SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT
UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 Commission file number 1-11993
------------------- -------------------
MIM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 05-0489664
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
One Blue Hill Plaza, Pearl River, New York 10965
------------------------------------------------
(Address of principal executive offices)
(914) 735-3555
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
On November 11, 1996, there were outstanding 12,029,700 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
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the
three months and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 5
Notes to the Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 10
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
September 30, December 31,
1996 1995
-------------------- --------------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 48,452 $ 1,804
Receivables, less allowance for doubtful accounts of $444
and $360 at September 30, 1996 and December 31, 1995,
respectively 18,131 14,823
Prepaid expenses and other current assets 1,187 481
-------- --------
Total current assets 67,770 17,108
Property and equipment, net 2,314 1,807
Due from affiliates, less allowance for doubtful accounts of $2,647 and
$1,957 at September 30, 1996 and December 31, 1995, respectively 776 -
Other assets, net 96 9
-------- --------
Total assets $ 70,956 $ 18,924
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of capital lease obligations $ 217 $ 216
Accounts payable 1,334 1,071
Claims payable 18,261 19,294
Payables to plan sponsors and others 10,591 8,436
Accrued expenses 1,597 171
-------- --------
Total current liabilities 32,000 29,188
Capital lease obligations, net of current portion 423 110
Commitments and contingencies
Minority interest 1,150 1,150
Stockholders' equity (deficit)
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,
12,029,700 and 8,023,800 shares issued and outstanding
at September 30, 1996 and December 31, 1995, respectively 1 1
Additional paid-in capital 73,588 -
Accumulated deficit (34,491) (9,188)
Stockholder notes receivable (1,715) (2,337)
-------- --------
Total stockholders' equity (deficit) 37,383 (11,524)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 70,956 $ 18,924
======== ========
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 Nine months ended
September 30, September 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
--------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
Revenue $73,166 $ 70,212 $ 208,486 $ 141,542
Cost of revenue 69,338 69,093 199,556 139,777
-------- -------- --------- --------
Gross profit 3,828 1,119 8,930 1,765
General and administrative expenses 3,007 2,030 7,634 5,480
Executive stock option compensation expense - - 26,640 -
-------- -------- --------- --------
Income (Loss) from operations 821 (911) (25,344) (3,715)
Interest income, net 388 279 663 509
-------- -------- --------- --------
Income (Loss) before minority interest 1,209 (632) (24,681) (3,206)
Less: minority interest 6 - - -
-------- -------- --------- --------
Net income (Loss) $ 1,215 $ (632) $ (24,681) $ (3,206)
======= ======= ========= =========
Net income (Loss) per common
and common equivalent share $ 0.09 $ (0.14) $ (2.83) $ (0.71)
======= ======= ========= =========
Weighted average shares outstanding 13,128 4,500 8,726 4,500
======= ======= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
------------------------------------------
1996 1995
------------------ ------------------
Cash flows from operating activities: (Unaudited)
Net loss $ (24,681) $ (3,206)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 460 309
Executive stock option compensation expense 26,640 -
Provision for losses on receivables and due from affiliates 774 -
Changes in assets and liabilities:
Receivables (3,392) 692
Prepaid expenses and other assets (706) (408)
Accounts payable 263 494
Claims payable (1,033) 11,595
Payables to plan sponsors and others 2,155 1,504
Accrued expenses 1,426 593
------------------ ------------------
Net cash provided by operating activities 1,906 11,573
------------------ ------------------
Cash flows from investing activities:
(Increase) decrease in other assets (87) 160
Loans to affiliates, net (1,466) (1,935)
Purchase of property and equipment (440) (816)
------------------ ------------------
Net cash used in investing activities (1,993) (2,591)
------------------ ------------------
Cash flows from financing activities:
Principal payments on capital lease obligations (213) (53)
Net proceeds from initial public offering 46,948 -
------------------ ------------------
Net cash provided by (used in) financing activities 46,735 (53)
------------------ ------------------
Net increase in cash and cash equivalents 46,648 8,929
Cash and cash equivalents--beginning of period 1,804 2,933
------------------ ------------------
Cash and cash equivalents--end of period $ 48,452 $ 11,862
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ - $ -
================== ==================
Interest $ 42 $ 23
================== ==================
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ 527 $ 109
================== ==================
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 nine months ended September 30, 1996 are not
necessarily indicative of the results of operations or cash flows which may be
reported for the remainder of 1996.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements, notes and information included in the
Company's Registration Statement on Form S-1 (Reg. No. 333-05327), as amended
(the "Registration Statement").
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 Registration Statement.
NOTE 2 - PUBLIC OFFERING
On August 14, 1996, the Securities and Exchange Commission declared the
Registration Statement effective, and the Company entered into an Underwriting
Agreement with Paine Webber Incorporated and Dillon, Read and Co. Inc., as
representatives of the several underwriters, to sell 4,000,000 shares of Common
Stock to the underwriters at the public offering price of $13.00 per share, less
underwriting discounts and commissions of $.91 per share. On August 20, 1996,
the Company received the net proceeds of the public offering from the
underwriters.
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 Registration Statement and
the Consolidated Financial Statements and the related Notes to the Consolidated
Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
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
Virtually all of the Company's revenues to date have been derived from
operations in the State of Tennessee under the Company's contract with RxCare of
Tennessee, Inc. ("RxCare"), a professional services administrative organization
owned by the Tennessee Pharmacists Association and representing approximately
1,200 retail pharmacies in Tennessee. RxCare initially contracted with the
Company in 1993 to help secure health plan pharmaceutical business for the
RxCare network and to provide related services, including pharmacy benefit
design and pricing. In December 1993, the State of Tennessee announced the
formation of its TennCare program, a state health program for formerly
Medicaid-eligible, and certain uninsured and uninsurable, Tennessee residents.
Under this program, selected health plan sponsors (such as HMOs and other
managed care organizations) contracted with the State of Tennessee to provide
mandated medical services to designated portions of TennCare beneficiaries on a
capitated basis, that is, for a fixed monthly fee per plan member. In turn,
certain of these plan sponsors contracted with RxCare to provide
TennCare-mandated pharmaceutical benefits to the plan sponsors' TennCare
beneficiaries through RxCare's network of retail pharmacies, in most cases on a
corresponding capitated basis.
In March 1994, the Company formally contracted with RxCare to provide a
broad range of pharmacy benefit management services with respect to RxCare's
TennCare and private pharmaceutical benefit businesses. The Company performs
essentially all of RxCare's obligations under its pharmacy benefit contracts
with plan sponsors, including the receipt of fees due from the plan sponsors and
the reimbursement to pharmacies for delivered pharmacy benefits. The Company
pays certain amounts to RxCare and is compensated by sharing with RxCare the
profit, if any, from activities under RxCare's contracts with plan sponsors. The
Company initially began providing pharmacy benefits for five plan sponsors
representing 327,000 members of Tennessee's TennCare population as well as a
number of sponsors of small private health plans. In April 1995, a contract was
added with the largest TennCare plan sponsor, Blue Cross and Blue Shield of
Tennessee ("Blue Cross"), covering approximately 623,000 TennCare members. At
September 30, 1996, the Company provided pharmacy benefit management services to
24 plan sponsors with an aggregate of approximately 1.1 million plan members in
Tennessee, primarily on a capitated basis.
The Company recently entered into a number of new contracts.
The Company contracted with CompLogic, Inc. commencing December 1, 1996 to
administer the prescription drug component of CompLogic programs under which
workers' compensation benefits are provided to eligible employees of contracting
employers. Currently, CompLogic services employers in Connecticut, Massachusetts
and Rhode Island with between 50,000 and 100,000 employees. Under this agreement
the Company will perform various administrative services on behalf of CompLogic,
including claims processing, formulary management,
7
network coordination, utilization review and reporting to effectively control
the cost and utilization of drugs dispensed in workers' compensation cases.
The Company entered into a multi-year agreement with Northeast Pharmacy
Service Corporation, a New England-based pharmacy network manager ("NPSC"), to
jointly market pharmacy benefit management services in Connecticut and
Massachusetts using the over 500 independent pharmacies participating in NPSC's
network. Under the terms of the agreement, the Company and NPSC also will
jointly design and implement a group purchasing program to provide additional
drug purchasing options for participating network pharmacies.
The Company signed an agreement to provide consulting and evaluation
services to Native American Management Services, Inc., a for-profit organization
under contract with the Indian Health Service of the Bureau of Indian Affairs
("IHS"). The Company will evaluate IHS systems and data to assist in the
investigation of possible improvements to IHS's pharmacy programs for Native
Americans including third-party reimbursement procedures.
The Company contracted with three generic drug manufacturers to expand the
scope of the Company's preferred generics programs. These programs encourage
pharmacies to stock a particular manufacturer's generic drugs by arranging for
discounts on their purchase by pharmacies. The Company also provides financial
incentives for pharmacies to dispense "preferred generics" in lieu of brand name
or other generic drugs in the same therapeutic class. Participating pharmacies
are therefore encouraged to dispense and sell preferred generics to all of their
customers, including those not covered by Company-managed pharmacy benefit
plans. Prior to these additional contracts, the Company's preferred generics
programs were restricted to one manufacturer and the Tennessee market. The
Company, which intends to expand these programs to other geographic areas, now
has contracts covering 44 drugs which accounted for approximately 62% of all
generic drug dollar sales in 1995.
Results of Operations
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
For the nine months ended September 30, 1996, the Company recorded net
income of $1.96 million, or $0.17 per share, on revenue of $208.5 million
(before recording a nonrecurring, noncash charge for compensation expense and a
corresponding credit to additional paid-in capital of $26.6 million,
representing the difference between the exercise price and the deemed fair
market value of the Common Stock at the date of grant of options to purchase an
aggregate of 3,600,000 shares of Common Stock granted by the Company's principal
stockholder to certain executive officers and directors of the Company). This
compares with a net loss of $3.2 million, or $0.71 per share, on revenue of
$141.5 million for the same period in 1995. After recording the effect of the
compensation charge, the Company reported a net loss of $24.7 million, or $2.83
per share. The increase of $67 million in revenue was due primarily to the
addition of the Blue Cross contract in April 1995. For the first nine months of
1996, approximately 86% of the Company's revenue was generated through capitated
contracts, compared with 89% during the first nine months of 1995.
Cost of revenue as a percentage of revenue decreased from 98.8% in the
first nine months of 1995 to 95.7% in the first nine months of 1996. Such
decrease primarily reflects the renegotiation of a higher capitation rate on one
of the Company's contracts effective March 1, 1996 and the Company's decision
not to renew a capitation contract that expired on December 31, 1995 that had
adversely affected gross profit during 1995.
General and administrative expenses were $7.6 million for the nine months
ended September 30, 1996 and $5.5 million for the nine months ended September
30, 1995, an increase of 38.2%. The $2.1 million increase was largely
attributable to the formation of MIM Corporation and the costs of additional
personnel to support expanded marketing efforts and further development of the
Company's management information systems. As a percentage of revenue, general
and administrative expenses declined from 3.9% in the first nine months of 1995
to 3.7% in the first nine months of 1996.
8
Three months ended September 30, 1996 compared to three months ended September
30, 1995
For the three months ended September 30, 1996, the Company recorded net
income of $1.2 million, or $0.09 per share, on revenue of $73.2 million. This
compares with a net loss of $0.6 million, or $0.14 per share, on revenue of
$70.2 million for the three months ended September 30, 1995. The increase in
revenue was primarily due to the addition of several commercial contracts as
well as two new TennCare contracts which provide behavioral drug benefits to
mental health members. For the three months ended September 30, 1996,
approximately 74% of the Company's revenue was generated through capitated
contracts, compared with 92% during the same period in 1995.
Cost of revenue as a percentage of revenue decreased from 98.4% for the
three months ended September 30, 1995 to 94.8% for the three-month period ended
September 30, 1996. Such decrease primarily reflects the renegotiation of a
higher capitation rate on one of the Company's contracts effective March 1, 1996
and the Company's decision not to renew a capitated contract that expired on
December 31, 1995 that had adversely affected gross profit during 1995. Also,
the additional commercial and behavioral drug contracts positively impacted 1996
third quarter gross profit.
General and administrative expenses were $3.0 million for the three months
ended September 30, 1996 and $2.0 million for the three months ended September
30, 1995, an increase of 50%. The increase was attributable largely to the costs
of additional personnel to support several new commercial contracts, expanded
marketing efforts and further development of the Company's management
information systems. As a percentage of revenue, general and administrative
expenses increased from 2.9% for the three months ended September 30, 1995 to
4.1% for the three months ended September 30, 1996.
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $35.8 million,
compared to a $12.1 million working capital deficit at December 31, 1995. Cash
and cash equivalents were $48.5 million at September 30, 1996 compared to $1.8
million at December 31, 1995. The Company received $46.9 million in net proceeds
from its initial public offering of common stock in August 1996 which it plans
to use to expand its current business as well as to create new business
opportunities. Operating activities of the Company generated $1.9 million in
cash for the nine months ended September 30, 1996, primarily due to the
generation of net income of $2.0 million (prior to a nonrecurring, noncash
charge of $26.6 million relating to executive stock option compensation expense)
and increases in payables to plan sponsors and others and in accrued expenses of
$2.2 million and $1.4 million, respectively. The impact of these items was
partially offset by an increase in accounts receivable of $3.4 million and a
decrease in claims payable of $1.0 million.
Except as discussed below, the Company believes that the funds expected to
be generated from operations and the net proceeds of the initial public offering
will provide sufficient cash to fund the Company's anticipated working capital
and other cash needs for the foreseeable future. Although the Company does not
currently have any significant capital commitments, the Company intends to use a
portion of its capital to enhance its management information systems
capabilities. In addition, the Company intends to offset, against profit sharing
amounts, if any, due RxCare in the future under the RxCare contract,
approximately $2.4 million 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, equity securities.
9
The Company believes that its improved financial condition and capital
structure following the initial public offering will enhance its ability to
negotiate and obtain additional contracts with plan sponsors and other potential
customers. Since the closing of the offering, there has been adverse publicity
in the Tennessee press and elsewhere regarding the Company and others associated
with the TennCare program which is believed by the Company to be attributable
primarily to certain competitive special interest groups. The Company believes
that this publicity has contributed to delays in the Company obtaining
additional contracts.
Other Matters
The Company's pharmaceutical reimbursement claims have historically 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 Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 requires that an entity account for employee stock compensation
under a fair value-based method. However, SFAS 123 also allows an entity to
continue to measure compensation cost for employee stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Effective
for fiscal years beginning after December 15, 1995, entities electing to remain
with accounting under APB 25 are required to make pro forma disclosures of net
income and earnings per share as if the fair value-based method of accounting
under SFAS 123 has been applied. The Company will continue to account for
employee stock-based compensation under APB 25 and will make the pro forma
disclosures required under SFAS 123.
10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Reference is made to the description, contained in the Registration Statement
under the caption "BUSINESS -- Legal Proceedings", of a third-party complaint
against Pro-Mark Holdings, Inc., a subsidiary of the registrant, and certain
other parties which was filed in a proceeding in the Superior Court of the State
of Rhode Island. In September 1996 the third-party complaint was amended to add
the registrant as a third-party defendant regarding the causes of action
previously alleged therein against Pro-Mark. The Company continues to believe
that the third-party plaintiffs' allegations are without merit; however, the
loss of this litigation could have a material adverse effect on the Company's
business and results of operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
On August 30, 1996, the registrant filed a Report on Form 8-K reporting (i) the
closing on August 20, 1996 of the registrant's initial public offering of shares
of Common Stock, (ii) the reissuance, upon such closing, by the registrant of
the consolidated financial statements and accompanying notes contained in the
prospectus for such public offering (the "Financials") and (iii) the reissuance,
upon such closing, by Arthur Anderson LLP, independent public accountants, of
its report with respect to the reissued Financials removing any reference
therein to the ability of the registrant to continue as a going concern. No
financial statements were filed with such Report on Form 8-K.
11
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: November 14, 1996 /s/ Richard H. Friedman
----------------------------------------
Richard H. Friedman
Chief Operating Officer, Chief Financial
Officer, Treasurer and Director
(Principal Financial Officer)
Date: November 14, 1996 /s/ Steven M. Dias
----------------------------------------
Steven M. Dias
Controller
(Principal Accounting Officer)
12
5
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
48,452
0
18,491
360
0
67,770
3,234
920
70,956
32,000
0
0
0
1
37,382
70,956
208,486
208,486
199,556
199,556
34,274
774
0
(24,681)
0
(24,681)
0
0
0
(24,681)
(2.83)
(2.83)
