UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998
Commission File No. 0-28740

MIM CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 05-0489664
(State of incorporation) (IRS Employer Identification No.)

100 Clearbrook Road, Elmsford, New York 10523
(914) 460-1600
(Address and telephone number of Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
(Title of class)

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, as amended ("Exchange Act") during the preceding twelve months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K
("Annual Report") or any amendment to this Annual Report on Form 10-K. ___

The aggregate market value of the registrant's Common Stock, par value
$.0001 per share ("Common Stock") (its only voting stock), held by
non-affiliates of the registrant as of March 12, 1999 was approximately $29.0
million based on the closing sales price of the Common Stock on such day of
$2.50 per share. (Reference is made to the fourth paragraph of Part II, Item 5
herein for a statement of the assumptions upon which this calculation is based.)

On March 12, 1999, there were outstanding 18,742,689 shares of the
registrant's Common Stock.

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PART I

Item 1. Business

Overview

MIM Corporation (the "Company") is an independent pharmacy benefit
management ("PBM") and prescription mail order organization that offers a broad
range of pharmaceutical services to the health care industry. The Company
promotes the cost effective delivery of pharmacy benefits to plan members and
the public. The Company targets two types of plan sponsors: (1) sponsors of
public and private health plans, such as health maintenance organizations
("HMO's") and other managed care organizations ("MCO's"), and long-term care
facilities, such as nursing homes and assisted living facilities; and (2)
self-funded plans sponsored by employers. The Company provides flexible program
designs, pricing arrangements, formulary management, clinical expertise,
innovative technology and quality service designed to control pharmacy costs.
The Company promotes the clinically appropriate substitution of generic drugs
from equivalent but more expensive brand name drugs that are often prescribed.

The Company was incorporated in Delaware in March 1996 and completed its
initial public Offering ("Offering") in August 1996. Prior to the Offering, the
Company combined the businesses and operations of Pro-Mark Holdings, Inc.
("Pro-Mark") and MIM Strategic Marketing, LLC, which became 100% and 90% owned
subsidiaries, respectively, of the Company in May 1996. On August 24, 1998, the
Company acquired all of the outstanding capital stock of Continental Managed
Pharmacy Services, Inc. ("Continental"), complementing its core PBM business
with mail order pharmacy services.

At December 31, 1998, the Company provided PBM services to 127 plan
sponsors with approximately 1.9 million plan members, including six plan
sponsors with approximately 1.2 million members receiving mandated health care
benefits under Tennessee's TennCare(R) Medicaid waiver program ("TennCare"). As
of January 1, 1999, the Company's relationship with these TennCare plan sponsors
was restructured. See "The TennCare Program" below. Throughout this Annual
Report, all references to the number of members or lives managed by the Company
under the TennCare program excludes members or lives duplicatively covered under
an agreement between the Company and TennCare behavioral health plan sponsors.
In prior periodic reports under the Exchange Act and in previous press releases,
the Company has counted such members and lives twice when covered under more
than one agreement.

Since the Offering through mid-December 1997, the Company focused its
marketing efforts on large public health programs, particularly in states with
high Medicaid eligible populations, and on private health plans throughout the
United States. Beginning in 1998 and continuing with more emphasis into 1999,
the Company has focused its marketing efforts on small to mid- sized employer
groups, both directly through its sales and marketing force and indirectly
through commissioned brokers and agents, such as third party administrators. At
March 15, 1999, approximately 32% of the plan members for whom the Company
provides PBM services were covered through employer groups.

PBM Services

The Company's PBM services include formulary design and management with an
emphasis on providing clinically appropriate, cost effective pharmacy services,
point of sale ("POS") claims processing, clinical services, an established
pharmacy network, mail order pharmacy services, drug utilization review and
reporting ("DUR"), quality assurance polices and pharmacy data services and
reporting. The Company's benefit management programs include a number of design
features and structures that are tailored to a plan sponsor's particular benefit
program and cost requirements. The Company's fee structures include traditional
fee-for-service arrangements (e.g., billing for ingredient cost and pharmacist's
dispensing fee plus certain administrative fees), capitated arrangements (e.g.,
fixed price per plan participant), cost sharing arrangements (e.g., pricing
based on sharing with customers the financial benefits resulting from not
exceeding established per capita amounts), and profit sharing arrangements
(e.g., pricing which incentivizes the plan sponsors to support fully the
Company's cost control efforts).

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Formulary Design and Management. The Company offers flexible benefit and
formulary designs to meet the specific requirements of each plan sponsor.
Formulary design options include open, select, closed, tiered copayment or
custom. Open formularies generally cover all FDA approved drugs, except certain
classes of excluded pharmaceuticals (such as certain vitamins and cosmetic,
experimental, investigative and over-the-counter drugs). A select formulary
designates preferred products within each therapeutic drug class and may include
financial and other incentives (such as lower copayments) for a member to use
one or more preferred products. Closed formularies restrict the availability of
certain drugs within a given therapeutic class (except where it is determined to
be medically necessary) (see "Clinical Services" below) and are coupled with
comprehensive physician and member education initiatives. Closed formularies
require the Company's active involvement in Pharmacy and Therapeutics ("P&T")
Committees (consisting of local plan sponsors, physicians, pharmacists and other
health care professionals) to design and implement clinically appropriate
formularies designed to control costs through the use of therapeutically
equivalent lower cost pharmaceutical products. As a result of rising pharmacy
program costs, the Company believes that both public and private health plans
have become increasingly receptive to closed and tiered copayment formularies.
Tiered copayment formularies require members utilizing non-formulary medications
to pay higher copayments, thereby discouraging the use of non-formulary
medications, or in preferred generic programs, brand drugs. Custom formularies
are designed to accommodate the needs of a particular group (e.g., hospice, long
term care, the elderly, workers' compensation and behavioral health). All
formularies are subject to the final approval of the plan sponsor, directly or
through their respective P&T Committees.

Cost control and savings initiatives are realized through formulary designs
focusing on generic substitution and formulary selection of the most cost
effective agents within each therapeutic class, in each case, to the extent
consistent with accepted medical and pharmacy practice and applicable law.
Generic substitution programs promote the selection of bio-equivalent generic
drugs as a cost effective alternative to brand name drugs in accordance with a
plan sponsor's generic utilization goals. Formulary selection involves utilizing
lower cost brand name drugs within a therapeutic class and therapeutic
algorithms that promote appropriate selection of therapeutic agents. Selective
utilization within therapeutic classes enables the Company to negotiate and
obtain purchasing concessions and other financial incentives from both brand and
generic drug manufacturers which are often shared with plan sponsors. The
Company currently contracts with over forty pharmaceutical manufacturers to
provide such concessions and incentives for formulary products.

POS Claims Processing. Benefit designs and formulary parameters are managed
through the Company's point of service ("POS") claims processing system through
which real-time electronic messages are transmitted to pharmacists to ensure
compliance with specified benefit design and formulary parameters before
services are rendered. The POS claims processing system adjudicates claims at
the point-of-sale, verifying eligibility and reporting to the pharmacist the
appropriate pricing and copayment structure. In addition, the system performs a
series of on-line drug utilization review ("DUR") edits, as discussed below,
(see "Drug Utilization Review") to identify, before a medication is dispensed,
potential adverse drug interactions and other possible problems which may exist.

Clinical Services. The Company's formularies typically provide a selection
of covered drugs within each therapeutic class. Formulary agents are selected by
the plan sponsor working together with the Company's P&T Committee based upon
clinical and pharmacoeconomic information. However, when determined to be
clinically appropriate, non-formulary drugs (other than products within excluded
therapeutic classes) are also covered. Since non-formulary drugs are
automatically rejected by the POS claims processing system, the Company may
implement sponsor requested overrides, or prior authorization ("PA") and medical
necessity ("MN") override procedures for a specific patient and length of
therapy. A PA is required upon the failure of a therapeutic trial of formulary
alternatives or allergy/intolerance to formulary alternatives not requiring a
PA. A drug subject to MN review is not on a plan sponsor's formulary, but
coverage is granted upon a failed therapeutic trial of formulary and PA
alternatives and/or an allergy/intolerance to formulary alternatives and PA
alternatives. In addition, in a medical emergency as determined by a dispensing
pharmacist, the Company authorizes, without prior approval, short-term supplies
of non-formulary medications. Non-formulary PA and MN overrides are processed on
the basis of documented, clinically supported guidelines and typically are
granted or denied within 24 to 48 hours after request if accompanied by all
necessary supporting documentation. Requests for, and appeals of denials of PA
or

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MN overrides are handled by the Company's staff of trained pharmacists,
nationally certified pharmacy technicians and board certified pharmacotherapy
specialists, subject to the plan sponsor's ultimate decision making authority
over all such appeals.

Pharmacy Network Management. The Company's pharmacy network consists of
pharmacy chains and independent pharmacies, as well as pharmacy service
administrative organizations. Participating pharmacies may be included in the
Company's open, preferred, select or custom networks, which are designed to
ensure that members have the plan sponsor's desired level of access to quality
pharmacy services. The open network, consisting of both independent and chain
pharmacies, provides maximum access to pharmacy services. The preferred network
offers clients, on a negotiated basis, access to a limited subset of independent
and chain pharmacies within the Company's national network, allowing enhanced
discount opportunities for plan sponsors and their members. The select pharmacy
network offers clients maximum savings potential through an even more limited
subset of the Company's national network of chain and independent pharmacies
with respect to one or more of a sponsor's plans through the negotiation of
aggressive reimbursement discounts within such limited network, while
maintaining the plan sponsor's desired level of access for members. Custom
networks are developed when necessary to support specialty formularies and
disease state management protocols. The Company has an open network policy and
continually works to increase pharmacy participation in its existing network.
Aggressive solicitation of pharmacies occurs in areas that require network
penetration such as when the Company begins servicing a client in a geographic
area not previously serviced by the Company. Specific pharmacies may be added at
a client's or member's request.

The Company utilizes uniform industry as well as plan specific standards to
credential new participating pharmacy providers and individual pharmacists and
to recredential existing pharmacy providers every two years. In addition, the
Company encourages pharmacies and/or pharmacists to participate in various
educational, peer review and professional programs and to take other actions
designed to maintain and enhance the quality of services rendered by
participating pharmacies.

In the case of an emergency, members may use a non-participating pharmacy
to obtain their medication by paying the non-participating pharmacy for a
prescription and being subsequently reimbursed by the Company. Plan sponsors are
provided with direct member reimbursement ("DMR") forms to distribute to plan
members on which members may submit emergency out-of-network claims for
reimbursement. DMR claims submitted are processed by the Company through its
claim processing system, allowing for complete, integrated DUR and reporting.

Mail Order Services. The Company operates a national mail order pharmacy
providing savings to plan sponsors through the direct distribution of
pharmaceutical products to members. Dispensing pharmaceuticals through mail
service generates substantial savings and provides the convenience of home
delivery, automatic refills and the dispensing of larger authorized quantities
(up to 90 day supplies) than typically available through retail network
pharmacies, thereby reducing repetitive dispensing fees incurred in standard
30-day supply prescriptions dispensed in such retail pharmacies. Prescriptions
are dispensed from a centralized facility located in Cleveland, Ohio.
Prescriptions are received at the facility by mail, facsimile or telephone.
Prior to filling a prescription, the Company's pharmacist verifies the patient's
eligibility status, his or her physician's name, the prescription's strength,
quantity, pricing and directions for use. Prescriptions are dispensed and sent
to patients generally within 72 hours of receipt by United States Postal service
or a national delivery service.

The cost efficiency of the Company's mail service delivery system is
generated through the bulk purchase of pharmaceuticals on terms more favorable
than those of smaller orders, price concessions or financial incentives from
drug manufacturers on high volume purchases and the comparatively lower cost of
prescription fulfillment at the centralized facility. Most of the Company's
wholesale pharmaceutical purchases are made from a leading drug distributor
through an electronic ordering system, enabling the Company's mail order
facility to receive just-in-time delivery of pharmaceutical supplies.

Drug Utilization Review. The Company provides a comprehensive DUR program,
evaluating drug usage on a concurrent, prospective and retrospective basis. The
concurrent DUR program evaluates, before a medication is dispensed to a patient,
potential problems that may exist. The program is designed to assist the
dispensing pharmacist in performing their professional obligation to provide
patients with appropriate medication and

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counseling. Concurrent DUR identifies preventable prescribing problems before
the medications are dispensed and may be targeted for specific therapeutic
classes or individual drug products. Standard DUR edits implemented through the
POS claims processing system include early refill alerts, therapeutic
duplication, drug-drug interaction, drug-age conflict, drug-gender conflict,
pregnancy conflict, underutilization, maximum and minimum dose screening and
other customized alerts (at a client's request). An early refill alert is the
only DUR edit that results in an automatic on-line claim rejection. All other
DUR edits are implemented through a warning message communicated on-line to the
dispensing pharmacist, which enables the pharmacist to use his or her
professional judgment to intervene when appropriate.

The Company's retrospective DUR program is an ongoing process in which
select medication therapies are reviewed for appropriateness and cost
effectiveness from data collected when prescriptions are filled. The
retrospective DUR program is designed to identify and address adverse
prescribing habits and trends by educating physicians and sharing information
with pharmacists to impact prescribing, dispensing and overall drug utilization
practices. In addition, the program identifies changes in pharmacotherapy that
will improve member outcomes, cost effectiveness and quality of care and monitor
potential fraud and abuse by a prescriber, member or pharmacy. Educational
interventions are directed toward the dispensing pharmacy and the prescribing
physician to warn of potential adverse events.

Prospective DUR programs are designed to improve drug utilization prior to
prescribing. The programs include member education and disease state management
programs. Members receive standard communication packages as well as customized
educational materials designed to maximize drug therapy compliance and cost
savings. Disease state management ("DSM") programs are designed to assist plan
sponsors and network pharmacies in achieving therapy goals for certain targeted
diseases. DSM programs communicate the most cost effective disease treatments to
physicians utilizing current literature and national standards. The Company has
implemented DSM programs for asthma, diabetes and geriatric care. Patient and
physician surveys are distributed to determine acceptance of the DSM program and
the corresponding benefits.

Behavioral Health Pharmacy Services. Managed care organizations have
recently recognized the particular and specialized behavioral health needs of
certain patients within their memberships, which has resulted in MCO's
increasingly segregating the behavioral health population into a separate
management area. The Company provides services to the segregated behavioral
health entities created by MCO's and other behavioral health organizations
("BHO's") which encourage the clinically appropriate and cost effective
utilization of behavioral health medications. Through the development of
provider education programs, utilization protocols and prescription dispensing
evaluation tools, the Company is able to integrate pharmaceutical care with
other medical therapies to enhance patient compliance in the behavioral health
area, thereby minimizing unnecessary or suboptimal prescribing practices. These
services are integrated into a package of behavioral health care products for
marketing to private insurers, public managed care programs and other health
providers.

Quality Assurance. Quality is monitored through audit procedures and the
enforcement of disciplinary policies. The Company continually performs audit
procedures on claims data to detect improper claims or inappropriate costs
submitted, incorrect quantities dispensed, excessive claims volume and excessive
price per dispensed prescription. Claims audits which uncover unusual or
inappropriate items may prompt an on-site pharmacy audit. A full on-site audit
verifies randomly selected claims for authenticity and accuracy. The Company
attempts to recoup all identified overpayments and may take other disciplinary
action as appropriate. The Company's disciplinary action policy applies to all
pharmacies found in violation of the Company's pharmacy participation agreement
or its standard operating policies and procedures. The severity of disciplinary
action is dependent on the number and type of discrepancies found.

Pharmacy Data Services and Reporting. The Company utilizes claims data to
generate analysis reports for Company management and plan sponsor use. These
reports, available on tape, diskette, on-line or hard copy, provide summarized
and sorted historical data utilized by management and the plan sponsors to
evaluate trends. Standard management report packages provided to clients are
reviewed by the clinical pharmacy staff to track trends and recommend systems to
ensure cost effective, clinically appropriate pharmacy services.

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The Company has developed systems to provide plan sponsors with real-time,
on-line access to pharmacy claims data. This reporting is available through the
Company's Clinical Management System ("CMS"), a pharmacy intranet system that
provides timely, concise utilization data to help manage drug benefit programs.
CMS provides detail claims transactions, month-to-date data and a rolling
24-month history of the benefit plan. CMS allows the user the ability to
download data to other user applications (e.g., spreadsheet, word processing) so
that specific data can be stored and/or manipulated by the user.

Other Services

Individual Customers. For privately insured and uninsured individuals, the
Company's recently acquired subsidiary, Continental, historically has
administered a mail service program in conjunction with a retail pharmacy
prescription drug card program. Continental historically has solicited
individual patients covered by indemnity contracts with insurance companies
through several marketing programs, including an exclusive agency relationship
with an organization dedicated to individual insureds afflicted with diabetes
and a joint venture with an organization serving HIV positive patients covered
by these insurance arrangements. These organizations have provided Continental's
mail order business with a base of customers who require more frequent and more
costly prescription medications than the average patient.

Through these programs tailored to individual customers who use long-term
or "maintenance" prescription drugs, Continental historically has assisted
insured individuals with the financing and management of their prescription
medications. These members were not required to pay any up-front costs or
membership fees; however, these individuals were billed for copayment amounts or
deductibles required under their insurance plans, unless they were eligible for
financial hardship waivers. Upon dispensing a prescription, Continental would,
on behalf of that patient, submit a claim to his or her insurance company,
finance the purchase of the drug at no cost to the patient and await
reimbursement from the patient's insurance company.

The Company also offers similar services to those individuals without
insurance coverage. Unlike the Continental individual indemnity program,
however, members are required to pay an annual membership fee. The program
offers discounts of up to 40% off the national average prices on prescriptions
filled by the Company's mail order facility. In addition, members receive a
prescription drug card which may be used to obtain prescription medication at
discount prices at retail pharmacies participating in the Company's network.

The TennCare Program

RxCare of Tennessee, Inc. ("RxCare"), a pharmacy services administrative
organization owned by the Tennessee Pharmacists Association and representing
approximately 1,600 retail pharmacies, initially retained the Company in 1993 to
assist in obtaining contracts with MCO's applying to participate in the TennCare
program to provide PBM services to those MCO's and their TennCare eligible and
commercial recipients. In January 1994, the State of Tennessee instituted its
TennCare program by contracting with MCO's to provide mandated health services
to TennCare beneficiaries on a capitated basis. In turn, certain of these MCO's
contracted with RxCare to provide TennCare mandated pharmaceutical benefits to
their TennCare beneficiaries through RxCare's network of retail pharmacies, in
most cases on a corresponding capitated basis.

From January 1994 through December 31, 1998, the Company provided a broad
range of PBM services with respect to RxCare's TennCare, TennCare Partners, the
TennCare behavioral health program, and commercial PBM business under an
agreement with RxCare (the "RxCare Contract"). Under the RxCare Contract, the
Company performed essentially all of RxCare's obligations under its PBM
contracts with plan sponsors, including designing and marketing PBM programs and
services. Under the RxCare Contract, the Company paid certain amounts to RxCare
and shared with RxCare the profit, if any, derived from services performed under
RxCare's contracts with the plan sponsors.

As of December 31, 1998, the Company serviced six TennCare plan sponsors
with approximately 1.2 million members under the RxCare Contract. The RxCare
Contract accounted for 72.2% of the Company's revenues for the year ended
December 31, 1998 and approximately 83.6% of the Company's revenues for the year
ended December 31, 1997. RxCare's contracts with Tennessee Managed Care Network,
Inc., Tennessee Behavioral

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Health, Inc., Premier Behavioral Systems of Tennessee and Phoenix Healthcare of
Tennessee accounted for approximately 16%, 11%, 16% and 12%, respectively, of
the Company's revenues in 1998.

The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of its relationship with RxCare,
among other things, allowed the Company to directly market its services to
Tennessee customers (including those then under contract with RxCare) prior to
the expiration of the RxCare Contract. The RxCare Contract had previously
prohibited the Company from soliciting and/or marketing its PBM services in
Tennessee other than on behalf of, and for the benefit of, RxCare. The Company's
marketing efforts during this period resulted in the Company executing
agreements effective as of January 1, 1999 to provide PBM services directly to
five of the six TennCare MCO's and 900,000 of the TennCare lives previously
managed under the RxCare Contract as well as substantially all third party
administrators ("TPA's") and employer groups previously managed under the RxCare
Contract. The Company anticipates that approximately 32% of its revenues for
fiscal 1999 will be derived from providing PBM services to these five TennCare
MCO's. To date, the Company has been unable to secure a contract with the two
TennCare BHO's to which it previously provided PBM services under the RxCare
Contract. For the year ended December 31, 1998, amounts paid to the Company by
these BHO's represented approximately 27% of the Company's revenues.

Other Matters

The Company's pharmaceutical claims costs historically have been subject to
significant increase over annual averages from October through February, which
the Company believes is due to increased medical requirements during the colder
months. The resulting increase in pharmaceutical costs impacts the profitability
of capitated contracts or other risk-based arrangements. Risk-based business
represented approximately 32% of the Company's revenues while non-risk business
(including the provision of mail order services) represented approximately 68%
of the Company's revenues for the year ended December 31, 1998. Non-risk
arrangements mitigate the adverse effect on profitability of higher
pharmaceutical costs incurred under risk-based contracts. The Company presently
anticipates that approximately 28% of its revenues in fiscal 1999 will be
derived from risk-based arrangements.

Changes in prices charged by manufacturers and wholesalers or distributors
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 rate
increases. The higher level of non-risk contracts with the Company's customers
in 1998 compared to prior years mitigates the adverse effects of price
increases, although no assurance can be given that the recent trend towards
non-risk arrangements will continue.

Competition

The PBM business is highly competitive, and certain of the Company's
current and potential competitors have considerably greater financial,
technical, marketing and other resources than the Company. The PBM business
includes a number of large, well capitalized companies with nationwide
operations and many smaller organizations typically operating on a local or
regional basis. Among larger companies offering pharmacy benefit management
services are Medco Containment Services, Inc. (a subsidiary of Merck & Co.,
Inc.), PCS, Inc., Express Scripts, Inc., Advance ParadigM, Inc. and Diversified
Pharmaceutical Services, Inc. Numerous insurance and Blue Cross and Blue Shield
plans, managed care organizations and retail drug chains also have their own
pharmacy benefit management capabilities.

Competition in the PBM business to a large extent is based upon price,
although other factors, including quality, technology and breadth of services
and products, are also important. The Company believes that its ability and
willingness, where appropriate, to assume or share its customers' financial
risks and its emphasis on clinical management services represent distinct
competitive advantages in the PBM industry.

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Government Regulation

The Company believes that it is in substantial compliance with all legal
requirements material to its operations. Among the various Federal and state
laws and regulations which may govern or impact the Company's current and
planned operations are the following:

Anti-Kickback Laws. Subject to certain statutory and regulatory exceptions
(including exceptions relating to certain managed care, discount, group
purchasing and personal services arrangements), Federal law prohibits the
payment or receipt of remuneration to induce, arrange for or recommend the
purchase of health care items or services paid for in whole or in part by the
Medicare or state health care programs (including Medicaid and TennCare), and
certain state laws may extend the prohibition to items or services that are paid
for by private insurance and self-pay patients. The Company's arrangements with
pharmacy service administration organizations, drug manufacturers, marketing
agents, brokers, health plan sponsors, pharmacies and others parties routinely
involve payments to or from persons who provide or purchase, or recommend or
arrange for the purchase of, goods or services paid in part by the TennCare
program, the U.S. HealthCare Finance Administration ("HCFA") on behalf of
Medicaid or by other programs covered by such laws. Management carefully
considers the import of such "anti-kickback" laws when structuring its
operations, and believes the Company is in compliance therewith. However, the
laws in this area are subject to rapid change and often are uncertain in their
application, and there can be no assurance that one or more of such arrangements
will not be challenged or found to violate such laws. Violation of the Federal
anti-kickback statute could subject the Company to substantial criminal and
civil penalties, including exclusion from the Medicare and Medicaid (including
TennCare) programs. There are a number of states in which the Company does
business which have laws analogous to Federal anti-kickback laws and regulations
which likewise govern or impact the Company's current and planned operations.

Antitrust Laws. Numerous lawsuits have been filed throughout the United
States by retail pharmacies against drug manufacturers challenging certain brand
drug pricing practices under various state and Federal antitrust laws. A
settlement in one such suit would require defendant drug manufacturers to
provide the same types of discounts on pharmaceuticals to retail pharmacies and
buying groups as are provided to managed care entities to the extent that their
respective abilities to affect market share are comparable, a practice which, if
generally followed in the industry, could increase competition from pharmacy
chains and buying groups and reduce or eliminate the availability to the Company
of certain discounts, rebates and fees currently received in connection with its
drug purchasing and formulary administration programs. In addition, to the
extent that the Company or an associated business appears to have actual or
potential market power in a relevant market, business arrangements and practices
may be subject to heightened scrutiny from an anti-competitive perspective and
possible challenge by state or Federal regulators or private parties. To date,
enforcement of antitrust laws have not had any material adverse effect on the
Company's business.

Other State Laws. Many states have statutes and regulations that do or may
impact the Company's business operations. In some states, pharmacy benefit
managers may be subject to regulation under insurance laws or laws licensing
HMOs and other MCO's, in which event requirements could include satisfying
statutorily imposed performance obligations, the posting of bonds, maintenance
of reserves, required filings with regulatory agencies, and compliance with
disclosure requirements and other regulation of the Company's operations. State
insurance laws also may affect the structuring of certain risk-sharing programs
offered by the Company. A number of states have laws designed to restrict the
ability of PBM's to impose limitations on the consumer's choice of pharmacies,
or requiring that the benefits of discounts negotiated by managed care
organizations be passed along to consumers in proportionate reductions of
copayments. Some states require that pharmacies be permitted to participate in
provider networks if they are willing to comply with network requirements
(including price), while other states require PBM's to follow certain prescribed
procedures in establishing a network and admitting and terminating its members.
Many states require that Medicaid obtain the lowest prices from a pharmacy,
which may limit the Company's ability to reduce the prices it pays for drugs
below Medicaid prices. There are extensive state and federal laws applicable to
the dispensing of prescription drugs. Severe sanctions may be imposed for
violations of these laws. States have a variety of laws regulating pharmacists'
ability to switch prescribed drugs or to split fees and certain state laws have
been the basis for investigations and multi-state settlements requiring the

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discontinuance of certain financial incentives provided by manufacturers to
retail pharmacies to promote the sale of the manufacturers' drugs.

While management believes that the Company is in substantial compliance
with all existing laws and regulations material to the operation of its
business, such laws and regulations are subject to rapid change and often are
uncertain in their application. As controversies continue to arise in the health
care industry (for example, regarding the efforts of plan sponsors and pharmacy
benefit managers to limit formularies, alter drug choice and establish limited
networks of participating pharmacies), Federal and state regulation and
enforcement priorities in this area can be expected to increase, the impact of
which on the Company cannot be predicted. There can be no assurance that the
Company will not be subject to scrutiny or challenge under one or more of these
laws or that any such challenge would not be successful. Any such challenge,
whether or not successful, could have a material adverse effect upon the
Company's business and results of operations. Further, there can be no assurance
that the Company will be able to obtain or maintain any of the regulatory
approvals that may be required to operate its business, and the failure to do so
could have a material adverse effect on the Company's business and results of
operations.

Employees

At March 15, 1999, the Company employed approximately 275 persons including
33 licensed pharmacists. The Company's employees are not represented by any
union and, in the opinion of management, the Company's relations with its
employees are satisfactory.

Item 2. Properties

The Company's corporate headquarters is located in approximately 11,000
square feet of leased space in Elmsford, New York. This lease expires on
September 1, 2008. The Company's operating facilities are located in Wakefield,
Rhode Island and Cleveland, Ohio. In the Rhode Island location, the Company
leases space of approximately 27,000 square feet in several different facilities
under several leases with various lease expirations from May 2000 through
November 2004. In the Ohio location, the Company leases space of approximately
19,500 square feet, which lease expires in June 2001. The Company also leases
approximately 2,000 square feet in Nashville, TN for a regional sales
administration facility. This lease expires on April 30, 1999. The Company
believes that its leases provide for lease payments that reasonably approximate
market rates and that its facilities are adequate and suitable for its
requirements.

Item 3. Legal Proceedings

On March 5, 1996, Pro-Mark Holdings, Inc. ("Pro-Mark"), a subsidiary of MIM
Corporation, was added as a third-party defendant in a proceeding in the
Superior Court of the State of Rhode Island, and on September 16, 1996 the
third-party complaint was amended to add MIM Corporation as a third-party
defendant. The third-party complaint alleged that the Company interfered with
certain contractual relationships and misappropriated certain confidential
information. The third-party complaint sought to enjoin the Company from using
the allegedly misappropriated confidential information and sought an unspecified
amount of compensatory and consequential damages, interest and attorneys' fees.
On November 20, 1998, this action was settled pursuant to a settlement and
release agreement among the parties to the action. Under the terms of the
settlement, the Company was not required to make payment to any party and no
non-monetary restrictions or limitations were otherwise imposed against the
Company or any subsidiary or any of their respective officers, directors or
employees.

In February 1999, the Company reached an agreement in principle with
respect to a civil settlement of a Federal and State of Tennessee investigation
focusing mainly on the conduct of two former officers (one of which is a former
director and still principal stockholder of the Company) of a subsidiary prior
to the Company's Offering. Based upon the agreement in principle, the
investigation, as it relates to the Company, would be fully resolved through the
payment of a $2.2 million civil settlement and an agreement to implement a
corporate integrity program in conjunction with the Office of the Inspector
General of the U.S. Department of Health and Human Services. In that connection,
the Company recorded a non-recurring charge of $2.2 million against fourth
quarter 1998 earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in

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Item 7 in Part II of this Annual Report. This settlement is subject to several
conditions, including the execution of a definitive agreement. The Company
anticipates that it will have no continued involvement in the governments' joint
investigation other than continuing to cooperate with the governments in their
efforts.

On March 29, 1999, Xantus Healthplan of Tennessee, Inc. ("Xantus"), one of
the TennCare MCO's to which the Company provides PBM services, filed a complaint
in the Chancery Court for Davidson County, Tennessee. Xantus alleged that the
Company advised Xantus in writing that it would cease providing PBM services on
Monday, March 29, 1999 to Xantus and its members in the event that Xantus failed
to pay approximately $3.3 million representing past due amounts in connection
with PBM services rendered by the Company in 1999. The complaint further alleged
that the Company does not have the right to cease providing services under the
agreement between Xantus and the Company. Additionally, Xantus applied for a
temporary restraining order as well as temporary injunction to prevent the
Company from ceasing to provide such PBM services. The hearing on the motion for
the temporary injunction was scheduled to be heard on Thursday, April 1, 1999.
However, on March 31, 1999, the State of Tennessee and Xantus entered into a
consent decree whereby, among other things, the Commissioner of Commerce and
Insurance for the State of Tennessee was appointed receiver of Xantus for
purposes of rehabilitation. Due to the fact that the receiver was appointed at
the time of the filing of this Annual Report, the Company is unable to predict
the consequences of this appointment on the Company's ability to retain Xantus's
business or its ability to collect monies owed to it by Xantus. As of March 31,
1999, Xantus owes the Company $9.8 million relating to PBM services rendered by
the Company in 1999. The failure of the Company to collect all or a substantial
portion of the monies owed to it by Xantus would have a material adverse effect
on the Company's financial condition and results of operations.

From time to time, the Company may be a party to legal proceedings arising
in the ordinary course of the Company's business. Management does not presently
believe that any current matters would have a material adverse effect on the
consolidated financial position or results of operations of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1998.

PART II

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters

The Company's Common Stock began trading on The Nasdaq National Market Tier
of The Nasdaq Stock Market ("Nasdaq") on August 15, 1996 under the symbol
"MIMS". The following table represents the high and low sales prices for the
Company's Common Stock for the periods shown. Such prices are interdealer
prices, without retail markup, markdown or commissions, and may not necessarily
represent actual transactions.

MIM Common Stock
------------------------------
High Low
------- -------
1997:
First Quarter ................ $10.375 $4.75
Second Quarter ............... $16.75 $5.75
Third Quarter ................ $17.375 $9.062
Fourth Quarter ............... $9.875 $3.625

1998:
First Quarter ................ $6.50 $3.688
Second Quarter ............... $6.438 $4.00
Third Quarter ................ $6.438 $2.50
Fourth Quarter ............... $5.00 $2.281

The Company has never paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future.

As of March 12, 1999, there were 117 stockholders of record in addition to
approximately 2,000 stockholders whose shares were held in nominee name.

For purposes of calculating the aggregate market value of the shares of
Common Stock held by non-affiliates, as shown on the cover page of this Annual
Report, it has been assumed that all outstanding shares were held by
non-affiliates, except for shares held by directors and executive officers of
the Company and stockholders owning 5% or more of the outstanding Common Stock
based upon public filings made with the Securities and Exchange Commission
("Commission"). However, this should not be deemed to constitute an admission
that such persons are, in fact, affiliates of the Company, or that there are not
other persons who may be deemed to be affiliates of the Company. Further
information concerning ownership of Common Stock by executive officers,
directors and principal stockholders of the Company is included in Item 12 in
Part III of this Annual Report.

Except for the performance units and restricted shares of Common Stock
issued to certain executive officers of the Company on December 2, 1998, which
were issued in reliance on Section 4(2) of the Securities Act, during the three
months ended December 31, 1998, the Company did not sell any securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act"). See Long-Term Incentive Plan - Awards in Last Fiscal Year in Item 11 in
Part III of this Annual Report.

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From August 14, 1996 through December 31, 1998, the $46,788,000 net
proceeds from the Company's Offering of its Common Stock, affected pursuant to a
Registration Statement assigned file number 333-05327 by 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 .... $ 3,345,000
Purchases of real estate ................................ $ -
Acquisition of other businesses ......................... $ 2,325,000
Repayment of indebtedness ............................... $ -
Working capital ......................................... $ 24,929,000
Temporary investments:
Marketable securities .......................... $ 11,694,000
Overnight cash deposits......................... $ 4,495,000

To date, the Company has expended a relatively insignificant portion of the
Offering proceeds on expansion of the Company's "preferred generics" business
which was described more fully in the Offering prospectus and the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. At the time of
the Offering, however, as disclosed in the Offering prospectus and subsequent
Forms SR, the Company intended to apply approximately $18.6 million of Offering
proceeds to fund an expansion of the "preferred generics" program. The Company
has determined not to apply any material portion of the Offering proceeds to
fund any expansion of this program. The Company presently intends to use the
remaining Offering proceeds to support the continued growth of its PBM and mail
order business.

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth in Item 7 of this Annual Report and with
the Company's Consolidated Financial Statements and Notes thereto appearing in
Item 8 of this Annual Report.

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Year Ended December 31,
Statement of Operations Data 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)

Revenue ............................................... $451,070 $242,291 $283,159 $213,929 $109,326
Non-recurring charges ................................. $3,700(1) -- $26,640(2) -- --
Net income (loss) ..................................... $4,271 ($13,497) ($31,754) ($6,772) ($2,456)
Net income (loss) per basic share ..................... $0.28 ($1.07) ($3.32) ($1.43) ($0.55)
Net income (loss) per diluted share (3) ............... $0.26 ($1.07) ($3.32) ($1.43) $(0.55)
Weighted average shares outstanding
used in computing net income per basic share ........ 15,115 12,620 9,557 4,732 4,500
Weighted average shares outstanding used
in computing net income per diluted share ........... 16,324 12,620 9,557 4,732 4,500

December 31,
Balance Sheet Data 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands)

Cash and cash equivalents ............................. $ 4,495 $ 9,593 $ 1,834 $ 1,804 $ 2,933
Investment securities ................................. 11,694 22,636 37,038 -- --
Working capital (deficit) ............................. 19,823 9,333 19,569 (12,080) (5,087)
Total assets .......................................... 110,106 62,727 61,800 18,924 15,260
Capital lease obligations, net of
current portion ..................................... 598 756 375 110 239
Long-term debt, net of current portion ................ 6,185(4) -- -- -- --
Stockholders' equity (deficit) ........................ $ 39,054 $ 16,810 $ 30,143 $(11,524) $ (3,693)

(1) In 1998, the Company recorded $1.5 million and $2.2 million non-recurring
charges, respectively, against earnings in connection with the negotiated
termination of the RxCare relationship and amounts paid in settlement of
the Federal and State of Tennessee investigation relating to the conduct of
two former officers of the Company prior to the Offering, respectively. See
"Business - The TennCare Program" in Item 1 and Item 3, Legal Proceedings,
of Part I of this Annual Report. Excluding these items, net income for 1998
would have been $8.0 million, or $0.48 per diluted share.

(2) In 1996, the Company recorded a $26.6 million non-recurring, non-cash stock
option charge in connection with the grant by the Company's then majority
stockholder of certain options to then unaffiliated third parties, who
later became officers of the Company. See Note 9 to the Consolidated
Financial Statements. Excluding this item, the net loss for 1996 would have
been $5.1 million, or $0.54 per share.

(3) The historical diluted loss per common share for the years 1997 through
1994 excludes the effect of common stock equivalents, as their inclusion
would be antidilutive.

(4) This amount represents long-term debt assumed by the Company in connection
with its acquisition of Continental.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

This Annual Report contains statements that may be considered forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including statements regarding the Company's
and its management's expectations, hopes, intentions or strategies regarding the
future, as well as other statements which are not historical facts. Forward
looking statements may include statements relating to the Company's and its
management's business development activities, sales and marketing efforts, the
status of material contractual arrangements, including the negotiation,
continuation, renewal or re-negotiation of such arrangements, future capital
expenditures, the effects of government regulation and competition on the
Company's business, future operating performance of the Company, the results,
benefits and risks associated with the integration of acquired companies, the
effect of year 2000 problems on the Company's operations (see "Year 2000
disclosure" below), 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 that may cause actual results to 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" contracts
or other risk-sharing arrangements, increased government regulation related to
the health care and insurance industries in general and more specifically,
pharmacy benefit management organizations, increased competition from the
Company's competitors, the existence of complex laws and regulations relating to
the Company's business and risks associated with the Company's reliance on the
TennCare MCO's for substantial percentages of its revenues and gross profit and
its need to maintain favorable relations with these clients. This Annual Report,
together with the Company's other filings with the Commission under the Exchange
Act and Securities Act, contains information regarding other important factors
that could also cause such differences. The Company 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 and
circumstances.

Overview

A majority of the Company's revenues to date have been derived from
operations in the State of Tennessee under the RxCare Contract. The Company
assisted RxCare in defining and marketing PBM services to private health plan
sponsors on a consulting basis in 1993, but did not commence substantial
operations through the provision of PBM services to such plan sponsors until
January 1994 when the Company, through the RxCare Contract, began servicing
several of the health plan sponsors involved in the then newly instituted
TennCare health care benefits program. See "Business - The TennCare Program" in
Item 1 in Part I of this Annual Report.

At December 31, 1998, the Company provided PBM services to a total of 127
plan sponsors with an aggregate of approximately 1.9 million plan members. As of
December 31, 1998, under the RxCare Contract, the Company serviced six TennCare
plan sponsors with approximately 1.2 million plan members. The RxCare Contract
accounted for 72.2% of the Company's revenues for the year ended December 31,
1998 and 83.6% of the Company's revenues for the year ended December 31, 1997.
Throughout this Annual Report, all references to the number of members or lives
managed by the Company under the TennCare program excludes members or lives
duplicatively covered under an agreement between the Company and TennCare
behavioral health plan sponsors. In prior periodic reports under the Exchange
Act and in previous press releases, the Company has counted such members and
lives twice when covered under more than one agreement.

The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of its relationship with RxCare,
among other things, allowed the Company to directly market its services to
Tennessee customers (including those then under contract with RxCare) prior to
the expiration of the RxCare Contract. The RxCare Contract had previously
prohibited the Company from soliciting and/or marketing its PBM services in
Tennessee other than on behalf of, and for the benefit of, RxCare. The Company's
marketing efforts during this period resulted in the Company executing
agreements effective as of January 1, 1999 to provide PBM services directly to
five of the six TennCare MCO's and 900,000 of the TennCare lives previously
managed under the RxCare Contract as well as substantially all TPA's and
employer groups previously managed under the RxCare Contract. The Company
anticipates that approximately 32% of its revenues for fiscal 1999 will be
derived from providing PBM services to these five TennCare MCO's. To date, the
Company has been unable to secure a contract with the two TennCare BHO's to
which it previously provided PBM services

-13-

under the RxCare Contract. For the year ended December 31, 1998, amounts paid to
the Company by these BHO's represented approximately 27% of the Company's
revenues. The Company has made operational adjustments determined to be
necessary due to the BHO and MCO contract losses.

1998 Acquisition

On August 24, 1998, the Company completed its acquisition of Continental, a
company which provides pharmacy benefit management services and mail order
pharmacy services. The acquisition was treated as a purchase for financial
reporting purposes. The Company issued 3,912,448 shares of Common Stock as
consideration for the purchase. The aggregate purchase price, including
acquisition costs of approximately $1.0 million, approximated $19.0 million. The
fair value of assets acquired approximated $11.3 million and liabilities assumed
approximated $12.0 million, resulting in approximately $18.4 million of goodwill
and $1.3 million of other intangible assets which will be amortized over their
estimated useful lives (25 years and 6.5 years, respectively). The Consolidated
Financial Statements of the Company included in Item 8 of this Annual Report for
the year ended December 31, 1998 include the results of operations and financial
position of Continental from and after the date of acquisition.

Results of Operations

Year ended December 31, 1998 compared to year ended December 31, 1997

For the year ended December 31, 1998, the Company recorded revenue of
$451.1 million, an increase of $208.8 million over the prior year. Approximately
$62.6 million of the increase in revenues resulted from increased commercial
business, including $19.4 million from a Nevada based managed care organization
(the "Nevada Plans"). The acquisition of Continental resulted in increased
revenues of $23.1 million, including $13.6 million attributable to mail order
pharmacy services. The Company anticipates that mail order pharmacy services
will generate approximately 8% of the Company's revenues in fiscal 1999. The
increase in commercial revenues resulted from managing an additional 91 plans
covering an additional 207,000 lives under new and existing commercial plans.
Revenue from TennCare contracts increased approximately $123.1 million as a
result of two new contracts entered into in the fourth quarter of 1997 ($85.1
million) and contract renewals on more favorable terms and increased enrollment
in the TennCare plans ($63.0 million), partially offset by a decrease in
revenues of $25.0 million resulting from the restructuring of a major TennCare
contract in April 1997.

For the year ended December 31, 1998, approximately 32% of the Company's
revenues were generated from capitated or other risk-based contracts, compared
to 53% for the year ended December 31, 1997. Effective January 1, 1999, the
Company began providing PBM services directly to five of the six TennCare MCO's
previously managed under the RxCare Contract. The Company will be compensated on
a capitated basis under three of the five TennCare contracts, thereby increasing
the Company's financial risk in 1999 as compared to 1998. Based upon its present
contracted arrangements, the Company anticipates that approximately 28% of its
revenues in 1999 will be derived from capitated or other risk-based contracts.

Cost of revenue for the year ended December 31, 1998 increased $182.4
million to $421.4 million compared to the prior year. New commercial contracts
together with increased enrollment in existing commercial plans accounted for
$54.0 million of the increase in cost of revenue, including $20.2 million
relating to the Nevada Plans. Costs attributable to the acquisition of
Continental accounted for $18.4 million of the increase in cost of revenue.
Costs related to TennCare contracts increased cost of revenue $110.0 million.
Costs relating to the two new TennCare contracts accounted for $80.3 million of
such increase, while increased enrollment in existing TennCare plans increased
cost of revenue $58.7 million. These cost increases were offset by the
restructuring of a major TennCare contract in April 1997, which resulted in a
decrease in cost of revenue of $25.5 million. As a percentage of revenue, cost
of revenue decreased to 93.4% for the year ended December 31, 1998 from 98.6%
for the year ended December 31, 1997 primarily as a result of contract renewals
on more favorable terms.

Generally, loss contracts arise only on capitated or other risk-based
contracts and primarily result from higher than expected pharmacy utilization
rates, higher than expected inflation in drug costs and the inability to
restrict formularies to the extent contemplated by the Company at the time a
contract is entered into, thereby resulting in

-14-

higher than expected drug costs. At such time as management estimates that a
contract will sustain losses over its remaining contractual life, a reserve is
established for these estimated losses. After analyzing those factors described
above, the Company recorded a $4.1 million reserve in December 1997 with respect
to the Nevada Plans. The arrangements with the Nevada Plans were terminated in
August 1998. The reserve established was adequate to absorb the actual losses.
Management does not believe that there is an overall trend towards losses on its
existing capitated contracts.

Selling, general and administrative expenses were $23.1 million for the
year ended December 31, 1998, an increase of $4.0 million as compared to $19.1
million for the year ended December 31, 1997. The acquisition of Continental
accounted for $3.8 million of the increase. The remaining $0.2 million increase
in expenses reflects expenditures incurred in connection with the Company's
continuing commitment to enhance its ability to manage efficiently pharmacy
benefits by investing in additional operational and clinical personnel and
information systems to support new and existing customers, partially offset by
lower legal costs. As a percentage of revenue, selling, general and
administrative expenses decreased to 5.1% for the year ended December 31, 1998
from 7.9% for the year ended December 31, 1997 as revenue increases did not
result in proportional increases in expenditures.

The Company recorded a non-recurring charge against earnings of $1.5
million in connection with its negotiated termination of its relationship with
RxCare ("RxCare Settlement"). See "Overview." In addition, the Company recorded
a non-recurring charge against earnings of $2.2 million in connection with the
conclusion of an agreement in principle with respect to a civil settlement of
the Federal and State of Tennessee investigation ("Tennessee Settlement")
relating to the conduct of two former officers (one of which is a former
director and still principal stockholder of the Company) of a subsidiary prior
to the Company's Offering. The Tennessee Settlement is subject to several
conditions, including the execution of a definitive agreement. The Company
anticipates that the investigation will be fully resolved with this Settlement.
See Item 3, Legal Proceedings, in Part I of this Annual Report.

For the year ended December 31, 1998, the Company recorded amortization of
goodwill and other intangibles of $0.3 million in connection with its
acquisition of Continental. The Continental acquisition resulted in the
recording of approximately $18.4 million of goodwill and $1.3 million of other
intangible assets, which will be amortized over their estimated useful lives (25
years and 6.5 years, respectively). The Company anticipates that its annual
amortization of goodwill and other intangibles will be approximately $0.9
million in fiscal 1999.

For the year ended December 31, 1998, the Company recorded interest income,
net of interest expense, of $1.7 million. Interest income was $1.8 million, a
decrease of $0.5 million from a year ago, resulting from a reduced level of
invested capital due to the additional working capital needs of the Company. See
"Liquidity and Capital Resources."

For the year ended December 31, 1998, the Company recorded net income of
$8.0 million, or $.48 per diluted share, before recording the $1.5 million and
$2.2 million non-recurring charges for the RxCare Settlement and Tennessee
Settlement, respectively. Net income for the year ended December 31, 1998, after
recording the non-recurring charges, was $4.3 million, or $.26 per diluted
share. For the year ended December 31, 1997, the Company recorded a net loss of
$13.5 million, or $(1.07) per share.

For the year ended December 31, 1998, accounts receivable increased $41.0
million to $64.7 million from $23.7 million for the prior year. The increase
resulted primarily from a proportionate increase in PBM business during the
period. In addition, the Company's acquisition of Continental accounted for
approximately $10.4 million of the increase in accounts receivable and delays in
the receipt of payments from certain fee-for-service PBM clients and drug
manufacturers accounted for approximately $13.6 million of the increase in
accounts receivable. Because a substantial majority of these payments were
collected by the Company in the first quarter of 1999, the Company does not
believe that this increase in accounts receivable in 1998 due to delayed
payments reflects a trend or that the Company's liquidity has been or will be
materially adversely affected.

-15-

Year ended December 31, 1997 compared to year ended December 31, 1996

For the year ended December 31, 1997, the Company recorded revenues of
$242.3 million compared with 1996 revenues of $283.2 million, a decrease of
$40.9 million, or 14%. In an effort to stem future losses and increase
profitability, the Company through RxCare, terminated the capitated contract
with Blue Cross/Blue Shield of Tennessee, Inc. ("BCBS") effective March 31,
1997. Although this contract previously had been renegotiated and extended, high
utilization rates continued to hamper the Company's ability to gain
profitability under the contract even though the Company was able to lower
average cost of each prescription. Subsequent to the termination of the original
BCBS contract, the Company had negotiated a contract directly (rather than
through RxCare) with an affiliate of BCBS to begin pharmacy benefit management
services on April 1, 1997. Although the Company continued to provide essentially
the same services under such restructured contract as it did before the
restructuring, the new contract eliminated capitation risk to the Company and
provides for payment of certain administrative and clinical consulting services
on a fee-for-service basis. The restructuring in April 1997 of the BCBS contract
decreased revenue for the year ended December 31, 1997 compared to December 31,
1996 by $107.0 million. This decrease in revenues was offset by an increase of
$34.8 million in other TennCare business resulting from increased enrollment and
several favorable contract restructurings. Further revenue increases of $31.3
million resulted from increased enrollment in existing commercial plans as well
as the servicing of 11 new commercial plans covering approximately 418,000 new
members throughout the United States.

Cost of revenue for 1997 decreased to $239.0 million from $278.1 million
for 1996, a decrease of $39.1 million. The above-described restructuring of the
BCBS contract resulted in a decrease in cost of revenue of $111.6 million. Costs
relating to the remaining TennCare contracts increased by $34.2 million due to
eligibility increases, increased drug prices and increased utilization of
prescription drugs. Increased enrollment in existing commercial plans together
with several new commercial contracts resulted in a $38.3 million increase in
cost of revenue. Included in cost of revenues for commercial business is a $4.1
million reserve established to cover anticipated future losses under certain of
the Nevada Plans. As a percentage of revenue, cost of revenue increased to 98.6%
in 1997 from 98.2% in 1996.

For the year ended December 31, 1997, gross profit decreased $1.8 million
to $3.3 million, after recording the $4.1 million reserve previously described,
from $5.1 million at December 31, 1996. Gross profit increases of $5.0 million
in TennCare business resulted from favorable contract renegotiations as well as
increased eligibility, offset by decreases of $6.8 million in commercial
business resulting primarily from the Nevada Plans. The Nevada Plans generated
$7.3 million in gross losses in the fourth quarter of 1997 (including a $4.1
million reserve for anticipated future losses). The Company believed this
reserve to be a reasonable estimate of its exposure.

Selling, general and administrative expenses increased $7.5 million to
$19.1 million in 1997 from $11.6 million in 1996, an increase of 65.0%. The $7.5
million increase was attributable to expenses associated with an expanded
national sales effort, additional headquarter personnel and operations support
needed to service new business and increases in legal and consulting fees. As a
percentage of revenue, general and administrative expenses increased to 7.9% in
1997 from 4.1% in 1996.

For the year ended December 31, 1997, the Company recorded interest income
of $2.3 million compared to $1.4 million for the year ended December 31, 1996,
an increase of $0.9 million. The increase resulted from funds invested from the
Company's Offering being invested for the entire year in 1997 as opposed to only
five months in 1996.

For the year ended December 31, 1997, the Company recorded a net loss of
$13.5 million, or $1.07 per share. This compares with a net loss of $5.1
million, or $0.54 per share for the year ended December 31, 1996 before
recording a $26.6 million nonrecurring, non-cash stock option charge. The charge
in 1996 represented the difference between the exercise price and the deemed
fair market value of the Common Stock granted by the Company's then principal
stockholder to certain then unaffiliated third parties who later become
executive officers and directors of the Company. This increase in net loss is
the result of the above-described changes in revenue, cost of revenue and
expenses.

-16-

Liquidity and Capital Resources

The Company utilizes both funds generated from operations, if any, and
funds raised in the Offering for capital expenditures and working capital needs.
For the year ended December 31, 1998, net cash used by the Company for operating
activities totaled $16.4 million, primarily due to an increase in accounts
receivable of $41.0 million. The increase in accounts receivable resulted from
increased PBM business, the acquisition of Continental's accounts receivable
($10.4 million) and certain changes in payment patterns primarily attributable
to certain delays in payments ($13.6 million). Because a substantial majority of
the delayed payments were collected by the Company in the first quarter of 1999,
the Company does not believe that this increase in accounts receivable in 1998
due to delayed payments reflects a trend or that the Company's liquidity has
been or will be materially adversely affected. Such uses were offset by a $5.3
million increase in claims payable, a $5.7 million increase in payables to plan
sponsors and others and an increase in accrued expenses of $1.9 million. The
increases in claims payable and payables to plan sponsors and others increased
primarily due to increases in PBM business, partially offset by reductions in
the percentage of drug manufacturer rebates owed by the Company to certain
clients under rebate sharing arrangements. Accrued expenses increased due to the
accrual of $2.2 million in connection with the Tennessee Settlement.

Investing activities generated $7.8 million in cash from proceeds of
maturities of investment securities of $39.8 million, offset by the purchase of
investment securities of approximately $28.9 million. The Company purchased $2.2
million of equipment primarily to upgrade and enhance information systems
necessary to strengthen and support the Company's ability to manage its
customer's pharmacy benefit programs and to be competitive in the PBM industry.
Financing activities generated $3.5 million of cash primarily from an increase
in debt of $3.6 million.

At December 31, 1998, the Company had working capital of $19.8 million,
including $11.7 million in investment securities, compared to $9.3 million at
December 31, 1997. Cash and cash equivalents decreased to $4.5 million at
December 31, 1998 compared with $9.6 million at December 31, 1997. The Company
had investment securities held to maturity of $11.7 million and $22.6 million at
December 31, 1998 and 1997, respectively. The decrease in cash and investment
securities was due to the Company's increased working capital requirements. With
the exception of the Company's $2.3 million preferred stock investment in Wang
Healthcare Information Systems, Inc. ("WHIS"), the Company's investments are
primarily corporate debt securities rated AA or higher and government
securities. In June 1997, the Company's invested $2.3 million in the preferred
stock of WHIS, a company engaged in the development, sales and marketing of
PC-based information systems for physicians and their staff, using image-based
technology.

As discussed above, effective January 1, 1999, the Company began to provide
PBM services directly to five of the six TennCare MCO's and 900,000 of the
TennCare lives previously managed under the RxCare Contract. To date, however,
the Company has been unable to secure a contract with the sixth TennCare MCO or
with either of the two TennCare BHO's for which it previously provided PBM
services under the RxCare Contract. The Company does not believe that the loss
of these contracts will have a material adverse effect on its liquidity in
fiscal 1999.

On March 31, 1999, the State of Tennessee and Xantus entered into a consent
decree whereby, among other things, the Commissioner of Commerce and Insurance
for the State of Tennessee was appointed receiver of Xantus for purposes of
rehabilitation. Due to the fact that the receiver was appointed at the time of
the filing of this Annual Report, the Company is unable to predict the
consequences of this appointment on the Company's ability to retain Xantus's
business or its ability to collect monies owed to it by Xantus. As of March 31,
1999, Xantus owes the Company $9.8 million relating to PBM services rendered by
the Company in 1999. The failure of the Company to collect all or a substantial
portion of the monies owed to it by Xantus would have a material adverse effect
on the Company's financial condition and results of operations.

Under Section 145 of the Delaware General Corporation Law ("Section 145")
and the Company's Amended and Restated By-Laws ("By-Laws"), the Company is
obligated to indemnify two former officers (one of which is a former director
and still principal stockholder of the Company) of a subsidiary who are the
subject of the Federal and State of Tennessee investigation described above,
unless it is ultimately determined by the Company's Board of Directors that
these former officers failed to act in good faith and in a manner they
reasonably believed to be in the best interests of the Company, that they had
reason to believe that their conduct was unlawful or for any other reason
consistent with Section 145 or the By-Laws. In addition, until the Board makes
such a determination, the Company is obligated under Section 145 and its By-Laws
to advance the costs of defense to such persons; however, if the Board
determines that either or both of these former officer are not entitled to
indemnification, such individuals would be obligated to reimburse the Company
for all amounts so advanced. The Company is not presently in a position to
assess the likelihood that either or both of these former officers will be
entitled to such indemnification and advancement of defense costs or to estimate
the total amount that it may have to pay in connection with such obligations or
the time period over which such amounts may have to be advanced. No assurance
can be given, however, that the Company's obligations to either or both of these
former officers would not have a material adverse effect on the Company's
results of operations or financial condition.

From time to time, the Company may be a party to legal proceedings or
involved in related investigations, inquiries or discussions, in each case,
arising in the ordinary course of the Company's business. Although no assurance
can be given, management does not presently believe that any current matters
would have a material adverse effect on the liquidity, financial position or
results of operations of the Company.

At December 31, 1998, the Company had, for tax purposes, unused net
operating loss carry forwards of approximately $47 million which will begin
expiring in 2008. As it is uncertain whether the Company will realize the full
benefit from these carryforwards, the Company has recorded a valuation allowance
equal to the deferred tax asset generated by the carryforwards. The Company
assesses the need for a valuation allowance at each balance sheet date. The
Company has undergone a "change in control" as defined by the Internal Revenue
Code of 1986, as amended ("Code"), and the rules and regulations promulgated
thereunder. The amount of net operating loss carryforwards that may be utilized
in any given year will be subject to a limitation as a result of this change.

-17-

The annual limitation approximates $2.7 million. Actual utilization in any year
will vary based on the Company's tax position in that year.

As the Company continues to grow, it anticipates that its working capital
needs will also continue to increase. The Company expects to spend approximately
$1.7 million on capital expenditures during fiscal 1999 primarily for expansion
and upgrading of information systems. 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.

The Company also may pursue joint venture arrangements, business
acquisitions and other transactions designed to expand its PBM 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

Changes in prices charged by manufacturers and wholesalers or distributors
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 rate
increases. The higher level of non-risk contracts with the Company's customers
in 1998 and 1999 compared to prior years mitigates the adverse effects of price
increases, although no assurance can be given that the recent trend towards
no-risk arrangements will continue.

Year 2000 disclosure

The so-called "year 2000 problem," which is common to many companies,
concerns the inability of information systems, primarily computer hardware and
software programs, to recognize properly and process date sensitive information
following December 31, 1999. The Company has committed substantial resources
(approximately $2.4 million) over the past two years to improve its information
systems ("IS project"). The Company has used this IS project as an opportunity
to evaluate its state of readiness, estimate expected costs and identify and
quantify risks associated with any potential year 2000 issues.

State of Readiness:

In evaluating the Company's exposure to the year 2000 problem, management
first identified those systems that were critical to the ongoing business of the
Company and that would require significant manual intervention should those
systems be unable to process dates correctly following December 31, 1999. Those
systems were the Company's claims adjudication and processing system and the
internal accounting system (which includes pharmacy reimbursement). Once those
systems were identified, the following steps were identified as those that would
be required to be taken to ascertain the Company's state of readiness:

I. Obtaining letters from software and hardware vendors concerning the ability
of their products to properly process dates after December 31, 1999;
II. Testing the operating systems of all hardware used in the identified
information systems to determine if dates after December 31, 1999 can be
processed correctly;

-18-

III. Surveying other parties who provide or process information in electronic
format to the Company as to their state of readiness and ability to process
dates after December 31, 1999; and
IV. Testing the identified information systems to confirm that they will
properly recognize and process dates after December 31, 1999.

The Company (excluding for purposes of this year 2000 discussion only,
Continental) has completed Step I. The Company will continue to obtain letters
from new hardware and software vendors. The Company is currently in the process
of implementing Step II. The Company has begun testing its operating systems,
and where appropriate software patches have been acquired. Any software or
hardware determined to be non-compliant will be modified, repaired or replaced.
Installation of patches and full operating systems testing is anticipated to be
completed during the second quarter of 1999. The Company cannot estimate the
costs of such modifications, repairs and replacements at this time, but does not
believe that the costs of such modifications, repairs or replacements will be
material. The Company will disclose the results of its testing and attempt to
further quantify this estimate in future periodic reports following its
completion of Step II.

With respect to Step III above, the Company has engaged in discussions with
the third party vendors that transmit data from member pharmacies and based upon
such discussions it believes that such third party vendors' systems will be able
to properly recognize and process dates after December 31, 1999. The Company is
in the process of surveying member pharmacies in its network as to their ability
to transmit data correctly to such third party vendors and anticipates
completing this survey during the second quarter of 1999. Once this survey is
complete, the Company will evaluate any additional steps required to allow
member pharmacies to transmit data after December 31, 1999 and will disclose
such additional steps, if any, and their related costs in future periodic
reports.

With respect to Step IV above, the Company intends to perform a
comprehensive year 2000 compliance test of the claims adjudication and
processing systems as part of the next regularly scheduled disaster recovery
drill, which is currently planned for June 1999. This date has been postponed
from the previously scheduled March 1999 test in order to incorporate software
upgrades during the second quarter of 1999. The Company's internal accounting
and other administrative systems generally have been internally developed during
the last few years or are presently being developed. Accordingly, in light of
the fact that such systems were developed with a view to year 2000 compliance,
the Company fully expects that these systems will be able to properly recognize
and process dates after December 31, 1999. The Company intends to test these
systems for year 2000 compliance as part of the disaster recovery drill
described above.

Continental's computer systems related to the delivery of medications
through mail order were upgraded in the fourth quarter of 1998 to become year
2000 compliant. The Company will disclose its ongoing assessment of
Continental's state of readiness in future periodic reports.

Costs:

As noted above, the Company spent approximately $2.4 million over the past
two years to improve its information systems. In addition, the Company
anticipates that it will spend approximately $1.7 million over the next 12
months to further improve its information systems. These improvements were not
specifically instituted to address the year 2000 issue, but rather to address
other business issues. Nonetheless, the IS project provided the Company with a
platform from which to address any year 2000 issues. Management does not believe
that the amount of funds expended in connection with the IS project would have
differed materially in the absence of the year 2000 problem. The Company's cash
on hand as a result of the Offering has provided all of the funds expended to
date on the IS project and is expected to provide substantially all of the funds
expected to be spent in the next 12 months on the IS project.

Risks:

On July 29, 1998, the Commission issued Release No. 33-7558 (the "Release")
in an effort to provide further guidance to reporting companies concerning
disclosure of the year 2000 problem. In this Release the Commission

-19-

required that registrants include in its year 2000 disclosure a description of
its "most reasonably likely worst case scenario." Based on the Company's
assessment and the results of remediation performed to date as described above,
the Company believes that all problems related to the year 2000 will be
addressed in a timely manner so that the Company will experience little or no
disruption in its business immediately following December 31, 1999. However, if
unforeseen difficulties arise, if the Company's assessment of Continental
uncovers significant problems (which is not presently expected to occur) or if
compliance testing is delayed or necessary remediation efforts are not
accomplished in accordance with the Company's plans described above, the Company
anticipates that its "most reasonably likely worst case scenario" (as required
to be described by the Release) is that some percentage of the Company's claims
would need to be processed manually for some limited period of time. At this
point in time, the Company cannot reasonably estimate the number of pharmacies
or the level of claims involved or the costs that would be incurred if the
Company were required to hire temporary staff and incur other expenses to
manually process such claims. The Company expects to be better able to quantify
the number of pharmacies and level of claims involved as well as the related
costs following its completion of the survey of member pharmacies in the second
quarter of 1999 and presently intends to disclose such estimates in future
periodic reports. In addition, the Company anticipates that all businesses
(regardless of their state of readiness), including the Company, will encounter
some minimal level of disruption in its business (e.g., phone and fax systems,
alarm systems, etc.) as a result of the year 2000 problem. However, the Company
does not believe that it will incur any material expenses or suffer any material
loss of revenues in connection with such minimal disruptions.

Contingency Plans:

As discussed above, in the event of the occurrence of the "most reasonably
likely worst case scenario" the Company would hire an appropriate level of
temporary staff to manually process the pharmacy claims submitted on paper. As
discussed above, at this time the Company cannot reasonably estimate the number
of pharmacies or level of claims involved or the costs that would be incurred if
the Company were required to hire temporary staff and incur other expenses to
manually process such claims. While some level of manual processing is common in
the industry and while manual processing increases the time it takes the Company
to pay the member pharmacies and invoice the related payors, the Company does
not foresee any material lost revenues or other material expenses in connection
with this scenario. However, an extended delay in processing claims, making
payments to pharmacies and billing the Company's customers could materially
adversely impact the Company's liquidity.

In addition, while not part of the "most reasonably likely worst case
scenario," the delay in paying such pharmacies for their claims could result in
adverse relations between the Company and the pharmacies. Such adverse relations
could cause certain pharmacies to drop out of the Company's networks which in
turn could cause the Company to be in breach under service area provisions under
certain of its services agreements with its customers. The Company does not
believe that any material relationship with any pharmacy will be so affected or
that any material number of pharmacies would withdraw from the Company's
networks or that it will breach any such service area provision of any contract
with its customers. Notwithstanding the foregoing, based upon past experience,
the Company believes that it could quickly replace any such withdrawing pharmacy
so as to prevent any breach of any such provision. The Company cannot presently
reasonably estimate the possible impact in terms of lost revenues, additional
expenses or litigation damages or expenses that could result from such events.

Forward Looking Statements:

Certain information set forth above regarding the year 2000 problem and the
Company's plans to address those problems are forward looking statements under
the Securities Act and the Exchange Act. See the first paragraph in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of forward looking statements and related risks and
uncertainties. In addition, certain factors particular to the year 2000 problem
could cause actual results to differ materially from those contained in the
forward looking statements, including, without limitation: failure to identify
critical information systems which experience failures, delays and errors in the
compliance and remediation efforts described above, unexpected failures by key
vendors, member pharmacies, software providers or business partners to be year
2000 compliant or the inability to repair critical information systems in the
time frames described above. In any such event, the Company's results of
operations and financial condition could be materially adversely affected. In
addition, the failure to be year 2000

-20-

compliant of third parties outside of the Company's control such as electric
utilities or financial institutions could adversely effect the Company's results
of operations and financial condition.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk represents the only market risk exposure applicable to
the Company. The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investments in marketable securities. All of
these instruments are classified as held-to-maturity on the Company's
consolidated balance sheet and were entered into by the Company solely for
investment purposes and not for trading purposes. The Company does not invest in
or otherwise use derivative financial instruments. The Company's investments
consist primarily of corporate debt securities, corporate preferred stock and
State and local governmental obligations, each rated AA or higher. The table
below presents principal cash flow amounts and related weighted average
effective interest rates by expected (contractual) maturity dates for the
Company's financial instruments subject to interest rate risk:

1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------

Short-term investments
Fixed rate investments ........ 11,650 -- -- -- -- --
Weighted average rate ......... 6.41% -- -- -- -- --

Long-term investments:
Fixed rate investments ........ -- -- -- -- -- --
Weighted average rate ......... -- -- -- -- -- --

Long-term debt:
Variable rate instruments ...... 208 312 5,873 -- -- --
Weighted average rate ....... 9.00% 9.00% 7.76% -- -- --

In the table above, the weighted average interest rate for fixed and
variable rate financial instruments in each year was computed utilizing the
effective interest rate at December 31, 1998 for that instrument multiplied by
the percentage obtained by dividing the principal payments expected in that year
with respect to that instrument by the aggregate expected principal payments
with respect to all financial instruments within the same class of instrument.

At December 31, 1998, the carrying values of cash and cash equivalents,
accounts receivable, accounts payable, claims payable and payables to plan
sponsors and others approximate fair value due to their short-term nature.

Because management does not believe that its exposure to interest rate
market risk is material at this time, the Company has not developed or
implemented a strategy to manage this market risk through the use of derivative
financial instruments or otherwise. The Company will assess the significance of
interest rate market risk from time to time and will develop and implement
strategies to manage that risk as appropriate.

Item 8. Financial Statements and Supplementary Data

-21-

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To MIM Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of MIM
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MIM
Corporation and Subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements, and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 12, 1999 (except with respect to the
matter described in Note 7
as to which the date is March
31, 1999.)

-22-

MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars, except for share amounts)

1998 1997
--------- ---------

ASSETS
Current assets
Cash and cash equivalents ..................................................................... $ 4,495 $ 9,593
Investment securities ......................................................................... 11,694 19,235
Receivables, less allowance for doubtful accounts of $1,307 and $1,386, respectively .......... 64,747 23,666
Inventory ..................................................................................... 1,187 --
Prepaid expenses and other current assets ..................................................... 857 888
--------- ---------
Total current assets ....................................................................... 82,980 53,382
Investment securities, net of current portion ...................................................... -- 3,401
Other investments .................................................................................. 2,311 2,300
Property and equipment, net ........................................................................ 4,823 3,499
Due from affiliates, less allowance for doubtful accounts of $403 and $2,360, respectively ......... 34 --
Other assets, net .................................................................................. 293 145
Deferred income taxes .............................................................................. 270 --
Goodwill and other intangible assets, net .......................................................... 19,395 --
--------- ---------
Total assets ............................................................................... $ 110,106 $ 62,727
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations .................................................. $ 277 $ 222
Current portion of long-term debt ............................................................. 208 --
Accounts payable .............................................................................. 6,926 931
Deferred revenue .............................................................................. -- 2,799
Claims payable ................................................................................ 32,855 26,979
Payables to plan sponsors and others .......................................................... 16,490 10,839
Accrued expenses .............................................................................. 6,401 2,279
--------- ---------
Total current liabilities .................................................................. 63,157 44,049
Capital lease obligations, net of current portion .................................................. 598 756
Long-term debt, net of current portion ............................................................. 6,185 --
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, 18,090,748 and
13,335,150 shares issued and outstanding, respectively ...................................... 2 1
Additional paid-in capital ........................................................................ 91,603 73,585
Accumulated deficit ............................................................................... (50,790) (55,061)
Stockholder notes receivable ...................................................................... (1,761) (1,715)
--------- ---------
Total stockholders' equity ................................................................ 39,054 16,810
--------- ---------
Total liabilities and stockholders' equity ................................................ $ 110,106 $ 62,727
========= =========

The accompanying notes are an integral part of
these consolidated financial statements.

-23-

MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(In thousands of dollars, except for per share amounts)

1998 1997 1996
--------- --------- ---------

Revenue ...................................................................... $ 451,070 $ 242,291 $ 283,159
Cost of revenue .............................................................. 421,374 239,002 278,068
--------- --------- ---------

Gross profit ............................................................. 29,696 3,289 5,091

General and administrative expenses .......................................... 23,092 19,098 11,619
Amortization of goodwill and other intangibles .............................. 330 -- --
Non-recurring charges ........................................................ 3,700 -- --
Executive stock option compensation expense .................................. -- -- 26,640
--------- --------- ---------

Income (loss) from operations ............................................ 2,574 (15,809) (33,168)

Interest income, net ......................................................... 1,712 2,295 1,393
Other ........................................................................ (15) 17 21
--------- --------- ---------

Net income (loss) ........................................................ $ 4,271 $ (13,497) $ (31,754)
========= ========= =========

Basic income (loss) per common share ......................................... $ .28 $ (1.07) $ (3.32)
========= ========= =========

Diluted income (loss) per common share ....................................... $ .26 $ (1.07) $ (3.32)
========= ========= =========

Weighted average common shares used in computing basic income
(loss) per share ............................................................. 15,115 12,620 9,557
========= ========= =========

Weighted average common shares used in computing diluted income
(loss) per share ............................................................. 16,324 12,620 9,557
========= ========= =========

The accompanying notes are an integral part of
these consolidated financial statements.

-24-

MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands of dollars)

Total
Additional Stockholder Stockholders'
Common Paid-In Accumulated Notes Equity
Stock Capital Deficit Receivable (Deficit)
-------- -------- -------- -------- --------

Balance, December 31, 1995 ..................................... $ 1 $ -- $ (9,188) $ (2,337) $(11,524)

Stockholder loans, net .................................... -- -- -- (22) (22)

Stockholder distribution .................................. -- -- (622) 622 --

Net proceeds from initial public offering ................. -- 46,786 -- -- 46,786

Non-cash stock option charge .............................. -- 26,640 -- -- 26,640

Non-employee stock option compensation
expense ............................................... -- 17 -- -- 17

Net loss .................................................. -- -- (31,754) -- (31,754)
-------- -------- -------- -------- --------

Balance, December 31, 1996 ..................................... 1 73,443 (41,564) (1,737) 30,143

Stockholder loans, net .................................... -- -- -- 22 22

Exercise of stock options ................................. -- 113 -- -- 113

Non-employee stock option compensation
expense ............................................... -- 29 -- -- 29

Net loss .................................................. -- -- (13,497) -- (13,497)
-------- -------- -------- -------- --------

Balance, December 31, 1997 ...................................... 1 73,585 (55,061) (1,715) 16,810

Stockholder loans, net .................................... -- -- -- (46) (46)

Shares issued in connection with the acquisition
of Continental ....................................... 1 17,997 -- -- 17,998

Exercise of stock options ................................. -- 5 -- -- 5

Non-employee stock option compensation
expense ................................................. -- 16 -- -- 16

Net income ................................................ -- -- 4,271 -- 4,271
-------- -------- -------- -------- --------

Balance, December 31, 1998 ..................................... $ 2 $ 91,603 $(50,790) $ (1,761) $ 39,054
======== ======== ======== ======== ========

The accompanying notes are an integral part of
these consolidated financial statements.

-25-

MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands of dollars, except for share data)

1998 1997 1996
-------- -------- --------

Cash flows from operating activities:
Net income (loss) ................................................................... $ 4,271 $(13,497) $(31,754)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, amortization and other ........................................... 1,693 1,074 760
Stock option charges ........................................................... 16 29 26,657
Provision for losses on receivables and due from affiliates .................... 58 501 928
Changes in assets and liabilities, net of effect from purchase of Continental:
Receivables .................................................................... (31,864) (5,318) (4,551)
Inventory ...................................................................... (365) -- --
Prepaid expenses and other current assets ...................................... 142 241 (648)
Accounts payable ............................................................... (339) (631) 491
Deferred revenue ............................................................... (2,799) 2,799 --
Claims payable ................................................................. 5,274 9,701 (2,016)
Payables to plan sponsors and others ........................................... 5,651 665 1,738
Accrued expenses ............................................................... 1,885 1,353 755
-------- -------- --------
Net cash used in operating activities ....................................... (16,377) (3,083) (7,640)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ................................................ (2,173) (1,575) (870)
Purchase of investment securities .................................................. (28,871) (27,507) (37,038)
Maturities of investment securities ................................................ 39,814 41,909 --
Cost of acquisition, net of cash acquired .......................................... (750) -- --
Purchase of other investments ...................................................... (25) (2,300) --
Stockholder notes receivable, net .................................................. (46) 22 (22)
Due from affiliates, net ........................................................... (34) 425 (828)
Decrease in other assets ........................................................... (121) (48) (93)
-------- -------- --------
Net cash provided by (used in) investing activities ......................... 7,794 10,926 (38,851)
-------- -------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations .................................... (132) (197) (265)
Increase in debt ................................................................... 3,612 -- --
Proceeds from initial public offering .............................................. -- -- 46,786
Proceeds from exercise of stock options ............................................ 5 113 --
-------- -------- --------
Net cash provided by (used in) financing activities ........................ 3,485 (84) 46,521
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .................................. (5,098) 7,759 30
Cash and cash equivalents--beginning of period ........................................ 9,593 1,834 1,804
-------- -------- --------
Cash and cash equivalents--end of period .............................................. $ 4,495 $ 9,593 $ 1,834
======== ======== ========

The accompanying notes are an integral part of
these consolidated financial statements.

-26-

MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
Years Ended December 31,
(In thousands of dollars, except for share data)

Supplemental Disclosures:

The Company issued 3,912,448 shares of Common Stock to acquire Continental
Managed Pharmacy Services, Inc. in August 1998. The aggregate value of shares
issued approximated $18,000.

The Company paid $186, $41 and $55 for interest for each of the years ended
December 31, 1998, 1997 and 1996, respectively.

Capital lease obligations of $40, $587 and $527 were incurred for each of the
years ended December 31, 1998, 1997 and 1996, respectively.

The Company distributed $622 to a stockholder through the cancellation of
stockholder notes receivable at December 31, 1996.

The accompanying notes are an integral part of
these consolidated financial statements.

-27-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except for share and per share amounts)

NOTE 1--NATURE OF BUSINESS

Corporate Organization

MIM Corporation (the "Company") was incorporated in Delaware in March 1996
for the purpose of combining (the "Formation") the businesses and operations of
Pro-Mark Holdings, Inc., a Delaware corporation ("Pro-Mark"), and MIM Strategic
Marketing, LLC, a Rhode Island limited liability company ("MIM Strategic"). The
Formation was effected in May 1996. Pro-Mark is a wholly owned subsidiary of MIM
Corporation, and MIM Strategic is 90% owned by MIM Corporation. On August 24,
1998, the Company acquired Continental Managed Pharmacy Services, Inc.
("Continental"), complementing its core PBM business with mail order pharmacy
services. As used in these notes, the "Company" refers to MIM Corporation and
its subsidiaries and predecessors.

Business

The Company operates in a single business segment and derives its revenues
primarily from agreements to provide pharmacy benefit management ("PBM")
services to various health plan sponsors in the United States. From 1994 through
December 31, 1998, a majority of the services provided by the Company were to
plan sponsors of Tennessee-based plans who had entered into PBM contracts with
RxCare of Tennessee, Inc. ("RxCare"), a subsidiary of the Tennessee Pharmacists
Association. Pursuant to these contracts ("TennCare contracts"), RxCare provided
mandated pharmaceutical services to formerly Medicaid eligible and uninsured and
uninsurable Tennessee residents under the State's TennCare Medicaid waiver
program ("TennCare").

Under an agreement with RxCare formalized in March 1994 and thereafter
amended (the "RxCare Contract"), the Company had been responsible for operating
and managing RxCare's TennCare contracts. The RxCare Contract entitled the
Company to receive all plan sponsor payments due RxCare and all rebates
negotiated with pharmaceutical manufacturers in connection with RxCare programs.
In return, the Company implemented and enforced the drug benefit programs, bore
all program costs including payments to dispensing pharmacies and certain
payments to RxCare and sponsors, and shared with RxCare the remaining profit, if
any.

The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of its relationship with RxCare,
among other things, allowed the Company to directly market its services to
Tennessee customers (including those then under contract with RxCare) prior to
the expiration of the RxCare Contract. The RxCare Contract had previously
prohibited the Company from soliciting and/or marketing its PBM services in
Tennessee other than on behalf of, and for the benefit of, RxCare. The Company's
marketing efforts during this period resulted in the Company executing
agreements effective as of January 1, 1999 to provide PBM services directly to
five of the six TennCare managed care organizations ("MCO's") and 900,000 of the
TennCare lives previously managed under the RxCare Contract as well as
substantially all third party administrators ("TPA's") and employer groups
previously managed under the RxCare Contract. To date, the Company has been
unable to secure a contract with the two TennCare behavioral health
organizations ("BHO's") to which it previously provided PBM services under the
RxCare Contract. For the year ended December 31, 1998, amounts paid to the
Company by these BHO's represented approximately 27% of the Company's revenues.

On August 24, 1998, the Company completed its acquisition of Continental.
The acquisition was treated as a purchase for financial reporting purposes. The
Company issued 3,912,448 shares of Common Stock as consideration for the
purchase. The aggregate purchase price, including costs of acquisition of
approximately $1.0 million, approximated $19.0 million. The fair value of assets
acquired approximated $11.3 million (including approximately $.5 million of
property and equipment) and liabilities assumed approximated $12.0 million
(including approximately $2.8 million of assumed debt (see Note 6)), resulting
in approximately $18.4 million of goodwill and $1.3 million of other intangible
assets, which will be amortized over their estimated useful lives (25 years and
6.5 years, respectively). The consolidated financial statements of the Company
for the year ended December 31, 1998 include the results of operations and
financial position of Continental from and after the date of acquisition.

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

The following unaudited consolidated pro forma financial information has
been prepared assuming Continental was acquired as of January 1, 1997, with pro
forma adjustments for amortization of goodwill and other intangible assets and
income taxes. The pro forma financial information is presented for informational
purposes only and is not indicative of the results that would have been realized
had the acquisition been made on January 1, 1997. In addition, this pro forma
financial information is not intended to be a projection of future operating
results.

Year ended December 31,
---------------------------
1998 1997
-------- --------

Revenues ................................. $491,716 $289,571
======== ========
Net income (loss) ........................ $ 4,783 $(12,979)
======== ========
Basic earnings (loss) per share .......... $ .27 $ (.79)
======== ========
Diluted earnings (loss) per share ........ $ .25 $ (.79)
======== ========

The amounts above include $65,958 and $ 47,280 of revenues from the
operations of Continental for the years ended December 31, 1998 and December 31,
1997, respectively.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of MIM
Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits, overnight investments
and money market accounts.

Receivables

Receivables include amounts due from plan sponsors under the Company's PBM
contracts, amounts due from pharmaceutical manufacturers for rebates and service
fees resulting from the distribution of certain drugs through retail pharmacies
and amounts due from certain third party payors.

Inventory

Inventory is stated at the lower of cost or market. The cost of the
inventory is determined using the first-in, first-out (FIFO) method.

-29-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of assets. The estimated useful lives of the Company's
assets is as follows:

Asset Useful Life
----- -----------
Computer and office equipment .................... 3-5 years
Furniture and fixtures ........................... 5-7 years

Leasehold improvements and leased assets are amortized using straight-line
basis over the related lease term or estimated useful life of the assets,
whichever is less. The cost and related accumulated depreciation of assets sold
or retired are removed from the accounts with the gain or loss, if applicable,
recorded in the statement of operations. Maintenance and repairs are expensed as
incurred.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets represent the cost in excess of the
fair market value of the tangible net assets acquired in connection with the
acquisition of Continental. Amortization expense for the year ended December 31,
1998 was $330.

Long-Lived Assets

The Company reviews its long-lived assets and certain related intangibles
and other investments for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. The Company
does not believe that any such changes have occurred.

Deferred Revenue

Deferred revenue represents fees received in advance from certain plan
sponsors and are recognized as revenue in the month these fees are earned.

Claims Payable

The Company is responsible for all covered prescriptions provided to plan
sponsor members during the contract period. At December 31, 1998 and 1997,
certain prescriptions were dispensed to members for which the related claims had
not yet been presented to the Company for payment. Estimates of $2,523 and
$1,858 at December 31, 1998 and 1997, respectively, have been accrued for these
claims in the accompanying consolidated balance sheets. Unpaid claims incurred
and reported amounted to $29,360 and $20,786 at December 31, 1998 and 1997,
respectively.

Payables to Plan Sponsors and Others

Certain pharmacy benefit management contracts provide for an income or loss
share with the plan sponsor. The income or loss share is calculated by deducting
all related costs and expenses from revenues earned under the contract. To the
extent revenues exceed costs, the Company records a payable representing the
plan sponsor's share of the profit attributable to that contract, and to the
extent costs and expenses exceed revenues the Company records a receivable.
Certain plan sponsor contracts also provide for the sharing of pharmaceutical
manufacturers' rebates with the plan sponsors.

-30-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

Revenue Recognition

Capitated Agreements. The Company's capitated contracts with plan sponsors
require the Company to provide covered pharmacy services to plan sponsor members
in return for a fixed fee per member per month paid by the plan sponsor.
Capitated agreements generally have a one-year term or, if longer, provide for
adjustment of the capitated rate each year. These contracts are subject to rate
adjustment or termination upon the occurrence of certain events.

Capitation payments under risk-based contracts are based upon the latest
eligible member data provided to the Company by the plan sponsor. On a monthly
basis, the Company receives payments (and recognizes revenue) for those members
eligible for the current month, plus or minus capitation amounts for those
members determined to be retroactively eligible or ineligible for prior months
under the contract. The amount accrued for future net retroactive eligibility
capitation payments is based upon management's estimates. Revenue under
capitated arrangements for the years ended December 31, 1998, 1997 and 1996 was
approximately $142,960, $127,477 and $232,395, respectively.

Generally, loss contracts arise only on capitated or other risk-based
contracts and primarily result from higher than expected pharmacy utilization
rates, higher than expected inflation in drug costs and the inability to
restrict formularies, resulting in higher than expected drug costs. At such time
as management estimates that a contract will sustain losses over its remaining
contractual life, a reserve is established for these estimated losses.

Fee-for-Service Agreements. Under its fee-for-service PBM contracts, the
Company provides covered pharmacy services to plan sponsor members and is
reimbursed by the plan sponsor for the actual ingredient cost and pharmacist's
dispensing fee of a prescription, plus certain administrative fees. Revenue on
these contracts is recognized when pharmacy claims are submitted to the Company.
Fee-for-service revenue for the years ended December 31, 1998, 1997 and 1996 was
$294,484, $114,814 and $50,764, respectively.

Mail Order Services. The Company's mail order services are available to
plan sponsor members as well as the general public. The Company's mail order
facility dispenses the prescribed medication and bills the sponsor, the patient
and/or the patient's health insurance company. Revenue is recorded when the
prescription is shipped. Revenue from mail order services for the year ended
December 31, 1998 was $13,626, including $7,300 with respect to members of
clients managed under PBM contracts. Because the Company acquired Continental in
1998, the Company did not provide any mail order services in prior years.

Cost of Revenue

Cost of revenue includes pharmacy claims, fees paid to pharmacists and
other direct costs associated with pharmacy management, claims processing
operations and mail order services, offset by volume rebates received from
pharmaceutical manufacturers. For the years ended December 31, 1998, 1997 and
1996, rebates earned net of rebate sharing arrangements on pharmacy benefit
management contracts were $21,996, $13,290 and $7,738, respectively.

Income Taxes

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 utilizes the liability method, and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities at currently enacted tax laws
and rates.

-31-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

Earnings per Share

Basic income (loss) per share is based on the average number of shares
outstanding and diluted income (loss) per share is based on the average number
of shares outstanding including common stock equivalents. For the years ended
December 31, 1997 and 1996, diluted loss per share is the same as basic loss per
share because the inclusion of common stock equivalents would be antidilutive.
Common shares outstanding and per share amounts reflect the Formation (see Note
1) and are considered outstanding from the date each entity was formed.

Years Ended December 31,
1998 1997 1996
-------- -------- --------
Numerator:
Net income .......................... $ 4,271 $(13,497) $(31,754)

Denominator - Basic:
Weighted average number of
common shares outstanding ........ 15,115 12,620 9,557
Basic income (loss) per share ....... $ .28 $ (1.07) $ (3.32)

Denominator - Diluted:
Weighted average number of
common shares outstanding ........ 15,115 12,620 9,557
Common share equivalents
of outstanding stock options ..... 1,209 -- --
-------- -------- --------
Total shares outstanding ................. 16,324 12,620 9,557
Diluted income (loss) per share .......... $ .26 $ (1.07) $ (3.32)

Disclosure of Fair Value of Financial Instruments

The Company's financial instruments consist mainly of cash and cash
equivalents, investment securities (see Note 3), accounts receivable, accounts
payable and long term debt (see Note 6). The carrying amounts of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value due
to their short-term nature.

Accounting for Stock-Based Compensation

The Company accounts for employee stock based compensation plans and
non-employee director stock incentive plans in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Stock options granted
to non-employees and non-employee directors are accounted for in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") (see Note 9).

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation.

-32-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

NOTE 3 - INVESTMENT SECURITIES AND OTHER INVESTMENTS

Investment Securities

The Company's marketable investment securities are classified as
held-to-maturity and are carried at amortized cost on the accompanying balance
sheets as of December 31, 1998 and 1997. Management believes that it has the
intent and ability to hold such securities to maturity. Amortized cost (which
approximates fair value) of these securities as of December 31, 1998 and 1997 is
as follows:

1998 1997
------- -------
Held-to-maturity securities:
U.S. government .................................... $ -- $ 3,600
States and political subdivision ................... 1,353 295
Corporate securities ............................... 10,341 18,741
------- -------
Total investment securities ........................... $11,694 $22,636
======= =======

The contractual maturities of all held-to-maturity securities at December
31, 1998 are as follows:

Amortized Cost
--------------
Due in one year or less ............................... $11,694
Due after one year through five years ................. --
-------
Total investment securities ........................... $11,694
=======

Other Investments

On June 23, 1997, the Company acquired an 8% interest in Wang Healthcare
Information Systems ("WHIS"), which markets PC-based clinical information
systems to physicians utilizing patented image-based technology. The Company
purchased 1,150,000 shares of the Series B Convertible Preferred Stock, par
value $0.01 per share, of WHIS, representing a minority 8% interest, for an
aggregate purchase price equal to $2,300. The preferred stock is not registered
on a securities exchange and, therefore, the fair value of these securities is
not readily determinable.

NOTE 4--RELATED PARTY TRANSACTIONS

During 1995, the Company advanced RxCare approximately $1,957 to fund
losses RxCare incurred in connection with one of its PBM contracts, which was
previously fully reserved for. Through December 1998, the advance was offset by
profit sharing amounts due under the RxCare Contract.

On October 1, 1998, the Company and RxCare amended the RxCare Contract. The
amendment reflected the parties' mutual decision to terminate their relationship
effective December 31, 1998 and permitted both parties to independently pursue
business opportunities with current RxCare plan sponsors to become effective
from and after January 1, 1999. The Company agreed to pay RxCare $1,500 and
waive RxCare's payment obligations with respect to the remaining outstanding
advances of $800 at December 31, 1998. The $1,500 was paid in November 1998 and
is included in the statement of operations as a non-recurring charge. No amount
was due RxCare for the years ended December 31, 1998 or 1997.

In March 1997, RxCare repaid in full an advance of approximately $349 the
Company had made in 1996 directly to individual pharmacies in Tennessee on
behalf of RxCare.

-33-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

The Company entered into two three-year contracts with Zenith Goldline in
December 1995. Pursuant to these contracts, the Company is entitled to receive
fees based on a percentage of the growth in Zenith Goldline's gross margins from
related sales. Included in due from affiliates at December 31, 1998 and 1997 is
management's estimate of revenues earned under these agreements. At December 31,
1998, the collectibility of the amounts is uncertain and a full reserve has been
recorded against the revenues earned.

During 1996, the Company advanced to MIM Holdings $99. MIM Holdings is
controlled by a former executive officer and director of the Company. MIM
Holdings had repaid $13 through December 31, 1996. The remaining $86 principal
amount owed by MIM Holdings and accrued interest from September 1996 was paid in
full at December 31, 1997.

Other Activities

Pursuant to the RxCare Contract, which expired on December 31, 1998, the
Company made monthly payments to RxCare to defray the cost of office space and
equipment provided by RxCare on behalf of the Company and to provide RxCare with
cash flow to meet its operating expenses. Expenses under this arrangement were
$240 for each of the years ended December 31, 1998, 1997 and 1996, respectively.
In addition, from November 1995 through October 1996, the Company paid RxCare
$6.5 monthly to cover expenses associated with a regional cost containment
initiative.

The Company leases one of its facilities from Alchemie Properties, LLC
("Alchemie") pursuant to a ten-year agreement. Alchemie is controlled by a
former officer and director of the Company. Rent expense was approximately $56
for each of the years ended December 31, 1998 and 1997, respectively, and $52
for the year ended December 31, 1996. The Company has incurred an aggregate of
approximately $513 for alterations and improvements to this space through
December 31, 1998, which upon termination of the lease will revert to the
lessor. The future minimum rental payments under this agreement are included in
Note 7.

Consulting and Service Agreements

In January 1994, the Company entered into a consulting agreement with an
officer of RxCare which provided for payments by the Company of $5.5 per month,
and additional compensation as agreed by the parties for special projects,
through December 1996. The Company made no payments in 1998 and 1997 and paid
$66 in 1996. In December 1996, the Company was reimbursed $225 for amounts paid
in 1994 for the special projects, which were recorded as a reduction of general
and administrative expenses.

In September 1995, the Company entered into a contract with MIM Holdings to
receive management consulting services in return for monthly payments to MIM
Holdings of $75. Consulting expenses under this contract amounted to $225 for
the year ended December 31, 1996. The contract was terminated on March 31, 1996.

A professional service agreement was entered into on January 1, 1996
between MIM Holdings and the Company. Under this agreement, MIM Holdings
provided the Company certain professional services, for which the Company paid
MIM Holdings $150 for the year ended December 31, 1996. The agreement was
terminated in May 1996.

-34-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

Stockholder Notes Receivable

In June 1994, the Company advanced to a former executive officer and
director approximately $979 for purposes of acquiring a principal residence,
$975 of which is secured by a first mortgage on a personal residence. In
exchange for the funds, the Company received a promissory note, the aggregate
outstanding principal balance of which was $979 at December 31, 1998 and 1997.
The original note required repayment by June 15, 1997 with interest of 5.42% per
annum payable monthly. The note was amended making the principal balance due and
payable on June 15, 2000 with interest of 7.125% payable monthly. Interest
income on the notes for each of the years ended December 31, 1998, 1997 and 1996
was $70, $60 and $52, respectively.

In August 1994, the Company advanced Alchemie $299 for the purposes of
acquiring a building leased by the Company. The balance remaining on the advance
was approximately $280 at December 31, 1998 and 1997. The note bears interest at
a rate of 10% per annum with principal due and payable on December 1, 2004.
Interest income was $29 for each of the years ended December 31, 1998, 1997 and
1996, respectively. The note is secured by a lien on Alchemie's rental income.

During 1995, the Company advanced to MIM Holdings $800 for certain
consulting services to be performed for the Company in 1996 and paid $278 for
certain expenses on behalf of MIM Holdings including $150 for consulting
services to MIM Holdings by an officer of RxCare. These amounts, totaling
$1,078, were recorded as a stockholder note receivable. $622 of such amount was
recorded as a stockholder distribution during 1996 and the remaining balance of
$456 bears interest at 10% per annum, payable quarterly in arrears, with
principal due on March 31, 2001. The note is guaranteed by a former officer and
director of the Company and further secured by the assignment to the Company of
a note due to MIM Holdings in the aggregate principal amount of $100. The
outstanding balance at December 31, 1998 and 1997 was $502 and $456,
respectively. Interest income on the note for each of the years ended December
31, 1998, 1997 and 1996, respectively was $46.

Indemnification

Under certain circumstances, the Company may be obligated to indemnify and
advance defense costs to two former officers (one of which is a former director
and still principal stockholder of the Company) of a subsidiary of the Company
in connection with their involvement in the Federal and State of Tennessee
investigation of which they are the subject (see Note 7). The Company is not
presently in a position to assess the likelihood that either or both of these
former officers will be entitled to such indemnification and advancement of
defense costs or to estimate the total amount that it may have to pay in
connection with such obligations or the time period over which such amounts may
have to be advanced.

NOTE 5--PROPERTY AND EQUIPMENT

Property and equipment, at cost, consists of the following at December 31:

1998 1997
------- -------
Computer and office equipment, including
equipment under capital leases ........... $6,603 $4,227
Furniture and fixtures .......................... 546 442
Leasehold improvements .......................... 613 540
------ ------
7,762 5,209
Less: Accumulated depreciation .................. (2,939) (1,710)
------ ------
Property and equipment, net ................... $4,823 $3,499
====== ======

-35-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

NOTE 6--LONG TERM DEBT

The Company's long term debt consists of a Revolving Note Agreement (the
"Agreement") through May 2001 and two installment notes ("Installment Notes I
and II") with a bank (the "Bank"), which were assumed by the Company in
connection with the Continental acquisition. The Company may borrow up to $6,500
under the Agreement. Advances under the Agreement are limited to 85% of eligible
receivables (as defined in the Agreement) and outstanding amounts bear interest
at the Bank's prime rate (7.75% at December 31, 1998). At December 31, 1998,
$670 was available for borrowing under the Agreement. Installment Note I bears
interest at the Bank's prime rate plus 1.25% (9.0% at December 31, 1998) with
payments due in monthly installments of $9 plus interest and with final payment
due February 1, 2000. Installment Note II bears interest at the same rate as
Installment Note I with payments due in monthly installments of $14 plus
interest and with final payment due February 28, 1999.

The Agreement and Installment Notes I and II are secured by all of the
accounts receivable and furniture and equipment of Continental and Continental's
obligations thereunder are guaranteed by the Company. Continental has also
granted a security interest in its inventory, accounts receivable and furniture
and equipment to a pharmaceutical vendor (the "Supplier"). Under the terms of an
Inter-Creditor Agreement between Continental, the Bank and the Supplier, the
Supplier will not exercise any right or remedy it may have with respect to the
same collateral as covered by the Bank's security interest, until the amounts
owed to the Bank are fully paid and satisfied and the Bank's interest has been
terminated in writing. The Inter-Creditor Agreement does not preclude the
Supplier from taking such action to enforce payment of indebtedness to the
Supplier not involving the same collateral as covered by the Bank's security
interest.

Under the terms of the Agreement and Installment Notes I and II,
Continental is required to comply with certain financial covenants which, among
other things require Continental to maintain a specified level of net worth.

The Company has notes payable outstanding to an employee, also assumed in
connection with the Continental acquisition. The notes bear interest at the
greater of 9% or prime plus 1% (9.0% at December 31, 1998) and are payable in
monthly installments of principal and interest of $7 through July 31, 2001.

The Company had no long-term debt outstanding during 1997 or prior periods.

Long-term debt consists of the following at December 31, 1998:

Revolving Note ......................................... $5,830
Variable rate Installment Notes I and II ............... 367
Notes payable - employee ............................... 196
------
$6,393
Less: current portion .................................. 208
------
$6,185
======

Future maturities of long-term debt for the next five years are as follows:

1999 .............................. $ 208
2000 .............................. 312
2001 .............................. 5,873
2002 .............................. --
2003 .............................. --
------
Total ............................. $6,393
======

-36-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

NOTE 7--COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company was a third-party defendant in a proceeding in the Superior
Court of the State of Rhode Island. The third-party complaint alleged that the
Company interfered with certain contractual relationships and misappropriated
certain confidential information. The third-party complaint sought to enjoin the
Company from using the allegedly misappropriated confidential information and
sought an unspecified amount of compensatory and consequential damages, interest
and attorneys' fees. On November 20, 1998, this action was settled pursuant to a
settlement and release agreement among the parties to the action. Under the
terms of the settlement, the Company was not required to make payment to any
party and no non-monetary restrictions or limitations were otherwise imposed
against the Company or any subsidiary or any of their respective officers,
directors or employees.

In February 1999, the Company reached an agreement in principle with
respect to a civil settlement of a Federal and State of Tennessee investigation
focusing mainly on the conduct of two former officers (one of which is a former
officer and still principal stockholder of the Company) of a subsidiary prior to
the Company's initial public offering (see Note 9). Based upon the agreement in
principle, the investigation, as it relates to the Company, would be fully
resolved through the payment of a $2.2 million civil settlement and an agreement
to implement a corporate integrity program in conjunction with the Office of the
Inspector General of the U.S. Department of Health and Human Services. In that
connection, the Company recorded a non-recurring charge of $2.2 million against
fourth quarter 1998 earnings. This settlement is subject to several conditions,
including the execution of a definitive agreement. The Company anticipates that
it will have no continued involvement in the governments' joint investigation
other than continuing to cooperate with the governments in their efforts.

Government Regulation

Various Federal and state laws and regulations affecting the healthcare
industry do or may impact the Company's current and planned operations,
including, without limitation, Federal and state laws prohibiting kickbacks in
government health programs (including TennCare), Federal and state antitrust and
drug distribution laws, and a wide variety of consumer protection, insurance and
other state laws and regulations. While management believes that the Company is
in substantial compliance with all existing laws and regulations material to the
operation of its business, such laws and regulations are subject to rapid change
and often are uncertain in their application. As controversies continue to arise
in the healthcare industry (for example, regarding the efforts of plan sponsors
and pharmacy benefit managers to limit formularies, alter drug choice and
establish limited networks of participating pharmacies), Federal and state
regulation and enforcement priorities in this area can be expected to increase,
the impact of which on the Company cannot be predicted. There can be no
assurance that the Company will not be subject to scrutiny or challenge under
one or more of these laws or that any such challenge would not be successful.
Any such challenge, whether or not successful, could have a material adverse
effect upon the Company's financial position and results of operations.
Violation of the Federal anti-kickback statute, for example, may result in
substantial criminal penalties, as well as exclusion from the Medicare and
Medicaid (including TennCare) programs. Further, there can be no assurance that
the Company will be able to obtain or maintain any of the regulatory approvals
that may be required to operate its business, and the failure to do so could
have a material adverse effect on the Company's financial position and results
of operations.

-37-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

Employment Agreements

The Company has entered into employment agreements with certain key
employees which expire at various dates through December 2003. Total minimum
commitments under these agreements are approximately as follows:

1999 ..................................... $1,019
2000 ..................................... 780
2001 ..................................... 555
2002 ..................................... 443
2003 ..................................... 406
------
$3,203
======

Other Agreements

As discussed in Note 4, the Company rents one of its facilities from
Alchemie. Rent expense for non-related party leased facilities and equipment was
approximately $809, $477 and $208 for the years ended December 31, 1998, 1997
and 1996, respectively.

Operating Leases

The Company leases its facilities and certain equipment under various
operating leases. The future minimum lease payments under these operating leases
at December 31 of the identified years are as follows:

1999 ................................ $1,204
2000 ................................ 1,058
2001 ................................ 825
2002 ................................ 352
2003 ................................ 331
Thereafter .......................... 1,434
------
$5,204
======
Capital Leases

The Company leases certain equipment under various capital leases. Future
minimum lease payments under the capital lease agreements at December 31 of the
identified years are as follows:

1999 ....................................... $342
2000 ....................................... 342
2001 ....................................... 303
----
Total minimum lease payments ............... 987
Less: amount representing interest ......... 112
----
Obligations under leases ................... 875
Less: current portion of lease obligation .. 277
----
$598
====

-38-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

NOTE 8--INCOME TAXES

The Company accounts for income taxes in accordance with SFAS 109. Under
SFAS 109, deferred tax assets or liabilities are computed based on the
differences between the financial statement and income tax bases of assets and
liabilities as measured by currently enacted tax laws and rates. Deferred income
tax expenses and benefits are based on changes in the deferred assets and
liabilities from period to period.

The effect of temporary differences which give rise to a significant
portion of deferred taxes is as follows as of December 31, 1998 and 1997:

1998 1997
-------- --------

Deferred tax assets:
Reserves and accruals not yet deductible for tax purposes ........ $ 1,433 $ 3,040
Net operating loss carryforward .................................. 19,176 13,950
Property basis differences ....................................... 82 --
-------- --------
Subtotal ................................................ 20,691 16,990
Less: valuation allowance ........................................ (20,421) (16,921)
-------- --------
Total deferred tax assets .............................................. 270 (69)
-------- --------

Deferred tax liabilities:
Property basis differences ....................................... 0 69
-------- --------
Total deferred tax liability ........................................... 0 69
-------- --------
Net deferred taxes ..................................................... $ 270 $ --
======== ========

It is uncertain whether the Company will realize the full benefit from its
deferred tax assets, and it has therefore recorded a valuation allowance. The
Company will assess the need for the valuation allowance at each balance sheet
date.

There is no provision (benefit) for income taxes for the years ended
December 31, 1998 and 1997. A reconciliation to the tax provision (benefit) at
the Federal statutory rate is presented below:

1998 1997
-------- --------

Tax provision (benefit) at statutory rate .............................. $ 1,452 $(4,589)
State tax provision (benefit), net of federal benefit .................. 282 (891)
Change in valuation allowance .......................................... (1,886) 5,460
Amortization of goodwill and other intangibles ......................... 134 --
Other .................................................................. 18 20
-------- --------
Recorded income taxes .................................................. $ -- $ --
======== ========

At December 31, 1998, the Company had, for tax purposes, unused net
operating loss carryforwards of approximately $47 million which will begin
expiring in 2008. As it is uncertain whether the Company will realize the full
benefit from these carryforwards, the Company has recorded a valuation allowance
equal to the deferred tax asset generated by the carryforwards. The Company
assesses the need for a valuation allowance at each balance sheet date. The
Company has undergone a "change in control" as defined by the Internal Revenue
Code of

-39-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

1986, as amended, and the rules and regulations promulgated thereunder. The
amount of net operating loss carryforwards that may be utilized in any given
year will be subject to a limitation as a result of this change. The annual
limitation approximates $2.7 million. Actual utilization in any year will vary
based on the Company's tax position in that year.

NOTE 9--STOCKHOLDERS' EQUITY

Public Offering

On August 14, 1996, the Company completed its initial public offering, and
sold 4,000,000 shares of Common Stock at a public offering price of $13.00 per
share. Net proceeds amounted to $46,788 after offering costs of $1,574.

Stock Option Plans

In May 1996, the Company adopted the MIM Corporation 1996 Stock Incentive
Plan (the "Plan"). The Plan provides for the granting of incentive stock options
(ISOs) and non-qualified stock options to employees and key contractors of the
Company. Options granted under the Plan generally vest over a three-year period,
but vest in full upon a change in control of the Company or at the discretion of
the Company's compensation committee, and generally are exercisable for from 10
to 15 years after the date of grant subject, in some cases, to earlier
termination in certain circumstances. The exercise price of ISOs granted under
the Plan will not be less than 100% of the fair market value on the date of
grant (110% for ISOs granted to more than a 10% shareholder). If non-qualified
stock options are granted at an exercise price less than fair market value on
the grant date, the amount by which fair market value exceeds the exercise price
will be charged to compensation expense over the period the options vest.
4,375,000 shares are authorized for issuance under the Plan. At December 31,
1998, 116,491 shares remained available for grant under the amended Plan.

As of December 31, 1998 and 1997, the exercisable portion of outstanding
options was 1,353,267 and 1,516,445, respectively. Stock option activity under
the amended Plan through December 31, 1998 is as follows:

Average
Options Price
--------- --------
Balance, December 31, 1995 .......................... 3,021,900 $0.0067
Granted ......................................... 1,124,902 $ 11.26
Canceled ........................................ (46,421)
Exercised ....................................... (16,800)
----------
Balance, December 31, 1996 .......................... 4,083,581 $ 2.99
Granted ......................................... 85,000 $ 9.49
Canceled ........................................ (178,750)
Exercised ....................................... (1,294,550)
----------
Balance, December 31, 1997 .......................... 2,695,281 $ 4.21
Granted ......................................... 935,110 $ 4.28
Canceled ........................................ (683,229)
Exercised ....................................... (843,150)
----------
Balance, December 31, 1998 .......................... 2,104,012 $ 4.73
==========

-40-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

On December 2, 1998, the Company granted Richard H. Friedman an option to
purchase 800,000 shares of Common Stock at $4.50 per share (then-current market
price) under his employment agreement as the Company's Chairman and Chief
Executive Officer. This option was not granted under the Plan. Under the
agreement, the options vest in three equal installments on the first three
anniversaries of the date of grant. In addition, on December 2, 1998, the
Company granted Mr. Friedman 200,000 performance units and 300,000 restricted
shares. The performance units and the restricted shares are also not covered by
the Plan. The performance units vest and become payable in two equal
installments in fiscal 2002 and 2003 upon the Company's achievement of certain
specified levels of after-tax net income in fiscal 2001. The restrictions to
which the restricted shares are subject lapse in December 2006, but may be
accelerated in the event that the Company achieves certain specified levels of
earnings per share in fiscal 2001. The grants of options, performance units and
restricted shares to Mr. Friedman are subject to stockholder approval.

On April 17, 1998, the Company granted Scott R. Yablon an option to
purchase 1,000,000 shares of Common Stock at $4.50 per share (then-current
market price) in connection with his employment agreement to become the
Company's President, Chief Operating Officer and Chief Financial Officer. This
option was not granted under the Plan. Under this agreement, options with
respect to 500,000 shares vested immediately upon his commencement of employment
with the Company and the options covering the remaining 500,000 shares vest in
two equal installments on the first two anniversary dates of the date of grant.
These options expire 10 years from the date of grant. As of December 31, 1998,
the exercisable portion of outstanding options was 500,000 shares.

Effective July 6, 1998, each then current employee of the Company holding
options under the 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. The average of the high and low sales price
of the Common Stock on July 6, 1998 was $4.75 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. In connection with the repricing, an aggregate of approximately
473,000 shares were repriced to $6.50 per share.

In July 1996, the Company adopted the MIM Corporation 1996 Non-Employee
Directors Stock Incentive Plan (the "Directors Plan"). The purpose of the
Directors Plan is to attract and retain qualified individuals to serve as
non-employee directors of the Company ("Outside Directors"), to provide
incentives and rewards to such directors and to associate more closely the
interests of such directors with those of the Company's stockholders. The
Directors Plan provides for the automatic granting of non-qualified stock
options to Outside Directors joining the Company since the adoption of the
Directors Plan. Each such Outside Director receives an option to purchase 20,000
shares of Common Stock upon his or her initial appointment or election to the
Board of Directors. The exercise price of such options is equal to the fair
market value of the Common Stock on the date of grant. Options granted under the
Directors Plan generally vest over three years. A total of 100,000 shares of
Common Stock are authorized for issuance under the Directors Plan. At December
31, 1998, options to purchase 40,000 shares at an exercise price of $13.00,
options to purchase 40,000 shares at an exercise price of $4.6875 and options to
purchase 20,000 shares at an exercise price of $4.35 were outstanding under the
Directors Plan, 26,667 of which were exercisable.

Accounting for Stock-Based Compensation

In May 1996, the majority stockholder of the Company granted to three
individuals who were then unaffiliated with the Company (each of whom later
became a director of the Company and two of whom also became officers of the
Company), options to purchase an aggregate of 3,600,000 shares of Common Stock
owned by him at $0.10 per share. These options were immediately exercisable and
have a term of ten years, subject to earlier termination upon a change in
control of the Company, as defined. In connection with these options, for the
year ended December 31, 1996, the Company recorded a nonrecurring, non-cash
stock option charge (and a corresponding credit to additional paid-in capital)
of $26,640, representing the difference between the exercise price and the
deemed fair

-41-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

market value of the Common Stock at the date of grant. In January 1998, two of
these individuals, who were at that time officers of the Company, exercised
3,300,000 of these options.

In July 1996, the majority stockholder also granted to one of these
individuals an additional option ("additional option") to purchase 1,860,000
shares of Common Stock owned by him at $13 per share. The additional option has
a term of ten years, subject to earlier termination upon a change in control of
the Company, as defined, or within certain specified periods following the
grantee's death, disability or termination of employment for any reason. The
additional option vests in installments of 620,000 shares each on December 31,
1996, 1997 and 1998, and is immediately exercisable upon the approval of a
change in control of the Company, as defined, by the Company's Board of
Directors and, if required, stockholders. The unvested portion of the additional
option, 620,000 shares, terminated in 1998 due to the grantee's termination of
employment with the Company and the unexercised vested portion of the additional
options, 1,240,000 shares, terminated 60 days following grantee's termination.

Had compensation cost for the Company's stock option plans for employees
and directors been determined based on the fair value method in accordance with
SFAS 123, the Company's results would have been as follows for the years ended
December 31:

1998 1997 1996
------------------- ----------------------- -----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------ -------- -------- -------- --------

Net income (loss) ........... $4,271 $2,742 $(13,497) $(14,416) $(31,754) $(32,131)
====== ====== ======== ======== ======== ========
Basic income (loss) per
common share ............... $ .28 $ .18 $ (1.07) $ (1.14) $ (3.32) $ (3.36)
====== ====== ======== ======== ======== ========
Diluted income (loss) per
common share ............... $ .26 $ .17 $ (1.07) $ (1.14) $ (3.32) $ (3.36)
====== ====== ======== ======== ======== ========

Because the fair value method prescribed by SFAS No. 123 has not been
applied to options granted prior to January 1, 1995 (as permitted by SFAS No.
123), the resulting pro forma compensation expense may not be representative of
the amount of compensation expense to be recorded in future years. Pro forma
compensation expense for options granted is reflected over the vesting period,
therefore future pro forma compensation expense may be greater as additional
options are granted.

The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

1998 1997 1996
---- ---- ----
Volatility ................... 98% 60% 60%
Risk-free interest rate ...... 5% 5% 5%
Expected life of options ..... 4 years 4 years 4 years

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the

-42-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

NOTE 10--CONCENTRATION OF CREDIT RISK

Through December 31, 1998 the majority of the Company's revenues were
derived from TennCare contracts managed by the Company pursuant to the RxCare
Contract. The following table outlines contracts with plan sponsors having
revenues and/or accounts receivable which individually exceeded 10% of the
Company's total revenues and/or accounts receivable during the applicable time
period:

Plan Sponsor
---------------------------------------------
A B C D E F
- - - - - -

Year ended December 31, 1996
% of total revenue............................ 18% 47% 11% - - -
% of total accounts receivable at period end.. * 13% 14% - - -
Year ended December 31, 1997
% of total revenue............................ 21% 10% 13% 10% - -
% of total accounts receivable at period end.. * * * * - -
Year ended December 31, 1998
% of total revenue............................ 16% - - 11% 16% 12%
% of total accounts receivable at period end.. * - - * * 12%

- - ------------
* Less than 10%.

There were no other contracts representing 10% or more of the Company's
total revenues and/or accounts receivable for the years ended December 31, 1998,
1997 and 1996. The RxCare Contract expired as of December 31, 1998 and effective
January 1, 1999, the Company began providing PBM services to five of the six
TennCare MCO's previously managed under the RxCare Contract. It is possible that
the State of Tennessee or the Federal government could terminate or require
modifications to the TennCare program. The Company is unable to predict the
effect of any such future changes to the TennCare program.

NOTE 11--PROFIT SHARING PLAN

The Company maintains a deferred compensation plan under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may elect to defer up to
15% of their salary, subject to Internal Revenue Service limits. The Company may
make a discretionary matching contribution. The Company recorded a $50 matching
contribution for 1998. The Company made no matching contributions for the years
ended December 31, 1997 and 1996.

NOTE 12--NON-RECURRING CHARGES

The Company recorded a $1,500 non-recurring charge against earnings in
connection with its negotiated termination of its relationship with RxCare. The
negotiated termination, among other things, allowed the Company to directly
market its services to Tennessee customers (including those then under contract
with RxCare) prior to the expiration of the RxCare Contract. The RxCare Contract
had previously prohibited the Company from soliciting and/or marketing its PBM
services in Tennessee other than on behalf of, and for the benefit of, RxCare.
The Company's marketing efforts during this period resulted in the Company
executing agreements effective as of January 1, 1999 to provide PBM services
directly to five of the six TennCare MCO's and 900,000 of the TennCare lives
previously managed under the RxCare Contract as well as substantially all third
party administrators and

-43-

MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)

employer groups previously managed under the RxCare Contract. In addition, the
Company recorded a $2,200 non-recurring charge against earnings in connection
with the conclusion of an agreement in principle with respect to a civil
settlement of the Federal and State of Tennessee investigation in connection
with the conduct of two former officers of a subsidiary prior to the Company's
initial public offering. This settlement is subject to several conditions,
including the execution of a definitive agreement. The Company anticipates that
the investigation will be fully resolved with this settlement.

NOTE 13--SUBSEQUENT EVENTS

On February 9, 1999, the Company entered into an agreement with a principal
stockholder of the Company to purchase, in a private transaction not reported on
Nasdaq, 100,000 shares of Common Stock from such stockholder at $3.375 per
share. The last price of the Common Stock on February 9, 1999 was $3.50 per
share.

-44-

MIM Corporation and Subsidiaries

Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1998, 1997 and 1996

(In thousands)

Balance at Charges Charged to Balance at
Beginning To Costs and Other End
of Period Receivables Expenses Charges of Period
------- ------- ------- ----- -------

Year ended December 31, 1996
Accounts receivable .................... $ 360 -- $ 728 -- $ 1,088
Accounts receivable, other ............. $ 1,957 -- $ 200 -- $ 2,157
======= ======= ======= ===== =======

Year ended December 31, 1997
Accounts receivable .................... $ 1,088 $(1,755) $ 1,348 $ 705 $ 1,386
Accounts receivable, other ............. $ 2,157 -- $ 203 -- $ 2,360
======= ======= ======= ===== =======

Year ended December 31, 1998
Accounts receivable .................... $ 1,386 (137) $ 58 -- $ 1,307
Accounts receivable, other ............. $ 2,360 $(1,957) -- $ -- $ 403
======= ======= ======= ===== =======

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

Not applicable.

-45-

PART III

Item 10. Directors and Executive Officers of Registrant

The following table sets forth certain information with respect to the
directors and executive officers of the Company.

Name Age Position
- - ---- --- --------

Richard H. Friedman.... 48 Chairman of the Board and Chief Executive Officer

Scott R. Yablon........ 47 President, Chief Operating Officer and Director

Louis A. Luzzi, Ph.D... 66 Director

Richard A. Cirillo..... 48 Director

Louis DiFazio, Ph.D.... 61 Director

Michael Kooper......... 63 Director

Barry A. Posner........ 35 Vice President, Secretary and General Counsel

Edward J. Sitar........ 38 Chief Financial Officer

Richard H. Friedman is currently the Chairman and Chief Executive Officer
of the Company. He joined the Company in April 1996 and was elected a director
of the Company and appointed Chief Financial Officer and Chief Operating Officer
in May 1996. Mr. Friedman also served as the Company's Treasurer from April 1996
until February 1998. From February 1992 to December 1994, Mr. Friedman served as
Chief Financial Officer and Vice President of Finance of Zenith Laboratories
Inc. ("Zenith"). In December 1994, Zenith was acquired by IVAX Corporation, an
international health care company and a major multi-source generic
pharmaceutical manufacturer and marketer. From January 1995 to January 1996, he
was Vice President of Administration of IVAX Corporation's North American
Multi-Source Pharmaceutical Group and each of its operating companies, including
Zenith and Zenith Goldline.

Scott R. Yablon joined the Company on May 1, 1998 as an employee and,
effective May 15, 1998, served as its President, Chief Financial Officer, Chief
Operating Officer and Treasurer. He relinquished the positions of Chief
Financial Officer and Treasurer on March 22, 1999, upon the promotion of Mr.
Edward J. Sitar to those positions at that time. Mr. Yablon has served as a
director of the Company since July 1996. Prior to joining the Company, he held
the position of Vice President - Finance and Administration at Forbes, Inc.. He
also served as a member of the Investment Committee of Forbes Inc., Vice
President, Treasurer and Secretary of Forbes Investors Advisory Institute and
Vice President and Treasurer of Forbes Trinchera, Sangre de Cristo Ranches, Fiji
Forbes and Forbes Europe.

Louis A. Luzzi, Ph.D. has served as a director of the Company since July
1996. Dr. Luzzi is the Dean of Pharmacy and Provost for Health Science Affairs
of the University of Rhode Island College of Pharmacy. He has been a Professor
of Pharmacy at the University of Rhode Island since 1981. Dr. Luzzi participates
in several university, industry and government committees and has published
numerous articles.

Richard A. Cirillo has served as a director of the Company since April
1998. Mr. Cirillo is a member of the law firm Rogers and Wells LLP, which he has
been associated with since 1975. Rogers and Wells LLP has served as outside
general counsel to the Company since March 1997.

-46-

Louis DiFazio, Ph.D., has served as a director of the Company since May
1998. From 1990 through March 1997, Dr. DiFazio served as President of Technical
Operations for the Pharmaceutical Group of Bristol-Myers Squibb and from March
1997 until his retirement in June 1998 served as Group Senior Vice President.
Dr. DiFazio also serves as a member of the Board of Trustees of Rutgers
University and the University of Rhode Island. Dr. DiFazio received his B.S. in
Pharmacy at Rutgers University and his Ph.D. in Pharmaceutical Chemistry from
the University of Rhode Island.

Martin ("Michael") Kooper has served as a director of the Company since
April 1998. Mr. Kooper has served as the President of the Kooper Group since
December 1997, a successor to Michael Kooper Enterprises, an insurance and risk
management consulting firm. From 1980 through December 1997, Mr. Kooper served
as President of Michael Kooper Enterprises.

Barry A. Posner joined the Company in March 1997 as General Counsel and was
appointed as the Company's Secretary at that time. On April 16, 1998, Mr. Posner
was appointed Vice President of the Company. From September 1990 through March
1997, Mr. Posner was associated with the Stamford, Connecticut law firm of Finn
Dixon & Herling LLP, where he practiced corporate law, specializing in the areas
of mergers and acquisitions and securities law, and commercial real estate law.

Edward J. Sitar joined the Company in August 1998 as Vice President of
Finance. On March 22, 1999, Mr. Sitar was appointed Chief Financial Officer and
Treasurer, relinquishing the position of Vice President of Finance. From May
1996 to August 1998, Mr. Sitar was the Vice President of Finance for Vital
Signs, Inc., a publicly traded manufacturer and distributor of single use
medical products. From June 1993 to April 1996, Mr. Sitar was the Controller of
Zenith.

Executive officers are appointed by, and serve at the pleasure of, the
Board of Directors, subject to the terms of their respective employment
agreements with the Company, which among other things, provide for each of them
to serve in the executive position(s) listed above.

Section 16 (a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires directors and officers of the
Company and persons, or "groups" of persons, who own more than 10% of a
registered class of the Company's equity securities (collectively, "Covered
Persons") to file with the Commission and Nasdaq within specified time periods,
initial reports of beneficial ownership, and subsequent reports of changes in
ownership, of certain equity securities of the Company. Based solely on its
review of copies of such reports furnished to it and upon written
representations of Covered Persons that no other reports were required, other
than as described below, the Company believes that all such filing requirements
applicable to Covered Persons with respect to all reporting periods through the
end of fiscal 1998 have been complied with on a timely basis. Mr. Posner failed
to file timely one Statement of Changes of Beneficial Ownership on Form 4
reporting one transaction. Mr. Larry Edelson-Kayne, a former officer, failed to
file timely an Initial Statement of Beneficial Ownership on Form 3. Mr. Michael
Erlenbach, a 10% beneficial owner, failed to file timely one Statement of
Changes of Beneficial Ownership on Form 4 reporting four transactions. Mr. E.
David Corvese, a director of the Company until August 1998 and a 10% beneficial
owner, failed to file timely four Statements of Changes of Beneficial Ownership
on Form 4 reporting 107 transactions.

Item 11. Executive Compensation

The following table sets forth certain information concerning the annual,
long-term and other compensation of the two Chief Executive Officers who held
that title during 1998 and the four other most highly compensated executive
officers of the Company (the "Named Executive Officers") for services rendered
in all capacities to the Company and its subsidiaries during each of the years
ended December 31, 1998, 1997 and 1996, respectively:

-47-

Summary Compensation Table

Long-term
Compensation
Annual ------------
Compensation Other Securities
------------------------ Annual Underlying All Other
Name and Principal Position Year Salary (1) Bonus Compensation (2) Options Compensation
- - ---------------------------- ---- ---------- ----- ---------------- ------- ------------

Richard H. Friedman............ 1998 $333,462 $212,500 $ 33,134 800,000 $ 5,217 (4)
Chief Executive Officer 1997 $275,000 -- $ 12,000 -- $ 4,710 (4)
1996 $187,977 -- $ 7,000 1,500,000 (3) $ 3,657 (4)

John H. Klein.................. 1998 $125,000 -- $ 5,000 -- $205,217 (5)
Former Chief Executive 1997 $325,000 -- $ 12,000 -- $ 4,710 (4)
Officer 1996 $220,192 -- $ 7,000 3,660,000 (3) --

Scott R. Yablon................. 1998 $207,500 (6) $162,500 $ 6,678 1,000,000 (7) $ 4,605 (4)
President and 1997 -- -- -- -- --
Chief Operating Officer 1996 -- -- -- -- --

Barry A. Posner................ 1998 $191,346 (8) $100,000 $ 10,828 50,000 (9) $ 5,890 (4)
Vice President, General 1997 $127,366 -- $ 4,166 150,000 (7) $ 4,710 (4)
Counsel and Secretary 1996 -- -- -- -- --

E. Paul Larrat (10)............ 1998 $191,346 $ 10,000 $ 7,400 60,000 (9) $ 5,890 (4)
Executive Vice President 1997 $155,000 -- $ 3,600 -- $ 4,113 (4)
Pro-Mark Holdings, Inc. 1996 $135,556 -- $ 3,600 137,500 (11) $ 7,549 (4)

Eric Pallokat (12)............. 1998 $138,904 $ 82,500 $ 6,000 25,000 (7) --
Vice President of Sales 25,000 (9)
and Marketing 1997 $115,000 -- $ 6,000 -- --
1996 $ 53,077 -- $ 2,887 25,000 (7) --

-48-

- - ----------------------

(1) The annualized base salaries of the Named Executive Officers for 1998 were
as follows: Mr. Friedman ($325,000; $425,000 effective December 1998), Mr.
Klein ($325,000), Mr. Yablon ($325,000), Mr. Posner ($200,000), Mr. Larrat
(175,000) and Mr. Pallokat (130,000).

(2) Represents automobile allowances, and for Messrs. Friedman, Yablon and
Posner in 1998, reimbursement for club membership and related fees and
expenses of $21,135, $3,678 and $3,428, respectively.

(3) Represents options to purchase shares of the Company's Common Stock from E.
David Corvese. See "Common Stock Ownership by Certain Beneficial Owners and
Management" below.

(4) Represents life insurance premiums paid by the Named Executive Officer and
reimbursed by the Company.

(5) Represents reimbursement of life insurance premiums in the amount of $5,217
and payment of severance of $200,000. Mr. Klein resigned as Chairman and
Chief Executive Officer of the Company effective May 15, 1998. Pursuant to
a separation agreement, the Company agreed to pay Mr. Klein severance equal
to his annual salary through May 1999.

(6) Mr. Yablon joined the Company as President and Chief Operating Officer in
May 1998.

(7) Represents options to purchase shares of the Company Common Stock from the
Company at market price on the date of grant.

(8) The annualized base salary for Mr. Posner was increased from $175,000 to
$200,000 effective in April 1998.

(9) Represents options with respect to which the exercise price was repriced to
$6.50 per share on July 6, 1998. See "Option Grants in Last Fiscal Year"
and "10-Year Option Repricing" tables below.

(10) $55,000 of Mr. Larrat's base salary is paid to him indirectly by the
Company to the University of Rhode Island College of Pharmacy through a
time sharing arrangement. In turn, the University pays such amounts to Mr.
Larrat. The balance of his salary is paid directly to him by the Company.
Mr. Larrat resigned all of his positions with the Company and its
subsidiaries effective March 1999.

(11) Represents options to purchase 77,500 shares of Common Stock at $0.0067 per
share and 60,000 shares at $6.50 per share.

(12) Mr. Pallokat resigned all of his positions with the Company and its
subsidiaries effective February 1999.

The following table sets forth information concerning stock option grants
made during fiscal 1998 to the Named Executive Officers. These grants are also
reflected in the Summary Compensation Table. In accordance with the rules and
regulations of the Commission, the hypothetical gains or "option spreads" for
each option grant are shown assuming compound annual rates of stock price
appreciation of 5% and 10% from the grant date to the expiration date. The
assumed rates of growth are prescribed by the Commission and are for
illustrative purposes only; they are not intended to predict the future stock
prices, which will depend upon market conditions and the Company's future
performance, among other things.

-49-

Option Grants in Last Fiscal Year

Potential Realizable
Individual Grants (1) Value at
-------------------------------------------------------------- Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term
Options Employees Price Expiration --------------------------
Name Granted in 1998 ($/share) Date 5% 10%
- - ---- ------- ------- --------- ---------- ---------- ----------

Richard H. Friedman ... 800,000 27.7% $ 4.50 12/2/08 $2,264,021 $3,387,473

John H. Klein.......... - - - - - -

Scott R. Yablon........ 1,000,000 (1) 34.7% $ 4.50 4/17/08 $2,830,026 $4,234,341

Barry A. Posner........ 50,000 (2) 1.7% $4.6875 5/27/08 $ 147,397 $ 236,033
50,000 (3) 1.7% $ 6.50 7/6/08 $ 204,391 $ 471,091
100,000 3.5% $ 4.50 12/2/08 $ 283,003 $ 423,434

E. Paul Larrat ........ 60,000 (3) 2.0% $ 6.50 7/6/08 $ 245,269 $ 565,310

Eric Pallokat ......... 25,000 (4) 0.8% $4.6875 5/27/08 $ 73,699 $ 118,017
25,000 (3) 0.8% $ 6.50 7/6/08 $ 102,195 $ 235,546

(1) Options representing 500,000 shares were immediately vested and exercisable
and the remaining 500,000 shares become exercisable in equal installments
on April 17, 1999 and 2000.

(2) Such options become exercisable in three equal installments on May 27,
1999, 2000 and 2001.

(3) Represents options with respect to which the exercise price was repriced to
$6.50 per share on July 6, 1998. See "10-year Option Repricing" table
below.

(4) All such options expired upon Mr. Pallokat's resignation in February 1999.

-50-

The following table sets forth for each Named Executive Officer the number
of shares covered by both exercisable and unexercisable stock options held as of
December 31, 1998. Also reported are the values for "in-the-money" options,
which represent the difference between the respective exercise prices of such
stock options and $3.375, the per share closing price of the Common Stock on
December 31, 1998.

Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Value Options at Fiscal Year-End Fiscal Year-End (1)
Acquired On Realized ---------------------------- ---------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ---------- ----------- ------------- ----------- -------------

Richard H. Friedman (2) ........ 1,500,000 $7,350,000 -- 800,000 -- --
John H. Klein (2) .............. 1,800,000 $8,820,000 -- -- -- --
Scott R. Yablon (3) ............ -- -- 500,000 500,000 -- --
Barry A. Posner (3) ............ -- -- -- 200,000 -- --
E. Paul Larrat (3) ............. -- -- 77,500 60,000 $ 261,043 --
Eric Pallokat (3) .............. -- -- -- 50,000 (4) -- --

(1) Except as indicated, none of the options were "in-the-money".

(2) Indicated options represented shares of Common Stock purchased from E.
David Corvese (see "Common Stock Ownership by Certain Beneficial Owners and
Management" below). In January 1998, Messrs. Friedman and Klein exercised
these options for a total of 1,500,000 and 1,800,000 shares, respectively.

(3) Indicated options are to purchase shares of Common Stock from the Company.

(4) All such options expired upon Mr. Pallokat's resignation in February 1999.

The following table sets forth for each Named Executive Officer the number
of performance units and restricted shares of Common Stock granted by the
Company during the year ended December 31, 1998. In addition, for each award,
the table also sets forth the related maturation period and future payments
expected to be made under varying circumstances.

Long-Term Incentive Plan -
Awards In Last Fiscal Year

Performance Estimated Future Payments Under
Number of Or Period Non-Stock Price-Based Plans
Shares, Units Until Maturation ----------------------------------------------
Name Or Rights Or Payment Threshold Target Maximum
- - ---- --------- ---------- --------- ------ -------

Richard H. Friedman ...................... 200,000 (1) 4/1/02 $2,000,000 $5,000,000 $8,000,000
300,000 (2) 12/2/06 $1,350,000 $1,350,000 $1,350,000
John H. Klein ............................ -- -- -- -- --

-51-

Scott R. Yablon .......................... -- -- -- -- --
Barry A. Posner .......................... 10,000 (1) 4/1/02 $ 100,000 $ 250,000 $ 400,000
20,000 (2) 12/2/06 $ 450,000 $ 450,000 $ 450,000
E. Paul Larrat ........................... -- -- -- -- --
Eric Pallokat ............................ -- -- -- -- --

- - -------------------
(1) Represents performance units granted to the indicated individual on
December 2, 1998. The performance units vest and become payable upon the
achievement by the Company of certain specified levels of after-tax net
income in fiscal 2001. Upon vesting, the performance units are payable in
two equal installments in April 2002 and 2003 as follows: (a) $10 per unit
upon the Company's achievement of a threshold level of after-tax net income
in fiscal 2001; (b) $25 per unit upon the Company's achievement of a target
level of after-tax net income in fiscal 2001; and (c) $40 per unit upon the
Company's achievement of a maximum level of after-tax net income in fiscal
2001.

(2) Represents restricted shares of Common Stock issued by the Company to the
indicated individual on December 2, 1998. The restricted shares are subject
to restrictions on transfer and encumbrance through December 2, 2006 and
are automatically forfeited to the Company upon termination of the
grantee's employment with the Company prior to December 2, 2006. The
restrictions to which the restricted shares are subject may lapse prior to
December 2, 2006 in the event that the Company achieves certain specified
levels of earnings per share in fiscal 2001 or 2002. The indicated
individual possesses voting rights with respect to the restricted shares,
but is not entitled to receive dividend or other distributions, if any,
paid with respect to the restricted shares. The values shown in the table
reflect the value of shares based on the last sale price of the Common
Stock on the date of grant ($4.50). The last sale price of the Common Stock
on December 31, 1998 was $3.375 per share.

The following table sets forth certain information with respect to shares
repriced by the Company in favor of any executive officers of the Company during
the last ten years:

10-Year Option Repricings(1)(2)

Number of Length (months)
Securities Market Price Exercise Price of Original
Underlying at at New Option Term
Repriced Time of Time of Exercise Remaining at
Name Date Options (#) Repricing ($) Repricing ($) Price($) Time of Repricing
- - ---- ---- ----------- ------------- ------------- -------- -----------------

Barry A. Posner ............... 7/6/98 50,000 $ 4.75 $ 7.4375 $ 6.50 105
E. Paul Larrat ................ 7/6/98 60,000 $ 4.75 $ 13.00 $ 6.50 95
Eric Pallokat ................. 7/6/98 25,000 $ 4.75 $ 13.00 $ 6.50 98

- - ---------------------
(1) Other than the July 1998 repricing, the Company has not repriced the
exercise price of any options held by any executive officers during the
last 10 years.

(2) See "Compensation Committee Report on Executive Compensation" below for a
description of the factors that the Compensation Committee considered in
connection with its approval of these repricings.

Compensation of Directors

Directors who are not officers of the Company ("Outside Directors") receive
fees of $1,500 per month and $500 per meeting of the Board and any committee
thereof and are reimbursed for expenses incurred in connection with attending
such meetings. In addition, each Outside Director joining the Company since the
adoption of the Company's 1996 Non-Employee Directors Stock Incentive Plan (the
"Directors Plan") receives options to purchase 20,000 shares of the Common Stock
under that Plan. Directors who are also officers of the Company are not paid any
director fees.

-52-

The Directors Plan was adopted in July 1996 to attract and retain qualified
individuals to serve as non-employee directors of the Company, to provide
incentives and rewards to such directors and to associate more closely the
interests of such directors with those of the Company's stockholders. The
Directors Plan provides for the automatic grant of non-qualified stock options
to purchase 20,000 shares of Common Stock to non-employee directors joining the
Company since the adoption of the Directors Plan. The exercise price of such
options is equal to the fair market value of Common Stock on the date of grant.
Options granted under the Directors Plan generally vest over three years. A
reserve of 100,000 shares of the Company Common Stock has been established for
issuance under the Directors Plan. Through March 15, 1999, options to purchase
20,000 shares have been granted under the Directors Plan to each of Messrs.
Luzzi and Yablon at an exercise price of $13 per share, options to purchase
20,000 shares have been granted to Mr. Cirillo at an exercise price of $4.35 per
share and options to purchase 20,000 shares have been granted to each of Messrs.
Kooper and DiFazio at an exercise price of $4.6875 per share.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Company's Board administers the Company's
stock incentive plans and makes recommendations to the Company's Board regarding
executive officer compensation matters, including policies regarding the
relationship of corporate performance and other factors to executive
compensation. During 1998, the following persons served as members of the
Compensation Committee: Messrs. Friedman, Yablon, Luzzi, Cirillo, and DiFazio.
Only Messrs. Friedman and Yablon, each of whom resigned from the Committee
during 1998, were officers of the Company during 1998. The Company's
Compensation Committee presently consists of Messrs. Cirillo, Luzzi and DiFazio,
none of whom is or ever has been an officer of the Company.

As disclosed above, in 1998, the Company paid $55,000 to the University of
Rhode Island College of Pharmacy ("URI College of Pharmacy") in connection with
a time sharing arrangement with respect to Mr. Larrat. URI College of Pharmacy
paid these funds to Mr. Larrat as salary. In addition, in 1998, the Company paid
an additional $10,000 in charitable contributions to URI College of Pharmacy.
Dr. Luzzi is the Dean of URI College of Pharmacy.

Compensation Committee Report On Executive Compensation

The Company believes that a strong link should exist between executive
compensation and management's success in maximizing shareholder value. This
belief was adhered to in 1998 by developing and formalizing both short-term and
long-term incentive executive compensation programs which provide competitive
compensation, strong incentives for the executives to stay with the Company and
deliver superior financial results, and significant potential rewards if the
Company achieves aggressive financial goals. The Compensation Committee's role
and responsibilities involve the development and administration of executive
compensation policies and programs that are consistent with, linked to, and
supportive of the basic strategic objective of maximizing shareholder value,
while taking into consideration the activities and responsibilities of
management.

Early in 1998, the executive organization of the Company underwent dramatic
change with the departure of the Company's Vice-Chairman and of the Chairman and
CEO, the appointment of Mr. Friedman as the new Chairman and CEO, the
recruitment of a new President, and the necessary restructuring of the business
to poise the Company for the future. It became a high priority of the entire
Board to pursue two major objectives simultaneously: (1) to secure a long-term
agreement with the new CEO, and (2) to develop an aggressive executive and key
employee compensation program for the remainder of the senior management.

The Board engaged the professional services of an outside consultant to
review the existing compensation programs and to assist in developing the
desired program. The consultant found that while some of the executive salaries
were within a competitive range, the executive bonus opportunities were below
the level that would be considered appropriate. The consultant further reported
that the long-term compensation portion of the program should be a more balanced
combination of performance units, performance shares and stock options instead
of the sole reliance on stock options for long term incentive that the Company
had used in the past.

-53-

The Board directed its Compensation Committee, consisting of Messrs. Cirillo,
DiFazio and Luzzi (none of whom is an officer or employee of the Company), to
work with the consultant and to develop and adopt a Total Compensation Program
focused on maximizing shareholder value. At its meeting in December 1998, the
Compensation Committee adopted the substantive compensation provisions of a new
five year employment agreement to be entered into with Mr. Friedman as well as
the new 1998 Total Compensation Program for Key Employees for other senior
management. These actions were based on the recommendation of the outside
consultant and an internal review of the CEO's recommendations regarding
participation and appropriate grants of units, shares and options.

A proposal requesting stockholder approval of the employment agreement with
Mr. Friedman will be included in the Company's Proxy Statement with respect to
its 1999 Annual Meeting of Stockholders. In addition, the Total Compensation
Program will require certain changes to, and additional authorized shares under,
the Company's 1996 Amended and Restated Stock Incentive Plan ("Plan"). A
proposal requesting stockholder approval of a further Amended and Restated Stock
Incentive Plan will also be included in the Company's Proxy Statement with
respect to its 1999 Annual Meeting of Stockholders.

Compensation Philosophy and Elements

The Compensation Committee adheres to four principles in discharging its
responsibilities, which have been applied through its adoption in December 1998
of the 1998 Total Compensation Program for Key Employees ("Program"). First, the
majority of the annual bonus and long-term compensation for management and key
employees should be in large part at risk, with actual compensation levels
corresponding to the Company's actual financial performance. Second, over time,
incentive compensation of the Company's executives should focus more heavily on
long-term rather than short-term accomplishments and results. Third,
equity-based compensation and equity ownership expectations should be used on an
increasing basis to provide management with clear and distinct links to
shareholder interests. Fourth, the overall compensation programs should be
structured to ensure the Company's ability to attract, retain, motivate, and
reward those individuals who are best suited to achieving the desired
performance results, both long and short-term, while taking into account the
duties and responsibilities of the individual.

The Program provides the Compensation Committee with the discretion to pay
cash bonuses and grant (i) performance units payable in cash upon achievement of
certain performance criteria established by the Compensation Committee, (ii)
performance shares which are subject to restrictions on transfer and encumbrance
for a specified period of time, but which restrictions may lapse early upon
achievement of certain performance criteria established by the Compensation
Committee and (iii) both non-qualified and incentive stock options.

The Program provides management and employees with the opportunity for
significant cash bonuses and long term rewards if the corporate and individual
objectives are achieved. Specifically, the key executives, other than the CEO
and COO, may receive significant bonuses IF the company's aggressive annual
financial profit plan and individual objectives are achieved. The maximum amount
payable to any one individual under the cash bonus and performance unit portions
of the Program is $1,000,000. The CEO and COO have higher bonus opportunities,
but their potential payouts from both bonus and performance units in any one
year is no more than $5,000,000. These outside limits are not expected awards
but are set pursuant to regulations concerning "performance-based" compensation
plans in Code Section 162(m) to enable the Compensation Committee "negative
discretion" in determining the actual bonus or performance unit awards.

Compensation of the Chief Executive Officer

In considering the appropriate salary, bonus opportunity, and long-term
incentive for the new CEO, the Compensation Committee considered his unique role
during 1998 and his expected role over the next five years. The Compensation
Committee determined that in a very real sense, the Company would have faced
extreme difficulty in 1998 were it not for the fact that Mr. Friedman accepted
the challenge to replace both the former Vice-Chairman and the former Chairman
and CEO and give the investment community and the Company's stockholders
reassurance that the Company would overcome the problems it faced in its primary
market. The

-54-

Board further determined that Mr. Friedman's demonstrated commitment through the
purchase of a large block of stock, his active and effective involvement in
restructuring the business, and his recruitment and leadership of an aggressive
team were assets that should be protected. The Committee's bonus award to Mr.
Friedman and its negotiation of a new, performance-driven, five year agreement
were based on this recognition of his key role in maximizing future shareholder
value.

New employment agreements have also been entered into with the Vice
President and General Counsel and Chief Financial Officer reflecting their
participation in the new Program. The President and Chief Operating Officer was
recruited in May 1998 and his employment agreement was negotiated at that time
and is described in "Employment Agreements" below.

Code Section 162(m)

The CEO's total compensation package under his new employment agreement is
believed to qualify as "performance-based" compensation with the meaning of Code
Section 162(m). The Total Compensation Program was adopted by a Compensation
Committee composed entirely of outside directors and Mr. Friedman's agreement
was approved by the entire Board of Directors. In order to qualify for favorable
treatment under Code Section 162(m), Mr. Friedman's agreement must be approved
by the Company's stockholders. None of the other executives covered by the Total
Compensation Program will receive cash compensation in excess of $1,000,000 in
any one year under the cash bonus portion of the Program. The performance units,
performance shares and stock options for all persons other than Mr. Friedman
were granted from shares authorized under the Plan, but the form of the awards
require certain amendments to the Plan and authorization of additional shares,
which will be submitted for stockholder approval at the 1999 Annual Meeting of
Stockholders.

Report on Repricing of Options

Effective July 6, 1998, each then current employee of the Company,
including the Named Executive Officers, holding options under the Plan was
offered the 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. The average of the high and low sales price of the Common Stock on July
2, 1998 was $4.75. 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 repricing. In connection with the repricing,
approximately 473,000 shares were repriced to $6.50 per share.

The Compensation Committee and the Board of Directors approved the
repricing in July 1998 in an effort to incentivize adequately and fairly the
Company's employees to perform their duties to the fullest extent of their
respective abilities and to promote better morale in the workplace. The
Compensation Committee and the Board of Directors concluded in July 1998 that
the options granted to employees at or around the time of the Offering (with
exercise prices of or about $13.00) represented an excessive premium over then
recent ranges of the market price of the Common Stock so as to prevent the
proper incentivizing of the Company's employees. The Compensation Committee and
the Board of Directors determined that the Common Stock was undervalued due to
many factors, including the significant holdings of prior officers and directors
of the Company and that these factors and the consequent undervaluation of the
Common Stock were not likely to be alleviated in the short term. In addition,
the repricing program was adopted partly in response to departures from the
Company of certain management and key non-management personnel in an effort to
prevent the loss of additional valued employees. Furthermore, in connection with
the Formation, certain employees had been granted options to purchase Common
Stock at $0.0067 in exchange and conversion of their options in a subsidiary of
the Company As a result, as a matter of fairness and equality to many other
employees who had received $13.00 options at the time of the Offering, the
Compensation Committee and the Board of Directors authorized the repricing.

MIM CORPORATION COMPENSATION COMMITTEE
Richard A. Cirillo
Louis DiFazio, Ph.D.
Louis A. Luzzi, Ph.D.

-55-

Employment Agreements

In December 1998, Mr. Friedman entered in to an employment agreement with
the Company which provides for his employment as the Chairman and Chief
Executive Officer for a term of employment through November 30, 2003 (unless
earlier terminated) at an initial base annual salary of $425,000. The employment
agreement is subject to stockholder approval at the Company's 1999 Annual
Meeting of Stockholders. Under the agreement, Mr. Friedman is entitled to
receive certain fringe benefits, including an automobile allowance, and is also
eligible to participate in the Company's executive bonus program. Under the
agreement, Mr. Friedman was granted options to purchase 800,000 shares of Common
Stock at an exercise price of $4.50 per share (the market price on December 2,
1998, the date of grant). The options vest in three equal installments on the
first three anniversaries of the date of grant. In addition, Mr. Friedman was
granted 200,000 performance units and 300,000 restricted shares. See "Long Term
Incentive Plan - Awards in Last Fiscal Year" above for a description of the
terms and conditions applicable to the performance units and restricted shares.
These grants to Mr. Friedman of options, performance units and restricted shares
are subject to stockholder approval at the Company's 1999 Annual Meeting of
Stockholders.

If Mr. Friedman's employment is terminated early due to his death or
disability, (i) all vested options may be exercised by his estate for one year
following termination, (ii) all performance units shall vest and become
immediately payable at the accrued value measured at the end of the fiscal year
following his termination and (iii) any restricted shares to which Mr. Friedman
would have been entitled at the end of the fiscal year following his termination
shall vest and become immediately transferable without restriction; provided,
however, that should Mr. Friedman remain disabled for six months following his
termination for disability, he shall also be entitled to receive for a period of
two years following termination, his annual salary at the time of termination
and continuing coverage under all benefit plans and programs to which he was
previously entitled. If Mr. Friedman's employment is terminated early by the
Company without cause, (i) Mr. Friedman shall be entitled to receive, for the
longer of two years following termination or the period remaining in his term of
employment under the agreement, his annual salary at the time of termination
(less the net proceeds of any long term disability or workers' compensation
benefits) and continuing coverage under all benefit plans and programs to which
he was previously entitled, (ii) all unvested options shall become vested and
immediately exercisable in accordance with the terms of the options and Mr.
Friedman shall become vested in any other pension or deferred compensation
plans, (iii) any performance units to which he would have been entitled at the
time of his termination shall become vested and immediately payable at the then
applicable target rate, (iv) any restricted shares to which Mr. Friedman would
have been entitled at the end of the fiscal year following his termination shall
vest and become immediately transferable without restriction. If the Company
terminates Mr. Friedman for cause, he shall be entitled to receive only salary,
bonus and other benefits earned and accrued through the date of termination and
to retain any performance shares previously vested. If Mr. Friedman's terminates
his employment for good reason, (i) Mr. Friedman shall be entitled to receive,
for a period of two years following termination, his annual salary at the time
of termination and continuing coverage under all benefit plans and programs to
which he was previously entitled, (ii) all unvested options shall become vested
and immediately exercisable in accordance with the terms of the options and Mr.
Friedman shall become vested in any other pension or deferred compensation
plans, (iii) all performance units granted to Mr. Friedman shall become vested
and immediately payable at the then applicable maximum rate, (iv) all restricted
shares issued to Mr. Friedman shall vest and become immediately transferable
without restriction. Upon the Company undergoing certain specified changes of
control which result in his termination by the Company or a material reduction
in his duties, (i) Mr. Friedman shall be entitled to receive, for the longer of
three years following termination or the period remaining in his term of
employment under the agreement, his annual salary at the time of termination and
continuing coverage under all benefit plans and programs to which he was
previously entitled, (ii) all unvested options shall become vested and
immediately exercisable in accordance with the terms of

-56-

the options and Mr. Friedman shall become vested in any other pension or
deferred compensation plans, (iii) all performance units granted to Mr. Friedman
shall become vested and immediately payable at the then applicable maximum rate,
(iv) all restricted shares issued to Mr. Friedman shall vest and become
immediately transferable without restriction.

During the term of his employment and for one year following the later of
his termination or his receipt of severance payments, Mr. Friedman may not
directly or indirectly (other than with the Company) participate in the United
States in any pharmacy benefit management business or other business which is at
any time a material part of the Company's overall business. Similarly, for a
period of two years following termination, Mr. Friedman may not solicit or
otherwise interfere with the Company's relationship with any present or former
employee or customer of the Company.

In April 1998, Mr. Yablon entered in to an employment agreement with the
Company which provides for his employment as the Company's President and Chief
Operating Officer for term of employment through April 30, 2001 (unless earlier
terminated) at an initial base annual salary of $325,000. Under the agreement,
Mr. Yablon is entitled to receive certain fringe benefits, including automobile
and life insurance allowances and is also eligible to participate in the
Company's executive bonus program. Under the agreement, Mr. Yablon was granted
options to purchase 1,000,000 shares of Common Stock at an exercise price of
$4.50 (the market price on the date of grant). Options with respect to 500,000
shares vested immediately and the remaining options vest in two equal
installments on the first two anniversary dates of the date of grant. If Mr.
Yablon's employment is terminated early due to disability, or by the Company
without cause, or by Mr. Yablon with cause, the Company is obligated to continue
to pay his salary and fringe benefits for one year following such termination.
During the term of employment and for one year after the later of the
termination of employment or severance payments, Mr. Yablon is subject to
substantially the same restrictions on competition as described above with
respect to Mr. Friedman.

In March 1999, Mr. Posner entered in to an employment agreement with the
Company which provides for his employment as Vice President and General Counsel
for a term of employment through February 28, 2004 (unless earlier terminated)
at an initial base annual salary of $230,000. Under the agreement, Mr. Posner is
entitled to receive certain fringe benefits, including an automobile allowance,
and is also eligible to participate in the Company's executive bonus program.
Under the agreement, Mr. Posner was granted options to purchase 100,000 shares
of Common Stock at an exercise price of $4.50 per share (the market price on
December 2,1 998, the date of grant). The options vest in three equal
installments on the first three anniversaries of the date of grant. See "Long
Term Incentive Plan - Awards in Last Fiscal Year" above for a description of
certain grants of performance units and restricted shares to Mr. Posner in
December 1998 and a summary of the terms and conditions applicable to the
performance units and restricted shares. Under the agreement, upon termination,
Mr. Posner is entitled to substantially the same entitlements as described above
with respect to Mr. Friedman. In addition. Mr. Posner is subject to the same
restrictions on competition and non-interference as described above with respect
to Mr. Friedman.

In March 1999, Mr. Sitar entered in to an employment agreement with the
Company which provides for his employment as Chief Financial Officer for a term
of employment through February 28, 2004 (unless earlier terminated) at an
initial base annual salary of $180,000. Under the agreement, Mr. Sitar is
entitled to receive certain fringe benefits, including an automobile allowance,
and is also eligible to participate in the Company's executive bonus program.
Under the agreement, Mr. Sitar was granted options to purchase 50,000 shares of
Common Stock at an exercise price of $4.50 per share (the market price on the
date of grant). The options vest in three equal installments on the first three
anniversaries of the date of grant. See "Long Term Incentive Plan - Awards in
Last Fiscal Year" above for a description of certain grants of performance units
and restricted shares to Mr. Sitar in December 1998 and a summary of the terms
and conditions applicable to the performance units and restricted shares. Under
the agreement, upon termination, Mr. Sitar is entitled to substantially the same
entitlements as described above with respect to Mr. Friedman. In addition. Mr.
Sitar is subject to the same restrictions on competition and non-interference as
described above with respect to Mr. Friedman.

-57-

Stockholder Return Performance Graph

The Company's Common Stock first commenced trading on the Nasdaq on August
15, 1996 in connection with the Company's Offering. The graph set forth below
compares, for the period of August 15, 1996 through December 31, 1998, the total
cumulative return to holders of the Company's Common Stock with the cumulative
total return of the Nasdaq Stock Market (U.S.) Index and the NASDAQ Health
Services Index.

Comparison of Cumulative Total Return Among MIM Corporation,
the Nasdaq Stock Market (U.S.) Index and the Nasdaq Health Services Index*

[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]

Cumulative Total Return
-------------------------------------------------------------------------------------------------
8/15/96 9/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98

MIM CORPORATION 100 112 38 49 111 75 37 31 37 24 26

NASDAQ STOCK MARKET (U.S) 100 108 114 107 127 148 139 163 167 151 196

NASDAQ HEALTH SERVICES 100 104 92 86 96 105 94 103 94 71 81

- - ---------------------
* The above graph assumes an investment of $100 in MIM's Common Stock on
August 15, 1996 and in the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Health Services Index on July 31, 1996, and that all dividends were
reinvested. The performances shown in the above table are not necessarily
indicative of future performance.

Item 12. Common Stock Ownership by Certain Beneficial Owners and Management

Except as otherwise set forth below, the following table sets forth, to the
Company's knowledge, as of March 12, 1999, the beneficial ownership of the
Company's Common Stock by: (1) each person or entity known to the Company to own
beneficially five percent or more of the Company's Common Stock; (2) each of the
Company's directors; (3) each of the Named Executive Officers of the Company;
and (4) all directors and executive officers of the Company as a group. Such
information is based upon information provided to the Company by such persons.

Number of Shares
Beneficially Percent
Name and/or Address of Beneficial Owner Owned(1)(2) of Class
- - --------------------------------------- ----------- --------

Richard H. Friedman...................... 1,800,000(3) 9.5%
100 Clearbrook Road
Elmsford, NY 10523
Scott R. Yablon.......................... 763,334(4) 3.9%
100 Clearbrook Road
Elmsford, NY 10523
Barry A. Posner.......................... 21,600(5) *
100 Clearbrook Road
Elmsford, NY 10523

-58-

E. Paul Larrat........................... 77,500(6) *
167 Tillinghast Road
E. Greenwich, RI 02818
Eric Pallokat............................ -- --
4 Birch Road
Mahwah, NJ 07430
E. David Corvese......................... 2,062,106 11.0%
25 North Road
Peace Dale, RI 02883
John H. Klein............................ 1,800,000 9.6%
7 Loman Court
Cresskill, NJ 07626
Michael R. Erlenbach..................... 1,750,669 9.4%
6438 Huntington
Solon, OH 44139
Louis A. Luzzi, Ph.D..................... 15,134(7) *
University of Rhode Island
College of Pharmacy
Forgerty Hall
Kingston, RI 02881
Richard A. Cirillo....................... 6,667(8) *
c/o Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Louis DiFazio, Ph.D...................... 2,500(9) *
Route 206
Princeton, NJ 08543
Michael Kooper........................... --(9) --
770 Lexington Avenue
New York, NY 10021

All directors and executive officers
as a group (nine persons) ........... 2,678,100(1)(2)(10) 13.5%

- - ----------
* Less than 1%.
(1) The inclusion herein of any shares as beneficially owned does not
constitute an admission of beneficial ownership of those shares. Except as
otherwise indicated, each person has sole voting power and sole investment
power with respect to all shares beneficially owned by such person.
(2) Shares deemed beneficially owned by virtue of the right of an individual to
acquire them within 60 days after March 1, 1999 upon the exercise of an
option are treated as outstanding for purposes of determining beneficial
ownership and the percentage beneficially owned by such individual.
(3) Includes 300,000 shares of Common Stock subject to restrictions on transfer
and encumbrance through December 2, 2006 with respect to which Mr. Friedman
possesses voting rights. See "Long Term Incentive Plan - Awards in Last
Fiscal Year" in Item 11 of this Annual Report for a description of terms
and conditions relating to these restricted shares. Excludes 800,000 shares
subject to the unvested portion of options held by Mr. Friedman.
(4) Represents 763,334 shares issuable upon exercise of the vested portion of
options. Excludes 256,666 shares subject to the unvested portion of options
held by Mr. Yablon.
(5) Includes 20,000 shares of Common Stock subject to restrictions on transfer
and encumbrance through December 2, 2006 with respect to which Mr. Posner
possesses voting rights. See "Long Term Incentive Plan - Awards in Last
Fiscal Year" in Item 11 of this Annual Report for a description of terms
and conditions relating to these restricted shares. Excludes 200,000 shares
subject to the unvested portion of options held by Mr. Posner.
(6) Represents 77,500 shares issuable upon exercise of the vested portion of
options.
(7) Excludes 6,666 shares subject to unvested options held by Dr. Luzzi. Dr.
Luzzi and his wife share voting and investment power over these shares.
(8) Consists of 6,667 shares issuable upon exercise of the vested portion of
options. Excludes 13,333 shares

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subject to the unvested portion of options.
(9) Excludes 20,000 shares subject to the unvested portions of options.
(10) Includes 842,334 shares issuable upon exercise of the vested portion of
options. See footnotes 2 through 9 above.

Item 13. Certain Relationships and Related Transactions

At December 31, 1997, Alchemie Properties, LLC, a Rhode Island limited
liability company of which Mr. Corvese is the manager and principal owner
("Alchemie"), was indebted to the Company in the amount of $280,629 respecting a
loan received from the Company in 1994 in the original principal amount of
$299,000. The loan bears interest at 10% per annum, with interest payable
monthly and principal payable in full on or before December 1, 2004, and is
secured by a lien on Alchemie's rental income.

During 1998, the Company paid $55,500 in rent to Alchemie pursuant to a
ten-year lease entered into in December 1994 for approximately 7,200 square feet
of office space in Peace Dale, Rhode Island.

At December 31, 1998, MIM Holdings was indebted to the Company in the
amount of $456,000 respecting loans received from the Company during 1995 in the
aggregate principal amount of $1,078,000. The Company holds a $456,000
promissory note from MIM Holdings due March 31, 2001 that bears interest at 10%
per annum. Interest generally is payable quarterly, although in December 1996
the note was amended to extend the due date to September 30, 1997 for all
interest accruing from January 1, 1996 to said date. This note is guaranteed by
Mr. Corvese and further secured by the assignment to MIM of a $100,000
promissory note that was originally given by an officer to MIM Holdings. The
remaining $622,000 of indebtedness will not be repaid and was recorded as a
stockholder distribution during the first half of 1996.

Effective March 31, 1998, Mr. Corvese terminated his employment and
resigned all of his positions with the Company and agreed not to stand for
re-election to the Board at the 1998 Annual Meeting of Stockholders. Pursuant to
a Separation Agreement dated March 31, 1998, the Company agreed to pay Mr.
Corvese an aggregate of $325,000 in 12 equal monthly installments and to
continue to provide Mr. Corvese and his dependents with medical and dental
insurance coverage for those 12 months. Under the Separtion Agreement, Mr.
Corvese is restricted from competing with the Company or soliciting its
employees or customers for one year from the last day he received severance
payments from the Company. During 1998, the Company paid Mr. Corvese a total of
$243,750 in severance.

Effective May 15, 1998, Mr. Klein terminated his employment and resigned
all of his positions with the Company and Mr. Friedman was appointed Chairman
and Chief Executive Officer. Pursuant to a Separation Agreement dated May 15,
1998, the Company agreed to pay Mr. Klein an aggregate of $325,000 in 12 equal
monthly installments and to continue to provide Mr. Klein and his dependents
with medical and dental insurance coverage for those 12 months. Under the
Separation Agreement, Mr. Klein is restricted from competing with the Company or
soliciting its employees or customers for one year from the last day he received
severance payments from the Company. During 1998, the Company paid Mr. Klein a
total of $200,000 in severance.

In connection with the Continental acquisition in August 1998, the three
largest shareholders of Continental ("Continental Shareholders"), including Mr.
Erlenbach (see Item 12), entered into an indemnification agreement with the
Company, whereby the Continental Shareholders, severally and not jointly, agreed
to indemnify and hold the Company harmless from and against certain claims
threatened against Continental. Under the agreement, the Continental
Shareholders are responsible for all amounts payable in connection with the
threatened claims over and above $100,000. The indemnification obligations of
the Continental Shareholders terminate on December 31, 1999, except with respect
to indemnifiable claims of which they are notified by the Company prior to that
time. In addition, the Continental Shareholders entered into a pledge agreement
with the Company, whereby they granted the Company security interests in an
aggregate of 487,453 shares (in proportion to their respective ownership
percentages) of Common Stock received by them in connection with the Continental
acquisition in order to secure their respective obligations under the
indemnification agreement.

On February 9, 1999, the Company entered into an agreement with Mr. Corvese
to purchase, in a private transaction not reported on Nasdaq, 100,000 shares of
Common Stock from Mr. Corvese at $3.375 per share. The last sale price per share
of the Common Stock on February 9, 1999 was $3.50.

As discussed above, under Section 145 of the Delaware General Corporation
Law and the Company's By-Laws, under certain circumstances the Company may be
obligated to indemnify Mr. Corvese as well as Michael J. Ryan, a former officer
of one of the Company's subsidiaries, in connection with their involvement in
the Federal and State of Tennessee investigation of which they are the subject.
In addition, until the Board can make a determination as to whether or not
either or both of Messrs. Corvese and Ryan are so entitled to indemnification,
the Company is obligated under Section 145 and its By-Laws to advance the costs
of defense to such persons; however, if the Board determines that either or both
of these former officers are not entitled to indemnification, such individuals
would be obligated to reimburse the Company for all amounts so advanced. The
Company is not presently in a position to assess the likelihood that either or
both of these former officers will be entitled to such indemnification and
advancement of defense costs or to estimate the total amount that it may have to
pay in connection with such obligations or the time period over which such
amounts may have to be advanced. No assurance can be given, however, that the
Company's obligations to either or both of these former officers would not have
a material adverse effect on the Company's results of operations or financial
condition.

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PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Documents Filed as a Part of this Report

Page
----

1. Financial Statements:

Report of Independent Public Accountants .............................. 22

Consolidated Balance Sheets as of December 31, 1998 and 1997 .......... 23

Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 ................................... 24

Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1998, 1997 and 1996 ....................... 25

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 ................................... 26

Notes to Consolidated Financial Statements ............................ 28

2. Financial Statement Schedules:

II. Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996 ................................. 45

All other schedules not listed above have been omitted since they are not
applicable or are not required, or because the required information is included
in the Consolidated Financial Statements or Notes thereto.

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3. Exhibits:

Exhibit
Number Description Location
- - ------ ----------- --------

2.1 Agreement and Plan of Merger by and among MIM
Corporation, CMP Acquisition Corp., Continental
Managed Pharmacy Services, Inc. and Principal
Shareholders dated as of January 27, 1998 ............. (6)(Exh. 2.1)

3.1 Amended and Restated Certificate of Incorporation
of MIM Corporation .................................... (1)(Exh. 3.1)

3.2 Amended and Restated By-Laws of MIM Corporation ....... (7)(Exh. 3(ii))

4.1 Specimen Common Stock Certificate ..................... (6)(Exh. 4.1)

10.1 Drug Benefit Program Services Agreement between
Pro-Mark Holdings, Inc. and RxCare of Tennessee,
Inc. dated as of March 1, 1994, as amended January
1, 1995 ............................................... (1)(Exh. 10.1)

10.2 Amendment No. 3 to Drug Benefit Program Services
Agreement dated October 1, 1998 ....................... (10)

10.3 Software Licensing and Support Agreement between
ComCoTec, Inc. and Pro-Mark Holdings, Inc. dated
November 21, 1994 ..................................... (1)(Exh. 10.6)

10.4 Promissory Notes of E. David Corvese and Nancy
Corvese in favor of Pro-Mark Holdings, Inc. dated
June 15, 1994 ......................................... (1)(Exh. 10.9)

10.5 Amendment to Promissory Note among E. David
Corvese, Nancy Corvese and Pro-Mark Holdings, Inc.
dated as of June 15, 1997 ............................. (4)(Exh. 10.1)

10.6 Amendment to Promissory Note among E. David
Corvese, Nancy Corvese and Pro-Mark Holdings, Inc.
dated as of June 15, 1997 ............................. (4)(Exh. 10.2)

10.7 Promissory Note of Alchemie Properties, LLC in
favor of Pro-Mark Holdings, Inc. dated August 14,
1994 .................................................. (1)(Exh. 10.10)

10.8 Promissory Note of MIM Holdings, LLC in favor of
MIM Strategic, LLC dated December 31, 1996 ............ (2)(Exh. 10.12)

10.9 Promissory Note of MIM Holdings, LLC in favor of
MIM Strategic, LLC dated March 31, 1996 ............... (1)(Exh. 10.11)

10.10 Promissory Note of MIM Holdings, LLC in favor of
MIM Strategic, LLC dated December 31, 1996,
replacing Promissory Note of MIM Holdings, LLC in
favor of MIM Strategic, LLC dated March 31, 1996 ...... (2)(Exh. 10.14)

10.11 Indemnity letter from MIM Holdings, LLC dated
August 5, 1996 ........................................ (1)(Exh. 10.36)

10.12 Assignment from MIM Holdings, LLC to MIM
Corporation dated as of December 31, 1996 ............. (2)(Exh. 10.43)

10.13 Guaranty of E. David Corvese in favor of MIM
Corporation dated as of December 31, 1996 ............. (2)(Exh. 10.42)

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10.14 Employment Agreement between MIM Corporation and
Richard H. Friedman dated as of December 1, 1998* ..... (10)

10.15 Employment Agreement between MIM Corporation and
Barry A. Posner dated as of March 26, 1997* ........... (3)(Exh. 10.1)

10.16 Amendment No. 1 to Employment Agreement dated as
of May 15, 1998 between MIM Corporation and Barry
A. Posner* ............................................ (8)(Exh. 10.50)

10.17 Employment Agreement between MIM Corporation and
Barry A. Posner dated as of March 1, 1999* ............ (10)

10.18 Employment Agreement dated as of February 1, 1998
between MIM Corporation and Larry E. Edelson-Kayne* ... (7)(Exh. 10.48)

10.19 Employment Agreement dated as of April 17, 1998
between MIM Corporation and Scott R. Yablon* .......... (8)(Exh. 10.49)

10.20 Employment Agreement dated as of August 19, 1998
between MIM Corporation and Edward J. Sitar * ......... (9)(Exh. 10.51)

10.21 Employment Agreement between MIM Corporation and
Edward J. Sitar dated as of March 1, 1999* ............ (10)

10.22 Separation Agreement dated as of March 31, 1998
between MIM Corporation and E. David Corvese * ........ (7)(Exh.10.47)

10.23 Separation Agreement dated as of May 15, 1998
between MIM Corporation and John H. Klein * ........... (6)(Exh. 10.19)

10.24 Stock Option Agreement between E. David Corvese
and Leslie B. Daniels dated as of May 30, 1996* ....... (1)(Exh. 10.26)

10.25 Registration Rights Agreement-I between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 29, 1996* ................ (1)(Exh. 10.30)

10.26 Registration Rights Agreement-II between MIM
Corporation and John H. Klein, Richard H. Friedman
and Leslie B. Daniels dated July 29, 1996* ............ (1)(Exh. 10.31)

10.27 Registration Rights Agreement-III between MIM
Corporation and John H. Klein and E. David Corvese
dated July 29, 1996* .................................. (1)(Exh. 10.32)

10.28 Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996* ................ (1)(Exh. 10.34)

10.29 Registration Rights Agreement-V between MIM
Corporation and Richard H. Friedman and Leslie B.
Daniels dated July 31, 1996* .......................... (1)(Exh. 10.35)

10.30 Amendment No. 1 dated August 12, 1996 to
Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996* ................ (2)(Exh.10.29)

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10.31 Amendment No. 2 dated June 16, 1998 to
Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996* ................ (10)

10.32 MIM Corporation 1996 Stock Incentive Plan, as
amended December 9, 1996* ............................. (2)(Exh. 10.32)

10.33 MIM Corporation 1996 Amended and Restated Stock
Incentive Plan, as amended December 2, 1998 ........... (10)

10.34 MIM Corporation 1996 Non-Employee Directors Stock
Incentive Plan* ....................................... (1)(Exh. 10.29)

10.35 Lease between Alchemie Properties, LLC and
Pro-Mark Holdings, Inc. dated as of December 1,
1994 .................................................. (1)(Exh. 10.27)

10.36 Lease Agreement between Mutual Properties
Stonedale L.P. and MIM Corporation dated April 23,
1997 .................................................. (5)(Exh.10.41)

10.37 Agreement between Mutual Properties Stonedale L.P.
and MIM Corporation dated as of April 23, 1997 ........ (5)(Exh.10.42)

10.38 Lease Amendment and Extension Agreement between
Mutual Properties Stonedale L.P. and MIM
Corporation dated December 10, 1997 ................... (5) (Exh.10.43)

10.39 Lease Amendment and Extension Agreement-II between
Mutual Properties Stonedale L.P. and MIM
Corporation dated March 27, 1998 ...................... (5) (Exh.10.44)

10.40 Lease Agreement between Mutual Properties
Stonedale L.P. and Pro-Mark Holdings, Inc. dated
December 23, 1997 ..................................... (5) (Exh.10.45)

10.41 Lease Amendment and Extension Agreement between
Mutual Properties Stonedale L.P. and Pro-Mark
Holdings, Inc. dated March 27, 1998 ................... (5) (Exh.10.46)

10.42 Lease Agreement between Continental Managed
Pharmacy Services, Inc. and Melvin I. Lazerick
dated May 12, 1998 .................................... (10)

10.43 Amendment No. 1 to Lease Agreement between
Continental Managed Pharmacy Services, Inc. and
Melvin I. Lazerick dated January 29, 1999 ............. (10)

10.44 Letter Agreement dated August 24, 1998 between
Continental Managed Pharmacy Services, Inc. and
Comerica Bank ......................................... (10)

10.45 Letter Agreement dated January 28, 1997 between
Continental Managed Pharmacy Services, Inc. and
Comerica Bank ......................................... (10)

10.46 Letter Agreement dated January 24, 1995 between
Continental Managed Pharmacy Services, Inc. and
Comerica Bank ......................................... (10)

10.47 Additional Credit Agreement dated January 23, 1996
between Continental Managed Pharmacy Services,
Inc. and Comerica Bank ................................ (10)

10.48 Guaranty dated August 24, 1998 between MIM
Corporation and Comerica Bank ......................... (10)

10.49 Third Amended and Restated Master Revolving Note
dated August 24, 1998 by Continental Managed
Pharmacy Services, Inc. in favor of Comerica Bank ..... (10)

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10.50 Variable Rate Installment Note dated January 24,
1995 by Continental Managed Pharmacy Services,
Inc. in favor of Comerica Bank ........................ (10)

10.51 Variable Rate Installment Note dated January 26,
1996 by Continental Managed Pharmacy Services,
Inc. in favor of Comerica Bank ........................ (10)

10.52 Security Agreement (Equipment) dated January 24,
1995 by Continental Managed Pharmacy Services,
Inc. in favor of Comerica Bank ........................ (10)

10.53 Security Agreement (Accounts and Chattel Paper)
dated January 24, 1995 by Continental Managed
Pharmacy Services, Inc. in favor of Comerica Bank ..... (10)

10.54 Intercreditor Agreement dated January 24, 1995
between Continental Managed Pharmacy Services,
Inc. and Foxmeyer Drug Company ........................ (10)

10.55 Indemnification Agreement dated August 13, 1998
among MIM Corporation, Roulston Investment Trust
L.P., Roulston Ventures L.P. and Michael R.
Erlenbach ............................................. (10)

10.56 Pledge Agreement dated August 13, 1998 among MIM
Corporation, Roulston Investment Trust L.P.,
Roulston Ventures L.P. and Michael R. Erlenbach ....... (10)

10.57 Stock Purchase Agreement dated February 9, 1999
between MIM Corporation and E. David Corvese .......... (10)

21 Subsidiaries of the Company ........................... (10)

23 Consent of Arthur Andersen LLP ........................ (10)

27 Financial Data Schedule ............................... (10)

- - -------

(1) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-05327), as amended,
which became effective on August 14, 1996.

(2) Incorporated by reference to the indicated exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.

(3) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1997.

(4) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997.

(5) Incorporated by reference to the indicated exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.

(6) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-60647), as amended,
which became effective on August 21, 1998.

(7) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998.

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(8) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998, as amended.

(9) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998.

(10) Filed herewith.

* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K
and Regulation SK-601 ss. 10 (iii).

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the last quarter of the
fiscal year covered by this Annual Report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 1999.

MIM CORPORATION

By: /s/ Edward J. Sitar
--------------------------------------
Edward J. Sitar
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Signature Title(s) Date
- - --------------------------------------------------------------------------------

/s/ Richard H. Friedman Chairman and Chief Executive Officer March 30, 1999
- - ----------------------- (principal executive officer)
Richard H. Friedman

/s/ Scott R. Yablon President, Chief Operating Officer March 30, 1999
- - ----------------------- and Director
Scott R. Yablon

/s/ Edward J. Sitar Chief Financial Officer and Treasurer March 30, 1999
- - ----------------------- (principal financial officer)
Edward J. Sitar

/s/ Louis DiFazio Director March 30, 1999
- - -----------------------
Louis DiFazio, Ph.D.

/s/ Louis A. Luzzi Director March 30, 1999
- - -----------------------
Louis A. Luzzi, Ph.D.

/s/ Richard A. Cirillo Director March 30, 1999
- - -----------------------
Richard A. Cirillo

/s/ Michael Kooper Director March 30, 1999
- - -----------------------
Michael Kooper

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EXHIBIT INDEX

(Exhibits being filed with this Annual Report on Form 10-K)

10.2 Amendment No. 3 to Drug Benefit Program Services Agreement dated October
1, 1998

10.14 Employment Agreement between MIM Corporation and Richard H. Friedman
dated as of December 1, 1998

10.17 Employment Agreement between MIM Corporation and Barry A. Posner dated
as of March 1, 1999

10.21 Employment Agreement between MIM Corporation and Edward J. Sitar dated
as of March 1, 1999

10.31 Amendment No. 2 dated June 16, 1998 to Registration Rights Agreement-IV
between MIM Corporation and John H. Klein, Richard H. Friedman, Leslie
B. Daniels, E. David Corvese and MIM Holdings, LLC dated July 31, 1996

10.33 MIM Corporation 1996 Amended and Restated Stock Incentive Plan, as
amended December 2, 1998

10.42 Lease Agreement between Continental Managed Pharmacy Services, Inc. and
Melvin I. Lazerick dated May 12, 1998

10.43 Amendment No. 1 to Lease Agreement between Continental Managed Pharmacy
Services, Inc. and Melvin I. Lazerick dated January 29, 1999

10.44 Letter Agreement dated August 24, 1998 between Continental Managed
Pharmacy Services, Inc. and Comerica Bank

10.45 Letter Agreement dated January 28, 1997 between Continental Managed
Pharmacy Services, Inc. and Comerica Bank

10.46 Letter Agreement dated January 24, 1995 between Continental Managed
Pharmacy Services, Inc. and Comerica Bank

10.47 Additional Credit Agreement dated January 23, 1996 between Continental
Managed Pharmacy Services, Inc. and Comerica Bank

10.48 Guaranty dated August 24, 1998 between MIM Corporation and Comerica Bank

10.49 Third Amended and Restated Master Revolving Note dated August 24, 1998
by Continental Managed Pharmacy Services, Inc. in favor of Comerica Bank

10.50 Variable Rate Installment Note dated January 24, 1995 by Continental
Managed Pharmacy Services, Inc. in favor of Comerica Bank

10.51 Variable Rate Installment Note dated January 26, 1996 by Continental
Managed Pharmacy Services, Inc. in favor of Comerica Bank

10.52 Security Agreement (Equipment) dated January 24, 1995 by Continental
Managed Pharmacy Services, Inc. in favor of Comerica Bank

-68-

10.53 Security Agreement (Accounts and Chattel Paper) dated January 24, 1995
by Continental Managed Pharmacy Services, Inc. in favor of Comerica Bank

10.54 Intercreditor Agreement dated January 24, 1995 between Continental
Managed Pharmacy Services, Inc. and Foxmeyer Drug Company

10.55 Indemnification Agreement dated August 13, 1998 among MIM Corporation,
Roulston Investment Trust L.P., Roulston Ventures L.P. and Michael R.
Erlenbach

10.56 Pledge Agreement dated August 13, 1998 among MIM Corporation, Roulston
Investment Trust L.P., Roulston Ventures L.P. and Michael R. Erlenbach

10.57 Stock Purchase Agreement dated February 9, 1999 between MIM Corporation
and E. David Corvese

21 Subsidiaries of the Company

23 Consent of Arthur Andersen LLP

27 Financial Data Schedule

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