FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 number 0-28740
MIM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 05-0489664
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices)
(914) 735-3555
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
On August 5, 1998, there were outstanding 13,842,000 shares of the
Company's $.0001 par value per share common stock ("Common Stock").
INDEX
Page Number
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PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
June 30, 1998 (Unaudited) and December 31, 1997 3
Unaudited Consolidated Statements of Operations for the
three months and six months ended June 30, 1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the
three months and six months ended June 30, 1998 and 1997 5
Notes to the Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 11
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 2,583 $ 9,593
Investment securities 20,715 19,235
Receivables, less allowance for doubtful accounts of
$1,439 and $1,386 at June 30, 1998 and December 31,
1997, respectively 41,005 23,666
Prepaid expenses and other current assets 1,222 888
-------- --------
Total current assets 65,525 53,382
Investment securities, net of current portion 351 3,401
Other investments 2,300 2,300
Property and equipment, net 3,832 3,499
Due from affiliates, less allowance for doubtful accounts
of $2,360, in 1998 and 1997 -- --
Other assets, net 353 145
-------- --------
Total assets $ 72,361 $ 62,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations 231 $ 222
Accounts payable 1,042 931
Deferred revenue -- 2,799
Claims payable 31,829 26,979
Payables to plan sponsors and others 13,073 10,839
Accrued expenses 4,105 2,279
-------- --------
Total current liabilities 50,280 44,049
Capital lease obligations, net of current portion 639 756
Commitments and contingencies
Minority interest 1,112 1,112
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.0001 par value; 40,000,000 shares authorized,
13,732,000 and 13,335,120 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 1 1
Additional paid-in capital 73,603 73,585
Accumulated deficit (51,536) (55,061)
Stockholder notes receivable (1,738) (1,715)
-------- --------
Total stockholders' equity 20,330 16,810
-------- --------
Total liabilities and stockholders' equity $ 72,361 $ 62,727
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
3
MIM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Revenue $ 109,878 $ 45,833 $ 207,841 $ 116,644
Cost of revenue 103,660 41,972 196,044 108,801
--------- --------- --------- ---------
Gross profit 6,218 3,861 11,797 7,843
Selling, general and administrative expenses 4,811 3,994 9,261 7,903
--------- --------- --------- ---------
Income from operations 1,407 (133) 2,536 (60)
Interest income, net 483 548 990 1,171
--------- --------- --------- ---------
Income before minority interest 1,890 415 3,526 1,111
Minority interest (1) 3 (1) 5
--------- --------- --------- ---------
Net income $ 1,889 $ 418 $ 3,525 $ 1,116
========= ========= ========= =========
Basic earnings per share $ 0.14 $ 0.03 $ 0.26 $ 0.09
========= ========= ========= =========
Diluted earnings per share $ 0.12 $ 0.03 $ 0.23 $ 0.07
========= ========= ========= =========
Weighted average shares outstanding used in computing
basic earnings per share 13,594 12,154 13,471 12,119
========= ========= ========= =========
Weighted average shares outstanding used in computing
diluted earnings per share 15,489 15,163 15,467 15,163
========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
4
MIM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
--------------------
1998 1997
-------- --------
Cash flows from operating activities:
Net income $ 3,525 $ 1,116
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net income (loss) allocated to minority interest 1 (5)
Depreciation and amortization 721 513
Stock option charges 14 121
Provision for losses on receivables and loans to affiliates 53 570
Changes in assets and liabilities:
Receivables (17,392) (2,284)
Prepaid expenses and other assets (334) (25)
Accounts payable 111 (949)
Deferred revenue (2,799) --
Claims payable 4,850 (6,942)
Payables to plan sponsors and others 2,234 2,274
Accrued expenses 1,826 (215)
-------- --------
Net cash used in operating activities (7,190) (5,826)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,051) (710)
Purchase of investment securities (16,855) (17,933)
Proceeds from maturities of investment securities 18,425 25,262
Increase in other assets (211) (179)
Stockholder loans, net (23) (47)
Loans to affiliates, net -- 347
-------- --------
Net cash used in investing activities 285 6,740
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (108) (107)
Proceeds from exercise of stock options 3 --
-------- --------
Net cash used in financing activities (105) (107)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,010) 807
Cash and cash equivalents--beginning of period 9,593 1,834
-------- --------
Cash and cash equivalents--end of period $ 2,583 $ 2,641
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ -- $ --
======== ========
Interest $ 37 $ 22
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ -- $ --
======== ========
Distribution to stockholder through the cancellation of
stockholder notes receivable $ -- $ --
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
5
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission (the "Commission"). Pursuant to such rules
and regulations, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
financial statements, primarily consisting of normal recurring adjustments, have
been included. The results of operations and cash flows for the six months ended
June 30, 1998 are not necessarily indicative of the results of operations or
cash flows which may be reported for the remainder of 1998.
These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements, notes and information
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended by the amendments thereto on Forms 10-K/A, filed
with the Commission (as amended, the "Form 10-K").
The accounting policies following for interim financial reporting are the
same as those disclosed in Note 2 to the consolidated financial statements
included in the Form 10-K.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of Basic Earnings per Share
and Diluted Earnings per Share: (In thousands, except for per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
Numerator:
Net income $ 1,889 $ 418 $ 3,525 $ 1,116
======= ======= ======= =======
Denominator:
Weighted average number of common shares
outstanding 13,594 12,154 13,601 12,119
------- ------- ------- -------
Basic Earnings per Share $ .14 $ .03 $ .26 $ .09
======= ======= ======= =======
Denominator:
Weighted average number of common shares
outstanding 13,594 12,154 13,471 12,119
------- ------- ------- -------
Common share equivalents of outstanding stock
options 1,895 3,009 1,996 3,044
------- ------- ------- -------
Total shares outstanding 15,489 15,163 15,467 15,163
------- ------- ------- -------
Diluted Earnings per Share $ .12 $ .03 $ .23 $ .07
======= ======= ======= =======
6
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, the related Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Form 10-K as well as the unaudited consolidated
interim financial statements and the related notes thereto included in Item 1 of
this Report.
Certain statements contained in this report are not purely historical and
are considered forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including statements regarding the Company's expectations, hopes, intentions or
strategies regarding the future, as well as statements which are not historical
fact. Forward looking statements may include statements relating to business
development activities, future capital expenditures, the effects of regulation
and competition on the Company's business, future operating performance of the
Company and the results and/or effect of legal proceedings or investigations
and/or the resolution or settlement thereof. Investors are cautioned that any
such forward looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors.
These factors include, among other things, risks associated with capitated
(i.e., risk-based) contracts, increased government regulation related to the
health care industry in general and more specifically, pharmacy benefit
management organizations, increased competition from the Company's competitors,
including competitors which are vertically integrated with pharmaceutical
manufacturers, and the existence of complex laws and regulations relating to the
Company's business. This Report and the Form 10-K contain information regarding
important factors which could cause such differences. MIM does not undertake any
obligation to publicly release the results of any revisions to these forward
looking statements that may be made to reflect any future events or
circumstances.
Overview
A majority of the Company's revenues to date have been derived from
operations in the State of Tennessee in conjunction with RxCare of Tennessee,
Inc. ("RxCare"), a pharmacy services administrative organization owned by the
Tennessee Pharmacists Association. The Company assisted RxCare in defining and
marketing pharmacy benefit services to private health plan sponsors on a
consulting basis in 1993, but did not commence substantial operations until
January 1994 when RxCare began servicing health plan sponsors involved in the
newly instituted TennCare(R) state health program. At June 30, 1998, the Company
provided pharmacy benefit management services to 47 health plan sponsors with an
aggregate of approximately 2.0 million plan members. TennCare(R) represented
eight health plans with approximately 1.3 million plan members.
The Company intends to offset, against profit sharing amounts, if any, due
RxCare in the future under the Company's contract with RxCare, approximately
$2.6 million, representing RxCare's share of the Company's cumulative losses and
amounts previously advanced or paid to RxCare as of June 30, 1998.
The contract with RxCare expires on December 31, 1998. In total, this
contract accounted for 74.2% of the Company's revenues for the six months ended
June 30, 1998. While this contract expires by its terms on December 31, 1998, it
automatically renews for a one year period ending December 31, 1999 unless a
termination notice is given by either party on or before October 3, 1998. While
management believes that this contract will be renewed, there can be no
assurance that it will be renewed at all or on terms as favorable as those
currently in effect. Failure to renew this contract in total or on terms as
favorable as those currently in effect could have a material adverse effect on
the Company's business and results of operations.
Results of Operations
Three months ended June 30, 1998 compared to three months ended June 30, 1997
For the three months ended June 30, 1998, the Company recorded revenue of
$109.9 million compared with revenue of $45.8 million for the three months ended
June 30, 1997, an increase of $64.1 million. Approximately $23.0 million of the
increase in revenues resulted from servicing 12 new commercial plans covering
approximately 404,000 lives throughout the United States as well as increased
enrollment of approximately 102,000 lives in
7
existing commercial plans. Certain plans managed by Sierra Health Services Inc.
(the "Sierra Plans"), enrolled in October 1997, accounted for $11.7 million of
the $23.0 million increase in commercial revenues. TennCare(R) sponsors were
responsible for the remaining $41.1 million increase of revenue. Approximately
$25.1 million of this increase in revenues from TennCare(R) contracts was
attributable to new contracts entered into in the fourth quarter of 1997 with
one TennCare(R) behavioral health organization ("BHO") and one TennCare(R)
managed care organization ("MCO") to which the Company previously provided
pharmacy benefit management services (the "New TennCare(R) Contracts"). In
addition, contract renewals on more favorable terms since the beginning of the
year and increased enrollment in existing TennCare(R) sponsors increased
revenues by $16.0 million. During the three months ended June 30, 1998,
approximately 35% of the Company's revenues were generated from risk - based
(capitated) contracts, compared to 50% during the three months ended June 30,
1997.
Effective July 1, 1998, the Tennessee Department of Health assumed
financial responsibility for the TennCare(R) behavioral health pharmacy program
and the costs associated therewith. All of the Company's BHO contracts together
provided $29.1 million of revenues for the three months ended June 30, 1998.
Failure to renew these contracts at all or on terms as favorable as those
currently in effect could have a material adverse effect on the Company's
business and results of operations.
Cost of revenue for the three months ended June 30, 1998 increased to
$103.7 million from $42.0 million for the three months ended June 30, 1997, an
increase of $61.7 million. New commercial contracts together with increased
enrollment in existing commercial plans accounted for $24.4 million of this
increase in cost of revenue (including costs of $11.7 million attributable to
the Sierra Plans). TennCare(R) contracts were responsible for the remaining
$37.3 million of increased cost of revenue. Costs relating to the two New
TennCare(R) Contracts accounted for $22.3 million of such increase and
eligibility increases in existing plans, increased drug prices and increased
utilization of prescription drugs under TennCare(R) contracts accounted for the
remaining $15.0 million of such increase in cost of revenue. As a percentage of
revenue, cost of revenue increased to 94.3% for the three months ended June 30,
1998 from 91.6% for the three months ended June 30, 1997 primarily due to higher
than expected utilization under certain risk-based contracts and continued
increases in drug costs under risk-based contracts.
Selling, general and administrative expenses were $4.8 million for the
three months ended June 30, 1998 compared to $4.0 million for the three months
ended June 30, 1997, an increase of $0.8 million. These increased expenses
reflect the Company's continuing commitment to enhance its ability to manage
efficiently its growth in pharmacy benefits by investing in additional
operational and clinical personnel as well as information technology systems to
support new and existing customers. In addition, the Company incurred additional
legal costs primarily in connection with the final settlement of its dispute
with Sierra. As a percentage of revenue, selling, general and administrative
expenses decreased to 4.4% for the three months ended June 30, 1998 from 8.7%
for the three months ended June 30, 1997.
For the three months ended June 30, 1998, the Company recorded net income
of $1.9 million, or $0.14 per basic share. This compares with net income of $0.4
million, or $0.03 per basic share, for the three months ended June 30, 1997.
This increase is due largely to the above-described changes in revenue and cost
of revenue.
Six months ended June 30, 1998 compared to six months ended June 30, 1997
For the six months ended June 30, 1998, the Company recorded revenue of
$207.8 million compared with revenue of $116.6 million for the six months ended
June 30, 1997, an increase of $91.2 million. Approximately $40.5 million of the
increase in revenues resulted from servicing 12 new commercial plans covering
approximately 404,000 lives throughout the United States as well as increased
enrollment of approximately 102,000 lives in existing commercial plans. The
Sierra Plans accounted for $21.8 million of the $40.5 million increase in
commercial revenues. TennCare(R) sponsors were responsible for the remaining
$50.7 million increase in revenue. Approximately $46.0 million of the increase
in revenues from TennCare(R) contracts was attributable to the New TennCare(R)
Contracts. In addition, contract renewals on more favorable terms during the
first six months of 1998 and increased enrollment in other existing TennCare(R)
sponsors increased revenues by $30.5 million. These increases in TennCare(R)
revenues were partially offset by a decrease of $25.8 million from the
restructuring in April 1997 of a major TennCare(R) contract. The contract was
restructured from a risk-based (capitated) arrangement to a non-risk
(fee-for-service) arrangement, although the Company continued to provide
essentially the same services under the restructured contract. During the six
months ended June 30, 1998, approximately 37% of the Company's
8
revenues were generated from risk-based (capitated) contracts, compared to 61%
during the six months ended June 30, 1997.
Effective July 1, 1998, the Tennessee Department of Health assumed
financial responsibility for the TennCare(R) behavioral health pharmacy program
and the costs associated therewith. All of the Company's BHO contracts together
provided $53.9 million of revenues for the six months ended June 30, 1998.
Failure to renew these contracts at all or on terms as favorable as those
currently in effect could have a material adverse effect on the Company's
business and results of operations.
Cost of revenue for the six months ended June 30, 1998 increased to $196.0
million from $108.8 million for the six months ended June 30, 1997, an increase
of $87.2 million. New commercial contracts together with increased enrollment in
existing commercial plans accounted for $42.7 million of such increase in cost
of revenue (including costs of $21.7 million attributable to the Sierra Plans).
TennCare(R) contracts were responsible for the remaining $44.5 million of
increased cost of revenue. Costs relating to the two New TennCare(R) Contracts
accounted for $42.3 million of such increase and eligibility increases in
existing plans, increased drug prices and increased utilization of prescription
drugs under TennCare(R) contracts accounted for the remaining $27.5 million of
such increased cost of revenue. These costs were offset by the above-mentioned
restructuring of a major TennCare(R) contract, which resulted in a decrease in
cost of revenue of $25.3 million. As a percentage of revenue, cost of revenue
increased to 94.3% for the six months ended June 30, 1998 from 93.3% for the six
months ended June 30, 1997 primarily due to higher than expected utilization
under certain risk-based contracts and continued increases in drug costs under
risk-based contracts.
At December 31, 1997, a reserve of $4.1 million was established for
anticipated losses in connection with the Sierra Plans. These losses are
expected to result from unfavorable factors, including higher pharmacy
utilization rates than contained in Sierra's historic claims data, higher than
expected inflation in drug costs and the inability to restrict the formularies
under certain Sierra Plans, resulting in higher than anticipated drug costs. For
the six months ended June 30, 1998, $3.4 million of this $4.1 million reserve
was utilized. Management believes that the remaining reserve is adequate to
cover any further losses in connection with the Sierra Plans. The Company's
contract covering the Sierra Plans terminated on August 6, 1998. This
termination is expected to reduce revenues by approximately $3.5 million per
month, but will have no impact on net income in 1998 as the Company reserved for
all anticipated losses in connection with the Sierra Plans at December 31, 1997.
Selling, general and administrative expenses were $9.3 million for the six
months ended June 30, 1998 compared to $7.9 million for the six months ended
June 30, 1997, an increase of $1.4 million. These increased expenses reflect the
Company's continuing commitment to enhance its ability to efficiently manage its
growth in pharmacy benefits by investing in additional operational and clinical
personnel as well as information technology systems to support new and existing
customers. In addition, the Company incurred additional legal costs primarily in
connection with the final settlement of its dispute with Sierra. As a percentage
of revenue, selling, general and administrative expenses decreased to 4.5% for
the six months ended June 30, 1998 from 6.8% for the six months ended June 30,
1997.
For the six months ended June 30, 1998, the Company recorded interest
income of $1.0 million, a decrease of $0.2 million. The decrease in interest
income resulted from a reduced level of investments due to additional working
capital needs of the Company. The level of invested funds decreased $1.6 million
to $23.4 million.
For the six months ended June 30, 1998, the Company recorded net income of
$3.5 million, or $0.26 per basic share. This compares with net income of $1.1
million, or $0.09 per basic share, for the six months ended June 30, 1997. This
increase is due largely to the above-described changes in revenue and cost of
revenue.
Liquidity and Capital Resources
For the six months ended June 30, 1998, net cash used in operating
activities totaled $7.2 million, primarily due to increases in receivables of
approximately $17.4 million. The increase in accounts receivable resulted
primarily from a proportionate increase in pharmacy benefit management business
during the period. In addition, the timing of billing and collection for certain
TennCare(R) clients previously being processed by an outside vendor changed
after the Company began processing these claims in-house. This transition
initially caused a delay in billing and
9
collections for these clients. Such uses were partially offset by increases in
claims payable of approximately $4.9 million.
At June 30, 1998, the Company had working capital of $15.2 million,
compared to $9.3 million at December 31, 1997. Cash and cash equivalents
decreased to $2.6 million at June 30, 1998 compared with $9.6 million at
December 31, 1997, primarily for the reasons described above. The Company had
investment securities held to maturity of $21.1 million and $22.6 million at
June 30, 1998 and December 31, 1997, respectively.
At June 30, 1998, the Company had, for tax purposes, unused net operating
loss carryforwards of approximately $18.3 million which will begin expiring in
2008. As it is uncertain whether the Company will realize the full benefit from
its deferred tax assets, the Company has recorded a valuation allowance for the
same amount. The Company will assess the need for a valuation allowance at each
balance sheet date. The amount of net operating loss carryforwards which may be
utilized in any given year may become limited by the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder, if a
cumulative change in ownership of more than 50% occurs within a three year
period.
The Company believes that its financial condition and capital structure as
a result of its initial public offering (the "Offering") has enhanced its
ability to negotiate and obtain additional contracts with plan sponsors and
other potential customers. The Company believes that it has sufficient cash on
hand or available to fund the Company's anticipated working capital and other
cash needs for at least the next 12 months.
As part of its continued efforts to expand its pharmacy management
business, the Company expects to incur additional sales and marketing expenses.
The Company also may pursue joint venture arrangements, business acquisitions
and other transactions designed to expand its pharmacy management business,
which the Company would expect to fund from cash on hand or future indebtedness
or, if appropriate, the sale or exchange of equity securities of the Company.
Other Matters
The Company's pharmaceutical claims costs historically have been subject to
a significant increase over annual averages from October through February, which
the Company believes is due to increased medical problems during the colder
months. Non-risk contracts represented approximately 63% of the Company's
revenue for the six months ended June 30, 1998. Under non-risk contracts,
seasonally higher utilization no longer materially adversely effects the
Company's gross margin.
Changes in prices charged by manufacturers and wholesalers for
pharmaceuticals, a component of pharmaceutical claims, have historically
affected the Company's cost of revenue. The Company believes that it is likely
for prices to continue to increase which could have an adverse effect on the
Company's gross profit. To the extent such cost increases adversely effect the
Company's gross profit, the Company may be required to increase contract rates
on new contracts and upon renewal of existing contracts. However, there can be
no assurance that the Company will be successful in obtaining these increased
rates.
The TennCare(R) program has been controversial since its inception and has
generated federal and state government investigations and adverse publicity.
There can be no assurances that the Company's association with the TennCare(R)
program will not adversely affect the Company's business or results of
operations in the future.
The so-called "year 2000 problem," which is common to many companies,
concerns the inability of information systems, primarily computer software
programs, to recognize properly and process date sensitive information as the
year 2000 approaches. The Company believes that it does not and will not have
any material year 2000 problems. This belief is based upon a review of its
internally-generated programs, representations made by external software program
and hardware suppliers, experience processing information with dates on or after
the year 2000 and the known availability of software which the Company may
utilize and which is free of year 2000 problems.
On January 27, 1998, the Company and its wholly owned subsidiary, CMP
Acquisition Corp. ("CMP"), entered into an Agreement and Plan of Merger with
Continental Managed Pharmacy Services, Inc. ("Continental") and certain of its
principal shareholders. Upon consummation of the merger (the "Merger"), CMP and
Continental would merge, whereupon Continental would be the surviving
corporation and the separate corporate existence of CMP would terminate. As a
result thereof, Continental would become a wholly-owned subsidiary of the
Company.
10
The Merger is subject to a number of customary conditions to closing. While it
is anticipated that the Merger will occur during the third quarter of 1998,
there can be no assurances that the Merger will occur at such time or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
11
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
From August 14, 1996 through June 30, 1998, the $46,788,000 net proceeds
from the Offering, pursuant to a Registration Statement assigned file number
333-05327 by the Securities and Exchange Commission (the "Commission") and
declared effective by the Commission on August 14, 1996, have been applied in
the following approximate amounts:
Construction of plant, building and facilities ........... $ --
Purchase and installation of machinery and equipment ..... $ 2,686,000
Purchases of real estate ................................. $ --
Acquisition of other business ............................ $ 2,300,000
Repayment of indebtedness ................................ $ --
Working capital .......................................... $18,153,000
Temporary investments:
Marketable securities ............................. $21,066,000
Overnight cash deposits ........................... $ 2,583,000
To date the Company has expended a relatively insignificant portion of the
Offering proceeds on expansion of the Company's "preferred generics" business
although, at the time of the Offering as disclosed in the prospectus related
thereto, the Company intended to apply approximately $18.6 million of Offering
proceeds to fund such expansion. As of the date of this filing, the Company has
not determined the ultimate amount or timing of application of Offering proceeds
to such use.
Item 5. Other Information
On January 27, 1998, the Company and its wholly owned subsidiary, CMP
Acquisition Corp. ("CMP"), entered into an Agreement and Plan of Merger with
Continental Managed Pharmacy Services, Inc. ("Continental") and certain of its
principal shareholders. Upon consummation of the merger (the "Merger"), CMP and
Continental would merge, whereupon Continental would be the surviving
corporation and the separate corporate existence of CMP would terminate. As a
result thereof, Continental would become a wholly-owned subsidiary of the
Company. The Merger is subject to a number of customary conditions to closing.
While it is anticipated that the Merger will occur during the third quarter of
1998, there can be no assurances that the Merger will occur at such time or at
all.
Effective July 6, 1998, the Company consummated a stock option repricing
program. Each then current employee of the Company holding options under the
Company's 1996 Stock Incentive Plan was offered an opportunity to reprice the
exercise price of not less than all options granted at a particular exercise
price to an exercise price of $6.50 per share. In consideration of receiving
repriced options, each employee agreed that all such repriced options, including
those already vested, would become unvested and exercisable in three equal
installments on the first three anniversaries of the date of the repricing.
12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.49 Employment Agreement dated April 17, 1998 between
MIM Corporation and Scott R. Yablon.
10.50 Amendment No. 1 to Employment Agreement dated as
of May 15, 1998 between MIM Corporation and Barry
A. Posner.
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any Reports on Form 8-K during the quarter for
which this Report is filed.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIM Corporation
Date: August 10, 1998 /s/ Scott R. Yablon
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Scott R. Yablon
President, Chief Operating Officer, Chief Financial
Officer and Director
(Principal Financial Officer)