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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 June 30, 2002
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
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)
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 July 31, 2002 was 3,335,765.
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INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2002 (unaudited)
and December 31, 2001.................................... 3
Consolidated Statements of Income for the three and six-month
periods ended June 30, 2002 and 2001 (unaudited)..........4
Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 2002 and 2001 (unaudited)..........5
Notes to Consolidated Financial Statements (unaudited).....6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................9-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................15
Item 2. Changes in Securities..........................................15
Item 3. Defaults upon Senior Securities................................15
Item 4. Submission of Matters to a Vote of Security Holders............15
Item 5. Other Information..............................................15
Item 6. Exhibits and Reports on Form 8-K...............................15
SIGNATURES ......................................................16
-2-
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all dollars in thousands, except per share amounts)
ASSETS
June 30 December 31,
2002 2001
-------- ------------
Cash and cash equivalents ................................................... $ 3,683 $ 8,505
Due from Medical Practices, net ............................................. 5,599 4,949
Pharmaceutical sales accounts receivable .................................... 3,403 1,511
Prepaids and other current assets ............................................ 1,999 1,961
-------- --------
Total current assets .................................................... 14,684 16,926
Fixed assets, net ........................................................... 5,655 5,263
Intangible assets, net ...................................................... 20,343 17,378
Deferred taxes .............................................................. 4,222 4,791
Other assets ................................................................ 214 263
-------- --------
Total assets ............................................................ $ 45,118 $ 44,621
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 2,097 $ 1,436
Accrued liabilities ......................................................... 4,608 5,228
Current portion of long-term notes payable and other obligations ............ 1,295 1,403
Patient deposits ............................................................ 6,418 4,651
-------- --------
Total current liabilities ............................................... 14,418 12,718
-------- --------
Long-term notes payable and other obligations ................................. 750 1,288
-------- --------
Shareholders' equity:
Preferred Stock, $1.00 par value - 3,165,644 shares authorized in 2002 and
2001, 2,500,000 undesignated; 665,644 shares designated as Series A
Cumulative Convertible of which 13,852 and 165,644 shares were issued and
outstanding in 2002 and
2001, respectively ........................................................ 14 166
Common Stock, $.01 par value - 50,000,000 shares authorized in 2002 and 2001;
and 3,114,094 and 3,057,877 shares issued in 2002 and 2001, respectively .. 31 31
Capital in excess of par .................................................... 46,103 47,218
Accumulated deficit ......................................................... (16,198) (16,800)
-------- --------
Total shareholders' equity .............................................. 29,950 30,615
-------- --------
Total liabilities and shareholders' equity .............................. $ 45,118 $ 44,621
======== ========
See accompanying notes to the consolidated financial statements.
-3-
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(all amounts in thousands, except per share amounts)
For the For the
three-month period six-month period
ended June 30, ended June 30,
-------------------- --------------------
2002 2001 2002 2001
------- ------- -------- --------
(unaudited) (unaudited)
Revenues, net
Reproductive Science Center service fees .......... $ 16,582 $ 14,646 $ 32,407 $ 27,655
Pharmaceutical sales .............................. 4,444 3,602 8,664 7,063
Other revenues .................................... 396 39 627 60
-------- -------- -------- --------
Total revenues ................................. 21,422 18,287 41,698 34,778
-------- -------- -------- --------
Cost of services and sales:
Reproductive Science Center costs ................. 14,069 12,069 27,661 22,865
Pharmaceutical costs .............................. 4,278 3,435 8,336 6,758
Other costs ....................................... 433 176 553 201
-------- -------- -------- --------
Total costs of services and sales .............. 18,780 15,680 36,550 29,824
-------- -------- -------- --------
Contribution:
Reproductive Science Center contribution .......... 2,513 2,577 4,746 4,790
Pharmaceutical contribution ....................... 166 167 328 305
Other contribution ................................ (37) (137) 74 (141)
-------- -------- -------- --------
Total contribution .............................. 2,642 2,607 5,148 4,954
-------- -------- -------- --------
General and administrative expenses .................. 1,943 1,880 3,746 3,569
Amortization of intangible assets .................... 251 225 476 441
Interest income ...................................... (14) (44) (52) (98)
Interest expense ..................................... 41 77 79 163
-------- -------- -------- --------
Total other expenses .............................. 2,221 2,138 4,249 4,075
-------- -------- -------- --------
Income before income taxes ........................... 421 469 899 879
Income tax provision ................................. 111 63 297 114
-------- -------- -------- --------
Net income ........................................... $ 310 $ 406 $ 602 $ 765
Less: Dividends paid and/or accrued on Preferred Stock 33 33 66 66
-------- -------- -------- --------
Net income applicable to Common Stock ................ $ 277 $ 373 $ 536 $ 699
======== ======== ======== ========
Basic earnings per share of Common Stock: ............ $ 0.09 $ 0.12 $ 0.17 $ 0.22
======== ======== ======== ========
Diluted earnings per share of Common Stock ........... $ 0.08 $ 0.12 $ 0.16 $ 0.22
======== ======== ======== ========
Weighted average shares - basic ...................... 3,096 2,993 3,079 3,109
======== ======== ======== ========
Weighted average shares - diluted .................... 3,485 3,105 3,372 3,150
======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
-4-
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
six-month period
ended June 30,
-----------------
2002 2001
------- -------
(unaudited)
Cash flows from operating activities:
Net income ...................................................................... $ 602 $ 765
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 1,335 1,229
Change in assets and liabilities--
Decrease (increase) in assets:
Due from Medical Practices ................................................. (650) 892
Pharmaceutical sales accounts receivable ................................... (1,892) (342)
Business Services fees receivable .......................................... 237
Prepaids and other current assets .......................................... (38) 366
Other assets ............................................................... 618 33
Increase (decrease) in liabilities:
Accounts payable .......................................................... 661 76
Accrued liabilities ....................................................... (558) (826)
Patient deposits .......................................................... 1,767 1,597
------- -------
Net cash provided by operating activities .......................................... 1,845 4,027
------- -------
Cash flows used in investing activities:
Payment for exclusive Business Service rights ................................. (3,440) (238)
Purchase of fixed assets and leasehold improvements ........................... (1,252) (1,291)
------- -------
Net cash used in investing activities .............................................. (4,692) (1,529)
------- -------
Cash flows used in financing activities:
Principal repayments on debt .................................................. (500) (500)
Principal repayments under capital lease obligations .......................... (72) (67)
Repurchase of preferred stock ................................................. (1,519) --
Repurchase of Common Stock .................................................... -- (2,029)
Proceeds from exercise of Common Stock Warrants and Options ................... 70 3
Issuance of restricted stock grants ........................................... 112 --
Dividends paid on Convertible Preferred Stock ................................. (66) (66)
------- -------
Net cash used in financing activities .............................................. (1,975) (2,659)
------- -------
Net increase (decrease) in cash .................................................... (4,822) (161)
Cash at beginning of period ........................................................ 8,505 5,306
------- -------
Cash at end of period .............................................................. $ 3,683 $ 5,145
======= =======
See accompanying notes to the consolidated financial statements.
-5-
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at June 30, 2002, 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, 2002. These financial statements should be read
in conjunction with the financial statements and notes thereto included in
IntegraMed America's (the "Company") Annual Report on Form 10-K for the year
ended December 31, 2001.
NOTE 2 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS from continuing operations computations for the three-month and
six-month periods ended June 30, 2002 and 2001 is as follows (000's omitted,
except for per share amounts):
For the For the
three-month period six-month period
ended June 30, ended June 30,
------------------- ------------------
2002 2001 2002 2001
------- ------ -------- -------
Numerator
Net Income ................................... $ 310 $ 406 $ 602 $ 765
Less: Preferred stock dividends .............. (33) (33) (66) (66)
------- ------- ------- -------
Income applicable to Common Stock ............ $ 277 $ 373 $ 536 $ 699
======= ======= ======= =======
Denominator
Weighted average shares outstanding .......... 3,096 2,993 3,079 3,109
Effect of dilutive options and warrants ...... 389 112 293 41
------- ------- ------- -------
Weighted average shares and dilutive potential
Common shares ................................ 3,485 3,105 3,372 3,150
======= ======= ======= =======
Basic EPS .................................... $ 0.09 $ 0.12 $ 0.17 $ 0.22
======= ======= ======= =======
Diluted EPS .................................. $ 0.08 $ 0.12 $ 0.16 $ 0.22
======= ======= ======= =======
For the three and six-month period ended June 30, 2002, the effect of the
assumed exercise of options to purchase approximately 32,500 shares of Common
Stock at an exercise price of $8.57 per share was excluded in computing the
diluted per share amount because the exercise price of the options was greater
than the average market price of the shares of Common Stock, therefore causing
these options to be antidilutive. For the three and six-month period ended June
30, 2001, the effect of the assumed exercise of options to purchase
approximately 247,000 and 473,000 shares of common stock at exercises prices
ranging from $4.50 to $5.38 and from $4.00 to $5.38, respectively, per share,
were excluded in computing the diluted per share amount because the exercise
prices of the options were greater than the average market price of the shares
of Common Stock, thereby causing these options to be antidilutive. For the three
and six month period ended June 30, 2001, the effect of the assumed exercise of
warrants to purchase approximately 25,000 and 62,000 shares of Common Stock at
exercise prices ranging from $5.13 to $7.24 and $4.12 to $7.24, respectively,
per share, were excluded in computing the diluted per share amount because the
exercise prices of the warrants were greater than the average market price of
the shares of Common Stock, thereby causing these warrants to be antidilutive.
-6-
For the three and six-month period ended June 30, 2002 approximately 12,000
shares of Common Stock from the assumed conversion of Preferred Stock were
excluded in computing the diluted per share amount as they were antidilutive.
For the three and six-month period ended June 30, 2001, approximately 133,000
shares of Common Stock from the assumed conversion of Preferred Stock were
excluded in computing the diluted per share amount as they were antidilutive.
NOTE 3 -- SEGMENT INFORMATION:
The Company is principally engaged in providing products and services to
the fertility market. For disclosure purposes, the Company recognizes Business
Services offered to its network of Reproductive Science Centers and its
pharmaceutical distribution operations as separate reporting segments. The
Business Services segment includes revenues and costs categorized as
Reproductive Science Center Service Fees and Other Revenues, as follows (000's
omitted):
Business Pharmaceutical
Corporate Services Distribution Consolidated
--------- -------- ------------ ------------
For the three months ended June 30, 2002
Revenues .......................... $ -- $16,978 $ 4,444 $21,422
Cost of services .................. -- 14,502 4,278 18,780
------- ------- ------- -------
Contribution ...................... -- 2,476 166 2,642
General and administrative costs .. 1,943 -- -- 1,943
Amortization of intangibles ....... -- 251 -- 251
Interest, net ..................... 19 8 -- 27
------- ------- ------- -------
Income before income taxes ........ $(1,962) $ 2,217 $ 166 $ 421
======= ======= ======= =======
Depreciation expense included above $ 77 $ 373 $ -- $ 450
Capital expenditures .............. $ 27 $ 678 $ -- $ 705
Total assets ...................... $ 7,568 $34,238 $ 3,312 $45,118
For the six months ended June 30, 2002
Revenues .......................... $ -- $33,034 $ 8,664 $41,698
Cost of services .................. $ -- $28,214 $ 8,336 $36,550
------- ------- ------- -------
Contribution ...................... -- 4,820 328 5,148
General and administrative costs .. 3,746 -- -- 3,746
Amortization of intangibles ....... 1 475 -- 476
Interest, net ..................... 18 11 (2) 27
------- ------- ------- -------
Income (loss) before income taxes . $(3,765) $ 4,334 $ 330 $ 899
======= ======= ======= =======
Depreciation expense included above $ 145 $ 715 $ -- $ 860
Capital expenditures .............. $ 130 $ 1,122 $ -- $ 1,252
Total assets ...................... $ 7,568 $34,238 $ 3,312 $45,118
-7-
Business Pharmaceutical
Corporate Services Distribution Consolidated
--------- -------- ------------ ------------
For the three months ended June 30, 2001
Revenues .......................... $ -- $ 14,685 $ 3,602 $ 18,287
Cost of Services .................. -- 12,245 3,435 15,680
Contribution ...................... -- 2,440 167 2,607
-------- -------- -------- --------
General and administrative expenses 1,880 -- -- 1,880
Amortization of intangibles ....... 1 222 2 225
Interest, net ..................... 42 (6) (3) 33
-------- -------- -------- --------
Income before income taxes ........ $ (1,923) $ 2,224 $ 168 $ 469
======== ======== ======== ========
Depreciation expense included above $ 108 $ 300 $ -- $ 408
Capital expenditures .............. $ 104 $ 410 $ -- $ 514
Total assets ...................... $ 5,063 $ 34,743 $ 1,862 $ 41,668
For the six months ended June 30, 2001
Revenues .......................... $ -- $ 27,715 $ 7,063 $ 34,778
Cost of Services .................. $ -- $ 23,066 $ 6,758 $ 29,824
Contribution ...................... -- 4,649 305 4,954
Other costs ....................... 3,569 -- -- 3,569
Amortization of intangibles ....... 2 435 4 441
Interest, net ..................... 86 (17) (4) 65
-------- -------- -------- --------
Income before income taxes ........ $ (3,657) $ 4,231 $ 305 $ 879
======== ======== ======== ========
Depreciation expense included above $ 214 $ 574 $ -- $ 788
Capital expenditures .............. $ 161 $ 1,130 $ -- $ 1,291
Total assets ...................... $ 5,063 $ 34,743 $ 1,862 $ 41,668
NOTE 4 -- SUBSEQUENT EVENT:
On July 30, 2002, the Company completed a private placement including common
stock and common stock purchase warrants to a small group of qualified
individuals and institutional investors raising gross proceeds of $1.375
million. The individuals and institutions have agreed to purchase an aggregate
of 220,000 shares of common stock at $6.25 per share and warrants to purchase
88,000 shares of common stock at an exercise price of $9.00, with an expiration
date for the warrants of July 30, 2005. The securities sold in the private
placement have not been registered under the Securities Act of 1933, and may not
be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements.
The Company expects to file a shelf registration statement with the Securities
and Exchange Commission for the resale of the common stock and warrants by
August 30, 2002.
The proceeds of the private placement will be used for working capital and
general corporate purposes. Pending application of the funds, the Company will
invest the net proceeds of this offering in short-term, interest-bearing
instruments.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in this
quarterly report and with the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
IntegraMed America, Inc. (the "Company") offers products and services to
patients, providers, payors and suppliers in the fertility industry. The
IntegraMed Network is comprised of fifteen fertility centers in major markets
across the United States, a pharmaceutical distribution subsidiary, a financing
subsidiary, the Council of Physicians and Scientists, and a leading fertility
portal (www.integramed.com). Nine of these fertility centers have access to the
Company's FertilityDirect Program. Six of the fertility centers are designated
as "Reproductive Science Centers(R)" and as such, have access to the Company's
FertilityDirect Program in addition to being provided with a full range of
services including: (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; and (v) assistance in identifying best clinical practices
(collectively, "Business Services").
The Company's strategy is to align information, technology and finance for
the benefit of fertility patients, providers, payors and suppliers. The primary
elements of the Company's strategy include: (i) selling additional
FertilityDirect contracts to leading fertility centers in major markets; (ii)
selling Shared Risk Refund Treatment Packages to patients of contracted
fertility centers and managing the risk associated with the programs; (iii)
selling additional Reproductive Science Center Business Service contracts; (iv)
increasing revenues at Reproductive Science Centers; (v) increasing sales of
pharmaceutical products and services; (vi) expanding clinical research
opportunities; and (vii) establishing Internet-based access to patient-specific
information on treatment process and outcomes.
In December 2000, the Company's agreement with the medical center based
Reproductive Science Center was terminated early. The Company received $1.44
million in liquidated damages pursuant to an early termination agreement. The
amount received was recorded as deferred revenue at December 31, 2000, as the
Company had certain transition obligations through December 2001, and
accordingly was amortized ratably into income in 2001. The cost of the
transition obligations incurred was minor.
During 2001 the Company negotiated revised fee structures on all five of
its existing major Reproductive Science Center Business Services Contracts. On
four of these contracts in which Service Fees are comprised of (a) a fixed
percentage of revenue, (b) a fixed percentage of medical practice earnings and
(c) reimbursed cost of services, the Company negotiated lower fixed percentages
on the revenue and medical practice earnings components. These lower fees are to
be phased in over an estimated five-year period. The Company believes that this
revised fee structure will be more than offset by growth in the underlying
Medical Practice, and will in turn result in growth in the Company's aggregate
revenues. On the remaining Reproductive Science Center contract, the Company
negotiated higher Service Fees, which are assessed at a fixed amount each month
independent of the Medical Practice's underlying revenue or earnings.
On April 26, 2002, the Company signed an agreement to supply a complete range of
business, marketing and facility services to the Margate, Florida based
Northwest Center for Infertility and Reproductive Endocrinology ("NCIRE"). Under
the terms of the 15-year agreement, the Company's service fees are comprised of
reimbursed costs of services, a fixed percentage of revenues, and an additional
fixed percentage of NCIRE earnings. The Company has committed up to $2 million
to fund the development and equipping of a new state-of-the-art facility to
house the clinical practice and embryology laboratory for NCIRE and its
patients.
-9-
Results of Operations
The following table shows the percentage of revenues represented by various
expense and other income items reflected in the Company's Consolidated Statement
of Operations.
For the For the
three-month period six-month period
ended June 30, ended June 30,
------------------- ----------------
2002 2001 2002 2001
------ ------ ------- -------
(unaudited) (unaudited)
Revenues, net
Reproductive Science Center Service Fees 77.4% 80.1% 77.7% 79.5%
Pharmaceutical Sales ................... 20.8% 19.7% 20.8% 20.3%
Other Revenues ......................... 1.8% 0.2% 1.5% 0.2%
Total Revenues ......................... 100.0% 100.0% 100% 100%
Costs of services incurred:
Reproductive Science Center costs ...... 65.7% 66.1% 66.3% 65.8%
Pharmaceutical costs ................... 20.0% 18.8% 20.0% 19.4%
Other costs ............................ 2.0% 0.9% 1.3% 0.6%
Total Costs of services and sales ...... 87.7% 85.8% 87.6% 85.8%
Contribution
Reproductive Science Center contribution 11.7% 14.0% 11.4% 13.7%
Pharmaceutical contribution ............ 0.8% 0.9% 0.8% 0.9%
Other contribution ..................... (0.2)% (0.7)% 0.2% (0.4)%
Total contribution ..................... 12.3% 14.2% 12.4% 14.2%
General and administrative expenses ...... 9.1% 10.3% 9.0% 10.2%
Amortization of intangible assets ........ 1.2% 1.2% 1.1% 1.3%
Interest income .......................... -- % (0.2)% (0.1)% (0.3)%
Interest expense ......................... 0.2% 0.4% 0.2% 0.5%
Total other expenses .................. 10.5% 11.7% 10.2% 11.7%
Income before income taxes ............... 1.8% 2.5% 2.2% 2.5%
Provision for income taxes ............... 0.5% 0.3% 0.8% 0.3%
Net income ............................... 1.3% 2.2% 1.4% 2.2%
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Revenues, net for the three months ended June 30, 2002 were approximately
$21.4 million as compared to approximately $18.3 million for the same period in
2001, an increase of 17.1%. Revenues for the Company's Reproductive Science
Centers increased by a net $1.9 million, or 13.2%, from the second quarter of
2001 to the second quarter of 2002. This increase is principally attributed to
increased patient volume at the various network sites, augmented in part by the
establishment of additional clinical locations at several of the Company's
centers during the fourth quarter of 2001, and the addition of $0.3 million of
revenue at the Company's new Florida location in the second quarter of 2002. The
revenue increase was partially reduced by the loss of $0.4 million of revenue
related to the termination payment received in 2001 from a hospital-based
center. Revenues for the Company's pharmaceutical division increased $0.8
million, or 23.4%, from the second quarter of 2001 to the second quarter of
2002. This increase is due to increased patient participation within the
Company's Fertility Centers. Other revenues increased from $39,000 in the second
quarter of 2001 to $396,000 in the second quarter of 2002, as a result of the
rising revenue stream from the Company's FertilityDirect program.
-10-
Total costs of services as a percentage of revenues increased by 1.9% to
87.7% during the second quarter of 2002 as compared to 85.8% for the second
quarter of 2001 due mainly to a reduction in pharmaceutical cost rebates and the
start-up costs in the Fertility-Direct programs.
Costs of services for the Company's Reproductive Science Center division as a
percentage of the related revenue increased from 82.4% in the second quarter of
2001 to 84.8% during the second quarter of 2002 principally due to the fact that
the termination payment discussed above for 2001 had only minor costs associated
with it and as a result the cost of service percentage was skewed downward.
Costs of services as a percentage of related revenue for the Company's
pharmaceutical division increased from 95.4% in the second quarter of 2001 to
96.3% in the second quarter of 2002 due principally to the reduction of drug
costs rebates estimated in 2002 as compared to 2001. Other costs of services as
a percentage of revenue decreased from 451% in the second quarter of 2001 to
91.5% during the second quarter of 2002, as start-up costs have decreased
significantly and an increase in affiliation fees associated with the growth of
the Company's FertilityDirect program.
Total Contribution for the three months ended June 30, 2002 was $2.6
million, unchanged from the second quarter of 2001 due principally to the $0.35
million reduction in contribution from the 2001 termination payment offset by
the other gains mentioned above.
General and administrative expenses for the second quarters of 2002 and
2001 were approximately $1.9 million. As a percentage of revenues, general and
administrative expenses decreased to approximately 9.1% in the second quarter of
2002 from approximately 10.3% in the second quarter of 2001.
Amortization of intangible assets was $251,000 in the second quarter of
2002 as compared to $225,000 in the second quarter of 2001, an increase of
11.6%. This increase is attributable to the payment of additional business
service rights related to physicians in the Company's Long Island and Shady
Grove locations, as well as to the initiation of the Company's Florida practice
during the second quarter of 2002.
Interest income for the second quarter of 2002 decreased to $14,000 from
$44,000 for the second quarter of 2001 due to lower interest rates earned on
invested cash balances. Interest expense for the second quarter of 2002
decreased to $41,000 from $77,000 in the second quarter of 2001 due to scheduled
debt payments on the Company's term loan.
During the second quarter of 2002, the Company provided for both federal
and state taxes whereas in 2001, only state taxes were provided. The Company
will not have to pay federal taxes due to net operating loss carry-forwards.
These loss carry-forwards have been recorded as a deferred tax asset in the
fourth quarter of 2001 and since payment is not made for federal taxes, the
deferred tax asset account is reduced for the amount which would have been paid
if there was no loss carry-forward. The Company's effective tax rate for the
second quarter of 2001 was approximately 13.4% and the effective tax rate for
the second quarter of 2002 was approximately 26.4%. The 2002 second quarter rate
is lower than the estimated 33% expected to be used for the entire year as a
result of the completion of the 2001 tax returns and the adjustment of the
accounts to the amounts paid. The Company expects to utilize the 33% rate for
the balance of the year.
Net income was $310,000 in the second quarter of 2002 as compared to
$406,000 in the second quarter of 2001, a decrease of 23.6%. This decrease
resulted from the factors discussed above, including the loss of the termination
payment and the higher tax rate.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Revenues, net for the six months ended June 30, 2002 were approximately
$41.7 million as compared to approximately $34.8 million for the same period in
2001, an increase of 20.0%. Revenues for the Company's Reproductive Science
Centers increased $4.8 million, or 17.1%, from the first six months of 2001 to
the first six months of 2002. This increase is attributed to increased patient
volume at each of the network sites, facilitated in part by the establishment of
additional clinical locations during the fourth quarter of 2001, and the
-11-
addition of the Company's Florida location to its Business Services division
during the second quarter of 2002. Revenues for the Company's pharmaceutical
division increased $1.6 million, or 22.7%, from the first six months of 2001 to
the same period in 2002 due to increased patient participation within the
Company's Fertility Centers. Other revenues increased from $60,000 to $627,000
from the first six months of 2001 to the first six months of 2002, as a result
of the rising revenue stream from the Company's FertilityDirect program.
Total costs of services as a percentage of revenues increased by 1.8% to
87.6% during the first six months of 2002 as compared to 85.8% for the same
period in 2001. Costs of services as a percentage of the related revenue for the
Company's Reproductive Science Center division increased from 82.7% during the
first six months of 2001 to 85.4% during the same period in 2002. This increase
is attributed substantially to the elimination of the hospital center
termination payment and the impact of the revised fee structure previously
disclosed by the Company. Costs of services as a percentage of the related
revenue for the Company's pharmaceutical division increased 0.5% from 95.7% in
the first six months of 2001 to 96.2% in the first six months of 2002 reflecting
the reduction in drug costs rebates recognized in 2002. Other costs of services
as a percentage of revenue decreased from 335% during the first six months in
2001 to 88.2% for the same period in 2002. This is reflective of the growth of
the Company's Fertility-Direct program.
Total Contribution for the six months ended June 30, 2002 was $5.1 million,
an increase of 3.9% from the $5.0 million for the same period in 2001 as a
result of the improvement in Fertility-Direct results, somewhat offset by the
elimination of the $0.6 million contribution from 2001's termination payment,
changes in the fee structure and reduced drug cost rebates.
General and administrative expenses for the first six months of 2002 were
approximately $4.7 million as compared to $4.8 million during the same period in
2001. As a percentage of revenues, general and administrative expenses decreased
to approximately 9.0% in the first six months of 2002 from approximately 10.2%
in the first six months of 2001.
Amortization of intangible assets was $476,000 during the first six months
of 2002 as compared to $441,000 for the same period of 2001, an increase of
7.9%. This increase is attributable to the payment of additional business
service rights related to physicians in the Company's Long Island and Shady
Grove locations, as well as to the initiation of the Company's Florida practice
during the second quarter of 2002.
Interest income for the first six months of 2002 decreased to $52,000 from
$98,000 for the same period in 2001 due to lower interest rates earned on
invested cash balances. Interest expense for the first six months of 2002
decreased to $79,000 from $163,000 during the first six months of 2001 due to
scheduled debt payments on the Company's term loan.
During the first half of 2002, the Company provided for both federal and
state taxes whereas in 2001, only state taxes were provided. The Company will
not have to pay federal taxes due to net operating loss carry-forwards. These
loss carry-forwards have been recorded as a deferred tax asset in the fourth
quarter of 2001 and since payment is not made for federal taxes, the deferred
tax asset account is reduced for the amount, which would have been paid if there
was no loss carry-forward. The Company's effective tax rate for the first six
months of 2001 was approximately 13.0% and was comprised mainly of a provision
for state income taxes. The effective tax rate for the first six months of 2002
was approximately 33.0% and included an approximate 3.0% provision for state
income taxes (as a result of previous overpayments) and an approximate 30.0%
provision for federal taxes.
Net income was $602,000 for the first six months of 2002 as compared to
$765,000 for the same period of 2001. This decrease resulted from the factors
discussed above, principally the elimination of approximately $700,000 of
contribution from 2001's termination payment and the $183,000 increase in the
tax provision.
-12-
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through sales of
equity securities, issuances of notes and internally generated sources. In
addition, the Company has a term loan and revolving line of credit with a
leading bank to provide financing for working capital and business development
purposes. During the first half of 2002, the Company purposely used the $4.2
million of working capital it had at December 31, 2001 to fund it's new Florida
based Business Services agreement and Preferred Stock repurchase. Working
capital was $0.3 million at June 30, 2002. The Company is presently evaluating
its debt position and balance sheet leverage options and may effect changes to
each in the balance of the year (see concluding paragraph to this section). As
mentioned earlier, the Company sold common shares in a private placement in the
third quarter of 2002, raising over $1.3 million of working capital.
In September 2001, the Company amended its existing credit facility with
Fleet Bank, N.A. The amended facility is comprised of a $7.0 million three-year
working capital revolver, and a continuance of the Company's existing $4.0
million 5.5 year term loan, of which approximately $2.8 million remained
outstanding with a remaining term of approximately 2.5 years as of the date of
the amendment. Availability of borrowings under the working capital revolver are
based on eligible accounts receivable as defined and as of June 30, 2002, the
full amount of the $7.0 million was available as there were no amounts
outstanding under the revolver. As of June 30, 2002, the term loan balance was
$1.75 million. The Fleet credit facility is collateralized by all of the
Company's assets.
From time to time, the Company also reviews various options concerning the
possibility of raising additional long-term financing through the sale of equity
or debt securities in order to fund acquisitions or construct additional medical
practice facilities. These reviews are conducted as part of the ongoing
management of the Company and are not necessarily tied to any specific
acquisition or construction plans.
Significant Contractual Obligations and Other Commercial Commitments:
The following summarizes the Company's contractual obligations and other
commercial commitments at June 30, 2002, and the effect such obligations are
expected to have on its liquidity and cash flows in future periods.
Payments Due by Period
--------------------------------------------------------------------------------
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
-------------- ---------------- ---------------- ----------- -------------
Long-term debt................ $ 1,933,000 1,183,000 $ 750,000 $ -- $ --
Capital lease obligations..... 112,000 112,000 -- -- --
Operating leases.............. 16,882,000 2,781,000 4,924,000 4,126,000 5,051,000
Capital improvements.......... 4,000,000 3,000,000 1,000,000 -- --
Total contractual cash
obligations............... $22,927,000 $7,076,000 $ 6,674,000 $4,126,000 $5,051,000
Amount of Commitment Expiration Per Period
--------------------------------------------------------------------------------
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
------------- ---------------- ------------- ------------- -------------
Lines of credit............... $ 7,000,000 $ -- $ 7,000,000 $ -- $ --
Total commercial
commitments............... $ 7,000,000 $ -- $ 7,000,000 $ -- $ --
-13-
The Company also has commitments to provide accounts receivable financing
to the Reproductive Science Centers in accordance with its Business Services
agreements. The Company's financing of the Medical Practice's Accounts
Receivable occurs monthly on the 15th of the month following generation of the
receivable. The priority of repayment by the Medical Practice is the
reimbursement of expenses incurred by the Company on their behalf, the fixed
portion of the Business Services fee and finally the variable portion of the
Business Services fee. The Company is responsible for the collection of
receivables, which are financed with full recourse. The Company has continuously
funded these needs from cash flow from operations and the collection of the
prior month's receivables. If delays in repayment are incurred, which have not
as yet been encountered, the Company could draw on its existing working capital
line of credit. The Company does not as a general course make advances to the
Medical Practices other than for the payment of expenses on behalf of the
Medical Practice for which the Company is reimbursed in the short-term and are
collateralized by the Medical Practice's Accounts Receivable. The Company has no
other funding commitments to the Medical Practices.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
the Company, contain certain forward-looking statements regarding events and/or
anticipated results within the meaning of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the attainment of which
involve various risks and uncertainties. Forward-looking statements may be
identified by the use of forward-looking terminology such as, "may", "will",
"expect", "believe", "estimate", "anticipate", "continue", or similar terms,
variations of those terms or the negative of those terms. The Company's actual
results may differ materially from those described in these forward-looking
statements due to the following factors: the Company's ability to acquire
additional business service agreements, including the Company's ability to raise
additional debt and/or equity capital to finance future growth, the loss of
significant business service agreement(s), the profitability or lack thereof at
Reproductive Science Centers serviced by the Company, increases in overhead due
to expansion, the exclusion of infertility and ART services from insurance
coverage, government laws and regulations regarding health care, changes in
managed care contracting, the timely development of and acceptance of new
infertility, ART and/or genetic technologies and techniques.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
-14-
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; no material developments in previously reported
matters.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
At an annual shareholders' meeting held on May 21, 2002,
the following matter was approved:
1) election of seven directors
The respective vote tabulations are detailed below:
Proposal 1 - Directors For Against
---------------------- --- -------
Gerardo Canet 2,542,459 6,150
Michael J. Levy, M.D. 2,542,459 6,150
Sarason D. Liebler 2,542,459 6,150
Aaron S. Lifchez, M.D. 2,542,459 6,150
Wayne R. Moon 2,542,459 6,150
Lawrence Stuesser 2,542,459 6,150
Elizabeth E. Tallett 2,542,459 6,150
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
See Index to Exhibits on Page 17.
-15-
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: August 14, 2002 By: /s/ John W. Hlywak, Jr
------------------
John W. Hlywak, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-16-
Exhibit
Number Exhibit
4.14 -- Registration Rights Agreement dated July 30, 2002
4.14(a) -- Form of Warrant issued on July 30, 2002
10.119 -- Copy of Registrant's 2000 Long Term Compensation Plan
99.14 -- Registrant's Press Release dated June 18, 2002 (1)
99.15 -- Registrant's Press Release dated July 25, 2002 (2)
99.16 -- Registrant's Press Release dated July 20, 2002 (3)
99.17 -- CEO Certification Pursuant to 18 U.S.C. section 1350 as
Adopted Pursuant to Sections 906 of the Sarbanes Oxley Act of
2002
99.18 -- CFO Certification Pursuant to 18 U.S.C.section 1350 as Adopted
Pursuant to Sections 906 of the Sarbanes Oxley Act of 2002
----------------------------------------------
(1) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated June 19, 2002.
(2) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated July 29, 2002.
(3) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K dated July 31, 2002.
-17-