FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to__________________________
Commission file number 1-11993
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MIM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 05-0489664
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Blue Hill Plaza, Pearl River, New York 10965
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(Address of principal executive offices)
(914) 735-3555
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
On May 7, 1997, there were outstanding 12,091,500 shares of the Company's
$.0001 par value per share common stock ("Common Stock").
MIM CORPORATION
Index
Page Number
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to the Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
Part II.OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
Item 1. Financial Information
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
March 31, December 31,
1997 1996
--------- ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 7,939 $ 1,834
Investment securities 16,345 28,113
Receivables, less allowance for doubtful accounts of $1,667
and $1,088 at March 31, 1997 and December 31, 1996,
respectively 19,385 18,646
Prepaid expenses and other current assets 1,136 1,129
-------- --------
Total current assets 44,805 49,722
Investment securities, net of current portion 14,300 8,925
Property and equipment, net 2,482 2,423
Due from affiliates, less allowance for doubtful accounts of $2,157
at March 31, 1997 and December 31, 1996 269 628
Other assets, net 113 102
-------- --------
Total assets $ 61,969 $ 61,800
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 203 $ 213
Accounts payable 736 1,562
Claims payable 20,292 17,278
Payables to plan sponsors and others 7,994 10,174
Accrued expenses 472 926
-------- --------
Total current liabilities 29,697 30,153
Capital lease obligations, net of current portion 332 375
Commitments and contingencies
Minority interest 1,127 1,129
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,
12,083,300 and 12,040,600 shares issued and outstanding
at March 31, 1997 and December 31, 1996, respectively 1 1
Additional paid-in capital 73,450 73,443
Accumulated deficit (40,866) (41,564)
Stockholder notes receivable (1,772) (1,737)
-------- --------
Total stockholders' equity 30,813 30,143
-------- --------
Total liabilities and stockholders' equity $ 61,969 $ 61,800
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
Three months ended
March 31,
-----------------------
1997 1996
-------- --------
(Unaudited)
Revenue $ 70,811 $ 66,589
Cost of revenue 66,829 64,790
-------- --------
Gross profit 3,982 1,799
General and administrative expenses 3,909 2,235
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Income (loss) from operations 73 (436)
Interest income, net 623 137
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Income (loss) before minority interest 696 (299)
Minority interest 2 9
-------- ---------
Net income (loss) $ 698 $ (290)
======== =========
Net income (loss) per common
and common equivalent share $ 0.05 $ (0.04)
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Weighted average shares outstanding 15,121 8,024
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended
March 31,
---------------------
1997 1996
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(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 698 $ (290)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Net loss allocated to minority interest (2) (9)
Depreciation and amortization 239 140
Stock option charges 7 -
Provision for losses on receivables and due from affiliates 579 -
Changes in assets and liabilities:
Receivables (1,318) 1,292
Prepaid expenses and other assets (7) (31)
Accounts payable (826) (33)
Claims payable 3,014 (423)
Payables to plan sponsors and others (2,180) 1,929
Accrued expenses (454) 404
-------- --------
Net cash provided by (used in) operating activities (250) 2,979
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (312) (53)
Purchase of investment securites (14,832) -
Proceeds from maturities of investment securities 21,239 -
Increase in other assets (11) -
Stockholder loans, net (35) 36
Loans to affiliates, net 359 (225)
-------- --------
Net cash provided by (used in) investing activities 6,408 (242)
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (53) (56)
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Net cash used in financing activities (53) (56)
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Net increase in cash and cash equivalents 6,105 2,681
Cash and cash equivalents--beginning of period 1,834 1,804
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Cash and cash equivalents--end of period $ 7,939 $ 4,485
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ - $ -
======== ========
Interest $ 12 $ 6
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SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ - $ -
======== ========
Distribution to stockholder through the cancellation of
stockholder notes receivable $ - $ 622
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
Mim Corporation And Subsidiaries
Notes To The Consolidated Financial Statements
(unaudited)
(in thousands, except for share and per share amounts)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the Securities
and Exchange Commission. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial statements, primarily
consisting of normal recurring adjustments, have been included. The results of
operations and cash flows for the three months ended March 31, 1997 are not
necessarily indicative of the results of operations or cash flows which may be
reported for the remainder of 1997.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements, notes and information included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(the "Form 10-K").
The accounting policies followed for interim financial reporting are the same
as those disclosed in Note 2 to the consolidated financial statements included
in the Form 10-K.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). This
Statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly traded common stock or potential common
stock. SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997 and early adoption is not
permitted. When adopted, the statement will require restatement of prior years'
earnings per share. The Company will adopt this statement for its fiscal year
ending December 31, 1997. Assuming that SFAS 128 had been implemented, basic
earnings per share would have been $0.06 and $(0.04), and diluted earnings per
share would have been $0.05 and $(0.04), for the three month periods ended March
31, 1997 and March 31, 1996, respectively.
6
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, the related Notes to the Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Form 10-K and the
Consolidated Financial Statements and the related Notes to the Consolidated
Financial Statements included in Item 1 of this Report.
This Report contains statements which constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. The
matters discussed in this Report include statements regarding the intent, belief
or current expectations of the Company, its directors or its officers with
respect to the future operating performance of the Company and the results and
the effect of legal proceedings. Investors are cautioned that any such forward
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially from those in
the forward looking statements as a result of various factors. The accompanying
information contained in this Report identifies important factors that could
cause such differences.
Overview
A majority of the Company's revenues to date have been derived from operations
in the State of Tennessee in conjunction with RxCare of Tennessee, Inc.
("RxCare"), a pharmacy services administrative organization owned by the
Tennessee Pharmacists Association. The Company assisted RxCare in defining and
marketing pharmacy benefit services to private health plan sponsors on a
consulting basis in 1993, but did not commence substantial operations until
January 1994 when RxCare began servicing several of the health plan sponsors
involved in the newly instituted TennCare(R) state health program. At March 31,
1997, the Company provided pharmacy benefit management services to 34 health
plan sponsors with an aggregate of approximately 1.2 million plan members,
primarily on a capitated basis in Tennessee.
Results Of Operations
Three months ended March 31, 1997 compared to three months ended March 31, 1996
For the three months ended March 31, 1997, the Company recorded revenue of
$70.8 million compared with revenue of $66.6 million for the three months ended
March 31, 1996. The increase of $4.2 million in revenue was due primarily to
the servicing of 13 new plan sponsors covering over 121,000 plan members
primarily in the Northeast, South Central and Pacific regions of the United
States. Slight decreases in TennCare enrollment were offset by increases in per
member revenue due to several contract restructurings. During the first three
months of 1997, approximately 68% of the Company's revenue was generated through
capitated contracts, compared with 92% during the first three months of 1996.
Cost of revenue for the three months ended March 31, 1997 increased to $66.8
million compared with cost of revenue of $64.8 million for the three months
ended March 31, 1996. The increase of $2.0 million in cost of revenue was
primarily due to an increase in claims costs from the added health plans, which
was offset in part by lower claims costs resulting from slight reductions in
TennCare enrollment. As a percentage of revenue, cost of revenue decreased to
94.4% for the three months ended March 31, 1997 from 97.3% for the three months
ended March 31, 1996.
General and administrative expenses were $3.9 million for the three months
ended March 31, 1997 and $2.2 million for the three months ended March 31, 1996,
an increase of 74.9%. The $1.7 million increase was attributable to increases
in operations, sales and marketing and headquarter personnel to support the
anticipated needs of the business as well as increases in consulting and legal
fees, depreciation expense and costs related to further development of the
Company's management information systems. As a percentage of revenue, general
and administrative expenses increased to 5.5% for the three months ended March
31, 1997 from 3.4% for the three months ended March 31, 1996.
7
For the three months ended March 31, 1997, the Company recorded net income of
$0.7 million, or $0.05 per share. This compares with a net loss of $0.3
million, or $0.04 per share for the three months ended March 31, 1996. This
improvement was a result of the above-described changes in revenue and expenses.
Liquidity And Capital Resources
For the three months ended March 31, 1997, net cash used by operating
activities totaled $0.3 million, primarily due to decreases in payables to plan
sponsors and others and increases in receivables. Such uses were offset by the
generation of $0.7 million in net income along with increases in claims payable.
Investment activities provided $6.4 million in cash due to the maturity of short
term investment securities.
At March 31, 1997, the Company had working capital of $15.1 million, compared
to $19.6 million at December 31, 1996. The majority of this $4.5 million
decrease relates to the purchase of long term investment securities upon the
maturity of short term investment securities. Cash and cash equivalents
increased to $7.9 million at March 31, 1997 compared with $1.8 million at
December 31, 1996. The Company had investment securities held to maturity of
$30.6 million and $37.0 million at March 31, 1997 and December 31, 1996,
respectively. The investments are primarily corporate debt securities rated A or
better.
At March 31, 1997, the Company had, for tax purposes, unused net operating
loss carryforwards of approximately $6.1 million that may be available to offset
future taxable income, if any, and which will begin expiring in 2008. Use of
these carryforwards may be limited by the Tax Reform Act of 1986.
The Company believes that its improved financial condition and capital
structure, since its initial public offering which raised approximately $47
million in August 1996, has enhanced the Company's ability to negotiate and
obtain additional contracts with plan sponsors and other potential customers.
The Company believes that it has sufficient cash on hand or available to fund
the Company's anticipated working capital and other cash needs for the
foreseeable future. The Company intends to offset, against profit sharing
amounts, if any, due RxCare in the future under the Company's contract with
RxCare, approximately $7.1 million representing RxCare's share of the Company's
cummulative losses and amounts previously advanced or paid to RxCare.
As part of its continued efforts to expand its pharmacy management business,
the Company expects to incur additional sales and marketing expenses. The
Company also may pursue joint venture arrangements, business acquisitions and
other transactions designed to expand its pharmacy management business, which
the Company would expect to fund from cash on hand or future indebtedness or, if
appropriate, the sale or exchange (in the case of a merger) of equity securities
of the Company.
Other Matters
The Company's pharmaceutical reimbursement claims historically have been
subject to a significant increase over annual averages from October through
February, which the Company believes is due to increased medical problems during
the colder months. Changes in prices charged by manufacturers and wholesalers
for pharmaceuticals affect the Company's cost of revenue. The Company does not
believe that inflation has had a material impact on the results of its
operations.
The TennCare program has been controversial since its inception and has
generated government investigations and adverse publicity. There can be no
assurances that the Company's association with the TennCare program will not
adversely affect the Company's business in the future.
8
PART II - OTHER INFORMATION
Item 6 - Exhibits And Reports On Form 8-K
(a) Exhibits
Exhibit Number Description
--------------- -----------
10.1 Employment Agreement between MIM Corporation
and Barry A. Posner dated as of March 26, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any Reports on Form 8-K during the quarter for which
this Report is filed.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIM Corporation
Date: May 14, 1997 _________________________________________________
Richard H. Friedman
Chief Operating Officer, Chief Financial Officer,
Treasurer and Director
(Principal Financial Officer)
10