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 September 30, 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
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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
incorporation or organization) Identification No.)
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 November 12, 1997 there were outstanding 13,335,150 shares of the Company's
$.0001 par value per share common stock ("Common Stock").
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the
three months and nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 5
Notes to the Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 12
Item 5 Other Information 12-13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 5,427 $ 1,834
Investment securities 18,542 28,113
Receivables, less allowance for doubtful accounts of $1,621
and $1,088 at September 30, 1997 and December 31, 1996,
respectively 19,775 18,646
Prepaid expenses and other current assets 1,127 1,129
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Total current assets 44,871 49,722
Investment securities, net of current portion 10,230 8,925
Property and equipment, net 2,788 2,423
Due from affiliates, less allowance for doubtful accounts of $2,187
and $2,157 at September 30, 1997 and December 31, 1996,
respectively 269 628
Other assets, net 279 102
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Total assets $58,437 $ 61,800
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 179 $ 213
Accounts payable 900 1,562
Claims payable 13,347 17,278
Payables to plan sponsors and others 13,108 10,174
Accrued expenses 1,118 926
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Total current liabilities 28,652 30,153
Capital lease obligations, net of current portion 247 375
Commitments and contingencies
Minority interest 1,145 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,
13,322,500 and 12,040,600 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 1 1
Additional paid-in capital 73,578 73,443
Accumulated deficit (43,391) (41,564)
Stockholder notes receivable (1,795) (1,737)
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Total stockholders' equity 28,393 30,143
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Total liabilities and stockholders' equity $58,437 $ 61,800
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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,
--------------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
(Unaudited) (Unaudited)
Revenue $ 48,311 $ 73,166 $164,955 $208,486
Cost of revenue 46,558 69,338 155,359 199,556
-------- -------- -------- --------
Gross profit 1,753 3,828 9,596 8,930
General and administrative expenses 5,240 3,007 13,143 7,634
Executive stock option compensation expense - - - 26,640
-------- -------- -------- --------
Income (loss) from operations (3,487) 821 (3,547) (25,344)
Interest income, net 566 388 1,737 663
-------- -------- -------- --------
Income (loss) before minority interest (2,921) 1,209 (1,810) (24,681)
Minority interest - 6 5 -
-------- -------- -------- --------
Net income (loss) $ (2,921) $ 1,215 $ (1,805) $(24,681)
======== ======== ======== ========
Net income (loss) per common
and common equivalent share $ (0.23) $ 0.09 $ (0.15) $ (2.83)
======== ======== ======== ========
Weighted average shares outstanding 12,911 13,128 12,381 8,726
======== ======== ======== ========
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,
---------------------
1997 1996
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(Unaudited)
Cash flows from operating activities:
Net loss $(1,805) $(24,681)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Net loss allocated to minority interest (5) -
Depreciation and amortization 767 460
Stock option charges 22 26,640
Provision for losses on receivables and loans to affiliates 562 774
Changes in assets and liabilities:
Receivables (1,662) (3,392)
Prepaid expenses and other assets 2 (706)
Accounts payable (662) 263
Claims payable (3,931) (1,033)
Payables to plan sponsors and others 2,934 2,155
Accrued expenses 192 1,426
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Net cash provided by (used in) operating activities (3,586) 1,906
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Cash flows from investing activities:
Purchase of property and equipment (1,132) (440)
Purchase of investment securities (25,332) -
Proceeds from maturities of investment securities 33,598 -
Increase in other assets (177) (87)
Stockholder loans, net (58) -
Loans to affiliates, net 329 (1,466)
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Net cash provided by (used in) investing activities 7,228 (1,993)
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Cash flows from financing activities:
Principal payments on capital lease obligations (162) (213)
Net proceeds from initial public offering - 46,948
Proceeds from exercise of stock options 113 -
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Net cash provided by (used in) financing activities (49) 46,735
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Net increase in cash and cash equivalents 3,593 46,648
Cash and cash equivalents--beginning of period 1,834 1,804
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Cash and cash equivalents--end of period $ 5,427 $ 48,452
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 32 $ 42
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SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ - $ 527
======== ========
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, 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. The following table displays earnings per share
assuming that SFAS 128 had been implemented:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------- -------------
Basic Earnings Per Share $(0.23) $0.12 $(0.15) $(2.83)
Diluted Earnings Per Share $(0.23) $0.09 $(0.15) $(2.83)
NOTE 3 - INVESTMENTS
On June 23, 1997, the Company, along with other strategic partners, made an
investment in Wang Healthcare Information Systems, Inc. ("WHIS"), a company
engaged in the development, marketing and servicing of PC-based clinical
information systems for physicians and their staff, using 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 (the "WHIS Shares") 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. Accordingly, the shares are stated at cost on the
accompanying balance sheets.
6
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except for share and per share amounts)
NOTE 4 - RELATED PARTY TRANSACTIONS
On October 22, 1997, the Company's Board of Directors approved the terms of a
transaction whereby the Company would enter into a guaranty (the "Guaranty") of
up to $4,000 in favor of Rhode Island Hospital Trust National Bank ("RIHTNB") on
behalf of Mr. E. David Corvese. Mr. Corvese is Vice Chairman, a director and a
major shareholder of the Company. Pursuant to the Guaranty, the Company would
guaranty the repayment obligations and performance of Mr. Corvese under (i) a
certain Demand Revolving Credit Note (the "Note"), dated October 22, 1997, made
by Mr. Corvese in favor of RIHTNB; and (ii) a certain Credit Agreement, to be
dated as of October 22, 1997, between Mr. Corvese and RIHTNB. The Guaranty will,
upon execution and delivery of a pledge agreement to be dated as of October 22,
1997 (the "Pledge Agreement") from the Company in favor of RIHTNB, be secured by
all of the Company's right, title and interest in and to a $4,000 certificate of
deposit held in a bank account with RIHTNB, as well as proceeds and replacements
thereof, which will be pledged pursuant to the Pledge Agreement.
As a condition to the Company executing the Guaranty, Mr. Corvese and his
wife, Nancy Corvese, shall execute in favor of the Company a Reimbursement and
Pledge Agreement (the "Reimbursement Agreement"), to be dated as of October 22,
1997. Under the Reimbursement Agreement, Mr. David Corvese would agree to
reimburse the Company in the event that the Company is obligated to make any
payment under the Guaranty or otherwise incurs cost or expense with respect
thereto. Such reimbursement obligation would be secured by a pledge to the
Company from Mr. David Corvese of 672,106 shares of Common Stock and 1,336,950
options to purchase Common Stock. The reimbursement obligation would also be
secured by a pledge by Mrs. Corvese of an additional 672,106 shares of Common
Stock. None of the agreements other than the Note have been executed as of the
date of this filing.
7
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 as well as the
unaudited consolidated interim financial statements and the related notes to the
unaudited consolidated interim financial statements included in Item 1 of this
Report.
Certain statements contained in this report are not purely historical and are
considered forward looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"), including statements regarding the Company's
expectations, hopes, intentions or strategies regarding the future, as well as
statements which are not historical fact. Forward looking statements may
include statements relating to business development activities, future capital
expenditures, the effects of regulation and competition on the Company's
business, future operating performance of the Company and the results and the
effect of legal proceedings or investigations. Investors are cautioned that any
such forward looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors.
These factors include, among other things, risks associated with capitated
(i.e., risk-based) contracts, increased government regulation related to the
health care industry in general and more specifically, pharmacy benefit
management organizations, increased competition from the Company's competitors,
including competitors which are vertically integrated with pharmaceutical
manufacturers, and the existence of complex laws and regulations relating to the
Company's business. This Report and the Form 10-K contain information regarding
important factors 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 health plan sponsors involved in the
newly instituted TennCare(R) state health program. At September 30, 1997, the
Company provided pharmacy benefit management services to 33 health plan sponsors
with an aggregate of approximately 1.3 million plan members, primarily in
Tennessee.
Results of Operations
Three months ended September 30, 1997 compared to three months ended September
30, 1996
For the three months ended September 30, 1997, the Company recorded revenue of
$48.3 million compared with revenue of $73.2 million for the three months ended
September 30, 1996, a decrease of $24.9 million. The decrease is primarily
attributable to the restructuring in April 1997 of a major TennCare(R) contract.
Although the Company continued to provide essentially the same services as
before the restructuring, the contract changed from a capitated risk-based to a
non-risk fee bearing arrangement which decreased revenues by approximately $29.3
million. Further revenue decreases of $7.9 million were the result of the
discontinuance of service to a TennCare(R) behavioral health organization in
January of 1997. This business was reacquired effective October 1997 on revised
terms. These decreases are offset by a $6.1 million increase in revenue from
other TennCare(R) business due to increased eligibility and several favorable
contract restructurings. Further revenue increases totaling $6.2 million
resulted from increased enrollment in existing commercial plans as well as
servicing eleven new commercial plan sponsors covering over 201,000 new members
throughout the United States. During the three months ended September 30, 1997,
approximately 51% of the Company's revenue was generated through capitated
contracts, compared to 74% during the three months ended September 30, 1996.
Cost of revenue for the three months ended September 30, 1997 decreased to
$46.6 million compared with $69.3 million for the three months ended September
30, 1996, a decrease of $22.7 million. The above-mentioned restructuring of a
major TennCare(R) contract as well as the discontinuance of service to a
TennCare(R) behavioral health organization resulted in a decrease in cost of
revenue of approximately $28.4 million and $7.7 million,
8
respectively. Costs relating to remaining TennCare(R) contracts increased by
$7.4 million due to overall eligibility increases, several contract
restructurings, increasing drug prices, and increasing utilization of
prescription drugs. Increased enrollment in existing commercial plans together
with several new commercial contracts resulted in $6.0 million of increases in
cost of revenue. As a percentage of revenue, cost of revenue increased to 96.4%
for the three months ended September 30, 1997 from 94.8% for the three months
ended September 30, 1996.
For the three months ended September 30, 1997, gross profits decreased to $1.8
million from $3.8 million from the same period a year ago, a decrease of $2.0
million. This decrease primarily is the result of both increasing drug prices
and utilization of prescription drugs among TennCare(R) members being serviced
under fixed price capitation contracts.
General and administrative expenses were $5.2 million for the three months
ended September 30, 1997 compared to $3.0 million for the three months ended
September 30, 1996, an increase of 73%. The $2.2 million increase is
attributable to expenses associated with an expanded national sales effort,
additional operational support for servicing new business as well as increases
in legal fees and consulting costs. As a percentage of revenue, general and
administrative expenses increased to 10.8% for the three months ended September
30, 1997 from 4.1% for the three months ended September 30, 1996. While 39% of
this increase is attributable to the above mentioned expense increases, the
remainder is largely a result of decreased revenues due to the above-mentioned
April 1997 restructuring of a TennCare(R) contract while maintaining
substantially the same level of service being provided.
For the three months ended September 30, 1997, the Company recorded interest
income of $0.6 million compared with $0.4 million for the three months ended
September 30, 1996, an increase of $0.2 million. The increase relates to a
higher level of invested funds resulting from the Company's initial public
offering in August 1996.
For the three months ended September 30, 1997, the Company recorded a net loss
of $2.9 million, or $.23 per share. This compares with net income of $1.2
million, or $.09 per share, for the three months ended September 30, 1996. This
decrease is due largely to the above-described changes in revenue and cost of
revenues, as well as increased administrative costs necessary to maintain and
expand the business.
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996
For the nine months ended September 30, 1997, the Company recorded revenue of
$165.0 million compared to revenue of $208.5 million for the nine months ended
September 30, 1996, a decrease of $43.5 million. The decrease is primarily
attributable to the restructuring in April 1997 of a major TennCare(R) contract.
Although the Company continued to provide essentially the same services as
before the restructuring, the contract changed from a capitated risk-based to a
non-risk bearing fee arrangement resulting in a revenue decrease of
approximately $79.1 million over the same period a year ago. Further revenue
decreases of $4.7 million were a result of the discontinuance of services to a
TennCare(R) behavioral health organization in January of 1997 which the Company
had serviced since July of 1996. This business was reacquired effective October
of 1997 on revised terms. The remaining TennCare(R) contracts increased overall
revenue $23.5 million due to increased eligibility and several favorable
contract restructurings. Revenue increases of $16.8 million also resulted from
increased enrollment in existing commercial plans as well as servicing of eleven
new commercial plan sponsors together covering over 201,000 new members
throughout the United States. During the nine months ended September 30, 1997,
approximately 58% of the Company's revenue was generated through capitated
contracts, compared to 86% during the nine months ended September 30, 1996.
Cost of revenue for the nine months ended September 30, 1997 decreased to
$155.4 million compared with $199.6 million for the nine months ended September
30, 1996, a decrease of $44.2 million. The above-mentioned restructuring of a
major TennCare(R) contract as well as the discontinuance of service to a
TennCare(R) behavioral health organization resulted in a decrease in cost of
revenue of approximately $77.1 million and $5.0 million, respectively. The
remaining TennCare(R) contracts increased in overall cost by $21.5 million due
to overall eligibility increases, increasing drug prices and increasing
utilization of prescription drugs. Increased enrollment in existing commercial
plans together with several new commercial contracts resulted in $16.4 million
of increases in cost of revenue. As a percentage of revenue, cost of revenue
decreased to 94.2% for the nine months ended September 30, 1997 from 95.7% for
the nine months ended September 30, 1996.
9
For the nine months ended September 30, 1997, gross profit increased to $9.6
million from $8.9 million for the same period a year ago. Gross profit
increases resulted from the addition of new commercial lives as well as
increased fees from the restructuring of several existing contracts. Such
increases were partially offset as a result of both increasing drug prices and
utilization of prescription drugs among TennCare(R) members being serviced under
fixed price capitation contracts.
General and administrative expenses were $13.1 million for the nine months
ended September 30, 1997 and $7.6 million for the nine months ended September
30, 1996, an increase of 72%. The $5.5 million increase was attributable
primarily to personnel expenses in staffing corporate headquarters, expenses
associated with an expanded national sales effort, additional operational
support for servicing new business as well as increases in legal fees and
consulting costs. As a percentage of revenue, general and administrative
expenses increased to 8.0% for the nine months ended September 30, 1997 from
3.7% for the nine months ended September 30, 1996. While 51% of this increase is
attributable to the above-mentioned expense increases, the remainder is largely
a result of decreased revenues under the above-mentioned restructuring of a
TennCare(R) contract effective April 1997 with substantially the same level of
service being provided.
For the nine months ended September 30, 1997, the Company recorded interest
income of $1.7 million compared with $0.7 million for the nine months ended
September 30, 1996, an increase of $1.0 million. The increase relates to a
higher level of invested funds resulting from the Company's initial public
offering in August 1996.
For the nine months ended September 30, 1997, the Company recorded a net loss
of $1.8 million, or $.15 per share. This compares with a net loss of $24.7
million, or $2.83 per share (after recording a $26.6 million non-recurring, non-
cash stock option charge in August 1996, the effect of which was $3.28 per
share) for the nine months ended September 30, 1996. This improvement was
largely a result of the above-described changes in revenue, cost of revenue,
stock option charge and administrative costs necessary to maintain and expand
the business.
Liquidity and Capital Resources
For the nine months ended September 30, 1997, net cash used in operating
activities totaled $3.6 million, primarily due to the generation of a $1.8
million net loss from operations, decreases in claims payable of approximately
$3.9 million attributable to the restructuring of a major TennCare(R) contract
and increases in receivables of approximately $1.7 million due to the addition
of new plans. Such uses were offset by increases in payables to plan sponsors of
approximately $2.9 million. Investing activities provided $7.2 million in cash
due primarily to the proceeds from maturities of investment securities of
approximately $33.6 million offset by the purchase of new investment securities
of approximately $25.3 million. The Company also purchased $1.1 million of
property and equipment, primarily to upgrade and enhance information systems.
At September 30, 1997, the Company had working capital of $16.2 million,
compared to $19.6 million at December 31, 1996. Cash and cash equivalents
increased to $5.4 million at September 30, 1997 compared with $1.8 million at
December 31, 1996. The Company had investment securities held to maturity of
$26.5 million and $37.0 million at September 30, 1997 and December 31, 1996,
respectively. 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 A or better and
government securities. In June of 1997, the Company 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.
At September 30, 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 liquidity 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
10
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 $5.9 million, representing RxCare's share of the Company's
cumulative 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 claims costs historically have been subject to a
significant increase over annual averages from October through February, which
the Company believes is due to increased medical problems during the colder
months. Increases in prices charged by manufacturers and wholesalers for
pharmaceuticals, a component of pharmaceutical claims, have 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 new rates.
The TennCare(R) program has been controversial since its inception and has
generated federal and state government investigations and adverse publicity.
There can be no assurances that the Company's association with the TennCare(R)
program will not adversely affect the Company's business in the future.
11
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the three months ended September 30, 1997, the Company issued and
sold, without registration under the Securities Act of 1933 and the rules and
regulations promulgated thereunder (as amended, the "Securities Act"), a total
of 678,947 shares of its Common Stock, $0.0001 par value per share, to six
current and one former employee for cash consideration totaling $4,549 upon the
exercise of options granted to them under the Company's 1996 Stock Incentive
Plan, as amended (the "Plan"), prior to the Company becoming subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act. The exercise
price of these employee options was $0.00667 per share. As such the proceeds of
these option exercises were not material; the proceeds were used for general
working capital purposes. The sales of these options were exempt from and made
without registration under the Securities Act in reliance upon the provisions of
Rule 701 promulated under the Securities Act (the "Rule") in that such sales met
the conditions set forth in Rule 701 (b) of the Securities Act, to wit: (i) the
sales were made pursuant to the exercise of options granted under a written
compensatory benefit plan established by the Company for the participation of
its employees, directors and officers, as well as consultants and advisors
rendering bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction, (ii) each Plan participant has been
provided with a copy of the Plan and one or more written stock option
agreements, and (iii) the aggregate offering price of Company securities subject
to outstanding offers to sell stock pursuant to such options in reliance upon
the Rule, plus Company securities sold during the preceding 12 months in
reliance on the Rule, does not exceed the lesser of $5,000,000 or 15 percent of
the total assets of the Company as at December 31, 1996.
From August 14, 1996 through September 30, 1997, the $46,788,000 net
proceeds from the Company's underwritten initial public offering of its common
stock (the "Offering"), held pursuant to a Registration Statement assigned file
number 333-05327 by the Securities and Exchange Commission (the "Commission")
and declared effective by the Commission on August 14, 1996, have been applied
in the following approximate amounts:
Construction of plant, building and facilities......... $ 0
Purchase and installation of machinery and equipment... $ 1,292,000
Purchases of real estate............................... $ 0
Acquisition of other businesses........................ $ 2,300,000
Repayment of indebtedness.............................. $ 0
Working capital........................................ $11,297,000
Temporary investments:
Marketable securities........................... $26,472,000
Overnight cash deposits......................... $ 5,427,000
To date the Company has expended a relatively insignificant portion of the
Offering proceeds on expansion of the Company's "preferred generics" business
although, at the time of the Offering as disclosed in the prospectus therefor,
the Company intended to apply approximately $18.6 million of Offering proceeds
to fund such expansion. As of the date of this filing, the Company has not
determined the ultimate amount or timing of application of Offering proceeds to
such use.
Item 5. Other Information
On August 6, 1997, the Company, through its Pro-Mark Holdings, Inc.
subsidiary ("Pro-Mark"), entered into a PBM Services Agreement with Health Plan
of Nevada, Inc., HMO Texas, L.C., Sierra Health and Life Insurance Company and
Sierra Health Options, Inc. (collectively "Sierra"), each a subsidiary of Sierra
Health Services, Inc., to provide pharmacy benefit management services to,
initially, approximately 211,000 lives. The Company believes that it will also
be managing an additional 236,000 self-funded members under Sierra's
administration as such members' existing agreements are renewed.
On October 22, 1997, the Company's Board of Directors approved the terms of
a transaction whereby the Company would enter into a guaranty (the "Guaranty")
of up to $4,000,000 in favor of Rhode Island Hospital Trust National Bank
("RIHTNB") on behalf of Mr. E. David Corvese. Mr. Corvese is Vice Chairman, a
director and a major shareholder of the Company. Pursuant to the Guaranty, the
Company would guaranty the repayment obligations and performance of Mr. Corvese
under (i) a certain Demand Revolving Credit Note (the "Note"), dated October 22,
1997, made by Mr. Corvese in favor of RIHTNB; and (ii) a certain Credit
Agreement, to be dated as of October 22, 1997, between Mr. Corvese and RIHTNB.
The Guaranty will, upon execution and delivery of a pledge agreement to be dated
as of October 22, 1997 (the "Pledge Agreement") from the Company in favor of
RIHTNB, be secured by all of the Company's right, title and interest in and to a
$4,000,000 certificate of deposit held in a bank account with RIHTNB, as well as
proceeds and replacements thereof, which will be pledged pursuant to the Pledge
Agreement.
As a condition to the Company executing the Guaranty, Mr. Corvese and his
wife, Nancy Corvese, shall execute in favor of the Company a Reimbursement and
Pledge Agreement (the "Reimbursement Agreement"), to be dated as of October 22,
1997. Under the Reimbursement Agreement, Mr. David Corvese would agree to
reimburse the Company in the event that the Company is obligated to make any
payment under the Guaranty or otherwise incurs
12
cost or expense with respect thereto. Such reimbursement obligations would be
secured by a pledge to the Company from Mr. David Corvese of 672,106 shares of
Common Stock and 1,336,950 options to purchase Common Stock. The reimbursement
obligation would also be secured by a pledge by Mrs. Corvese of an additional
672,106 shares of Common Stock. None of the agreements other than the Note have
been executed as of the date of this filing.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any Reports on Form 8-K during the quarter for which
this Report is filed.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIM Corporation
Date: November 13, 1997 -----------------------------------------------
Richard H. Friedman
Chief Operating Officer, Chief Financial Officer,
Treasurer and Director
(Principal Financial Officer)
14
5
3-MOS
DEC-31-1997
JUL-01-1997
SEP-30-1997
5,427
28,772
21,396
1,621
0
44,871
4,795
2,007
58,437
28,652
0
0
0
1
28,392
58,437
164,955
164,955
155,359
13,143
0
562
0
(1,805)
0
(1,805)
0
0
0
(1,805)
(0.15)
(0.15)
