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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31,
2001 COMMISSION FILE NO. 1-11993

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

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

100 CLEARBROOK ROAD, ELMSFORD, NEW YORK 10523

(914) 460-1600

(Address and telephone number of Principal Executive Offices)

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

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE PER SHARE
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

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

The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 1, 2002, was approximately $377.0
million. (Reference is made to the fourth paragraph of Part II, Item 5 herein
for a statement of the assumptions upon which this calculation is based.)

On March 15, 2002, there were outstanding 22,832,583 shares of the
registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for its 2002 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the close of the registrant's fiscal year are incorporated by reference into
Part III of this Form 10-K.




PART I

ITEM 1. BUSINESS

OVERVIEW

MIM Corporation (the "Company" or "MIM") is a pharmaceutical healthcare
organization delivering innovative pharmacy benefit, specialty pharmaceutical
distribution and other pharmacy-related healthcare solutions to Plan Sponsors,
principally managed care organizations ("MCOs")and third party administrators.
The Company combines its clinical expertise, sophisticated data management and
therapeutic fulfillment capabilities to serve the particular needs of each of
its customers and respective benefit recipients covered by the customers'
pharmacy related health benefit.

The Company provides a broad array of pharmacy benefit and pharmacy
products and services to individuals ("Members") receiving health benefits
principally through health insurers (including MCOs) and other insurance
companies, and, to a lesser extent, third party administrators, labor unions,
self-funded employer groups, government agencies, and other funded health plan
sponsors (collectively, "Plan Sponsors"). The Company's programs include the
distribution of biotech and other high-cost prescription medications to the
chronically ill and genetically impaired, the provision of pharmacy benefit
management ("PBM") services to members of Plan Sponsors, and the distribution of
prescription maintenance medications to Plan Sponsors' Members by mail service
("Mail Service"). All of the Company's programs include the provision of
clinical pharmacy services designed to provide patients with high quality care
while controlling pharmacy and overall healthcare costs. 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 as part of its
PBM and/or specialty pharmacy programs, all of which will be described below in
greater detail: pharmacy case management, therapy assessment, compliance
monitoring, health risk assessment, patient education, drug usage and
interaction evaluation, pharmacy claims processing, Mail Service 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.

Although a significant portion of the Company's revenues are now generated
through the management and distribution of Specialty Pharmaceuticals to the
genetically impaired and the chronically ill, the Company derives more than a
majority of its revenues from the provision of PBM services. The Company
believes that its future growth is directly linked to the success of its
specialty pharmacy growth strategy and believes that within 24 months, a
majority of the Company's revenues will be derived from the provision of
specialty pharmaceutical management and distribution operations.

SPECIALTY PHARMACY MANAGEMENT AND DISTRIBUTION

Through its BioScrip(TM) specialty injectable therapy programs, the
Company distributes high-cost pharmaceuticals and provides clinically focused
case and disease management programs to Plan Sponsors' members afflicted with
chronic illnesses or genetic impairments. The disease states or conditions for
which the Company has specialty injectable programs include HIV/AIDS, oncology,
hemophilia, multiple sclerosis, growth hormone deficiency, Gaucher's disease,
rheumatoid arthritis, infertility, respiratory syncytial virus (RSV), hepatitis
C, Crohn's disease and transplant.

The Company's specialty pharmaceutical programs are marketed principally
to Plan Sponsors in order to control the high cost trends associated with
medications for the chronically ill and genetically impaired. As part of a
bundled offering, the Company distributes prescription products to Plan
Sponsors' Member's and clinically manages each Member's condition from a
pharmacoeconomic perspective. In other words, the Company attempts to maximize
patient outcomes through strict adherence to the clinical guidelines or
protocols for a particular prescription therapy. In adhering to the guidelines,
the Company also attempts to minimize or control the costs associated with a
Member's condition.

The Company also distributes high-cost injectable and infusion
prescription medications and provides clinical management services to patients
through its Vitality Home Infusion Services, Inc., d/b/a Vitality Pharmaceutical
Services ("Vitality"), subsidiary, acquired in January 2002, located in Roslyn
Heights, New York. While BioScrip is marketed exclusively to Plan Sponsors,
Vitality markets its products and services to physician practice groups,
hospitals, and, in some cases, directly to patients.

Through its American Disease Management Associates L.L.C. ("ADIMA")
subsidiary located in Livingston, New Jersey, the Company distributes and
administers high cost specialty infusion therapies to patients requiring
principally immunosuppression blood products, such as IGG, parenteral nutrition
products, such as TPN, and antibiotic therapies such as rocephin or vancomycin.
Unlike the Company's other specialty programs, patients being serviced through
ADIMA have their therapies administered by IV certified nurses.


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Unlike many of the Company's competitors, which focus on particular
pharmaceutical products within a limited number of chronic disease states, the
Company offers numerous products within a larger number of disease states, since
it is attempting to control a Plan Sponsor's overall pharmacy and medical
expenditures in the most clinically appropriate manner. In contrast, many of the
Company's competitors focus on increasing the market share of a particular
product and increasing profitability through its relationship with the
manufacturer of that particular product.

The following services are available through the Company's Specialty programs:

PHARMACY CASE MANAGEMENT ("PCM") - The Company provides Plan Sponsors'
Members with access to the BioScrip pharmacy case management team ("PCM Team"),
which is a specialized unit of skilled professionals including Pharmacists,
Registered Nurses, Certified Pharmacy Technicians, Case Managers and Customer
Service Representatives. The PCM Team is available via phone to both providers
and patients, 24 hours per day, seven days per week. Each PCM Team member is
cross trained in case management as well as individual disease states, in order
to provide Plan Sponsors and its Members with a variety of basic services,
including:

PRIOR AUTHORIZATIONS - The Company, in conjunction with the contracted
Plan Sponsor, develops effective criteria and protocols for the effective
management of specialty pharmaceutical care. Criteria are reviewed prior to the
onset of therapy to minimize incorrect prescribing, thereby reducing unnecessary
cost.

THERAPY ASSESSMENT - On-going monitoring of a Member's therapy is
performed at disease specific intervals to assure adherence to therapy, desired
response to therapy and any necessary interventions to enhance patient care.

PATIENT ENROLLMENT - The PCM Team is the main point of contact for both
physicians and patients during the enrollment process. PCM team members are
responsible for identifying immediate patient needs, triggering important
patient and physician mailings and following through on the enrollment process
and delivery of the initial prescription.

RISK ASSESSMENT - The PCM Team will engage all new patients in an initial
assessment to determine the patient's knowledge level, self-care ability and
non-compliance risk. Depending on the results of this assessment, patients are
classified and an appropriate monitoring program is selected and administered.
Patients are reassessed at appropriate times during their treatment as
determined by the PCM Team.


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EDUCATION. Each PCM Team member is trained in disease state management and
treatment issues, and will be a valuable resource for both patients and
physicians in answering treatment questions pertaining to such topics as side
effects, self-administration and compliance issues.

COMPLIANCE MONITORING. The PCM Team will collectively track the patient's
progress and will initiate reminders, reinforcements and non-compliance alerts
to both physicians and the patient. They are the catalyst for understanding
compliance risks and taking action to coordinating the support necessary to
maximize the patient's treatment.

COORDINATED MEDICATION DELIVERY. BioScrip's pharmacy will provide express
delivery of medications to the patient's point of service including a
physician's office. Special handling techniques such as dry-ice packing are
utilized in compliance with manufacturer's specified requirements. In addition
to the injectable medication, BioScrip also provides Sharps containers, syringes
and ancillary materials needed for administration of the product. Express
delivery via overnight courier is provided without additional charge to the
patient or physician.

PHARMACY DATA SERVICES. The Company utilizes claims, medical and
laboratory data to analyze and evaluate pharmaceutical utilization and cost
trends to support our customers' understanding of such information through the
generation of reports for management and Plan Sponsor use, and presentation of
information vital to the Plan Sponsors' understanding of their particular
pharmaceutical utilization and cost trends. These services include drug
utilization review, quality assurance, claims and laboratory analysis. The
Company has developed proprietary systems to provide Plan Sponsors with
real-time access to pharmacy, financial, claims, prescriber and dispensing data.

DISEASE MANAGEMENT. The Company designs and administers programs to
maximize the benefits of pharmaceutical utilization as a tool in achieving
therapy goals for certain targeted diseases. Programs focus on preventing
high-risk events, such as asthma exacerbation or stroke, through appropriate use
of pharmaceuticals, while eliminating unnecessary or duplicate therapies. Key
components of these programs include health care provider training, integration
of care between health disciplines, monitoring of patient compliance,
measurement of care process and quality, and providing feedback for continuous
improvement in achieving therapy goals.


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PBM SERVICES

The Company's PBM services offer small to mid-sized Plan Sponsors a broad
range of services designed to ensure the cost-effective delivery of clinically
appropriate pharmacy benefits. PBM services available to the Company's customers
include the following:

FORMULARY AND BENEFIT DESIGN. The Company offers to its clients customized,
flexible formulary and benefit plan designs to meet their specific program
requirements. Formulary design may assist in controlling program costs by
focusing, to the extent consistent with accepted medical and pharmacy practices
and applicable law, primarily on two areas: (i) generic substitution, which
involves the selection of generic drugs as a cost-effective alternative to their
bio-equivalent brand name drugs within a therapeutic category, and/or (ii)
therapeutic interchange, which involves the selection of a lower cost brand name
drug as an alternative to a higher priced brand name drug within a therapeutic
category. Increased usage of generic drugs by Company-managed programs also
enables the Company to obtain purchasing concessions and other financial
incentives on generic drugs, which may be shared with Plan Sponsors. After a
formulary has been established by a Plan Sponsor, rebates on brand name drugs
are also negotiated with drug manufacturers and are often shared with plan
sponsors.

Many Plan Sponsors do not restrict coverage to a specific list of
pharmaceuticals and are said to have "no" formulary or an "open" formulary that
generally covers all FDA-approved drugs except certain classes of excluded
pharmaceuticals (such as certain vitamins and cosmetics, experimental,
investigative or over-the-counter drugs). As a result of rising pharmacy program
costs, however, the Company believes that both public and private Plan Sponsors
have become increasingly receptive to controlling pharmacy costs by restricting
the availability of certain drugs within a given therapeutic class, other than
in cases of medical necessity or other pre-established prior authorization
guidelines, to the extent clinically appropriate. Once a Plan Sponsor decides to
utilize a "restricted" or "closed" formulary, the Company actively involves its
clinical staff with a Plan Sponsor's Pharmacy and Therapeutics Committees (which
typically consists of local Plan Sponsors, prescribers, pharmacists and other
health care professionals) to design clinically appropriate formularies in order
to control pharmacy costs. The composition of the formulary is the
responsibility of, and subject to the final approval of, the Plan Sponsor.

The primary method for assuring formulary compliance on behalf of a Plan
Sponsor is by controlling pharmacy reimbursement to ensure that non-formulary
drugs are not dispensed to a plan member, subject to certain limited exceptions.
Benefit design and formulary parameters are managed through a point-of-sale
("POS") claims processing system through which real-time electronic messages are
transmitted to pharmacists to ensure compliance with specified benefit design
and formulary parameters before services are rendered and prescriptions are
dispensed. Over utilization of medication is monitored and managed through
quantity limitations, based upon nationally recognized standards and guidelines
regarding maintenance versus non-maintenance therapy. Step protocols, which are
procedures requiring that preferred therapies be tried and shown ineffective
before less favored therapies are covered, are also established by the Company
in conjunction with the Plan Sponsors' Pharmacy and Therapeutics Committees to
control improper utilization of certain high-risk or high-cost medications.

CLINICAL SERVICES. Plan Sponsors' formularies typically identify a limited
number of drugs for preferred status within each therapeutic class to be the
covered drugs in order to treat most medical conditions appropriately. Provision



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is also made, however, for coverage of non-formulary or non-preferred drugs
(other than certain excluded products) when documented to be clinically
appropriate for a particular patient. Since non-formulary drugs ordinarily are
automatically rejected for coverage by the real-time POS system, the Company
employs procedures to override restrictions on non-formulary medications for a
particular patient and period of treatment. Similarly, restrictions on the use
of certain high-risk or high-cost formulary drugs may be overridden through
prior authorization procedures. Non-formulary overrides and prior authorizations
are processed on the basis of documented, clinically supported medical
information and typically are granted or denied within 48 hours after request.
Requests for, and appeals of denials of coverage in those cases are handled by
the Company through its staff of trained pharmacists and board certified
pharmacotherapy specialists, subject to a Plan Sponsor's ultimate authority over
all such requests and appeals. Further, in the case of a medical emergency, as
determined by the dispensing network pharmacist, the Company authorizes, without
prior approval, short-term supplies of all medication unless specifically
excluded by a plan.

DRUG USAGE EVALUATION. Drug usage is evaluated on a concurrent, prospective
and retrospective basis utilizing the real-time POS system and proprietary
information systems for multiple drug interactions, drug-health condition
interactions, duplication of therapy, step therapy protocol enforcement,
minimum/maximum dose range edits, compliance with prescribed utilization levels
and early refill notification. The Company also maintains an on-going drug
utilization review program in which select medication therapies are reviewed and
data is collected, analyzed and reported for management applications.

PHARMACY DATA SERVICES. The Company utilizes claims data to analyze and
evaluate pharmaceutical utilization and cost trends to support our customers'
understanding of such information through the generation of reports for
management and Plan Sponsor use, and presentation of information vital to the
Plan Sponsors understanding of their particular pharmaceutical utilization and
cost trends. These services include drug utilization review, quality assurance,
claims analysis and rebate contract administration. The Company has developed
proprietary systems to provide Plan Sponsors with real-time access to pharmacy,
financial, claims, prescriber and dispensing data.

DISEASE MANAGEMENT. The Company designs and administers programs to
maximize the benefits of pharmaceutical utilization as a tool in achieving
therapy goals for certain targeted diseases, such as diabetes and asthma.
Programs focus on preventing high-risk events, such as asthma exacerbation or
stroke, through appropriate use of pharmaceuticals, while eliminating
unnecessary or duplicate therapies. Key components of these programs include
health care provider training, integration of care between health disciplines,
monitoring of patient compliance, measurement of care process and quality, and
providing feedback for continuous improvement in achieving therapy goals. As
described more fully above under "Specialty Pharmacy Management and
Distribution," many of these same tools are used by the Company in delivering
specialty pharmaceutical services and products to patients afflicted with the
chronic diseases managed by the Company.

BEHAVIORAL HEALTH PHARMACY SERVICES. In recent years, Plan Sponsors,
particularly MCOs, have recognized the specialized behavioral health needs of
certain of its Members. As a result, many MCOs have segregated those afflicted
with behavioral health issues into separately managed programs. The Company
provides pharmaceutical-related services that encourage the proper and
cost-effective utilization of behavioral health medication to enrollees within
the segregated population within separate behavioral health organizations, which
are traditionally (but not always) affiliated with that MCO. Through the
development of provider education programs, utilization protocols and
prescription dispensing evaluation tools, the Company is able to integrate
pharmaceutical behavioral or mental health therapies with other medical
therapies to enhance patient compliance and minimize unnecessary or sub optimal
prescribing practices. These services are integrated into the Plan Sponsor's
package of behavioral health care products for marketing to private insurers,
public managed care programs and other health providers.

PHARMACY DISPENSING FACILITY. The Company believes that program costs may
also be reduced through the distribution of pharmaceutical products directly to
Plan Sponsors' Members by the use of Mail Service programs through its pharmacy
dispensing facility. The Company provides these Mail Service dispensing services
from a new, fully automated fulfillment facility in Columbus, Ohio to Members
typically receiving maintenance medications. The facility utilizes some of the
industry's latest pharmacy technology currently available in the market place.
This affords the Company and its Plan Sponsors the ability to reduce cost
through the Company's Mail Service as compared to the more costly retail
distribution of prescription products.

CAPITATED BILLING ARRANGEMENTS

In addition to traditional fee-for-service billing arrangements, the
Company had historically offered capitated fee billing arrangements to its MCO
customers. A capitated fee arrangement permits a Plan Sponsor to incur a fixed
fee per member (a "capitated" program), which allows for cost shifting to the
Company where aggregate PBM costs exceed pre-established per member amounts and
a premium or greater financial benefit to the Company where costs are less than
pre-established per member amounts. For 2002, the Company has remaining one
material capitated arrangement with an MCO. The Company presently anticipates
that capitated arrangements will represent approximately 6.8% of the Company's
2002 revenues. For the year ended December 31, 2001, approximately 21.2% of the
Company's revenues were generated from capitated contracts compared to
approximately 28.0% in 2000 while non-capitated business (including mail order
services) represented approximately 78.8% and 72.0%, respectively.

PROVISION FOR LOSS CONTRACTS

Generally, loss contracts arise only on capitated contracts and primarily
result from higher than expected pharmacy utilization rates, higher than
expected inflation in drug costs and the inability of the Company to restrict an
MCOs' formulary to the extent anticipated by the Company at the time contracted
PBM services are implemented, thereby resulting in higher than expected drug
costs. At such time as management estimates that a contract will sustain losses
over its remaining contractual life, a reserve is established for these
estimated losses. There are currently no expected loss contracts and management
does not believe that there is an overall trend towards losses on its existing
capitated contracts.


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SALES, MARKETING AND SERVICING

The Company offers Plan Sponsors comprehensive pharmaceutical services
that manage all aspects of a Plan Sponsor's pharmaceutical needs, including the
specialty pharmacy services described above. The Company believes that its
ability to offer a full line of services, including its specialty pharmacy
products and services, provides it a competitive edge over its competition. The
Company has also been successful in contracting to provide specialty
pharmaceutical services, typically on a non-exclusive or preferred basis to Plan
Sponsors, clinics, hospitals and physician groups not previously contracted with
the Company for non-specialty PBM services.

The Company markets its specialty pharmaceutical programs to MCO's without
regard to the number of members, third party administrators, physician practice
groups and hospitals. Unlike many of its competitors, the Company also markets
these programs to other typically smaller pharmacy benefit managers, which do
not have the same resources as the Company or which otherwise have determined
not to develop independent specialty pharmacy operations.

The Company markets its PBM services to small- to mid-sized public and
private health plans and MCOs, typically having 400,000 or less members,
self-funded groups, small employer groups, labor unions and third party
administrators representing some or all of the aforementioned groups. The
Company primarily relies on its own national sales force to solicit business
from Plan Sponsors, as well as third party administrators and commissioned
independent agents and brokers.

As with all of the Company's products and services, the Company offers Mail
Service programs in conjunction with PBM and specialty, pharmaceutical
distribution programs. When offered in conjunction with its other programs, Mail
Service may be subject to the target marketing focus of the PBM. When offered
as a program without PBM services, the Company's Mail Service programs are
offered to MCO's and other plans without regard to that Plan Sponsors size.

THE TENNCARE(R) PROGRAM.

Historically, a majority of the Company's revenues were derived from
providing PBM services in the State of Tennessee to MCOs participating in the
State of Tennessee's TennCare(R) program and behavioral health organizations
("BHOs") participating in the State of Tennessee's TennCare(R) Partners program.
From January 1994 through December 31, 1998, the Company provided its PBM
services as a subcontractor to RxCare of Tennessee, Inc. ("RxCare").

The Company and RxCare discontinued their relationship on December 31, 1998.
The negotiated termination of its relationship with RxCare, among other things,
allowed the Company to directly market its services to Tennessee customers
(including those under contract with RxCare at such time) prior to the
expiration of that relationship. The Company's marketing efforts resulted in the
Company executing agreements with all of the MCOs for the TennCare(R) lives
previously managed through RxCare, as well as substantially all third party
administrators ("TPAs") and employer groups previously managed through the
RxCare relationship.

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. In addition, the State of
Tennessee and the Federal governments have agreed to negotiate towards an
additional two-year extension of the waiver through December 31, 2004. 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, there can be no assurances that such waiver
will be renewed after December 31, 2002, that pharmacy benefits will continue
under the TennCare(R) Program or that the MCO's currently being serviced by the
Company will continue their respective relationships with it under the existing
or a successor program or on the same or similar terms and conditions. If the
waiver is not renewed and the Company is not providing PBM services and/or
distributing specialty products to those lives under a successor program or
arrangement, then the failure to provide such services could have a material and
adverse affect on the financial position and results of operations of the
Company. Moreover, 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.

COMPETITION

The Company faces substantial competition within the pharmaceutical
healthcare services industry. This industry includes a number of large,
well-capitalized companies with nationwide operations, such as AdvancePCS,


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Inc., Caremark Rx, Inc., Express Scripts, Inc., Merck-Medco Managed Care,
L.L.C., MedImpact Healthcare Systems, Inc. and WellPoint Pharmacy Management as
well as many smaller organizations typically operating on a local or regional
basis. The Company also competes with several national and regional specialty
pharmaceutical distribution companies that have substantial financial resources
and which also provide products and services to the chronically ill and
genetically impaired. These competitors include Accredo Health Inc., Chronimed,
Inc., Gentiva Health Services, Inc. and Priority Healthcare Corporation. Some of
the Company's competitors are under common control or ownership by brand name
drug manufacturers or retail pharmacy chains and may be better positioned with
respect to the cost-effective distribution of pharmaceuticals and/or the pricing
of PBM services. Some of the Company's primary competitors have a substantially
larger portion of the market share than the Company's existing market share.
Moreover, some of the Company's competitors may have secured long-term supply or
distribution arrangements for prescription pharmaceuticals necessary to treat
certain chronic disease states on price terms substantially more favorable than
the terms currently available to the Company. As a result of such advantageous
pricing, the Company may be less price competitive than some of these
competitors with respect to certain pharmaceutical products. However, as relates
to its specialty programs, the Company does not believe that it competes
strictly on the cost of particular products, rather it offers customers the
opportunity to lower overall pharmaceutical and medical cost while providing
high quality care.

GOVERNMENT REGULATION

GENERAL. As a participant in the healthcare industry, the Company's
operations and relationships are subject to federal and state laws and
regulations and enforcement by federal and state governmental agencies. Various
federal and state laws and regulations govern the purchase, distribution and
management of prescription drugs and related services and affect or may affect
the Company. The Company believes that it is in compliance with all legal
requirements material to its operations.

In the second quarter of 2000, the Company entered into a global settlement
agreement with the Office of Inspector General (the "OIG"), within the U.S.
Department of Health and Human Services ("HHS"), and the State of Tennessee
relating to certain civil and criminal charges brought against former officers
of the Company's predecessor. The Company did not admit any wrongdoing in the
global settlement agreement but agreed to enter into a corporate integrity
agreement in order to ensure ongoing compliance with the requirements of
Medicare, Medicaid and all other Federal health care programs. Under the terms
of this agreement, the Company is required to, among other things, implement a
corporate compliance program, conduct ongoing educational programs to inform
employees regarding compliance with relevant laws and regulations and institute
a formal reporting procedure to disclose possible violations to the OIG. In
addition to these requirements, the Company must submit annual reports with
respect to the status of its compliance activities. Although compliance with the
corporate integrity agreement is designed to reduce the risk of violations of
laws and regulations relevant to our business, the Company is required to report
any such potential violations to the OIG and the U.S. Department of Justice. The
Company is therefore subject to increased regulatory scrutiny and, if the
Company commits legal or regulatory violations, it may be subject to an
increased risk of sanctions or penalties, including exclusion from participation
in the Medicare or Medicaid programs. The Company anticipates maintaining
certain compliance related oversight procedures after the expiration of the
corporate integrity agreement in June 2005.

Among the various Federal and state laws and regulations which may govern or
impact the Company's current and planned operations are the following:

MAIL SERVICE PHARMACY REGULATION. Many of the states into which the Company
delivers pharmaceuticals have laws and regulations that require out-of-state
Mail Service pharmacies to register with, or be licensed by, the boards of
pharmacy or similar regulatory bodies in those states. These states generally
permit the dispensing pharmacy to follow the laws of the state within which the
dispensing pharmacy is located.

However, various states have enacted laws and adopted regulations directed
at restricting or prohibiting the operation of out-of-state pharmacies by, among
other things, requiring compliance with all laws of the states into which the
out-of-state pharmacy dispenses medications, whether or not those laws conflict
with the laws of the state in which the pharmacy is located. To the extent that
such laws or regulations are found to be applicable to the Company's operations,
the Company would be required to comply with them. In addition, to the extent
that any of the foregoing laws or regulations prohibit or restrict the operation
of Mail Service pharmacies and are found to be applicable to the Company, they
could have an adverse effect on the Company's prescription Mail Service
operations.


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Other statutes and regulations may also affect the Company's Mail Service
operations. The Federal Trade Commission requires mail order sellers of goods
generally to engage in truthful advertising, to stock a reasonable supply of the
products to be sold, to fill mail orders within 30 days, and to provide clients
with refunds when appropriate.

LICENSURE LAWS. Many states have licensure or registration laws governing
certain types of ancillary healthcare organizations, including preferred
provider organizations, third party administrators, and companies that provide
utilization review services. The scope of these laws differs significantly from
state to state, and the application of such laws to the activities of pharmacy
benefit managers often is unclear. The Company has registered under such laws in
those states in which the Company has concluded that such registration is
required.

The Company dispenses prescription drugs pursuant to orders received through
its ScripPharmacy.com Web site, as well as other affiliated Web sites.
Accordingly, the Company may be subject to laws affecting on-line pharmacies.
Several states have proposed laws to regulate on-line pharmacies and require
on-line pharmacies to obtain state pharmacy licenses. Additionally, federal
regulation by the United States Food and Drug Administration (the "FDA"), or
another federal agency, of on-line pharmacies that dispense prescription drugs
has been proposed. To the extent that such state or federal regulation could
apply to the Company's operations, certain of the Company's operations could be
adversely affected by such licensure legislation.

OTHER LAWS AFFECTING PHARMACY OPERATIONS. The Company is subject to state
and federal statutes and regulations governing the operation of pharmacies,
repackaging of drug products, wholesale distribution, dispensing of controlled
substances, medical waste disposal, and clinical trials. Federal statutes and
regulations govern the labeling, packaging, advertising and adulteration of
prescription drugs and the dispensing of controlled substances. Federal
controlled substance laws require the Company to register its pharmacies and
repackaging facilities with the United States Drug Enforcement Administration
and to comply with security, recordkeeping, inventory control and labeling
standards in order to dispense controlled substances.

State controlled substance laws require registration and compliance with
state pharmacy licensure, registration or permit standards promulgated by the
state pharmacy licensing authority. Such standards often address the
qualification of an applicant's personnel, the adequacy of its prescription
fulfillment and inventory control practices and the adequacy of its facilities.
In general, pharmacy licenses are renewed annually. Pharmacists and pharmacy
technicians employed by each branch must also satisfy applicable state licensing
requirements.

FDA REGULATION. The FDA generally has authority to regulate drug promotional
information and materials that are disseminated by a drug manufacturer or by
other persons on behalf of a drug manufacturer. In January 1998, the FDA issued
Draft Guidance regarding its intent to regulate certain drug promotion and
switching activities of pharmaceutical manufacturers that control, directly or
indirectly, a PBM. The FDA has indicated that it does not intend to finalize the
Draft Guidance. However, there can be no assurance that the FDA will not assert
jurisdiction over certain aspects of the Company's PBM business, including the
internet sale of prescription drugs.


NETWORK ACCESS LEGISLATION. A majority of states now have some form of
legislation affecting the ability of the Company to limit access to a pharmacy
provider network or remove network providers. Such legislation may require the
Company or its client to admit any retail pharmacy willing to meet the plan's
price and other terms for network participation ("any willing provider"
legislation), or may prohibit the removal of a provider from a network except in
compliance with certain procedures ("due process" legislation) or may prohibit
days' supply limitations or co-payment differentials between mail and retail
pharmacy providers. Many states have exceptions to the applicability of these
statutes for managed care arrangements or other government benefit programs,
including Tennessee.

LEGISLATION IMPOSING PLAN DESIGN MANDATES. Some states have enacted
legislation that prohibits Plan Sponsors from implementing certain restriction
design features, and many states have introduced legislation to regulate various
aspects of managed care plans, including provisions relating to pharmacy
benefits. For example, some states provide that members of a plan may not be
required to use network providers, but that must instead be provided with
benefits even if they choose to use non-network providers ("freedom of choice"
legislation), or provide that a patient may sue his or her health plan if care
is denied. Some states have enacted, and other states have introduced,
legislation regarding plan design mandates, including legislation that prohibits


9




or restricts therapeutic substitution, requires coverage of all drugs approved
by the FDA, or prohibits denial of coverage for non-FDA approved uses. Some
states mandate coverage of certain benefits or conditions. Such legislation does
not generally apply to the Company, but it may apply to certain of the Company's
customers (generally, HMOs and health insurers). If such legislation were to
become widespread and broad in scope, it could have the effect of limiting the
economic benefits achievable through pharmacy benefit management. To the extent
that such legislation is applicable and is not preempted by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (as to plans
governed by ERISA), certain operations of the Company could be adversely
affected.

Other states have enacted legislation purporting to prohibit health plans
from requiring or offering members financial incentives for use of mail order
pharmacies.

ANTI-KICKBACK LAWS. Subject to certain statutory and regulatory exceptions
(including exceptions relating to certain managed care, discount, group
purchasing and personal services arrangements), Federal law prohibits the
payment or receipt of remuneration to induce, arrange for or recommend the
purchase of health care items or services paid for in whole or in part by
Medicare or state health care programs (including Medicaid programs and Medicaid
waiver programs). Certain state laws may extend the prohibition to items or
services that are paid for by private insurance and self-pay patients.
Management carefully considers the importance of such "anti-kickback" laws when
structuring its operations, and believes the Company is in compliance therewith.
Violation of the Federal anti-kickback statute could subject the Company to
criminal and/or civil penalties, including exclusion from Medicare and Medicaid
(including TennCare(R)) programs or state-funded programs in the case of state
enforcement.

The federal anti-kickback law has been interpreted broadly by courts, the
OIG and administrative bodies. Because of the federal statutes broad scope,
federal regulations establish certain safe harbors from liability. Safe harbors
exist for certain properly reported discounts received from vendors, certain
investment interest, and certain properly disclosed payments made by vendors to
group purchasing organizations, as well as for other transactions or
relationships. In late 1999, the HHS adopted final rules revising the discount
safe harbor to protect certain rebates. Because this revision is fairly recent,
the guidance on how the safe harbor revision will be interpreted is not fully
developed. Nonetheless, a practice that does not fall within a safe harbor is
not necessarily unlawful, but may be subject to scrutiny and challenge. In the
absence of an applicable exception or safe harbor, a violation of the statute
may occur even if only one purpose of a payment arrangement is to induce patient
referrals or purchases. Among the practices that have been identified by the OIG
as potentially improper under the statute are certain "product conversion
programs" in which benefits are given by drug manufacturers to pharmacists or
physicians for changing a prescription (or recommending or requesting such a
change) from one drug to another. Anti-kickback laws have been cited as a
partial basis, along with state consumer protection laws discussed below, for
investigations and multi-state settlements relating to financial incentives
provided by drug manufacturers to retail pharmacies in connection with such
programs.

Certain governmental entities have commenced investigations of PBM companies
and other companies having dealings with the PBM industry and have identified
issues concerning selection of drug formularies, therapeutic substitution
programs and discounts or rebates from prescription drug manufacturers.
Additionally, at least one state has filed a lawsuit concerning similar issues
against a health plan. To date, the Company has not been the subject of any such
investigation or suit and has not received subpoenas or been requested to
produce documents for any such investigation or suit. However, there can be no
assurance that the Company will not receive subpoenas or be requested to produce
documents in pending investigations or litigation in the future.

The Company believes that it is in compliance with the legal requirements
imposed by the anti-remuneration laws and regulations, and the Company believes
that there are material and substantial differences between drug switching
programs that have been challenged under these laws and the therapeutic
interchange practices and formulary management programs offered by the Company
to its customers. However, there can be no assurance that the Company will not
be subject to scrutiny or challenge under such laws or regulations, or that any
such challenge would not have a material adverse effect upon the Company.

THE STARK LAWS. The federal law known as "Stark II" became effective in
1995, and was a significant expansion of an earlier federal physician
self-referral law commonly known as "Stark I". Stark II prohibits physicians
from referring Medicare or Medicaid patients for "designated health services" to
an entity with which the physician or an immediate family member of the
physician has a financial relationship. Possible penalties for violation of the


10




Stark laws include denial of payment, refund of amounts collected in violation
of the statute, civil monetary penalties and program exclusion. The Stark law
standards contain certain exceptions for physician financial arrangements, and
HCFA has released Stark II final regulations, which describe the parameters of
these exceptions in more detail. The Stark II regulations are scheduled to
become effective in January 2002, with the exception of one section relating to
physician referrals to home health care agencies, which was scheduled to become
effective in February 2001.

STATE SELF-REFERRAL LAWS. The Company is subject to state statutes and
regulations that prohibit payments for referral of patients and referrals by
physicians to healthcare providers with whom the physicians have a financial
relationship. Some state statutes and regulations apply to services reimbursed
by governmental as well as private payors. Violation of these laws may result in
prohibition of payment for services rendered, loss of pharmacy or health
provider licenses, fines, and criminal penalties. The laws and exceptions or
safe harbors may vary from the federal Stark laws and vary significantly from
state to state. The laws are often vague, and, in many cases, have not been
widely interpreted by courts or regulatory agencies; however, the Company
believes it is in compliance with such laws.

STATUTES PROHIBITING FALSE CLAIMS AND FRAUDULENT BILLING ACTIVITIES. A range
of federal civil and criminal laws target false claims and fraudulent billing
activities. One of the most significant is the Federal False Claims Act, which
prohibits the submission of a false claim or the making of a false record or
statement in order to secure a reimbursement from a government-sponsored
program. In recent years, the federal government has launched several
initiatives aimed at uncovering practices, which violate false claims or
fraudulent billing laws. Claims under these laws may be brought either by the
government or by private individuals on behalf of the government, through a
"whistleblower" or "qui tam" action.

REIMBURSEMENT. Approximately 47% of the Company's revenue is derived
directly from Medicare or Medicaid or other government-sponsored healthcare
programs subject to the federal anti-kickback laws and/or the Stark laws. Also,
the Company indirectly provides benefits to managed care entities that provide
services to beneficiaries of Medicare, Medicaid and other government-sponsored
healthcare programs. Should there be material changes to federal or state
reimbursement methodologies, regulations or policies, the Company's
reimbursements from government-sponsored healthcare programs could be adversely
affected. In addition, certain state Medicaid programs only allow for
reimbursement to pharmacies residing in the state or in a border state. While
the Company believes that it can service its current Medicaid patients through
existing pharmacies, there can be no assurance that additional states will not
enact in-state dispensing requirements for their Medicaid programs. To the
extent such requirements are enacted, certain therapeutic pharmaceutical
reimbursements could be adversely affected.

LEGISLATION AND OTHER MATTERS AFFECTING DRUG PRICES. Some states have
adopted legislation providing that a pharmacy participating in the state
Medicaid program must give the state the best price that the pharmacy makes
available to any third party plan ("most favored nation" legislation). Such
legislation may adversely affect the Company's ability to negotiate discounts in
the future from network pharmacies. At least one state has enacted "unitary
pricing" legislation, which mandates that all wholesale purchasers of drugs
within the state be given access to the same discounts and incentives. Such
legislation has not yet been enacted in the states where the Company's Mail
Service pharmacies are located. Such legislation, if enacted in other states,
could adversely affect the Company's ability to negotiate discounts on its
purchase of prescription drugs to be dispensed by its Mail Service pharmacies.

PRIVACY AND CONFIDENTIALITY LEGISLATION. Most of the Company's activities
involve the receipt or use by the Company of confidential medical, pharmacy or
other health-related information concerning individual Members, including the
transfer of the confidential information to the Member's health benefit plan. In
addition, the Company uses aggregated and blinded (anonymous) data for research
and analysis purposes. In December 2000, HHS issued final regulations regarding
the privacy of individually-identifiable health information pursuant to the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). This
final rule on privacy applies to a health care patient's medical information
that could be used to identify the individual identity of the patient. We refer
to this information as protected health information. The final rule mandates the
protection of protected health information in any format, including both
electronic and paper records, and imposes extensive requirements on the way in
which health care providers such as us, as well as Plan Sponsors and their
business associates, use and disclose protected health information. The final
rule gives patients significant rights to understand and control how their
protected health information is used and disclosed. Organizations subject to the
rule will have


11




until April 14, 2003 comply with its provisions and implement appropriate
policies and procedures to safeguard protected health information. HIPAA will
likely increase our burden and costs of regulatory compliance with respect to
our health improvement programs and other information-based products, alter our
reporting to certain Plan Sponsors and may reduce the amount of information we
may use if patients do not consent to such use. Sanctions for failing to comply
with standards issued pursuant to HIPAA include possible jail time, criminal
penalties of up to $250,000 and civil fines of up to $25,000. In addition, HHS
has proposed, but not yet finalized, regulations pursuant to HIPAA that govern
the security of individually-identifiable health information.

In addition to the proposed federal health information privacy regulations
described above, most states have enacted patient confidentiality laws, which
prohibit the disclosure of confidential medical information. It is unclear which
state laws may be preempted by the final HHS rule discussed above.

CONSUMER PROTECTION LAWS. Most states have consumer protection laws that
have been the basis for investigations and multi-state settlements relating to
financial incentives provided by drug manufacturers to pharmacies in connection
with drug switching programs. No assurance can be given that the Company will
not be subject to scrutiny or challenge under one or more of these laws.

DISEASE MANAGEMENT SERVICES REGULATION. All states regulate the practice of
medicine. To the Company's knowledge, no PBM has been found to be engaging in
the practice of medicine by reason of its disease management services. However,
there can be no assurance that a federal or state regulatory authority will not
assert that such services constitute the practice of medicine, thereby
subjecting such services to federal and state laws and regulations applicable to
the practice of medicine.

COMPREHENSIVE PBM REGULATION. Although no state has passed legislation
regulating PBM activities in a comprehensive manner, such legislation has been
introduced in the past in several states. Such legislation, if enacted in a
state in which the Company conducts a significant amount of business, could have
a material adverse impact on the Company's operations.

ANTITRUST LAWS. Numerous lawsuits have been filed throughout the United
States by retail pharmacies against drug manufacturers challenging certain brand
drug pricing practices under various state and Federal antitrust laws. A
settlement in one such suit would require defendant drug manufacturers to
provide the same types of discounts on pharmaceuticals to retail pharmacies and
buying groups as are provided to managed care entities to the extent that their
respective abilities to affect market share are comparable, a practice which, if
generally followed in the industry, could increase competition from pharmacy
chains and buying groups and reduce or eliminate the availability to the Company
of certain discounts, rebates and fees currently received in connection with its
drug purchasing and formulary administration programs. In addition, to the
extent that the Company or an associated business appears to have actual or
potential market power in a relevant market, business arrangements and practices
may be subject to heightened scrutiny from an anti-competitive perspective and
possible challenge by state or Federal regulators or private parties. For
example, RxCare, which was investigated and found by the Federal Trade
Commission to have potential market power in Tennessee, entered into a consent
decree in June 1996 agreeing not to enforce a policy which had required
participating network pharmacies to accept reimbursement rates from RxCare as
low as rates accepted by them from other pharmacy benefits payors. To date,
enforcement of antitrust laws have not had any material affect on the Company's
business.

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


12




EMPLOYEES

At January 31, 2002, the Company employed a total of 360 people, including
36 licensed pharmacists. The Company's employees are not represented by any
union and, in the opinion of management, the Company's relations with its
employees are good.

ITEM 2. PROPERTIES

The Company's corporate headquarters are located in leased office space in
Elmsford, New York. The Company also leases commercial office space for its
above-described operations in South Kingstown, Rhode Island; Columbus, Ohio;
Livingston, New Jersey; Roslyn Heights, New York; and Nashville, Tennessee.

ITEM 3. LEGAL PROCEEDINGS

Until settled on April 2, 2001, the Company had been engaged in commercial
arbitration with Tennessee Health Partnership ("THP") over a number of
commercial disputes surrounding the parties' relationship. See Note 9 of Notes
to Consolidated Financial Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


13




PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock, par value $0.0001 per share ("Common Stock"), is
traded on the National Market System of The Nasdaq Stock Market, Inc. under the
symbol "MIMS". The following table represents the range of high and low sales
prices for the Company's Common Stock for the last eight quarters. Such prices
reflect interdealer prices, without retail markup, markdown or commissions and
may not necessarily represent actual transactions.

High Low
---------------------
2000: First Quarter........... $ 8.63 $ 2.44
Second Quarter.......... $ 4.38 $ 1.69
Third Quarter........... $ 2.75 $ 1.44
Fourth Quarter.......... $ 2.13 $ 0.63

2001: First Quarter........... $ 2.56 $ 0.81
Second Quarter.......... $ 6.65 $ 2.16
Third Quarter........... $ 12.58 $ 5.93
Fourth Quarter.......... $ 18.33 $ 9.46


As of March 15, 2002, there were 100 stockholders of record in addition to
approximately 9,295 stockholders whose shares were held in nominee name.

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

For purposes of calculating the aggregate market value of the shares of
Common Stock held by non-affiliates, as shown on the cover page of this Annual
Report on Form 10-K (the "Report"), it has been assumed that all outstanding
shares of Common Stock were held by non-affiliates except for shares held by
directors and executive officers of the Company and any persons disclosed as
beneficial owners of greater than 10% of the Company's outstanding securities.
However, this should not be deemed to constitute an admission that any or all
such directors and executive officers of the Company are, in fact, affiliates of
the Company, or that there are not other persons who may be deemed to be
affiliates of the Company.

During the three months ended December 31, 2001, the Company did not sell
any securities without registration under the Securities Act of 1933, as amended
(the "Securities Act").


14




ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below should be read in
conjunction with, and is qualified in its entirety by reference to, Item 7 of
this Report and with the Company's Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this Report.




YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
Statement of Operations Data 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------


Revenue (1) $ 456,646 $ 338,171 $ 350,693 $ 432,609 $ 217,432
Special charges and Tenncare reserve
adjustment (2,476)(8) - 6,029(2) 3,700(3) -
Net income (loss) (4,5,8) 14,202 (1,823) (3,785) 4,271 (13,497)
Net income (loss) per basic share 0.67 (0.09) (0.20) 0.28 (1.07)
Net income (loss) per diluted share (6) 0.64 (0.09) (0.20) 0.26 (1.07)
Weighted average shares outstanding
used in computing basic income (loss)
per share 21,273 19,930 18,660 15,115 12,620
Weighted average shares outstanding
used in computing diluted income (loss)
per share 22,289 19,930 18,660 16,324 12,620







AS OF DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
BALANCE SHEET DATA 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------


Cash and cash equivalents $ 12,487 $ 1,290 $ 15,306 $ 4,495 $ 9,593
Investment securities - - 5,033 11,694 22,636
Working (deficit) capital 9,307 (11,184) 8,995 19,823 9,333
Total assets 139,819 120,401 115,683 110,106 62,727
Capital lease obligations,
net of current portion 1,031 1,621 718 598 756
Long-term debt, net of current portion - - 2,279 6,185 (7) -
Stockholders' equity 60,296 39,505 35,187 39,054 16,810



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

(1) Beginning in 2001, as required by EITF Issue No. 00-22, the Company adopted
a new method of recording rebates received from manufacturers as a
reduction of cost of revenue and rebates shared with Plan Sponsors as a
reduction of revenue. Prior to 2001 the Company recorded the difference
between rebates billed and the rebates shared with customers as a
reduction of cost of revenue. The years 1997, 1998, 1999 and 2000 have all
been reclassified to give effect to this new methodology for comparative
purposes.

(2) In 1999, the Company recorded $6,029 of special charges for estimated
losses on contract receivables relating to Tennessee Health Partnership,
Preferred Health Plans and Xantus Health Plans of Tennessee ("Xantus"), as
further described in Note 9 of Notes to Consolidated Financial Statements.

(3) In 1998, the Company recorded two special charges, one for $1,500 and the
other for $2,200, in connection with the negotiated termination of the
RxCare relationship and amounts paid in settlement of the Federal and State
of Tennessee investigation relating to the conduct of two former officers
of the Company prior to the Company's initial public offering,
respectively.

(4) Net income (loss) includes legal expenses advanced for the defense of two
former officers for the years 2000, 1999, 1998, and 1997 in the amounts of
$3,100, $1,400, $ 1,300, and $800, respectively.

(5) In the fourth quarter of 2000, the Company recorded a provision for loss of
$2,300 on its investment in Wang Healthcare Information Systems.

(6) The historical loss per common share for the years 2000, 1999 and 1997
excludes the effect of common stock equivalents, as their inclusion would
be antidilutive.

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

(8) In 2001, $2.5 million of adjustments were made to the Company's Tenncare(R)
Reserve account. The first adjustment for $1 million occurred in the first
quarter of 2001 relating to the Company's settlement on favorable terms of
its commercial dispute with Tennessee Health Partnership. The second
adjustment, of $1.5 million, occurred in the third quarter, related to the
receipt of monies previously treated as uncollectible from Xantus. See Note
9 of Notes to Consolidated Financial Statements.

15



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This discussion should be read in conjuction with the Company's Consolidated
Financial Statements, including the Notes thereto, included elsewhere in 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, and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including statements regarding the Company's
expectations, hopes, beliefs, intentions or strategies regarding the future.
Forward looking statements may include statements relating to the Company's
business development activities, sales and marketing efforts, the status of
material contractual arrangements, including the negotiation or re-negotiation
of such arrangements, future capital expenditures, the effects of regulation and
competition on the Company's business, future operating performance of the
Company and the results, benefits and risks associated with integration of
acquired companies. Investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, that actual results may differ materially from those possible
results discussed in the forward looking statements as a result of various
factors. These factors include, among other things, risks associated with
risk-based or "capitated" contracts, increased government regulation related to
the health care and insurance industries in general and more specifically,
pharmacy benefit management 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 competitors with greater financial, technical, marketing and other
resources. 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, special pharmaceutical distribution and other
pharmacy-related healthcare solutions. The Company combines its clinical
expertise, sophisticated data management and therapeutic fulfillment
capabilities to serve the particular needs of each of its customers and
respective benefit recipients covered by the customers' pharmacy related health
benefit.

The Company provides a broad array of pharmacy benefit and pharmacy products
and services to individuals ("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 funded plan
sponsors (collectively, "Plan Sponsors"). The Company's programs include the
distribution of biotech and other prescription medications to the chronically
ill and genetically impaired, the provision of pharmacy benefit management
("PBM") services to Members of Plan Sponsors, and the distribution of
prescription maintenance medications to Plan Sponsors' Members by Mail Service.
Depending on the goals and objectives of Plan Sponsors with which the Company
does business, the Company provides some or all of the following clinical
services as part of its PBM and specialty pharmacy programs: pharmacy case
management, therapy assessment, compliance monitoring, health risk assessment,
patient education and drug usage and interaction evaluation, pharmacy claims
processing, Mail Service 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.

BUSINESS

In 2001, the Company primarily derived its revenues from agreements to
provide PBM services, which includes prescription Mail Service to the Members of
Plan Sponsors in the United States. The Company also provided specialty
pharmacy services to chronically ill or genetically impaired patients that
require injection and infusion therapies, as well as infusion therapies and home
healthcare services to patients recently discharged from hospitals. The Company
believes that its future growth is directly linked to the success of its
specialty pharmacy growth strategy and believes that within 24 months, a
majority of the Company's revenues will be derived from the provision of
specialty pharmaceutical management and distribution operations.

16



RECENT DEVELOPMENT

On March 14, 2002, the Justice Department charged our independent auditor,
Arthur Andersen LLP, with a single felony count of obstruction of justice for
destruction of documents related to its audit of Enron Corp. In response to this
indictment, the Securities and Exchange Commission publicly announced that it
has requested and received assurances from Andersen that it will continue to
audit financial statements in accordance with generally accepted accounting
standards and applicable professional and firm standards, including quality
control standards. The Commission also stated that it has been advised by
Andersen that if it becomes unable to provide these assurances, it would advise
the Commission immediately. The Commission further stated that as long as
Andersen continues to be in a position to provide these assurances, the
Commission would continue to accept financial statements audited by Andersen in
public filings. We obtained from Andersen certain representations concerning
audit quality controls, including representations regarding the continuity of
Andersen personnel working on our audit and the availability of national office
consultation. Investors can call a hotline set up by the Commission,
1-800-SEC-0330, or e-mail the Commission at help@sec.gov, with any questions.

SIGNIFICANT ACCOUNTING POLICIES

We rely on the use of estimates and make assumptions that impact our
financial condition and results. These estimates and assumptions are based on
historical results and trends as well as our forecasts as to how these might
change in the future. Our significant accounting policies that impact our
results are included in Note 2 of the Notes to Consolidated Financial
Statements.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

For the year ended December 31, 2001, the Company recorded revenues of
$456.6 million compared with 2000 revenues of $338.2 million, an increase of
$118.4 million. The increase in revenues was the result of continued growth in
all of the Company's businesses. Revenue from the Company's specialty
pharmaceutical services approximated $41.5 million for 2001, compared to $17.9
million in 2000. The principal reasons for the increase are the development and
growth of the Company's BioScrip injectable distribution services offerings and
the inclusion of ADIMA's revenues for all of 2001. In 2000, ADIMA's results were
included for five months (from August 4, 2000, the date of acquisition). For the
year ended December 31, 2001, approximately 21.2% of the Company's revenue was
generated from capitated contracts compared to approximately 28% in 2000. Based
upon its present contractual arrangements, the Company anticipates that less
than 7% of its revenues in 2002 will be derived from capitated contracts.

Cost of revenue for 2001 increased to $403.2 million from $303.0 million for
2000, an increase of $100.2 million commensurate with the increases in revenue
discussed above. Cost of revenue with respect to contracts with Plan Sponsors
participating in the TennCare(R) program decreased $1.6 million from 2000 to
2001. Cost of revenue from commercial business increased $64.1 million, which
includes an increase of $9.9 million from the inclusion of the full year of
ADIMA's operating results. For the year ended December 31, 2001, gross profit
increased $18.2 million to $53.4 million, from $35.2 million at December 31,
2000. Gross profit as a percentage of revenue increased to 11.7% in 2001 from
10.4% for the prior year. Gross margins were positively impacted in 2001 as a
result of the increase in the Company's specialty pharmaceutical distribution
services, which have higher associated gross profit margins than the Company's
PBM and Mail Service businesses, as well as lower pharmaceutical utilization in
the Company's capitated PBM contracts. Additionally, margins were positively
impacted by a full year of ADIMA's operating results.

In the first quarter of 2001, the Company adopted a new method of recording
pharmaceutical manufacturers' rebates that are shared with the Company's PBM
customers. As a result, the Company has recorded rebates shared with its
customers as a reduction of revenue, and rebates billed to manufacturers as a
reduction to cost of revenue. Prior to this, the Company recorded the net
difference between rebates billed and rebates shared with customers as a
reduction of cost of revenue. For comparative purposes, revenue and cost of
revenue for the years ended December 31, 2000 and 1999 have been reclassified to
reflect this change.

17



General and administrative expenses increased $4.6 million to $38.5 million
in 2001 from $33.9 million in 2000, an increase of 13.6%. This increase was
primarily the result of the inclusion of ADIMA's operating expenses for all of
2001 and increases related to the Company's general growth, including the hiring
of additional key management in support of the Company's specialty
pharmaceutical, PBM and Mail Service businesses net of legal expenditures
incurred in 2000 arising out of the Company's obligation to advance legal fees
to two former officers. As a percentage of revenue, general and administrative
expenses decreased to 8.4% in 2001 from 9.1% in 2000.

On May 4, 2000, the Company reached a negotiated settlement with Preferred
Health Plans ("PHP"), pursuant to which, among other things, the Company
retained rebates that would have otherwise been due and owing PHP. PHP paid the
Company an additional $0.9 million and each party released the other from any
and all liability with respect to past or future claims. This agreement did not
have a material effect on the Company's results of operations or financial
position.

In 1999, the Company recorded special charges of $3.3 million for estimated
future losses related to this dispute and another TennCare(R) provider. Early in
2001, the Company reached an agreement in principle with Tennessee Health
Partnership ("THP") pursuant to which the Company paid THP $1.3 million in
satisfaction of all claims between the parties. The terms of the settlement were
favorable to the Company and $1 million of excess reserves no longer required
were credited to income during the first quarter of 2001. In addition,
approximately $1.5 million resulting from the collection of receivables from
Xantus and the adjustment of related reserves provided for in prior years was
credited to income in the third quarter of 2001. See Note 9 of Notes to
Consolidated Financial Statements.

For the year ended December 31, 2001, the Company recorded amortization of
goodwill and other intangibles of $2.2 million compared to $1.5 million in 2000.
This increase is due to inclusion of a full year of goodwill amortization for
ADIMA.

For the year ended December 31, 2001, the Company recorded net interest
expense of $0.06 million compared to net interest income of $0.8 million for the
year ended December 31, 2000, a net decrease of $0.86 million, primarily due to
lower cash balances after the Company's then cash on hand in 2000 was used to
purchase ADIMA.

For the year ended December 31, 2001, the Company recorded a net profit of
$14.2 million, or $0.64 per diluted share, which included one-time special gains
totaling $2.5 million before taxes. This compares with a net loss of $1.8
million, or $0.09 per share, for the year ended December 31, 2000, which
included special one-time charges of $5.4 million relating to the legal defense
costs of two former officers and the write off of a non-operating investment.

Earnings before interest, taxes, depreciation and amortization ("EBITDA")
was $22.3 million for the year ended December 31, 2001, which include one time
special gains of $2.5 million, compared to EBITDA of $4.8 million for the year
ended December 31, 2000. EBITDA for the year ended December 31, 2000 was
approximately $8.0 million, excluding the Company's legal defense costs of two
former officers.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

For the year ended December 31, 2000, the Company recorded revenues of
$338.2 million compared with 1999 revenues of $350.7 million, a decrease of
$12.5 million. Contracts with Plan Sponsors participating in the TennCare(R)
program accounted for decreased revenues of $43.3 million, principally as a
result of the State of Tennessee assuming financial responsibility for the
TennCare(R) dual eligible Members and the decrease in the number of TennCare(R)
contracts managed by the Company, partially offset by an increase in revenue of
$1.4 million related to a settlement of fees associated with 1998 services.
Revenue increases as a result of the acquisition of ADIMA and an increase in
commercial PBM and Mail Service revenues from both new and existing accounts
increased revenue by $34.3 million. For the years ended December 31, 2000,
approximately 28% of the Company's revenue was generated from capitated
contracts compared to approximately 32% in 1999.

Cost of revenue for 2000 decreased to $303.0 million from $320.4 million for
1999, a decrease of $17.4 million, commensurate with the decrease in revenue
discussed above. Cost of revenue with respect to contracts with Plan Sponsors
participating in the TennCare(R) program decreased $49.7 million from 1999 to
2000. Cost of revenue from commercial business increased $37.2 million, which
includes an increase of $4.9 million from the purchase of ADIMA. For the year
ended December 31, 2000, gross profit increased $4.9 million to $35.2 million,
from $30.3 million at December 31, 1999. Gross profit increases of $6.4 million
in TennCare(R) business resulted primarily from lower pharmaceutical utilization
on TennCare(R) capitated agreements, as well as $1.4 million related to a
settlement of fees associated with 1998 that was recorded in 2000. Gross profit
increases in TennCare(R) business were offset by decreases in gross profit of
$5.3 million in commercial and mail order business, and increases of $3.8
million contributed by the Company's acquisition of ADIMA.

18



General and administrative expenses increased $5.9 million to $33.9 million
in 2000 from $28.0 million in 1999, an increase of 21%. $1.7 million of this
increase is a result of increased legal expenditures primarily arising out of
the Company's obligations to advance legal fees to former officers. In addition,
the acquisition of ADIMA contributed $1.3 million of the increase and the
remainder was attributable to severance obligations to two executives, higher
levels of depreciation due to capital improvements in our fulfillment facility,
and increased costs associated with a larger sales force in 2000. As a
percentage of revenue, general and administrative expenses increased to 10.0% in
2000 from 8.0% in 1999.

In 1999, the Company incurred one-time special charges of $6.0 million for
Xantus PHP and THP, as discussed below. See Note 9 of Notes to Consolidated
Financial Statements.

On May 4, 2000, the Company reached a negotiated settlement with PHP, under
which, among other things, the Company retained rebates that would have
otherwise been due and owing PHP. PHP paid the Company an additional $0.9
million and the respective parties released each other from any and all
liability with respect to past or future claims. This agreement did not have a
material effect on the Company's results of operations or financial positions.

For the year ended December 31, 2000, the Company recorded amortization of
goodwill and other intangibles of $1.5 million compared to $1.1 million in 1999.
This increase is primarily due to the goodwill amortization for ADIMA.

For the year ended December 31, 2000, the Company recorded interest income
of $0.8 million compared to $1.0 million for the year ended December 31, 1999, a
decrease of $0.2 million, primarily due to lower cash balances after the
purchase of ADIMA.

Earnings before interest, taxes, depreciation and amortization ("EBITDA")
was $4.8 million for the year ended December 31, 2000, compared to negative $1.4
million EBITDA for the year ended December 31, 1999. EBITDA for the year ended
December 31, 2000 was approximately $8.0 million, excluding the Company's
advances of legal defense costs of two former officers.

For the year ended December 31, 2000, the Company recorded a net loss of
$1.8 million or $0.09 per share. This includes a one time, non-operating
provision for $2.3 million relating to the Company's loss on its investment in
Wang Healthcare Information Systems ("WHIS"). This compares with a net loss of
$3.8 million, or $0.20 per share, for the year ended December 31, 1999. In 1997,
the Company purchased 1,150,000 shares of the Series B Convertible Preferred
Stock of WHIS, par value $0.01 per share, for an aggregate purchase price equal
to $2.3 million. Due to changes in the financial situation at WHIS and its
ability to access capital, the Company recorded a provision for loss on this
investment in December 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company utilizes both funds generated from operations and available
credit under its credit facility for acquisitions, capital expenditures and its
general working capital needs. For the year ended December 31, 2001, net cash
provided to the Company from operating activities totaled $11.0 million
primarily due to increased business.

Cash used in investing activities was $3.7 million primarily due to the
acquisition costs of $1.5 million for Community Prescription Service, Inc.
("CPS") in May 2001, and the earnouts for other acquisitions which together used
cash of $2.2 million. The Company also purchased $2.6 million of equipment in
support of the Company's Mail Service and fulfillment facility located in
Columbus, Ohio.

Net cash provided by financing activities in the year ended December 31,
2001 was $3.9 million. Stock options exercised for $7.3 million were partially
offset by the Company's purchase of treasury stock of $2.6 million.

19



At December 31, 2001, the Company had working capital of $9.3 million
compared to a working capital deficit of $11.2 million at December 31, 2000.
This is primarily due to increased cash on hand of $11.2 million, and an
increase of $9.7 million in receivables due to increased business. Increased
cash on hand was partially offset by an increase in claims payable of $8.7
million. Working capital was also impacted by a decrease in payables to Plan
Sponsors as a result of payment acceleration.

On November 1, 2000 the Company entered into a $45 million secured revolving
credit facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of
Healthcare Finance Group, Inc. ("HFG"). The Facility is, and will continue to
be, used for working capital purposes and future acquisitions in support of the
Company's business plan. The Facility has a three-year term, provides for
borrowing of up to $45 million at the London InterBank Offered Rate (LIBOR) plus
2.1% and is secured by receivables of the Company's principal operating
subsidiaries. The facility contains various covenants that, among other things,
require the Company to maintain certain financial ratios as defined in the
agreement governing the Facility. As of March 15, 2002, there was outstanding
$9.2 million under the Facility as a result of the Company's acquisition of
Vitality in January 2002.

As the Company continues to grow, it anticipates that its working capital
needs will also continue to increase. The Company believes that it has
sufficient cash on hand and available credit to fund the Company's anticipated
working capital and other operational 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 specialty pharmacy,
Mail Service and PBM businesses, which the Company would expect to fund from
cash on hand, the Facility, other future indebtedness or, if appropriate, the
private and/or public sale or exchange of equity securities of the Company.

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

At December 31, 2001, the Company had unused Federal net operating loss
carryforwards of $40.3 million, which will begin expiring in 2009. In the
opinion of management, as 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

In 1998, the Company recorded a $2.2 million special charge against earnings
in as a result of an agreement in principle with respect to a civil settlement
of a Federal and State of Tennessee investigation in connection with conduct
involving, among others, 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
$775,000 in 2000, payment of $900,000 in 2001, and payment of $525,000 in 2002.
At December 31, 2001, $525,000 is outstanding and included in accrued expenses.

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. In addition, the State of
Tennessee and the Federal governments have agreed to negotiate towards an
additional two-year extension of the waiver through December 31, 2004. 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, there can be no assurances that such waiver
will be renewed

20



after December 31, 2002, that pharmacy benefits will continue under the
TennCare(R) Program or that the MCO's currently being serviced by the Company
will continue their respective relationships with it under the existing or a
successor program or on the same or similar terms and conditions. If the waiver
is not renewed and the Company is not providing PBM and/or distributing
specialty products to those lives under a successor program or arrangement, then
the failure to provide such services could have a material and adverse affect on
the financial position and results of operations of the Company. Moreover,
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.

Historically, as a result of providing capitated PBM services to certain
TennCare(R) MCOs, the Company's pharmaceutical claims costs had been subject to
significant increases from October through February, which the Company believes
is due to the need for increased medical attention to, and intervention with,
MCOs' Members during the colder months. The resulting increase in pharmaceutical
costs impacted the profitability of capitated contracts. Currently, the Company
has no capitated PBM arrangements with MCOs participating in the TennCare(R)
program. Fee for service arrangements mitigate the adverse effect on
profitability of higher pharmaceutical costs incurred under capitated contracts,
as higher utilization positively impacts profitability. The Company presently
anticipates that less than 7% of its revenues for 2002 will be derived from
capitated arrangements.

Generally, loss contracts arise only on capitated or other risk-based
contracts and primarily result from higher than expected pharmacy utilization
rates, higher than expected inflation in drug costs and the inability of the
Company to restrict its MCO clients' formularies to the extent anticipated by
the Company at the time contracted PBM services are implemented, thereby
resulting in higher than expected drug costs. At such time as management
estimates that a contract will sustain losses over its remaining contractual
life, a reserve is established for these estimated losses. There are currently
no loss contracts and management does not believe that there is an overall trend
towards losses on its existing capitated contracts.

In the first quarter of 2001, the Company commenced a stock repurchase
program under which it was 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. In February 2001, the Company repurchased 1,298,183 shares of
Common Stock at a price of $2.00 per share in private transactions. See "Certain
Relationships and Related Transactions" below. Since that date, the Company has
not repurchased any additional shares of its Common Stock.

On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief
Executive Officer, repaid in full a $1.7 million loan from the Company, together
with all accrued and unpaid interest thereon. This loan, together with accrued
and upaid interest, totaled approximately $2.1 million.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's debt. At December 31, 2001 the Company did not have
any long term debt. The Company does not invest in or otherwise use derivative
financial instruments.

At December 31, 2001, the carrying values of cash and cash equivalents,
accounts receivable, accounts payable, claims payable, payables to Plan Sponsors
and others, and debt approximate fair value due to their short-term nature.

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

21




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders of MIM Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of MIM
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 2001
and 2000 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MIM Corporation and
Subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

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

ARTHUR ANDERSEN LLP


Roseland, New Jersey
February 16, 2002


22







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


2001 2000
-------------------- ---------------------
ASSETS

CURRENT ASSETS


Cash and cash equivalents $ 12,487 $ 1,290
Receivables, less allowance for doubtful accounts of $5,543 and $8,333
at December 31, 2001 and 2000, respectively 70,089 60,808
Inventory 3,726 2,612
Prepaid expenses and other current assets 1,439 1,680
-------------------- ---------------------
Total current assets 87,741 66,390

Property and equipment, net 9,287 10,813
Due from officer 2,132 2,012
Other assets, net 1,650 2,163
Intangible assets, net 39,009 39,023
-------------------- ---------------------
TOTAL ASSETS $ 139,819 $ 120,401
==================== =====================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Current portion of capital lease obligations $ 594 $ 592
Current portion of long-term debt - 165
Accounts payable 4,468 2,964
Claims payable 46,564 39,337
Payables to Plan Sponsors 21,063 29,040
Accrued expenses and other current liabilities 5,745 5,476
-------------------- ---------------------
Total current liabilities 78,434 77,574

Capital lease obligations, net of current portion 1,031 1,621
Other non-current liabilities 58 589
Minority interest - 1,112
-------------------- ---------------------
TOTAL LIABILITIES 79,523 80,896
-------------------- ---------------------

Commitments and contingencies

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,
22,004,101 and 21,547,312 shares issued and outstanding
at December 31, 2001 and 2000, respectively 2 2

Additional paid-in capital 105,424 97,010
Accumulated deficit (42,196) (56,398)
Treasury stock, 1,398,183 and 100,000 shares at cost
at December 31, 2001 and 2000, respectively (2,934) (338)
Stockholder notes receivable - (771)
-------------------- ---------------------
Total stockholders' equity 60,296 39,505
-------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 139,819 $ 120,401
==================== =====================


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

23



MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)




2001 2000 1999
---- ---- ----


Revenue $ 456,646 $ 338,171 $ 350,693

Cost of revenue 403,243 302,991 320,388
--------- --------- ---------

Gross profit 53,403 35,180 30,305

General and administrative expenses 38,489 30,811 26,656
Legal fees due to indemnification responsibility - 3,098 1,353
Amortization of goodwill and other intangibles 2,200 1,450 1,064
TennCare reserve adjustment (2,476) - 6,029
--------- --------- ---------

Income (loss) from operations 15,190 (179) (4,797)

Interest (expense) income, net (56) 766 1,012
Provision for loss on investment - 2,300 -
--------- --------- ---------

Income (loss) before provision for income taxes 15,134 (1,713) (3,785)

Provision for income taxes 932 110 -
--------- --------- ---------

Net income (loss) $ 14,202 $ (1,823) $ (3,785)
========= ========= =========


Basic income (loss) per common share $ 0.67 $ (0.09) $ (0.20)
========= ========= =========

Diluted income (loss) per common share $ 0.64 $ (0.09) $ (0.20)
========= ========= =========

Weighted average common shares used
in computing basic income (loss) per common share 21,273 19,930 18,660
========= ========= =========

Weighted average common shares used
in computing diluted income (loss) per common share 22,289 19,930 18,660
========= ========= =========




24


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





MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)


ADDITIONAL STOCKHOLDER TOTAL
COMMON TREASURY PAID-IN ACCUMULATED NOTES STOCKHOLDERS
STOCK STOCK CAPITAL DEFICIT RECEIVABLE EQUITY



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

Payments of stockholder loans - - - - 245 245
Exercise of stock options - - 5 - - 5
Non-employee stock option
compensation expense - - 6 - - 6
Purchase of treasury stock - (338) - - - (338)
Net loss - - - (3,785) - (3,785)
-------- -------- -------- -------- -------- --------

Balance December 31, 1999 $ 2 $ (338) $ 91,614 $(54,575) $ (1,516) $ 35,187
======== ======== ======== ======== ======== ========

Payments of stockholder loans - - - - 745 745
Exercise of stock options - - 333 - - 333
Shares issued in connection with
ADIMA acquisition - - 5,034 - - 5,034
Non-employee stock option
compensation expense - - 29 - - 29
Net loss - - - (1,823) - (1,823)
-------- -------- -------- -------- -------- --------

Balance December 31, 2000 $ 2 $ (338) $ 97,010 $(56,398) $ (771) $ 39,505
======== ======== ======== ======== ======== ========

Reclassification of stockholders

loans to other assets - - - - 771 771
Exercise of stock options - - 7,274 - - 7,274
Issuance of common stock to employees - - 28 - - 28
Dissolution of MIM Strategic - - 1,112 - - 1,112
Purchase of treasury stock - (2,596) - - - (2,596)
Net income - - - 14,202 - 14,202
-------- -------- -------- -------- -------- --------

Balance December 31, 2001 $ 2 $ (2,934) $105,424 $(42,196) - $ 60,296
======== ======== ======== ======== ======== ========



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


25






MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOURCE (USE) OF CASH
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)

2001 2000 1999
---- ---- ----
Cash flows from operating activities:


Net income (loss) $ 14,202 $ (1,823) $ (3,785)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities net of acquisitions:
Depreciation and amortization 6,358 4,876 3,220
Loss on investment - 2,300 -
TennCare reserve adjustment (2,476) - -
Issuance of stock to non-employees - 29 6
Issuance of stock to employees 28 - -
Provision for losses on receivables and due from affiliates 1,383 571 6,537
Changes in assets and liabilities, net of acquisitions
Receivables, net (9,684) 8,989 (4,709)
Inventory (1,114) (1,013) 410
Prepaid expenses and other current assets 241 (297) (490)
Accounts payable 1,504 (2,236) (1,887)
Claims payable 8,723 (4,364) 6,847
Payables to Plan Sponsors and others (7,977) 4,869 7,681
Accrued expenses 269 (1,067) (934)
Non-current liabilities (531) 500 -
-------- -------- --------
Net cash provided by operating activities 10,926 11,334 12,896
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment (2,632) (6,634) (2,180)
Purchases of investment securities - (4,000) (7,070)
Maturities of investment securities - 9,033 13,731
Costs of acquisitions, net of cash acquired (2,186) (19,638) (669)
Purchases of other investments - - (36)
Repayments of stockholder notes 504 745 245
Due from affiliates, net (120) (163) (1,815)
Decrease (increase) in other assets 780 (1,905) 361
-------- -------- --------
Net cash (used in) provided by investing activities (3,654) (22,562) 2,567
-------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on capital lease obligations (588) (514) (699)
Decrease in debt (165) (2,607) (3,620)
Proceeds from exercise of stock options 7,274 333 5
Purchase of treasury stock (2,596) - (338)
-------- -------- --------
Net cash provided by (used in) financing activities 3,925 (2,788) (4,652)
-------- -------- --------

Net increase (decrease) in cash and cash equivalents 11,197 (14,016) 10,811

CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD 1,290 15,306 4,495
-------- -------- --------

CASH AND CASH EQUIVALENTS--END OF PERIOD $ 12,487 $ 1,290 $ 15,306
======== ======== ========



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


26




MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)

SUPPLEMENTAL DISCLOSURES:

The Company paid $465, $657 and $277 of interest for each of the years ended
December 31, 2001, 2000, and 1999, respectively.

Capital lease obligations of $0, $1,495 and $807 were incurred to acquire
equipment for each of the years ended December 31, 2001, 2000, and 1999,
respectively.

In connection with the acquisition of American Disease Management Associates
L.L.C. ("ADIMA"), the Company issued 2,700 shares of its common stock, par value
$0.0001 per share, valued at $5,034 during the year ended December 31, 2000.

In 2001, there was a contribution of a minority interest to additional paid-in
capital upon dissolution of a subsidiary of $1,112.

In 2001, the Company reclassified stockholder notes receivable of $771 to other
assets. During 2001, the stockholder repaid $504 of the notes outstanding. As
of December 31, 2001, $267 of the stockholder notes are outstanding and included
in other assets.


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


27




MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

NOTE 1--NATURE OF BUSINESS

CORPORATE ORGANIZATION

MIM Corporation (the "Company" or "MIM") is a pharmaceutical healthcare
organization delivering innovative pharmacy benefit, special pharmaceutical
distribution and other pharmacy-related healthcare solutions to Plan Sponsors,
principally managed care organizations and third party administrators. The
Company combines its clinical expertise, sophisticated data management and
therapeutic fulfillment capabilities to serve the particular needs of each of
its customers and respective benefit recipients covered by the customers'
pharmacy related health benefit.

The Company provides a broad array of pharmacy benefit and pharmacy products
and services to individuals ("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 funded Plan
Sponsors ("Plan Sponsors"). The Company's programs include the distribution of
biotech and other high-cost prescription medications to the chronically ill and
genetically impaired, the provision of pharmacy benefit management ("PBM")
services to members of Plan Sponsors, and the distribution of prescription
maintenance medications to Plan Sponsors' Members through mail service ("Mail
Service"). All of the Company's programs include the provision of clinical
pharmacy services, designed to provide patients with high quality care while
controlling pharmacy and overall health care costs. 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 as part of its
PBM and/or Specialty Pharmacy Programs, all of which will be described below in
greater detail: pharmacy case management, therapy assessment, compliance
monitoring, health risk assessment, patient education, drug usage and
interaction evaluation, pharmacy claims processing, Mail Service 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.

BUSINESS

In 2001, the Company primarily derived its revenues from agreements to
provide PBM services, which includes prescription Mail Service to the Members of
Plan Sponsors in the United States. The Company also provided specialty pharmacy
services to chronically ill or genetically impaired patients that require
injection and infusion therapies, as well as infusion therapies and home
healthcare services to patients recently discharged from hospitals.

A portion of the Company's revenues have been derived from providing PBM
services in the State of Tennessee to managed care organizations ("MCOs")
participating in the State of Tennessee's TennCare(R) program.

Through its BioScrip(TM) specialty injectable therapy programs, the Company
distributes high-cost pharmaceuticals and provides clinically focused case and
disease management programs to Plan Sponsors' members afflicted with chronic
illnesses or genetic impairments. The disease states or conditions for which the
Company has injectable specialty programs include HIV/AIDS, oncology,
hemophilia, multiple sclerosis, growth hormone deficiency, Gaucher's disease,
rheumatoid arthritis, infertility, respiratory syncytial virus (RSV), hepatitis
C, Crohn's disease and transplant.

The Company also distributes prescription medications and provides clinical
management services to patients through its Vitality Pharmaceutical Services
("Vitality") subsidiary located in Roslyn Heights, New York, acquired in January
2002. While BioScrip is marketed exclusively to Plan Sponsors, Vitality also
markets its products and services to physician practice groups, hospitals, and,
in some cases, directly to patients.

On August 4, 2000, the Company acquired all of the issued and outstanding
membership interest of ADIMA. The aggregate purchase price approximated $24,000,
and included $19,000 in cash and 2.7 million shares of MIM common stock valued
at that time at $5,000. ADIMA, located in Livingston, New Jersey, distributes
and administers high cost specialty infusion therapy to patients requiring
principally immunosuppression blood products, such as IGG, parenteral nutrition
products, such as TPN, and antibiotic therapies such as rocephin or vancomycin.
Unlike the Company's other specialty programs, patients being serviced through
ADIMA have their therapies administered by IV certified nurses. The consolidated
financial statements include the results of ADIMA from the date of acquisition.

On May 1, 2001, the Company acquired Community Prescription Service, Inc.
("CPS") for $1,500, plus acquisition costs. The acquisition was treated as a
purchase for financial reporting purposes. Based on a final appraisal, the
Company has recorded intangible assets in connection with that acquisition which
will be amortized over three to seven years. Operating results of CPS, which are
included in the accompanying statements of operations from the date of
acquisition, were not material to the results of operations for the twelve
months ended December 31, 2001.


28




The following unaudited consolidated pro forma financial information has been
prepared assuming ADIMA was acquired as of January 1, 1999, with pro forma
adjustments for amortization of goodwill and interest income. The pro forma
financial information is presented for informational purposes only and is not
indicative of the results that would have been realized had the acquisition been
made on January 1, 1999. The Company's statement of operations for the year
ended December 31, 2001 include ADIMA's results of operations for the entire
period. In addition, this pro forma financial information for the year ended
December 31, 1999 and 2000 is not intended to be a projection of future
operating results.

YEAR ENDED DECEMBER 31
----------------------
2000 1999
---- ----

Revenues ............................. $ 380,032 $388,611
Net loss ............................. $ (85) $ (1,933)
Basic loss per share ................. (0.00) (.09)
Diluted loss per share ............... (0.00) (.09)



The pro forma amounts above include $10,328 and $11,191 of revenues from
the operations of ADIMA for the period from January 1, 2000 and 1999
respectively through the acquisition date.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

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

USE OF ESTIMATES

The preparation of financial statements in conformity with 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.

CASH AND CASH EQUIVALENTS

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

RECEIVABLES

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

INVENTORY

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

PROPERTY AND EQUIPMENT

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

ASSET USEFUL LIFE
- ----- -----------
Computer and office equipment................. 3-5 years
Furniture and fixtures........................ 5-7 years

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

DEFERRED FINANCING COSTS

Deferred financing costs, which are included in other assets, represent
fees incurred in connection with obtaining debt financing and are amortized over
the life of the related debt.


29




GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets represent the cost in excess of the
fair market value of the tangible net assets acquired in connection with
acquisitions. Amortization expense for the years ended December 31, 2001, 2000
and 1999, was $2,200, $1,450 and $1,064, respectively. Goodwill is amortized
over periods ranging from twenty to twenty-five years and other intangible
assets are amortized over four to six years.

Intangible assets comprised the following as of December 31:



2001 2000
---- ----


Goodwill $41,415 $40,607
Other intangibles 2,636 1,258
------- -------
Total 44,051 41,865
Less: Amortization of goodwill and other intangibles 5,042 2,842
------- -------

Net intangible assets $39,009 $39,023
======= =======





LONG-LIVED ASSETS

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

CLAIMS PAYABLE

The Company is responsible for all covered prescriptions provided to plan
members during the contract period. At December 31, 2001 and 2000, certain
prescriptions were dispensed to members for whom the related claims had not yet
been presented to the Company for payment. Estimates of $124 and $693 at
December 31, 2001 and 2000, respectively, for these claims are included in
claims payable.

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.

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 generally have a one-year term or, if longer, provide for
adjustment of the capitated rate each year. These contracts are subject to rate
adjustment or termination upon the occurrence of certain events.

Payments under capitated contracts are based upon the latest eligible
member data provided to the Company by the Plan Sponsor. On a monthly basis, the
Company recognizes revenue for those members eligible for the current month,
plus or minus capitation amounts for those members determined to be
retroactively eligible or ineligible for prior months under the contract. The
amount accrued for net retroactive eligibility capitation payments are based
upon management's estimates.

Generally, loss contracts arise only on capitated contracts and primarily
result from higher than expected pharmacy utilization rates, higher than
expected inflation in drug costs and the inability to restrict formularies,


30




resulting in higher than expected drug costs. At such time as management
estimates that a contract will sustain losses over its remaining contractual
life, a reserve is established for these estimated losses. There are currently
no expected loss contracts and management does not believe that there is an
overall trend towards losses on its existing capitated contracts.

All revenue is recorded net of the rebate share payable to Plan Sponsors.

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. The Company assumes financial
risk through having independent contractual arrangements with its Plan Sponsors
and retail network pharmacy providers.

PRESCRIPTION SERVICES. The Company's integrated pharmacy benefit services
include the delivery of pharmaceutical services and products. Such services and
products may be provided by the Company's pharmacy dispensing facility, by
ADIMA, or by one of its network pharmacies. Such products must be provided and
dispensed before the total pharmacy benefit service is billed under the fee for
services agreements described above.

COST OF REVENUE

Cost of revenue includes pharmacy claims, fees paid to pharmacists and other
direct costs associated with pharmacy management, claims processing operations
and mail order services, offset by volume rebates received from pharmaceutical
manufacturers. For the years ended December 31, 2001, 2000 and 1999, gross
rebates earned on rebate sharing arrangements on pharmacy benefit management
contracts were $38,572, $45,230 and $43,611, respectively.

INCOME TAXES

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

31




EARNINGS PER SHARE

Basic earnings (loss) per common share are based on the weighted average
number of shares outstanding and diluted earnings per share are based on the
weighted average number of shares outstanding, including common stock
equivalents. For the years ended December 31, 2000 and 1999, diluted loss per
share is the same as basic loss per share because the inclusion of common stock
equivalents would be anti-dilutive.




YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
---- ---- ----

Numerator:
Net Income (loss) $ 14,202 $ (1,823) $ (3,785)
======== ======== ========

Denominator - Basic:
Weighted average number of common
shares outstanding 21,273,000 19,930,000 18,660,000
============ ============ ============
Basic income (loss) per common share $ 0.67 $ (0.09) $ (0.20)
============ ============ ============

Denominator - Diluted:
Weighted average number of common
shares outstanding 21,273,000 19,930,000 18,660,000
Common share equivalents of outstanding
stock options 1,016 0 0
------------ ------------- -------------
Total shares outstanding 22,289,000 19,930,000 18,660,000
============ ============ ============
Diluted income (loss) per common share $ 0.64 $ (0.09) $ (0.20)
============ ============ ============



INDUSTRY SEGMENTS

The Company operates in one industry segment.

DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and short-term debt. The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value due to their short-term
nature.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for employee stock based compensation plans and
non-employee director stock incentive plans in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Stock options granted
to non-employees are accounted for in accordance with SFAS No. 123, "Accounting
for Stock-Based Compensation" (See Note 11).

RECENT ACCOUNTING PRONOUNCEMENTS

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. Prior to adoption of EITF 00-22, the Company recorded the
difference between the rebates received and the rebates shared with customers as
a reduction of cost of revenue. The adoption of EITF 00-22 required the Company
to classify $27,401 and reclassify $31,623 and $26,727 of rebates shared as
reductions of revenue for years ended December 31, 2001, 2000, and 1999,
respectively.

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 establishes 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. 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 is required to adopt these standards on January 1, 2002.
During the year ended December 31, 2001 the Company continued to amortize its
existing goodwill and intangible assets. The Company expects that a substantial
amount of its goodwill will no longer be amortized upon adoption.


32




In August 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial
accounting and reporting obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143 is
effective for fiscal years beginning after June 14, 2002. The Company does not
expect that the adoption of SFAS No. 143, which is effective for the Company as
of January 1, 2003, will have any effect on its results of operations, financial
position or cash flows.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment of Disposal of Ling-Lived Assets", which is
effective for fiscal years beginning after December 15, 2001, and addresses
financial accounting and reporting for the impairment of disposal of ling-lived
assets. This statement supersedes SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of segment of a business. The company
plans to adopt the standard at the beginning of 2002, and does not expect that
the adoption of SFAS No. 144 will have any effect on its results of operations,
financial position or cash flows.

RECLASSIFICATIONS

Certain amounts in the 2000 and 1999 financial statements have been
reclassified to conform to current year presentation.

NOTE 3--INVESTMENT

On June 23, 1997, the Company acquired an 8% interest in Wang Healthcare
Information Systems, Inc. ("WHIS"), which markets PC-based clinical information
systems to physicians utilizing patented image-based technology. The Company
purchased 1,150,000 shares of the Series B Convertible Preferred Stock of WHIS,
for an aggregate purchase price equal to $2,300. Due to changes in the financial
situation at WHIS and its ability to access capital, the Company recorded a
provision for loss in the amount of $2,300 on this investment in 2000.

NOTE 4--RELATED PARTY TRANSACTIONS

The Company leases one of its facilities from Alchemie Properties, LLC
("Alchemie") pursuant to a ten-year agreement. Alchemie is controlled by Mr. E.
David Corvese, a stockholder and a former officer and director of the Company
(the "Founder"). Rent expense was approximately $56, $51 and $56 for the years
ended December 31, 2001, 2000, and 1999.

STOCKHOLDER NOTES RECEIVABLE

On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief
Executive Officer, repaid in full a $1,700 loan, together with all accrued and
unpaid interest thereon, totalling approximately $2,100. Interest income on the
note was $121, $161 and $101 for the years ended December 31, 2001, 2000 and
1999, respectively.

The Company had a $502 note receivable outstanding with the Founder as of
December 31, 2000. The note was repaid in 2001. Interest income on the note was
$41 for the year ended December 31, 2001, and $46 for the years ended December
31, 2000 and 1999, respectively.

The Company has a $267 and $269 note receivable from Alchemie outstanding as
of December 31, 2001 and 2000, respectively. The note bears interest at a rate
of 10% per annum with principal due and payable on December 1, 2004. Interest
income was $29, $27 and $29 for the years ended December 31, 2001, 2000 and
1999. This note was paid in full on January 31, 2002.


33




The Company had a $780 note receivable from the Founder outstanding as of
December 31, 1999. The note was fully repaid in 2000. Interest income on the
notes was $27 and $56 for the years ended December 31, 2000 and 1999,
respectively.

In 2001, the Company reclassified the then outstanding stockholder notes
receivable from the Founder of approximately $771 from a reduction of
stockholders' equity to other assets. Although the loans did not originate from
the issuance of, or were otherwise collateralized by, the Company's equity
securities, the Company initially classified the promissory notes in equity due
to the nature of the borrowers' relationship to the Company at the time of the
notes' origination. At that time, the Founder was the President and majority
stockholder of the Company. As such, the borrowers and the Company were entities
under common control at that time and the promissory notes were therefore
treated as equity. The Founder is no longer an officer, director or majority
stockholder of the Company and accordingly, the borrowers and the Company are no
longer considered to be entities under common control. As of December 31, 2001,
only the remaining note receivable from Alchemie is outstanding and included in
other assets.

INDEMNIFICATION

Under certain circumstances, the Company was obligated to indemnify and
advance defense costs to two former officers (one of which is a former director
and still principal stockholder of the Company) of a subsidiary of the Company
in connection with their involvement in the Federal and State of Tennessee
investigation of which they are the subject. During 2001, 2000 and 1999, the
Company advanced and expensed $0, $3,098 and $1,353, respectively, for the
former officers' legal costs in this matter.

NOTE 5--PROPERTY AND EQUIPMENT

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



2001 2000
---- ----

Computer and office equipment, including equipment acquired under capital leases $ 18,000 $ 15,483
Furniture and fixtures 1,149 1,095
Leasehold improvements 1,117 1,056
-------- --------
20,266 17,634
Less: Accumulated depreciation (10,979) (6,821)
-------- --------
Property and equipment, net $ 9,287 $ 10,813
======== ========




NOTE 6--LONG TERM DEBT

On November 1, 2000 the Company entered into a $45,000 revolving credit
facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of Healthcare
Finance Group, Inc. ("HFG"), to be used for working capital purposes and future
acquisitions. The Facility has a three-year term and is secured by the Company's
receivables. Interest is payable monthly and provides for borrowing up to
$45,000 at the London Inter-Bank Offered Rate (LIBOR) plus 2.1% (4.25% as of
December 2001). A 0.5% fee is incurred monthly when the line is not utilized. In
connection with the issuance of the Facility, the Company incurred financing
costs of $1,642, which are included in other assets and are being amortized over
the term of the agreement. The facility contains various covenants that, among
other things, require the Company to maintain certain financial ratios, as
defined in the agreement governing the Facility. As of December 31, 2001 and
2000, the Company had no amounts outstanding under the revolving credit
facility.

NOTE 7 - MINORITY INTEREST

On June 28, 2001, the Company dissolved MIM Strategic Marketing, LLC
("Strategic"), a joint venture of which the Company was the majority investor.
The Company does not have any repayment obligation to the minority interest


34




investor under Strategic's operating agreement or under the laws of the state of
its formation. As a result of this dissolution, the minority interest balance of
$1,112 has been reclassified to additional paid in capital.

NOTE 8 -TREASURY STOCK

In February 2001, the Company repurchased 1,298,183 shares of the
Company's common stock for $2,596, at a price of $2.00 per share.

NOTE 9--COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company has previously disputed several improper reductions of payments
by Tennessee Health Partnership ("THP"). In addition, there existed a dispute
over whether or not certain items should have been included under the Company's
respective capitated arrangements with THP and Preferred Health Plans ("PHP").
In 1999, the Company recorded a special charge of $3,300 for estimated future
losses related to these disputes.

In early 2001, the Company reached an agreement in principle with THP. The
Company paid THP $1,300 in satisfaction of all claims between the parties. The
terms of the settlement were favorable to the Company and $1 million of excess
reserves no longer required were credited to income during the first quarter of
2001.

On May 4, 2000, the Company reached a negotiated settlement with PHP, under
which, among other things, the Company retained rebates that would have
otherwise been due and owing PHP. PHP paid the Company an additional $900 and
the respective parties released each other from any and all liability with
respect to past or future claims. This agreement did not have a material effect
on the Company's results of operations or financial positions.

On March 31, 1999, the State of Tennessee, (the "State"), and Xantus
Healthplans of Tennessee, Inc. ("Xantus"), entered into a consent decree under
which Xantus was placed in receivership under the laws of the State of
Tennessee. On September 2, 1999, the Commissioner of the Tennessee Department of
Commerce and Insurance (the "Commissioner"), acting as receiver of Xantus, filed
a proposed plan of rehabilitation (the "Plan"), as opposed to a liquidation of
Xantus. A rehabilitation under receivership, similar to reorganization under
federal bankruptcy laws, was approved by the Chancery Court (the "Court") of the
State of Tennessee, and allows Xantus to remain operating as a TennCare(R) MCO,
providing full health care related services to its enrollees. Under the Plan,
the State, among other things, agreed to loan to Xantus approximately $30,000 to
be used solely to repay pre-petition claims of providers, which claims aggregate
approximately $80,000. Under the Plan, the Company received $4,200, including
$600 of unpaid rebates to Xantus, which the Company was allowed to retain under
the terms of the preliminary rehabilitation plan for Xantus. The Company
recorded a special charge in 1999 of $2,700 for the estimated loss to the
Company due to the Plan. A plan for the payment of the remaining amounts has not
been finalized and the recovery of any additional amounts is uncertain. In 2001,
the Company recorded a $1.5 million adjustment to the TennCare reserve resulting
from the collection of receivables from Xantus and the adjustment of related
reserves provided for in prior years.

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
the Federal and State of Tennessee investigation in connection with the conduct
of two former officers of the Company, prior to the Company's initial public
offering. The definitive agreement covering this settlement was executed on June
15, 2000, and required payment of $775 in 2000, $900 in 2001 and $525 to be paid
in 2002.

GOVERNMENT REGULATION

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


35




The Company entered into a corporate integrity agreement with the Office of
Inspector General (the "OIG") within the Department of Health and Human Services
("HHS") in connection with the Global Settlement Agreement entered into with the
OIG and the State of Tennessee in June 2000. In order to assist the Company in
maintaining compliance with laws and regulations and the corporate integrity
agreement the Company implemented its corporate compliance program in August of
2000. This program includes educational training for all employees on compliance
with laws and regulations relevant to the Company's business and operations and
a formal program of reporting and resolution of possible violations of laws or
regulations, as well as increased oversight by the OIG. Should the oversight
procedures reveal credible evidence of any violation of federal law, the Company
is required to report such potential violations to the OIG and the Department of
Justice ("DOJ"). The Company is therefore subject to increased regulatory
scrutiny and, if the Company commits legal or regulatory violations, they may be
subject to an increased risk of sanctions or penalties, including exclusion from
participation in the Medicare or Medicaid programs. The Company anticipates
maintaining certain compliance related oversight procedures after the expiration
of the corporate integrity agreement in June 2005.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain key
employees that expire at various dates through February 2004. Total minimum
commitments under these agreements are approximately as follows:

2002 ................................ $1,002
2003 ................................ 921
2004 ................................ 49

------
Total ............................... $1,972
======




OPERATING LEASES

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

2002 ................................. $1,275
2003 ................................. 1,181
2004 ................................. 1,046
2005 ................................. 915
2006 ................................. 931
Thereafter ........................... 2,345

------
Total ................................ $7,693
======

Rent expense for non-related party leased facilities and equipment was
approximately $1,439, $1,292 and $995 for the years ended December 31, 2001,
2000 and 1999, respectively.

CAPITAL LEASES

The Company leases certain equipment under various capital leases. Future
minimum lease payments under the capital lease agreements at December 31, 2001
are as follows:


36




2002 ........................................................... $ 720
2003 ........................................................... 670
2004 ........................................................... 420
2005 ........................................................... 35
------
Total minimum lease payments ................................... 1,845
Less: Amount representing interest ............................ 220
------
Obligations under leases ....................................... 1,625
Less: Current portion of lease obligations .................... 594
------
$1,031
======


NOTE 10--INCOME TAXES

The effect of temporary differences that give rise to a significant portion
of federal deferred taxes is as follows as of December 31:



2001 2000
---- ----


Deferred tax assets (liabilities): ....................................... $ 2,181 $ 4,063
Reserves not currently deductible ...................................... (596) (273)
Goodwill and intangibles ............................................... 4,944 8,123
Federal net operating loss carryforwards generated from operations ..... 9,145 7,453
Federal net operating loss carryforwards generated from stock options .. 140 220
-------- --------
Property basis differences ............................................. 15,814 19,586
Subtotal .......................................................... (15,814) (19,586)
-------- --------
Less: valuation allowance
Net deferred taxes ................................................ $ - $ -
======== ========



The Company's reconciliation of the expected Federal provision (benefit)
rate to the effective income tax rate is as follows:



2001 2000 1999
---- ---- ----

Tax provision (benefit) at statutory rate .................................... $ 5,297 $ (582) $(1,286)
State tax provision (benefit) , net of Federal taxes ......................... 629 110 (250)
Change in the valuation allowance relating to
deferred tax assets/liabilities generated from operations................... (5,464) 357 1,088
Amortization of goodwill and other intangibles ............................... 359 361 431
Other ........................................................................ 111 (136) 17
------- ------- ------
Provision for income taxes .............................................. $ 932 $ 110 $ -
======= ======= ======



At December 31, 2001, the Company had unused Federal net operating loss
carryforwards of $40,253, which will begin expiring in 2009. In the opinion of
management, as the Company has not had 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.


37




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. The following table lists the
Company's available Federal net operating loss carryforwards in future years:

Generated Generated
From From Stock
Operations Options Total
---------- ------- -----

2002 $14,127 $ 2,518 $16,645
2003 - 4,780 4,780
2004 - 2,700 2,700
2005 - 2,700 2,700
2006 - 2,700 2,700
Thereafter - 10,728 10,728
------- ------- -------
Total unused Federal net operating $14,127 $26,126 $40,253
loss carryforwards ======= ======= =======

NOTE 11--STOCKHOLDERS' EQUITY

STOCK OPTIONS

The 1996 Incentive Stock Plan (the "1996 Plan") provided for the granting
of incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") to
employees, directors and consultants of the Company. Under the 1996 Plan there
were 5,200,450 shares authorized for issuance. In 2001, the stockholders
approved the Company's 2001 Incentive Stock Plan (the "2001 Plan," collectively
with the 1996 Plan, the "Plans"). Under the 2001 Plan an additional 950,000
shares were authorized for issuance. As of December 31, 2001, 19,193 shares and
74,000 shares remained available for grant under the 1996 Plan and the 2001
Plan, respectively.

Options granted under the Plans vest over a three-year period and, in
certain limited instances, fully vest upon a change in control of the Company.
In addition, such options generally are exercisable for 10 years after the date
of grant, subject in some cases, to earlier termination in certain
circumstances. The exercise price of ISOs granted under the Plans will not be
less than 100% of the fair market value on the date of grant (110% for ISOs
granted to more than a 10% stockholder). If NQSOs are granted at an exercise
price less than fair market value on the grant date, the amount by which fair
market value exceeds the exercise price will be charged to compensation expense
over the period the options vest.

As of December 31, 2001 and 2000, the exercisable portion of outstanding
options was 874,699 shares and 924,879 shares, respectively. Stock option
activity under the Plans through December 31, 2001 is as follows:


38






Average
Options Price
------- -----

Balance, December 31, 1998 .............................. 2,084,009 $ 4.1132
Granted ............................................ 969,000 $ 1.8207
Canceled ........................................... (292,202) $ 5.8581
Exercised .......................................... (738,450) $ 0.0067
--------- --------
Balance, December 31, 1999 .............................. 2,022,357 $ 4.2621
Granted ............................................ 615,000 $ 2.1960
Canceled ........................................... (360,027) $ 1.3852
Exercised .......................................... (105,167) $ 3.1657
--------- --------
Balance, December 31, 2000 .............................. 2,172,163 $ 4.2070
Granted ............................................ 1,107,000 $ 8.1885
Canceled ........................................... (215,999) $ 3.4262
Exercised .......................................... (510,831) $ 4.2416
--------- --------
Balance, December 31, 2001 .............................. 1,656,333 $ 5.7929
========= ========




On April 17, 1998, the Company granted a former officer an option to purchase
1,000,000 shares of Common Stock at $4.50 (then-current market price) in
connection with his employment agreement to become the Company's President,
Chief Operating Officer and Chief Financial Officer. This option was not granted
under the Plan. During 2001, all of the options granted to the former officer
were exercised.

The 1996 Directors Stock Incentive Plan, (the "Directors Plan") was adopted
to attract and retain qualified individuals to serve as non-employee directors
of the Company ("Outside Directors"), to provide incentives and rewards to such
directors and to associate more closely the interests of such directors with
those of the Company's stockholders. The Directors Plan provides for the
automatic granting of non-qualified stock options to Outside Directors joining
the Company. Each such Outside Director receives an option to purchase 20,000
shares of Common Stock upon his or her initial appointment or election to the
Board of Directors. The exercise price of such options is equal to the fair
market value of the Common Stock on the date of grant. Options granted under the
Directors Plan vest over three years. 300,000 shares are authorized under the
Directors Plan. During 2001, options to purchase 20,000 shares at an exercise
price of $13.00 were canceled. As of December 31, 2001, options to purchase
60,000 shares are outstanding at an average exercise price of $5.80. At December
31, 2001, 86,667 shares under the Directors Plan were exercisable.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The fair value of the Company's compensation cost for stock option plans for
employees and directors, had it been determined, in accordance with SFAS 123,
would have been as follows for the years ended December 31:



2001 2000 1999
---- ---- ----
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------

Net income (loss) .................. $ 14,202 $ 12,258 $ (1,823) $ (4,051) $ (3,785) $ (6,019)
Basic income (loss)
per common share ............... $ 0.67 $ 0.58 $ (0.09) $ (0.20) $ (0.20) $ (0.32)
Diluted income (loss)
per common share ............... $ 0.64 $ 0.55 $ (0.09) $ (0.20) $ (0.20) $ (0.32)



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


39




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

2001 2000 1999
Volatility 104.4% 106.6% 95.5%
Risk-free interest rate 1.25% 6.25% 6.00%
Expected life of options 4 years 4 years 4 years

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

PERFORMANCE SHARES

Under the Plans, the Company's Board of Directors may grant stock to key
employees. The Board of Directors may make the issuance of common stock subject
to the satisfaction of one or more employment, performance, purchase or other
conditions. As of December 31, 2001, the Company has granted 230,000 restricted
stock grants (the "Performance Shares") that vest 8 years from the date of
grant, or earlier if the Company exceeds certain earnings per share levels in
2001 and 2002. During 2001, the Company did not meet the earnings per share
levels to accelerate vesting of the Performance Shares. The Company has recorded
cumulative compensation expense of $217 related to these Performance Shares
through December 31, 2001 based on the fair market value at the date of grant.

PERFORMANCE UNITS

Under the Plans, performance units may be granted by the Company's Board of
Directors to key employees. The terms and conditions of the performance units
including the performance goals, the performance period and the value for each
performance unit are established by the Company's Board of Directors. If the
performance goals are satisfied, the Company shall pay the key employee an
amount in cash equal to the value of each performance unit at the time of
payment. In no event shall a key employee receive an amount in excess of $1,000
in respect of performance units for any given year. During 2001 and 2000,
performance goals were not satisfied, thus there were no amounts paid to
employees related to performance. As of December 31, 2001, there are 241,500
performance units outstanding. If the Company exceeds $30,000, $37,500 or
$45,000,000 net after tax earnings levels during the year ending December 31,
2002, the Company would have to pay the performance unit value of $10.00, $25.00
or $40.00, respectively, multiplied by the number of units held by each
employee.

NOTE 12--CONCENTRATION OF CREDIT RISK

The following table outlines contracts with Plan Sponsors having revenues
and/or accounts receivable that individually exceeded 10% of the Company's total
revenues and/or accounts receivables during the applicable time period:


40






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

Year ended December 31, 1999
% of total revenue .............................................. 13% * 14% 12% 12%
% of total accounts receivable at period end .................... * * 20% * 10%
Year ended December 31, 2000
% of total revenue .............................................. 22% 12% 12% * *
% of total accounts receivable at period end .................... * 14% 18% * *
Year ended December 31, 2001
% of total revenue .............................................. 14% 14% 11% * *
% of total accounts receivable at period end .................... * 23% 17% * *


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

NOTE 13--PROFIT SHARING PLAN

The Company maintains a deferred compensation plan under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may elect to defer up to
15% of their salary, subject to Internal Revenue Service limits. The Company may
make a discretionary matching contribution. The Company recorded matching
contributions of $86, $65 and $50 for the years ended December 31, 2001, 2000,
and 1999, respectively.

NOTE 14--SUBSEQUENT EVENT

In January 2002, MIM acquired Vitality Home Infusion Services, Inc., d/b/a
Vitality Pharmaceutical Services, a national specialty pharmaceutical provider,
based in Roslyn Heights, New York, for $45 million, which was paid, $35 million
in cash and $10 million in MIM common stock. The cash portion of the purchase
price was funded with proceeds from the primary lender under the existing credit
facility.

On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief
Executive Officer, repaid in full a $1,700 loan, together with all accrued and
unpaid interest thereon totalling approximately $2,100.


41




NOTE 15--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of quarterly financial information for fiscal 2001 and 2000 is as
follows:



---------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------------------------------------------------------
2001:


Revenues $ 106,036 $ 106,851 $ 119,886 $ 123,873
Net income $ 3,483 $ 3,210 $ 4,321 $ 3,189
Basic earnings per share $ 0.17 $ 0.16 $ 0.20 $ 0.15
Diluted earnings per share $ 0.17 $ 0.15 $ 0.19 $ 0.14

2000:

Revenues $ 80,517 $ 89,107 $ 76,919 $ 91,629
Net income (loss) $ 725 $ 1,082 $ 183 $ (3,813)
Basic earnings (loss) per share $ 0.04 $ 0.06 $ 0.01 $ (0.18)
Diluted earnings (loss) per share $ 0.04 $ 0.06 $ 0.01 $ (0.18)




The net loss for the fourth quarter of 2000 includes a provision for loss
of $2,300 related to the Company's investment in WHIS and $2,270 related to
legal defense costs for two former officers. Due to changes in the financial
situation at WHIS and its ability to access capital, the Company recorded the
provision for loss on this investment in December 2000.


MIM Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts

For the years ended December 31, 2001, 2000 and 1999
(In thousands)



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

Year ended December 31, 1999
Accounts receivable .......................... $ 2,039 $ - $ 6,537 $ - $ 8,576
Accounts receivable, other ................... $ 403 $ - $ - $ - $ 403
====================================================================
Year ended December 31, 2000
Accounts receivable .......................... $ 8,576 $ (814) $ 571 $ - $ 8,333
Accounts receivable, other ................... $ 403 $ (403) $ - $ - $ -
====================================================================
Year ended December 31, 2001
Accounts receivable .......................... $ 8,333 $(3,193) $ 403(1) $ - $ 5,543
Accounts receivable, other ................... $ - $ - $ - $ - $ -
====================================================================




(1) Net in this amount is approximately $1,000 of reserves credited to the
Tenncare reserve adjustment for the year ended December 2001, on the statement
of operations, upon settlement with THP.


42




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

Part III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference from the
information contained under the captions entitled "Election of Directors,"
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in our definitive proxy statement to be filed with the SEC in
connection with our 2002 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
information contained under the captions entitled "Executive Compensation,"
"Summary Compensation Table," "Compensation Committee Interlocks and Insider
Participation," "Compensation of Directors," "Compensation Committee Report on
Executive Compensation," "Employment Agreements," "Option Grant Table," "Long
Term Incentive Plan - Awards in Last Fiscal Year," "Aggregated Options Exercised
in Last Fiscal Year and Fiscal Year-End Option Values" and "Stockholder Return
Performance Graph" in our definitive proxy statement to be filed with the SEC in
connection with our 2002 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
information contained under the caption entitled "Common Stock Ownership by
Certain Beneficial Owners and Management" in our definitive proxy statement to
be filed with the SEC in connection with our 2002 Annual Meeting of
Stockholders.


43




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
information contained under the caption entitled "Certain Relationships and
Related Transactions" in our definitive proxy statement to be filed with the SEC
in connection with our 2002 Annual Meeting of Stockholders.


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


(A.) Documents Filed as a Part of this Report




PAGE

1. Financial Statements:


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

Consolidated Balance Sheets as of December 31, 2001 and 2000...........................................................23

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.............................24

Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 2001, 2000 and 1999....................................................................................25

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.............................26

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


2. Financial Statement Schedules:

II. Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000 and
1999.........................................................................................................42



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


44




3. Exhibits:

Exhibit



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



2.1 Agreement and Plan of Merger by and Among MIM
Corporation, CMP Acquisition Corp., Continental
Managed Pharmacy Services, Inc. and Principal
Shareholders dated as of January 27, 1998......................................(4) (Exh. 2.1)

2.2 Purchase Agreement, dated as of August 3, 2000,
among American Disease Management Associates, LLC
its Members and Certain Related Parties, MIM Health
Plans, Inc., and MIM Corporation...............................................(11) (Exh. 2.1)

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

3.2 Amended and Restated By-Laws of MIM Corporation................................(5) (Exh. 3(ii))

4.1 Specimen Common Stock Certificate..............................................(4) (Exh. 4.1)

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

10.2 Amendment No. 3 to Drug Benefit Program Services
Agreement dated October 1, 1998................................................(7) (Exh.10.2)

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

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

10.5 Employment Agreement between MIM Corporation and
Richard H. Friedman dated as of December 1, 1998...............................(7) (Exh.10.14)

10.6 Amendment No. 1 to Employment Agreement dated as
of May 15, 1998 between MIM Corporation and Barry
A. Posner ....................................................................(6) (Exh. 10.50)

10.7 Employment Agreement between MIM Corporation and
Barry A. Posner dated as of March 1, 1999 .....................................(7) (Exh.10.17)


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

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


45





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

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

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

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

10.14 Amendment No. 2 dated June 16, 1998 to
Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996 .........................................(7) (Exh.10.31)

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

10.16 MIM Corporation 1996 Amended and Restated Stock
Incentive Plan, as amended December 2, 1998....................................(7) (Exh.10.33)

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

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

10.19 Lease Agreement between Mutual Properties
Stonedale L.P. and MIM Corporation dated April 23,
1997...........................................................................(3) (Exh.10.41)

10.20 Agreement between Mutual Properties Stonedale L.P.
and MIM Corporation dated as of April 23, 1997................................. (3) (Exh.10.42)

10.21 Lease Amendment and Extension Agreement between
Mutual Properties Stonedale L.P. and MIM
Corporation dated December 10, 1997............................................(3) (Exh.10.43)

10.22 Lease Amendment and Extension Agreement-II between
Mutual Properties Stonedale L.P. and MIM
Corporation dated March 27, 1998...............................................(3) (Exh.10.44)

10.23 Lease Agreement between Mutual Properties
Stonedale L.P. and Pro-Mark Holdings, Inc., dated
December 23, 1997..............................................................(3) (Exh.10.45)


46




10.24 Amended and Restated 1996 Non-Employee Directors
Stock Incentive Plan (effective as of March 1, 1999)...........................(8) (Exh.10.60)

10.25 Amendment No. 1 to Employment Agreement,
dated as of October 11, 1999 between
MIM Corporation an Richard H. Friedman ........................................(9) (Exh.10.60)

10.26 Form of Performance Shares Agreement ..........................................(9) (Exh.10.61)

10.27 Form of Performance Units Agreement............................................(9) (Exh.10.62)

10.28 Form of Non-Qualified Stock Option Agreement*..................................(9) (Exh.10.63)

10.29 Corporate Integrity Agreement between the Office of
the Inspector General of the Department of Health and
Human Services and MIM Corporation, dated as of
June 15, 2000..................................................................(10) (Exh. 10.2)

10.30 Loan and Security Agreement, dated November 1, 2000,
between MIM Funding LLC and HFG Healthco-4 LLC.................................(12) (Exh. 10.1)

10.31 Receivables Purchase and Transfer Agreement, dated as of
November 1, 2000, among MIM Health Plans, Inc.,
Continental Pharmacy, Inc., American Disease Management
Associates LLC and MIM Funding LLC.............................................(12) (Exh. 10.2)

10.32 Lease Agreement, dated as of February 24, 2000, by and
between American Duke-Weeks Realty Limited Partnership
and Continental Managed Pharmacy Services, Inc.................................(13) (Exh. 10.68)

10.33 First Lease Amendment, dated as of February 24, 2000,
by and between Duke-Weeks Realty Limited Partnership
and Continental Managed Pharmacy Services, Inc.................................(13) (Exh. 10.69)

10.34 Lease Agreement, dated as of July 22, 1996, by and between
American Disease Management Associates, LLC ("ADIMA")
and Regent Park Associates.....................................................(13) (Exh. 10.70)

10.35 First Amendment of Agreement of Lease, dated as of June 15,
1999, by and between ADIMA and Five Regent Park Associates.....................(13) (Exh. 10.71)

10.36 Second Amendment of Agreement of Lease, dated as of February
11, 2000, by and between ADIMA and Five Regent Park
Associates.....................................................................(13) (Exh. 10.72)


47




10.37 Employment Letter, dated as of February 8, 1999, between
the Company and Recie Bomar ...................................................(13) (Exh. 10.73)

10.38 Asset Purchase Agreement, dated April 4, 2001 among
Continental Managed Pharmacy Services Inc., Community
Prescription Service, Inc., and its Stockholders..............................(14) (Exh. 10.74)

10.39 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, File No. 333-05327).....................................(15) (Exh. 3.1)

10.40 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1998)...........................................(15) (Exh. 3.2)

10.41 Amended and Restated Rights Agreement dated as of May 20,
1999, between the Registrant and American Stock Transfer and
Trust Company (incorporated by reference to Exhibit 4.1 to
Post-Effective Amendment

No. 2 to the Registrant's Form 8-A/A dated May 20, 1999).......................(15) (Exh. 4.1)

10.42 Purchase Agreement among American Disease Management Associates,
L.L.C., its Members and Certain Related Partners, MIM Health Plans,
Inc. and the Registrant, dated as of August 3, 2000 (incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
filed August 10, 2000).........................................................(15) (Exh. 4.2)

10.43 Registration Rights Agreement between the Registrant and
Livingston Group LLC dated as of August 3, 2000 (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed August 10, 2000).........................................................(15) (Exh. 4.3)

10.44 Consent of Arthur Andersen LLP.................................................(15) (Exh. 23.2)

10.45 Employment letter, dated as of June 21, 2001, between MIM
Corporation and Donald Foscato ...............................................(16) (Exh. 10.75)

10.46 Employment letter, dated as of June 18, 2001, between MIM
Health Plans, Inc. and Donald Dindak .........................................(16) (Exh. 10.76)

10.47 Employment letter, dated as of June 19, 2001, between MIM
Health Plans, Inc and Michael Sicilian .......................................(16) (Exh. 10.77)

10.48 Purchase Agreement, dated as of January 9, 2002, among Vitality
Home Infusion Services, Inc., Marc Wiener, Barbara Kammerer
and MIM Corporation............................................................(17) (Exh. 2.1)

10.49 Lease Agreement, dated as of January 31, 2002, between Bar-Marc
Realty, LLC, as landlord, and Vitality Home Infusion Services, Inc.,
as Tenant

10.50 Guaranty of Lease Agreement, dated January 31, 2002, made by
the Company in favor of Bar-Marc Realty, LLC


48




10.51 Employment Letter, dated October 15, 2001, between the Company
and Russel J. Corvese

10.52 Amendment, dated October 15, 2001, to Employment Letter, dated as of
February 8, 1999, between the Company and Recie Bomar

21 Subsidiaries of the Company

99.1 Letter to SEC pursuant to Temporary Note 3T


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


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

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

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

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

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

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

(7) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.


49




(8) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999.

(9) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1999.

(10) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000.

(11) Incorporated by reference to the indicated exhibit to the Company's Current
Report on Form 8-K filed on August 10, 2000.

(12) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2000.

(13) Incorporated by reference to the indicated exhibit to the company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.

(14) Incorporated by reference to the indicated exhibit to the company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001.

(15) Incorporated by reference to the indicated exhibit to the company's Form
S-3 filed on July 12, 2001.

(16) Incorporated by reference to the indicated exhibit to the company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001.

(17) Incorporated by reference to the indicated exhibit to the company's Form
8-K filed on February 5, 2002.


(B) Reports on Form 8-K

NONE


50




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 30, 2001.

MIM CORPORATION


/s/ Donald A. Foscato
-------------------------------
Donald A. Foscato
Chief Financial Officer

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




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

Chairman and Chief Executive Officer March 29, 2002
/s/ Richard H. Friedman (principal executive officer)
- ---------------------------------
Richard H. Friedman

Chief Financial Officer and Treasurer March 29, 2002
/s/ Donald A. Foscato (principal financial officer)
- ---------------------------------
Donald A. Foscato

/s/ Louis DiFazio, PhD Director March 29, 2002
- ---------------------------------
Louis DiFazio, PhD

/s/ Louis A. Luzzi, Ph.D. Director March 29, 2002
- ---------------------------------
Louis A. Luzzi, Ph.D.


/s/ Richard A. Cirillo Director March 29, 2002
- ---------------------------------
Richard A. Cirillo

/s/ Michael Kooper Director March 29, 2002
- ---------------------------------
Michael Kooper

/s/ Ronald Shelp Director March 29, 2002
- ---------------------------------
Ronald Shelp

/s/ Harold Ford Director March 29, 2002
- ---------------------------------
Harold Ford



51




EXHIBIT INDEX

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


10.49 Lease Agreement, dated as of January 31, 2002, between Bar-Marc
Realty, LLC, as landlord, and Vitality Home Infusion Services, Inc.,
as Tenant

10.50 Guaranty of Lease Agreement, dated January 31, 2002, made by
the Company in favor of Bar-Marc Realty, LLC

10.51 Employment Letter, dated October 15, 2001, between the Company
and Russel J. Corvese

10.52 Amendment, dated October 15, 2001, to Employment Letter, dated as of
February 8, 1999, between the Company and Recie Bomar

21 Subsidiaries of the Company

99.1 Letter to SEC pursuant to Temporary Note 3T


52