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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20260
Commission File No. 1-11440
INTEGRAMED AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
One Manhattanville Road
Purchase, New York
(Address of principal executive offices)
06-1150326
(I.R.S. employer identification no.)
10577
(Zip code)
(914) 253-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on November 7, 1996 was 9,226,807.
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<PAGE>
INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1996
(unaudited) and December 31, 1995........................ 3
Consolidated Statement of Operations for the three and
nine-month period ended September 30, 1996 and
1995 (unaudited)......................................... 4
Consolidated Statement of Cash Flows for the nine-month
period ended September 30, 1996 and 1995 (unaudited)..... 5
Notes to Consolidated Financial Statements (unaudited)..6-12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................13-17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 18
Item 2. Changes in Securities...................................... 18
Item 3. Defaults upon Senior Securities.............................18
Item 4. Submission of Matters to a Vote of Security Holders.........18
Item 5. Other Information...........................................18
Item 6. Exhibits and Reports on Form 8-K............................18
SIGNATURES ............................................................19
INDEX TO EXHIBITS.........................................................20-23
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEET
(all dollars in thousands)
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
------- -------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents .......................................................... $ 4,806 $ 7,883
Short term investments.............................................................. 2,000 1,500
Patient accounts receivable, less allowance for doubtful accounts of $114 and $64
in 1996 and 1995, respectively.................................................... 2,451 1,271
Management fees receivable.......................................................... 1,098 1,125
Research fees receivable............................................................ 223 -
Other current assets ............................................................... 621 508
Controlled assets of Medical Providers- (see Note 2):
Cash............................................................................ 250 296
Accounts receivable, less allowance for doubtful accounts of $126 and $25 in
1996 and 1995, respectively.................................................. 859 1,449
Other current assets ........................................................... 19 14
------- -------
Total controlled assets of Medical Providers................................. 1,128 1,759
Total current assets......................................................... 12,327 14,046
------- -------
Fixed assets, net ................................................................ 2,940 2,266
Intangible assets, net............................................................ 5,576 1,711
Other assets...................................................................... 215 248
------- -------
Total assets................................................................. $21,058 $18,271
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 524 $ 181
Accrued liabilities................................................................. 1,310 1,307
Due to Medical Providers-(see Note 2)............................................... 678 606
Dividends accrued on Preferred Stock................................................ 298 946
Current portion of exclusive management rights obligation........................... 222 297
Current portion of long-term debt................................................... 409 274
Patient deposits ................................................................... 429 411
------- -------
Total current liabilities.................................................... 3,870 4,022
------- -------
Exclusive management rights obligation................................................ 1,252 978
Long-term debt ....................................................................... 631 340
Commitments and contingencies- (see Note 5)........................................... - -
Shareholders' equity - (see Note 3)
Preferred Stock, $1.00 par value -
3,165,644 and 3,785,378 shares authorized in 1996 and 1995, respectively -
2,500,000 undesignated; 665,644 and 1,285,378 shares designated as Series A
Cumulative Convertible in 1996 and 1995, respectively, of which 165,644 and
785,378
shares were issued and outstanding in 1996 and 1995, respectively................. 166 785
Common Stock, $.01 par value - 25,000,000 shares authorized; 9,218,311 and
6,086,910 shares issued and outstanding in 1996 and 1995, respectively........... 92 61
Capital in excess of par ........................................................... 35,428 31,785
Accumulated deficit ................................................................ (20,381) (19,700)
------- -------
Total shareholders' equity .................................................. 15,305 12,931
------- -------
Total liabilities and shareholders' equity................................... $21,058 $18,271
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(all amounts in thousands, except per share amounts)
<CAPTION>
For the For the
three-month period nine-month period
ended September 30, ended September 30,
1996 1995 1996 1995
------ ------ ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues, net (see Note 2)................................ $5,016 $4,088 $14,004 $12,508
Medical Provider retainage (see Note 2)................... 761 656 2,264 2,374
------ ------ ------- -------
Revenues after Medical Provider retainage (see Note 2).... 4,255 3,432 11,740 10,134
Costs of services rendered ............................... 3,678 2,433 9,228 7,438
------ ------ ------- -------
Network sites' contribution .............................. 577 999 2,512 2,696
------ ------ ------- -------
General and administrative expenses ...................... 1,153 976 2,969 2,770
Research and development.................................. 94 92 222 204
Amortization of intangible assets......................... 102 24 193 37
Interest income........................................... (108) (148) (331) (475)
Interest expense.......................................... 11 5 26 17
------ ------ ------- -------
Total other expenses...................................... 1,252 949 3,079 2,553
------ ------ ------- -------
(Loss) income before income taxes......................... (675) 50 (567) 143
Provision for income and capital taxes................... 18 38 114 125
------ ------ ------- -------
Net (loss) income......................................... (693) 12 (681) 18
Less: Dividends accrued on Preferred Stock................ 33 111 99 442
------ ------ ------- -------
Net loss applicable to Common Stock
before consideration for induced
conversion of Preferred Stock.......................... $ (726) $ (99) $ (780) $ (424)
====== ====== ======= =======
Net loss per share of Common Stock
before consideration for induced
conversion of Preferred Stock.......................... $(0.08) $(0.02) $ (0.11) $ (0.07)
====== ====== ======= =======
Net loss per share of Common Stock (see Note 3) .......... $(0.46) $(0.02) $ (0.58) $ (0.07)
====== ====== ======= =======
Weighted average number of shares of
Common Stock outstanding .............................. 8,795 6,087 7,056 6,087
====== ====== ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts in thousands)
<CAPTION>
For the
nine-month period
ended September 30,
1996 1995
------ ------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................................... $ (681) $ 18
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.............................................. 796 567
Writeoff of fixed assets in 1995........................................... - 9
Changes in assets and liabilities net of effects from acquired businesses--
(Increase) decrease in assets:
Accounts receivable................................................... (1,094) (443)
Management fees receivable............................................ 27 (711)
Research fees receivable.............................................. 31 -
Other current assets.................................................. (113) (152)
Intangible assets..................................................... (22) -
Other assets.......................................................... 33 32
Decrease (increase) in controlled assets of Medical Providers:
Accounts receivable................................................... 590 636
Other current assets.................................................. (5) 30
Increase (decrease) in liabilities:
Accounts payable...................................................... 343 (586)
Accrued liabilities................................................... (242) 490
Due to Medical Providers.............................................. 72 (131)
Patient deposits...................................................... 18 (324)
------- -------
Net cash used in operating activities....................................... (247) (565)
------- -------
Cash flows (used in) provided by investing activities:
Purchase of short-term investments....................................... (500) -
Purchase of net assets of acquired businesses............................ (271) (210)
Payments for exclusive management rights................................. (783) (250)
Purchase of fixed assets and leasehold improvements...................... (974) (693)
Sale of fixed assets and leasehold improvements.......................... - 651
------- -------
Net cash used in investing activities....................................... (2,528) (502)
------- -------
Cash flows (used in) provided by financing activities:
Principal repayments on debt............................................. (105) (56)
Principal repayments under capital lease obligations..................... (162) (105)
Purchase of Convertible Preferred Stock.................................. (84) (343)
Preferred Stock conversion costs......................................... (18) -
Proceeds from exercise of Common Stock options........................... 21 -
------- -------
Net cash used in financing activities......................................... (348) (504)
------- -------
Net decrease in cash.......................................................... (3,123) (1,571)
Cash at beginning of period................................................... 8,179 11,694
------- -------
Cash at end of period......................................................... $ 5,056 $10,123
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at September 30, 1996, and the results of
operations and cash flows for the interim period presented. Operating results
for the interim period are not necessarily indicative of results that may be
expected for the year ending December 31, 1996. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue and cost recognition --
The Company has two divisions: the Reproductive Science Center Division
(the "RSC Division") and the newly formed Adult Women's Medical Center Division
(the "AWMC Division"). The RSC Division derives its revenues from eight Network
sites which it provides management services to, including certain clinics and/or
laboratories which are directly owned; of these Network sites, the Westchester
Network site will be closed and certain of its services will be consolidated
with the Mineola, NY Network site in the fourth quarter of 1996. The AWMC
Division derives its revenues from the three women's healthcare companies and
the 51% controlling interest in the National Menopause Foundation which it
acquired in June 1996 (which combined represent one Network site referred to
herein as "AWMC of Gainesville").
Under certain management contracts and where the Company directly owns
the clinic or laboratory associated with the Network site, revenues are recorded
on a net realizable basis after deducting contractual allowances and consist of
patient fees collected by the Company on behalf of the medical institution or
medical group for ART, infertility, laboratory and peri and post menopausal
women's healthcare services performed at the Network sites and/or on its own
behalf. Under certain of these management contracts the Company is exclusively
liable to the Medical Providers for physician compensation and other medical
costs incurred ("Medical Provider retainage"), regardless of the actual revenue
generated by the Medical Provider pursuant to its contract with the Company.
Such retainage is segregated from clinical revenues and paid to or on behalf of
the Medical Provider; any balance remaining represents the Company's management
fee. Under management contracts where the Company is not exclusively liable for
the Medical Provider costs, the Company's revenues consist of management fees
which typically have two components: 1) a fixed amount per month or a fixed
percentage of both monthly net revenues and earnings after management fees; and
2)reimbursed cost of services.
Revenues and related direct costs are recognized in the period in which
the clinical and/or laboratory services are rendered by the Medical Providers.
Net realization is dependent upon benefits provided by the patient's insurance
policy or agreements between the Network site and the third-party payor.
Payments collected from patients in advance for services are included in patient
deposits. Management fees under contracts where the Company is not exclusively
liable for the Medical Provider costs are recorded on a net realizable basis and
are recognized in the period in which such services are rendered by the Company.
Costs incurred in managing the Network sites, excluding Medical Provider
retainage for certain contracts, are included in "Cost of services rendered".
6
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Revenues also include amounts earned under research study contracts
between AWMC of Gainesville and various pharmaceutical companies. AWMC of
Gainesville contracts with major pharmaceutical companies (sponsors) to perform
women's medical care research mainly to determine the safety and efficacy of a
medication. Based on the data collected from studies conducted by AWMC of
Gainesville and other non-related centers for major pharmaceutical companies,
the Food and Drug Administration (FDA) determines whether a medication can be
manufactured and made available to the public. Research revenues are recognized
pursuant to each respective research contract in the period which the medical
services (as stipulated by the research study protocol) are performed and
collection of such fees is considered probable. Net realization is dependent
upon final approval by the sponsor that procedures were performed according to
study protocol. Payments collected from sponsors in advance for services are
included in accrued liabilities, and costs incurred in performing the research
studies are included in "Cost of services rendered".
Patient accounts receivable --
Patient accounts receivable represent receivables from patients for
medical services provided by the Medical Providers. Such amounts are recorded
net of contractual allowances and estimated bad debts. As of September 30, 1996
and December 31, 1995, approximately $656,000 and $150,000, respectively, of
accounts receivable were a function of Network site revenue (i.e., the Company
purchased the accounts receivable from the Medical Providers) and the $1,795,000
and $1,121,000 balance, respectively, was a function of net revenues of the
Company (see Note 2 -- "Revenue and Cost Recognition").
Management fees receivable --
Management fees receivable represent fees owed to the Company pursuant to
its management agreements with certain Network sites (see Note 2 - "Revenue and
cost recognition").
Research Fees Receivable --
Research fees receivable represent receivables from pharmaceutical
companies for medical services provided by AWMC of Gainesville to patients
pursuant to protocols stipulated under research study contracts between the
pharmaceutical companies and AWMC.
Controlled assets of Medical Providers --
Controlled cash represents segregated cash held in the name of certain
Medical Providers; controlled accounts receivable represent patient receivables
due to certain Medical Providers, and controlled other current assets represent
assets owned by and held in the name of certain Medical Providers, all of which
are reflected on the Company's balance sheet due to the Company's unilateral
control of such assets.
At September 30, 1996 and December 31, 1995, of the $1,128,000 and
$1,759,000 controlled assets of Medical Providers, $372,000 and $279,000,
respectively, was restricted for payment of the amounts due to Medical Providers
and the balance of $756,000 and $1,480,000 was payable to the Company.
7
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Intangible Assets --
Exclusive Management Rights, Goodwill and Other Intangible Assets
Exclusive management rights, goodwill and other intangible assets
represent costs incurred by the Company for the right to manage and/or acquire
certain Network sites and are valued at cost less accumulated amortization.
Trademarks
Trademarks represent trademarks, service marks, trade names and logos
purchased by the Company and are valued at cost less accumulated amortization.
Amortization and Recoverability
The Company periodically reviews its intangible assets to assess
recoverability and impairments would be recognized in the consolidated statement
of operations if a permanent impairment were determined to have occurred.
Recoverability of intangibles is determined based on undiscounted expected
earnings from the related business unit or activity over the remaining
amortization period. Exclusive management rights are amortized over the term of
the respective management agreement, usually ten years. Goodwill and other
intangibles are amortized over periods ranging from three to forty years.
Trademarks are amortized over seven years.
Minority Interest --
Minority interest represents a 49% interest in the National Menopause
Foundation held by the original owner, now a significant shareholder of the
Company. The Company acquired its 51% interest in this entity in June 1996. At
September 30, 1996, the minority interest is included in accrued liabilities in
the consolidated balance sheet.
NOTE 3 - SHAREHOLDERS' EQUITY:
On June 6, 1996, the Company made a new conversion offer (the "Offer") to
the holders ("Preferred Stockholders") of the 773,878 outstanding shares of the
Company's Series A Convertible Preferred Stock ("Preferred Stock"). Under the
Offer, Preferred Stockholders received four shares of the Company's Common Stock
upon conversion of a share of Convertible Preferred Stock subject to the terms
and conditions set forth in the Offer. The Offering was conditioned upon a
minimum of 400,000 shares of Preferred Stock being tendered; provided that the
Company reserved the right to accept fewer shares. Upon expiration of the Offer
on July 17, 1996, the Company accepted for conversion 608,234 shares, or 78.6%
of the Convertible Preferred Stock outstanding, constituting all the shares
validly tendered. Following the transaction, there were 9,198,375 shares of
IntegraMed America's Common Stock outstanding and 165,644 shares of Convertible
Preferred Stock outstanding.
The pro-forma effect of this change, as if the conversion occurred on
January 1, 1996, would have resulted in a reduction in the net loss applicable
to Common Stockholders from $(0.11) per share to $(0.09) per share for the
nine-month period ended September 30, 1996. The pro-forma effect of this change,
as if the conversion occurred on January 1, 1995, would have resulted in a
reduction in the net loss applicable to Common Stockholders from $(0.07) per
share to $(0.01) per share for the nine-month period ended September 30, 1995.
The pro forma loss per share calculations give effect to the 2,432,936 Common
Shares which were issued in the conversion and the elimination of accrued
dividends related to the converted Preferred Shares of approximately $243,000
for both 1996 and 1995, respectively. However, the pro forma information does
not give effect to the inducement discussed in the following paragraph.
8
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Under the Offer, Preferred Stockholders received four shares of Common
Stock for each share of Preferred Stock converted. This Offer represented an
increase from the original terms of the Preferred Stock which provided for 1.45
shares of Common Stock for each share of Preferred Stock (after adjustment for
the failure of the Company to pay eight dividends and after adjustment for the
issuance of Common Stock pursuant to its acquisition of AWMC of Gainesville).
Since the Company issued an additional 1,550,997 shares of Common Stock in the
conversion offer compared to the shares that would have been issued under the
original terms of the Preferred Stock, the Company was required, pursuant to a
recently enacted accounting pronouncement, to deduct the fair value of these
additional shares of approximately $4,265,000 from earnings available to Common
Stockholders. This non-cash charge, partially offset by the reversal of $973,000
accrued dividends attributable to the conversion, resulted in the increase in
net loss per share by approximately $(.38) and $(.47) in the three and
nine-month period ended September 30, 1996, respectively. While this charge is
intended to show the cost of the inducement to the owners of the Company's
Common Stock immediately before the conversion offer, management does not
believe that it accurately reflects the impact of the conversion offer on the
Company's Common Stockholders. As a result of the conversion, the Company
reversed $973,000 in accrued dividends from its balance sheet and the conversion
will save the Company from accruing annual dividends of $486,000 and the need to
include these dividends in earnings per share calculations. The conversion has
also eliminated a $6.1 million liquidation preference related to the shares of
Preferred Stock converted.
As of September 30, 1996, dividend payments of $298,000 were in arrears
as a result of the Company's Board of Directors suspending nine consecutive
quarterly dividend payments on the Preferred Stock.
NOTE 4 - ACQUISITIONS
The transactions detailed below were accounted for by the purchase method
and the purchase price has been allocated to the assets acquired and liabilities
assumed based upon the estimated fair value at the date of acquisition. The
unaudited consolidated financial statements include the results of these
transactions from their respective dates of acquisition.
On June 7, 1996, the Company entered into an Agreement and Plan of Merger
(the "Agreement") pursuant to which INMD Acquisition Corp. ("IAC"), a Florida
corporation and wholly-owned subsidiary of the Company, acquired all of the
outstanding stock of the following three related Florida corporations: The
Climacteric Clinic, Inc. ("CCI"), Midlife Centers of America, Inc. ("MCA"), and
Women's Research Centers, Inc. ("WRC"), America (collectively "the Merger
Companies"), and 51% of the outstanding stock of the National Menopause
Foundation, Inc. ("NMF"), also a related Florida corporation. Pursuant to the
Agreement, the Merger Companies were merged with and into IAC, the surviving
corporation in the Merger, which will continue its corporate existence under the
laws of the State of Florida under the name Adult Women's Medical Center, Inc.
("AWMC"). In exchange for the shares of the Merger Companies, the Company paid
cash in an aggregate amount of $350,000 and issued 666,666 shares of Common
Stock which had a market value of $2.5 million. In exchange for the 51% of the
outstanding stock of NMF, the Company paid cash in an aggregate amount of
$50,000 and issued a note in an amount of $600,000, which is payable in sixteen
quarterly installments of $37,500 beginning September 1, 1996 with simple
interest at a rate of 4%.
The aggregate purchase price of the Merger Companies of $2,850,000 was
allocated as follows to assets acquired and liabilities assumed: $338,000 to
current assets, $99,000 to fixed assets, $214,000 to intangible assets which
will be amortized over a three-year period, $235,000 to accrued liabilities,
$97,000 to debt and the balance of $2,531,000 to goodwill, which will be
amortized over a forty-year period. The aggregate purchase price of NMF of
$650,000 was allocated as follows: $2,000 to current assets, $30,000 to fixed
assets, $10,000 to current liabilities and the $628,000 balance to goodwill,
which will be amortized over a forty-year period.
9
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
On May 15, 1996, the Company entered into an asset purchase and a long
term management agreement with W.F. Howard, M.D., P.A. near Dallas, Texas (the
"Reproductive Science Center ("RSC") of Dallas"), a provider of conventional
infertility and assisted reproductive technology services. The aggregate
purchase price was approximately $701,500 of which approximately $244,000 was
paid at closing and the Company issued a promissory note for the $457,500
balance which is payable as follows: $100,000 on the last business day of May
1997 and 1998, and $36,786 on the last business day of May in each of the seven
years thereafter, thru May 2005. The aggregate purchase price was allocated to
fixed assets in the amount of $144,000 and the balance of $557,500 to exclusive
management rights, which will be amortized over the ten year term of the
agreement.
The following unaudited pro forma results of operations have been
prepared by management based on the unaudited financial information of the
Merger Companies, NMF and the RSC of Dallas adjusted where necessary, with
respect to pre-acquisition periods, to the basis of accounting used in the
historical financial statements of the Company. Such adjustments include
modifying the unaudited results to reflect operations as if the related
management agreements had been consummated on January 1, 1996 and 1995,
respectively. Additional general corporate expenses which would have been
required to support the operations of the new Network sites are not included in
the pro forma results. The unaudited pro forma results may not be indicative of
the results that would have occurred if the acquisition and management agreement
had been in effect on the dates indicated or which may be obtained in the
future.
For the
nine-month period
ended September 30,
1996 1995
------ ------
(unaudited)
Revenues, net.................................... $16,120,000 $15,933,000
(Loss) income before income taxes (1)............ $ (966,000) $ 837,000
Net (loss) income applicable to Common Stock
(includes $99,000 and $442,000 dividends
accrued on Preferred Stock for the nine-month
period ended September 30, 1996 and 1995,
respectively) before consideration for induced
conversion of Preferred Stock.................... $(1,179,000) $ 202,000
Net (loss) income per share of Common Stock before
consideration for induced conversion of
Preferred Stock.................................. $ (0.16) $ 0.03
(1) Income (loss) before income taxes include $348,000 and $192,000 of goodwill
and exclusive management rights amortization in 1996 and 1995,
respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
Reliance on Third Party Vendors --
The Network sites are dependent on three third-party vendors that supply
patient medication. Should any of these vendors experience a supply shortage of
medication, it may have an adverse impact on the operations of the Network
sites. Currently, the Network sites have not experienced any such adverse
impacts.
10
<PAGE>
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Commitments to Medical Providers --
Under certain management contracts , the Company is obligated to perform
the following: (i) advance funds to the Network site to guarantee a minimum
physician draw and/or to provide to the Network site new services, utilize new
technologies, fund projects, etc. ; and (ii) on or before the fifteenth business
day of each month purchase the net accounts receivable of the Network site
arising during the previous month and to transfer or pay to the Network site
such amount of funds equal to the net accounts receivable less any amounts owed
to the Company for management fees and/or advances. Any advances are to be
repaid monthly and interest expense, computed at the prime rate used by the
Company's primary bank in effect at the time of the advance, will be charged by
the Company for funds advanced. Advances due to the Company are included in
"management fees receivable" and net receivables purchased by the Company are
included in "patient accounts receivable" in the balance sheet as of September
30, 1996 and December 31, 1995, respectively.
Commitments to the National Menopause Foundation --
In connection with its acquisition of 51% of the outstanding stock of the
National Menopause Foundation ("NMF") in June 1996, the Company will provide
funding to and for the development of NMF on an as-needed basis during the four
year period commencing June 6, 1996 in amounts not to exceed $500,000 in the
aggregate.
Litigation -
On September 5, 1996, the plaintiff in Bernstein v. IVF America, et.al.
withdrew his appeal of the Delaware Court of Chancery's earlier decision denying
the plaintiff's claim that Preferred Stockholders were entitled to expanded
anti-dilution rights as a result of the Company's November 1994 Conversion Offer
with respect to the Preferred Stock. As a result of the plaintiff's appeal being
withdrawn, the case has been dismissed.
The plaintiffs' application for class certification in Karlin v. IVF
America, Inc. et al, filed in Supreme Court, Westchester County, New York, has
been denied by the Court. The Court ruled that the potential class of patients
treated at the IVF America Program at United Hospital did not meet the criteria
for class action status as required by New York law. In particular, the Court
reached this conclusion because, "individualized and varied issues arising out
of the particular physician-patient relationship, more aligned with the issue of
lack of informed consent, tend to predominate." While plaintiffs have appealed,
the Company is pleased by this decision, sustaining the individualized nature of
treatment at IVF America Network sites, and intends to defend vigorously the
Court's ruling.
NOTE 6 - RELATED PARTY TRANSACTION
Under the AWMC of Gainesville acquisition agreement, Morris Notelovitz,
M.D., Ph.D. ("Physician"), the founder of the Gainesville entities acquired by
the Company, became a member of the Company's Board of Directors, and, under a
long term employment agreement, the Physician will serve as Vice President for
Medical Affairs and Medical Director of the Division. The Company simultaneously
entered into an Employment Agreement with the Physician pursuant to which the
Physician will provide medical services, as defined.
NOTE 7 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH
TRANSACTIONS:
In connection with the Company's acquisition of AWMC of Gainesville in
June 1996, the Company issued 666,666 shares of Common Stock, acquired tangible
assets of $469,000, assumed current liabilities of $245,000, and debt of
$97,000, and acquired $214,000 of intangible assets and $3,159,000 of goodwill.
In connection with this transaction, the Company also issued a note payable in
the amount of $600,000 with annual interest payable at 4%.
11
<PAGE>
In May 1996, the Company entered into a management agreement with W.F.
Howard, M.D., P.A. located near Dallas, Texas. Pursuant to this agreement, the
Company incurred a $550,000 obligation for the exclusive right to manage this
facility.
Pursuant to its management agreement with the Philadelphia Clinical
Facilities, the Company incurred a $1 million obligation for the exclusive right
to manage these facilities and assumed capital lease obligations of $89,000.
At September 30, 1996 and 1995, there were accrued dividends on
Convertible Preferred Stock outstanding of $298,000 and $788,000, respectively
(see Note 3).
At September 30, 1996 and 1995 controlled cash of Medical Providers was
$250,000 and $629,000, respectively, which represented a decrease of $46,000 and
an increase of $140,000 for the nine-month period ended September 30, 1996 and
1995, respectively.
State taxes, which primarily reflect Massachusetts income taxes and New
York capital taxes of $103,000 and $132,000 were paid in the nine-month period
ended September 30, 1996 and 1995, respectively.
Interest paid in cash in the nine-month period ended September 30, 1996
and 1995 amounted to $26,000 and $17,000, respectively. Interest received in the
nine-month period ended September 30, 1996 and 1995 amounted to $360,000 and
$554,000, respectively.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in this
quarterly report and with the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
General
The Company achieved revenue growth of approximately 22.7% and 12% for the
three and nine-month periods ended September 30, 1996, respectively, primarily
attributable to its acquisition efforts. Network site contribution was down by
42.2% and 6.8% for these same periods, primarily due to a $408,000 and $621,000
non-recurring loss, respectively, which included a reserve recorded in the 1996
third quarter associated with the closing and consolidation of the Westchester
Network site with the Mineola, NY (the "Long Island") Network site effective
November 18, 1996. As discussed in previous quarters, the Westchester Network
site has had continued revenue and contribution declines from the prior year,
and this action marks the Company's final transition from pre-1995 management
contracts, which generally had higher cost structures and less favorable terms
for the Company compared to current contracts.
In the third quarter, the Company accepted for conversion 78.6% of its
outstanding Convertible Preferred Stock. As a result of the conversion, the
Company reversed $973,000 in accrued dividends from its balance sheet and the
conversion will save the Company from accruing annual dividends of $486,000 and
the need to include these dividends in earnings per share calculations.
Revenue and Cost Recognition
The Company has two divisions: the Reproductive Science Center Division
(the "RSC Division") and the newly formed Adult Women's Medical Center Division
(the "AWMC Division"). The RSC Division derives its revenues from eight Network
sites which it provides management services to, including certain clinics and/or
laboratories which are directly owned; as discussed above, the Westchester
Network site will be closed and certain of its services will be consolidated
with the Long Island Network site in the fourth quarter of 1996. The AWMC
Division derives its revenues from the three women's healthcare companies and
the 51% controlling interest in the National Menopause Foundation which it
acquired in June 1996 (which combined represent one Network site referred to
herein as "AWMC of Gainesville").
Under certain management contracts and where the Company directly owns
the clinic or laboratory associated with the Network site, revenues are recorded
on a net realizable basis after deducting contractual allowances and consist of
patient fees collected by the Company on behalf of the medical institution or
medical group for ART, infertility, laboratory and peri and post menopausal
women's healthcare services performed at the Network sites and/or on its own
behalf. Under certain of these management contracts the Company is exclusively
liable to the Medical Providers for physician compensation and other medical
costs incurred ("Medical Provider retainage"), regardless of the actual revenue
generated by the Medical Provider pursuant to its contract with the Company.
Such retainage is segregated from clinical revenues and paid to or on behalf of
the Medical Provider; any balance remaining represents the Company's management
fee. Under management contracts where the Company is not exclusively liable for
the Medical Provider costs, the Company's revenues consist of management fees
which typically have two components: 1) a fixed amount per month or a fixed
percentage of both monthly net revenues and earnings after management fees; and
2) reimbursed cost of services.
Revenues and related direct costs are recognized in the period in which
the clinical and/or laboratory services are rendered by the Medical Providers.
Net realization is dependent upon benefits provided by the patient's insurance
policy or agreements between the Network site and the third-party payor.
Payments collected from patients in advance for services are included in patient
deposits. Management fees under contracts where the Company is not exclusively
liable for the Medical Provider costs are recorded on a net realizable basis and
are recognized in the period in which such services are rendered by the Company.
Costs incurred in managing the Network sites, excluding Medical Provider
retainage for certain contracts, are included in "Cost of services rendered".
13
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Revenues also include revenues earned under research study contracts
between AWMC of Gainesville and various pharmaceutical companies. AWMC of
Gainesville contracts with major pharmaceutical companies (sponsors) to perform
women's medical care research mainly to determine the safety and efficacy of a
medication. Based on the data collected from studies conducted by AWMC of
Gainesville and other non-related centers for major pharmaceutical companies,
the Food and Drug Administration (FDA) determines whether a medication can be
manufactured and made available to the public. Research revenues are recognized
pursuant to each respective research contract in the period which the medical
services (as stipulated by the research study protocol) are performed and
collection of such fees is considered probable. Net realization is dependent
upon final approval by the sponsor that procedures were performed according to
study protocol. Payments collected from sponsors in advance for services are
included in accrued liabilities, and costs incurred in performing the research
studies are included in "Cost of services rendered".
Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Revenues for 1996 were approximately $5.0 million, an increase of 22.7%
compared to approximately $4.1 million for 1995. The increase in revenues was
due to revenues related to Network sites acquired in the second and fourth
quarters of 1995 and the second quarter of 1996, and to a 63.4% increase in
revenue related to the Long Island Network site primarily due to an increase in
volume principally attributable to the operational changes effected by the
Company in the 1995 second quarter. These favorable variances were partially
offset by a 40.2% decrease in revenues related to the Westchester Network site
attributable to lower volume.
Medical Provider retainage for 1996 was approximately $761,000, an
increase of 15.9%, compared to approximately $656,000 in 1995, primarily due to
an increase in physician compensation at the Boston Network site attributable to
the addition of a physician who commenced services in July 1995 and to
renegotiated physician compensation, partially offset by the decrease in volume
and a negotiated reduction in hospital contract fees at the Westchester Network
site.
The increase in revenues more than offsets the increase in Medical
Provider retainage resulting in an increase of 24.0% in revenues after Medical
Provider retainage in 1996 compared to 1995.
Cost of services rendered were approximately $3.7 million in 1996, an
increase of 51.2%, compared to approximately $2.4 million in 1995. Such increase
was primarily due to the Network sites acquired in the second and fourth quarter
of 1995 and the second quarter of 1996, partially offset by the effects of the
new management contract related to the New Jersey Network site and lower costs
of services at the Westchester Network site attributable to lower volume and
certain cost reductions implemented by management.
General and administrative expenses for 1996 were $1.2 million compared
to $976,000 in 1995. Such increase was primarily attributable to general office
costs attributable to the opening of regional offices in the 1995 third quarter
and in 1996 to facilitate future growth, to costs incurred in creating the
infrastructure for the new Adult Women's Medical Division, and to an increase in
travel costs related to the Company's growth strategy and to managing additional
network sites.
Research and development expenses were $94,000 in 1996 and $92,000 in
1995 representing funding pursuant to the Company's new collaborative agreement
with Monash University in 1996 and development costs related to genetic and
immature oocyte testing.
Amortization of intangible assets was $102,000 in 1996 compared to
$24,000 in 1995 and principally represented the amortization of the purchase
price paid by the Company for the exclusive right to manage Network sites which
were acquired in the second and fourth quarters of 1995 and the second quarter
of 1996 over the ten-year term of each management agreement. The 1996 expense
amount also includes goodwill and other intangible asset amortization related to
the Company's acquisition of AWMC of Gainesville in June 1996.
Interest income for 1996 was $108,000 compared to $148,000 in 1995. This
decrease was due to a lower cash balance and lower short-term interest rates
(refer to "Liquidity and Capital Resources").
14
<PAGE>
The provision for income and capital taxes primarily reflected
Massachusetts income taxes and New York capital taxes in 1996 and 1995,
respectively.
Net loss was $693,000 in 1996 compared to net income of $12,000 in 1995.
This net loss was primarily due to a $422,000 decrease in contribution primarily
attributable to a $408,000 non-recurring loss associated with the Westchester
Network site, which included a reserve to account for the closing and
consolidation of this site with the Long Island Network site, partially offset
by a significant increase in contribution from the Long Island Network site. The
net loss was also due to a $177,000 increase in general and administrative
expenses, a $78,000 increase in amortization of exclusive management rights and
goodwill and a $40,000 decrease in interest income.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Revenues for 1996 were approximately $14.0 million, an increase of 12.0%
compared to approximately $12.5 million for 1995. The increase in revenues was
due to revenues related to Network sites acquired in the second and fourth
quarters of 1995 and the second quarter of 1996 and to a 13.3% increase in
revenue related to the Boston Network site attributable to both higher volume
and to a more favorable service mix. These favorable variances were partially
offset by a 38.8% decrease in revenues related to the Westchester Network site
attributable to lower volume and the effects of the Company's new management
contract related to the New Jersey Network site.
Medical Provider retainage for 1996 was approximately $2.3 million, a
decrease of 4.6%, compared to approximately $2.4 million in 1995, primarily due
to the decrease in volume and a negotiated reduction in hospital contract fees
at the Westchester Network site, management contract changes related to the New
Jersey Network site, and to operational changes at the Long Island Network site.
These favorable variances were partially offset by an increase in physician
compensation at the Boston Network site attributable to the addition of a
physician who commenced services in July 1995 and to renegotiated physician
compensation.
The increase in revenues and the decrease in Medical Provider retainage
resulted in an increase of 15.8% in revenues after Medical Provider retainage in
1996 compared to 1995.
Cost of services rendered were approximately $9.2 million in 1996, an
increase of 24.1%, compared to approximately $7.4 million in 1995. Such increase
was primarily due to the new management contracts acquired in the second and
fourth quarter of 1995 and the second quarter of 1996, and to a $365,000 reserve
recorded in the third quarter associated with the closing and consolidation of
the Westchester Network site with the Long Island Network site, partially offset
by the effects of the new management contract related to the New Jersey Network
site, which included the reversal of $120,000 in deferred rent in the 1996 first
quarter, and the modification and relocation of the Long Island Network site's
operations in the 1995 second quarter.
General and administrative expenses were approximately $3.0 million in
1996 and $2.8 million in 1995. Such increase was primarily attributable to
general office costs attributable to the opening of regional offices in the 1995
third quarter and in 1996 to facilitate future growth, to costs incurred in
creating the infrastructure for the new Adult Women's Medical Division, and an
increase in travel costs related to the Company's growth strategy and to
managing additional network sites.
Research and development expenses were $222,000 in 1996 and $204,000 in
1995. Such increase was due to funding pursuant to the Company's new
collaborative agreement with Monash University, partially offset by a decrease
in development costs related to genetic and immature oocyte testing.
Amortization of intangible assets was $193,000 in 1996 compared to
$37,000 in 1995 and principally represented the amortization of the purchase
price paid by the Company for the exclusive right to manage Network sites which
were acquired in the second and fourth quarters in 1995 and the second quarter
of 1996 over the ten-year term of each management agreement. The 1996 expense
amount also includes goodwill and other intangible asset amortization related to
the Company's acquisition of AWMC of Gainesville in June 1996.
Interest income for 1996 was $331,000 compared to $475,000 in 1995. This
decrease was due to a lower cash balance and lower short-term interest rates
(refer to "Liquidity and Capital Resources").
15
<PAGE>
The provision for income taxes primarily reflected Massachusetts income
taxes and New York capital taxes in 1996 and 1995, respectively.
Net loss was $681,000 in 1996 compared to net income of $18,000 in 1995.
This net loss was primarily due to a $184,000 decrease in contribution
attributable to a $621,000 non-recurring loss associated with the Westchester
Network site, inclusive of a reserve to account for the closing and
consolidation of this site with the Long Island Network site, partially offset
by significant increases in contribution from the New Jersey and Long Island
Network sites. The net loss was also due to a $198,000 increase in general and
administrative expenses, a $156,000 increase in exclusive management right and
goodwill amortization, and a $144,000 decrease in interest income.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities and loans from its shareholders. The Company has
raised approximately $41.3 million in gross proceeds from the sale of equity
securities, including approximately $6.2 million ($4.4 million, net) from its
initial public offering of Common Stock in October 1992 and $20.0 million ($16.8
million, net) from its public offering of Convertible Preferred Stock in May
1993.
At September 30, 1996, the Company had working capital of $8.5 million
(including $1.1 million of controlled assets of Medical Providers),
approximately $7.1 million of which consisted of cash and cash equivalents
(including $250,000 of controlled cash) and short term investments, compared to
working capital of $10.0 million at December 31, 1995 (including $1.8 million of
controlled assets of Medical Providers), $9.7 million of which consisted of cash
and cash equivalents (including $296,000 of controlled cash). The decrease in
working capital during 1996 was principally due to payments of $1,054,000 for
exclusive management rights and acquisitions, fixed asset purchases and
leasehold improvements for existing Network sites of $974,000, a $343,000
increase in accounts payable, and a $60,000 net increase in short-term debt and
exclusive management rights obligation. These decreases in working capital were
partially offset by a $648,000 decrease in the Company's accrued dividend
obligation on its Convertible Preferred Stock due to the July 1996 conversion
offer, a $446,000 net increase in aggregate patient, management and research
accounts receivable, a $242,000 decrease in accrued liabilities, and a $118,000
increase in other current assets primarily related to prepaid insurance and
taxes.
As of November 7, 1996, the Company has a $1,500,000 revolving credit
facility (the "Credit Facility") issued by First Union National Bank (the
"Bank"). The interest rate on the Credit Facility is the Bank's prime rate plus
.75%. The Credit Facility terminates on April 1, 1998 and is secured by the
Company's assets. The Company acquired this Credit Facility to have an available
external source of liquidity. On a short-term basis, the Company will continue
to finance its operations from its current working capital.
The Company's current cash outflows for investment consist of payments
for acquired businesses and exclusive management rights, and equipment purchases
and leasehold improvements related to existing Network sites. In executing its
growth strategy, the Company, on a short and/or long term basis, may incur cash
outflows to acquire businesses and/or exclusive management rights, and may incur
commitments for capital expenditures to purchase additional equipment for
existing and new Network sites. Also, in connection with its acquisition of 51%
of the outstanding stock of the National Menopause Foundation ("NMF") in June
1996, the Company committed to provide funding to and for the development of NMF
on an as-needed basis during the four year period commencing June 6, 1996 in
amounts not to exceed $500,000 in the aggregate.
As of November 7, 1996, dividend payments of $298,000 were in arrears as
a result of the Company's Board of Directors suspending nine consecutive
quarterly dividend payments on the Series A Convertible Preferred Stock (the
"Preferred Stock").
16
<PAGE>
On June 6, 1996, the Company made a new conversion offer (the "Offer") to
the holders ("Preferred Stockholders") of the 773,878 outstanding shares of the
Company's Preferred Stock. Under the Offer, Preferred Stockholders received four
shares of the Company's Common Stock upon conversion of a share of Preferred
Stock subject to the terms and conditions set forth in the Offer. The Offering
was conditioned upon a minimum of 400,000 shares of Preferred Stock being
tendered; provided that the Company reserved the right to accept fewer shares.
Upon expiration of the Offer on July 17, 1996, the Company accepted for
conversion 608,234 shares, or 78.6% of the Preferred Stock outstanding,
constituting all the shares validly tendered. Following the transaction, there
were 9,198,375 shares of IntegraMed America's Common Stock outstanding and
165,644 shares of Preferred Stock outstanding. As a result of the conversion,
the Company reversed approximately $973,000 in accrued dividends from its
balance sheet and $6.1 million of liquidation preference has been eliminated.
Under certain management contracts, the Company is obligated to perform
the following: (i) advance funds to the Network site to guarantee a minimum
physician draw and/or to provide new services, utilize new technologies, fund
projects, etc.; and (ii) on or before the fifteenth business day of each month
purchase the net accounts receivable of the Network site arising during the
previous month and to transfer or pay to the Network site such amount of funds
equal to the net accounts receivable less any amounts owed to the Company for
management fees and/or advances. Any advances are to be repaid monthly and
interest expense, computed at the prime rate used by the Company's primary bank
in effect at the time of the advance, will be charged by the Company for funds
advanced.
Reliance on Third-Party Vendors
The Network sites are dependent on three third-party vendors that produce
patient medication. Should any of these vendors experience a supply shortage of
medication, it may have an adverse impact on the operations of the Network
sites. As of today, the Network sites have not experienced any such adverse
impacts.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf
of the Company, contain certain forward-looking statements, 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 success of the Company in acquiring additional management
agreements, including the Company's ability to finance future growth, increases
in overhead due to expansion, the loss of significant management contract(s),
the profitability or lack thereof at Network sites managed by the Company, the
exclusion of infertility services and women's healthcare services from insurance
coverage, government laws and regulation regarding health care, changes in
managed care contracting, and the timely development of and acceptance of new
infertility, genetic and/or women's healthcare technologies and techniques.
17
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 5, 1996, the plaintiff in Bernstein v. IVF
America, et.al. withdrew his appeal of the Delaware Court
of Chancery's earlier decision denying the plaintiff's
claim that Preferred Stockholders were entitled to expanded
anti-dilution rights as a result of the Company's November
1994 Conversion Offer with respect to the Preferred Stock.
As a result of the plaintiff's appeal being withdrawn, the
case has been dismissed.
The plaintiffs' application for class certification in
Karlin v. IVF America, Inc. et al, filed in Supreme Court,
Westchester County, New York, has been denied by the Court.
The Court ruled that the potential class of patients
treated at the IVF America Program at United Hospital did
not meet the criteria for class action status as required
by New York law. In particular, the Court reached this
conclusion because, "individualized and varied issues
arising out of the particular physician-patient
relationship, more aligned with the issue of lack of
informed consent, tend to predominate." While plaintiffs
have appealed, the Company is pleased by this decision,
sustaining the individualized nature of treatment at IVF
America Network sites, and intends to defend vigorously the
Court's ruling.
Item 2. Changes in Securities.
On June 6, 1996, the Company made a new conversion offer
(the "Offer") to the holders ("Preferred Stockholders") of
the 773,878 outstanding shares of the Company's Series A
Convertible Preferred Stock ("Preferred Stock"). Under the
Offer, Preferred Stockholders received four shares of the
Company's Common Stock upon conversion of a share of
Convertible Preferred Stock subject to the terms and
conditions set forth in the Offer. The Offering was
conditioned upon a minimum of 400,000 shares of Preferred
Stock being tendered; provided that the Company reserved the
right to accept fewer shares. Upon expiration of the Offer
on July 17, 1996, the Company accepted for conversion
608,234 shares, or 78.6% of the Convertible Preferred Stock
outstanding, constituting all the shares validly tendered.
Following the transaction, there were 9,198,375 shares of
IntegraMed America's Common Stock outstanding and 165,644
shares of Convertible Preferred Stock outstanding.
Under the Offer, Preferred Stockholders received four
shares of Common Stock for each share of Preferred Stock
converted. This Offer represented an increase from the
original terms of the Preferred Stock which provided for
1.45 shares of Common Stock for each share of Preferred
Stock (after adjustment for the failure of the Company to
pay eight dividends and after adjustment for the issuance
of Common Stock pursuant to its acquisition of AWMC of
Gainesville). Since the Company issued an additional
1,550,997 shares of Common Stock in the conversion offer
compared to the shares that would have been issued under
the original terms of the Preferred Stock, the Company was
required, pursuant to a recently enacted accounting
pronouncement, to deduct the fair value of these additional
shares of approximately $4,265,000 from earnings available
to Common Stockholders. This non-cash charge, partially
offset by the reversal of $973,000 accrued dividends
attributable to the conversion, resulted in the increase in
net loss per share by approximately $(.38) and $(.47) in
the three and nine-month period ended September 30, 1996,
respectively. While this charge is intended to show the
cost of the inducement to the owners of the Company's
Common Stock immediately before the conversion offer,
management does not believe that it accurately reflects the
impact of the conversion offer on the Company's Common
Stockholders. As a result of the conversion, the Company
reversed $973,000 in accrued dividends from its balance
sheet and the conversion will save the Company from
accruing annual dividends of $486,000 and the need to
include these dividends in earnings per share calculations.
The conversion has also eliminated a $6.1 million
liquidation preference related to the shares of Preferred
Stock converted.
Item 3. Defaults Upon Senior Securities.
As of November 7, 1996, dividend payments of $298,000 on
the Series A Cumulative Convertible Preferred Stock were in
arrears. As a result of the Company's July 1996 conversion
offer to Preferred Stockholders, the Company reversed
approximately $973,000 in accrued dividends from its
balance sheet in the third quarter of 1996.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
See Index to Exhibits on pages 20-23.
(b) Reports on Form 8-K.
On August 20, 1996, the Company filed with the
Securities and Exchange Commission a Form 8-K/A
reporting the required audited financial statements and
pro forma information associated with the businesses
acquired by the Company in May and June 1996.
18
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
(Registrant)
Date: November 13, 1996 By: /s/ Dwight P. Ryan
------------------
Dwight P. Ryan
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<PAGE>
Exhibit No. Exhibit
3.1(a) --Amended and Restated Certificate of Incorporation of Registrant
effecting, inter alia, reverse stock split (ii)
3.1(b) --Amendment to Certificate of Incorporation of Registrant increasing
authorized capital stock by authorizing Preferred Stock (ii)
3.1(c) --Certificate of Designations of Series A Cumulative Convertible
Preferred Stock (ii)
3.2 --Copy of By-laws of Registrant (i)
3.2(a) --Copy of By-laws of Registrant (As Amended and Restated on December 12,
1995) (xi)
4.1 --Warrant Agreement of Robert Todd Financial Corporation. (i)
4.2 --Copy of Warrant, as amended, issued to IG Labs. (i)
4.3 --RAS Securities Corp. and ABD Securities Corporation's Warrant
Agreement. (ii)
4.4 --Form of Warrants issuable to Raymond James & Associates, Inc. (vii)
10.1 --Copy of Registrant's 1988 Stock Option Plan, including form of option
(i)
10.2 --Copy of Registrant's 1992 Stock Option Plan, including form of option
(i)
10.4 --Severance arrangement between Registrant and Vicki L. Baldwin (i)
10.4(a)--Copy of Change in Control Severance Agreement between Registrant and
Vicki L. Baldwin (vii)
10.5(a)--Copy of Severance Agreement with Release between Registrant and David
J. Beames (iv)
10.6 --Severance arrangement between Registrant and Donald S. Wood (i)
10.6(a)--Copy of Executive Retention Agreement between Registrant and Donald S.
Wood, Ph.D. (viii)
10.7(a)--Copy of lease for Registrant's executive offices relocated to
Purchase, New York (viii)
10.8 --Copy of Lease Agreement for medical office in Mineola, New York (i)
10.8(a)--Copy of new 1994 Lease Agreement for medical office in Mineola, New
York (v)
10.8(b)--Copy of Letter of Credit in favor of Mineola Pavilion Associates, Inc.
(viii)
10.9 --Copy of Service Agreement for ambulatory surgery center in Mineola,
New York (i)
10.10 --Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York (i)
20
<PAGE>
INDEX TO EXHIBITS (continued)
Exhibit No. Exhibit
10.10 --Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York dated September 1, 1994 (vii)
10.10(a)--Copy of Agreement with MPD Medical Associates, P.C. for Center in
Mineola, New York dated September 1, 1994 (vii)
10.11 --Copy of Service Agreement with United Hospital (i)
10.12 --Copy of Service Agreement with Waltham Weston Hospital and Medical
Center (i)
10.15(a)--Copy of post-Dissolution Consulting Agreement between Registrant and
Allegheny General Hospital (vi)
10.18(a)--Copy of post-Dissolution Consulting, Training and License Agreement
between Registrant and Henry Ford Health Care Systems (iii)
10.19 --Copy of Guarantee Agreement with Henry Ford Health System (i)
10.20 --Copy of Service Agreement with Saint Barnabas Outpatient Centers for
center in Livingston, New Jersey (i)
10.21 --Copy of Agreement with MPD Medical Associates, P.C. for center in
Livingston, New Jersey (i)
10.22 --Copy of Lease Agreement for medical offices in Livingston, New Jersey
(i)
10.23 --Form of Development Agreement between Registrant and IG Laboratories,
Inc. (i)
10.24 --Copy of Research Agreement between Registrant and Monash University
(i)
10.24(a)--Copy of Research Agreement between Registrant and Monash University
(ix)
10.28 --Copy of Agreement with Massachusetts General Hospital to establish the
Vincent Center for Reproductive Biology and a Technical Training
Center (ii)
10.29 --Copy of Agreement with General Electric Company relating to
Registrant's training program (ii)
10.30 --Copy of Indemnification Agreement between Registrant and Philippe L.
Sommer (vii)
10.31 --Copy of Employment Agreement between Registrant and Gerardo Canet
(vii)
10.31(a)--Copy of Change in Control Severance Agreement between Registrant and
Gerardo Canet (vii)
10.31(b)--Copy of the Amendment of Change in Control Severance Agreement between
Registrant and Gerardo Canet (viii)
10.33 --Copy of Change in Control Severance Agreement between Registrant and
Dwight P. Ryan (vii)
21
<PAGE>
INDEX TO EXHIBITS (continued)
Exhibit No. Exhibit
10.35 --Revised Form of Dealer Manager Agreement between Registrant and
Raymond James & Associates, Inc. (vii)
10.36 --Copy of Agreement between MPD Medical Associates, P.C. and Patricia
Hughes, M.D. (vii)
10.37 --Copy of Agreement between IVF America (NJ) and Patricia Hughes, M.D.
(vii)
10.38 --Copy of Management Agreement between Patricia M. McShane, M.D. and IVF
America (MA), Inc. (vii)
10.39 --Copy of Sublease Agreement for medical office in North Tarrytown, New
York (viii)
10.40 --Copy of Executive Retention Agreement between Registrant and Patricia
M. McShane, MD (viii)
10.41 --Copy of Executive Retention Agreement between Registrant and Lois
Dugan (viii)
10.42 --Copy of Executive Retention Agreement between Registrant and Jay
Higham (viii)
10.43 --Copy of Service Agreement between Registrant and Saint Barnabas
Medical Center (ix)
10.44 --Asset Purchase Agreement among Registrant, Assisted Reproductive
Technologies, P.C. d/b/a Main Line Reproductive Science Center,
Reproductive Diagnostics, Inc. and Abraham K. Munabi, M.D. (ix)
10.44(a)--Management Agreement among Registrant and Assisted Reproductive
Technologies, P.C. d/b/a Main Line Reproductive Science Center and
Reproductive Diagnostics, Inc. (ix)
10.44(b)--Physician Service Agreement between Assisted Reproductive Technologies
P.C. d/b/a Main Line Reproductive Science Center and Abraham K.
Munabi, M.D. (ix)
10.45 --Copy of Executive Retention Agreement between Registrant and Stephen
Comess (x)
10.46 --Copy of Executive Retention Agreement between Registrant and Peter
Callan (x)
10.47 --Management Agreement between Registrant and Robert Howe, M.D., P.C.
(x)
10.47(a)--P.C. Funding Agreement between Registrant and Robert Howe, M.D. (x)
10.48 --Management Agreement among Registrant and Reproductive Endocrine &
Fertility Consultants, P.A. and Midwest Fertility Foundations &
Laboratory, Inc. (x)
10.48(a)--Asset Purchase Agreement among Registrant and Reproductive Endocrine &
Fertility Consultants, Inc. and Midwest Fertility Foundations &
Laboratory, Inc. (x)
10.49 --Copy of Sublease Agreement for office space in Kansas City, Missouri
(x)
10.50 --Copy of Lease Agreement for office space in Charlotte, North Carolina
(x)
22
<PAGE>
INDEX TO EXHIBITS (continued)
Exhibit No. Exhibit
10.51 --Copy of Contract Number DADA15-96-C-0009 as awarded to IVF America by
the Department of the Army, Walter Reed Army Medical Center for In
Vitro Fertilization Laboratory Services (xi)
10.52 --Agreement and Plan of Merger By and Among IVF America, Inc., INMD
Acquisition Corp., The Climacteric Clinic, Inc., Midlife Centers of
America, Inc., Women's Research Centers, Inc., America, National
Menopause Foundation, Inc. and Morris Notelovitz (xii)
10.53 --Employment Agreement between Morris Notelovitz, M.D., Ph.D. and IVF
America, Inc., d/b/a IntegraMed America (xii)
10.54 --Physician Employment Agreement Between Morris Notelovitz, M.D., Ph.D.
and INMD Acquisition Corp. ("IAC"), a Florida corporation and wholly
owned subsidiary of IVF America, Inc. ("INMD") (xii)
10.55 --Management Agreement between IVF America, Inc., d/b/a IntegraMed
America, and W.F. Howard, M.D., P.A. (xii)
10.56 --Asset Purchase Agreement between IVF America, Inc., d/b/a IntegraMed
America and W.F. Howard, M.D., P.A. (xii)
11 --Computation of Per Share Earnings
27 --Financial Data Schedule
----------
(i) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-1 (Registration No. 33-47046) and incorporated
herein by reference thereto.
(ii) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-1 (Registration No. 33-60038) and incorporated
herein by reference thereto.
(iii) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994 and
incorporated herein by reference thereto.
(iv) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1994 and
incorporated herein by reference thereto.
(v) Filed as Exhibit with identical exhibit number to Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1994
and incorporated herein by reference thereto.
(vi) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form 10-K for the period ended December 31, 1993.
(vii) Filed as Exhibit with identical exhibit number to Registrant's
Statement on Form S-4 (Registration No. 33- 82038) and incorporated
herein by reference thereto.
(viii) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the period ended December 31, 1994.
(ix) Filed as Exhibit with identical number to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1995.
(x) Filed as Exhibit with identical number to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995.
(xi) Filed as Exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the period ended December 31, 1995.
(xii) Filed as Exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated June 20, 1996.
23
EXHIBIT 11
Page 1 of 2
<TABLE>
INTEGRAMED AMERICA, INC.
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
All amounts in thousands, except per share amounts
<CAPTION>
For the For the
three-month period nine-month period
ended September 30, ended September 30,
1996 1995 1996 1995
------ ------ ------- ------
Primary
<S> <C> <C> <C> <C>
Net (loss) income......................................... $ (693) $ 12 $ (681) $ 18
Less: Dividends accrued on Preferred Stock............... 33 111 99 442
------ ------ ------- ------
Net loss applicable to Common Stock before
consideration for induced conversion of
Preferred Stock........................................ $ (726) $ (99) $ (780) $ (424)
Assumed value of Common Stock issued to induce
conversion of Preferred Stock, net of the reversal of
$973,000 of accrued Preferred Stock dividends.......... $3,292 - $ 3,292 -
------ ------ ------- ------
Net loss for computation.................................. $4,018) $ (99) $(4,072) $ (424)
====== ====== ======= ======
Net loss per share of Common Stock before
consideration for induced conversion of
Preferred Stock........................................ $(0.08) $(0.02) $ (0.11) $(0.07)
Assumed value of conversion inducement.................... $(0.38) - $ (0.47) -
------ ------ ------- ------
Net loss per share of Common Stock........................ $(0.46) $(0.02) $ (0.58) $(0.07)
====== ====== ======= ======
Weighted average number of shares of Common Stock
outstanding........................................... 8,795 6,087 7,056 6,087
====== ====== ======= ======
</TABLE>
<PAGE>
EXHIBIT 11
Page 2 of 2
<TABLE>
INTEGRAMED AMERICA, INC.
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
All amounts in thousands, except per share amounts
<CAPTION>
For the For the
three-month period nine-month period
ended September 30, ended September 30,
1996 1995 1996 1995
------ ------ ------ ------
Fully Diluted
<S> <C> <C> <C> <C>
Net (loss) income......................................... $ (693) $ 12 $ (681) $ 18
====== ====== ====== ======
Weighted average number of shares of Common Stock
outstanding............................................ 6,785 6,087 6,381 6,087
Add: Common equivalent shares (determined using the
"treasury stock" method) representing incremental shares
issuable upon assumed exercise of options and warrants
using average market price............................. 37 1 244 86
Shares of Common Stock issued upon assumed conversion
of 608,234 shares of Series A Preferred Stock pursuant
to July 17, 1996 conversion offer assuming Offer was
effective January 1, 1996 and 1995, respectively....... 2,433 2,433 2,433 2,433
Shares of Common Stock issued upon assumed conversion
of Series A Preferred Stock not converted pursuant
to July 17, 1996 conversion offer...................... 245 245 245 245
------ ------ ------ ------
Average number of shares of Common Stock and Common
Stock equivalents outstanding.......................... 9,500 8,766 9,303 8,851
====== ====== ====== ======
Net (loss) income per share of Common Stock and Common
Stock equivalents...................................... $(0.07) $ 0.00 $ (0.07) $ 0.00
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 5,056
<SECURITIES> 2,000
<RECEIVABLES> 4,871
<ALLOWANCES> 240
<INVENTORY> 0
<CURRENT-ASSETS> 12,327
<PP&E> 2,940 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,058
<CURRENT-LIABILITIES> 3,870
<BONDS> 0
0
166
<COMMON> 92
<OTHER-SE> 15,047
<TOTAL-LIABILITY-AND-EQUITY> 21,058
<SALES> 14,004
<TOTAL-REVENUES> 14,004
<CGS> 11,492
<TOTAL-COSTS> 11,492
<OTHER-EXPENSES> 222
<LOSS-PROVISION> 365 <F2>
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> (567)
<INCOME-TAX> 114
<INCOME-CONTINUING> (681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (681)
<EPS-PRIMARY> (0.11) <F3>
<EPS-DILUTED> (0.07)
<FN>
<F1>
PP&E is net of accumulated depreciation.
<F2>
Represents reserve recorded to account for the closing and consolidation of the
Westchester Network site with the Mineola, NY ("Long Island") Network site.
<F3>
Represents net loss per share of Common Stock before consideration for induced
conversion of Preferred Stock. Net loss per share of Common Stock after
consideration for induced conversion of Preferred Stock was $(0.58). Refer to
Note 3 - Shareholders Equity - to Notes to Consolidated Financial Statements
(unaudited) in IntegraMed America's September 30, 1996 Form 10-Q.
</FN>
</TABLE>
