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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2003
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)
Two 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12 b-2).
Yes [ ] No [X]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on May 1, 2003 was 3,372,508.
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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 March 31, 2003 (unaudited) and
December 31, 2002........................................ 3
Consolidated Statements of Income for the three-month periods
ended March 31, 2003 and 2002 (unaudited)................ 4
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2003 and 2002 (unaudited)........ 5
Notes to Consolidated Financial Statements (unaudited).... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................... 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....14
Item 4. Controls and Procedures........................................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
CERTIFICATIONs PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002..............................17-18
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
March 31, December 31,
-------- -----------
2003 2002
-------- -----------
(unaudited)
Current assets:
Cash and cash equivalents ................................................... $ 6,792 $ 8,693
Due from Medical Practices, net ............................................. 7,108 5,297
Pharmaceutical sales accounts receivable .................................... 2,016 1,637
Prepaids and other current assets ............................................ 2,767 2,888
-------- --------
Total current assets .................................................... 18,683 18,515
Fixed assets, net ........................................................... 5,284 5,141
Exclusive Service Rights, Net ............................................... 19,224 19,529
Deferred taxes .............................................................. 3,903 3,980
Other assets ................................................................ 293 279
-------- --------
Total assets ............................................................ $ 47,387 $ 47,444
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 530 $ 823
Accrued liabilities ......................................................... 5,415 6,446
Current portion of long-term notes payable and other obligations ............ 1,061 1,099
Patient deposits ............................................................ 8,590 7,208
-------- --------
Total current liabilities ............................................... 15,596 15,576
-------- --------
Long-term notes payable and other obligations ................................. 61 311
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common Stock, $.01 par value - 50,000,000 shares authorized in 2003 and 2002;
and 3,429,775 and 3,353,884 shares issued in 2003 and 2002, respectively .. 34 34
Capital in excess of par .................................................... 47,216 47,183
Accumulated deficit ......................................................... (15,520) (15,660)
-------- --------
Total stockholders' equity .............................................. 31,730 31,557
-------- --------
Total liabilities and stockholders' equity .............................. $ 47,387 $ 47,444
======== ========
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
three-month period
ended March 31,
-------------------
2003 2002
------ -------
(unaudited)
Revenues, net
FertilityPartners Service Fees ....................... $ 18,374 $ 15,600
Pharmaceutical sales ................................. 4,862 4,220
Other revenues ....................................... 474 231
-------- --------
Total revenues .................................... 23,710 20,051
-------- --------
Cost of services and sales:
FertilityPartners Service Fees ....................... 16,365 13,592
Pharmaceutical costs ................................. 4,742 4,058
Other costs .......................................... 290 121
-------- --------
Total costs of services and sales ................. 21,397 17,771
-------- --------
Contribution:
FertilityPartners Service Fees ....................... 2,009 2,008
Pharmaceutical contribution .......................... 120 162
Other contribution ................................... 184 110
-------- --------
Total contribution ................................. 2,313 2,280
-------- --------
General and administrative expenses ..................... 2,085 1,803
Interest income ......................................... (22) (38)
Interest expense ........................................ 19 38
-------- --------
Total other expenses ................................. 2,082 1,803
-------- --------
Income before income taxes .............................. 231 477
Income tax provision .................................... 91 186
-------- --------
Net income .............................................. $ 140 $ 291
Less: Dividends paid and/or accrued on Preferred Stock... -- (33)
-------- --------
Net income applicable to Common Stock ................... $ 140 $ 258
======== ========
Basic and diluted earnings per share of Common Stock:... $ 0.04 $ 0.08
======== ========
Weighted average shares - basic ......................... 3,357 3,061
======== ========
Weighted average shares - diluted ....................... 3,571 3,245
======== ========
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
three-month period
ended March 31,
-------------------
2003 2002
--------- --------
(unaudited)
Cash flows from operating activities:
Net income .................................................. $ 140 $ 291
Adjustments to reconcile net income to net cash used/provided
by operating activities:
Depreciation and amortization ............................. 792 635
Change in assets and liabilities--
Decrease (increase) in assets:
Due from Medical Practices ............................. (1,811) 427
Pharmaceutical sales accounts receivable ............... (379) (1,353)
Prepaids and other current assets ...................... 121 218
Other assets ........................................... 63 163
Increase (decrease) in liabilities:
Accounts payable ...................................... (293) 502
Accrued liabilities ................................... (1,031) (117)
Patient deposits ...................................... 1,382 1,287
------- -------
Net cash used/provided by operating activities ................. (1,018) 2,053
------- -------
Cash flows used in investing activities:
Payment for exclusive Business Service rights ............. -- (350)
Purchase of fixed assets and leasehold improvements ....... (629) (538)
------- -------
Net cash used in investing activities .......................... (629) (888)
------- -------
Cash flows used in financing activities:
Principal repayments on debt .............................. (250) (324)
Principal repayments under capital lease obligations ...... (38) (35)
Proceeds from exercise of Common Stock Warrants and options 34 --
Dividends paid on Convertible Preferred Stock ............. -- (33)
------- -------
Net cash used in financing activities .......................... (254) (392)
------- -------
Net change in cash ............................................. $(1,901) $ 773
Cash at beginning of period .................................... 8,693 8,505
------- -------
Cash at end of period .......................................... $ 6,792 $ 9,278
======= =======
See accompanying notes to the consolidated financial statements.
5
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at March 31, 2003, and the results of operations
and cash flows for the interim periods presented. Operating results for the
interim period are not necessarily indicative of results that may be expected
for the year ending December 31, 2003. 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, 2002.
NOTE 2 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the three-month periods ended March 31, 2003 and
2002 is as follows (000's omitted, except for per share amounts):
For the
three-month period
ended March 31,
----------------------
2003 2002
------- -------
Numerator
Net Income............................................ $ 140 $ 291
Less: Preferred stock dividends....................... -- 33
----- -----
Income applicable to Common Stock..................... $ 140 $ 258
===== =====
Denominator
Weighted average shares outstanding................... 3,357 3,061
Effect of dilutive options and warrants............... 214 184
----- -----
Weighted average shares and dilutive potential
Common shares......................................... 3,571 3,245
===== =====
Basic and diluted EPS................................. $0.04 $0.08
===== =====
For the three-month period ended March 31, 2003, the effect of the assumed
exercise of options to purchase approximately 166,000 shares of Common Stock at
exercise prices ranging from $5.65 to $6.15 per share were 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-month period ended March
31, 2002, the effect of the assumed exercise of options to purchase
approximately 235,000 shares of Common Stock at exercises prices ranging from
$5.38 to $5.98 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.
6
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
For the three-month period ended March 31, 2003, the effect of the assumed
exercise of warrants to purchase approximately 106,000 shares of Common Stock at
exercise prices ranging from $6.25 to $9.00 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. For the three-month period ended
March 31, 2002, the effect of the assumed exercise of warrants to purchase
approximately 25,000 shares of Common Stock at exercise prices ranging from
$5.13 to $7.24 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.
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 Fertility Partners and its pharmaceutical
distribution operations as separate reporting segments. The Business Services
segment includes revenues and costs categorized as Fertility Partners Service
Fees and Other Revenues, as follows (000's omitted):
Business Pharmaceutical
Corporate Services Distribution Consolidated
--------- -------- ------------ ------------
For the three months ended March 31, 2003
Revenues...................................... $ -- $18,848 $4,862 $23,710
Cost of services.............................. -- 16,655 4,742 21,397
------- ------- ------ -------
Contribution.................................. -- 2,193 120 2,313
-------
General and administrative costs.............. 2,085
Interest, net................................. (3)
-------
Income (loss) before income taxes............. 231
=======
Depreciation expense included above........... 487
Capital expenditures.......................... 162 467 -- 629
Total Assets.................................. 10,453 34,401 2,533 47,387
For the three months ended March 31, 2002
Revenues...................................... $ -- $15,831 $4,220 $20,051
Cost of services.............................. -- 13,713 4,058 17,771
------- ------- ------ -------
Contribution.................................. -- 2,118 162 2,280
------- ------- ------ -------
General and administrative costs.............. 1,803
Interest, net................................. --
-------
Income before income taxes.................... 477
=======
Depreciation expense included above........... 68 342 -- 410
Capital expenditures.......................... 95 443 -- 538
Total assets.................................. 5,557 37,859 2,776 46,192
7
NOTE 4 -- STOCK-BASED EMPLOYEE COMPENSATION:
At March 31, 2003, the Company has two stock-based employee compensation
plans, which are described more fully in Note 13 of the Company's financial
statements in its most recent Annual Report on Form 10-K. The Company accounts
for these plans under the recognition and measurement principles of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
No stock-based employee compensation cost is reflected in net income, as all
options granted under the plans had an exercise price equal to the market value
of the underlying Common Stock on the date of grant. The following table
illustrates the effect on net income and earnings per share as if the Company
had applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
(000's omitted, except per share amounts).
Three Months Ended
March 31,
------------------
2003 2002
------ ------
Net Income, as reported................................ $ 140 $ 258
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects............. (76) (76)
----- -----
Pro forma net income................................... $ 64 $ 182
===== =====
Earnings per share:
Basic-as reported................................. $0.04 $0.08
===== =====
Basic-pro forma................................... $0.02 $0.06
===== =====
Diluted-as reported............................... $0.04 $0.08
===== =====
Diluted-pro forma................................. $0.02 $0.06
===== =====
NOTE 5 -- RECLASSIFICATIONS
Certain amounts in the prior year financial statements and related notes
have been reclassified to conform to the current period presentation.
NOTE 6 -- RECENT ACCOUNTING STANDARDS
On January 17, 2003, the Financial Accounting Standards Board (FASB or the
"Board") issued FASB Interpretation No. 46 (FIN 46 or the "Interpretation"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
The primary objective of the Interpretation is to provide guidance on the
identification of, and financial reporting for, entities over which control is
achieved through means other than voting rights; such entities are known as
variable-interest entities (VIEs). FIN 46 is effective for VIE's which are
created after January 31, 2003 and for all VIE's for the first fiscal year or
interim period beginning after June 15, 2003. The Company does not believe the
adoption of FIN 46 will have an impact on its financial statements.
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, 2002.
The Company offers products and services to patients, providers, and payers
in the fertility industry. The IntegraMed Network is comprised of twenty-three
fertility centers in major markets across the United States, a pharmaceutical
subsidiary, a financing subsidiary, the Council of Physicians and Scientists and
a leading fertility portal (www.integramed.com). Seventeen fertility centers
have access to the Company's FertilityDirect program. Six of the fertility
centers are designated as "FertilityPartners" 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 and servicing and financing patient accounts receivable;
(iii) marketing and sales; (iv) integrated information systems; and (v)
assistance in identifying best clinical practices.
The Company's strategy is to align information, technology and finance for
the benefit of fertility patients, providers, and payers. The primary elements
of the Company's strategy include: (i) expanding the IntegraMed Provider Network
into new major markets; (ii) increasing the number and value of service packages
purchased by fertility centers that are members of the IntegraMed Provider
Network; (iii) entering into additional FertilityPartners(TM) contracts; (iv)
increasing revenues at FertilityPartners centers; (v) increasing the number of
Shared Risk Refund treatment packages sold to patients of contracted fertility
centers and managing the risk associated with the Shared Risk Refund Program;
(vi) increasing sales of pharmaceutical products and services; and (vii)
developing Internet-based access to personalized health information.
The strategy is complemented by our approach of focused diversification. We
have segmented the fertility market into providers and consumers. We offer
services to the provider segment focused on improving clinical and financial
results. We also offer products and services to consumers that improve access to
treatment. All of the product and service offerings are synergistic, each
customer segment complementing the other.
The strategy requires the Company to: (a) stay focused on the fertility
industry; (b) provide exceptional customer service; (c) deliver premium services
to obtain premium prices; (d) develop and maintain standardized products and
services along with a scalable infrastructure; and (e) take advantage of the
potential of consumer pull-through with direct-to-consumer investment.
During 2001, the Company negotiated revised fee structures on all five of
its then existing major FertilityPartners business services contracts. On four
of these contracts in which service fees are comprised of (a) a tiered
percentage of revenue, (b) a fixed percentage of medical practice earnings and
(c) reimbursed cost of services, the Company negotiated lower additional
percentages on the revenue and medical practice earnings components. These lower
fees are to be phased in over an estimated five-year period. On the remaining
FertilityPartners 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 Northwest Center for
Infertility and Reproductive Endocrinology ("NCIRE") located in Margate,
Florida. Under the terms of the 15-year agreement, the Company's service fees
are comprised of (a)reimbursed costs of services, (b)a tiered percentage of
revenues, and (c)an additional fixed percentage of NCIRE earnings. The Company
has committed up to $2 million to fund the development of and to equip a new
state-of-the-art facility to house the clinical practice and embryology
laboratory for NCIRE and its patients.
On November 25, 2002, the Company announced the ending of its
FertilityPartners agreement with Reproductive Science Associates of New York
("RSA of New York"). The agreement is to end on November 15, 2003. RSA of New
York serves the Long Island market and revenues for the four quarterly periods
9
ending prior to the announcement were $9.1 million. The program had a
contribution of $750,000 for the same period. At the time of the announcement,
the Company evaluated its exclusive business rights asset associated with RSA of
New York and reduced that asset to its realizable value by adjusting the asset
downward by $350,000.
The Company seeks to increase the number of patients in the IntegraMed
Network that participate in the Shared Risk Refund Program. The Shared Risk
Refund Program was established at Shady Grove Fertility Partners ("Shady Grove")
- the leading fertility center in the metropolitan Washington, DC area and a
member of the IntegraMed Provider Network. Based on the experience at Shady
Grove, the Company developed an actuarial model that allows pricing a treatment
package to consumers. The Shared Risk Refund Program consists of a package that
includes up to three cycles of in vitro fertilization for one fixed price with a
significant refund if the patient does not deliver a baby. Under this innovative
financial program, the Company receives payment directly from consumers who
qualify for the program and pays contracted fertility centers a defined
reimbursement for each treatment cycle performed. The Company manages the risks
associated with the Shared Risk Refund Program through a case management
program. This case management program authorizes patient care and provides
information to be used in recognizing revenue and developing the related
reserves for refunds. Actual results to date have not varied materially from the
estimates used in the actuarial model.
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. Ratios for revenues, cost of services incurred and contribution
for a particular segment are percentages of the related revenues from that
segment only. All other ratios are percentages of total revenues.
For the
three-month period
ended March 31,
------------------
2003 2002
------- ------
(unaudited)
Revenues, net
FertilityPartners Service Fees.............. 77.5% 77.8%
Pharmaceutical Sales........................ 20.5% 21.0%
Other Revenues.............................. 2.0% 1.2%
------ ------
Total Revenues.............................. 100.0% 100.0%
Costs of services incurred:
FertilityPartners costs..................... 69.0% 67.8%
Pharmaceutical costs........................ 20.0% 20.2%
Other costs................................. 1.2% 0.6%
----- -----
Total Costs of services and sales........... 90.2% 88.6%
Contribution
FertilityPartners contribution.............. 8.5% 10.0%
Pharmaceutical contribution................. 0.5% 0.8%
Other contribution.......................... 0.8% 0.6%
------ ------
Total contribution.......................... 9.8% 11.4%
General and administrative expenses.............. 8.8% 9.0%
Interest income.................................. (0.1)% (0.2)%
Interest expense................................. 0.1% 0.2%
------ ------
Total other expenses........................ 8.8% 9.0%
------ ------
Income before income taxes....................... 1.0% 2.4%
Provision for income taxes....................... 0.4% 1.0%
------ ------
Net income....................................... 0.6% 1.4%
====== ======
10
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Revenues for the three months ended March 31, 2003 increased 18.2% from the
same period in 2002. The major factors contributing to this growth were:
(i) FertilityPartners service fees increased approximately 17.8% between
the first quarter of 2002 and 2003. This additional revenue resulted
from an increase in new patient visits at all of the Company's core
FertilityPartners locations, and was driven by additional marketing
programs and initiatives undertaken by the Company;
(ii) Pharmaceutical sales increased 15.2% as a result of increased patient
volume within the IntegraMed Provider Network, as well as increased
penetration and participation among medical providers associated with
the Network; and
(iii) Other revenues, comprised primarily of the Company's Shared Risk Refund
Program and Network member Affiliate Fees, increased from $231,000 to
$474,000. This increase was the result of the Company's commitment to
focus its marketing efforts on increasing new patient volume within the
Network and Shared Risk Refund Program.
As a percentage of revenues, contribution declined from 11.4% in 2002 to
9.8% in 2003. The following factors led to the decrease:
(i) The first quarter results were affected negatively by events outside of
our Company and industry. Although revenue growth was fairly strong, in
several areas of our business it did not meet our expectations. The
FertilityPartners segment had a 9.3% same-center revenue growth, below
our forecast of 15% growth. While new patient visits remain strong,
anticipation and fear concerning world events, coupled with lingering
effect of a slow economy acted to somewhat dampen demand for higher
priced infertility procedures. As we reported earlier, in 2001, we
revised our fee agreements with our FertilityPartners and anticipated
rising volume would compensate for the reduced fee percentages.
However, the slowdown in the rate of volume growth, coupled with the
pricing changes, resulted in lower than expected margins in this
segment;
(ii) The Company's pharmaceutical margin experienced a decline to 2.5% in
the first quarter of 2003 from a margin of 3.8% in the first quarter of
2002. Pharmaceutical sales are directly related to the numbers of
patients seeking infertility treatment. This decline was the result of
unfavorable manufacturers' price increases and reduced by a change in
mix related to the dampened demand for pharmaceutical used in higher
priced infertility procedures; and
(iii) The Company's Other Contribution, comprised primarily of its Shared
Risk Refund Program and Network members Affiliate Fees, increased due
to favorable pregnancy rates within the Shared Risk Refund Program, as
well as growing Affiliate Fees associated with the Company's expanding
network.
General and administrative expenses increased from $1.8 million in the
first quarter of 2002 to $2.1 million in the first quarter of 2003 as a result
of additional marketing and support costs incurred to promote Network growth.
The Company anticipates maintaining general and administrative costs at this
level as it continues to invest in the development of its expanding Network.
Interest income and expense, net was substantially unchanged for the
three-month period ended March 31, 2003 as compared to 2002. Interest income
declined due to a decline in the Company's cash balance, as a result of the:
(i) Purchase of exclusive business service rights of the Florida
FertilityPartner located in Margate during the second quarter of 2002;
and
(ii) Repurchase of 165,644 shares of preferred stock during the second and
third quarters of 2002.
11
Declining interest income was offset by a decline in interest expense.
Interest expense declined in line with the Company's lower debt balances
resulting from scheduled debt repayments on the Company's outstanding debt.
Liquidity and Capital Resources
Historically, the Company has financed its operations by the sale of equity
securities, issuance of notes and internally generated resources. In addition,
the Company also uses bank financing for working capital and business
development. The Company's working capital increased during the first quarter of
2003 to $3.1 million, up from $2.9 million as of December 31, 2002. Working
capital and, specifically, cash and cash equivalents remain at adequate levels
to fund the Company's operations. As of March 31, 2003, the Company did not have
any significant commitments for the acquisition of fixed assets, however, it has
budgeted upcoming capital expenditures of approximately $8.7 million for the
balance of 2003. These expenditures are primarily related to the expansion of
the Company's FertilityPartners centers. The Company believes that the cash
flows from its operations plus its existing credit facility will be sufficient
to provide for its future liquidity needs for the next year.
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 therein. In addition, the
credit agreement contains restricted covenants. As of March 31, 2003, under the
working capital revolver, there were no amounts outstanding and the full amount
of $7.0 million was available. The credit facility is collateralized by all of
the Company's assets. The Company is also continuously reviewing its credit
agreement and may renew, revise or enter into new agreements from time to time
as deemed necessary.
On July 30, 2002, the Company completed a private placement of 220,000
shares of its Common Stock at $6.25 per share and warrants to purchase 88,000
shares of Common Stock at an exercise price of $9.00 per share, resulting in
gross proceeds of $1,375,000. The warrants become exercisable commencing January
31, 2003 and expire January 30, 2006.
Significant Contractual Obligations and Other Commercial Commitments:
The following summarizes the Company's contractual obligations and other
commercial commitments at March 31, 2003, 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
---------- ---------------- ----------- ------------ -------------
Notes Payable................. $ 1,122,000 $1,061,000 $ 61,000 $ -- $ --
Capital lease obligations..... -- -- -- -- --
Operating leases.............. 33,644,000 3,542,000 8,027,000 7,784,000 14,291,000
---------- --------- --------- --------- ----------
Total contractual cash
Obligations............... $34,766,000 $4,603,000 $8,088,000 $7,784,000 $14,291,000
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 $ -- $ --
12
The Company also has commitments to provide accounts receivable financing
under its FertilityPartners agreements. The Company's financing of this
receivable occurs on the 15th of each month. The medical practice's repayment
priority consists of the following:
(i) Reimbursement of expenses that the Company has incurred on their
behalf;
(ii) Payment of the fixed or, if applicable, the variable portion of the
service fee which relates to the FertilityPartners revenues; and
(iii) Payment of the variable portion of the service 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 makes payments on behalf of the FertilityPartners for which
it is reimbursed in the short-term. Other than these payments, as a general
course, the Company does not make other advances to the medical practice. The
Company has no other funding commitments to the FertilityPartners.
Recent Accounting Standards
FASB Interpretation No. 46, Consolidation of Variable Interest Entities
On January 17, 2003, the Financial Accounting Standards Board (FASB or the
"Board") issued FASB Interpretation No. 46 (FIN 46 or the "Interpretation"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
The primary objective of the Interpretation is to provide guidance on the
identification of, and financial reporting for, entities over which control is
achieved through means other than voting rights; such entities are known as
variable-interest entities (VIEs). FIN 46 is effective for VIE's which are
created after January 31, 2003 and for all VIE's for the first fiscal year or
interim period beginning after June 15, 2003. The Company does not believe the
adoption of FIN 46 will have an impact on its financial statements.
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
involves 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 FertilityPartners agreements, the Company's ability to raise
additional debt and/or equity capital to finance future growth, the loss of
significant FertilityPartners agreement(s), the profitability or lack thereof at
fertility centers serviced by the Company, increases in overhead due to
expansion, the exclusion of fertility and ART services from insurance coverage,
government laws and regulation regarding health care, changes in managed care
contracting, the timely development of and acceptance of new fertility, and ART
and/or genetic technologies and techniques. The Company is under no obligation
to (and expressly disclaims any such obligation) update or alter their
forward-looking statements whether as a result of new information, future events
or otherwise.
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Exchange Act)
as of a date (the "Evaluation Date") within 90 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective in timely alerting them to the material
information relating to us required to be included in our periodic SEC filings.
(b) Changes in internal controls.
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On March 11, 2003, the Company issued 65,235 shares of its
Common Stock to be held as treasury shares. These shares
represented shares certain officers paid to the Company for
the withholding of taxes on a stock grant issued in 2002.
The Company anticipates selling these shares as market
conditions warrant.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) For the quarter ended March 31, 2003, Registrant filed
a Form 8-K dated February 21, 2003; March 18, 2003; and
March 25, 2003 reporting Item 9, Regulation FD
Disclosure.
See Index to Exhibits on Page 19.
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: May 15, 2003 by: /s/ John W. Hlywak, Jr
------------------
John W. Hlywak, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gerardo Canet, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IntegraMed
America, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
May 15, 2003 By: Gerardo Canet
---------------------------------
Gerardo Canet
President and Chief Executive Officer
17
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John W. Hlywak, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of IntegraMed
America, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
d. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
e. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
May 15, 2003 By: John W. Hlywak, Jr
-------------------------------
John W. Hlywak, Jr.
Senior Vice President and
Chief Financial Officer
18
Exhibit
Number Exhibit
------ -------
99.27 -- Registrant's Press Release dated February 19, 2003. (1)
99.28 -- Registrant's Press Release dated March 17, 2003. (2)
99.29 -- Registrant's Press Release dated March 24, 2003. (3)
99.30 -- CEO Certification Pursuant to 18 U.S.C.ss.1350 as Adopted
Pursuant to Sections 302 of the Sarbanes Oxley Act of 2002
dated March 26, 2003. (4)
99.31 -- CFO Certification Pursuant to 18 U.S.C.ss.1350 as Adopted
Pursuant to Sections 302 of the Sarbanes Oxley Act of 2002
dated March 26, 2003. (4)
99.32 -- CEO Certification Pursuant to 18 U.S.C.ss.1350 as Adopted
Pursuant to Sections 906 of the Sarbanes Oxley Act of 2002
dated March 26, 2003. (4)
99.33 -- CFO Certification Pursuant to 18 U.S.C.ss.1350 as Adopted
Pursuant to Sections 906 of the Sarbanes Oxley Act of 2002
dated March 26, 2003. (4)
99.34 -- Registrant's Press Release dated April 23, 2003. (5)
99.35 -- Registrant's Press Release dated May 5, 2003. (6)
99.36 -- CEO Certification Pursuant to 18 U.S.C.ss.1350 as Adopted
Pursuant to Sections 906 of the Sarbanes Oxley Act of 2002
dated May 15, 2003.
99.37 -- CFO Certification Pursuant to 18 U.S.C.ss.1350 as Adopted
Pursuant to Sections 906 of the Sarbanes Oxley Act of 2002
dated May 15, 2003.
---------------------------------------------
(1) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K February 21, 2003 and incorporated by reference thereto.
(2) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K March 18, 2003 and incorporated by reference thereto.
(3) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K March 25, 2003 and incorporated by reference thereto.
(4) Filed as exhibit with identical exhibit number to Registrant's Annual
Report on Form 10-K for the year ended 2002 and incorporated by
reference thereto.
(5) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K April 28, 2003 and incorporated by reference thereto.
(6) Filed as exhibit with identical exhibit number to Registrant's Report
on Form 8-K May 6, 2003 and incorporated by reference thereto.
19