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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 September 30, 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 06-1150326
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
One Manhattanville Road 10577
Purchase, New York (Zip code)
(Address of principal executive offices)
(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 November 1, 1999 was 4,791,860.
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INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1999 (unaudited)
and December 31, 1998........................................ 3
Consolidated Statement of Operations for the three and
nine-month periods ended September 30, 1999
and 1998 (unaudited)......................................... 4
Consolidated Statement of Cash Flows for the nine-month
periods ended September 30, 1999 and 1998 (unaudited)........ 5
Notes to Consolidated Financial Statements (unaudited)...... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................8-12
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........... 13
Item 5. Other Information............................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................. 13
SIGNATURES ............................................................... 14
INDEX TO EXHIBITS ................................................... 15
2
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all amounts in thousands, except share and per share amounts)
September 30, December 31,
------------ -----------
1999 1998
------------ -----------
(unaudited)
Current assets:
Cash and cash equivalents..................................................... $ 3,882 $ 4,241
Patient accounts receivable, less allowance for doubtful accounts
of $ 731 and $526 in 1999 and 1998, respectively............................ 10,472 10,749
Management fees receivable, less allowance for doubtful accounts
of $0 and $305 in 1999 and 1998, respectively............................... 993 1,963
Other current assets.......................................................... 1,169 1,736
------- -------
Total current assets...................................................... 16,516 18,689
------- -------
Fixed assets, net............................................................. 6,388 5,116
Intangible assets, net........................................................ 19,600 19,269
Other assets.................................................................. 322 619
------- -------
Total assets.............................................................. $42,826 $43,693
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 588 $ 684
Accrued liabilities........................................................... 4,516 3,480
Due to Medical Practices...................................................... 1,385 1,877
Current portion of long-term notes payable and other obligations.............. 1,275 2,099
Patient deposits.............................................................. 2,010 2,888
------- -------
Total current liabilities................................................. 9,774 11,028
------- -------
Long-term notes payable and other obligations.................................... 4,509 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...................................................... 55 53
Capital in excess of par...................................................... 54,172 53,712
Accumulated deficit........................................................... (24,117) (25,548)
Treasury Stock, at cost -- 511,100 and 340,500 shares in 1999 and
1998, respectively.......................................................... (1,733) (1,000)
------- -------
Total shareholders' equity................................................ 28,543 27,383
------- -------
Total liabilities and shareholders' equity................................ $42,826 $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 For the
three-month period nine-month period
ended September 30, ended September 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Revenues, net.......................................................... $11,862 $9,756 $33,255 $27,927
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses........................ 4,620 3,734 12,883 11,050
Direct materials.................................................. 1,785 1,153 4,091 3,359
Occupancy costs................................................... 766 725 2,674 2,120
Depreciation...................................................... 402 343 1,011 976
Other expenses.................................................... 1,899 1,564 5,373 3,960
------- ------ ------- -------
Total costs of services......................................... 9,472 7,519 26,032 21,465
------- ------ ------- -------
Network Sites' contribution............................................ 2,390 2,237 7,223 6,462
General and administrative expenses.................................... 1,611 1,385 4,504 3,856
Amortization of intangible assets...................................... 274 234 779 681
Interest income........................................................ (46) (24) (88) (45)
Interest expense....................................................... 121 126 382 306
------- ------ ------- -------
Total other expenses............................................ 1,960 1,721 5,577 4,798
Restructuring and other charges........................................ -- -- -- 2,084
------- ------ ------- -------
Income (loss) from continuing operations before income taxes........... 430 516 1,646 (420)
Provision for income taxes............................................. 45 94 217 245
------- ------ ------- -------
Income (loss) from continuing operations............................... 385 422 1,429 (665)
Loss from actual and phase-out period operating losses of
AWM Division...................................................... -- -- -- 923
(Recapture) loss from disposal of AWM Division......................... -- (350) -- 3,578
------- ------ ------- -------
Net income (loss)...................................................... 385 772 1,429 (5,166)
Less: Dividends paid and/or accrued on Preferred Stock................. 33 33 99 99
------- ------ ------- -------
Net income (loss) applicable to Common Stock........................... $ 352 $ 739 $ 1,330 $(5,265)
======= ======= ======= =======
Basic and diluted earnings (loss) per share of Common Stock:
Continuing operations............................................. $ 0.07 $ 0.07 $ 0.27 $ (0.15)
Discontinued operations........................................... -- 0.07 -- (0.86)
------- ------ ------- -------
Net earnings (loss)............................................... $ 0.07 $ 0.14 $ 0.27 $ (1.01)
======= ====== ======= =======
Weighted average shares -- basic....................................... 4,863 5,343 4,910 5,226
======= ====== ======= =======
Weighted average shares -- diluted..................................... 4,981 5,405 5,002 5,226
======= ====== ======= =======
See accompanying notes to the consolidated financial statements
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(all amounts in thousands)
For the
nine-month period
ended September 30,
------------------
1999 1998
---- ----
(unaudited)
Cash flows from operating activities:
Net income (loss)................................................................ $1,429 $(5,166)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
Operating activities:
Depreciation and amortization................................................ 2,035 1,938
Write-off of fixed and other assets.......................................... -- 5,541
Changes in assets and liabilities net of effects from acquired businesses --
Decrease (increase) in assets:
Patient accounts receivable.................................................. 277 (2,733)
Management fees receivable................................................... 352 (1,075)
Other current assets......................................................... 567 199
Other assets................................................................. 81 (111)
Increase (decrease) in liabilities:
Accounts payable............................................................. (96) (1,222)
Accrued liabilities.......................................................... (131) (343)
Due to Medical Practices..................................................... (492) 352
Patient deposits............................................................. 350 878
------ ------
Net cash provided by (used in) operating activities................................... 4,372 (1,742)
------ -------
Cash flows (used in) provided by investing activities:
Purchase of net liabilities of acquired businesses............................. -- 487
Payment for exclusive management rights and acquired physician practices....... (213) (3,165)
Purchase of fixed assets and leasehold improvements............................ (2,005) (1,216)
Proceeds from sale of fixed assets............................................. -- 135
------ ------
Net cash used in investing activities................................................. (2,218) (3,759)
------ ------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of Common Stock......................................... -- 5,500
Used for stock issue costs..................................................... -- (74)
Proceeds from bank under Credit Facility....................................... -- 6,000
Proceeds from IVP Pharmaceutical Care, Inc..................................... 150 --
Principal repayments on debt................................................... (1,780) (2,833)
Principal repayments under capital lease obligations........................... (51) (84)
Repurchase of Common Stock..................................................... (733) --
Dividends paid on Convertible Preferred Stock.................................. (99) --
Proceeds from exercise of Common Stock options................................. -- 99
------ ------
Net cash (used in) provided by financing activities................................... (2,513) 8,608
------ ------
Net (decrease) increase in cash....................................................... (359) 3,107
Cash at beginning of period........................................................... 4,241 1,930
------ ------
Cash at end of period................................................................. $3,882 $5,037
====== ======
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 adjustments) necessary to
present fairly the financial position at September 30,1999, and the results of
operations and cash flows for the interim periods presented. Operating results
for the interim periods 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 included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
NOTE 2 -- EARNINGS PER SHARE:
The calculation of the number of shares for basic and diluted EPS for the
three and nine-month periods ended September 30, 1999 and 1998 is as follows
(000's omitted):
For the For the
three-month nine-month
period ended period ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Weighted average shares outstanding................... 4,863 5,343 4,910 5,226
Effect of dilutive options and warrants............... 118 62 92 --
----- ----- ----- -----
Weighted average shares and dilutive potential
common shares..................................... 4,981 5,405 5,002 5,226
===== ===== ===== =====
Income (loss) from continuing operations was the same for both basic and
diluted calculations for all periods presented.
The company determines earnings (loss) per share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share," which the Company
adopted in December 1997. All historical earnings (loss) per share have been
presented in accordance with FAS 128.
For the three and nine-month periods ending September 30, 1999 and 1998,
the following approximate amounts of common stock from their assumed conversion
were excluded in computing the diluted per share amounts as they were
antidilutive.
For the three-month period ended September 30, For the nine-month period ended September 30,
---------------------------------------------- ---------------------------------------------
Exercise Exercise Exercise Exercise
Price Range 1999 Price Range 1998 Price Range 1999 Price Range 1998
----------- ---- ----------- ---- ----------- ---- ----------- ----
Options........... $4.00-$5.00 403,000 $4.00-$4.12 350,000 $4.00-$5.00 429,000 $4.00-$4.12 350,000
Warrants.......... $4.94-$8.54 75,000 $4.94-$7.20 78,250 $4.94-$8.54 75,000 $4.94-$7.20 78,250
Preferred Stock... -- 133,000 -- 523,000 -- 133,000 -- 523,000
6
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3 -- MANAGEMENT AGREEMENT:
In April 1999, the Company formed a new wholly owned subsidiary, IntegraMed
Pharmaceutical Services, Inc. ("IPSI"). IPSI is a licensed pharmacy based in
Carrolton, Texas. The primary business of IPSI is the retail distribution of
infertility related pharmaceuticals and products to the Reproductive Science
Centers. IPSI was formed in conjunction with IVP Pharmaceutical Care, Inc., a
licensed pharmacy specializing in dispensing pharmaceutical products, which will
provide certain management services to IPSI.
Effective May 1, 1999, the Company entered into a new management agreement
with the Medical Practice at the Reproductive Science Associates Network Site
located in Kansas City, Missouri. Under this new agreement, the Company may
enter into management agreements with other medical practices, offering them use
of the Network Site medical offices and space. The Company did not pay a right
to manage fee in connection with this agreement, rather, the management right
payable of $213,000 to the Kansas City medical Practice was netted against the
management fee receivable (from the Practice). This transaction yielded a net
receivable due to the Company of $835,000. The Company recognizes this
receivable as a further investment by the Company in the Kansas City Medical
Practice, and has reclassed $835,000 from management fees receivable to
intangible assets in the accompanying Consolidated Balance Sheet.
7
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 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 net revenue represented by
various expense and other income items reflected in the Company's Consolidated
Statement of Operations.
For the For the
three-month nine-month
period ended period ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Revenues, net................................................... 100.0% 100.0% 100.0% 100.0%
Costs of services incurred on behalf of Network Sites:
Employee compensation and related expenses................... 39.0% 38.4% 38.8% 39.6%
Direct materials............................................. 15.0% 11.8% 12.3% 12.0%
Occupancy costs.............................................. 6.5% 7.4% 8.0% 7.6%
Depreciation................................................. 3.4% 3.5% 3.0% 3.5%
Other expenses............................................... 16.0% 16.0% 16.2% 14.2%
---- ---- ---- ----
Total costs of services................................... 79.9% 77.1% 78.3% 76.9%
Network Sites' contribution..................................... 20.1% 22.9% 21.7% 23.1%
General and administrative expenses............................. 13.6% 14.1% 13.7% 13.9%
Amortization of intangible assets............................... 2.3% 2.4% 2.3% 2.4%
Interest income................................................. (0.4)% (0.2)% (0.3)% (0.2)%
Interest expense................................................ 1.0% 1.3% 1.1% 1.1%
---- ---- ---- ----
Total other expenses......................................... 16.5% 17.6% 16.8% 17.2%
---- ---- ---- ----
Restructuring and other charges................................. 0.0% 0.0% 0.0% 7.5%
Income (loss) from continuing operations before income taxes.... 3.6% 5.3% 4.9% (1.5)%
Provision for income taxes...................................... 0.4% 1.0% 0.6% 0.9%
---- ---- ---- ----
Income (loss) from continuing operations........................ 3.2% 4.3% 4.3% (2.4)%
Recapture (loss) from discontinued operations................... 0.0% 3.6% 0.0% (16.1)%
---- ---- ---- ----
Net income (loss)............................................... 3.2% 7.9% 4.3% (18.5)%
==== ==== ==== ====
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Revenues for the third quarter ended September 30, 1999 were approximately
22% greater than the same period in 1998. Major Network Site contributors were
Fertility Centers of Illinois, Shady Grove Fertility Centers, and RSC of Boston,
each of which comprised more than 10% of total Company revenue. Management fees
and reimbursed cost of services derived from network revenues at these sites
increased 21%, 29% and 13%, respectively. Increases in patient volume were the
primary cause of the Network Site revenue increases. IntegraMed Pharmaceutical
Services, which was launched in the second quarter of 1999, accounted for
$812,000, or 7%, of third quarter revenue.
8
Total costs of services were 79.9% of revenues in the third quarter of
1999, compared to 77.1% in the third quarter of 1998. Employee compensation and
related expenses increased slightly, primarily due to increased levels of
compensation and new hires. Direct materials increased as a percentage of
revenues, primarily due to the cost of products sold at IntegraMed
Pharmaceutical Services.
Network Sites' contribution reflects an increase of 7% for the third
quarter of 1999 compared to the third quarter of 1998. Increases in patient
billings were the primary reason for this increase. As a percentage of revenue,
Network Sites' contribution decreased for the third quarter of 1999 as compared
to the third quarter of 1998, principally due to the activation of clauses in
certain management contracts which decrease management fees payable to the
Company as Network Site contribution increases. These clauses are designed to
reward the participating physicians for increased practice growth. In addition,
margins at the Company's pharmaceutical venture are, as anticipated,
significantly lower than those of our core business.
General and administrative expenses for the third quarter of 1999 were
approximately 16% higher than the third quarter of 1998. The increase was
largely due to staffing, consulting, and other cost increases related to the
development, implementation and maintenance of the Company's proprietary
ARTWorks suite of fertility care information systems.
Net interest expense decreased in the third quarter ended September 30,
1999 due to reductions in short and long-term debt.
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 52% in the third
quarter of 1999 compared to the third quarter of 1998 due to a change in
effective tax rates as a result of tax planning initiatives.
In late September 1999, the Company was informed by a hospital, with which
it has a contract that generates a significant amount of revenue and Network
Site contribution, that three of the associated practice physicians had resigned
and established their own practice. The hospital is aggressively recruiting
replacement physicians. While the ultimate impact of these events cannot be
determined, it is likely that there will be a negative effect on revenues and
net earnings of the fourth quarter of 1999 and the first quarter of 2000.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenues increased 19% for the nine months ended September 30, 1999,
compared to the nine months ended September 30, 1998. Major Network Site
contributors were Fertility Centers of Illinois, Shady Grove Fertility Centers,
and RSC of Boston, each of which comprised more than 10% of total Company
revenue. Management fees and reimbursed costs derived from network revenues at
these sites increased 19%, 67% and 19%, respectively. Increases in patient
volume were the primary cause of the Network Site revenue increases at the
Fertility Center of Illinois and the RSC of Boston. Shady Grove results include
only six months of activity for the nine months ended September 30, 1998 as its
management contract with the Company was signed in March 1998. IntegraMed
Pharmaceutical Services, which was launched in the second quarter of 1999,
accounted for $925,000, or 3%, of revenue for the nine months ended September
30, 1999. Revenue increases were partially offset by the loss of $2.2 million in
revenues related to terminated management agreements.
For the nine months ended September 30, 1999 compared to the nine months
ended September 30, 1998, total costs of services as a percentage of revenues
increased to 78.3% from 76.9%. Employee compensation and related expenses
declined as a percentage of revenue but increased in total by 17% due to
increased levels of compensation and new hires at the clinical level which were
related to volume. Other expenses as a percentage of revenue increased from
14.2% to 16.2% and in total by 36%. This was principally due to increases in
9
consulting and information system expenses for the first three quarters of 1999,
as well as increases in bad debt provisions and management fees related to the
pharmaceutical venture. Direct materials, occupancy costs and depreciation
remained relatively constant as a percentage of revenues. Direct materials
increased 22% in total primarily due to the cost of products sold at IntegraMed
Pharmaceutical Services. Occupancy costs increased 26% in total due to Shady
Grove's relocation to a newly constructed facility. The above cost increases
were partially offset by the elimination of approximately $3.0 million of costs
related to the terminated management agreements.
General and administrative expenses for the nine months ended September 30,
1999 declined slightly as a percentage of revenue but in total were
approximately 17% higher than for the nine months ended September 30, 1998. The
increase was largely due to staffing, consulting, and other cost increases
related to the development, implementation and maintenance of the Company's
proprietary ARTWorks suite of fertility care information systems.
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 11% for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998 due to a change in effective tax rates as a result of tax planning
initiatives.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities. More recently, the Company used bank resources to
finance working capital and acquisitions. The Company anticipates that its
acquisition strategy will continue to require substantial capital investment. In
order to effect future acquisitions, the Company may pursue a course of equity
or debt financing, or may choose to utilize its existing $9 million bank line of
credit. Capital is needed not only for additional acquisitions, but also for the
effective integration, operation and expansion of the Company's existing Network
Sites.
As of September 30, 1999, the Company had working capital of approximately
$6.7 million, compared to $7.7 million at December 31, 1998. The net decrease in
working capital was primarily due to fixed asset and leasehold improvement
purchases of $2,005,000, the repurchase of 170,600 shares of the Company's
Common Stock for an aggregate purchase price of $733,000 and the $773,000
reduction in long-term debt. These outflows were partially offset by inflows
from patient and management fee receivables.
In November 1999, the Board of Directors of the Company authorized the
repurchase of up to an additional $2,000,000 of the Company's Common Stock, from
time to time, at fair market value, on the open market or through privately
negotiated transactions.
Year 2000 Issue
The Company's management has recognized the importance that its operations
and relationships with its vendors and other third parties 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 and assessed the Y2K 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
10
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
installed as of November 1999. The Company has 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. The Corporate Office has been in communication
with these payors throughout the country to ensure that these payors will be Y2K
compliant and will be able to process the Medical Practices' claims
uninterrupted. The network sites will continue with "follow-ups" to this
corporate initiated process where compliance is in question. In addition, the
Company deals with numerous financial institutions, all of which have indicated
that the Y2K compliance issue is being addressed proactively and should not
present a problem on or after January 1, 2000.
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.
11
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.
None; no material developments in previously reported
matters.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a)Exhibits
See Index to Exhibits on page 15.
(b)Reports on Form 8-K
None.
13
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: November 15, 1999 By: /s/John W. Hlywak, Jr.
-----------------------------------
John W. Hlywak, Jr.
Sr. Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
10.88(b) -- Management Agreement between IntegraMed America, Inc. and MPD
Medical Associates, P.C. dated July 1, 1999.
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.
10.113(b) -- Master Lease Agreement between Fleet Capital Corporation and
IntegraMed America, Inc.
27 -- Financial Data Schedule
15