matters to a vote of our security holders during the quarter
ended March 31, 2006.
None.
Number
|
Exhibit
Title
|
|
|
10.1
|
Seventh
Amendment to Credit Agreement, effective as of March 31, 2006 (executed
on
May 4, 2006), by and among I-trax, Inc., certain subsidiaries of
I-trax,
Inc., and Bank of America, N.A.
|
|
|
15
|
Awareness
letter of Goldstein, Golub Kessler LLP regarding unaudited interim
financial information.
|
|
|
31.1
|
Chief
Executive Officer Certification Pursuant to Rule 13a-14(a) and 15d-14(a)
of the Securities Exchange Act of 1934.
|
|
|
31.2
|
Chief
Financial Officer Certification Pursuant to Rule 13a-14(a) and 15d-14(a)
of the Securities Exchange Act of 1934.
|
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
I-TRAX,
INC.
|
|
|
Date:
May 15, 2006
|
By:
/s/
R. Dixon Thayer
|
|
R.
Dixon Thayer, Chief Executive
|
|
Officer
|
|
|
|
|
Date:
May 15, 2006
|
By:
/s/
David R. Bock
|
|
David
R. Bock, Executive Vice
|
|
President
and Chief Financial Officer
|
25