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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