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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
(State or other jurisdiction of incorporation or organization)
One Manhattanville Road
Purchase, New York
(Address of principal executive offices)
06-1150326
(I.R.S. employer identification no.)
10577
(Zip code)
(914) 253-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on May 3, 1999 was 4,918,460.
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INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1999 (unaudited) and
December 31, 1998......................................... 3
Consolidated Statement of Operations for the three-month
periods ended March 31, 1999 and 1998 (unaudited)......... 4
Consolidated Statement of Cash Flows for the three-month
periods ended March 31, 1999 and 1998 (unaudited)......... 5
Notes to Consolidated Financial Statements (unaudited).....6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................... 9-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 13
Item 2. Changes in Securities.......................................... 13
Item 3. Defaults upon Senior Securities................................ 13
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 5. Other Information.............................................. 14
Item 6. Exhibits and Reports on Form 8-K............................... 14
SIGNATURES ................................................................15
INDEX TO EXHIBITS.............................................................16
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all dollars in thousands)
ASSETS
March 31, December 31,
-------- ------------
1999 1998
-------- ------------
(unaudited)
Current assets:
Cash and cash equivalents ..................................................... $ 2,280 $ 4,241
Patient accounts receivable, less allowance for doubtful
accounts of $789 and $526 in 1999 and 1998, respectively..................... 10,106 10,749
Management fees receivable, less allowance for doubtful
accounts of $358 and $305 in 1999 and 1998, respectively..................... 2,113 1,963
Other current assets .......................................................... 991 1,736
------- -------
Total current assets....................................................... 15,490 18,689
------- -------
Fixed assets, net ............................................................. 6,036 5,116
Intangible assets, net......................................................... 19,060 19,269
Other assets................................................................... 608 619
------- -------
Total assets............................................................... $41,194 $43,693
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 229 $ 684
Accrued liabilities............................................................ 2,570 3,480
Due to Medical Practices....................................................... 2,068 1,877
Current portion of long-term notes payable and other obligations............... 1,011 2,099
Patient deposits .............................................................. 2,193 2,888
------- -------
Total current liabilities.................................................. 8,071 11,028
------- -------
Long-term notes payable and other obligations.................................... 5,203 5,282
Commitments and Contingencies.................................................... -- --
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 shares
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;
and 5,368,960 and 5,343,092 shares issued in 1999 and 1998, respectively..... 53 53
Capital in excess of par ...................................................... 54,240 53,712
Accumulated deficit ........................................................... (25,030) (25,548)
Treasury Stock, at cost - 450,500 and 340,500 shares in 1999 and
1998, respectively........................................................... (1,509) (1,000)
------- -------
Total shareholders' equity ................................................ 27,920 27,383
------- -------
Total liabilities and shareholders' equity................................. $41,194 $43,693
======= =======
See accompanying notes to the consolidated financial statements.
3
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the
three-month period
ended March 31,
-----------------
1999 1998
---- ----
(unaudited)
Revenues, net ........................................... $10,532 $8,341
Cost of services incurred on behalf of Network Sites:
Employee compensation and related expenses............ 4,068 3,563
Direct materials...................................... 1,095 753
Occupancy costs....................................... 675 672
Depreciation.......................................... 309 285
Other expenses........................................ 2,051 1,167
------- -------
Total cost of services rendered..................... 8,198 6,440
------- ------
Network Sites' contribution.............................. 2,334 1,901
General and administrative expenses...................... 1,380 1,113
Amortization of intangible assets........................ 244 181
Interest income.......................................... (23) (12)
Interest expense......................................... 135 72
------- ------
Total other expenses.................................. 1,736 1,354
------- ------
Income from continuing operations before income taxes.... 598 547
Provision for income taxes............................... 80 49
------- ------
Income from continuing operations........................ 518 498
Loss from operations of discontinued AWM Division
(less applicable income taxes of $0).................. -- 288
Net income............................................... $ 518 $ 210
Less: Dividends paid and/or accrued on Preferred Stock... (33) (33)
------- ------
Net income applicable to Common Stock.................... $ 485 $ 177
======= ======
Basic and diluted earnings per share of Common Stock:
Continuing operations............................... $ 0.10 $ 0.09
Discontinued operations............................. -- (0.06)
------- ------
Net earnings........................................ $ 0.10 $ 0.03
======= ======
Weighted average shares - basic.......................... 4,976 5,006
======= ======
Weighted average shares - diluted........................ 5,077 5,100
======= ======
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
For the
three-month period
ended March 31,
---------------------
1999 1998
-------- ------
(unaudited)
Cash flows from operating activities:
Net income .............................................................................. $ 518 $ 210
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization....................................................... 618 581
Writeoff of fixed and other assets ................................................. -- 37
Changes in assets and liabilities net of effects from acquired businesses
-- Decrease (increase) in assets:
Patient accounts receivable......................................................... 643 (2,384)
Management fees receivable.......................................................... (150) (449)
Other current assets................................................................ 745 (701)
Other assets........................................................................ (2) 8
(Decrease) increase in liabilities:
Accounts payable................................................................... (455) (1,435)
Accrued liabilities................................................................ (546) 86
Due to Medical Practices........................................................... 191 455
Patient deposits................................................................... (695) (78)
------- ------
Net cash provided by (used in) operating activities......................................... 867 (3,670)
------- ------
Cash flows (used in) provided by investing activities:
Payment for exclusive management rights and acquired physician practices............... -- (3,109)
Purchase of net liabilities of acquired businesses..................................... -- 487
Purchase of fixed assets and leasehold improvements.................................... (1,295) (438)
------- ------
Net cash used in investing activities....................................................... (1,295) (3,060)
------- ------
Cash flows (used in) provided by financing activities:
Proceeds from issuance of Common Stock................................................. -- 5,500
Used for stock issue costs............................................................. -- (61)
Proceeds from bank under Credit Facility............................................... -- 2,000
Principal repayments on debt........................................................... (990) (286)
Principal repayments under capital lease obligations................................... (1) (36)
Repurchase of Common Stock............................................................. (509) --
Dividends paid on Convertible Preferred Stock.......................................... (33) --
Proceeds from exercise of Common Stock options......................................... -- 62
------- ------
Net cash (used in) provided by financing activities......................................... (1,533) 7,179
------- ------
Net (decrease) increase in cash............................................................. $(1,961) $ 449
Cash at beginning of period................................................................. 4,241 1,930
------- ------
Cash at end of period....................................................................... $ 2,280 $2,379
======= ======
See accompanying notes to the consolidated financial statements.
5
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at March 31, 1999, and the results of operations
and cash flows for the interim period presented. Operating results for the
interim period are not necessarily indicative of results that may be expected
for the year ending December 31, 1999. These financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE 2 -- SIGNIFICANT MANAGEMENT CONTRACTS:
For the three months ended March 31, 1999 and 1998, the Boston, FCI, New
Jersey, and Shady Grove (acquired in mid-March 1998) Network Sites provided
greater than 10% of the Company's Revenues, net and Network Sites' contribution
as follows:
Percent of Company Percent of Network
Revenues, net Sites' contribution
for the three-month for the three-month
period ended March 31, period ended March 31,
---------------------- ----------------------
1999 1998 1999 1998
----- ----- ----- ------
Boston.......... 16.7 17.6 26.6 23.4
FCI............. 26.7 30.1 24.0 32.7
New Jersey...... 12.4 12.0 25.1 29.1
Shady Grove..... 17.8 4.0 13.1 2.5
NOTE 3 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
The amount owed by the Company to acquire the balance of the capital stock
of Shady Grove Fertility Centers, Inc. was paid on January 5, 1999 as follows:
(i) $951,800 in cash, (ii) $175,900 in stock, or 25,868 shares of Common Stock,
and (iii) a $402,750 promissory note. The promissory note for $402,750 is
payable in two equal annual installments, due on July 1, 1999 and April 1, 2000
and bears interest at a rate of 10.17%. per annum.
6
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS from continuing operations computations for the three-month periods
ended March 31, 1999 and 1998 is as follows (000's omitted, except for per share
amounts):
1999 1998
----------------------------------- ------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------- ----------- --------- ---------- ----------- --------
Income from continuing operations...... $518 $498
Less: Preferred stock
dividends paid or accrued........... (33) (33)
---- ----
Basic EPS
Income from continuing
operations available to
Common stockholders................. $485 4,976 $0.10 $465 5,006 $0.09
==== ===== ===== ==== ===== =====
Effect of Dilutive Securities
Options................................ 37 42
Warrants............................... 64 52
------ -----
Diluted EPS
Income from continuing
operations available to
Common stockholders................. $485 5,077 $0.10 $465 5,100 $0.09
==== ====== ===== ==== ===== =====
For the three-month period ended March 31, 1999, the effect of the assumed
exercise of options to purchase approximately 39,000 shares of Common Stock at
exercise prices of $5.00 per share and warrants to purchase approximately 75,000
shares of Common Stock at exercise prices ranging from $4.94 to $8.54 per share
were excluded in computing the diluted per share amount because the exercise
prices of the options and warrants were greater than the average market price of
the shares of Common Stock, therefore causing these options and warrants to be
antidilutive.
For the three-month period ended March 31, 1998, the effect of the assumed
exercise of options to purchase approximately 253,000 shares of Common Stock and
warrants to purchase approximately 92,000 shares of Common Stock at exercise
prices ranging from $8.12 to $15.00 per share and from $36.08 to $41.36 per
share, respectively, were excluded in computing the diluted per share amount
because the exercise prices of the options and warrants were greater than the
average market price of the shares of Common Stock, therefore causing these
options and warrants to be antidilutive.
For the three-month periods ended March 31, 1999 and 1998, approximately
133,000 and 127,000 shares of Common Stock, respectively, from the assumed
conversion of Preferred Stock were excluded in computing the diluted per share
amount as they were anti-dilutive.
7
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- SUBSEQUENT EVENTS:
In April 1999, the Company formed a new wholly owned subsidiary, IntegraMed
Pharmaceutical Services, Inc. ("IPS"). IPS is based in Carrollton, Texas and
will be licensed to distribute pharmaceutical products directly to patients in
most of the United States and in all states where the Company's managed
Reproductive Science Centers are currently located. IPS will be engaged in the
retail distribution of drugs, pharmaceuticals and products related to the
treatment of human fertility ("Pharmaceutical Products") to customers of the
Reproductive Science Centers. IPS was formed in conjunction with IVP
Pharmaceutical Care, Inc., a licensed pharmacy specializing in dispensing
Pharmaceutical Products, which will provide certain management services to IPS.
Effective April 1, 1999, the Company entered into a sale-leaseback
transaction with Fleet Capital Corporation ("FCC") related to new computer
equipment and billing software acquired by the Company primarily during the
first quarter of 1999. Pursuant to this transaction, the Company sold
approximately $532,000 of equipment and software to FCC and contemporaneously
entered into a four-year capital lease of this equipment with FCC for the same
amount. The Company did not recognize a gain on the sale of the equipment or
software. Under the lease, rental payments of approximately $12,900 are due
monthly for forty-eight months commencing on April 1, 1999.
Effective May 1, 1999, the Company entered into a new management agreement
(the "New Agreement") with the Medical Practice at the Reproductive Science
Associates Network Site (the "RSA Medical Practice") located in Kansas City,
Missouri. The New Agreement contemplates that the Company will offer other
medical practices, via separate management agreements, use of the medical
offices and clinical space which are currently provided by the Company and
utilized by the RSA Medical Practice. The New Agreement also provides for
certain changes in the financial arrangements between the Company and the RSA
Medical Practice.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in this
quarterly report and with the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Results of Operations
The following table shows the percentage of revenues represented by various
expense and other income items reflected in the Company's Consolidated Statement
of Operations.
For the
three-month period
ended March 31,
-------------------
1999 1998
---- ----
(unaudited)
Revenues, net............................................ 100% 100%
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses.......... 38.6% 42.7%
Direct materials.................................... 10.4% 9.0%
Occupancy costs..................................... 6.4% 8.1%
Depreciation........................................ 2.9% 3.4%
Other expenses...................................... 19.5% 14.0%
---- ----
Total costs of services............................. 77.8% 77.2%
Network Sites' contribution.............................. 22.2% 22.8%
General and administrative expenses...................... 13.1% 13.3%
Amortization of intangible assets........................ 2.3% 2.2%
Interest income.......................................... (0.2%) (0.1%)
Interest expense......................................... 1.3% 0.8%
---- ----
Total other expenses................................ 16.5% 16.2%
---- ----
Income from continuing operations before income taxes.... 5.7% 6.6%
Provision for income taxes............................... 0.8% 0.6%
---- ----
Income from continuing operations........................ 4.9% 6.0%
Loss from discontinued operations........................ -- (3.5%)
Net income............................................... 4.9% 2.5%
==== ====
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues for the three months ended March 31, 1999 (the "first quarter of
1999") were approximately $10.5 million as compared to approximately $8.3
million for the three months ended March 31, 1998 (the "first quarter of 1998"),
an increase of 26.3%. The increase in revenues was attributable to same market
growth and to there being a full quarter of revenues from the Shady Grove
Network Site which was acquired in mid-March 1998. Same market growth in
revenues was principally attributable to increases in patient volume. The
aggregate increase in revenues was comprised of the following: (i) an
approximate $1.8 million increase in reimbursed costs of services; and (ii) an
approximate $433,000 increase in the Company's management fees derived from the
managed Medical Practices' net revenue and/or earnings.
Total costs of services as a percentage of revenues were 77.8% in the first
quarter of 1999 as compared to 77.2% in the first quarter of 1998. Direct
materials and other expenses increased primarily due to the increase in patient
9
volume at the managed Medical Practices. Employee compensation and related
expenses, occupancy costs and depreciation as a percentage of revenues decreased
primarily due to the significant increase in revenues.
Network Sites' contribution was approximately $2.3 million in the first
quarter of 1999 as compared to $1.9 million in the first quarter of 1998, an
increase of approximately 22.8%. Such increase resulted from there being a full
quarter of Network Site contribution from the Shady Grove Network Site, which
was acquired late in the first quarter of 1998, and the increase in revenues at
existing Network Sites. As a percentage of revenues, Network Sites' contribution
decreased to 22.2% in the first quarter of 1999 as compared to 22.8% in the
first quarter of 1998, primarily due to increases in contractual allowances
related to lower reimbursements under managed care contracts.
General and administrative expenses for the first quarter of 1999 were
approximately $1.4 million as compared to approximately $1.1 million in the
first quarter of 1998, an increase of 24.0%. The increase was largely due to an
increase in staffing, consulting and other costs attributable to the
development, implementation and maintenance of the Company's proprietary
ArtWorks(TM) suite of fertility care information systems, and to an increase in
marketing costs. As a percentage of revenues, general and administrative
expenses decreased to approximately 13.1% from approximately 13.3% due to the
increase in revenues previously discussed.
Amortization of intangible assets was $244,000 in the first quarter of 1999
as compared to $181,000 in the first quarter of 1998. This increase was
attributable to the Company's acquisition of the Shady Grove Network Site late
in the first quarter of 1998. This increase was partially offset by the
elimination of amortization of exclusive management rights associated with two
single-physician Network Site management agreements which were terminated and
written off in 1998.
Interest income for the first quarter of 1999 increased to $23,000 from
$12,000 for the first quarter of 1998, due to a higher cash balance. Interest
expense for the first quarter of 1999 increased to $135,000 from $72,000 in the
first quarter of 1998, due to an increase in bank borrowings and in amounts
payable to Medical Providers for exclusive management rights.
The provision for income taxes primarily related to state taxes. The
provision for income taxes increased to $80,000 in the first quarter of 1999
from $49,000 in the first quarter of 1998 due to the increase in Network Site
contribution at existing sites and to the addition of the Shady Grove Network
Site.
Income from continuing operations was $518,000 in the first quarter of 1999
as compared to $498,000 in the first quarter of 1998. The increase was primarily
due to the $433,000 increase in Network Sites' contribution, which was partially
offset by increases in general and administrative expenses, amortization of
intangible assets and interest expense.
Net income increased to $518,000 in the first quarter of 1999 as compared
to $210,000 in the first quarter of 1998 due to the increase in income from
continuing operations and the elimination of losses from the AWM Division which
is classified as discontinued operations and was sold in the third quarter of
1998.
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
Network Sites. The Medical Practices may require capital for renovation and
expansion and for the addition of medical equipment and technology.
At March 31, 1999, the Company had working capital of approximately $7.4
million, approximately $2.3 million of which consisted of cash and cash
equivalents, compared to working capital of approximately $7.7 million at
10
December 31, 1998, approximately $4.2 million of which consisted of cash and
cash equivalents. The net decrease in working capital at March 31, 1999 was
principally due to purchases of fixed assets and leasehold improvements of
approximately $1.3 million and to the repurchase of 110,000 shares of the
Company's Common Stock for an aggregate purchase price of $509,000, partially
offset by decreases in patient deposits and accrued liabilities.
Effective April 1, 1999, the Company entered into a sale-leaseback
transaction with Fleet Capital Corporation ("FCC") related to new computer
equipment and billing software acquired by the Company primarily during the
first quarter of 1999. Pursuant to this transaction, the Company sold
approximately $532,000 of equipment and software to FCC and contemporaneously
entered into a four-year capital lease of this equipment with FCC for the same
amount. The Company did not recognize a gain on the sale of the equipment or
software. Under the lease, rental payments of approximately $12,900 are due
monthly for forty-eight months commencing on April 1, 1999.
Year 2000 Issue
The Company's management has recognized the need to ensure that its
operations and relationships with its vendors and other third parties will not
be adversely impacted by software processing errors arising from calculations
using the year 2000 and beyond ("Y2K"). As such, the Company has appointed a Y2K
Task Force to identify and assess the risks associated with its information
systems and operations, and its interactions with vendors and third-party
insurance payors ("the Y2K Project"). The Y2K Project is comprised of five
phases as follows: 1) identification of risks, 2) assessment of risks, 3)
development of remediation and contingency plans, 4) implementation, and 5)
testing. The Company has identified the Y2K risks and is approximately 75%
complete in assessing these risks. The Company is currently working on the last
three phases of the Y2K Project.
The Company believes that the Y2K risks associated with its information
systems and certain medical equipment may be potentially significant. In nearly
all cases, the Company is relying on assurances from third party vendors that
certain information systems and medical equipment will be Y2K compliant. In
addition, in the normal course of business, the Company has made capital
investments in certain vendor supplied software applications and hardware
systems to address the financial and operational needs of its business. These
systems, which will improve the efficiencies and productivity of the replaced
systems, have been represented to be Y2K compliant by the vendors and have been
or will be installed by November 1999. The Company has tested, is currently
testing or will have tested such vendor supplied systems and equipment, but
cannot be sure that its tests will be adequate or that, if problems are
identified, they will be addressed in a timely and satisfactory manner.
The Company is also highly dependent upon receiving payments from third
party payors for insurance reimbursement for claims submitted by the managed
Medical Practices, and as such, the ability of such payors to process claims
submitted by Medical Practices accurately and timely, constitutes a significant
risk to the Company's cash flow. Individual Network Sites have been or will be
in communication with these payors throughout the country to insure that these
payors will be Y2K compliant and will be able to process the Medical Practices'
claims uninterrupted. In addition, the Company deals with numerous financial
institutions, all of whom have indicated that the Y2K compliance issue is being
addressed proactively and should not present a problem on or after January 1,
2000.
11
As the Company and its managed Medical Practices are primarily reliant on
third party vendors and payors to be Y2K compliant, the Company does not
anticipate that it will incur a material incremental cost associated with
addressing Y2K problems. To date, all of the Company's capital projects
regarding information systems were part of its long-term capital strategic plan.
The timing of implementation of these capital projects was not accelerated as a
result of the Y2K issue, with the exception of the timing of the installation of
a new financial system at the FCI Network Site which was accelerated from the
year 2000 to 1999. The Company estimates that it will incur an aggregate cost of
$315,000 related to the Y2K Project as follows: (i) approximately $140,000
related to computer hardware and software and medical equipment replacements and
upgrades, of which approximately 90% will be capitalizable due to the added
value of such replacements and upgrades; (ii) approximately $130,000 of
non-incremental employee opportunity costs for time spent by information systems
and Y2K Task Force employees who would have ordinarily been spending their time
elsewhere; and (iii) approximately $45,000 in incremental staffing costs. By
accelerating the implementation of the new financial system at the FCI Network
Site, approximately $110,000 of capitalizable equipment and software costs and
approximately $50,000 of training costs will be incurred in 1999 instead of the
year 2000.
In the event any third parties cannot timely provide the Company with
information systems, equipment or services that meet the Y2K requirements, the
Company's ability and that of its managed Medical Practices to offer services
and to process sales, and the Company's cash flows, could be disrupted. In
addition, if the Company fails to satisfactorily resolve Y2K issues related to
its operations in a timely manner, it could be exposed to liability,
particularly to the managed Medical Practices and their patients. As developed
to date, the Company's contingency plan provides for the following: (i)
stockpiling higher than normal inventories of critical supplies; (ii) ensuring
an adequate line of bank credit if third party payor payments are disrupted; and
(iii) ensuring all critical staff are available or scheduled for work prior to,
during and immediately after December 31, 1999.
Management believes that the Company is taking reasonable and adequate
measures to address Y2K issues. However, there can be no assurance that the
Company's information systems, medical equipment and other non- information
technology systems will be Y2K compliant on or before December 31, 1999, or that
vendors and third-party insurance payors are, or will be, Y2K compliant, or that
the costs required to address the Y2K issue will not have a material adverse
effect on the Company's business, financial condition or results of operations.
Like virtually every company, and indeed every aspect of contemporary
society, the Company is at risk for the failure of major infrastructure
providers to adequately address potential Y2K problems. The Company is highly
dependent on a variety of public and private infrastructure providers to conduct
its business in numerous jurisdictions throughout the country. Failures of the
banking system, basic utility providers, telecommunication providers and other
services, as a result of Y2K problems, could have a material adverse effect on
the ability of the Company to conduct its business. While the Company is
cognizant of these risks, a complete assessment of all such risks is beyond the
scope of the Company's Y2K Project or ability of the Company to address. The
Company has focused its resources and attention on the most immediate and
controllable Y2K risks.
Forward Looking Statements
This Form 10-Q 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 management agreements, including the Company's ability to raise
additional debt and/or equity capital to finance future growth, the loss of
significant management agreement(s), the profitability or lack thereof at
Reproductive Science Centers managed 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 regulations regarding health care, changes in
managed care contracting, the timely development of and acceptance of new
infertility, ART and/or genetic technologies and techniques and the risks
relating to Y2K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
12
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
On October 9, 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 management agreement
(the "Management Agreement") related to the Dallas Network
Site, or collect damages, on the ground 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 intends to vigorously defend its position.
Despite the filing of the suit, the Company continued to
perform its obligations under the Management Agreement.
On March 30, 1999, W.F. Howard, M.D., P.A., communicated
its intent to terminate the Management Agreement and no
longer allowed the Company to provide its management
services to the Dallas Network Site. The Company
immediately terminated the Management Agreement for cause,
and interposed several counterclaims, against the P.A., Dr.
W.F. Howard and two former Company employees of the Network
Site. These counterclaims allege breach of fiduciary
duties, interference with the Company's contractual
relations and conversion of assets. The Company also
sought, and was provided, return of its confidential and
proprietary business documents and the P.A.'s cessation of
use of the name "Reproductive Science Center". The Company
intends to vigorously pursue all counterclaims, both as
against the P.A. and the individuals named as parties to
the lawsuit. Litigation counsel has advised the Company
that it is too early in the litigation to meaningfully
assess the likelihood of success of this lawsuit.
Nonetheless, counsel believes that even an unfavorable
result will not have a material adverse effect on the
results of the Company's operations.
On May 4, 1999, the Court of Appeals of New York, in a
lawsuit encaptioned Karlin v. IVF America, et. al.,
determined that plaintiffs' claims could be heard under the
New York consumer protection statute, General Business Law
ss.ss. 349 and 350. The case was originally instituted in
New York Supreme Court, Westchester County, in 1995.
Plaintiffs originally denominated the case as a class
action, and their request for certification as a class was
denied by both the trial and appellate courts (Appellate
Division, Second Department). The Court of Appeals refused
to review the denial of class action status. The case now
represents a single individual claim. The action seeks
damages from the Company, United Hospital and Dr. John
Stangel, for pecuniary loss and personal injuries,
purportedly arising out of an alleged misstatement of
success rates at the in vitro fertilization program at
United Hospital which was managed by the Company at that
time. The complaint originally asserted multiple causes of
action; however, through motion practice, the defendants
have achieved dismissal of all causes of action except the
General Business Law claims which were reinstated by the
Court Appeals in May 1999. The Company intends to
vigorously defend the remaining cause. Litigation counsel
has advised the Company that its position is supported on
the merits and that the action, even if successful, would
not have a material adverse effect on the Company.
There are other minor legal proceedings to which the
Company is a party. In the Company's view, the claims
asserted and the outcome of these proceedings will not have
a material adverse effect on the financial position,
results of operations or the cash flows of the Company.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
13
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
(Registrant)
Date: May 14, 1999 By: /s/Gerardo Canet
---------------------------------
Gerardo Canet
President, CEO and
Acting Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
INDEX TO EXHIBITS
Exhibit
Number Exhibit
4.11(d) -- Warrant issued to Robert J. Stillman, M.D. dated January 6, 1999
(1)
10.48(c) -- Management Agreement among IntegraMed America, Inc. and
Reproductive Endocrine & Fertility Consultants, P.A. and Midwest
Fertility Foundations & Laboratory, Inc.
10.61(b) -- Amendment No. 2 to Management Agreement between IntegraMed
America, Inc. and Bay Area Fertility and Gynecology Medical Group,
Inc.
10.114 -- Management Agreement Among IntegraMed Pharmaceutical Services,
Inc., IVP Pharmaceutical Care, Inc., and IntegraMed America, Inc.
27 -- Financial Data Schedule
- ---------------------------------
(1) Incorporated by reference to the Exhibit with the identical number to
Registrant's Annual Report on Form 10- K for the year ended December
31, 1998.
16