UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 19, 2004
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I-TRAX, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-30275 23-3057155
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4 Hillman Drive, Suite 130
Chadds Ford, Pennsylvania 19317
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 459-2405
One Logan Square
130 N. 18th St., Suite 2615
Philadelphia, Pennsylvania 19103
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Acquisition or Disposition of Assets.
On March 30, 2004, I-trax, Inc. filed a Current Report on Form 8-K (the
"Current Report") reporting the closing on March 19, 2004 of a two-step
reorganization transaction in which I-trax acquired Meridian Occupational
Healthcare Associates, Inc. (doing business as CHD Meridian Healthcare), a
Delaware corporation.
I-trax amended the Current Report on June 2, 2004 to disclose (1) the
financial statements of CHD Meridian Healthcare required under Item 7(a) of Form
8-K and (2) pro forma financial information required under Item 7(b) of Form 8-K
by incorporating by such financial statements and pro forma financial
information to Item 7 of Part II of I-trax, Inc.'s Annual Report on Form
10-KSB/A for the fiscal year ended December 31, 2003, filed on June 2, 2004.
I-trax amended the Current Report again on August 11, 2004 to disclose
(1) revised financial statements of CHD Meridian Healthcare required under Item
7(a) of Form 8-K and (2) revised and updated pro forma financial information
required under Item 7(b) of Form 8-K.
I-trax is filing this amendment to the Current Report to disclose (1)
further revised financial statements of CHD Meridian Healthcare required under
Item 7(a) of Form 8-K and (2) further revised and updated pro forma financial
information required under Item 7(b) of Form 8-K. The further revised financial
statements of CHD Meridian Healthcare reflect an accounting change as a result
of which all pharmaceutical pass-through contracts of CHD Meridian Healthcare
are reported on a net basis and pharmaceutical performance incentives,
previously recorded as reductions of operating expense, are reclassifed to
revenue. The further revised and updated pro forma financial information
reflects a corresponding change.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The consolidated financial statements of Meridian Healthcare
Associates, Inc. and subsidiaries (d/b/a CHD Meridian Healthcare) for the years
ended December 31, 2003, 2002 and 2001.
(b) Pro forma financial information.
The unaudited combined condensed balance sheet of I-trax and CHD
Meridian Healthcare on a pro forma basis as if the merger had been consummated
on December 31, 2003 and the unaudited combined condensed statements of
operations on a pro forma basis as if the merger had been consummated on January
1, 2002.
(c) Exhibits.
Exhibit 23. Consent of Ernst & Young LLP.
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SIGNATURES
Pursuant to 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: November 10, 2004 By: /s/ Frank A. Martin
----------------------------
Name: Frank A. Martin
Title: Chief Executive Officer
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Consolidated Financial Statements
Meridian Occupational Healthcare Associates, Inc. and Subsidiaries
(d/b/a CHD Meridian Healthcare)
Years ended December 31, 2003, 2002 and 2001 with Report Independent Registered
Public Accounting Firm
-1-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Consolidated Financial Statements
Years ended December 31, 2003, 2002 and 2001
Contents
Report of Independent Registered Public Accounting Firm......................3
Consolidated Financial Statements
Consolidated Balance Sheets..................................................4
Consolidated Statements of Operations........................................5
Consolidated Statements of Stockholders' Equity..............................5
Consolidated Statements of Cash Flows........................................7
Notes to Consolidated Financial Statements...................................8
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Report of Independent Registered Public Accounting Firm
The Board of Directors
CHD Meridian Healthcare
We have audited the accompanying consolidated balance sheets of Meridian
Occupational Healthcare Associates, Inc. and subsidiaries (d/b/a CHD Meridian
Healthcare), a Delaware corporation, as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2003. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 consolidated financial position of Meridian
Occupational Healthcare Associates, Inc. and subsidiaries at December 31, 2003
and 2002, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2003, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 2, effective January 1, 2002, the Company changed its
method of accounting for goodwill and other intangible assets.
As discussed in Note 4, effective January 1, 2001, the Company changed its
method of accounting for discontinued operations.
Ernst & Young, LLP
Nashville, Tennessee
February 24, 2004, except for Note 14, the date of which is November 8, 2004
-3-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Consolidated Balance Sheets
(in thousands, except share data)
December 31
2003 2002
-----------------------------------
Assets
Current assets:
Cash and cash equivalents $ 11,299 $ 7,621
Accounts receivable, less allowance for doubtful accounts
of $601 and $639, at December 31, 2003 and 2002, respectively 17,167 14,373
Income tax receivable 153 529
Other current assets 1,849 1,069
-----------------------------------
Total current assets 30,468 23,592
Property and equipment, net 2,880 3,063
Goodwill 8,181 8,181
Customer lists, net 7,101 7,645
Other intangible assets, net 70 -
Other long-term assets 36 36
-----------------------------------
Total assets $ 48,736 $ 42,517
===================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,955 $ 5,796
Accrued employee benefits 4,088 3,496
Deferred revenue 951 1,644
Net liabilities of discontinued operations 1,299 1,299
Other accrued liabilities 6,287 4,066
-----------------------------------
Total current liabilities 18,580 16,301
Other long-term liabilities 2,548 2,896
Stockholders' equity:
Preferred stock, no par value, authorized 153,500 shares, no shares
issued and outstanding at December 31, 2003 and 2002 - -
Common stock, $0.001 par value; authorized 250,000 shares, 220,015
shares issued and outstanding at December 31, 2003, and 208,415 shares
issued and outstanding at December 31, 2002 - -
Additional paid-in capital 68,605 66,944
Notes due from stockholders (1,682) -
Accumulated deficit (39,315) (43,624)
-----------------------------------
Total stockholders' equity 27,608 23,320
-----------------------------------
Total liabilities and stockholders' equity $ 48,736 $ 42,517
===================================
See accompanying notes to consolidated financial statements.
-4-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Consolidated Statements of Operations
(in thousands)
Year ended December 31
2003 2002 2001
-----------------------------------------------------
Net revenues (restated) $ 93,994 $ 88,313 $ 86,280
Costs and expenses:
Operating expenses (restated) 72,967 70,047 68,819
General and administrative expenses 15,005 14,275 14,057
Depreciation and amortization 1,461 1,854 2,117
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Total costs and expenses (restated) 89,433 86,176 84,993
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Operating income 4,561 2,137 1,287
Other (income) expense:
Interest, net (87) (124) 255
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Total other (income) expense (87) (124) 255
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Income from continuing operations before income taxes 4,648 2,261 1,032
Provision for income taxes 339 337 139
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Income from continuing operations 4,309 1,924 893
Gain on discontinued operations, net of income taxes of $80 - - 527
Loss on disposal of discontinued operations, net of income
tax benefit of $506 - - (3,128)
-----------------------------------------------------
Net income (loss) $ 4,309 $ 1,924 $ (1,708)
=====================================================
See accompanying notes to consolidated financial statements.
-5-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
Common Stock Preferred Stock Notes due Additional Total
------------ --------------- from Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Stockholders Capital Deficit Equity
-----------------------------------------------------------------------------------------------------
Balance at December 31, 2000 208,415 $ - - $ - $ - $ 66,944 $ (43,840) $ 23,104
Net loss - - - - - - (1,708) (1,708)
-----------------------------------------------------------------------------------------------------
Balance at December 31, 2001 208,415 - - - - 66,944 (45,548) 21,396
Net income - - - - - - 1,924 1,924
-----------------------------------------------------------------------------------------------------
Balance at December 31, 2002 208,415 - - - - 66,944 (43,624) 23,320
Repurchase of common stock (700) - - - - (111) - (111)
Exercise of stock options 12,300 - - - (1,682) 1,772 - 90
Net income - - - - - - 4,309 4,309
-----------------------------------------------------------------------------------------------------
Balance at December 31, 2003 220,015 $ - - $ - $ (1,682) $ 68,605 $ (39,315) $ 27,608
=====================================================================================================
See accompanying notes to consolidated financial statements.
-6-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Consolidated Statements of Cash Flows
(in thousands, except share data)
Year ended December 31
2003 2002 2001
--------------------------------------------------
Operating activities
Net income from continuing operations $ 4,309 $ 1,924 $ 893
Adjustments to reconcile net income from continuing operations to
net cash provided by operating activities:
Depreciation and amortization 1,462 1,854 2,117
Loss on disposal of fixed assets - 72 -
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable (2,794) (778) 2,955
Other current assets (780) (585) (581)
Accounts payable 159 (17) (466)
Income taxes receivable (payable) 376 120 (270)
Deferred revenue (693) (800) 1,103
Other accruals and liabilities 2,813 1,195 1,377
Other long-term liabilities (348) 171 521
--------------------------------------------------
Net cash provided by operating activities 4,504 3,156 7,649
--------------------------------------------------
Investing activities
Purchase of property and equipment (735) (1,170) (1,266)
Proceeds from sale of fixed assets - 172 -
Increase in intangible assets (70) - -
Cash paid for acquisitions - - (43)
--------------------------------------------------
Net cash used in investing activities (805) (998) (1,309)
--------------------------------------------------
Financing activities
Payments under line of credit, net - - (6,030)
Payments on debt and capital lease obligations - - (22)
Issuance of common stock 90 - -
Repurchase of common stock (111) - -
--------------------------------------------------
Net cash used in financing activities (21) - (6,052)
--------------------------------------------------
Discontinued operations
Cash flows of discontinued operations - 2,308 959
--------------------------------------------------
Net cash provided by discontinued operations - 2,308 959
--------------------------------------------------
Net change in cash and cash equivalents 3,678 4,466 1,247
Cash and cash equivalents at beginning of year 7,621 3,155 1,908
--------------------------------------------------
Cash and cash equivalents at end of year $ 11,299 $ 7,621 $ 3,155
==================================================
Supplemental cash flow information:
Cash paid for interest $ - $ - $ 350
==================================================
Cash paid for income taxes $ 339 $ 217 $ 1,392
==================================================
See accompanying notes to consolidated financial statements.
-7-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements
December 31, 2003
1. Reporting Entity and Principles of Consolidation
Reporting Entity
Effective January 1, 2000, Meridian Occupational Healthcare Associates, Inc.
("Meridian") acquired Corporate Health Dimensions, based in Latham, New York. In
conjunction with the acquisition, Meridian began doing business as CHD Meridian
Healthcare ("CHD Meridian"), also referred to herein as the "Company".
CHD Meridian Healthcare is the nation's largest provider of outsourced health
care services to the employer-sponsored market. The Company's model allows
employers to contract directly for a wide range of health care services on
behalf of employees, dependents, and retirees that are delivered through
facilities located at or near the work site. CHD Meridian develops and manages
custom designed facilities that address the pharmacy, primary care, occupational
health, and corporate health demands of its clients. CHD Meridian currently
provides employer-sponsored services to 90 clients at 160 locations in 31
states.
Physician services are provided at CHD Meridian's locations under management
agreements with affiliated physician associations (the Physician Groups), which
are organized professional corporations that hire licensed physicians who
provide medical services.
Pursuant to the service agreements, the Physician Groups provide all medical
aspects of CHD Meridian's services, including the development of professional
standards, policies, and procedures for a fee. CHD Meridian provides a wide
array of business services to the Physician Group, including administrative
services, support personnel, facilities, marketing, and non-medical services in
exchange for a management fee.
Principles of Consolidation
The consolidated financial statements include accounts of Meridian Occupational
Healthcare Associates, Inc., its wholly owned subsidiaries, and the Physician
Groups. The financial statements of the Physician Groups are consolidated with
CHD Meridian in accordance with the nominee shareholder model of EITF 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 has unilateral control over the assets
and operations of the Physician Groups. Consolidation of the Physician Groups
with CHD Meridian is necessary to present fairly the financial position and
results of operations of CHD Meridian.
-8-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
1. Reporting Entity and Principles of Consolidation (continued)
Principles of Consolidation (continued)
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
December 31, 2003 and 2002. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Policies
Revenue Recognition and Accounts Receivable
The Company generates revenue from contractual client obligations for
occupational health, primary care, pharmacy and corporate health services
rendered on either a fixed fee or a cost-plus arrangement. For fixed fee
contracts, revenues are recorded on a straight-line basis as services are
rendered. For cost-plus contracts, revenues are recorded as costs are incurred
with the management fee component recorded as earned based upon the method of
calculation stipulated in the client contracts.
Revenue is recorded at estimated net amounts to be received from employers for
services rendered. The allowance for doubtful accounts represents management's
estimate of potential credit issues associated with amounts due from employers.
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. Under the Company's pharmacy arrangements, the Company provides
pharmaceuticals to a client as a component of its pharmacy agreement, which
typically requires the Company to staff and operate a pharmacy for the sole
benefit of the client's employees and, in certain instances, dependents and
retirees. The substance of the Company's pharmacy agreement in relation to
pharmaceutical purchases demonstrates an agent-like arrangement and points to
net reporting. The Company's agreements stipulate that the Company must be
reimbursed upon purchasing pharmaceuticals, and not upon dispensing, thus
limiting inventory risk. The Company also prices pharmaceuticals on a
pass-through basis and mitigates credit risk through structured payment terms
with its clients. Consequently, the Company does not have unmitigated credit
risk.
-9-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The table below shows the amounts of pass through pharmaceutical purchases by
period presented.
Year Ended Year Ended Year Ended
December 31, 2003 December 31, 2002 December 31, 2001
-------------------------------------------------------------------------
$86,253,912 $82,672,315 $73,164,625
Cash received by the Company prior to the performance of services is reflected
as deferred revenue on the balance sheet.
The Company does not utilize capitated arrangements in any contracts under which
it provides services.
Pharmaceutical Manufacturer Rebates
All rebates received by the Company from pharmaceutical manufacturers are passed
directly through to the Company's clients. Rebates received from manufacturers
but not yet remitted to clients are reflected as liabilities on the balance
sheet. The Company records volume based performance incentives from the
wholesale distributor as revenue.
Concentration of Credit Risks
The Company's credit risks primarily relate to cash and cash equivalents and
accounts receivable. Cash and cash equivalents are primarily held in bank
accounts, whose balances may exceed federally-insured limits from time-to-time.
Accounts receivable consist primarily of amounts due from corporate customers.
The Company continually reviews collectibility of its accounts receivable and
maintains allowances for doubtful accounts.
The Company had one customer in 2003, 2002 and 2001 that accounted for 12%, 12%
and 7% of total revenue, respectively.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
-10-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated on the basis of cost. Depreciation and
amortization are provided on the straight-line method over the following
estimated useful lives:
Years
----------------------------
Furniture and equipment 5-7
Leasehold improvements Remaining life of the lease
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of net tangible
assets acquired. Through December 31, 2001, goodwill was amortized on a
straight-line basis over the expected periods to be benefited, generally forty
years. In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets" ("Statement 142"). Effective January 1, 2002, the
amortization of all goodwill was discontinued upon the adoption of Statement
142. This statement prohibits the amortization of goodwill and other indefinite
lived intangible assets over a set period, rather these assets must be tested
for impairment at least annually using a fair value method. The Company
performed a transitional goodwill impairment test, noting no impairment.
Impairment is measured at the reporting unit level using a discounted cash flows
model to determine the fair value of the reporting units.
The Company will perform a goodwill impairment test whenever events or changes
in facts or circumstances indicate that impairment may exist, or at least
annually during the fourth quarter each year.
Other intangible assets represent customer lists, which are amortized on a
straight-line basis over the expected periods to be benefited, generally 16
years. The Company evaluates impairment of its customer lists through SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("Statement 144"), as discussed below.
-11-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Long-Lived Assets
The Company adopted Statement 144 on September 1, 2001. Statement 144 supersedes
Statement 121 and addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of.
Management evaluates the carrying value of long-lived assets, including property
and equipment in accordance with Statement 144. Statement 144 requires that
companies consider whether events or changes in facts and circumstances, both
internally and externally, may indicate that an impairment of long-lived assets
held for use is present. If this review indicates that such long-lived assets
will not be recoverable based on undiscounted cash flows of the related assets,
the Company would record an impairment charge, representing the difference
between carrying value and fair value (generally determined based on discounted
cash flows). Other than as described in Note 4, management has determined that
there was no impairment of long-lived assets at December 31, 2003 and 2002.
Stock Option Plan
The Company, from time to time, grants stock options for a fixed number of
common shares to employees and directors. The Company applies the intrinsic
value method of accounting prescribed by Accounting Principles Board Opinion No.
25 ("APB 25") "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its options. As such, compensation expense
would generally be recorded on the date of grant only if the then current market
price of the underlying stock exceeded the exercise price.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amount of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
-12-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Estimated Medical Professional Liability Claims
The Company is insured for medical professional liability claims on a
claims-made basis through commercial insurance policies. It is the Company's
policy that provision for estimated medical professional liability costs be made
for asserted and unasserted claims based on actuarially projected estimates,
based on historical loss payment patterns. Provision for such professional
liability claims includes estimates of the ultimate costs of such claims. The
Company evaluates the financial condition of its insurers and reinsurers and
monitors its credit risk related to insolvencies. At December 31, 2003, certain
of the Company's policy years were insured by two companies who are either
insolvent or under regulatory supervision. The Company's provision for losses
from professional liability claims assumes these policy years to be
self-insured. The Company's estimated liability for its self-insured retention
related to medical professional claims was $3,253,784 and $3,098,000 at December
31, 2003 and 2002, respectively.
Disclosure About Fair Value of Financial Instruments
The fair value of the Company's cash and cash equivalents, accounts receivable,
other current assets, accounts payable, and accrued expenses approximate
carrying amounts because of the short maturity of those instruments.
The fair value of the Company's debt instruments is estimated based on the
current rates offered to the Company for similar instruments of the same
maturities and approximates the carrying amounts.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation. Such reclassifications had no effect on the net results of
operations as previously reported.
Business Segment
The Company operates in a single reportable business segment.
-13-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46") to
expand upon and strengthen existing accounting guidance that addresses when a
company should include in its financial statements the assets, liabilities and
activities of another entity. Until now, a company generally has included
another entity in its consolidated financial statements only if it controlled
the entity through voting interests. FIN 46 changes that guidance by requiring a
variable interest entity, as defined, to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities, or is entitled to receive a majority of the entity's
residual returns, or both. FIN 46 also requires disclosure about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest.
On December 24, 2003, the FASB issued a revision of FIN 46 that replaced the
original interpretation and codified proposed modifications and other decisions
previously issued through certain FASB Staff Positions including the deferral of
the effective date of applying FIN 46 to certain variable interests. The revised
FIN 46 requires the Company to apply the provisions of FIN 46 immediately to any
special purpose entities and to any variable interest entities created after
January 31, 2003. Application of the provisions will be required for all other
variable interest entities in financial statements for periods ending after
March 15, 2004. The adoption of FIN 46 had no impact on the financial position
or operating results of the Company.
3. Business Combinations
On December 26, 2003, the Company signed a definitive merger agreement with
I-trax, Inc. (Amex: DMX), a Philadelphia, Pennsylvania, based health management
solutions company. The transaction is valued at approximately $80 million based
on the closing share price of I-trax common stock on Friday, December 26, 2003.
Under the terms of the agreement, I-trax will acquire all of the outstanding
shares of CHD Meridian in exchange for $35 million in cash, 10 million shares of
I-trax common stock and $10 million of I-trax Series A preferred stock. CHD
Meridian stockholders could receive an additional 4 million shares of I-trax
common stock ("earn out shares") depending upon the operating results of CHD
Meridian for calendar year 2004. Subsequent to closing, CHD Meridian will
operate as a wholly-owned subsidiary of I-trax. The transaction is expected to
close by April 30, 2004, but is subject to gaining stockholders' approval from
both companies, obtaining certain regulatory approvals and satisfying other
material conditions.
-14-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
3. Business Combinations (continued)
The merger will create one of the largest providers of integrated corporate
healthcare management solutions in the U.S. The merged company will offer
employers an opportunity not only to manage the healthcare of employees who use
on-site facilities, but also to provide an integrated, comprehensive health
management program for a customer's entire employee base.
The merged company will offer customers a single vendor for primary care,
pharmacy, occupational health, as well as disease management and health
interventions. These solutions help to increase productivity, reduce
absenteeism, and improve health status of both active employees and retirees and
reduce overall healthcare costs.
4. Discontinued Operations
During 2001, the Company was notified of the cancellation of two government
contracts, located in Fairfax, VA and Woodbridge, VA. The cancellation of these
contracts met the requisite requirements to be accounted for as discontinued
operations under Statement 144 because of the distinct financial information of
the component entities that was available and reviewed by management. In
accordance with Statement 144, the gain on discontinued operations of these two
contracts of $607,000 for the year ended December 31, 2001 was reclassified and
reflected separately in the accompanying Consolidated Statements of Operations.
In accordance with Statement 144, the Company recorded a loss on disposal of the
discontinued operations of $3,716,000 for the year ended December 31, 2001,
which consisted predominantly of the write-down of the equipment and intangible
assets. Any remaining gains or losses on the discontinued operations will be
recorded in the period incurred, in accordance with the requirements of
Statement 144. At December 31, 2003 and 2002, the net liabilities of
discontinued operations consisted of contract staffing accruals of $1,299,000.
The contract staffing accruals represent management's estimate of the Company's
obligations related to the government's right to audit the contract terms and
conditions.
The Company divested of its 11 freestanding occupational healthcare clinics
located in Northern California (California Operations) during 1998. The sale of
the California Operations was accounted for as discontinued operations in the
accompanying consolidated financial statements. During 2001, a final lease
expired, resulting in a gain on disposal of discontinued operations of $82,000.
There was no impact to the financial statements related to the California
Operations during 2003 or 2002.
-15-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
5. Property and Equipment
Property and equipment consist of the following (in thousands):
December 31
2003 2002
-------------------------------------
Furniture and equipment $ 6,823 $ 6,089
Leasehold improvements 181 180
-------------------------------------
7,004 6,269
Less accumulated depreciation (4,124) (3,206)
-------------------------------------
$ 2,880 $ 3,063
=====================================
Depreciation expense was $918,000, $1,105,000 and $1,083,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.
6. Goodwill and Other Intangible Assets
In accordance with Statement 142, the Company discontinued the amortization of
goodwill effective January 1, 2002. A reconciliation of previously reported net
income (loss) to the pro forma amounts adjusted for the exclusion of goodwill
amortization net of the related income tax effect follows (in thousands):
Year ended December 31
2003 2002 2001
---------------------------------------
Reported net income (loss) $ 4,309 $ 1,924 $ (1,708)
Add: goodwill amortization - - 200
---------------------------------------
Pro forma adjusted net income (loss) $ 4,309 $ 1,924 $ (1,508)
=======================================
-16-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
6. Goodwill and Other Intangible Assets (continued)
The Company's separately identifiable intangible assets, which consists of
customer lists and non-compete agreements, are as follows (in thousands):
December 31
2003 2002
----------------- ----------------
Amortized intangible assets:
Carrying amount $ 10,761 $ 10,691
Accumulated amortization (3,590) (3,046)
----------------- ----------------
Net $ 7,171 $ 7,645
================= ================
Amortization expense for the year ended December 31, 2003 was $544,000.
Estimated amortization expense for each of the succeeding five fiscal years is
as follows:
Year ending December 31
2004 610,000
2005 610,000
2006 610,000
2007 610,000
2008 610,000
-17-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt
Effective May 15, 2000, the Company obtained a permanent $7.5 million credit
facility from Bank of America, which expired on November 15, 2002. Effective
November 15, 2002, the Company amended the permanent $7.5 million credit
facility from Bank of America. The permanent credit facility was reduced to $6.5
million and extended to November 15, 2005. The credit facility has a $3.25
million letter of credit portion with the remainder being a term loan revolver.
The credit facility is secured by substantially all of the Company's assets. At
no time may the borrowings on the credit facility exceed 75% of the Company's
assets. Borrowings, at the Company's election, may be either base rate loans or
LIBOR loans. Base rate loans bear interest at the federal funds rate plus 5% per
annum. The LIBOR loans bear interest at the LIBOR rate plus a range of 1.5% to
3.0% based on the Company's leverage ratio. At December 31, 2003 and 2002, the
Company had no debt outstanding on the term loan.
The credit facility includes certain financial covenants customary for the
amount and duration of this commitment. The Company was in compliance with all
such covenants at December 31, 2003.
A letter of credit of $2 million has been issued for the benefit of The
Lexington Group, the Company's medical malpractice carrier. An additional $1.0
million letter of credit has been issued for the benefit of the Commissioner of
Insurance, State of Vermont for a Risk Retention Group to be formed and licensed
in 2004 for the Company's professional and general liability insurance.
8. Income Taxes
Income tax expense is comprised of the following for the years ended December
31:
2003 2002 2001
------------------ ---------------- -------------------
Current:
Federal $ 278 $ - $ (128)
State 339 337 267
Deferred- federal (278) - -
------------------ ---------------- -------------------
Income tax expense $ 339 $ 337 $ 139
================== ================ ===================
-18-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
During the year ended December 31, 2001 and all years prior to December 31,
2000, the Company generated net operating loss (NOL) carryforwards for federal
and state income tax purposes. The NOL carryforwards are applicable to both
discontinued and continuing operations. As a result of each period's loss and
existing NOL carryforwards, the Company recorded a provision for current federal
income tax during the year ended December 31, 2003 only. No provision for
current federal income taxes was recorded for 2002 or 2001. At December 31, 2003
and 2002, the Company has a cumulative NOL carryforward for federal income tax
purposes of $14.4 million and $18.2 million, respectively, which expires between
2011 and 2021. At December 31, 2003 and 2002, the Company has cumulative NOL
carryforwards for state income tax purposes of $29.7 million and $33.7 million,
respectively, which expire between 2006 and 2021. For financial reporting
purposes, a valuation allowance has been recorded against the deferred tax
assets related to these carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the company's deferred tax assets and liabilities for continuing and
discontinued operations are as follows:
2003 2002
------------------- -------------------
Deferred tax assets:
Net operating loss carryforwards $ 6,563 $ 7,880
Allowance for doubtful accounts 234 249
Accrued expenses 1,913 1,712
Amortization 1,282 1,387
Other 450 331
------------------- -------------------
Total gross deferred tax assets 10,442 11,559
Less: Valuation allowance (9,548) (11,248)
------------------- -------------------
Total deferred tax assets 894 311
Deferred tax liability:
Depreciation (616) (311)
------------------- -------------------
Net deferred tax asset $ 278 $ -
=================== ===================
-19-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The provision for income taxes for continuing operations for the years ended
December 31, 2003, 2002 and 2001 differs from the amount computed by applying
the statutory rate of 34% due to the following:
2003 2002 2001
-------------------------------------------
Tax at federal statutory rate $ 1,611 $ 769 $ 351
State income taxes 231 223 176
Nondeductible amortization 171 225 309
Other 26 23 129
Change in valuation allowance (1,700) (903) (826)
-------------------------------------------
Income tax provision $ 339 $ 337 $ 139
===========================================
During 2001, the valuation allowance changed by approximately $1.2 million for
the tax effect of discontinued operations.
9. Stockholders' Equity
Capital Stock
The Company has 93,500 authorized shares of Series A preferred stock and 60,000
authorized shares of Series B preferred stock. Through December 31, 2003, the
Company has not issued any of the preferred series stock.
Stock Option Plan
The Company's 1997 Stock Incentive Plan (the "Plan") provides for qualified and
non-qualified incentive stock option grants that may be granted to key employees
as designated by the Board of Directors. The options are exercisable commencing
on dates specified in the option agreements and generally vest ratably over a
four-year period. The options expire at the earlier of ten years from the date
of grant or three months after the termination of the holder's employment with
the Company.
-20-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
9. Stockholders' Equity (continued)
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("Statement 148"), which amends SFAS No.
123, "Accounting for Stock-Based Compensation" ("Statement 123"). Statement 148
provides alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation and
amends the disclosure requirements of Statement 123 to require more prominent
and more frequent disclosures in financial statements about the effects of
stock-based compensation. Statement 148 is effective for financial statements
issued for fiscal years ending after December 15, 2002. The Company has elected
to account for stock-based compensation plans under the intrinsic value-based
method of accounting prescribed by APB 25 that does not utilize the fair value
method.
All options have been granted with exercise prices equal to or greater than
management's estimate of the fair value of the Company's common stock on the
date of grant. As a result, no compensation cost has been recognized. If the
alternative method of accounting for stock option plans prescribed by Statement
123 and Statement 148 had been followed, the Company's net income (loss) would
not have been materially different for the years ended December 31, 2003, 2002
and 2001, respectively.
-21-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
9. Stockholders' Equity (continued)
Stock Option Plan (continued)
The following is a summary of option transactions during 2003, 2002, and 2001:
Number of Shares Weighted Average
Exercise Price
--------------------- -------------------
Outstanding at December 31, 2000 35,202 $ 111
Granted 2,890 143
Canceled (1,545) 139
Exercised - -
--------------------- -------------------
Outstanding at December 31, 2001 36,547 $ 113
Granted - -
Canceled (455) 141
Exercised - -
--------------------- -------------------
Outstanding at December 31, 2002 36,092 $ 112
Granted - -
Canceled (625) 143
Exercised (12,300) 137
--------------------- -------------------
Outstanding at December 31, 2003 23,167 $ 98
===================== ===================
Available for future grant 1,253
=====================
Exercisable at December 31, 2003 17,258 $ 97
===================== ===================
Exercisable at December 31, 2002 19,301 $ 110
===================== ===================
Exercisable at December 31, 2001 11,127 $ 108
===================== ===================
-22-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
10. Employee Benefit Plan
The Company has a defined-contribution employee benefit plan that was
established under provisions of Section 401(k) of the Internal Revenue Code.
Substantially all full-time regular employees of the Company are eligible to
participate in the plan. Under the plan's provisions, an employee may
contribute, on a tax-deferred basis, up to 15% of total cash compensation, not
to exceed, within a calendar year, subject to Internal Revenue Code limitations.
The Company can make matching contributions and discretionary contributions. The
Company made matching contributions of $588,000, $498,000 and $565,000 for the
years ended December 31, 2003, 2002 and 2001, respectively.
11. Lease Obligations
The Company leases corporate office space, operating facilities, and equipment
under various operating lease agreements. Future minimum lease payments under
noncancelable operating leases as of December 31, 2003, are as follows (in
thousands):
Year ending December 31
2004 $ 1,294
2005 986
2006 927
2007 780
2008 651
Thereafter 574
----------------
$ 5,212
================
Rent expense on operating leases for the years ended December 31, 2003, 2002 and
2001 was $2,589,000, $2,753,000 and $3,117,000, respectively.
12. Related Party Transactions
In October of 2003, the Company made loans in the amount of $1.7 million to
three officers of the Company for the purpose of exercising 12,300 options to
purchase common stock. These recourse loans, which are due and payable at the
earlier of December 31, 2006 or the acquisition or merger of the Company, carry
an annual interest rate of 6%. The Company recorded approximately $90,000 of
compensation expense related to these transactions. These loans are reflected as
a deduction to stockholders' equity.
-23-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
13. Commitments and Contingencies
Litigation
The Company has been named as a defendant in two lawsuits seeking refund of
approximately $920,000 in payments received in the ordinary course of business
from two clients that filed for protection under bankruptcy laws during 2002 and
2003. The Company believes that amounts received are rightfully the Company's
property. The outcome of these lawsuits cannot be determined, but could have a
material adverse impact on the Company.
The Company is also involved in certain legal actions and claims on a variety of
matters related to the normal course of business. It is the opinion of
management that such legal actions will not have a material effect on the
results of operations or the financial position of the Company.
Healthcare Regulations
The healthcare industry is subject to numerous laws and regulations of Federal,
state, and local governments. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
healthcare program participation requirements, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse. Recently, government
activity has increased with respect to investigations and allegations concerning
possible violations of fraud and abuse statutes and regulations by healthcare
providers. Violations of these laws and regulations could result in expulsion
from government healthcare programs together with the imposition of significant
fines and penalties, as well as significant repayments for patient services
previously billed. Management believes that the Company is in compliance with
fraud and abuse statutes as well as other applicable government laws and
regulations. Compliance with such laws and regulations can be subject to future
government review and interpretation as well as regulatory actions unknown or
unasserted at this time.
-24-
Meridian Occupational Healthcare Associates, Inc.
and Subsidiaries (d/b/a CHD Meridian Healthcare)
Notes to Consolidated Financial Statements (continued)
14. Restatement
The Company reviewed its treatment of pharmaceutical ingredient revenues and
expenses reported in the Company's audited financial statements for the periods
ended December 31, 2003, 2002 and 2001. After its assessment of the treatment,
and discussions with the Company's independent auditors, Ernst & Young LLP, the
Company reconsidered its previous reporting of pharmaceutical pass-through
contracts, determining that net recognition of all pharmaceutical pass-through
contracts is appropriate. Consequently, all such pharmaceutical pass-through
contracts are now reported on a net basis and pharmaceutical performance
incentives, previously recorded as reductions of operating expense, have been
reclassifed to revenues. Following is a summary of selected financial data
affected by the restatement of the Company's Statement of Operations for the
years ended December 31, 2003, 2002 and 2001 (in thousands):
December 31, 2003 December 31, 2002 December 31, 2001
-------------------------------- ------------------------------ ------------------------------
As Previously As Restated As Previously As Restated As Previously As Restated
Reported Reported Reported
--------------- ---------------- -------------- --------------- ---------------- -------------
Net Revenues $ 113,410 93,994 $ 103,452 88,313 $ 97,165 86,280
Operating expenses 92,383 72,967 85,186 70,047 79,704 68,819
Total costs and expenses 108,849 89,433 101,315 86,176 95,878 84,993
Operating income 4,561 4,561 2,137 2,137 1,287 1,287
--------------- ---------------- -------------- --------------- ---------------- -------------
Net income (loss) $ 4,309 $ 4,309 $ 1,924 $ 1,924 $ (1,708) $ (1,708)
=============== ================ ============== =============== ================ =============
-25-
UNAUDITED COMBINED CONDENSED BALANCE SHEET OF I-TRAX AND CHD MERIDIAN
HEALTHCARE ON A PRO FORMA BASIS AS IF THE MERGER HAD BEEN CONSUMMATED ON
DECEMBER 31, 2003 AND THE UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
ON A PRO FORMA BASIS AS IF THE MERGER HAD BEEN CONSUMMATED ON JANUARY 1, 2002
General
I-trax, Inc. entered into a merger agreement on December 26, 2003, as
amended, with Meridian Occupational Healthcare Associates, Inc. and Subsidiaries
(d/b/a CHD Meridian Healthcare), a privately held company and a provider of
outsourced, employer-sponsored healthcare services. The merger was consummated
on March 19, 2004.
Pursuant to the merger agreement, I-trax delivered 10,000,000 shares of
common stock, 400,000 shares of Series A Convertible Preferred Stock, and paid
in cash, $25,508,000 to the CHD Meridian Healthcare stockholders. CHD Meridian
Healthcare stockholders will also receive additional shares of I-trax common
stock if CHD Meridian Healthcare's continuing operations following the closing
of the merger as a subsidiary of I-trax achieve calendar 2004 milestones for
earnings before interest, taxes, depreciation and amortization, or EBITDA as
follows: If EBITDA exceeds $8.1 million, the number of such additional shares
will be 3,473,280; the number of such shares increases proportionately up to a
maximum of 3,859,200 if EBITDA exceeds $9.0 million.
I-trax funded the cash portion of the merger consideration by selling
1,000,000 shares of Series A Convertible Preferred Stock at $25 per share, which
are convertible into 10 shares of common stock at a conversion price of $2.50
per share, for gross proceeds of $25 million, and obtaining a new $20 million
senior secured credit facility with a national lender. At closing date, I-trax
drew down $12 million under the facility to fund a portion of the purchase
price.
Pro Forma Condensed Combined Financial Statements
The following information has been provided to aid you in your analysis
of the financial aspects of the merger consummated on March 19, 2004. This
information was derived from the audited consolidated financial statements of
each of I-trax and CHD Meridian Healthcare for fiscal years ended 2003 and 2002
and unaudited consolidated financial statements of each of I-trax and CHD
Meridian Healthcare for the three months period ended March 31, 2004. The
information should be read together with the historical financial statements and
related notes of I-trax and CHD Meridian Healthcare contained in this Current
Report on Form 8-K.
The unaudited pro forma adjustments are based on management's
preliminary estimates of the value of the tangible and intangible assets and
liabilities acquired. As a result, the actual determination of the value of the
tangible and intangible assets and liabilities acquired may differ materially
from those presented in these unaudited pro forma condensed combined financial
statements. A change in the unaudited pro forma condensed combined balance sheet
adjustments of the purchase price for the acquisition would primarily result in
the reallocation affecting the value assigned to tangible and intangible assets.
The income statement effect of these changes will depend on the nature and the
amount of the assets or liabilities adjusted.
The unaudited pro forma condensed combined financial statements are
presented for informational purposes only and are not necessarily indicative of
the financial position or results of operations of I-trax that would have
occurred had the purchase been consummated as of the dates indicated below in
the section titled "Periods Covered." In addition, the unaudited pro forma
condensed combined financial statements are not necessarily indicative of the
future financial condition or operating results of I-trax.
Accounting Treatment
The merger is accounted for under the purchase method of accounting,
with I-trax treated as the acquirer. As a result, I-trax will record the assets
and liabilities of CHD Meridian Healthcare at their estimated fair values and
will record as goodwill the excess of the purchase price over such estimated
fair values. The unaudited pro forma condensed combined financial statements
reflect preliminary estimates of the allocation of the purchase price for the
-26-
acquisition that may be adjusted, including in connection with payment of any
earn-out shares. As agreed among the parties, the operating results of CHD
Meridian Healthcare have been combined with the results of I-trax commencing on
April 1, 2004.
Periods Covered
The following unaudited pro forma condensed combined balance sheet as
of December 31, 2003 is presented as if the merger had occurred on December 31,
2003. The unaudited pro forma condensed combined statements of operations for
the years ended December 31, 2003 and 2002 and the three months ended March 31,
2004 are presented as if the companies had merged as of January 1, 2002.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2003 (UNAUDITED)
(In thousands, except per share price.)
Meridian Pro Forma
Occupational Consolidated
Healthcare I-trax, Inc.
I-trax, Inc. Associates, and
and Inc., and Pro Forma Subsidiaries
Subsidiaries Subsidiaries Adjustments (Unaudited)
December 31, December 31, Adj (Unaudited) December 31,
2003 (a) 2003 (b) Ref. (c) 2003
--------------- ------------------------ --------------- ----------------
Current assets
Cash and cash equivalents $ 574 $ 11,299 A $ 37,000 $ 4,470
F (25,508)
F (1,169)
C (1,500)
E (9,492)
H (500)
I (5,000)
N (1,234)
Accounts receivable, net 549 17,167 17,716
Other current assets 188 2,002 2,190
--------------- ------------------ --------------- ----------------
Total current assets 1,311 30,468 (7,403) 24,376
--------------- ------------------ --------------- ----------------
Investments in CHD Meridian -- -- F 72,977 --
G (72,977)
Property, equipment and
furniture, net 1,515 2,880 4,395
Deferred marketing costs,
net 831 -- 831
Deposit on intellectual
license 160 -- 160
Deferred acquisition costs 85 -- 85
Debt issuance costs 35 -- 35
Goodwill 8,424 8,181 G 28,633 45,238
Customer lists\relations,
net 768 7,101 G 22,235 30,104
Non-compete agreements, net 449 449
Other intangibles, net -- 70 G 1,030 1,100
Other long term assets 25 36 61
--------------- ------------------ --------------- ----------------
Total assets $ 13,603 $ 48,736 $ 44,495 $ 106,834
=============== ================== =============== ================
(Continues on following page.)
-27-
Meridian Pro Forma
Occupational Consolidated
Healthcare I-trax, Inc.
I-trax, Inc. Associates, and
and Inc., and Pro Forma Subsidiaries
Subsidiaries Subsidiaries Adjustments (Unaudited)
December 31, December 31, Adj (Unaudited) December 31,
2003 (a) 2003 (b) Ref. (c) 2003
--------------- ------------------ --------------- ----------------
Current liabilities
Accounts payable 606 5,955 6,561
Accrued expenses 361 4,088 N (156) 4,293
Due to related parties 280 -- N (280) --
Deferred revenue 240 951 1,191
Other current liabilities 115 7,586 7,701
--------------- ------------------ --------------- ----------------
Total current liabilities 1,602 18,580 (436) 19,746
--------------- ------------------ --------------- ----------------
Common Stock Warrants 2,760 -- L 350 --
M (3,110)
Credit lines payable, long
term -- -- A 12,000 12,000
Promissory notes and
debenture payable, net of
discount 798 -- N (798) --
Other long term liabilities 58 2,548 2,606
--------------- ------------------ --------------- ----------------
Total liabilities 5,218 21,128 8,006 34,352
--------------- ------------------ --------------- ----------------
Preferred stock -- -- A 25,000 30,000
F 10,000
I (5,000)
Common stock and additional
paid -in-capital 47,290 66,923 F 36,300 106,787
C (1,500)
E (9,492)
B 24,600
D 2,125
D (2,125)
G (60,394)
L (350)
H 300
M 3,110
Accumulated deficit and other (38,905) (39,315) G 39,315 (64,305)
B (24,600)
H (800)
--------------- ------------------ --------------- ----------------
Total stockholders' equity 8,385 27,608 36,489 72,482
--------------- ------------------ --------------- ----------------
Total liabilities and
stockholder's equity $ 13,603 $ 48,736 $ 44,495 $ 106,834
=============== ================== =============== ================
(Continues on following page.)
-28-
(Continues from previous page.)
(a) Represents historical balance sheet of I-trax, Inc. and subsidiaries as
of December 31, 2003 derived from the audited consolidated financial
statements included in I-trax's Annual Report on Form 10-KSB for the
year ended December 31, 2004, as amended.
(b) Represents historical balance sheet of Meridian Occupational Healthcare
Associates, Inc. and subsidiaries as of December 31, 2003 derived from
the audited consolidated financial statements included in this Current
Report on Form 8-K.
(c) The pro forma adjustments give effect to the financings of the
acquisition and the acquisition of CHD Meridian Healthcare as if it
were consummated as of December 31, 2003.
See accompanying notes to unaudited pro forma condensed combined
financial information.
-29-
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2004
(UNAUDITED)
(In thousands, except per share price.)
Meridian Pro Forma
Occupational consolidated
Healthcare I-trax, Inc. and
I-trax, Inc. and ssociates, Inc. and Subsidiaries for
Subsidiaries for ubsidiaries for the Pro Forma the quarter ended
the quarter ended A quarter ended Adj. adjustments March 31, 2004
March 31, 2004 (a) SMarch 31, 2004 (b) Ref. (Unaudited) (c) (Unaudited)
--------------------- ---------------------- ------ ------------------- -----------------
Revenue $ 1,447 $ 23,355 $ 24,802
--------------------- ---------------------- --------------
Cost and expenses:
Cost of revenue/operating expenses 697 18,028 18,725
General and administrative expenses 2,021 5,832 O (2,770) 5,083
Depreciation and amortization 435 388 J 435 1,258
--------------------- ---------------------- ------------------- --------------
Total costs and expenses 3,153 24,248 (2,335) 25,066
--------------------- ---------------------- ------------------- --------------
Operating (loss) income (1,706) (893) (2,335) (264)
--------------------- ---------------------- ------------------- --------------
Other (expenses) income:
Interest (expense) income (613) 29 K (180) (764)
Amortization of financing costs (35) -- (35)
Other expenses (350) -- (350)
--------------------- ---------------------- ------------------- --------------
Total other expenses (998) 29 (180) (1,149)
--------------------- ---------------------- ------------------- --------------
Net income (loss) before provision for
income taxes (2,704) (864) (2,155) (1,413)
--------------------- ---------------------- ------------------- --------------
Provision for income taxes -- -- -- --
--------------------- ---------------------- ------------------- --------------
Net income (loss) $ (2,704) $ (864) $ (2,155) $ (1,413)
===================== ====================== =================== ==============
Less deemed dividends applicable to
preferred stockholders 15,820 -- B,F (15,820) --
Net Loss applicable to common
stockholders $ (18,524) $ (864) $ (17,975) $ (1,413)
Loss per common share:
Basic and diluted $ (1.20) $ (0.06)
===================== ==============
Weighted average number of shares
outstanding: 15,405 F 10,000 25,405
===================== ==============
(Continues on following page.)
-30-
(Continues from previous page.)
(a) Represents historical statement of operations of I-trax and
subsidiaries for the quarter ended March 31, 2004 derived from the
unaudited financial statements included in I-trax's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2004, as amended.
(b) Represents historical statement of operations of CHD Meridian
Healthcare and subsidiaries for the quarter ended March 31, 2004
derived from the unaudited financial statements included in I-trax's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004,
as amended.
(c) The pro forma adjustments give effect to the financings of the
acquisition and the acquisition of CHD Meridian Healthcare as if it
were consummated on January 1, 2002.
See accompanying notes to unaudited pro forma condensed combined
financial information.
-31-
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
(UNAUDITED)
(In thousands, except per share price.)
Meridian Pro Forma
Occupational consolidated
I-trax, Inc. and Healthcare I-trax, Inc. and
Subsidiaries for Associates, Inc. and Subsidiaries for
the year ended Subsidiaries for the Pro Forma the year ended
December 31, 2003 year ended December Adj. adjustments December 31, 2003
(a) 31, 2003 (b) Ref. (Unaudited) (c) (Unaudited)
--------------------- ---------------------- ------ ------------------- -----------------
Revenue $ 4,189 $ 93,994 $ 98,183
--------------------- ---------------------- ---------------
Cost and expenses:
Cost of revenue/operating expenses 1,372 72,967 74,339
General and administrative 4,210 15,005 19,215
Depreciation and amortization 1,702 1,461 J 1,740 4,903
Impairment charge related to
intangible assets 458 458
Marketing and publicity 1,763 -- 1,763
--------------------- ---------------------- ------------------- ---------------
Total costs and expenses 9,505 89,433 1,740 100,678
--------------------- ---------------------- ------------------- ---------------
Operating (loss) income (5,316) 4,561 (1,740) (2,495)
--------------------- ---------------------- ------------------- ---------------
Other income (expenses):
Proceeds from life insurance policy 500 -- 500
Costs in connection with terminated
acquisition (200) -- (200)
Amortization of debt issuance and
conversion costs (337) -- (337)
Increase in common stock warrants (301) -- L (350) (651)
Interest (expense) income and
financing costs (2,405) 87 K (720) (3,038)
--------------------- ---------------------- ------------------- ---------------
Total other expenses (2,743) 87 (1,070) (3,726)
--------------------- ---------------------- ------------------- ---------------
Net income (loss) before provision for
income taxes (8,059) 4,648 (2,810) (6,221)
--------------------- ---------------------- ------------------- ---------------
Provision for income taxes -- 339 -- 339
--------------------- ---------------------- ------------------- ---------------
Net income (loss) $ (8,059) $ 4,309 $ (2,810) $ (6,560)
===================== ====================== =================== ===============
Loss per common share:
Basic and diluted $ (0.74) $ (0.31)
===================== ===============
Weighted average number of shares
outstanding: 10,905 F 10,000 20,905
===================== ===============
(Continues on following page.)
-32-
(Continues from previous page.)
(a) Represents historical statement of operations of I-trax and
subsidiaries for the year ended December 31, 2003 derived from the
audited financial statements included in I-trax's Annual Report on Form
10-KSB for the year ended December 31, 2004, as amended.
(b) Represents historical statement of operations of CHD Meridian
Healthcare and subsidiaries for the year ended December 31, 2003
derived from the audited financial statements included in this Current
Report on Form 8-K.
(c) The pro forma adjustments give effect to the financings of the
acquisition and the acquisition of CHD Meridian Healthcare as if it
were consummated on January 1, 2002.
See accompanying notes to unaudited pro forma condensed combined
financial information.
-33-
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)
(In thousands, except per share price.)
Meridian
Occupational Pro Forma
I-trax, Inc. and Healthcare consolidated
Subsidiaries for Associates, Inc. and Pro Forma I-trax, Inc. and
the year ended Subsidiaries for the adjustments Subsidiaries for
December 31, year ended December Adj. consolidated the year ended
2002 (a) 31, 2002 (b) Ref. (Unaudited) (c) December 31, 2002
------------------ ---------------------- ------- ---------------- --------------------
Revenue $ 3,932 $ 88,313 $ 92,245
------------------ ---------------------- --------------------
Cost and expenses:
Cost of revenue/operating expenses 1,229 70,047 71,276
General and administrative 5,955 14,275 H 500 20,730
Depreciation and amortization 2,045 1,854 J 1,740 5,639
Marketing and publicity 774 -- 774
Research & Development 410 -- 410
Impairment charges related to
intangible assets 1,648 -- 1,648
------------------ ---------------------- ---------------- --------------------
Total costs and expenses 12,061 86,176 2,240 100,477
------------------ ---------------------- ---------------- --------------------
Operating (loss) income (8,129) 2,137 (2,240) (8,232)
------------------ ---------------------- ---------------- --------------------
Other income (expenses):
Amortization of debt issuance and
conversion costs (187) -- (187)
Interest (expense) income and
financing costs (1,108) 124 K (720) (1,704)
------------------ ---------------------- ---------------- --------------------
Total other expenses (1,295) 124 (720) (1,891)
------------------ ---------------------- ---------------- --------------------
Net income(loss) before provision for
income taxes (9,424) 2,261 (2,960) (10,123)
------------------ ---------------------- ---------------- --------------------
Provision for income taxes -- 337 337
------------------ ---------------------- ---------------- --------------------
Net Income (loss) (9,424) 1,924 (2,960) (10,460)
Less: dividends applicable to preferred
stockholders -- -- B, F 15,820 15,820
------------------ ---------------------- ---------------- --------------------
Net income (loss) applicable to common
stock $ (9,424) $ 1,924 $ (18,780) $ (26,280)
================== ====================== ================ ====================
Loss per common share:
Basic and diluted $ (1.04) $ (1.38)
================== ====================
Weighted average number of shares
outstanding: 9,097 F 10,000 19,097
================== ====================
(Continues on following page.)
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(Continues from previous page.)
(a) Represents historical statement of operations of I-trax and
subsidiaries for the year ended December 31, 2002 derived from the
audited financial statements included in I-trax's Annual Report on Form
10-KSB for the year ended December 31, 2004, as amended.
(b) Represents historical statement of operations of CHD Meridian
Healthcare and subsidiaries for the year ended December 31, 2002
derived from the audited financial statements included in this Current
Report on From 8-K.
(c) The pro forma adjustments give effect to the financings of the
acquisition and the acquisition of CHD Meridian Healthcare as if it
were consummated on January 1, 2002.
See accompanying notes to unaudited pro forma condensed combined
financial information.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The pro forma adjustments to the condensed combined balance sheet below
give effect to the financing of the CHD Meridian Healthcare acquisition and the
acquisition of CHD Meridian Healthcare as if they were both consummated as of
December 31, 2003. The pro forma adjustments to the condensed combined
statements of operations below give effect to the financing of the CHD Meridian
Healthcare acquisition and the acquisition of CHD Meridian Healthcare as if they
were both consummated as of January 1, 2002.
A. To give effect to the receipt of $37,000 of cash comprised of a $12,000
draw down under a senior credit facility and $25,000 from the issuance
of 1,000,000 shares of I-trax's Series A Convertible Preferred Stock at
$25 per share. Each share of Series A Convertible Preferred Stock is
convertible into 10 shares of I-trax common stock at $2.50 per share.
B. In connection with the issuance of Series A Convertible Preferred
Stock, I-trax reported $11,300 as a deemed dividend to preferred
stockholders, representing the value of the beneficial conversion value
for the underlying common stock. The beneficial conversion value is the
benefit realized by the preferred stockholder and is treated as a
dividend for purpose of computing earnings per share. The dividend is
computed by multiplying the difference between the average closing
price for the underlying common stock for the three days prior and
three days after the announcement of the merger ($3.63 per share), and
the conversion price ($2.50 per share) by the number of shares of
common stock into which the preferred is convertible (10,000,000
shares).
C. To give effect to the placement agent commission fees associated with
the sale of $25,000 of Series A Convertible Preferred Stock computed at
6% of the gross proceeds or $1,500 in cash.
D. To give effect to the additional placement agent commission fees
associated with the sale of $25,000 of Series A Convertible Preferred
Stock. The consideration consists of warrants to purchase 500,000
shares of common stock at $2.50 per share. Based on the Black-Scholes
model, I-trax has valued such warrants at $2,125.
E. To give effect to CHD Meridian Healthcare's redeeming approximately
$9,492 of common stock and options from its current stockholders and
option holders.
F. To give effect to the acquisition of CHD Meridian Healthcare estimated
at $72,977 as of March 19, 2004. The pro forma adjustment gives effect
to the following items: (1) disbursement of the cash portion of the
acquisition in the amount of $25,508, as adjusted for the redemption of
CHD Meridian Healthcare common stock and options, and for a minimum
cash balance requirement as per the merger agreement; (2) estimated
disbursements in connection with the costs of the transaction amounting
to $1,169; (3) issuance of 10,000,000 shares of I-trax common stock
valued at $3.63 per share, or $36,300; and (4) issuance of 400,000
shares of Series A Convertible Preferred Stock at $25 per share or
$10,000, convertible into 4,000,000 shares of I-trax common stock. In
connection with the issuance of the 400,000 shares of Series A
Convertible Preferred Stock, I-trax reported $4,520 as a deemed
dividend to the preferred stockholders, representing the beneficial
conversion value for the underlying common stock. The beneficial
conversion value is the benefit realized by the preferred stockholder
and is treated as a dividend for purpose of computing earnings per
share. The dividend is computed by multiplying the difference between
the average closing price for the underlying common stock for the three
days prior and three days after the announcement of the merger ($3.63
per share), and the conversion price ($2.50 per share) by the number of
shares of common stock into which the preferred is convertible
(4,000,000 shares).
G. To give effect to the consolidation and the elimination of CHD Meridian
Healthcare's equity and preliminarily to allocate the purchase price
over the estimated fair values of the assets and liabilities acquired
with the excess assigned to goodwill.
H. To give effect to a $500 cash bonus pool approved by the compensation
committee of the board of directors of I-trax for employees assisting
with the merger.
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I. To give effect to the redemption of 200,000 shares of Series A
Convertible Preferred Stock following the merger from certain CHD
Meridian Healthcare stockholders.
J. To give effect to the amortization expense for the respective periods
utilizing an estimated amortizable life of fifteen years as it relates
to customer lists/relations acquired and four years as it relates to
other intangibles.
K. To give effect to the interest expense associated with the draw down of
$12,000 under the credit facility, which has been utilized to fund a
portion of the acquisition price as discussed in Note A above.
L. To give effect to the increase in common stock warrants from January 1,
2003 to February 17, 2004 (the effective date of the registration
statement) as required by EITF 00-19.
M. To give effect to the reclassification of the common stock warrant
liability into equity on February 14, 2004.
N. To give effect to the repayments of obligations subsequent to the
year-end and as part of the merger transaction.
O. To give effect to the transaction costs expensed during the period.
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