FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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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 0-28740
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MIM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 05-0489664
- ------------------------------------------------- ---------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 Clearbrook Road, Elmsford, NY 10523
(Address of principal executive offices)
(914) 460-1600
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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 July 10, 2002, there were outstanding 22,931,620 shares of the Company's
common stock, $.0001 par value per share ("Common Stock").
INDEX
PART I FINANCIAL INFORMATION Page Number
- -----------------------------------------------------------------------------------------------------------
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 2002 (unaudited)
and December 31, 2001 .............................................. 1
Unaudited Consolidated Statements of Income for the three and six
months ended June 30, 2002 and 2001 ................................ 2
Unaudited Consolidated Statements of Cash Flows for the six
months ended June 30, 2002 and 2001 ................................ 3
Notes to the Unaudited Consolidated Interim Financial Statements ............ 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................... 11
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds ................................... 17
Item 4 Submission of Matters to a Vote of Security Holders ......................... 17
Item 6 Exhibits and Reports on Form 8-K ............................................ 17
SIGNATURES
Exhibit Index ........................................................................ 19
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30, 2002 December 31, 2001
------------------- --------------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 3,868 $ 12,487
Receivables, less allowance for doubtful accounts of $3,152 and
$5,543 at June 30, 2002 and December 31, 2001, respectively 77,902 70,089
Inventory 11,767 3,726
Prepaid expenses and other current assets 2,122 1,439
----------- ----------
Total current assets 95,659 87,741
Property and equipment, net 8,501 9,287
Due from officer - 2,132
Other assets, net 1,084 1,650
Intangible assets, net 80,748 39,009
----------- ----------
Total assets $ 185,992 $ 139,819
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 637 $ 594
Line of credit 11,704 -
Accounts payable 11,699 4,468
Claims payable 51,289 46,564
Payables to plan sponsors 20,529 21,063
Accrued expenses and other current liabilities 7,351 5,745
----------- ----------
Total current liabilities 103,209 78,434
Capital lease obligations, net of current portion 712 1,031
Other non current liabilities 57 58
----------- ----------
Total liabilities 103,978 79,523
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares authorized,
250,000 Series A junior participating shares issued and outstanding - -
Common stock, $.0001 par value; 40,000,000 shares authorized,
22,931,449 and 22,004,101 shares issued and outstanding
at June 30, 2002, and December 31, 2001, respectively 2 2
Treasury stock, 1,393,183 shares at cost (2,934) (2,934)
Additional paid-in capital 117,330 105,424
Accumulated deficit (32,384) (42,196)
----------- ----------
Total stockholders' equity 82,014 60,296
----------- ----------
Total liabilities and stockholders' equity $ 185,992 $ 139,819
=========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
1
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
-------------------------- --------------------------
(Unaudited) (Unaudited)
Revenue $ 135,732 $ 106,851 $ 287,383 $ 212,887
Cost of revenue 118,284 93,417 253,906 187,817
------------ ----------- ----------- ------------
Gross profit 17,448 13,434 33,477 25,070
Selling, general and administrative expenses 11,123 9,370 21,053 17,773
TennCare reserve adjustment - - (851) (980)
Amortization of intangibles 321 559 577 1,079
------------ ----------- ----------- ------------
Income from operations 6,004 3,505 12,698 7,198
Interest (expense) income, net (248) (24) (433) 19
------------ ----------- ----------- ------------
Income before provision for income taxes 5,756 3,481 12,265 7,217
Provision for income taxes 1,151 271 2,453 524
------------ ----------- ----------- ------------
Net income $ 4,605 $ 3,210 $ 9,812 $ 6,693
============ =========== =========== ============
Basic income per common share $ 0.20 $ 0.16 $ 0.43 $ 0.32
============ =========== =========== ============
Diluted income per common share $ 0.19 $ 0.15 $ 0.41 $ 0.32
============ =========== =========== ============
Weighted average common shares used in
computing basic income per common share 22,931 20,428 22,732 20,657
============ =========== =========== ============
Weighted average common shares used in
computing diluted income per common share 24,063 20,987 24,024 20,967
============ =========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements.
2
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended June 30,
--------------------------------
2002 2001
--------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 9,812 $ 6,693
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,096 3,488
TennCare reserve adjustment (851) -
Issuance of stock to employees 73 28
Provision for losses on receivables 511 737
Changes in assets and liabilities, net of acquired assets:
Receivables, net (1,566) (5,290)
Inventory (4,488) 217
Prepaid expenses and other current assets (573) 171
Accounts payable 1,299 154
Claims payable 4,725 2,941
Payables to plan sponsors and others (533) (3,784)
Accrued expenses 1,101 (614)
Non current liabilities - (456)
-------------- --------------
Net cash provided by operating activities 12,606 4,285
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (1,391) (1,718)
Cost of acquisitions, net of cash acquired (34,851) (1,946)
Due from officer 2,132 (68)
Decrease (increase) in other assets (20) 43
-------------- --------------
Net cash used in investing activities (34,130) (3,689)
-------------- --------------
Cash flows from financing activities:
Net borrowings on line of credit 11,704 -
Purchase of treasury stock - (2,596)
Proceeds from exercise of stock options 1,477 1,840
Principal payments on capital lease obligations (276) (304)
Decrease in debt - (130)
-------------- --------------
Net cash provided by (used in) financing activities 12,905 (1,190)
-------------- --------------
Net decrease in cash and cash equivalents (8,619) (594)
Cash and cash equivalents--beginning of period 12,487 1,290
-------------- --------------
Cash and cash equivalents--end of period $ 3,868 $ 696
============== ==============
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
3
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(In thousands)
Six Months Ended June 30,
------------------------------
2002 2001
-------- -------
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 479 $ 145
======== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Reclassification of stockholder notes to other assets $ -- $ 771
======== ======
Contribution of minority interest to additional paid-in
capital upon dissolution of subsidiary $ -- $1,112
======== ======
Stock issued in connection with acquisition $ 10,355 $ --
======== ======
4
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(In thousands, except per share amounts)
NOTE 1 - BASIS OF PRESENTATION
These unaudited consolidated interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements, notes
and information included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 (the "Form 10-K") filed with the Commission.
The accounting policies followed for interim financial reporting are similar to
those disclosed in Note 2 of Notes to Consolidated Financial Statements included
in Form 10-K. The following accounting policies are described further below:
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 accounting
principles generally accepted in the United States 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.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory consists principally of
prescription drugs.
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 contracts have a one-year term. These contracts are subject to rate
adjustment or termination upon the occurrence of certain events.
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. There are currently no expected loss contracts.
Fee-for-Service Agreements. Under fee-for-service PBM contracts, revenues
from orders dispensed by the Company's pharmacy networks are recognized when the
pharmacy services are reported to the Company by the dispensing pharmacist,
through the on line claims processing systems.
All revenue is recorded net of the rebate share payable to Plan Sponsors.
The Company does not sell products separately from the services offered to
Members, MCOs and Plan Sponsors and does not maintain revenue or cost of
revenue information with regard to product sales.
When the Company independently has a contractual obligation to pay a
network pharmacy provider for benefits provided to its Plan Sponsors' Members,
the Company includes payments from these Plan Sponsors as revenue, and payments
to the network pharmacy provider as cost of revenue ("gross") in accordance with
Emerging Issues Task Force ("EITF") 99-19, "Recording Revenue Gross as a
Principal versus Net as an Agent". These transactions require the Company to
assume credit risk and act as a principal. If the Company is merely
administering Plan Sponsors' network pharmacy contracts in which the Company
does not assume credit risk, but acts as an agent, the Company records only our
administrative or dispensing fees as revenue ("net").
5
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. The Company does not maintain cost of revenue
information with regards to product sales.
CLAIMS PAYABLE
The Company is responsible for all covered prescription drugs provided to
plan members during the contract period. Claims payable also includes estimates
of certain prescriptions that were dispensed to members for whom the related
claims had not yet been submitted.
PAYABLES TO PLAN SPONSORS
Payables to Plan Sponsors represent the sharing of pharmaceutical
manufacturers' rebates with the Plan Sponsors, as well as profit sharing plans
with certain capitated contracts.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic income per common
share and diluted income per common share:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- --------------------------
2002 2001 2002 2001
----------- ------------- ----------- ----------
Numerator:
Net income ................................................ $ 4,605 $ 3,210 $ 9,812 $ 6,693
======= ======= ======= =======
Denominator - Basic:
Weighted average number of common
shares outstanding ................................... 22,931 20,428 22,732 20,657
======= ======= ======= =======
Basic income per share .................................... $ 0.20 $ 0.16 $ 0.43 $ 0.32
======= ======= ======= =======
Denominator - Diluted:
Weighted average number of common
shares outstanding ................................... 22,931 20,428 22,732 20,657
Common share equivalents of outstanding
stock options ........................................ 1,132 559 1,292 310
------- ------- ------- -------
Total shares outstanding .................................. 24,063 20,987 24,024 20,967
======= =======
Diluted income per share .................................. $ 0.19 $ 0.15 $ 0.41 $ 0.32
======= ======= ======= =======
NOTE 3 - DUE FROM COMPANY OFFICER
On March 23, 2002, Mr. Richard H. Friedman, the Company's Chairman and
Chief Executive Officer, repaid in full a $1,700 loan from the Company, together
with all accrued and unpaid interest thereon, totaling approximately $2,100.
NOTE 4 - TENNCARE RESERVE ADJUSTMENT
There were no TennCare reserve adjustments in the current quarter of 2002.
The TennCare reserve adjustment of $851 in the first quarter of 2002 was a
result of the collection of receivables from Xantus Healthplans of Tennessee,
Inc., which were previously reserved. During the first quarter of 2001, the
Company recorded a reserve adjustment of $980 to reflect a favorable settlement
with Tennessee Health Partnership ("THP") relative to the amount initially
reserved. This dispute related to several improper reductions of payments from
THP for services provided to THP and its enrollees.
6
NOTE 5 - TREASURY STOCK
In February 2001, the Company repurchased 1,298 shares of the Company's
common stock for $2,596, at a price of $2.00 per share of common stock.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In 1998, the Company recorded a $2,200 special charge against earnings in
connection with an agreement in principle with respect to a civil settlement of
a Federal and State of Tennessee investigation for conduct involving two former
officers of the Company occurring prior to the Company's August 1996 initial
public offering. The definitive agreement covering that settlement was executed
on June 15, 2000, and required payment of $775 in 2000, payment of $900 in 2001,
and payment of $525 in 2002. $75 is outstanding at June 30, 2002 and is included
in accrued expenses. On July 1, 2002, this settlement was paid in full.
NOTE 7 - ACQUISITIONS
On January 31, 2002, the Company acquired all of the issued and outstanding
stock of Vitality Home Infusion Services, Inc. ("Vitality"). Vitality is a New
York-based provider of specialty pharmaceutical services. Vitality provides such
services on a national basis to chronically ill and genetically impaired
patients, particularly focusing on oncology, infectious disease, immunology and
rheumatory disease.
The aggregate purchase price for Vitality was $45,000, payable $35,000 in
cash and 592,417 shares of MIM common stock valued at $10,000. The common stock
of MIM was valued using the average market price for twenty days prior to the
date of the purchase agreement. The purchase price for Vitality has been
allocated to assets and liabilities based on management's best estimates of fair
value and based on a final valuation performed by an independent outside
valuation firm. The following table sets forth the allocation of the purchase
price as of June 30, 2002:
Intangible Asset Valuation
Purchase price:
Funded from the Company's line of credit $ 35,000
Common stock value 10,355
Transaction costs 1,004
---------
Total purchase price 46,359
Less: net tangible assets as of January 31, 2002 4,441
---------
Excess of purchase price over net tangible assets acquired $ 41,918
=========
Preliminary allocation of excess purchase price
Customer relationships $ 11,000
Trademarks 4,700
Non-compete agreements 730
Goodwill 25,488
---------
Total $ 41,918
=========
7
VITALITY PRO FORMA FINANCIAL INFORMATION
The following unaudited consolidated pro forma financial information for
the three and six month periods ended June 30, 2002 and 2001, respectively, has
been prepared assuming Vitality was acquired as of January 1, 2001, utilizing
the purchase method of accounting, with pro forma adjustments for non-amortizing
goodwill, amortizing intangibles, interest expense, rent expense and income tax
benefit. The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the results that would have
been realized had the acquisition occurred on January 1, 2001. This pro forma
financial information is not intended to be a projection of future operating
results.
Pro forma Income Statement
(In thousands, except per share amounts)
Pro forma Income Statement
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
Revenues $ 135,732 $ 129,747 $ 294,427 $ 247,732
Net income $ 4,605 $ 3,789 $ 9,624 $ 8,876
Basic income per common share $ 0.20 $ 0.18 $ 0.42 $ 0.42
Diluted income per common share $ 0.19 $ 0.18 $ 0.40 $ 0.41
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets," which establish accounting and
reporting standards governing business combinations, goodwill and intangible
assets. SFAS No. 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting. SFAS No. 142
states that goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill will be subject to at least an annual assessment
for impairment by applying a fair-value based test. Under the new rules, an
acquired intangible asset should be separately recognized and amortized over its
useful life (unless an indefinite life) if the benefit of the intangible asset
is obtained through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented or exchanged regardless of the
acquirer's intent to do so. The Company adopted these standards on January 1,
2002.
Pursuant to SFAS No. 142, substantially all of the Company's intangible
assets will no longer be amortized and the Company is required to perform an
annual impairment test for goodwill and intangible assets. Goodwill and
intangible assets are allocated to various reporting units, which are either the
operating segment or one reporting level below the operating segment. The
Company operates in two distinct segments for purposes of applying the
provisions of SFAS No. 142. These reporting units are (i) Pharmacy benefit
management services including mail distribution ("PBM Services"); (ii) Specialty
Pharmaceuticals. SFAS No. 142 requires the Company to compare the fair value of
the reporting unit to its carrying amount on an annual basis to determine if
there is potential impairment. If the fair value of the reporting unit is less
than its carrying value an impairment loss would be recorded to the extent that
the fair value of the goodwill within the reporting unit is less than the
carrying value. The impairment test for intangible assets consists of comparing
the fair value of the intangible asset to its carrying value. If the carrying
value of the intangible asset exceeds its fair value an impairment loss is
recognized. Fair value for goodwill and intangible assets are determined based
on discounted cash flows and appraised values. During the first quarter of 2002,
the Company completed its initial impairment review which indicated that there
was no impairment of goodwill or intangible assets.
8
The following table provides a reconciliation of reported net income for
the three and six month periods ended June 30, 2001 to adjusted net income as
if SFAS No. 142 had been applied as of January 1, 2001.
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
------------------------------- ------------------------------
Dollars Diluted EPS Dollars Diluted EPS
----------- ---------------- ----------- ------------
Net income as reported $ 3,210 $ 0.15 $ 6,693 $ 0.32
Add back goodwill amortization (net of tax) 425 0.02 859 0.04
------------ -------------- ------------ ------------
Net income as adjusted $ 3,635 $ 0.17 $ 7,552 $ 0.36
============ ============== ============ ============
The changes in the carrying amount of goodwill for the six months ended June
30, 2002, are as follows:
Balance as of December 31, 2001 $ 41,189
Goodwill acquired (Vitality) 25,488
Miscelleanous purchase price adjustments 175
-----------
Balance as of June 30, 2002 $ 66,852
===========
Gross amortizable intangible assets with definite lives at June 30, 2002
consist of customer relationships of $13,876 amortized over four to twenty years
and noncompete agreements of $856 amortized over three to four years and $127 of
trademarks amortized over three years. Gross intangible assets with indefinite
lives at June 30, 2002 are trademarks of $4,700 and goodwill of $66,852.
Accumulated amortization for intangibles and goodwill at June 30, 2002 is
$5,663.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishments of Debt," and an amendment of
that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." This statement also rescinds SFAS No. 44 "Accounting
for Intangible Assets of Motor Carriers." This statement amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this statement must be adopted on or after May 15, 2002, with the
adoption of certain of these provisions to occur no later than January 1, 2003.
The Company does not expect that the adoption of this statement will have any
effect on its results of operations, financial position or cash flows.
9
NOTE 9 - OPERATING SEGMENTS
The Company operates in two distinct segments: (1) PBM Services, which is
comprised of fully integrated pharmacy benefit management and the mail
fulfillment center located in Columbus, Ohio; (2) Specialty Pharmaceuticals,
which is comprised of the Company's BioScrip injectable and infusion therapy
programs.
The accounting polices of the business segments are the same as those
described in the summary of significant accounting policies as disclosed in Note
2 of Notes to Consolidated Financial Statements in the Form 10-K.
Segment Reporting Information
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2002 2001 2002 2001
--------------------------- ----------------------------
Revenues:
PBM Services $ 93,316 $ 97,734 $211,994 $194,120
Specialty Pharmaceuticals 42,416 9,117 75,389 18,767
-------- -------- -------- --------
Total $135,732 $106,851 $287,383 $212,887
======== ======== ======== ========
Depreciation expense:
PBM Services $ 921 $ 1,099 $ 1,795 $ 1,888
Specialty Pharmaceuticals 225 110 436 218
-------- -------- -------- --------
Total $ 1,145 $ 1,209 $ 2,232 $ 2,106
======== ======== ======== ========
Operating income:
PBM Services $ 1,427 $ 2,473 $ 4,747 $ 4,756
Specialty Pharmaceuticals 4,577 1,031 7,951 2,442
-------- -------- -------- --------
Total $ 6,004 $ 3,505 $ 12,698 $ 7,198
======== ======== ======== ========
Total assets:
PBM Services $ 85,897 $ 93,237
Specialty Pharmaceuticals 100,095 31,707
-------- --------
Total $185,992 $124,944
======== ========
Capital expenditures
PBM Services $ 319 $ 499 $ 573 $ 1,380
Specialty Pharmaceuticals 392 122 818 375
-------- -------- -------- --------
Total $ 711 $ 621 $ 1,391 $ 1,756
======== ======== ======== ========
NOTE 10 - CAPITATED ARRANGEMENTS
Revenues for the three months ended June 30, 2002 included $13.2 million
from capitated arrangements compared to $29.2 million for the same period in
2001. This represents 9.7% of the Company's current quarterly revenues compared
to 27.3% for the same quarter in 2001.
Revenues for the six months ended June 30, 2002 included $23.8 million from
capitated arrangements compared to $55.9 million for the same period a year ago.
This represents 8.3% of the Company's current six month revenues compared to
26.3% for the same period in 2001.
****
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the audited
consolidated financial statements of MIM Corporation and subsidiaries
(collectively, the "Company") including the notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "Form 10-K") filed with the U.S. Securities and Exchange
Commission (the "Commission") as well as the Company's unaudited consolidated
interim financial statements and the related notes thereto included elsewhere in
this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002
(this "Report").
This Report contains statements not purely historical and which may be
considered forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934,
as amended, including statements regarding the Company's expectations, hopes,
beliefs, intentions or strategies regarding the future. These forward-looking
statements may include statements relating to the Company's business development
activities; sales and marketing efforts; the status of material contractual
relationships and the expenditures associated with one or more of them; the
effect of regulation and competition on our business; future operating
performance and results of the company; the benefits and risks associated with
the integration of acquired companies; and the likely outcome and effect of
legal proceedings on the company and its business and operations and/or the
resolution or settlement thereof. Although we believe any and all of these
statements should be based on reasonable assumptions, there is no way to
guarantee that we will always be able to meet the expectations arising from
those forward-looking statements and their underlying assumptions. Actual
results may differ materially from those implied in the forward-looking
statements because of the various factors enumerated in our periodic filings
with the SEC. These factors include, among other things, the status of contract
negotiations; increased government regulation relating to the health care and
insurance industries in general, and more specifically, pharmacy benefit
management, mail service and specialty pharmaceutical distribution
organizations; the existence of complex laws and regulations relating to the
company's business; increased competition from the company's competitors,
including those competitors with greater financial, technical, marketing and
other resources, and risks associated with risk-based or capitated contracts.
This Report contains information regarding important factors that could cause
such differences. The Company does not undertake any obligation to supplement
these forward looking statements to reflect any future events and circumstances.
Overview
The Company is a pharmaceutical healthcare organization delivering
innovative pharmacy benefit, specialty pharmaceutical distribution and other
pharmacy-related healthcare solutions. The Company combines its clinical
management expertise, sophisticated data management and therapeutic fulfillment
capabilities to serve the particular needs of each of its customers and
respective pharmacy benefit recipients covered by a customers' pharmacy-related
health benefits. The Company provides a broad array of pharmacy benefits and
pharmacy products and services to individual enrollees ("Members") receiving
health benefits, principally through health insurers including managed care
organizations ("MCOs") and other insurance companies, and, to a lesser extent,
third party administrators, labor unions, self-funded employer groups,
government agencies, and other self-funded plan sponsors (collectively, "Plan
Sponsors"). These services are organized under two reported operating segments:
pharmacy benefit management and mail services (collectively, "PBM Services"),
and specialty pharmacy distribution and clinical management ("Specialty
Pharmaceuticals") services.
The Company offers small and mid-sized Plan Sponsors a broad range of PBM
Services designed to promote the cost-effective delivery of clinically
appropriate pharmacy benefits through its network of retail pharmacies and its
own mail service distribution facility. PBM revenues are recognized two
different ways. When the Company has a contractual obligation to pay its network
pharmacy providers for PBM services provided to its Plan Sponsors' Members and
assumes credit risk for these benefits, it recognizes the total payments
(including the cost of the prescription drug) from these Plan Sponsors as
revenue, and payments to network pharmacy providers as cost of revenue
("gross"). When the Company does not assume credit risk for the network pharmacy
payments, it records only the administrative fees as revenue ("net").
The Company's Specialty Pharmaceuticals programs are offered to Plan
Sponsors of all sizes and include the distribution of biotech and other
specialty prescription medications and the provision of pharmacy-related
clinical management services and disease state programs to the chronically ill
and genetically impaired directly and through Plan Sponsors. These services are
offered through its BioScrip(R) specialty injectable and infusion therapy
programs. The Company also distributes high-cost injectable and infusion
prescription medications and therapies, together with clinical management
services, through its Bioscrip division, which includes its Vitality Home
Infusion Services, Inc. ("Vitality") and American Disease Management Associates
L.L.C. ("ADIMA") subsidiaries, all under the BioScrip brand name.
11
Depending on the goals and objectives of the Plan Sponsors with which the
Company does business, the Company provides some or all of the following
clinical services to each Plan Sponsor as part of its PBM Services and Specialty
Pharmaceuticals services: pharmacy case management, therapy assessment,
compliance monitoring, health risk assessment, patient education and drug usage
and interaction evaluation, pharmacy claims processing, mail services and
related prescription distribution, benefit design consultation, drug utilization
review, formulary management and consultation, drug data analysis, drug
interaction management, patient compliance, program management and
pharmaceutical rebate administration.
Critical Accounting Policies
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Revenue for the PBM is recognized either at the time that pharmacy service
is reported to the Company from participating pharmacies under the
fee-for-service contracts or, in the case of a capitated arrangement, in the
month in which the services are performed. As outlined above, revenue is
recorded gross or net based on whether or not the credit risk is assumed by the
Company.
Allowances for doubtful accounts are estimated by the individual operating
companies based on estimates of losses related to customer receivable balances.
Estimates are developed by using standard quantitative measures based on
historical losses, adjusting for current economic conditions and, in some cases,
evaluating specific customer accounts for risk of loss. The establishment of
reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances.
REBATES
Manufacturers' rebates are recorded as estimates until such time as the
rebate monies are received. These estimates are based on historical results and
trends as well as the Company's forecasts. In January 2001, the Company adopted
Emerging Issues Task Force Issue No. 00-22 ("EITF 00-22"), "Accounting for
`Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers,
and Offers for Free Products or Services to Be Delivered in the Future". EITF
00-22, states, among other things, that rebates received from pharmaceutical
manufacturers should be recognized as a reduction of cost of revenue and rebates
shared with Plan Sponsors as a reduction of revenue.
PURCHASE PRICE ALLOCATION
The Company accounts for its acquisitions under the purchase method of
accounting and accordingly, the acquired assets and liabilities assumed are
recorded at their respective fair values. The recorded values of assets and
liabilities are based on third party estimates and independent valuations when
available. The remaining values are based on management's judgments and
estimates, and accordingly, the Company's financial position or results of
operations may be affected by changes in estimates and judgments.
INCOME TAXES
As part of the process of preparing the Company's consolidated financial
statements, management is required to estimate income taxes in each of the
jurisdictions in which it operates. The process involves estimating actual
current tax expense along with assessing temporary differences resulting from
differing treatment of items for book and tax purposes. These timing differences
result in deferred tax assets and liabilities, which are included in the
Company's consolidated balance sheet.
12
Results of Operations
Revenues and Gross Profit
The following table provides details for the PBM Services segment for the
three and six month periods ended June 30, 2002 and 2001:
PBM Services
($ in thousands)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------ --------------------------------------
2002 2001 % Inc/(Dec) 2002 2001 % Inc/(Dec)
------------------------------------------------------------------------------------
Revenues $ 93,316 $ 97,734 (4.5%) $ 211,994 $ 194,120 9.2%
Cost of revenues 85,710 87,422 (2.0%) 195,704 175,442 11.5%
------------ ------------ ----------- ------------ ------------ -----------
Gross profit $ 7,606 $ 10,312 (26.2%) $ 16,290 $ 18,678 (12.8%)
============ ============ =========== ============ ============ ===========
Gross profit percentage 8.2% 10.6% 7.7% 9.6%
PBM Services revenues decreased 4.5% to $93.3 million in the second quarter
of 2002 compared to $97.7 million in the second quarter of 2001. During the
second quarter, the Company changed the financial terms in some of its
agreements with certain PBM customers where the Company no longer accepts credit
risk. After giving effect to the change in contract terms, current accounting
rules require the Company to classify $30.7 million of PBM revenue in the
current quarter as net rather than gross revenue. The resulting change has no
effect on reported gross profit. The second quarter of 2002 revenue decrease was
the result of the classification of certain PBM revenues from gross to net, the
loss of revenues associated with the liquidation proceedings commenced by
Tennessee Care Coordinated Network (d/b/a "Access MedPLUS"), a former TennCare
MCO, in the fourth quarter of 2001 and the Company's termination of unprofitable
accounts during the current quarter, totaling approximately $30 million on an
annualized basis. Starting in the first quarter of 2002, a portion of the
enrollees of Access MedPLUS were and continue to be transferred to various other
TennCare MCOs, for which the Company may be the PBM.
Cost of revenue decreased $1.7 million in the second quarter of 2002 and
increased $20.3 million in the six months ended June 30, 2002 compared to the
same periods in 2001. The changes are a result of the same reasons discussed
above.
Gross profit decreased $2.7 million in the second quarter of 2002 and $2.4
million in the six months ended June 30, 2002 compared to the same periods in
2001, due to Access MedPLUS liquidation proceedings and the Company's account
terminations. These decreases were partially offset by increases from continued
growth in network and mail pharmacy services.
The following table provides details for the Specialty Pharmaceuticals
segment for the three and six month periods ended June 30, 2002 and 2001:
Specialty Pharmaceuticals
($ in thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- ---------------------------------------
2002 2001 % Inc/(Dec) 2002 2001 % Inc/(Dec)
------------------------------------------------------------------------------------
Revenues $ 42,416 $ 9,117 365.2% $ 75,389 $ 18,767 301.7%
Cost of revenues 32,574 5,996 443.3% 58,203 12,375 370.3%
------------ ------------ ----------- ------------ ------------ -----------
Gross profit $ 9,842 $ 3,122 215.3% $ 17,186 $ 6,392 168.9%
============ ============ =========== ============ ============ ===========
Gross profit percentage 23.2% 34.2% 22.8% 34.1%
13
Specialty revenues increased 365% in the second quarter of 2002 to $42.4
million from $9.1 million for the same period last year due to the inclusion of
Vitality's revenues from February 2002 (the acquisition date) (see Note 7 of
Notes to Unaudited Consolidated Financial Statements), and continued growth in
the Company's BioScrip injectable and infusion therapy programs.
Cost of revenue increased $26.6 million in the second quarter of 2002 and
$45.8 million for the six months ended June 30, 2002 compared to the same
periods in 2001. These increases are commensurate with the growth in the
Company's BioScrip programs from 2001 and the inclusion of Vitality since
February 2002.
Gross profit increased $6.7 million for the second quarter of 2002 and
$10.8 million for the six months ended June 30, 2002 from the same periods in
2001, due to the inclusion of Vitality from February 2002, as well as increases
from the BioScrip programs, reflecting their revenue growth from 2001.
The gross profit percentages declined in both the second quarter of 2002
and the six months ended June 30, 2002 compared to the same periods in 2001 as a
result of increases in the lower margin BioScrip injectable therapy programs.
The gross profit percentage now reflects a higher proportion of injectable
therapy programs in the total Specialty business, when, in the previous year,
the infusion therapy program represented a higher percentage of the total
Specialty business. Infusion therapy historically has yielded a higher gross
profit percentage.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased to $11.1
million for the second quarter of 2002, or 8.2% of revenue, from $9.4 million,
or 8.8% of revenue for the same period a year ago. This increase is principally
the result of operating cost increases commensurate with the Company's business
growth, the inclusion of Vitality's SG&A since February 2002, as well as
additional expenses incurred to support the build up of the BioScrip inside
sales group. The current quarter also includes approximately $0.4 million in
one-time expenses to relocate certain BioScrip operations from Wakefield, Rhode
Island to its Columbus, Ohio facility. First half of 2002 SG&A expenses
increased to $21.1 million, or 7.3% of revenue, from $17.8 million, or 8.3% of
revenue, in the first six months of 2001, an increase of $3.3 million for the
same reasons previously discussed.
TennCare Reserve Adjustments
There were no TennCare reserve adjustments in the current quarter of 2002.
The TennCare reserve adjustment of $0.9 million in the first quarter of 2002 was
a result of the collection of receivables from Xantus Healthplans of Tennessee,
Inc., which were previously reserved. During the first quarter of 2001, the
Company recorded a reserve adjustment of $1.0 million to reflect a favorable
settlement with Tennessee Health Partnership ("THP") relating to several
improper reductions of payments from THP for which the Company had provided
services.
Amortization of Intangibles
For the second quarter of 2002 and the six months ended June 30, 2002, the
Company recorded amortization of intangibles of $0.3 million and $0.6 million,
respectively, compared to $0.6 million and $1.1 million for the same periods,
respectively, in 2001. These decreases in 2002 are the result of the adoption of
SFAS No. 142 (as discussed in Note 8 of Notes to Unaudited Consolidated
Financial Statements), which was partially offset by the amortization of
intangibles resulting from the acquisition of Vitality on January 31, 2002.
Net Interest Expense
Net interest expense was $0.2 million and $0.4 million for the three months
and six months ended June 30, 2002, respectively, compared to nominal amounts of
net interest expense and net interest income, respectively, for the same periods
in 2001. The interest expense in 2002 is primarily a result of using the
Company's revolving credit facility to fund the $35 million cash portion of the
Vitality $45 million purchase price on January 31, 2002.
Provision for Income Taxes
Tax expense for the second quarter of 2002 and for the six months ended
June 30, 2002 was $1.2 million and $2.5 million, respectively, compared to $0.3
million and $0.5 million, respectively, for the same periods last year. The
effective tax rates for the current quarter and six months ended June 30, 2002
were 20.0%, compared to 7.8% and 7.3%, respectively, for the same periods last
year. The Company was able to fully offset taxable income in 2001 with its
Federal net operating loss carry forwards, but expects to only partially offset
expected 2002 taxable income with available Federal net operating loss carry
forwards.
14
Net Income and Earnings Per Share
Net income increased $1.4 million, or 43.5%, and $3.1 million, or 46.6%,
for the three months and six months ended June 30, 2002 over the same periods in
2001. Diluted earnings per share increased 26.7% and 28.1% for the three months
and six months ended June 30, 2002, respectively, over 2001. Adjusting for the
application of SFAS No. 142 in 2001, diluted earnings per share increased 11.8%
and 13.9% for the three months and six months ended June 30, 2002, respectively,
over 2001. Diluted shares outstanding for the second quarter were 24.1 million
versus 21.0 million for the prior year and for the six month period ended June
30, 2002 were 24.0 million versus 21.0 million for the prior year.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
for the second quarter of 2002 totaled $7.6 million or $0.32 per diluted share,
compared to $5.4 million or $0.26 per diluted share for the same period a year
ago. EBITDA for the first half of 2002 grew 47.7% to $15.8 million, or $0.66 per
diluted share, compared to $10.7 million, or $0.51 per diluted share, in the
previous year's period.
Liquidity and Capital Resources
The Company utilizes both funds generated from operations and available
credit under its Facility (as defined below) for acquisitions, capital
expenditures and general working capital needs.
For the six months ended June 30, 2002, net cash provided by operating
activities totaled $12.6 million. This improvement is the result of continued
growth in the Company's businesses and the inclusion of Vitality results from
February 2002.
Net cash used in investing activities during the six months ended June 30,
2002 was $34.1 million compared to $3.6 million used in the same period in 2001.
This increase reflects approximately $35 million of the Facility used for the
acquisition of Vitality (as discussed in Note 7 of Notes to Unaudited
Consolidated Financial Statements), partially offset by the repayment in full,
in March 2002, of an officer's loan totaling $2.1 million (as discussed in Note
3 of Notes to Unaudited Consolidated Financial Statements).
For the six months ended June 30, 2002, net cash provided by financing
activities was $12.9 million compared to net cash used of $1.2 million in the
same period in 2001. The increase is primarily the result of $11.7 million
currently outstanding under the Facility after repaying most of the borrowings
used to pay the cash portion of the purchase price for the Vitality acquisition
and the absence of treasury stock purchases in 2002 that, in the 2001 period,
totaled $2.6 million.
At June 30, 2002, the Company had a working capital deficit of $7.6 million
compared to working capital of $9.3 million at December 31, 2001. This change is
primarily the result of the acquisition of Vitality. Intangible assets,
classified as non-current, increased $41.9 million and the $11.7 million unpaid
balance under the Facility was classfied as a current liability.
On November 1, 2000, the Company entered into a $45 million revolving
credit facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of
Healthcare Finance Group, Inc. ("HFG"). The Facility has a three-year term and
is secured by the Company's receivables. Interest is payable monthly and
provides for borrowing of up to $45 million at the London Inter-Bank Offered
Rate (LIBOR) plus 2.1%. The Facility contains various covenants that, among
other things, require the Company to maintain certain financial ratios, as
defined in the agreements governing the Facility. As of June 30, 2002, there was
$11.7 million outstanding under the Facility as a result of the Company's
acquisition of Vitality.
As the Company continues to grow it anticipates that its working capital
needs will also continue to increase. The Company believes that its cash on
hand, together with funds available under the Facility and cash expected to be
generated from operating activities will be sufficient 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 Services and
Specialty Pharmaceuticals businesses, which the Company would expect to fund
from cash on hand, borrowings under the Facility, other future indebtedness or,
if appropriate, the private and/or public sale or exchange of equity securities
of the Company.
15
At December 31, 2001, the Company had unused Federal net operating loss
carryforwards of $40.3 million, which will begin expiring in 2009. Since the
Company has not had a history of consistent profitability, it is uncertain
whether the Company will realize the benefit from its deferred tax assets and
has provided a valuation allowance.
As of December 31, 2001, certain of the Company's Federal net operating
loss carryforwards are subject to limitation and may be utilized in a future
year upon release of the limitation. If Federal net operating loss carryforwards
are not utilized in the year they are available they may be utilized in a future
year to the extent they have not expired.
Other Matters
The TennCare(R) program operates under a demonstration waiver from The
United States Center for Medicare and Medicaid Services ("CMS"). That waiver is
the basis of the Company's ongoing service to those MCOs in the TennCare(R)
program. The waiver expired on December 31, 2001 and was renewed without
material modification through December 31, 2002 and further extended through
December 31, 2004, without material modification to those goods and services
being provided by the Company or the manner in which the Company is compensated.
While the Company believes that pharmacy benefits will continue to be provided
to Medicaid and other eligible TennCare(R) enrollees through MCOs in one form or
another through at least December 31, 2004. Should the funding sources and/or
conditions for the TennCare(R) program change significantly, the TennCare(R)
program's ability to pay the MCOs, and in turn the MCOs' ability to pay the
Company, could materially and adversely affect the Company's financial position
and results of operations.
In the first quarter of 2001, the Company commenced a stock repurchase
program pursuant to which the Company is authorized to repurchase up to $5
million of the Company's common stock from time to time on the open market or in
private transactions. To date, the Company has used, in the aggregate,
approximately $2.6 million towards the repurchase of its common stock under this
program.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There has been no material change from the information provided in Item 7a
of the Form 10-K.
16
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 31, 2002, the Company issued 592,417 shares of its common stock
to the owners of Vitality in connection with that acquisition (see Note 7 of
Notes to Unaudited Consolidated Financial Statements).
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting of stockholders (the "Annual Meeting")
was held on June 4, 2002.
(b) At the Annual Meeting, the election of seven (7) directors to the
Board of Directors, each to serve for a one (1) year term, was
submitted to a vote of the stockholders and the stockholders elected
the following directors: Richard H. Friedman, Richard A. Cirillo,
Esq., Louis DiFazio, Ph.D., Harold Ford, Sr., Michael Kooper, Louis A.
Luzzi, Ph.D. and Ronald K. Shelp.
(c) The votes in favor of and against the election of each director were
as follows:
Name For Withheld
---- --- --------
Richard H. Friedman 18,973,308 197,618
Richard A. Cirillo, Esq. 18,973,308 197,618
Louis DiFazio, Ph.D. 18,973,308 197,618
Harold Ford, Sr. 18,973,308 197,618
Michael Kooper 18,973,308 197,618
Louis A. Luzzi, Ph.D. 18,973,308 197,618
Ronald K. Shelp 18,973,308 197,618
Also approved were the following proposals:
Approval of an amendment and restatement of MIM Corporation 2001 Incentive
Stock Plan to increase among other things, the number of authorized shares of
the Company's common stock available for issuance under the 2001 Incentive Stock
Plan by 800,000 shares from 950,000 to 1,750,000 shares. 16,592,686 shares were
voted in favor of that proposal; 2,491,190 shares were voted against it.
Approval of the amendment and restatement of the MIM Corporation 1996
Non-Employee Directors Stock Incentive Plan to, among other things, (i) increase
the number of authorized shares of common stock available for issuance under the
1996 Non-Employee Directors Stock Icentive Plan by 200,000 shares, from 300,000
to 500,000 shares; and (ii) provide for the automatic annual grant to each
non-employee director of the Company of options to purchase 5,000 shares of
common stock. 17,688,659 shares were voted in favor of that proposal; 1,413,732
shares were voted against it.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
-------
99.1 Certification of Chief Executive Officer and Principal
Accounting Officer pursuant to the Sarbanes-Oxley Act of 2002.
The exhibits required to be filed with this Report are incorporated by
reference to Exhibits 3.1, 3.2, 4.1 and 10.1 through 10.52 of the Form 10-K.
(b) Reports on Form 8-K
On April 16, 2002 the Company filed an amendment to its Current Report on
Form 8-K originally filed on February 5, 2002 in connection with the acquisition
of Vitality. The amendment to the Company's 8-K was filed to include financial
information for Vitality and pro-forma financial information of the Company
relative to its acquisition of Vitality as required by Item 7 of Form 8-K.
On May 24, 2002, the Company filed a Form 8-K for a Change in the Company's
Certifying Accountant.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIM CORPORATION
Date: August 14, 2002 /s/ Donald Foscato
---------------------------
Donald Foscato
Chief Financial Officer
18
EXHIBIT INDEX
Exhibit Number Description
- ---------------- ------------
99.1 Certification of Chief Executive Officer and Principal
Accounting Officer pursuant to the Sarbanes-Oxley Act of
2002
19
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned,
the Chairman and Chief Executive Officer of MIM Corporation (the "Corporation")
certifies that:
(1) The Quarterly Report on Form 10-Q of the Corporation for the period ended
June 30, 2002, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), fully complies with the requirements of Section 139(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Corporation.
/s/ Richard H. Friedman
-----------------------
Richard H. Friedman
Chairman and Chief Executive Officer
August 14, 2002
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned,
the Chief Financial Officer and Treasurer of MIM Corporation (the "Corporation")
certifies that:
(3) The Quarterly Report on Form 10-Q of the Corporation for the period ended
June 30, 2002, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), fully complies with the requirements of Section 139(a) or
15(d) of the Securities Exchange Act of 1934; and
(4) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Corporation.
/s/ Donald A. Foscato
------------------------
Donald A. Foscato
Chief Financial Officer and Treasurer
August 14, 2002