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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File No. 0-20260
Commission File No. 1-11440
INTEGRAMED AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1150326
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip Code)
(914) 253-8000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K (17 CRF ss. 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-K [X]
Aggregate market value of voting stock (Common Stock, $.01 par value) held
by non-affiliates of the Registrant was approximately $10.2 million on March 1,
2000 based on the closing sales price of the Common Stock on such date.
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding was approximately 4,329,598 on March 1, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
Registrant's definitive proxy statement for the fiscal year ended December
31, 1999 to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 and the Exhibit Index hereto.
PART I
ITEM 1. Business
Company Overview
IntegraMed America, Inc. (the "Company") offers products and services to
patients, providers, payors and drug manufacturers in the infertility industry.
The Company provides comprehensive Business Services (as defined under Business
Services on page 5) to a nationwide network of Reproductive Science Centers,
distributes pharmaceutical and treatment financing products to patients and
conducts clinical research on behalf of pharmaceutical companies. There are
currently six Business Services contracts (designated as "Reproductive Science
Centers(R)") and one pharmaceutical subsidiary (IntegraMed Pharmaceutical
Services, Inc). Each Reproductive Science Center consists of a location where
the Company has a Business Services contract with either a physician practice or
a hospital. The current Reproductive Science Center network comprises seventeen
locations in seven states and the District of Columbia and forty physicians and
Ph.D. scientists, including physicians and Ph.D. scientists employed and/or
contracted by the Reproductive Science Centers, as well as, physicians who have
arrangements to utilize the Company's facilities.
Industry
The health care industry in the United States is undergoing significant
changes in an effort to manage costs more efficiently while continuing to
provide high quality health care services. The United States Health Care
Financing Administration has estimated that national health care expenditures in
1997 were $1.1 trillion, with approximately $218 billion directly attributable
to physician services. Historically, health care in the United States has been
delivered through a fragmented system of health care providers.
Reproductive Medicine
Reproductive medicine encompasses several medical disciplines that focus on
male and female reproductive systems and processes. Within the field of
reproductive medicine, there are several subspecialties, such as obstetrics and
gynecology, infertility, and reproductive endocrinology. While there are many
reasons why couples have difficulty conceiving, accurate identification of the
cause of infertility can be time consuming, expensive and require access to
specialized facilities and training. Most gynecologists do not have access to
these resources and therefore bypass diagnostic testing. Instead, they often
provide initial medical treatment of infertility, without extensive diagnosis,
by prescribing a drug called clomiphene citrate, which helps to correct
ovulatory problems. This treatment is fairly inexpensive and frequently resolves
the problem. It is generally recommended that women receive this drug for three
to six ovulatory cycles. If pregnancy has not occurred, referral should be made
to an infertility specialist who can offer more advanced treatments. Infertility
specialists are gynecologists who perform more sophisticated medical and
surgical infertility treatments. Reproductive endocrinology refers to the
diagnosis and treatment of all hormonal problems that lead to abnormal
reproductive function or have an effect on the reproductive organs. Reproductive
endocrinologists are physicians who have completed four years of residency
training in obstetrics and gynecology and have at least two years of additional
training in an approved subspecialty fellowship program.
Conventional infertility services include diagnostic tests performed on the
female, such as endometrial biopsy, laparoscopy/hysteroscopy examinations and
hormone screens, and diagnostic tests performed on the male, such as semen
analysis and tests for sperm antibodies. Depending on the results of the
diagnostic tests performed, conventional treatment options may include, among
others, fertility drug therapy, artificial insemination and infertility
surgeries. These conventional infertility services are not classified as
assisted reproductive technology ("ART") services. Current types of ART services
include in vitro fertilization, gamete intrafallopian transfer, zygote
intrafallopian transfer, tubal embryo transfer, frozen embryo transfer and donor
egg programs. Current ART techniques used in connection with ART services
include intracytoplasmic sperm injection, assisted hatching, cryopreservation of
embryos and blastocyst culture and transfer.
2
There are approximately 38,000 obstetrician/gynecologists in the United
States. Approximately 1,500 of which concentrate on providing fertility services
with no additional advanced training and 600 of which are reproductive
endocrinologists. In addition, there are approximately 350 centers across the
country that provide ART services. These centers are predominantly staffed by
reproductive endocrinologists. Approximately one-third of the ART centers are
hospital-based and two-thirds are physician office-based. As ART has become more
sophisticated, predictable and less experimental, there has been a clear shift
of services out of hospitals and into physician offices. The infertility
services industry is, therefore, highly fragmented with a large number of
providers operating in small practice settings. The result is an inability to
access resources required to be optimally efficient.
According to The American Society for Reproductive Medicine, it is
estimated that in 1996 approximately 10% of women between the ages of 15 and 44,
or 6.1 million women, had impaired fertility. Based on data derived from
industry sources, the Company estimates that annual expenditures relating to
infertility services are approximately $2 billion. The Company believes that
multiple factors over the past several decades have affected fertility levels. A
demographic shift in the United States toward the deferral of marriage and first
birth has increased the age at which women are first having children. This, in
turn, makes conception more difficult and increases the risks associated with
pregnancy, thereby increasing the demand for ART services. In addition, the
technological advances in the diagnosis and treatment of infertility have
enhanced treatment outcomes and the prognoses for many couples.
According to William M. Mercer/Foster-Higgins' National Survey of
Employer-sponsored Health Plans/1995, approximately one quarter of all health
plan sponsors with at least 10 employees provide some coverage for infertility
treatment. Because patients seeking fertility treatment often have other
gynecological symptoms, health plans may cover diagnostic and therapeutic
expenses even when infertility is not a covered benefit. Currently, there are
several states that mandate offering benefits of varying degrees for infertility
services, including ART services. In some states, the mandate is limited to an
obligation on the part of the payor to offer the benefit to employers. In
Massachusetts, Rhode Island, Maryland, Arkansas, Illinois and Hawaii, the
mandate requires coverage of conventional infertility services as well as ART
services. In addition to payor driven initiatives to broaden coverage, several
legislative initiatives are emerging as a driving force behind making fertility
services more readily available. Currently, legislation requiring all health
plans to provide coverage for diagnosis and treatment of infertility has been
introduced in nine states and at the federal level in both the House of
Representatives and the Senate. Finally, the 1998 Supreme Court Ruling that
infertility is a major life activity covered under the Americans with Disability
Act (the "ADA") led to an EEOC administrative ruling that a New York company
discriminated against one of its employees by not providing insurance coverage
for fertility services.
ART services is the most rapidly growing segment of the infertility market.
According to the Society of Assisted Reproductive Technology ("SART")
approximately 10,000 ART procedures were performed in 1987. In 1997, the most
recent year for which data is available, almost 61,000 ART procedures were
performed. This represents an 18% compound annual growth rate. There is reason
to believe that the market will continue to grow in the future: (i) the quality
of ART treatments is increasing, making outcomes much more acceptable; (ii)
improvements in embryo culture media and implantation rates are leading to the
capability of reducing high order multiple pregnancies - one of the greatest
risk factors of ART services; (iii) with improving pregnancy rates, the cost of
treatment is decreasing thereby making high technology services more affordable;
(iv) new ART services that improve embryo quality and the likelihood of
pregnancy, such as blastocyst culture and transfer, continue to emerge fueling
an expansion of the industry; (v) the improving relationship between cost and
quality is causing physicians to substitute more effective ART treatments for
less effective conventional fertility services; (vi) public policy initiatives
including legislative mandates for insurance coverage and the definition of
reproduction as a major life activity covered by the ADA are producing a more
favorable reimbursement climate; and (vii) demand for ART services is increasing
through greater public awareness and acceptance of ART services.
The market conditions producing business opportunities for the Company
include: (i) the high level of specialized skills and technology required for
comprehensive patient treatment; (ii) the capital-intensive nature of acquiring
and maintaining state-of-the-art medical equipment, laboratory and clinical
facilities; (iii) the need to develop and maintain specialized management
information systems to meet the increasing demands of technological advances,
patient monitoring and third-party payors; (iv) the need for seven-days-a-week
service to respond to patient needs and to optimize the outcomes of patient
treatments; (v) the high cost of treatment with inadequate insurance benefits in
most markets, (vi) the high cost of pharmaceutical products requiring patient
education and support and (vii) the rapid nature of new pharmaceutical and
treatment developments requiring clinical trials to document efficacy.
3
Company Strategy
The Company's strategy is to align information, technology and finance for
the benefit of fertility patients, providers, payors and pharmaceutical
manufacturers. The primary elements of the Company's strategy include: (i)
selling additional Reproductive Science Center Business Services contracts; (ii)
increasing revenues at Reproductive Science Centers; (iii) increasing sales of
pharmaceutical products and services; (iv) expanding clinical research
opportunities; (v) increasing treatment financing offerings to patients thereby
making treatment more accessible to patients who otherwise would not be able to
pursue therapy; (vi) establishing Internet-based access to patient-specific
information on treatment process and outcomes; and (vii) pursuing other allied
fertility-related product or service offerings that leverage the Company's
installed base of operations.
Selling Additional Reproductive Science Center Business Services Contracts
The Company intends to further develop its nationwide network of
Reproductive Science Centers by acquiring certain assets of and selling Business
Services to leading physician group practices specializing in infertility and
ART services. The Company will primarily focus its activities on larger group
practices operating in major cities, as Reproductive Science Centers providing
infertility and ART services require high fixed overhead, which sole
practitioners have difficulty in supporting. The Company believes that a number
of beneficial factors will contribute to the successful expansion of its
network. These factors include: (i) the high quality reputation of the Company
in providing Business Services in the areas of infertility and ART services;
(ii) the Company's expertise in assisting Reproductive Science Centers in
increasing revenues and maintaining cost efficient operations; (iii) the
Company's success in improving patient outcomes by providing support services to
its Reproductive Science Centers; and (iv) the Company's affiliations and
relationships with high quality physician groups with outstanding reputations
and market position.
Increasing Revenues at Reproductive Science Centers
The Company expects to increase revenues derived under its Business
Services contracts by : (i) Reproductive Science Centers merging with smaller
infertility physician group practices; (ii) making available expanded laboratory
and ART services at the Reproductive Science Centers which have previously been
outsourced, thereby increasing revenues per patient; (iii) making available
increased marketing and sales support to Reproductive Science Centers; and (iv)
increasing the opportunity for participation of the Reproductive Science Centers
in clinical trials of new drugs, medical devices and diagnostic technologies
under development.
Increasing Sales of Pharmaceutical Products and Services
The Company will continue to expand the IntegraMed Pharmaceutical Services,
Inc. subsidiary by: (i) providing Education Matters(TM) - a comprehensive
patient educational support program to participating Reproductive Science Center
patients; (ii) packaging products in the Cycle Kit(TM)- a unique packaging
system that provides patients with all supplies and instructions for proper
utilization of medication; (iii) minimizing cost to patients and payors by
implementing Cycle Track(TM) - a fertility pharmaceutical case management system
that dispenses only the required amount of medication for patients to complete
their treatment; and (iv) implementing an aggressive marketing and sales program
in cooperation with ivpcare, inc. (the major supplier of pharmaceuticals to
IntegraMed Pharmaceutical Services, Inc.).
Expanding Clinical Research Opportunities
In 1999, the Company obtained commitments for initial funding from
pharmaceutical manufacturers to establish the IntegraMed Research Institute (the
"Research Institute"). The purpose of the Research Institute is to organize
multi-center clinical research among the Reproductive Science Center network.
The Company believes it will expand its direct participation in clinical
research trials by: (i) offering a more efficient clinical trial network that
delivers results to pharmaceutical companies more quickly; (ii) offering access
to a geographically diverse network of providers and patients; (iii)
participating in the design of clinical trials with manufacturers and increasing
value-added services to these sponsors; and (iv) marketing the availability of
the Research Institute and affiliated Reproductive Science Centers to other
manufacturers of pharmaceutical products and devices.
Increasing Treatment Financing Offerings
In 1999, the Company test marketed a treatment financing program with
certain Reproductive Science Centers. The initial response from the program has
encouraged management to make this program more widely available. The Company
believes a well designed treatment financing program will help to expand the
size of the market. The Company intends to (i) extend treatment financing to
include pharmaceutical products as well as medical services and (ii) develop a
program that allows the Company to participate directly in obtaining revenues
from arranging treatment financing.
4
Developing Internet-Based Access to Personalized Health Information
The Company will continue to develop and implement ARTWorks(TM), a suite of
fertility care information systems customized for the Company's network of
Reproductive Science Centers. ARTWorks currently comprises information
technologies in four areas: (i) ARTWorks for Clinical Services is a clinician
focused, patient centered system that provides access to the entire patient
medical record, including diagnosis, treatment and outcome information; (ii)
ARTWorks for Practice Management, as supplied by and pursuant to licenses from
Medic Systems and Medic Vision, utilizes a network accessible "Master Patient
Index" which tracks patient scheduling, registration, check-in/out, billing
collections, referral management, and analysis reporting for the Reproductive
Science Centers; (iii) ARTWorks for Sales and Marketing manages contacts and
assists in developing an extensive database of prospects, clients, and tracking
of events, including a package that manages calendars, communications, contact
histories and direct mail programs; and (iv) ARTWorks for Customer Satisfaction
is built on a standard mailed survey from which numerous analysis reports may be
generated providing a highly effective tool for targeting service improvement
opportunities.
The Company plans to develop connections of its ARTWorks systems to the
Internet allowing patients to view their own health information on secured,
personalized web pages.
Business Services
The Company provides comprehensive Business Services to support the
Reproductive Science Centers. In particular, the Company provides: (i)
administrative services, including accounting and finance, human resource
functions, and purchasing of supplies and equipment; (ii) access to capital;
(iii) marketing and sales; (iv) integrated information systems; (v) assistance
in identifying best clinical practices; and (vi) access to technology.
These services allow physicians to devote a greater portion of their
efforts and time to meeting the medical needs of patients, which leads to
improved outcomes and greater patient satisfaction at lower costs.
Administrative Services
The Company provides administrative services to the Reproductive Science
Centers, including: (i) accounting and finance services, such as billing and
collections, accounts payable, payroll, and financial reporting and planning;
(ii) recruiting, hiring, training and supervising all non-medical personnel; and
(iii) purchasing of supplies, pharmaceuticals, equipment, services and
insurance.
By providing the Reproductive Science Centers with access to centralized,
rationalized resources, the Company enables physicians at the Reproductive
Science Centers to achieve improved efficiencies and business outcomes.
Access to Capital
The Company provides the Reproductive Science Centers with a significant
competitive advantage through immediate access to capital for expansion and
growth. The Company also offers physician and hospital providers in its network
rapid access to the latest technology and facilities in order for them to
provide a full spectrum of services and compete effectively for patients in the
marketplace. For example, the Company has built a new facility inclusive of an
embryology laboratory for certain Reproductive Science Centers, thereby enabling
them to expand their service offerings to include a number of services
(including laboratory and ART services) which had previously been outsourced. In
other cases, the Company has participated in the introduction of new laboratory
techniques such as intracytoplasmic sperm injection ("ICSI") or blastocyst
culture and has transferred the techniques to the Reproductive Science Centers.
The Company believes that access to these facilities and technologies has
improved the ability of the Reproductive Science Centers to offer comprehensive
high quality services, expand the revenue base per patient, and compete
effectively.
Marketing and Sales
The Company's marketing and sales department specializes in the development
of sophisticated marketing and sales programs giving Reproductive Science
Centers access to business-building techniques to facilitate growth and
development. In today's highly competitive health care environment, marketing
and sales are essential for the growth and success of physician practices.
However, these marketing and sales efforts are often too expensive for many
physician practice groups. Affiliation with the Company's network provides
physicians access to significantly greater marketing and sales capabilities than
would otherwise be available. The Company's marketing services focus on revenue
and referral enhancement, relationships with local physicians, media and public
relations and managed care contracting.
The Company believes that participation in its network will assist
Reproductive Science Centers in establishing contracts with managed care
organizations. The Company believes that integrating infertility physicians with
ART facilities produces a full service Reproductive Science Center that can
compete more effectively for managed care contracts.
5
Integrated Information System
The Company is in the process of utilizing its established base of
Reproductive Science Centers to develop a nationwide, integrated information
system called ARTWorks to collect and analyze clinical, patient, financial and
marketing data. The Company believes it will be able to use this data to control
expenses, measure patient outcomes, improve patient care, develop and manage
utilization rates and maximize reimbursements. The Company also believes this
integrated information system will allow the Reproductive Science Centers to
more effectively compete for and price managed care contracts, in large part
because an information network can provide these managed care organizations with
access to patient outcomes and cost data.
Assistance in Identifying Best Clinical Practices
The Company assists Reproductive Science Centers in identifying best
clinical practices and implementing quality assurance and risk management
programs in order to improve patient care and clinical outcomes. For example,
the Company has instituted a Clinical Quality Improvement Program that focuses
the physicians and laboratory technicians on the principal elements necessary to
achieve successful outcomes and incorporates periodic quality review programs.
The Company's structured Clinical Quality Improvement Program produces a
distinctive competitive advantage in the marketplace for the Company's network
of Reproductive Science Centers.
Access to Technology
By affiliating with the Company's network, Reproductive Science Centers
gain access to advanced technologies, as well as diagnostic and clinical
procedures. For example, through participation in clinical trials of new drugs
under development for major pharmaceutical companies, Reproductive Science
Centers have the opportunity to apply technologies developed in a research
environment to the clinical setting. Additionally, participation in clinical
trials gives Reproductive Science Centers preferential involvement in cutting
edge therapies and provides these practices with an additional source of
revenue.
The Reproductive Science Centers
Each Reproductive Science Center consists of a location where the Company
has a Business Services contract with a physician group ("Medical Practice") or
hospital, which in turn employs and/or contracts with the physicians.
Current Reproductive Science Centers
The Company currently has a nationwide network consisting of six contracts
and 17 locations in seven states and the District of Columbia and forty
physicians and Ph.D. scientists, including physicians and Ph.D. scientists
employed and/or contracted by the Medical Practices, as well as physicians who
have arrangements to utilize the Company's facilities. The following table
describes in detail each Reproductive Science Center:
Number of Initial
Number of Physicians and Business Services
Reproductive Science Centers State Locations Ph.D. Scientists Contract Date
---------------------------- ----- --------- ---------------- -------------
Reproductive Science Center of Boston........ MA 3 6 July 1988
Reproductive Science Associates.............. NY 2 3 June 1990
Institute of Reproductive Medicine and
Science of Saint Barnabas Medical Center.. NJ 1 5 December 1991
Reproductive Science Center of the Bay Area
Fertility and Gynecology Medical Group.... CA 1 6 January 1997
Fertility Centers of Illinois, S.C........... IL 6 12 August 1997
Shady Grove Fertility Reproductive
Science Centers........................... MD, VA & DC 4 8 March 1998
Recent Business Development
In April 1999, the Company formed a new wholly-owned subsidiary, IntegraMed
Pharmaceutical Services, Inc. ("IPSI"). IPSI is a licensed pharmacy based in
Carrollton, Texas, whose primary business is the retail distribution of
infertility-related pharmaceutical products to the Reproductive Science Centers.
IPSI was formed in conjunction with ivpcare, inc., a licensed pharmacy
specializing in dispensing pharmaceutical products, which provides certain
management services to IPSI.
Effective February 29, 2000, the Company ceased providing Business Services
to its Kansas City Reproductive Science Center. As of December 31, 1999, the
Company had established a reserve which it feels will adequately cover all
termination costs to be incurred in 2000. The Company does not believe that the
termination of this contract will have a material impact on the results of
operations.
6
The Company is evaluating and is engaged in discussions regarding to
several potential new Business Services contracts, establishment of an Internet
product line, expanding its treatment financing product line, and establishing a
diagnostic testing product line. However, the Company has no agreements relating
to any of these new business opportunities and there can be no assurance that
any definitive agreements will be entered into by the Company or that any
additional products or services will be launched.
Clinical and Medical Services
The Reproductive Science Centers offer conventional infertility and ART
services and either have, or subcontract with, a state-of-the-art laboratory
providing the necessary diagnostic and therapeutic services. Multi-disciplinary
teams help infertile couples identify and address distinct physical, emotional,
psychological and financial issues related to infertility. Following a
consultation session, a patient couple is advised as to the treatment that has
the greatest probability of success in light of the couple's specific
infertility problem. At this point, a couple may undergo conventional
infertility treatment or, if appropriate, may directly undergo ART treatment.
Infertility and ART Services
Conventional infertility procedures include diagnostic tests performed on
the female, such as endometrial biopsy, post-coital test, laparoscopy
examinations as well as hormone screens, and diagnostic tests performed on the
male, such as semen analysis and tests for sperm antibodies. Depending on the
results of the diagnostic tests performed, conventional services may include
fertility drug therapy, tubal surgery and intrauterine insemination ("IUI"). IUI
is a procedure utilized generally to address male factor or unexplained
infertility. Depending on the severity of the condition, the man's sperm is
processed to identify the most active sperm for insemination into the woman, who
must have a normal reproductive system for this procedure. Such conventional
infertility services are not classified as ART services and are traditionally
performed by infertility specialists.
Current types of ART services include in vitro fertilization ("IVF"),
gamete intrafallopian transfer ("GIFT"), zygote intrafallopian transfer
("ZIFT"), tubal embryo transfer ("TET"), frozen embryo transfer ("FET") and
donor egg and sperm programs. IVF is performed by combining an egg and sperm in
a laboratory and, if fertilization is successful, transferring the resulting
embryo into the woman's uterus. GIFT is performed by inserting an egg and sperm
directly into a woman's fallopian tube with a resulting embryo floating into the
uterus. ZIFT and TET are procedures in which an egg is fertilized in the
laboratory and the resulting embryo is then transferred to the woman's fallopian
tube. ZIFT and TET are identical except for the timing of the transfer of the
embryo. FET is a procedure whereby previously harvested embryos are transferred
to the woman's uterus. Women who are unable to produce eggs but who otherwise
have normal reproductive systems can use the donor egg program in which a donor
is recruited to provide eggs for fertilization that are transferred to the
recipient woman. Current techniques used in connection with ART services include
intracytoplasmic sperm injection, assisted hatching, cryopreservation of embryos
and blastocyst culture and transfer.
Council of Physicians and Scientists
The Company's Council of Physicians and Scientists (the "Council") was
established in 1996 to bring together Reproductive Science Center thought
leaders in reproductive medicine and embryology to promote a high quality
clinical environment in all Reproductive Science Centers. The Council meets
twice each year and teleconferences monthly on topics related to improving
infertility treatment and diagnosis. The Council publishes its recommendations
and Company staff follow up on implementing Council recommendations.
The Council recently added oversight of the Company's Research Institute to
its duties. As part of this oversight function, the Council peer reviews
applications from Reproductive Science Centers for research support by the
Research Institute, ensures compliance with Institutional Review Board
guidelines for clinical research involving human subjects and hosts an annual
meeting of Reproductive Science Center and affiliate physicians and scientists
to review research progress and related subjects.
Laboratory Services
All of the Reproductive Science Centers either have, or subcontract with, a
state-of-the-art laboratory for the physicians to perform diagnostic endocrine
and andrology laboratory tests on patients receiving infertility and ART
services. Endocrine tests assess female hormone levels in blood samples, while
andrology tests analyze semen samples. These tests are often used by the
physician to determine an appropriate treatment plan. In addition, the majority
of the Reproductive Science Centers generate additional revenue by providing
such endocrine and andrology laboratory tests for non-affiliated physicians in
the geographic area.
7
Establishing Reproductive Science Centers
In establishing a Reproductive Science Center, the Company typically: (i)
acquires certain assets of a Medical Practice; (ii) enters into a long-term
services agreement with the Medical Practice under which the Company provides
comprehensive Business Services to the Medical Practice; and (iii) assumes the
principal administrative and financial functions of the Medical Practice. In
addition, the Company typically requires (a) that the Medical Practice enter
into long-term employment agreements containing non-compete provisions with the
affiliated physicians and (b) that each of the physician shareholders of the
Medical Practice enter into a personal responsibility agreement with the
Company. Typically, the Medical Practice contracting with the Company is a
professional corporation of which certain of, or all of, the physicians are the
shareholders.
Business Services Contracts
Typically, the Business Services Contracts obligate the Company to pay a
fixed sum for the exclusive right to service the Medical Practice, a portion or
all of which is paid at the contract signing with any balance to be paid in
future annual installments. The agreements are typically for terms of ten to 25
years and are generally subject to termination due to insolvency, bankruptcy or
material breach of contract. Generally, no shareholder of the Medical Practice
may assign his interest in the Medical Practice without the Company's prior
written consent.
The Business Services contracts provide that all patient medical care at a
Reproductive Science Center is to be provided by the physicians of the Medical
Practice and that the Company generally is responsible for providing defined
Business Services to the Reproductive Science Center. The Company provides the
equipment, facilities and support necessary to operate the Medical Practice and
employs substantially all such other non-physician personnel as are necessary to
provide technical, consultative and administrative support for the patient
services at the Reproductive Science Center. Under certain agreements, the
Company is committed to provide a clinical laboratory. Under the agreements, the
Company may also advance funds to the Medical Practice to provide new services,
utilize new technologies, fund projects, purchase the net accounts receivable,
provide working capital or fund mergers with other physicians or physician
groups.
Under four agreements (five at December 31, 1999), the Company receives as
compensation for its services a three-part fee comprised of: (i) a fixed or
variable percentage of net revenues generally up to 6%; (ii) reimbursed costs of
services (costs incurred in providing services to a Medical Practice and any
costs paid on behalf of the Medical Practice); and (iii) a fixed percentage of
earnings after the initial service fees which is currently generally equal to up
to 20%, or a variable percentage of net revenues generally ranging from 4.5% to
10.5%.
As compensation for its services to the Reproductive Science Associates of
New York, the Company receives a fixed fee (currently equal to $570,000 per
annum), plus reimbursed costs of services.
One of the Company's Reproductive Science Centers is affiliated with a
medical center. Under this agreement, the Company primarily provides endocrine
testing, administrative and finance services for a fixed percentage of receipts,
equal to 15% of net receipts, and reimbursed costs of services.
The Company reports all fees as "Revenues, net." Direct costs incurred by
the Company in performing its services and costs incurred on behalf of the
Reproductive Science Centers are recorded in "Operating expenses incurred on
behalf of Reproductive Science Centers". The physicians receive as compensation
all remaining earnings after payment of the Company's compensation.
Physician Employment Agreements
Employment agreements between the Reproductive Science Centers and
physicians generally provide for an initial term ranging from three to five
years. The term may be automatically renewed at successive intervals unless the
physician or the Medical Practice elects not to renew or such agreement is
otherwise terminated for cause or the death or disability of a physician. The
physicians are paid based upon either the number of procedures performed or
other negotiated formulas agreed upon between the physicians and the
Reproductive Science Centers, and the Reproductive Science Centers provide the
physicians with health, death and disability insurance and other benefits. The
Reproductive Science Centers are obligated to obtain and maintain professional
liability insurance coverage, procured on behalf of the physicians. Pursuant to
the employment agreements, the physicians agree not to compete with the
Reproductive Science Centers with whom they have contracted during the term of
the agreement and for a certain period following the termination of such
employment agreement. In addition, the agreements contain customary
confidentiality provisions.
8
Personal Responsibility Agreements
Commencing with Business Services agreements dated 1997 to the present day,
the Company entered into a Personal Responsibility Agreement with each of the
physician shareholders of the Medical Practice. The Agreement protects the
Company's investments in the event the physician ceases to practice medicine at
the Reproductive Science Center during the first five years of the related
contract (except as a result of death or permanent disability). The Agreement
obligates the physician to repay a ratable portion of the fee paid by the
Company to the physician for the exclusive rights to service the practice. The
Agreement also contains covenants for the physician not to compete with the
Company during the term of his or her employment agreement with the Medical
Practice and for a specified period thereafter.
Affiliate Care/Satellite Service Agreements
Reproductive Science Centers may also have affiliate care agreements and
satellite service agreements with physicians who are not employed by the
Reproductive Science Centers. Under an affiliate care agreement, the Medical
Practice contracts with a physician to provide certain services for the Medical
Practice's patients, such as endocrine/ultrasound monitoring, or ART services.
Reliance on Third-Party Vendors
The Reproductive Science Centers, IntegraMed Pharmaceutical Services, as
well as all other medical providers who deliver services requiring fertility
medication, are dependent on three third-party vendors that produce such
medications (including but not limited to: Lupron, Follistim, Repronex, GonalF
and Pregnyl) that are vital to treating infertility and ART services. Should any
of these vendors experience a supply shortage, it may have an adverse impact on
the operations of the Reproductive Science Centers. To date, the Reproductive
Science Centers have not experienced any such adverse impacts.
Competition
The business of providing health care services is intensely competitive, as
is the health care services management industry, and each strives to find the
most cost-effective method of providing quality health care. The Company
experiences competitive pressures for additional Business Services contracts.
Although the Company focuses on Reproductive Science Centers that provide
infertility and ART services, it competes for contracts with other health care
services and management companies, including those focused on infertility and
ART services, as well as hospitals and hospital-sponsored management services
organizations. If federal or state governments enact laws that attract other
health care providers to the managed care market, the Company may encounter
increased competition from other institutions seeking to increase their presence
in the managed care market and which have substantially greater resources than
the Company. There is no assurance that the Company will be able to compete
effectively with its current competitors. Nor is there assurance that additional
competitors will not enter the market, or that such competition will not make it
more difficult to acquire the assets and Business Services rights of
Reproductive Science Centers on terms beneficial to the Company.
The infertility industry is highly competitive and characterized by
technological improvements. New ART services and techniques may be developed
that may render obsolete the ART services and techniques currently employed at
the Reproductive Science Centers. Competition in the areas of infertility and
ART services is largely based on pregnancy rates and other patient outcomes.
Accordingly, the ability of a Medical Practice to compete is largely dependent
on its ability to achieve adequate pregnancy rates and patient satisfaction
levels.
Effects of Third-Party Payor Contracts
Traditionally, ART services have been paid for directly by patients and
conventional infertility services have been largely covered by indemnity
insurance or managed care payors. Currently, there are several states that
mandate offering certain benefits of varying degrees for infertility and ART
services. In some cases, the mandate is limited to an obligation on the part of
the payor to offer the benefit to employers. In Massachusetts, Rhode Island,
Maryland, Arkansas, Illinois and Hawaii, the mandate requires coverage of
conventional infertility services as well as certain ART services.
9
Government Regulation
As a participant in the health care industry, the Company's operations and
its relationships with the Reproductive Science Centers are subject to extensive
and increasing regulation by various governmental entities at the federal, state
and local levels. These include, but are not limited to, Federal and State
Anti-Kickback Laws, Federal and State Self-Referral Laws, False Claim Laws,
Federal and State Controlled Substances laws and regulations and Anti-Trust
Laws. The Company believes its operations and those of the Reproductive Science
Centers are in material compliance with applicable health care laws.
Nevertheless, the laws and regulations in this area are extremely complex and
subject to changing interpretation and many aspects of the Company's business
and business opportunities have not been the subject of federal or state
regulatory review or interpretation. Accordingly, there is no assurance that the
Company's operations have been in compliance at all times with all such laws and
regulations. In addition, there is no assurance that a court or regulatory
authority will not determine that the Company's past, current or future
operations violate applicable laws or regulations. If the Company's
interpretation of the relevant laws and regulations is inaccurate, there could
be a material adverse effect on the Company's business, financial condition and
operating results. There can be no assurance that such laws will be interpreted
in a manner consistent with the Company's practices. There can be no assurance
that a review of the Company or the Reproductive Science Centers by courts or
regulatory authorities will not result in a determination that would require the
Company or the Reproductive Science Centers to change their practices. There
also can be no assurance that the health care regulatory environment will not
change so as to restrict the Company's or the Reproductive Science Centers'
existing operations or their expansions. Any significant restructuring or
restriction could have a material adverse effect on the Company's business,
financial condition and operating results.
Corporate Medical Practice Laws. The Company's operations may be subject to
state laws relating to corporations practicing medicine. State laws may prohibit
corporations other than medical professional corporations or associations from
practicing medicine or exercising control over physicians, and may prohibit
physicians from practicing medicine in partnership with, or as employees of, any
person not licensed to practice medicine. Furthermore, operations in New York,
California, Maryland and Illinois may be subject to fee-splitting prohibitions.
State law may also prohibit a corporation other than professional corporations
or associations (or, in some states, limited liability companies) from acquiring
the goodwill of a medical practice. The Company believes its operations are in
material compliance with applicable state laws relating to the corporate
practice of medicine. The Company performs only non-medical administrative
services, and in certain circumstances, clinical laboratory services. The
Company does not represent to the public that it offers medical services. In
each state, the Medical Practice is the sole employer of the physicians, and the
Medical Practice retains the full authority to direct the medical, professional
and ethical aspects of its medical practice. However, although the Company
believes its operations are in material compliance with applicable state
corporate practice of medicine laws, the laws and their interpretations vary
from state to state, and are enforced by regulatory authorities who have broad
discretionary authority. There can be no assurance that these laws will be
interpreted in a manner consistent with the Company's practices or that other
laws or regulations will not be enacted in the future that could have a material
adverse effect on the Company's business, financial condition and operating
results.
Liability and Insurance
Providing health care services entails a substantial risk of potential
medical malpractice and similar claims. The Company does not itself engage in
the practice of medicine or assume responsibility for compliance with regulatory
requirements directly applicable to physicians, and therefore requires
associated Reproductive Science Centers to maintain medical malpractice
insurance. In general, the Company has established a program that provides the
Reproductive Science Centers with such required insurance. However, in the event
that services provided at the Reproductive Science Centers or any affiliated
Medical Practice are alleged to have resulted in injury or other adverse
effects, the Company is likely to be named as a party in a legal proceeding.
Although the Company currently maintains liability insurance that it
believes is adequate in risk and amount, successful malpractice claims could
exceed the limits of the Company's insurance and could have a material adverse
effect on the Company's business. Moreover, there is no assurance that the
Company will be able to obtain such insurance on commercially reasonable terms
in the future or that any such insurance will provide adequate coverage against
potential claims. In addition, a malpractice claim asserted against the Company
could be costly to defend, could consume management resources and could
adversely affect the Company's reputation and business, regardless of the merit
or eventual outcome of such claim. In addition, in connection with the asset
acquisition of certain Reproductive Science Centers, the Company may assume some
of the Medical Practice's stated liabilities. Therefore, an entity may assert
claims against the Company for events related to the Medical Practice prior to
its acquisition. The Company maintains insurance coverage related to those risks
that it believes is adequate as to the risks and amounts, although there is no
assurance that any successful claims will not exceed applicable policy limits.
10
There are inherent risks specific to the provision of ART services. For
example, the long-term effects of the administration of fertility medication,
integral to most infertility and ART services, on women and their children are
of concern to certain physicians and others who fear the medication may prove to
be carcinogenic or cause other medical problems. Currently, fertility medication
is critical to most ART services and a ban by the United States Food and Drug
Administration or any limitation on its use would have a material adverse effect
on the Company. Furthermore, ART services increase the likelihood of multiple
births, which are often premature and may result in increased costs and
complications.
Employees
As of March 1, 2000, the Company had 480 employees. 452 are employed at the
Reproductive Science Centers, 28 are employed at the Company's headquarters,
including 6 who are executive management. Of the Company's employees, 194
persons at the Reproductive Science Centers and 2 at the Company's headquarters
are employed on a part-time basis. The Company is not party to any collective
bargaining agreement and believes its employee relationships are good.
11
ITEM 2. Properties
The Company's headquarters and executive offices are in Purchase, New York,
where it occupies approximately 8,000 square feet under a lease expiring April
14, 2005 at a monthly rental ranging from $15,714 to $20,000.
The Company leases, subleases, and/or occupies, pursuant to its Business
Services agreements, each Reproductive Science Center location from third-party
landlords. Costs associated with these agreements are included in "Cost of
services rendered" and are reimbursed to the Company as part of its fee;
reimbursed costs are included in "Revenues, net".
The Company believes its executive offices and the space occupied by the
Reproductive Science Centers are adequate.
ITEM 3. Legal Proceedings
On October 1998, W.F. Howard, M.D., P.A., filed a lawsuit against the
Company in the District Court of Denton County, Texas, seeking to rescind the
agreement related to the Dallas Reproductive Science Center, or obtain damages,
on the basis that its practice has not realized the degree of growth or
increases as allegedly projected by the Company. The Complaint asserts alleged
breaches of contract, fiduciary duties and warranties, as well as a claim under
the Texas Deceptive Trade Practices Act, and claims lost profit damages as well
as an exemplary award under statute. The Company believes that this Complaint is
without merit, denies the allegations, and is vigorously defending its position.
The matter, which is being defended by counsel appointed by the Company's
insurance carrier, is currently in arbitration. In the Company's view, even an
unfavorable outcome will not have a material adverse effect on the financial
position, results of operations or the cash flows of the Company.
The Company previously reported a lawsuit captioned Karlin v. IVF America,
et. al., originally instituted in New York Supreme Court, Westchester County. In
December 1999, all aspects of the lawsuit were settled by the Company's insurer
and, accordingly, the lawsuit has been dismissed.
In July 1999, an action was filed in Middlesex Superior Court in
Massachusetts, against the Company, the Reproductive Science Center of Boston
(the "Center"), an independent genetic testing laboratory, and certain of their
respective employees. The Complaint in this matter was served on the Company in
March 2000. The action, filed by two former patients of the Center, arises out
of plaintiffs' participation during 1996 in an experimental program of
preimplanation genetic testing. The plaintiffs allege professional negligence
and breach of contract/warranties resulting in the birth of their child who
suffers from cystic fibrosis. Plaintiffs seek damages of an undisclosed amount.
The Company's insurance carrier has appointed Massachusetts counsel to represent
the Company in the matter who is investigating the allegations in cooperation
with its co-defendant. The Company has been advised by counsel that while it is
too early to comment on the likely course of the litigation, such counsel
currently believes that by virtue of insurance coverage available to all the
defendants, the suit is not likely to have a material adverse effect on the
Company.
In April 1999, Integra, Inc. filed with the United States Patent and
Trademark Office ("USP&T") before the Trademark Trial and Appeal Board an
opposition to the granting of the Company's trademark "INTEGRAMED AMERICA",
claiming that the USP&T should deny registration of the Company's trademark.
Integra, Inc. allegedly distributes outcome based managed care products,
manuals, brochures, patient information and data forms for use in connection
with managed behavioral healthcare consulting and research services under the
mark "INTEGRA". Since the time of filing the opposition, counsel for the Company
has engaged in discussions with Integra's counsel in an effort to resolve
Integra's opposition, but no resolution has been reached with respect to the two
trademarks. Discovery is currently underway in the matter. Counsel for the
Company has advised the Company that in such Counsel opinion, the marks are not
confusingly similar. While such counsel can offer no assurances with respect to
the outcome of the opposition proceeding, such counsel believes that it is
unlikely that the Company's trademark application will not be approved.
12
There are other minor legal proceedings to which the Company is a party. In
the Company's opinion, the claims asserted and the outcome of such proceedings
will not have a material adverse effect on the financial position, results of
operations or the cash flows of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
13
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has been traded on The NASDAQ National Market
under the symbol "INMD" since the Company's formal name change in June 1996 and
prior to the name change under the symbol "IVFA" since May 21, 1993. Prior
thereto, the Company's Common Stock had been trading on the NASDAQ Small Cap
Market since October 8, 1992. The following table sets forth the high and low
sales price for the Common Stock, as reported on The NASDAQ National Market. The
1998 sales prices for the Common Stock reflect the Company's 1-for-4 reverse
stock split effective November 17, 1998.
Common Stock
High Low
---- ---
1998
First Quarter....................... $9.50 $5.38
Second Quarter...................... 9.00 4.75
Third Quarter....................... 6.25 2.50
Fourth Quarter...................... 5.19 2.25
1999
First Quarter....................... $6.38 $2.94
Second Quarter...................... 4.88 2.88
Third Quarter....................... 5.50 3.63
Fourth Quarter...................... 4.25 2.31
On February 29, 2000, there were approximately 245 holders of record of
the Common Stock and approximately 1,122 beneficial owners of shares registered
in nominee or street name.
The Company currently anticipates that it will retain all available funds
for use in the operation of its business and for potential acquisitions, and
therefore, does not anticipate paying any cash dividends on its Common Stock for
the foreseeable future.
Dividends on the Series A Cumulative Convertible Preferred Stock are
payable at the rate of $0.20 per share quarterly on the fifteenth day of August,
November, February and May. In May 1995, as a result of the Company's Board of
Directors suspending four quarterly dividend payments, holders of the
Convertible Preferred Stock became entitled to one vote per share of Convertible
Preferred Stock on all matters submitted to a vote of stockholders, including
election of directors; once in effect, such voting rights are not terminated by
the payment of all accrued dividends. In October 1998, the Company paid the
aggregate Convertible Preferred Stock dividend of $563,186 which had been in
arrears. Currently, there are no Convertible Preferred Stock dividends in
arrears.
Unregistered shares of Common Stock and warrants were issued during 1997,
1998 and 1999 as described in the following paragraphs. All share and warrant
amounts discussed below have been adjusted to reflect the Company's 1-for-4
reverse stock split.
On January 7, 1997 the Company issued 83,333 shares of unregistered Common
Stock to Bay Area Fertility and Medical Group, Inc. in connection with a
Business Services agreement entered into on that date. Said shares had a market
value of $500,000 at the time of issuance. On June 2, 1997 the Company issued
10,265 shares of unregistered Common Stock to MPD Medical Associates, P.C. in
connection with a Business Services agreement entered into on that date. Said
shares had a market value of $56,250 at the time of issuance. On June 6, 1997
the Company issued 36,364 shares of unregistered Common Stock to Reproductive
Sciences Medical Group, Inc. in connection with a Business Services agreement
entered into on that date. Said shares had a market value of $200,000 at the
time of issuance. On August 19, 1997 the Company issued 252,366 shares of
unregistered Common Stock to Fertility Centers of Illinois, S.C. in connection
with a Business Services agreement entered into on that date. Said shares had a
market value of $2.0 million at the time of issuance.
14
On March 12, 1998 and January 5, 1999 the Company issued an aggregate of
166,355 shares of unregistered Common Stock to Shady Grove Fertility Centers,
Inc. in connection with a Business Services agreement entered into on March 12,
1998. Said shares had a market value of $1.4 million at the time of issuance.
On January 23, 1998 the Company issued unregistered warrants to entities
affiliated with Morgan, Stanley Dean Witter to acquire an aggregate of 60,000
shares of Common Stock at par value per share in connection with such entities
acquiring an aggregate of 808,822 unregistered shares of the Company's Common
Stock on January 28, 1998 in a private offering for a consideration of $5.5
million. On March 5, 1998, April 6, 1998 and April 15, 1998 the Company issued
unregistered warrants to the shareholder-physicians of the Fertility Centers of
Illinois ("FCI"), Reproductive Science Center of the Bay Area ("Bay Area"), and
Shady Grove Fertility Center ("Shady Grove"), respectively, to acquire an
aggregate of 37,500 shares of Common Stock at an exercise price of $4.12 per
share in consideration of extending the Company's agreements with each of FCI,
Bay Area and Shady Grove from twenty to twenty-five years. The warrants expire
five years from issuance. In November 1998, the Company issued unregistered
warrants to certain physicians of the Medical Practice associated with the
Reproductive Science Center of Boston ("RSC of Boston") to acquire an aggregate
of 40,625 shares of Common Stock at an exercise price of $4.12 in consideration
of extending the Company's agreement with the RSC of Boston from ten to
twenty-five years. Twenty (20%) of the warrants vested immediately. The balance
vests in annual 20% increments over a four-year period with the exercise price
increasing annually by 20%.
In January 1999, the Company issued unregistered warrants to acquire 5,000
shares of Common Stock at $5.125 per share to Robert Stillman, M.D. in
connection with the Second Closing Date of the Shady Grove acquisition. On July
15, 1999 the Company issued unregistered warrants to VSII Shareholders Trust II
to acquire an aggregate of 19,907 shares of Common Stock at an exercise price of
$7.24 per share in connection with certain investment banking services rendered
to the Company.
15
ITEM 6. Selected Financial Data
The following selected financial data are derived from the Company's
consolidated financial statements and should be read in conjunction with the
financial statements, related notes, and other financial information included
elsewhere in this Annual Report on Form 10-K.
Statement of Operations Data (1):
Years ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
(in thousands, except per share amounts)
Revenues, net................................ $45,955 $38,590 $20,559 $14,906 $13,648
Costs of services rendered................... 36,556 29,778 14,940 11,610 9,986
------- ------- ------- ------- -------
Reproductive Science Centers' contribution... 9,399 8,812 5,619 3,296 3,662
General and administrative expenses.......... 6,084 5,316 4,192 4,662 3,680
Total other expenses (income)
(including income taxes).................. 2,997 1,643 632 8 (88)
Restructuring and other charges (2).......... -- 2,084 -- -- --
------- ------- ------- ------- -------
Income (loss) from continuing operations..... 318 (231) 795 (1,374) 70
Loss from operation and disposal of
AWM Division (3).......................... -- 4,501 421 116 --
------- ------- ------- ------- -------
Net income (loss)............................ 318 (4,732) 374 (1,490) 70
Less: Dividends paid and/or accrued on
Preferred Stock........................... 133 133 133 133 600
------- ------- ------- ------- -------
Net income (loss) applicable to Common
Stock (4)................................. $ 185 $(4,865) $ 241 $(1,623) $ (530)
======= ======= ======= ======= =======
Basic and diluted earnings (loss) per share
of Common Stock (4):
Continuing operations..................... $ 0.04 $ (0.07) $ 0.21 $ (0.79) $ (0.35)
Discontinued operations................... -- (0.87) (0.13) (0.06) --
------- ------- ------- ------- -------
Net earnings (loss)....................... $ 0.04 $ (0.94) $ 0.08 $ (0.85) $ (0.35)
======= ======= ======= ======= =======
Weighted average shares-- basic.............. 4,874 5,202 3,101 1,900 1,522
======= ======= ======= ======= =======
Weighted average shares-- diluted............ 4,951 5,202 3,154 1,900 1,522
======= ======= ======= ======= =======
Balance Sheet Data:
As of December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(in thousands)
Working capital (5).......................... $5,705 $ 7,661 $ 4,082 $ 7,092 $10,024
Total assets (5)............................. 40,815 43,693 36,101 20,850 18,271
Total indebtedness........................... 5,410 7,381 2,928 2,553 1,889
Accumulated deficit.......................... (25,230) (25,548) (20,816) (21,190) (19,700)
Shareholders' equity......................... 26,639 27,383 25,993 14,478 12,931
(1) Earnings (loss) per share and weighted average share amounts for each year
reflect the Company's 1-for-4 reverse stock split effective November 17,
1998.
(2) Refer to Note 6 - Restructuring and Other Charges to the Company's
Consolidated Financial Statements.
(3) The AWM Division operations were sold effective September 1, 1998. Refer to
Note 5 - Discontinued Operations to the Company's Consolidated Financial
Statements.
(4) Net loss per share in 1996 of $(0.85) excludes the effect of the Company's
Second Conversion Offer related to Convertible Preferred Stock whereby the
fair value of $4,265,000 of additional Common shares would have been
deducted from earnings available to Common shareholders.
(5) Includes controlled assets of certain Medical Providers of $650,000 and
$1,759,000 at December 31, 1996 and 1995, respectively .
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three years ended December 31, 1999. It should
be read in conjunction with the Company's Consolidated Financial Statements, the
related notes thereto and other financial and operating information included in
this Form 10-K.
Overview
IntegraMed America, Inc. (the "Company") offers products and services to
patients, providers, payors and drug manufacturers in the infertility industry.
The Company provides comprehensive business services to a nationwide network of
Reproductive Science Centers. There are currently six sites designated as
Reproductive Science Centers and one pharmaceutical subsidiary (IntegraMed
Pharmaceutical Services, Inc). Each Reproductive Science Center consists of a
location or locations where the Company has a Business Services agreement with
either a physician practice or a hospital. The current Reproductive Science
Center Network comprises seventeen locations in seven states and the District of
Columbia and forty physicians and Ph.D. scientists, including physicians and
Ph.D. scientists employed and/or contracted by the Medical Practices, as well
as, physicians who have arrangements to utilize the Company's facilities.
The Company's strategy is to align information, technology and finance for
the benefit of fertility patients, providers, payors and pharmaceutical
manufacturers. The primary elements of the Company's strategy include: (i)
selling additional Reproductive Science Center Business Service contracts; (ii)
increasing revenues at Reproductive Science Centers; (iii) increasing sales of
pharmaceutical products and services; (iv) expanding clinical research
opportunities; (v) increasing treatment financing offerings to patients thereby
making treatment more accessible to patients who otherwise would not be able to
pursue therapy; (vi) establishing Internet-based access to patient-specific
information on treatment process and outcomes; and (vii) pursuing other allied
fertility-related product or service offerings that leverage the Company's
installed base of operations.
During the first quarter of 1998, the Company completed an equity private
placement of $5.5 million with Morgan Stanley Venture Partners' affiliates.
In September 1998, the Company obtained from Fleet Bank, N.A. a $13.0
million credit facility to fund acquisitions over approximately the next one to
two years, to provide working capital, and to refinance its existing bank debt.
During 1998, the Company recorded restructuring and other charges of
approximately $2.1 million associated with its termination of its agreement with
the Reproductive Science Center of Greater Philadelphia, a single-physician
Reproductive Science Center, effective July 1, 1998, and exclusive right
impairment losses related to two other single-physician Reproductive Science
Centers. In addition, due to continued operating losses and the Company's
decision to focus exclusively on fertility services, the Company sold the Adult
Women's Medical Division ("AWM Division") operations effective September 1,
1998. In 1998, the Company recorded an aggregate charge of approximately $4.5
million related to the operating losses and the disposal of the AWM Division.
During 1999, the Company accelerated amortization of the Right to Manage
fees for the Kansas City and Dallas Reproductive Science Centers.
The Medical Practices served by the Company are parties to managed care
contracts. Approximately 71% and 67% of the Company's revenues, net for the
years ended December 31, 1999 and 1998, respectively, were derived from revenues
received by the Medical Practices from third-party payors. To date, the Company
has not been negatively impacted by existing trends related to managed care
contracts. As the Company's fees for servicing such Medical Practices are based
on revenues and/or earnings of the respective Medical Practices, changes in
managed care practices, including changes in covered procedures or reimbursement
rates could adversely affect the Company's fees in the future.
17
Results of Operations
The following table shows the percentage of net revenue represented by
various expenses and other income items reflected in the Company's Consolidated
Statement of Operations for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Revenues, net......................................................... 100% 100% 100%
Costs of services incurred on behalf of Reproductive Science Centers:
Employee compensation and related expenses....................... 38.7% 38.3% 37.7%
Direct materials................................................. 13.7% 12.6% 7.3%
Occupancy costs.................................................. 6.3% 7.3% 8.7%
Depreciation..................................................... 3.1% 3.5% 3.9%
Other expenses................................................... 17.8% 15.5% 15.1%
---- ---- ----
Total costs of services........................................ 79.6% 77.2% 72.7%
Reproductive Science Centers' contribution............................ 20.4% 22.8% 27.3%
General and administrative expenses................................... 13.2% 13.8% 20.4%
Amortization of intangible assets..................................... 5.2% 2.5% 2.8%
Interest income....................................................... (0.1)% (0.2)% (0.5)%
Interest expense...................................................... 0.9% 1.1% 0.3%
---- ---- ----
Total other expenses........................................... 19.2% 17.2% 23.0%
Restructuring and other charges....................................... -- 5.4% --
Income (loss) from continuing operations before income taxes.......... 1.2% 0.3% 4.3%
Provision for income taxes............................................ 0.5% 0.9% 0.5%
Income (loss) from continuing operations (a).......................... 0.7% (0.6)% 3.8%
Discontinued operations loss.......................................... -- (11.7)% (2.0)%
Net income (loss)..................................................... 0.7% (12.3)% 1.8%
(a) Excluding the effect of the restructuring and other charges in 1998, income
from continuing operations, as a percentage of net revenues would have been 4.8%
for the year ended December 31, 1998.
Calendar Year 1999 Compared to Calendar Year 1998
Revenues, net for 1999 were approximately $46.0 million as compared to
approximately $38.6 million for 1998, an increase of $7.4 million or 19.1%. The
increase in revenues was approximately 33% attributable to new Business Services
agreements entered into during the second quarter of 1999 and 67% attributable
to same market growth offset by losses of revenue due to terminated Business
Services contracts. Same market growth was principally achieved via new service
offerings, the expansion of ancillary services, and increases in patient volume.
The aggregate increase in revenue was comprised of the following: (i) an
approximate $4.3 million increase in reimbursed costs of services; and (ii) an
approximate $600,000 increase in the Company's Business Services fees derived
from the managed Medical Practices' net revenue and/or earnings, and (iii) $2.5
million from pharmaceutical sales.
Total costs of services as a percentage of revenue increased by 2.4% to
79.6% in 1999 as compared to 77.2% in 1998. Employee compensation and related
expenses, direct materials, depreciation and other expenses increased primarily
due to factors attributed to increasing revenues. These factors include
infrastructure expansion for various Reproductive Science Centers, including
Shady Grove, Bay Area, and Boston.
Reproductive Science Centers' contribution increased to $9.4 million in
1999 as compared to $8.8 million in 1998 due to the factors attributed to
increasing revenues. The Reproductive Science Centers' contribution margin
decreased to 20.4% of revenues in 1999 from 22.8% in 1998 primarily due to
reimbursed services, which do not provide a margin, accounting for a higher
percent of revenues and new service offerings with a lower contribution margin.
General and administrative expenses for 1999 were approximately $6.1
million as compared to approximately $5.3 million in 1998, an increase of 14.5%,
primarily due to increases in staffing, legal expenses, and expenses related to
the implementation of the ARTWorks system.
Amortization of intangible assets was $2.4 million in 1999 as compared to
$1.0 million in 1998. The majority of this increase is attributed to a one-time
charge of $1.35 million associated with accelerated amortization of Right to
Manage fees of the Kansas City and Dallas Reproductive Science Centers.
Interest income for 1999 decreased to $65,000 from $91,000 for 1998, due to
a lower invested cash balance. Interest expense for 1999 decreased to $412,000
from $432,000 in 1998, primarily due to payoffs of notes payable to the
physician practice at Shady Grove.
18
The provision for income taxes is primarily related to state taxes as the
Company has utilized available net operating loss carryforwards to eliminate any
Federal tax provision. The provision for income taxes decreased 29.4% for the
year ending December 31, 1999 as compared to 1998, due to a change in effective
tax rates as a result of tax planning initiatives.
Income from continuing operations, excluding restructuring and other
charges, was approximately $300,000 in 1999 as compared to $1.9 million for
1998. The decrease was primarily due to the approximate $600,000 increase in
Reproductive Science Center contribution and a $100,000 reduction in income tax
expense, which was offset by an $800,000 increase in general and administrative
expenses and a $1.4 million increase in amortization of intangible assets.
Calendar Year 1998 Compared to Calendar Year 1997
Revenues, net for 1998 were approximately $38.6 million as compared to
approximately $20.6 million for 1997, an increase of $18.0 million, or 87.7%.
The increase in revenues, excluding revenues related to the Philadelphia
Reproductive Science Center agreement which was terminated effective July 1,
1998 and including revenues related to the San Diego Reproductive Science Center
agreement which was terminated effective September 1, 1998, was approximately
74.5% attributable to new Business Services agreements entered into during the
first quarter of 1998 and the second and third quarter of 1997 and approximately
25.5% attributable to same market growth. Same market growth was principally
achieved via new service offerings, the expansion of ancillary services, and
increases in patient volume. The aggregate increase in revenue was comprised of
the following: (i) an approximate $14.8 million increase in reimbursed costs of
services; and (ii) an approximate $3.2 million increase in the Company's
Business Services fees derived from the managed Medical Practices' net revenue
and/or earnings.
Total costs of services as a percentage of revenue increased by 4.5% to
77.2% in 1998 as compared to 72.7% in 1997. Employee compensation and related
expenses, direct materials, depreciation and other expenses as a percentage of
revenue increased primarily due to the factors attributable to increasing
revenues. Occupancy costs as a percentage of revenue decreased primarily due to
the significant increase in revenues.
Reproductive Science Centers' contribution increased to $8.8 million in
1998 as compared to $5.6 million in 1997 due to the factors attributable to
increasing revenues. The Reproductive Science Centers' contribution margin
decreased to 22.8% of revenues, net in 1998 from 27.3% in 1997 primarily due to
reimbursed services accounting for a higher percent of revenues.
General and administrative expenses for 1998 were approximately $5.3
million as compared to approximately $4.2 million in 1997, an increase of 26.8%,
primarily due to increases in staffing and travel expenses attributable to
recent acquisitions. As a percentage of revenues, general and administrative
expenses decreased to approximately 13.8% from approximately 20.4% primarily due
to the significant increase in revenues.
Amortization of intangible assets was $962,000 in 1998 as compared to
$577,000 in 1997. This increase was attributable to the Company's acquisitions
of new Business Services agreements in the first quarter of 1998 and the second
and third quarters of 1997. This increase was partially offset by the
elimination of amortization of exclusive rights associated with certain single
physician Reproductive Science Centers. Impairment losses were recorded in the
second quarter of 1998 to writeoff unamortized exclusive rights payments on
these Reproductive Science Centers.
Interest income for 1998 decreased to $91,000 from $109,000 for 1997, due
to a lower invested cash balance. Interest expense for 1998 increased to
$432,000 from $60,000 in 1997, due to increases in bank borrowings principally
to finance working capital needs and in notes payable to Medical Providers for
exclusive rights.
The provision for income taxes, which primarily reflected various state
income taxes, increased to $340,000 in 1998 from $104,000 in 1997 primarily due
to the fact that the last of the New Jersey State net operating loss
carryforwards were used in 1997 and to incremental state taxes related to the
FCI and Shady Grove Reproductive Science Centers which were acquired in August
1997 and March 1998, respectively.
Restructuring and other charges were approximately $2.1 million for 1998.
Such charges included approximately $1.4 million associated with the Company's
termination of its agreement with the Reproductive Science Center of Greater
Philadelphia, a single physician Reproductive Science Center, effective July 1,
1998, which primarily consisted of exclusive right impairment and other asset
write-offs. Such charges also included approximately $700,000 for exclusive
right impairment losses related to two other single physician Reproductive
Science Centers. The latter impairment losses were recorded based upon the
Company's determination that the intangible asset balance was larger than the
respective Medical Practice's estimated future cashflow.
19
Income from continuing operations excluding restructuring and other charges
was approximately $1.9 million for 1998 as compared to $795,000 for 1997. The
increase was primarily due to the approximate $3.2 million increase in
Reproductive Science Center contribution, which was partially offset by
increases in general and administrative expenses, amortization of intangible
assets, interest and income tax expense.
Effective September 1, 1998, the Company disposed of the AWM Division
operations via a sale of certain of its fixed assets to a third party and the
third party's assumption of the employees, building lease, research contracts,
and medical records. This disposal was classified as a discontinued operation
for which an aggregate charge of approximately $4.5 million was recorded in
1998, of which $923,000 represented loss from operations and approximately $3.6
million represented loss from the disposal of the AWM Division. The loss from
disposal of the AWM Division principally represented approximately $3.3 million
related to the write-off of goodwill and $243,000 for estimated operating losses
during June through September 1, 1998, the phase-out period. During the
eight-month period ended August 31, 1998 and the year ended December 31, 1997,
the AWM Division recorded revenues of approximately $1.0 million and $2.1
million, respectively, which are classified as discontinued operations.
Revenues, net for 1997 were approximately $20.6 million as compared to
approximately $14.9 million for 1996, an increase of approximately $5.7 million,
or 37.9%. The increase in revenues was attributable to new Business Services
agreements entered into in each of the first three quarters of 1997, partially
offset by the absence of revenue related to the Westchester and East Long
Meadow, MA Reproductive Science Center agreements which were terminated in
November 1996 and January 1997, respectively. The aggregate increase in revenue
was comprised of the following: (i) an approximate $3.4 million increase in
reimbursed costs of services; and (ii) an approximate $2.3 million increase in
the Company's Business Services fees derived from the managed Medical Practices'
net revenue and/or earnings.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities. More recently, the Company has commenced using bank
financing for working capital and acquisition purposes. The Company anticipates
that its acquisition strategy will continue to require substantial capital
investment. Capital is needed not only for additional acquisitions, but also for
the effective integration, operation and expansion of the Company's existing
Reproductive Science Centers. The Medical Practices may require capital for
renovation and expansion and for the addition of medical equipment and
technology. As of December 31, 1999, the Company had working capital of
approximately $5.7 million, compared to $7.7 million in 1998. The net decrease
in working capital was primarily due to fixed asset and leasehold improvement
purchases of $2.8 million, debt repayments of $1.8 million and the repurchase of
approximately 406,000 shares of common stock for an aggregate purchase price of
$1.5 million.
In September 1998, the Company obtained from Fleet Bank, N.A. ("Fleet") a
$13.0 million credit facility (the "New Credit Facility"). The New Credit
Facility is comprised of a $4.0 million three-year working capital revolver, a
$5.0 million three-year acquisition revolver and a $4.0 million 5.5 year term
loan. Upon closing of the New Credit Facility, the Company drew the entire $4.0
million available under the term loan to repay in full its balance outstanding
with First Union National Bank of $2,250,000 and for working capital purposes as
well as Common Stock repurchases. Availability of borrowings under the working
capital revolver are based on eligible accounts receivable as defined.
Availability of borrowings under the acquisition revolver will be based on
financial covenants and eligibility criteria with respect to each proposed
acquisition. As of December 31, 1999, under the working capital and acquisition
revolvers, there were no amounts outstanding and an aggregate amount of
approximately $6.4 million was available, exclusive of additional amounts, which
may become available as a result of completing additional acquisitions.
The Company does not have any significant commitments for the acquisition
of fixed assets.
20
Year 2000 Issue
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of its software and hardware systems. As a result of those planning
and implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000 date
change. The Company expensed approximately $53,000 during 1999 in connection
with remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the products and services of third parties. The Company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
New Accounting Standards
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101, "Revenue Recognition in Financial Statements",
summarizing the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Although the Company
believes it is in compliance with this guidance in all material respects, the
Company is currently evaluating its current revenue recognition policies to
determine the impact of the Staff Accounting Bulletin, if any.
Forward Looking Statements
This Form 10-K and discussions and/or announcements made by or on behalf of
the Company, contain certain forward-looking statements regarding events and/or
anticipated results within the meaning of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the attainment of which
involve various risks and uncertainties. Forward-looking statements may be
identified by the use of forward-looking terminology such as, "may", "will",
"expect", "believe", "estimate", "anticipate", "continue", or similar terms,
variations of those terms or the negative of those terms. The Company's actual
results may differ materially from those described in these forward-looking
statements due to the following factors: the Company's ability to acquire
additional Business Services agreements, including the Company's ability to
raise additional debt and/or equity capital to finance future growth, the loss
of significant Business Services agreement(s), the profitability or lack thereof
at Reproductive Science Centers serviced by the Company, the Company's ability
to transition sole practitioners to group practices, increases in overhead due
to expansion, the exclusion of infertility and ART services from insurance
coverage, government laws and regulation regarding health care, changes in
managed care contracting, the timely development of and acceptance of new
infertility, and ART and/or genetic technologies and techniques.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedules on page
F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
21
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information with respect to the executive officers and directors of the
Company is incorporated by reference from the Company's Proxy Statement relating
to the Annual Meeting of Shareholders to be held on May 23, 2000.
ITEM 11. Executive Compensation
This information is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 23,
2000.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 23,
2000.
ITEM 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 23,
2000.
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1.
(3) The exhibits that are listed on the Index to Exhibits
herein which are filed herewith as a management agreement
or compensatory plan or arrangement are: 10.113 (c) and
10.113 (d).
(b) Reports on Form 8-K.
None.
(c) Exhibits. The list of exhibits required to be filed with this
Annual Report on Form 10-K is set forth in the Index to Exhibits
herein.
22
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Item 8 and 14 (a)(1) and (2)
Contents
Page
----
INTEGRAMED AMERICA, INC.
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998........... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997....................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997................................... F-6
Notes to Consolidated Financial Statements............................. F-7
FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants on Financial Statement Schedule II... S-1
Valuation and Qualifying Accounts...................................... S-2
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
IntegraMed America, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
IntegraMed America, Inc. and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
F-2
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all amounts in thousands, except share amounts)
December 31,
---------------
1999 1998
------ ------
ASSETS
Current assets:
Cash and cash equivalents.................................................................. $ 3,650 $ 4,241
Patient accounts receivable, less allowance for doubtful accounts
of $851 and $526 in 1999 and 1998, respectively.......................................... 10,460 10,749
Business Service fees receivable, less allowance for doubtful accounts
of $0 and $305 in 1999 and 1998, respectively ........................................... 890 1,963
Other current assets....................................................................... 1,162 1,736
------- -------
Total current assets................................................................... 16,162 18,689
Fixed assets, net............................................................................. 5,965 5,116
Intangible assets, net........................................................................ 18,163 19,269
Other assets.................................................................................. 525 619
------- -------
Total assets........................................................................... $40,815 $43,693
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................... $ 1,080 $ 684
Accrued liabilities........................................................................ 2,948 3,480
Due to Medical Practices................................................................... 1,768 1,877
Current portion of long-term notes payable and other obligations........................... 1,691 2,099
Patient deposits........................................................................... 2,970 2,888
------- -------
Total current liabilities.............................................................. 10,457 11,028
------- -------
Long-term notes payable and other obligations................................................. 3,719 5,282
------- -------
Shareholders' equity:
Preferred Stock, $1.00 par value 3,165,644 shares authorized in 1999 and 1998
-- 2,500,000 undesignated; 665,644 shares designated as Series A Cumulative
Convertible of which 165,644 were issued and outstanding in 1999 and 1998,
respectively............................................................................. 166 166
Common Stock, $.01 par value--50,000,000 shares authorized
in 1999 and 1998; 5,368,960 and 5,343,092 shares issued in 1999 and 1998, respectively... 54 53
Capital in excess of par................................................................... 54,140 53,712
Accumulated deficit........................................................................ (25,230) (25,548)
Treasury Stock, at cost-- 746,863 and 340,500 shares in 1999 and 1998, respectively........ (2,491) (1,000)
------- -------
Total shareholders' equity............................................................. 26,639 27,383
------- -------
Total liabilities and shareholders' equity............................................. $40,815 $43,693
======= =======
See accompanying notes to the consolidated financial statements.
F-3
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Revenues, net (see Note 2)...................................................... $45,955 $38,590 $20,559
Costs of services incurred on behalf of Reproductive Science Centers:
Employee compensation and related expenses................................... 17,765 14,763 7,724
Direct materials............................................................. 6,307 4,864 1,509
Occupancy costs.............................................................. 2,890 2,814 1,794
Depreciation................................................................. 1,424 1,343 803
Other expenses............................................................... 8,170 5,994 3,110
------- ------- -------
Total costs of services rendered........................................... 36,556 29,778 14,940
------- ------- -------
Reproductive Science Centers' contribution...................................... 9,399 8,812 5,619
------- ------- -------
General and administrative expenses............................................. 6,084 5,316 4,192
Amortization of intangible assets............................................... 2,410 962 577
Interest income................................................................. (65) (91) (109)
Interest expense................................................................ 412 432 60
------- ------- -------
Total other expenses......................................................... 8,841 6,619 4,720
------- ------- -------
Restructuring and other charges (see Note 6).................................... -- 2,084 --
Income from continuing operations before income taxes........................... 558 109 899
Provision for income taxes...................................................... 240 340 104
------- ------- -------
Income (loss) from continuing operations........................................ 318 (231) 795
Discontinued operations (see Note 5):
Loss from operations of discontinued AWM Division (less
applicable income taxes of $0)............................................. -- 923 421
Loss from disposal of AWM Division........................................... -- 3,578 --
------- ------- -------
Net income (loss)............................................................... 318 (4,732) 374
Less: Dividends paid and/or accrued on Preferred Stock.......................... 133 133 133
------- ------- -------
Net income (loss) applicable to Common Stock.................................... $ 185 $(4,865) $ 241
======= ======= =======
Basic and diluted net earnings (loss) per share of Common Stock
(see Note 11):
Continuing operations...................................................... $ 0.04 $ (0.07) $ 0.21
Discontinued operations.................................................... -- (0.87) (0.13)
------- ------- -------
Net earnings (loss)........................................................ $ 0.04 $ (0.94) $ 0.08
======= ======= =======
Basic and diluted net earnings (loss) per share of Common Stock................. $ 0.04 $ (0.94) $ 0.08
======= ======= =======
Weighted average shares - basic................................................. 4,874 5,202 3,101
======= ======= =======
Weighted average shares - diluted............................................... 4,951 5,202 3,154
======= ======= =======
See accompanying notes to the consolidated financial statements.
F-4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands, except share amounts)
Cumulative
Convertible Common Capital
Preferred Stock Stock in Excess Accumulated Treasury Stock
Amount Amount of Par Deficit Shares Amount
--------------- ------- ---------- ----------- ------ ------
BALANCE AT DECEMBER 31, 1996..... $166 $23 $35,479 $(21,190) -- $ --
Issuance of Common Stock, net of
issuance costs............... -- 16 8,277 -- -- --
Issuance of Common Stock
for acquisition.............. -- 4 2,870 -- -- --
Other issuances of Common Stock.. -- -- 84 -- -- --
Dividends accrued to preferred
shareholders ................ -- -- (133) -- -- --
Exercise of Common Stock options. -- -- 23 -- -- --
Net income....................... -- -- -- 374 -- --
-------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997..... 166 43 46,600 (20,816) -- --
Issuance of Common Stock, net of
issuance costs.............. -- 8 5,418 -- -- --
Issuance of Common Stock
for acquisition............. -- 2 1,512 -- -- --
Issuance of warrants to purchase
Common Stock................. -- -- 216 -- -- --
Dividends paid to preferred
shareholders ............... -- -- (133) -- -- --
Exercise of Common Stock options. -- -- 99 -- -- --
Purchase of Treasury Stock....... -- -- -- -- 340,500 (1,000)
Net loss......................... -- -- -- (4,732) -- --
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998..... 166 53 53,712 (25,548) 340,500 (1,000)
Issuance of Common Stock, net of
issuance costs............... -- 1 176 -- -- --
Issuance of warrants to purchase
Common Stock................. -- -- 385 -- -- --
Dividends paid to preferred
shareholders ................ -- -- (133) -- -- --
Purchase of Treasury Stock....... -- -- -- -- 406,363 (1,491)
Net income....................... -- -- -- 318 -- --
-------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999..... $166 $54 $54,140 $(25,230) 746,863 $(2,491)
==== === ======= ======== ======= =======
See accompanying notes to the consolidated financial statements.
F-5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the years ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
Cash flows from operating activities:
Net income (loss)............................................ $ 318 $(4,732) $ 374
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization.............................. 4,183 2,582 1,812
Writeoff of fixed and intangible assets.................... -- 5,541 95
Changes in assets and liabilities net of effects from
acquired businesses--
Decrease (increase) in assets:
Patient accounts receivable................................ 289 (2,608) (4,291)
Business Service fees receivable........................... 454 (1,253) (351)
Other current assets....................................... 299 (87) (628)
Other assets............................................... (81) (53) (333)
Decrease in controlled assets of Medical Practices........... -- -- 459
Increase (decrease) in liabilities:
Accounts payable........................................... 396 (1,091) 455
Accrued liabilities........................................ (450) (263) 608
Due to Medical Practices................................... (109) 132 1,419
Patient deposits........................................... 127 1,440 746
------- ------- -------
Net cash provided by (used in) operating activities.............. 5,426 (392) 365
------- ------- -------
Cash flows used in investing activities:
Proceeds from short term investments......................... -- -- 2,000
Payment for exclusive Business Services rights and acquired
physician practices........................................ (448) (3,164) (10,007)
Purchase of net liabilities (assets) of acquired businesses.. -- 487 (661)
Purchase of fixed assets and leasehold improvements.......... (2,251) (1,668) (2,053)
Proceeds from sale of fixed assets and leasehold
improvements............................................... 64 135 139
------- ------- -------
Net cash used in investing activities............................ (2,635) (4,210) (10,582)
------- ------- -------
Cash flows (used in) provided by financing activities:
Proceeds from issuance of Common Stock....................... -- 5,500 9,601
Proceeds from issuance of notes.............................. 150 -- --
Used for stock issue costs................................... -- (74) (1,308)
Proceeds from bank under Credit Facility..................... -- 6,000 250
Principal repayments on debt................................. (1,815) (2,900) (235)
Principal repayments under capital lease obligations......... (93) (115) (136)
Repurchase of Common Stock................................... (1,491) (1,000) --
Dividends paid on Convertible Preferred Stock................ (133) (597) --
Proceeds from exercise of Common Stock options............... -- 99 23
------- ------- -------
Net cash (used in) provided by financing activities.............. (3,382) 6,913 8,195
------- ------- -------
Net (decrease) increase in cash.................................. (591) 2,311 (2,022)
Cash at beginning of period...................................... 4,241 1,930 3,952
------- ------- -------
Cash at end of period............................................ $ 3,650 $ 4,241 $ 1,930
======= ======= =======
See accompanying notes to the consolidated financial statements.
F-6
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
IntegraMed America, Inc. (the "Company") offers products and services to
patients, providers, payors and drug manufacturers in the infertility industry.
The Company provides (i) administrative services, including accounting and
finance, human resource functions, and purchasing of supplies and equipment;
(ii) access to capital; (iii) marketing and sales; (iv) integrated information
systems; (v) assistance in identifying best clinical practices; and (vi) access
to technology ("Business Services") to a nationwide network of medical
providers. As of December 31, 1999, there were seven Business Services contracts
(designated as "Reproductive Science Centers(R)") and one pharmaceutical
subsidiary (IntegraMed Pharmaceutical Services, Inc). Each Reproductive Science
Center consists of a location or locations where the Company has a Business
Services contract with either a physician group ("Medical Practice") or a
hospital.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of consolidation--
The consolidated financial statements comprise the accounts of IntegraMed
America, Inc. and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated. The Company derives its revenues from
Business Services contracts, patient service revenues and the sale of
pharmaceutical products. The Company does not consolidate the results of the
Reproductive Science Centers. Effective September 1, 1998, the Company disposed
of the Adult Women's Medical ("AWM") Division through a sale of its operations.
In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board (the ?EITF?) issued EITF No. 97-2. The EITF reached a consensus
concerning certain matters relating to the physician practice management ("PPM")
industry with respect to the consolidation of professional corporation revenues
and the accounting for business corporations. As the Company does not
consolidate its managed Reproductive Science Centers, the adoption of EITF 97-2
in 1998 did not have a material impact on the Company's financial position, cash
flows or results of operations. As discussed below, the Company has discontinued
the display of revenues for its Long Island and Boston Reproductive Science
Centers due to changes in the respective Business Services agreements.
Since inception through December 31, 1997, the agreements related to the
Long Island and Boston Reproductive Science Centers have been incorporated in
the Company's consolidated financial statements by the display method as the
Company believed that these agreements provided it with a "net profits or
equivalent interest" in the medical services furnished by the Medical Practices
at the Long Island and Boston Reproductive Science Centers. Consequently, for
the Long Island and Boston Reproductive Science Centers, the Company has
historically presented the Medical Practices' patient services revenue, less
amounts retained by the Medical Practices, or "Medical Practice retainage", as
"Revenues after Medical Practice retainage" in its consolidated statement of
operations ("display method"). Due to changes in the agreements related to the
Long Island and Boston Reproductive Science Centers effective in October 1997
and January 1998, respectively, the Company no longer displays the patient
services revenue and Medical Practice retainage related to these Reproductive
Science Centers in the accompanying consolidated statement of operations for the
periods prior to January 1, 1998. The revised agreements provide for the Company
to receive a specific fee which the Company has reported in "Revenues, net" in
the accompanying consolidated statement of operations.
F-7
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of management's
estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue and cost recognition -
Reproductive Science Centers(R)
As of December 31, 1999, the Company provided comprehensive Business
Services under seven Business Services contracts. During the year ended December
31, 1999, the Company had also provided services under two agreements that were
terminated effective March 31 and December 31, 1999, respectively.
Under five of the current agreements, the Company receives as compensation
for its Business Services a three-part fee comprised of: (i) a percentage of net
revenues, (ii) reimbursed costs of services (costs incurred in servicing a
Medical Practice and any costs paid on behalf of the Medical Practice) and (iii)
a fixed or variable percentage of earnings after Business Services fees or an
additional variable percentage of net revenues.
Under the revised agreement for the Long Island Reproductive Science
Center, as compensation for its services, the Company receives a fixed fee
(currently equal to $570,000 per annum), plus reimbursed costs of services.
The Company's remaining Reproductive Science Center is affiliated with a
medical center. Under this agreement, the Company primarily provides endocrine
testing and administrative and finance services for a fee equal to 15% of cash
receipts plus reimbursed costs of services.
All fees are reported as "Revenues, net" by the Company. Direct costs
incurred by the Company in performing its services and costs incurred on behalf
of the Medical Practices are recorded in "Costs of services incurred on behalf
of Reproductive Science Centers". The physicians receive as compensation all
remaining earnings after payment of the Company's fee.
Prior to January 1, 1998, under another form of agreement which had been in
use at the Long Island and Boston Reproductive Science Centers, the Company
recorded all patient service revenues and, out of such revenues, the Company
paid the Medical Practices' expenses, physicians' and other medical
compensation, direct materials and certain hospital contract fees. Under these
agreements, the Company guaranteed a minimum physician compensation based on an
annual budget jointly determined by the Company and the physicians. The
Company's fee was payable only out of remaining revenues, if any, after the
payment of physician compensation and all direct administrative expenses of the
Medical Practice which were recorded as costs of service. Under these
arrangements, the Company had been liable for payment of all liabilities
incurred by the Medical Practices and had been at risk for any losses incurred
in the operation thereof. Due to changes in the agreements related to the Long
Island and Boston Reproductive Science Centers, effective in October 1997 and
January 1998, respectively, the Company no longer displays patient service
revenues of the Long Island and Boston Medical Practices which had been
reflected in "Revenues, net" in the Company's consolidated statement of
operations. The revised agreements provide for the Company to receive a specific
fee, as previously described, which the Company reports in "Revenues, net" in
its consolidated statement of operations. The revised agreements provide for
increased incentives and risk-sharing for the Company's affiliated medical
providers.
The Company also distributes infertility related pharmaceutical products
through IntegraMed Pharmaceutical Services, Inc. (IPSI), a wholly owned
subsidiary. Through a management agreement with ivpcare, inc., IPSI ships
prescription-based pharmaceuticals directly to patients of the Reproductive
Science Centers. Revenue is derived from the sales price of these
pharmaceuticals and is recorded when shipments are made. All revenues and their
related costs are consolidated with those of the Reproductive Science Center
Business Services agreements.
F-8
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AWM (Adult Women's Medical) Division --
In June 1998, the Company committed itself to a formal plan to dispose of
the AWM Division. On September 1, 1998, the Company disposed of the AWM Division
operations through a sale of certain of its fixed assets to a third party and
the third party's assumption of the employees, building lease, research
contracts, and medical records. The operating results of the AWM Division for
the eight-month period ended August 31, 1998, the year ended December 31, 1997,
and the charges recorded by the Company related to its disposal are reflected
under "Discontinued Operations" in the accompanying Consolidated Statement of
Operations (See Note 5).
Cash and cash equivalents--
Cash and cash equivalents primarily include all highly liquid debt
instruments with original maturities of three months or less, recorded at cost,
which approximates market.
Patient accounts receivable--
Patient accounts receivable represent receivables for medical services
provided by the Medical Practices and for other products and services provided
by the Company's subsidiaries. Such amounts are recorded net of contractual
allowances and estimated bad debts. As of December 31, 1999 and 1998, of total
net patient accounts receivable of $10,460,000 and $10,749,000, respectively,
approximately $9,867,000 and $10,448,000 of patient accounts receivable were a
function of Reproductive Science Center revenue (i.e., the Company purchased the
accounts receivable, net of contractual allowances, from the Medical Practice
(the "Purchased Receivables") and the remaining balances of $593,000 and
$301,000, respectively, were a function of net revenues of the Company (see --
"Revenue and cost recognition" above). Risk of loss in connection with
uncollectiblity of Purchased Receivables is partially borne by the Company in an
amount equal to the Company's proportionate share of revenues and/or earnings,
which are paid to the Company from the Medical Practice as its Business Services
fee. Risk of loss in connection with uncollectibility of patient accounts
receivable which are a function of net revenues of the Company is borne by the
Company.
Business Services fees receivable --
Business Services fees receivable in 1999 represent fees owed to the
Company by one medical center pursuant to the respective Business Services
agreement. Business Services fees receivable in 1998 represent fees owed to the
Company primarily for repayment of advances to the Medical Practices pursuant to
the respective agreements with these Medical Practices (See "Revenue and cost
recognition" above).
Fixed assets--
Fixed assets are valued at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets, generally three to five years.
Leasehold improvements are amortized over the shorter of the asset life or the
remaining term of the lease. Assets under capital leases are amortized over the
term of the lease agreements. The Company periodically reviews the fair value of
fixed assets, the results of which have had no material effect on the Company's
financial position or results of operations.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and proceeds from disposition is recognized as
gain or loss. Routine maintenance and repairs are charged to expenses as
incurred, while costs of betterments and renewals are capitalized.
F-9
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets--
Intangible assets at December 31, 1999 and 1998 consisted of the following
(000's omitted):
1999 1998
---- ----
Exclusive Business Services rights........... $19,995 $20,389
Trademarks................................... 186 398
------- -------
Total.................................... 20,181 20,787
Less accumulated amortization................ (2,018) (1,518)
------- -------
Total.................................... $18,163 $19,269
======= =======
Exclusive Business Services Rights, Goodwill and Other Intangible Assets--
Exclusive Business Services rights, goodwill and other intangible assets
represent costs incurred by the Company for the right to service and/or acquire
certain Reproductive Science Centers and are valued at cost less accumulated
amortization. During the year ended December 31, 1999, the Company recorded a
charge to earnings of $1.35 million to accelerate the unamortized portion of
Business Services Rights associated with its remaining single physician Business
Services agreements. During the year ended December 31, 1998, the Company
recorded a charge to earnings for the writeoff of the entire unamortized portion
of goodwill associated with the AWM Division which was disposed of effective
September 1, 1998 and recorded an aggregate exclusive Business Services right
impairment charge of $1.4 million related to certain of the single-physician
practices (see Notes 5 and 6).
Trademarks --
Trademarks represent trademarks, service marks, trade names and logos
purchased by the Company and are valued at cost less accumulated amortization.
Amortization and recoverability--
The Company periodically reviews its intangible assets to assess
recoverability; any impairments would be recognized in the consolidated
statement of operations if a permanent impairment were determined to have
occurred. Recoverability of intangibles is determined based on undiscounted
expected earnings from the related business unit or activity over the remaining
amortization period. Exclusive Business Services rights are amortized over the
term of the respective agreement, usually ten to twenty-five years. Trademarks
are amortized over five to seven years. As of December 31, 1999, accumulated
amortization of exclusive Business Services rights and trademarks was $1,850,000
and $168,000, respectively. As of December 31, 1998, accumulated amortization of
exclusive Business Services rights and trademarks was $1,180,000 and $338,000,
respectively.
Due to Medical Practices--
Due to Medical Practices primarily represents amounts owed by the Company
to the Medical Practices for the medical providers' share of the respective
Medical Practice earnings net of the Company's advances to the Medical Practice,
if any. Due to Medical Practices excludes amounts owed by the Company to Medical
Practices for exclusive Business Services rights (see Note 9).
F-10
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock based employee compensation--
The Company adopted Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (FAS 123), on January 1, 1996. Under FAS 123,
companies can, but are not required to, elect to recognize compensation expense
for all stock based awards, using a fair value method. The Company has adopted
the disclosure only provisions, as permitted by FAS 123.
Concentrations of credit--
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's trade receivables are primarily from third party payors,
principally insurance companies and health maintenance organizations.
Income taxes--
The Company accounts for income taxes utilizing the asset and liability
approach.
Earnings per share--
The Company determines earnings (loss) per share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128) which the
Company adopted in December 1997. All historical earnings (loss) per share have
been presented in accordance with FAS 128.
Fair value of financial instruments--
At December 31, 1999 and 1998, the carrying values of all financial
instruments, both short- and long-term, approximated their fair value.
NOTE 3 -- SIGNIFICANT BUSINESS SERVICE CONTRACTS:
For the years ended December 31, 1999 and 1998, the Boston, New Jersey, FCI
(Fertility Centers of Illinois) and Shady Grove (acquired in mid-March 1998)
Reproductive Science Centers each individually provided greater than 10% of the
Company's Revenues, net and Reproductive Science Centers' contribution as
follows:
Percent of Company Percent of Reproductive
Revenues, net Science Centers' contribution
--------------------------- -----------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
Boston......................... 16.0 15.8 26.0 23.4 21.7 33.7
New Jersey..................... 10.2 12.2 17.9 24.3 28.3 38.1
FCI ........................... 26.2 27.1 12.6 24.2 25.7 14.1
Shady Grove.................... 18.7 15.0 -- 15.1 9.6 --
NOTE 4 -- ACQUISITIONS AND BUSINESS SERVICE AGREEMENTS:
The transactions detailed below were accounted for by the purchase method
and the purchase price has been allocated to the tangible and intangible assets
acquired based upon the estimated fair value at the date of acquisition. The
consolidated financial statements include the results of operations of these
transactions from their respective dates of acquisition.
F-11
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1998, the Company completed its second in-market merger with the
addition of two physicians to the FCI practice. The Company acquired certain
assets of Advocate Medical Group, S.C. ("AMG") and Advocate MSO, Inc. and
acquired the right to manage AMG's infertility practice conducted under the name
Center for Reproductive Medicine ("CFRM"). Simultaneous with the consummation of
this transaction, the Company amended its agreement with FCI to include two of
the three physicians practicing under the name CFRM. The aggregate purchase
price was approximately $1.5 million, consisting of approximately $1.2 million
in cash and 46,079 shares of Common Stock. The majority of the purchase price
was allocated to exclusive Business Services rights.
On March 12, 1998, the Company acquired the majority of the capital stock
of Shady Grove Fertility Centers, Inc., a Maryland business corporation
providing management services, and formerly a Maryland professional corporation
engaged in providing infertility services. Prior to the consummation of the
transaction, Shady Grove had entered into a twenty-five year management
agreement with Levy, Sagoskin and Stillman, M.D., P.C., an infertility physician
group practice comprised of six physicians and four locations surrounding the
greater Washington, D.C. area. The Company acquired the balance of the Shady
Grove capital stock on January 5, 1999. The aggregate purchase price for all of
the Shady Grove capital stock was $5.7 million, consisting of approximately $2.8
million in cash, approximately $1.4 million in Common Stock, and approximately
$1.5 million in promissory notes. The purchase price was allocated to the
various assets and liabilities assumed and the balance was allocated to
exclusive Business Services rights. On March 12, 1998, the Closing Date, the
following consideration was paid: (i) approximately $1.8 million in cash, (ii)
approximately $1.2 million in stock, or 159,888 shares of Common Stock, and
(iii) approximately $1.1 million in promissory notes. These notes bear interest
at 8.5% per annum, payable in two annual installments. The first installment was
paid on April 1, 1999, and the second installment is due on April 1, 2000. On
January 5, 1999, the Second Closing Date, the balance of the purchase price was
paid as follows: (i) approximately $1.0 million in cash, (ii) approximately
$175,900 in stock, or 25,868 shares of Common Stock, and (iii) a $402,750
promissory note. This note bears interest at 10.17% per annum, payable in two
installments. The first note installment was paid on July 1, 1999, and the
second installment is due on April 1, 2000. In addition, in January 1999, the
Company issued warrants to acquire 5,000 shares of Common Stock at $5.125 per
share to Robert J. Stillman, M.D. in connection with the Second Closing Date.
NOTE 5 -- DISCONTINUED OPERATIONS:
In June 1998, the Company committed itself to a formal plan to dispose of
the AWM Division operations. On September 1, 1998 the Company disposed of the
AWM Division operations through a sale of certain of its fixed assets to a third
party and the third party's assumption of the employees, building lease,
research contracts, and medical records. As of December 31, 1999 and 1998,
respectively, the Company's Consolidated Balance Sheet included $75,000 and
$225,000 in notes payable related to the AWM Division. During the year ended
December 31, 1998, the Company reported a loss from the disposal of the AWM
Division of approximately $3.6 million, which principally represented
approximately $3.3 million related to the goodwill write-off and $243,000 for
estimated operating losses during the phase-out period. During the eight-month
period ended August 31, 1998 and the year ended December 31, 1997, the AWM
Division recorded revenues of approximately $1.0 million and $2.1 million,
respectively.
NOTE 6 -- RESTRUCTURING AND OTHER CHARGES:
The Company recorded approximately $2.1 million in restructuring and other
charges in the year ended December 31, 1998. Such charges included approximately
$1.4 million associated with its termination of its agreement with the
Reproductive Science Center of Greater Philadelphia, a single physician
Reproductive Science Center, effective July 1, 1998, which primarily consisted
of exclusive Business Services right impairment and other asset write-offs. Such
charges also included approximately $700,000 for exclusive Business Services
right impairment losses related to two other single physician Reproductive
Science Centers. The latter impairment losses were recorded based upon the
Company's determination that the intangible asset balance was larger than the
respective Medical Practice's estimated future cash flow.
F-12
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- FIXED ASSETS, NET:
Fixed assets, net at December 31, 1999 and 1998 consisted of the following
(000's omitted):
1999 1998
---- ----
Furniture, office and computer equipment.......... $4,335 $4,064
Medical equipment................................. 2,276 2,200
Leasehold improvements............................ 4,547 3,203
Assets under capital leases....................... 1,260 956
------ ------
Total........................................... 12,418 10,423
Less--Accumulated depreciation and amortization... (6,453) (5,307)
------ ------
$5,965 $5,116
====== ======
Assets under capital leases primarily consist of computer and medical
equipment. Accumulated amortization related to capital leases at December 31,
1999 and 1998 was $762,000 and $947,000, respectively.
NOTE 8 -- ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1999 and 1998 consisted of the
following (000's omitted):
1999 1998
---- ----
Accrued insurance................................ $ -- $ 552
Deferred compensation............................ 387 467
Accrued payroll and benefits..................... -- 410
Accrued state taxes.............................. 575 397
Deferred rent.................................... 296 317
Accrued facility disposal costs.................. 322 --
Other............................................ 1,368 1,337
------ ------
Total accrued liabilities........................ $2,948 $3,480
====== ======
NOTE 9 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
Debt at December 31, 1999 and 1998 consisted of the following (000's
omitted):
1999 1998
------ ------
Note payable to Bank............................. $4,000 $4,000
Acquisition notes payable........................ 75 1,353
Exclusive Business Services rights obligations... -- 520
Acquisition obligation........................... 737 1,500
Obligations under capital lease.................. 448 8
Other notes payable.............................. 150 --
------ ------
Total notes payable and other obligations........ 5,410 7,381
Less--Current portion............................ (1,691) (2,099)
------ ------
Long-term notes payable and other obligations.... $3,719 $5,282
====== ======
F-13
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note payable to Bank--
In September 1998, the Company obtained from Fleet Bank, N.A. a $13.0
million credit facility. This credit facility was subsequently amended in
September 1998 to allow for the Company's repurchase of Common Stock noted
below, and for the repayment of dividends in arrears on the Company's
Convertible Preferred Stock. The facility is comprised of a $4.0 million
three-year working capital revolver, a $5.0 million three-year acquisition
revolver and a $4.0 million 5.5 year term loan. Each component bears interest by
reference to Fleet's prime rate or LIBOR, at the Company's option, plus a margin
ranging from 0.00% to 0.25% in the case of prime-based loans or 2.75% to 3.00%
in the case of LIBOR-based loans, which margins vary based on a leverage test.
Interest on the prime-based loans is payable monthly and interest on LIBOR-based
loans is payable on the last day of each applicable interest period. Borrowings
under the term loan will require only interest payments for the first twenty
months. Upon closing of the credit facility, the Company drew the entire $4.0
million available under the term loan to repay in full its $2,250,000 balance
outstanding with First Union National and for working capital purposes. The
Company will continue to utilize a portion of the term loan proceeds to finance
the consideration of Common Stock repurchases. As of December 31, 1999, the
Company had repurchased 746,863 shares of its Common Stock for an aggregate cost
of approximately $2.5 million. As of December 31, 1999, interest on the term
loan was payable at a rate of 8.33%. Unused amounts under the working capital
and acquisition revolvers bear a commitment fee of 0.25% and 0.20%,
respectively. Availability of borrowings under the working capital revolver are
based on eligible accounts receivable as defined. Availability of borrowings
under the acquisition revolver will be based on financial covenants and
eligibility criteria with respect to each proposed acquisition. As of December
31, 1999, under the working capital and acquisition revolvers, there were no
amounts outstanding and an aggregate amount of approximately $6.4 million was
available, exclusive of additional amounts, which may become available as a
result of completing additional acquisitions. The Fleet credit facility is
collateralized by all of the Company's assets.
Acquisition notes payable--
In March 1998, the Company issued $1,127,000 in promissory notes as part
consideration for the acquisition of the capital stock of Shady Grove Fertility
Centers, Inc. These notes were paid in full during the year ended December 31,
1999.
In June 1996, the Company purchased a 51% interest in National Menopause
Foundation for a total purchase price of $650,000, of which $50,000 was paid at
closing with the balance to be paid in sixteen quarterly installments of $37,500
beginning September 1, 1996. Interest is payable quarterly at the rate of 4.16%.
The final balance of the note is due to be paid in the second quarter of 2000.
As of December 31, 1999 and 1998, the note payable balance was $75,000 and
$225,000, respectively.
Exclusive Business Services rights obligations --
Exclusive Business Services rights obligations represent the liability owed
by the Company to certain Medical Providers for the cost of acquiring the
exclusive right to manage the non-medical aspects of their single-physician
infertility practices.
In connection with the Company's termination of its agreement with the
Reproductive Science Center of Dallas effective March 31, 1999, and pending
ongoing arbitration, the Company's exclusive right obligation of $257,500 was
netted against receivables owed from the physician-owner in Dallas.
The exclusive right obligation of $263,333 due to the Reproductive Science
Center of Kansas City was netted against the receivable of $1.1 million due from
the physician-owner in connection with a new contract effective May 1, 1999.
F-14
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Company's termination of its agreement with the
Reproductive Science Center of Greater Philadelphia effective July 1, 1998, and
due to this Reproductive Science Center's historical operating losses,
approximately $583,000 of the Company's exclusive right obligation to the
physician owner was applied against the Company's receivable from the physician
owner during the six-month period ended June 30, 1998.
In connection with the Company's termination of its agreement with the
Reproductive Sciences Medical Group (RSMC) effective September 1, 1998, the
Company was discharged from its remaining exclusive right obligation of
$650,000.
Acquisition obligation--
The acquisition obligation at December 31, 1999 represented the amount owed
by the Company to acquire the balance of the capital stock of Shady Grove
Fertility Centers, Inc. The balance of this obligation, bearing interest at
10.17%, is due to be paid on April 1, 2000.
At December 31, 1999, aggregate notes payable and other obligation payments,
excluding capital lease obligation payments, in future years were as follows
(000's omitted):
2000......................................... $1,562
2001......................................... 1,000
2002......................................... 1,000
2003......................................... 1,000
2004......................................... 250
Thereafter................................... 150
------
Total payments............................... $4,962
======
Obligations under capital lease--
Capital lease obligations relate primarily to furniture and medical
equipment for the Reproductive Science Centers. The current portion of capital
lease obligations, excluding interest, was approximately $129,000 December 31,
1999.
The Company has operating leases for its corporate headquarters and for
medical office space relating to its managed Reproductive Science Centers. The
Company also has operating leases for certain medical equipment. Aggregate
rental expense under operating leases was $2,174,000, $1,750,000 and $1,284,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999, the minimum lease payments for assets under capital
and noncancelable operating leases in future years were as follows (000's
omitted):
Capital Operating
------- ---------
2000.................................... $159 $ 2,367
2001.................................... 155 2,212
2002.................................... 155 1,943
2003.................................... 39 1,554
2004.................................... -- 1,548
Thereafter.............................. -- 3,281
---- -------
Total minimum lease payments............ $508 $12,905
=======
Less-- Amount representing interest..... 60
----
Present value of minimum lease payments $448
====
F-15
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- INCOME TAXES
The deferred tax provision was determined under the asset and liability
approach. Deferred tax assets and liabilities were recognized on differences
between the book and tax basis of assets and liabilities using presently enacted
tax rates. The provision for income taxes was the sum of the amount of income
tax paid or payable for the year as determined by applying the provisions of
enacted tax laws to the taxable income for that year and the net change during
the year in the Company's deferred tax assets and liabilities. The provision for
the years ended December 31, 1999, 1998 and 1997 of $240,000, $340,000 and
$104,000, respectively, was comprised of current state taxes payable.
The Company's deferred tax asset primarily represented the tax benefit of
operating loss carryforwards. However, such deferred tax asset was fully reduced
by a valuation allowance due to the uncertainty of its realization.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $18.8 million which expire in 2002 through 2014. For tax purposes,
there is an annual limitation of approximately $2.0 million on the utilization
of net operating losses resulting from changes in ownership attributable to the
Company's May 1993 Preferred Stock Offering and the August 1997 Common Stock
Offering and FCI acquisition.
Significant components of the deferred tax assets (liabilities) at December
31, 1999 and 1998 were as follows (000's omitted):
December 31,
--------------------
1999 1998
-------- ------
Net operating loss carryforwards............ $6,392 $7,450
Other....................................... 102 375
Valuation allowance......................... (6,494) (7,825)
------ ------
Deferred tax assets......................... -- --
Deferred tax liabilities.................... -- --
------ ------
Net deferred taxes.......................... $ -- $ --
====== ======
The financial statement income tax provision differed from income taxes
determined by applying the statutory Federal income tax rate to the financial
statement income or loss before income taxes for the years ended December 31,
1999, 1998 and 1997 as a result of the following (000's omitted):
For the years ended December 31,
---------------------------------
1999 1998 1997
------- ------- ------
Tax expense (benefit) at Federal statutory rate...... $190 $(1,537) $167
State income taxes................................... 240 340 104
Net operating loss (utilization) or addition......... (190) 1,537 (167)
---- ------- ----
Provision for income taxes........................... $240 $ 340 $104
==== ======= ====
F-16
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the years ended December 31, 1999, 1998 and 1997 is
a follows (000's omitted, except for per share amounts):
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Numerator
Income (loss) from continuing operations................. $ 318 $ (231) $ 795
Less: Preferred stock dividends paid and/or accrued...... 133 133 133
----- ------ -----
Income (loss) from continuing operations
available to Common stockholders....................... $ 185 $ (364) $ 662
===== ====== =====
Denominator
Weighted average shares outstanding...................... 4,874 5,202 3,101
Effect of dilutive options and warrants.................. 77 -- 53
----- ------ -----
Weighted average shares and dilutive potential
Common shares.......................................... 4,951 5,202 3,154
===== ====== =====
Basic and diluted EPS from continuing operations......... $0.04 $(0.07) $0.21
===== ====== =====
For the years ended December 31, 1999, 1998 and 1997, options to purchase
approximately 361,000, 400,000 and 298,000 shares, respectively, of Common Stock
at exercise prices ranging from $4.12 to $5.00, $2.50 to $15.00 and $7.48 to
$15.00 per share, respectively, were excluded in computing the diluted per share
amounts as they were antidilutive.
For the years ended December 31, 1999, 1998 and 1997, warrants to purchase
approximately 103,000, 176,000 and 61,000 shares, respectively, of Common Stock
at exercise prices ranging from $4.12 to $8.54, $0.04 to $8.54 and $41.36 to
$54.84 per share, respectively, were excluded in computing the diluted per share
amounts as they were antidilutive.
For the years ended December 31, 1999, 1998 and 1997, approximately
133,000, 131,000 and 105,000 shares, respectively, of Common Stock from the
assumed conversion of Preferred Stock were excluded in computing the diluted per
share amounts as they were antidilutive.
NOTE 12 -- SHAREHOLDERS' EQUITY:
During the first quarter of 1999, the Company issued 25,868 shares of
Common Stock for an aggregate amount of $175,900 in connection with the purchase
price of Shady Grove Fertility Centers, Inc. (see Note 4).
The Board of Directors authorized a 1-for-4 reverse stock split of its
outstanding shares of Common Stock through an amendment to the Company's Amended
and Restated Certificate of Incorporation which was approved by the Company's
stockholders at a Special Meeting of Stockholders held on November 17, 1998.
Effective November 17, 1998, every four shares of Common Stock were converted
into one share of Common Stock
The Board of Directors has authorized the repurchase of up to $4 million of
the Company's outstanding shares of Common Stock from time to time on the open
market at prevailing market prices or through privately negotiated transactions.
The Company has and will continue to utilize a portion of the proceeds of the
term loan component of the New Credit Facility to finance a portion of the price
of the stock repurchases. As of December 31, 1999, the Company had repurchased
746,863 shares of its Common Stock for an aggregate cost of approximately $2.5
million.
During the first quarter of 1998, the Company completed an equity private
placement of $5.5 million with Morgan Stanley Venture Partners' affiliates
providing for the purchase of 808,824 shares of the Company's Common Stock at a
price of $6.80 per share and 60,000 warrants to purchase shares of the Company's
Common Stock, at a nominal exercise price. The Company used a portion of these
funds to acquire the capital stock of Shady Grove Fertility Centers, Inc. (see
Note 4).
F-17
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March and April 1998, pursuant to amendments to the Bay Area, FCI and
Shady Grove Business Services agreements, the Company issued immediately vested
warrants to purchase an aggregate of 37,500 shares of Common Stock, at a
weighted average exercise price of $7.08 per share to the shareholder physicians
of the respective medical practices in exchange for an extension of the term of
the Company's respective agreements from twenty to twenty-five years. In
December 1998, the exercise price of each of these warrants was amended to $4.12
per share. In November 1998, pursuant to an amendment to the Boston Business
Services agreement, the Company issued warrants to purchase an aggregate of
40,625 shares of Common Stock (the "Boston Warrants") to the shareholder
physicians of the respective medical practice in exchange for an extension of
the term of the Company's respective agreements from ten to twenty-five years.
Twenty percent of the Boston Warrants vested immediately and have an exercise
price of $4.12. The balance of the Boston Warrants vest in annual 20% increments
at an exercise price which increases annually by 20% commencing November 18,
1999. The aggregate fair value of warrants issued in 1998 of approximately
$216,000 was capitalized and will be amortized over the remaining life of the
agreements.
The anti-dilution rights of the Series A Cumulative Convertible Preferred
Stock (the "Convertible Preferred Stock") provide that the conversion rate of
the Convertible Preferred Stock is subject to increase as a result of the
issuance of the Common Stock. As of December 31, 1999, each share of Convertible
Preferred Stock was convertible into Common Stock at a conversion rate equal to
approximately 0.80 shares of Common Stock for each share of Convertible
Preferred Stock.
As of December 31, 1999, an aggregate of 163,032 warrants were outstanding
at a weighted average exercise price of $3.53.
NOTE 13 -- STOCK OPTIONS:
Under the 1988 Stock Option Plan (as amended), (the "1988 Plan") and the
1992 Stock Option Plan (as amended) (the "1992 Plan"), 40,407 and 500,000
shares, respectively, are reserved for issuance of incentive and non-incentive
stock options. Under both the 1988 and 1992 Plans, incentive stock options, as
defined in Section 422 of the Internal Revenue Code, may be granted only to
employees and non-incentive stock options may be granted to employees, directors
and such other persons as the Board of Directors (or a committee (the
"Committee") appointed by the Board) determines will contribute to the Company's
success at exercise prices equal to at least 100%, or 110% for a ten percent
shareholder, of the fair market value of the Common Stock on the date of grant
with respect to incentive stock options and at exercise prices determined by the
Board of Directors or the Committee with respect to non-incentive stock options.
The 1988 Plan provides for the payment of a cash bonus to eligible employees in
an amount equal to that required to exercise incentive stock options granted.
Stock options issued under the 1988 Plan are exercisable, subject to such
conditions and restrictions as determined by the Board of Directors or the
Committee, during a ten-year period, or a five-year period for incentive stock
options granted to a ten percent shareholder, following the date of grant;
however, the maturity of any incentive stock option may be accelerated at the
discretion of the Board of Directors or the Committee. Under the 1992 Plan, the
Board of Directors or the Committee determines the exercise dates of options
granted; however, in no event may incentive stock options be exercised prior to
one year from date of grant. Under both the 1988 and 1992 Plans, the Board of
Directors or the Committee selects the optionees, determines the number of
shares of Common Stock subject to each option and otherwise administers the
Plans. Under the 1988 Plan, options expire one month from the date of the
holder's termination of employment with the Company or six months in the event
of disability or death. Under the 1992 Plan, options expire three months from
the date of the holder's termination of employment with the Company or twelve
months in the event of disability or death.
Under the 1994 Outside Director Stock Purchase Plan ("Outside Director
Plan"), 31,250 shares of Common Stock are reserved for issuance. Under the
Outside Director Plan, directors who are not full-time employees of the Company
may elect to receive all or a part of their annual retainer fees, the fees
payable for attending meetings of the Board of Directors and the fees payable
for serving on Committees of the Board, in the form of shares of Common Stock
rather than cash, provided that any such election be made at least six months
prior to the date that the fees are to be paid. As of December 31, 1999, 1998
and 1997, there were 10,500, 0 and 0 options outstanding, respectively, under
the Outside Director Plan.
F-18
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity, under the 1988 and 1992 Plans combined, is
summarized as follows:
Number of
shares of
Common Stock
underlying Weighted Average
options exercise price
----------- ----------------
Options outstanding at December 31, 1996....... 266,704 $7.68
Granted
Option Price = Fair Market Value.......... 90,621 8.32
Exercised...................................... (4,687) 4.80
Canceled....................................... (53,784) 9.52
------- -----
Options outstanding at December 31, 1997....... 298,854 7.60
Granted
Option Price = Fair Market Value.......... 143,813 6.22
Option Price > Fair Market Value.......... 307,596 4.12
Exercised...................................... (28,649) 3.43
Canceled....................................... (359,967) 7.90
------- -----
Options outstanding at December 31, 1998....... 361,647 4.16
Granted
Option Price = Fair Market Value.......... 113,625 3.62
Option Price > Fair Market Value.......... -- --
Exercised...................................... -- --
Canceled....................................... (38,091) 3.86
------- -----
Options outstanding at December 31, 1999....... 437,181 $4.05
Options exercisable at:
December 31, 1997......................... 145,974 $6.64
December 31, 1998......................... 141,032 $4.30
December 31, 1999......................... 206,742 $4.24
Effective August 31, 1998, the Board of Directors approved a resolution to
reprice certain stock option agreements held by each officer, director and
employee of the Company, under the 1992 Incentive and Non-Incentive Stock Option
Plan and/or the 1998 Stock Option Plan. Per the resolution, stock option
agreements where the exercise price per share was greater than $4.12 were
amended to provide for an exercise price per share of $4.12 ("New Options").
Except for the exercise price of the New Options, all other terms and conditions
of the agreements remained in full force and effect. Per the resolution, options
to purchase approximately 81,500 shares of Common Stock were repriced. The
options which were repriced are included in options that were canceled during
1998 and the New Options are included in options granted at an option price
greater than fair market value.
Included in options that were canceled during 1999, 1998 and 1997 were
forfeitures of 6,301, 252,480 and 155,580 with weighted average exercise prices
of $4.12, $7.71 and $7.96, respectively.
F-19
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999, options outstanding and exercisable by price range
were as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------- --------------------------------
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$0.00 - $2.50 5,001 4.1 $2.50 5,001 $2.50
$3.00 - $4.12 344,805 7.1 $3.91 162,991 $4.12
$4.19 - $5.00 87,375 7.4 $4.70 38,750 $5.00
------- --- ----- ------- -----
437,181 7.2 $4.05 206,742 $4.24
Pro forma information:
FAS 123 requires pro forma disclosures of net income and earnings per share
amounts as if compensation expense, using the fair value method, was recognized
for options granted after 1994. Using this approach, pro forma net income and
earnings per share for the year ended December 31, 1999 would be $128,688 and
$0.03 lower, respectively, versus reported amounts. Pro forma net loss and
diluted loss per share would be $1,324,879 higher and $0.25, respectively, for
the year ended December 31, 1998. Pro forma net income and income per share for
the year ended December 31, 1997 would be $771,000 and $0.20 lower,
respectively, versus reported amounts. The weighted average fair value of
options granted at prices equal to fair market value during the years ended
December 31, 1999, 1998 and 1997 was $2.49, $3.31 and $1.58, respectively. The
weighted average fair value for options granted at prices greater than fair
market value during the year ended December 31, 1998 was $2.64 . These values,
which were used as a basis for the pro forma disclosures, were estimated using
the Black-Scholes Options-Pricing Model with the following assumptions used for
grants in the years ended December 31, 1999, 1998, and 1997, respectively;
dividend yield of 0% in each year; volatility of 73.7%, 109.86% and 86.28% in
1999, 1998 and 1997, respectively; risk-free interest rate of 6.45%, 5.14%, and
6.3% in 1999, 1998 and 1997, respectively; and an expected term of 7.2 years in
1999, 5 years in 1998, and 6 years in 1997.
These pro forma disclosures may not be representative of the effects for
future years since options vest over several years and options granted prior to
1995 are not considered in these disclosures. Also, additional awards generally
are made each year.
The Company recognizes compensation cost for stock-based employee
compensation plans over the vesting period based on the difference, if any,
between the quoted market price of the stock and the amount an employee must pay
to acquire the stock. Total compensation cost recognized in income for the years
ended December 31, 1999, 1998 and 1997 was $0, $6,000 and $20,000, respectively.
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for continuing operations for 1999 and
1998 (in thousands, except per share data) appear below:
F-20
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Diluted
Reproductive income (loss)
Science Centers' Income (loss) from per share from
Revenues, net contribution continuing operations continuing operations
------------- ------------ --------------------- ---------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
First quarter........ $10,532 $ 8,341 $2,334 $1,901 $ 518 $ 498 $0.10 $ .09
Second quarter (1)... 10,860 9,830 2,498 2,324 526 (1,585) 0.10 (.30)
Third quarter........ 11,862 9,756 2,390 2,237 385 422 0.07 .07
Fourth quarter....... 12,700 10,663 2,176 2,350 (1,111) 434 (0.24) .08
Total year (1)....... $45,955 $38,590 $9,399 $8,812 $ 318 $ (231) $0.04 $(.07)
(1) The loss from continuing operations in 1998 includes approximately $2.1
million in restructuring and other charges (See Note 6).
The sum of the quarters for 1999 and 1998 may not equal the annual amount
due to rounding.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES:
Operating Leases --
Refer to Note 9 for a summary of lease commitments.
Reliance on Third Party Vendors--
The Reproductive Science Centers, as well as all other medical providers
who deliver services requiring fertility medication, are dependent on three
third-party vendors that produce such medications (including but not limited to:
Lupron, Follistim, Repronex, GonalF and Pregnyl) that are vital to the provision
of infertility and ART services. Should any of these vendors experience a supply
shortage, it may have an adverse impact on the operations of the Reproductive
Science Centers. To date, the Reproductive Science Centers have not experienced
any such adverse impacts.
Employment Agreements --
The Company has entered into employment and change in control severance
agreements with certain of its management employees, which include, among other
terms, noncompetitive provisions and salary and benefits continuation. The
Company's minimum aggregate commitment under these agreements at December 31,
1999 was approximately $1.4 million.
Commitments to Medical Practices --
Pursuant to the majority of the Company's Business Services agreements, the
Company is obligated to perform the following: (i) advance funds to the
Reproductive Science Center to provide new services, utilize new technologies,
fund projects, etc.; and (ii) on or before the fifteenth business day of each
month purchase the net accounts receivable of the Reproductive Science Center
arising during the previous month and to transfer or pay to the Reproductive
Science Center such amount of funds equal to the net accounts receivable less
any amounts owed to the Company for Business Services fees and/or advances. Any
advances are to be repaid monthly and interest expense, computed at the prime
rate used by the Company's primary bank in effect at the time of the advance,
will be charged by the Company for funds advanced.
F-21
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation --
On October 1998, W.F. Howard, M.D., P.A., filed a lawsuit against the
Company in the District Court of Denton County, Texas, seeking to rescind the
agreement related to the Dallas Reproductive Science Center, or obtain damages,
on the basis that its practice has not realized the degree of growth or
increases as allegedly projected by the Company. The Complaint asserts alleged
breaches of contract, fiduciary duties and warranties, as well as a claim under
the Texas Deceptive Trade Practices Act, and claims lost profit damages as well
as an exemplary award under statute. The Company believes that this Complaint is
without merit, denies the allegations, and is vigorously defending its position.
The matter, which is being defended by counsel appointed by the Company's
insurance carrier, is currently in arbitration. In the Company's view, even an
unfavorable outcome will not have a material adverse effect on the financial
position, results of operations or the cash flows of the Company.
The Company previously reported a lawsuit captioned Karlin v. IVF America,
et. al., originally instituted in New York Supreme Court, Westchester County. In
December 1999, all aspects of the lawsuit were settled by the Company's insurer
and, accordingly, the lawsuit has been dismissed.
In July 1999, an action was filed in Middlesex Superior Court in
Massachusetts, against the Company, the Reproductive Science Center of Boston
(the "Center"), an independent genetic testing laboratory, and certain of their
respective employees. The Complaint in this matter was served on the Company in
March 2000. The action, filed by two former patients of the Center, arises out
of plaintiffs' participation during 1996 in an experimental program of
preimplanation genetic testing. The plaintiffs allege professional negligence
and breach of contract/warranties resulting in the birth of their child who
suffers from cystic fibrosis. Plaintiffs seek damages of an undisclosed amount.
The Company's insurance carrier has appointed Massachusetts counsel to represent
the Company in the matter who is investigating the allegations in cooperation
with its co-defendant. The Company has been advised by counsel that while it is
too early to comment on the likely course of the litigation, such counsel
currently believes that by virtue of insurance coverage available to all the
defendants, the suit is not likely to have a material adverse effect on the
Company.
In April 1999, Integra, Inc. filed with the United States Patent and
Trademark Office ("USP&T") Before the Trademark Trial and Appeal Board an
opposition to the granting of the Company's trademark "INTEGRAMED AMERICA",
claiming that the USP&T should deny registration of the Company's trademark.
Integra, Inc. allegedly distributes outcome based managed care products,
manuals, brochures, patient information and data forms for use in connection
with managed behavioral healthcare consulting and research services under the
mark "INTEGRA". Since the time of filing the opposition, counsel for the Company
has engaged in discussions with Integra's counsel in an effort to resolve
Integra's opposition, but no resolution has been reached with respect to the two
trademarks. Discovery is currently underway in the matter. Counsel for the
Company has advised the Company that in such Counsel opinion, the marks are not
confusingly similar. While such counsel can offer no assurances with respect to
the outcome of the opposition proceeding, such counsel believes that it is
unlikely that the Company's trademark application will not be approved.
There are other minor legal proceedings to which the Company is a party. In
the Company's opinion, the claims asserted and the outcome of such proceedings
will not have a material adverse effect on the financial position, results of
operations or the cash flows of the Company.
Insurance --
The Company and its affiliated Medical Practices are insured with respect
to medical malpractice risks on a claims made basis. Management believes it will
be able to obtain renewal coverage in the future. Management is not aware of any
claims against it or its affiliated Medical Practices which would expose the
Company or its affiliated Medical Practices to liabilities in excess of insured
amounts. Therefore, none of these claims is expected to have a material impact
on the Company's financial position, results of operations or cash flows.
NOTE 16 -- RELATED PARTY TRANSACTIONS:
SDL Consultants, a company owned by Sarason D. Liebler, who became a
director of the Company in August, 1994, rendered consulting services to the
Company during 1999, 1998 and 1997 for aggregate fees of approximately $78,000,
$43,000 and $93,000, respectively.
Pursuant to the Company's Business Services agreement with Shady Grove,
Michael J. Levy, M.D., an employed shareholder physician of the P.C., became a
member of the Company's Board of Directors effective March 12, 1998.
F-22
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Company's January 1998 equity private placement with
Morgan Stanley Venture Partners, M. Fazle Husain, General Partner, became a
member of the Company's Board of Directors.
Pursuant to the Company's Business Services agreement with FCI, Aaron
Lifchez, M.D., an employed shareholder physician of FCI, became a member of the
Company's Board of Directors in August 1997.
NOTE 17-- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH
TRANSACTIONS:
In 1999, in connection with the Company's termination of its agreement at
its Dallas, TX Reproductive Science Center, the Company applied approximately
$258,000 of its outstanding Business Services rights obligation to the physician
owner to receivables due from that physician's practice.
In 1999, in connection with the Company's termination of its agreements at
its Kansas City, MO Reproductive Science Center, the Company applied
approximately $263,000 of its outstanding Business Services rights obligation to
the physician owner to receivables due from that physician's practice.
In April 1999, the Company entered into a sale-lease back arrangement with
Fleet Bank for $532,000 related to various computer equipment.
In connection with the Company's termination of its agreement with the
Reproductive Sciences Medical Center in San Diego, CA effective September 1,
1998, the Company was discharged from its remaining exclusive Business Services
right obligation of $650,000 which had been incurred in 1997.
In 1996, in connection with the Company's acquisition of certain assets of
and the right to provide Business Services to the Reproductive Sciences Center
of Greater Philadelphia (the "Philadelphia Reproductive Science Center"), the
Company incurred a $1,000,000 obligation. In connection with the Company's
termination of its agreement with the Philadelphia Reproductive Science Center
and due to this Reproductive Science Center's historical operating losses,
approximately $583,000 of the Company's exclusive right obligation to the
physician owner was applied against the Company's receivable from the physician
owner during the six-month period ended June 30, 1998.
In connection with its acquisition of the exclusive right to provide
Business Services to Center for Reproductive Medicine, part of an in-market
merger for FCI in January 1998, the Company issued 46,079 shares of Common Stock
with an aggregate fair market value equal to approximately $300,000.
In connection with its acquisition of the exclusive right to provide
Business Services to the Shady Grove P.C., in March 1998, the Company issued
159,888 shares of Common Stock with an aggregate fair value equal to
approximately $1.2 million and approximately $1.1 million in promissory notes.
In January 1999, the Company recorded an additional aggregate obligation of
approximately $1.6 million in the form of cash, stock and a note to acquire the
balance of the capital stock of Shady Grove. The Company issued 25,868 shares of
Common Stock with an aggregate fair value equal to approximately $175,900 in
settlement of the stock portion of the obligation.
In 1997, in connection with the Company's acquisition of certain assets of
and the right to provide Business Services to Bay Area Fertility, RSMC and FCI,
the Company issued an aggregate of 372,063 shares of Common Stock with an
aggregate fair market value equal to approximately $8.7 million.
In 1998, pursuant to amendments to the Bay Area, FCI, Shady Grove and the
Boston agreements, the Company issued warrants to purchase an aggregate of
78,125 shares of Common Stock in exchange for an extension of the term of the
Company's respective Business Services contracts from twenty to twenty-five
years.
At December 31, 1997, there were accrued dividends on Preferred Stock
outstanding of $464,000.
State taxes of $94,000, $384,000, and $93,000 were paid in the years ended
December 31, 1999, 1998 and 1997, respectively.
Interest paid in cash during the year ended December 31, 1999, 1998 and
1997, amounted to $361,000, $331,000, and $60,000, respectively. Interest
received during the years ended December 31, 1999, 1998 and 1997 amounted to
approximately $153,000, $90,000, and $179,000, respectively.
F-23
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of IntegraMed America, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated February 11, 2000 appearing on page F-2 of the 1999 Annual Report
to Shareholders of IntegraMed America, Inc. also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
S-1
SCHEDULE II
INTEGRAMED AMERICA, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
Additions-
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions (1) Period
--------- -------- -------------- ------
Year Ended December 31, 1999
Allowance for
doubtful accounts......................... $831,000 $1,415,000 $1,395,000 $851,000
Year Ended December 31, 1998
Allowance for
doubtful accounts......................... $394,000 $ 978,000 $ 541,000 $831,000
Year Ended December 31, 1997
Allowance for
doubtful accounts......................... $309,000 $ 470,000 $ 385,000 $394,000
- ----------------
(1)Uncollectible accounts written off.
S-2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTEGRAMED AMERICA, INC.
Dated: March 30, 2000
By /s/JOHN W. HLYWAK, JR.
----------------------
John W. Hlywak, Jr.
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ GERARDO CANET
- ------------------------------
Gerardo Canet President,
Chief Executive Officer
and Director
(Principal Executive Officer) March 30, 2000
/s/ M. FAZLE HUSAIN
- ------------------------------
M. Fazle Husain Director March 30, 2000
/s/ MICHAEL J. LEVY, M.D.
- ------------------------------
Michael J. Levy, M.D. Director March 30, 2000
/s/ SARASON D. LIEBLER
- ------------------------------
Sarason D. Liebler Director March 30, 2000
/s/ AARON S. LIFCHEZ, M.D.
- ------------------------------
Aaron S. Lifchez, M.D. Director March 30, 2000
/s/ PATRICIA M. MCSHANE, M.D.
- ------------------------------
Patricia M. McShane, M.D. Director March 30, 2000
/s/ LAWRENCE J. STUESSER
- ------------------------------
Lawrence J. Stuesser Director March 30, 2000
/s/ ELIZABETH E. TALLETT
- ------------------------------
Elizabeth E. Tallett Director March 30, 2000
INDEX TO EXHIBITS
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
3.1(a) -- Amended and Restated Certificate of Incorporation of Registrant
effecting, inter alia, reverse stock split (ii)
3.1(b) -- Amendment to Certificate of Incorporation of Registrant increasing
authorized capital stock by authorizing Preferred Stock (ii)
3.1(c) -- Certificate of Designations of Series A Cumulative Convertible
Preferred Stock (ii)
3.1(d) -- Certificate of Amendment to Amended and Restated Certificate of
Incorporation increasing authorized Common Stock to 50,000,000
shares (xxiv)
3.2 -- Copy of By-laws of Registrant (i)
3.2(a) -- Copy of By-laws of Registrant (As Amended and Restated on December
12, 1995) (xi)
3.2(b) -- Copy of By-laws of Registrant (As Amended and Restated on March 4,
1997) (xxi)
4.1 -- Warrant Agreement of Robert Todd Financial Corporation. (i)
4.2 -- Copy of Warrant, as amended, issued to IG Labs. (i)
4.3 -- RAS Securities Corp. and ABD Securities Corporation's Warrant
Agreement. (ii)
4.4 -- Form of Warrants issuable to Raymond James & Associates, Inc.
(vii)
4.6 -- Warrant issued to Morgan Stanley Venture Partners III, L.P.
(xviii)
4.7 -- Warrant issued to Morgan Stanley Venture Partners III, L.P.
(xviii)
4.8 -- Warrant issued to the Morgan Stanley Venture Partners Entrepreneur
Fund, L.P. (xxi)
4.9 (a) -- Warrant issued to Brian Kaplan, M.D. (xxii)
4.9 (b) -- Warrant issued to Aaron S. Lifchez, M.D. (xxii)
4.9 (c) -- Warrant issued to Jacob Moise, M.D. (xxii)
4.9 (d) -- Warrant issued to Jorge Valle, M.D. (xxii)
4.10(a) -- Warrant issued to Donald Galen, M.D. (xxii)
4.10(b) -- Warrant issued to Arnold Jacobson, M.D. (xxii)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
4.10 (c) -- Warrant issued to Louis Weckstein, M.D. (xxii)
4.11 (a) -- Warrant issued to Michael J. Levy, M.D. (xxii)
4.11 (b) -- Warrant issued to Arthur W. Sagoskin, M.D. (xxii)
4.11 (c) -- Warrant issued to Robert J. Stillman, M.D. (xxii)
4.11 (d) -- Warrant issued to Robert J. Stillman, M.D. dated January 6, 1999
(xxvi)
4.12 (a) -- Warrant issued to Patricia M. McShane, M.D. dated November 18,
1998 (xxvi)
4.12 (b) -- Warrant issued to Samuel C. Pang, M.D. dated November 18, 1998
(xxvi)
4.12 (c) -- Warrant issued to Issac Glatstein, M.D. dated November 18, 1998
(xxvi)
4.13 -- Warrant issued to Vector Securities International, Inc. (xxvi)
10.1 -- Copy of Registrant's 1988 Stock Option Plan, including form of
option (i)
10.2 -- Copy of Registrant's 1992 Stock Option Plan, including form of
option (i)
10.2(a) -- Copy of Amendment to Registrant's 1992 Stock Option Plan (xxii)
10.4 -- Severance arrangement between Registrant and Vicki L. Baldwin (i)
10.4(a) -- Copy of Change in Control Severance Agreement between Registrant
and Vicki L. Baldwin (vii)
10.5(a) -- Copy of Severance Agreement with Release between Registrant and
David J. Beames (iv)
10.6 -- Severance arrangement between Registrant and Donald S. Wood (i)
10.6(a) -- Copy of Executive Retention Agreement between Registrant and
Donald S. Wood, Ph.D. (viii)
10.7(a) -- Copy of lease for Registrant's executive offices relocated to
Purchase, New York (viii)
10.8 -- Copy of Lease Agreement for medical office in Mineola, New York
(i)
10.8(a) -- Copy of new 1994 Lease Agreement for medical office in Mineola,
New York (v)
10.8(b) -- Copy of Letter of Credit in favor of Mineola Pavilion Associates,
Inc. (viii)
10.9 -- Copy of Service Agreement for ambulatory surgery center in
Mineola, New York (i)
10.10 -- Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York (i)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.10 -- Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York dated September 1, 1994 (vii)
10.10(a) -- Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York dated September 1, 1994 (vii)
10.11 -- Copy of Service Agreement with United Hospital (i)
10.12 -- Copy of Service Agreement with Waltham Weston Hospital and Medical
Center (i)
10.15(a) -- Copy of post-Dissolution Consulting Agreement between Registrant
and Allegheny General Hospital (vi)
10.18(a) -- Copy of post-Dissolution Consulting, Training and License
Agreement between Registrant and Henry Ford Health Care Systems
(iii)
10.19 -- Copy of Guarantee Agreement with Henry Ford Health System (i)
10.20 -- Copy of Service Agreement with Saint Barnabas Outpatient Centers
for center in Livingston, New Jersey (i)
10.21 -- Copy of Agreement with MPD Medical Associates, P.C. for center in
Livingston, New Jersey (i)
10.22 -- Copy of Lease Agreement for medical offices in Livingston, New
Jersey (i)
10.23 -- Form of Development Agreement between Registrant and IG
Laboratories, Inc. (i)
10.24 -- Copy of Research Agreement between Registrant and Monash
University (i)
10.24(a) -- Copy of Research Agreement between Registrant and Monash
University (ix)
10.28 -- Copy of Agreement with Massachusetts General Hospital to establish
the Vincent Center for Reproductive Biology and a Technical
Training Center (ii)
10.29 -- Copy of Agreement with General Electric Company relating to
Registrant's training program (ii)
10.30 -- Copy of Indemnification Agreement between Registrant and Philippe
L. Sommer (vii)
10.31 -- Copy of Employment Agreement between Registrant and Gerardo Canet
(vii)
10.31(a) -- Copy of Change in Control Severance Agreement between Registrant
and Gerardo Canet (vii)
10.31(b) -- Copy of the Amendment of Change in Control Severance Agreement
between Registrant and Gerardo Canet (viii)
10.33 -- Copy of Change in Control Severance Agreement between Registrant
and Dwight P. Ryan (vii)
10.35 -- Revised Form of Dealer Manager Agreement between Registrant and
Raymond James & Associates, Inc. (vii)
10.36 -- Copy of Agreement between MPD Medical Associates, P.C. and
Patricia Hughes, M.D. (vii)
10.37 -- Copy of Agreement between IVF America (NJ) and Patricia Hughes,
M.D. (vii)
10.38 -- Copy of Management Agreement between Patricia M. McShane, M.D. and
IVF America (MA), Inc. (vii)
10.39 -- Copy of Sublease Agreement for medical office in North Tarrytown,
New York (viii)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.40 -- Copy of Executive Retention Agreement between Registrant and
Patricia M. McShane, M.D. (viii)
10.41 -- Copy of Executive Retention Agreement between Registrant and Lois
Dugan (viii)
10.42 -- Copy of Executive Retention Agreement between Registrant and Jay
Higham (viii)
10.43 -- Copy of Service Agreement between Registrant and Saint Barnabas
Medical Center (ix)
10.44 -- Asset Purchase Agreement among Registrant, Assisted Reproductive
Technologies, P.C. d/b/a Main Line Reproductive Science Center,
Reproductive Diagnostics, Inc. and Abraham K. Munabi, M.D. (ix)
10.44(a) -- Management Agreement among Registrant and Assisted Reproductive
Technologies, P.C. d/b/a Main Line Reproductive Science Center and
Reproductive Diagnostics, Inc. (ix)
10.44(b) -- Physician Service Agreement between Assisted Reproductive
Technologies P.C. d/b/a Main Line Reproductive Science Center and
Abraham K. Munabi, M.D. (ix)
10.44(c) -- Stipulation of Settlement and Compromise of all Claims Among
IntegraMed America, Inc. and Assisted Reproductive Technologies,
P.C., d/b/a Mainline Reproductive Science Center, Reproductive
Diagnostics, Abraham Munabi, M.D., Reproductive Science Center of
Suburban Philadelphia (xxv)
10.45 -- Copy of Executive Retention Agreement between Registrant and
Stephen Comess (x)
10.46 -- Copy of Executive Retention Agreement between Registrant and Peter
Callan (x)
10.47 -- Management Agreement between Registrant and Robert Howe, M.D.,
P.C. (x)
10.47(a) -- P.C. Funding Agreement between Registrant and Robert Howe, M.D.
(x)
10.48 -- Management Agreement among Registrant and Reproductive Endocrine &
Fertility Consultants, P.A. and Midwest Fertility Foundations &
Laboratory, Inc. (x)
10.48(a) -- Asset Purchase Agreement among Registrant and Reproductive
Endocrine & Fertility Consultants, Inc. and Midwest Fertility
Foundations & Laboratory, Inc. (x)
10.48(b) -- Amendment No. 2 to Management Agreement among IntegraMed America,
Inc. and Reproductive Endocrine & Fertility Consultants, P.A. and
Midwest Fertility Foundations & Laboratory, Inc. dated July 1,
1998 (xxiv)
10.48(c) -- Management Agreement among IntegraMed America, Inc. and
Reproductive Endocrine & Fertility Consultants, P.A. and Midwest
Fertility Foundations & Laboratory, Inc. (xxvii)
10.49 -- Copy of Sublease Agreement for office space in Kansas City,
Missouri (x)
10.50 -- Copy of Lease Agreement for office space in Charlotte, North
Carolina (x)
10.51 -- Copy of Contract Number DADA15-96-C-0009 as awarded to IVF America
by the Department of the Army, Walter Reed Army Medical Center for
In Vitro Fertilization Laboratory Services (xi)
10.52 -- Agreement and Plan of Merger By and Among IVF America, Inc., INMD
Acquisition Corp., The Climacteric Clinic, Inc., Midlife Centers
of America, Inc., Women's Research Centers, Inc., America National
Menopause Foundation, Inc. and Morris Notelovitz (xii)
10.52 (a)-- Agreement dated September 1, 1998 By and Among Women's Medical &
Diagnostic Center, Inc., IntegraMed America, Inc. and Florida
Medical and Research Institute, P.A. (xxv)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.53 -- Employment Agreement between Morris Notelovitz, M.D., Ph.D. and
IVF America, Inc., d/b/a IntegraMed America (xii)
10.54 -- Physician Employment Agreement between Morris Notelovitz, M.D.,
Ph.D., and INMD Acquisition Corp. ("IAC"), a Florida corporation
and wholly owned subsidiary of IVF America, Inc. ("INMD") (xii)
10.55 -- Management Agreement between IVF America, Inc., d/b/a IntegraMed
America, Inc. and W.F. Howard, M.D., P.A. (xii)
10.56 -- Asset Purchase Agreement between IVF America, Inc., d/b/a/
IntegraMed America, Inc. and W.F. Howard M.D., P.A. (xii)
10.57 -- Business Purposes Promissory Note dated September 8, 1993 in the
amount of $100,000 (xiii)
10.58 -- Business Purposes Promissory Note dated November 18, 1994 in the
amount of $64,000 (xiii)
10.59 -- Guaranty Agreement (xiii)
10.60 -- Security Agreement (Equipment and Consumer Goods) (xiii)
10.61 -- Management Agreement dated January 7, 1997 by and between the
Registrant and Bay Area Fertility and Gynecology Medical Group,
Inc. (xiv)
10.61 (a)-- Amendment No. 1 to Management Agreement between IntegraMed
America, Inc. and Bay Area Fertility and Gynecology Medical Group,
Inc. (xxii)
10.61 (b)-- Amendment No. 2 to Management Agreement between IntegraMed
America, Inc. and Bay Area Fertility and Gynecology Medical Group,
Inc. (xxvii)
10.62 -- Asset Purchase Agreement dated January 7, 1997 by and between the
Registrant and Bay Area Fertility and Gynecology Medical Group, a
California Partnership. (xiv)
10.63 -- Physician Employment Agreement between Robin E. Markle, M.D. and
Women's Medical & Diagnostic Center, Inc. (xv)
10.64 -- Physician Employment Agreement between W. Banks Hinshaw, Jr., M.D.
and Women's Medical & Diagnostic Center, Inc. (xv)
10.65 -- Agreement between IntegraMed America, Inc., f/k/a IVF America
Inc.; Women's Medical & Diagnostic Center, Inc., f/k/a INMD
Acquisition Corp, and Morris Notelovitz, M.D. (xv)
10.66 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Donald I. Galen, M.D. (xv)
10.67 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Louis N. Weckstein, M.D. (xv)
10.68 -- Personal Responsibility Agreement between IntegraMed America,
Inc., Bay Area Fertility and Gynecology Medical Group, Inc. and
Arnold Jacobson, M.D. (xv)
10.69 -- Copy of Executive Retention Agreement between Registrant and Glenn
G. Watkins (xv)
10.70 -- Management Agreement between Registrant and Fertility Centers of
Illinois, S.C. dated February 28, 1997 (xvi)
10.71 -- Asset Purchase Agreement between Registrant and Fertility Centers
of Illinois, S.C. dated February 28, 1997 (xvi)
10.72 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Aaron S. Lifchez, M.D. dated
February 28, 1997 (xvi)
10.73 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Brian Kaplan, M.D. dated February
28, 1997 (xvi)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.74 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois S.C. and Jacob Moise, M.D. dated February 28,
1997 (xvi)
10.75 -- Physician-Shareholder Employment Agreement between Fertility
Centers of Illinois, S.C. and Jorge Valle, M.D. dated February 28,
1997 (xvi)
10.76 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Aaron S. Lifchez, M.D. dated
February 28, 1997 (xvi)
10.77 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Jacob Moise, M.D. dated February 28,
1997 (xvi)
10.78 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Brian Kaplan, M.D. dated February
28, 1997 (xvi)
10.79 -- Personal Responsibility Agreement among Registrant, Fertility
Centers of Illinois, S.C. and Jorge Valle, M.D. dated February 28,
1997 (xvi)
10.80 -- Amendment to Contract Number DADA15-96-C-009 between Registrant
and the Department of the Army, Walter Reed Army Medical Center
for In Vitro Fertilization Laboratory Services dated February 11,
1997 (xvi)
10.80 (a)-- Amendment Effective January 29, 1998 to Contract Number DADA
15-96-C-009 between INMD and the Department of the Army, Walter
Reed Army Medical Center for In Vitro Fertilization Laboratory
Services (xxii)
10.81 -- Management Agreement between Registrant and Reproductive Sciences
Medical Center, Inc. (xvii)
10.81 (a)-- Amendment Dated July 11, 1997 to Agreement with Reproductive
Sciences Medical Center, Inc. (xxiv)
10.81 (b)-- Stipulation of Settlement and Compromise of all Claims Among
IntegraMed America, Inc. and Reproductive Sciences Medical Center,
Inc. and Samuel H. Wood, M.D. (xxv)
10.82 -- Asset Purchase Agreement between Registrant and Samuel H. Wood,
M.D., Ph.D. (xvii)
10.83 -- Personal Responsibility Agreement between Registrant and Samual H.
Wood, M.D., Ph.D. (xvii)
10.84 -- Physician-Shareholder Employment Agreement between Reproductive
Sciences Medical Center, Inc. and Samuel H. Wood, M.D., Ph.D.
(xvii)
10.85 -- Physician-Shareholder Employment Agreement between Reproductive
Endocrine & Fertility Consultants, P.A. and Elwyn M. Grimes, M.D.
(xvii)
10.86 -- Amendment to Management Agreement between Registrant and
Reproductive Endocrine & Fertility Consultants, P.A. (xvii)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.87 -- Amendment to Management Agreement between Registrant and Fertility
Centers of Illinois, S.C. dated May 2, 1997 (xvii)
10.88 -- Management Agreement between Registrant and MPD Medical
Associates, P.C. dated June 2, 1997 (xvii)
10.88 (a)-- Amendment to Management Agreement between IntegraMed America, Inc.
and MPD Medical Associates, P.C. dated as of January 1, 1998
(xxiv)
10.88 (b)-- Management Agreement between IntegraMed America, Inc. and MPD
Medical Associates, P.C. dated July 1, 1999 (xxix)
10.89 -- Physician-Shareholder Employment Agreement between MPD Medical
Associates P.C. and Gabriel San Roman, M.D. (xvii)
10.90 -- Amendment No. 2 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated June 18, 1997 (xvii)
10.91 -- Commitment Letter dated June 30, 1997 between Registrant and First
Union National Bank (xvii)
10.92 -- Amendment No. 3 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated August 19, 1997 (xviii)
10.93 -- Amendment No. 4 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated January 9, 1998 (xx)
10.94 -- Investment Agreement between Registrant and Morgan Stanley Venture
Partners III, L.P.., Morgan Stanley Venture Investors III, L.P.
and the Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
(xix)
10.95 -- Amendment No. 5 to Management Agreement between Registrant and
Fertility Centers of Illinois, S.C. dated March 5, 1998 (xxi).
10.95 (a)-- Amendment No. 6 to Management Agreement between IntegraMed
America, Inc. and Fertility Centers of Illinois, S.C. dated July
1, 1999 (xxiii)
10.96 -- Termination Agreement by and among Women's Medical & Diagnostic
Center, Inc., W. Banks Hinshaw, Jr., Ph.D., M.D., and Robin E.
Markle, M.D.
10.97 -- Loan Agreement between First Union National Bank and IntegraMed
America, Inc. dated November 13, 1997.
10.98 -- Management Agreement between IntegraMed America, Inc. and MPD
Medical Associates (MA), P.C. dated October 1, 1997 (xxi)
10.98 (a)-- Amendment No. 1 to Management Agreement between IntegraMed
America, Inc. and MPD Medical Associates (MA) P.C. and Patricia M.
McShane, M.D. dated November 11, 1998 (xxvi)
10.99 -- Physician-Shareholder Employment Agreement between MPD Medical
Associates (MA), P.C. and Patricia McShane, M.D. dated October 1,
1997 (xxi)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.100 -- Asset Purchase and Sale Agreement by and among IntegraMed America,
Inc. and Fertility Centers of Illinois, S.C., Advocate Medical
Group, S.C. and Advocate MSO, Inc. dated January 9, 1998 (xxi)
10.101 -- Physician Employment Agreement between Fertility Centers of
Illinois, S.C. and Laurence A. Jacobs, M.D. dated January 9, 1998
(xxi)
10.102 -- Physician Employment Agreement between Fertility Centers of
Illinois, S.C. and John J. Rapisarda, M.D. dated January 9, 1998
(xxi)
10.103 -- Personal Responsibility Agreement entered into by and among
IntegraMed America, Inc., Fertility Centers of Illinois, S.C. and
John J. Rapisarda, M.D. dated January 9, 1998 (xxi)
10.104 -- Personal Responsibility Agreement entered into by and among
IntegraMed America, Inc., Fertility Centers of Illinois, S.C. and
Laurence A. Jacobs, M.D. dated January 9, 1998 (xxi)
10.105 -- Management Agreement between Shady Grove Fertility Centers, P.C.
and Levy, Sagoskin and Stillman, M.D., P.C. dated March 11, 1998
(xxi)
10.105(a)-- Amendment No. 1 to Management Agreement between Shady Grove
Fertility Centers, Inc. and Levy Sagoskin and Stillman, M.D., P.C
(xxii)
10.105(b)-- Amendment No. 2 to Management Agreement between Shady Grove
Fertility Centers, Inc. and Levy Sagoskin and Stillman, M.D., P.C.
dated May 6, 1998 (xxvi)
10.105(c)-- Amendment No. 3 to the Management Agreement between IntegraMed
America, Inc. and Shady Grove Reproductive Science Center, P.C.
dated September 1, 1999 (xxix)
10.106 -- Submanagement Agreement between Shady Grove Fertility Centers,
Inc. and IntegraMed America, Inc. dated March 12, 1998 (xxi)
10.107 -- Stock Purchase and Sale Agreement among IntegraMed America, Inc.
and Michael J. Levy, M.D., Robert J. Stillman, M.D. and Arthur W.
Sagoskin, M.D. dated March 12, 1998 (xxi)
10.108 -- Personal Responsibility Agreement by and among IntegraMed America,
Inc. and Arthur W. Sagoskin, M.D. dated March 12, 1998 (xxi)
10.109 -- Personal Responsibility Agreement by and among IntegraMed America,
Inc. and Michael J. Levy, M.D. dated March 12, 1998 (xxi)
10.110 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Michael J. Levy, M.D. dated March 11,
1998 (xxi)
10.111 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Arthur W. Sagoskin, M.D. dated March
11, 1998 (xxi)
10.112 -- Physician-Stockholder Employment Agreement between Levy, Sagoskin
and Stillman, M.D., P.C. and Robert J. Stillman, M.D. dated March
11, 1998 (xxi)
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
10.113 -- Commitment letter with Fleet Bank, National Association (xxiv)
10.113(a)-- Loan Agreement dated September 11, 1998 between IntegraMed
America, Inc. and Fleet Bank, National Association (xxv)
10.113(b)-- Master Lease Agreement between Fleet Capital Corporation and
IntegraMed America, Inc. (xxix)
10.113(c)-- Amendment Number One to Loan Agreement dated September 11, 1998
between IntegraMed America, Inc. and Fleet Bank, National
Association.
10.113(d)-- Amendment Number Two to Loan Agreement dated September 11, 1998
between IntegraMed America, Inc. and Fleet Bank, National
Association.
10.114 -- Management Agreement Among IntegraMed Pharmaceutical Services,
Inc., IVP Pharmaceutical Care, Inc., and IntegraMed America, Inc.
(xxvii)
10.115 -- Management Agreement between IntegraMed America, Inc. and David R.
Corley, M.D., P.C. dated July 1, 1999 (xxviii)
10.115(a)-- Personal Responsibility Agreement among Registrant and David R.
Corley, M.D. (xxviii)
10.116 -- Form of Retention Agreement between Registrant and Kathi Baginski,
Peter Cucchiara, Dan Desmarais, Anders Engen, Jay Higham, John
Hlywak, Jr., Mark Segal, Claude E. White, and Donald S. Wood,
Ph.D. (xxviii)
21 -- List of Subsidiaries
23.1 -- Consent of PricewaterhouseCoopers LLP
27 -- Financial Data Schedule
- ----------
(i) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-1 (Registration No. 33-47046) and incorporated
herein by reference thereto.
(ii) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-1 (Registration No. 33-60038) and incorporated
herein by reference thereto.
(iii) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994 and
incorporated herein by reference thereto.
(iv) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1994 and
incorporated herein by reference thereto.
(v) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1994
and incorporated herein by reference thereto.
(vi) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form 10-K for the year ended December 31, 1993.
(vii) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-4 (Registration No. 33-82038) and incorporated
herein by reference thereto.
(viii) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
(ix) Filed as Exhibit with identical number to Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1995.
(x) Filed as Exhibit with identical number to Registrant's Quarterly Report
on Form 10-Q for the year ended September 30, 1995.
INDEX TO EXHIBITS (Continued)
Item 14(c)
Exhibit
Number Exhibit
- ------ -------
(xi) Filed as Exhibit with identical number to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
(xii) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated June 20, 1996.
(xiii) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K/A dated August 20, 1996.
(xiv) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated January 20, 1997.
(xv) Filed as Exhibit with identical exhibit number to Annual Report on Form
10-K for the year ended December 31, 1996.
(xvi) Incorporated by Reference to the Exhibit with the identical exhibit
number to Registrant's Registration Statement on Form S-1 (registration
No. 333-26551) filed with the Securities and Exchange Commission on May
6, 1997.
(xvii) Incorporated by reference to the Exhibit with the identical exhibit
number to Registrant's Registration Statement on Form S-1 (Registration
No. 333-26551) filed with the Securities and Exchange Commission on
June 20, 1997.
(xviii) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1997
and incorporated herein by reference thereto.
(xix) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated January 23, 1998.
(xx) Filed as Exhibit with identical exhibit number to Schedule 13D dated
February 11, 1998.
(xxi) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
(xxii) Filed as Exhibit with identical number to Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1998.
(xxiii) Incorporated by reference to the Registrant's Definitive Proxy
Statement filed on May 5, 1997. (xxiv) Filed as Exhibit with identical
number to Registrant's Quarterly Report on form 10-Q for the period
ended June 30, 1998.
(xxv) Filed as Exhibit with identical number to Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1998.
(xxvi) Filed as Exhibit with identical number to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998.
(xxvii) Filed as Exhibit with identical number to Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1999.
(xxviii) Filed as Exhibit with identical number to Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1999.
(xxix) Filed as Exhibit with identical number to Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1999.