FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28740
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MIM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 05-0489664
- ------------------------------------------------- ---------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 Clearbrook Road, Elmsford, NY 10523
(Address of principal executive offices)
(914) 460-1600
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 120-2 of the Exchange Act).
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
On November 11, 2002, there were outstanding 24,345,548 shares of the
Company's common stock, $.0001 par value per share.
INDEX
Page Number
PART I FINANCIAL INFORMATION
INDEX
Item 1 Financial Statements
Consolidated Balance Sheets at September 30, 2002 (unaudited)
and December 31, 2001 ................................................ 1
Unaudited Consolidated Statements of Income for the three and nine
months ended September 30, 2002 and 2001 ............................. 2
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2001 ............................. 3
Notes to the Unaudited Consolidated Interim Financial Statements .............. 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................... 11
Item 3 Quantitative and Qualitative Disclosure about Market Risk .................... 17
Item 4 Controls and Procedures ...................................................... 17
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds .................................... 18
Item 6 Exhibits and Reports on Form 8-K ............................................. 18
SIGNATURES
Exhibit Index .............................................................................. 22
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, 2002 December 31, 2001
--------------------- --------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,841 $ 12,487
Receivables, less allowance for doubtful accounts of $3,405 and
$5,543 at September 30, 2002 and December 31, 2001, respectively 70,642 70,089
Inventory 9,547 3,726
Prepaid expenses and other current assets 2,854 1,439
--------- ---------
Total current assets 85,884 87,741
Property and equipment, net 7,957 9,287
Due from officer -- 2,132
Other assets, net 871 1,650
Goodwill, net 62,782 37,033
Intangible assets, net 17,712 1,976
--------- ---------
Total assets $ 175,206 $ 139,819
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 649 $ 594
Line of credit 5,618 --
Accounts payable 10,456 4,468
Claims payable 43,843 46,564
Payables to plan sponsors 23,108 21,063
Accrued expenses and other current liabilities 4,349 5,745
--------- ---------
Total current liabilities 88,023 78,434
Capital lease obligations, net of current portion 548 1,031
Other non current liabilities 57 58
--------- ---------
Total liabilities 88,628 79,523
Stockholders' equity:
Common stock, $.0001 par value; 40,000,000 shares authorized, 22,947,194 and
22,004,101 shares issued and outstanding
at September 30, 2002, and December 31, 2001, respectively 2 2
Treasury stock, 1,393,183 shares at cost (2,934) (2,934)
Additional paid-in capital 117,403 105,424
Accumulated deficit (27,893) (42,196)
--------- ---------
Total stockholders' equity 86,578 60,296
--------- ---------
Total liabilities and stockholders' equity $ 175,206 $ 139,819
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
1
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
-------------------------- --------------------------
(Unaudited) (Unaudited)
Revenue $ 138,530 $ 119,886 $ 425,913 $ 332,773
Cost of revenue 120,566 106,231 374,472 294,047
--------- --------- --------- ---------
Gross profit 17,964 13,655 51,441 38,726
Selling, general and administrative expenses 11,733 9,826 32,786 27,599
TennCare reserve adjustment -- (1,496) (851) (2,476)
Amortization of intangibles 396 551 973 1,631
--------- --------- --------- ---------
Income from operations 5,835 4,774 18,533 11,972
Interest (expense) income, net (221) (43) (655) (27)
--------- --------- --------- ---------
Income before provision for income taxes 5,614 4,731 17,878 11,945
Provision for income taxes 1,123 409 3,575 932
--------- --------- --------- ---------
Net income $ 4,491 $ 4,322 $ 14,303 $ 11,013
========= ========= ========= =========
Basic income per common share $ 0.20 $ 0.20 $ 0.63 $ 0.53
========= ========= ========= =========
Diluted income per common share $ 0.19 $ 0.19 $ 0.60 $ 0.51
========= ========= ========= =========
Weighted average common shares used in
computing basic income per common share 22,944 21,361 22,801 20,894
========= ========= ========= =========
Weighted average common shares used in
computing diluted income per common share 23,813 22,589 23,951 21,624
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
2
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30,
-------------------------------------
2002 2001
-------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 14,303 $ 11,013
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,544 5,288
TennCare reserve adjustment (851) --
Issuance of stock to employees 109 28
Provision for losses on receivables 941 883
Changes in assets and liabilities, net of acquired assets:
Receivables, net 5,264 (11,134)
Inventory (2,268) (1,440)
Prepaid expenses and other current assets (1,305) 205
Accounts payable 56 1,846
Claims payable (2,721) 4,139
Payables to plan sponsors and others 2,046 (6,734)
Accrued expenses and other current liabilities (1,900) (1,072)
Non current liabilities -- (457)
-------- --------
Net cash provided by operating activities 18,218 2,565
-------- --------
Cash flows from investing activities:
Purchase of property and equipment, net of disposals (1,751) (2,281)
Cost of acquisitions, net of cash acquired (34,851) (1,987)
Decrease (increase) in due from officer 2,132 (96)
(Increase) decrease in other assets (98) 100
-------- --------
Net cash used in investing activities (34,568) (4,264)
-------- --------
Cash flows from financing activities:
Net borrowings on line of credit 5,618 --
Purchase of treasury stock -- (2,596)
Proceeds from exercise of stock options 1,514 5,030
Principal payments on capital lease obligations (428) (448)
Net repayment of debt -- (165)
-------- --------
Net cash provided by financing activities 6,704 1,821
-------- --------
Net decrease in cash and cash equivalents (9,646) 122
Cash and cash equivalents--beginning of period 12,487 1,290
-------- --------
Cash and cash equivalents--end of period $ 2,841 $ 1,412
======== ========
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
3
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(In thousands)
Nine Months Ended September 30,
-----------------------------------
2002 2001
-------------- -----------------
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 705 $ 151
======== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Reclassification of stockholder notes to other assets $ -- $ 771
======== ======
Contribution of minority interest to additional paid-in
capital upon dissolution of subsidiary $ -- $1,112
======== ======
Stock issued in connection with acquisition $ 10,355 $ --
======== ======
The accompanying notes are an integral part of these consolidated financial statements.
4
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(In thousands, except per share amounts)
NOTE 1 - BASIS OF PRESENTATION
These unaudited consolidated interim financial statements should be read in
conjunction with the MIM Corporation and Subsidiaries (collectively, the
"Company") audited consolidated financial statements, notes and information
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "Form 10-K") filed with the Commission. The accounting
policies followed for interim financial reporting are similar to those disclosed
in Note 2 of Notes to Consolidated Financial Statements included in Form 10-K.
The following accounting policies are described further below:
CONSOLIDATION
The consolidated financial statements include the accounts of MIM
Corporation and its subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory consists principally of
purchased prescription drugs.
REVENUE RECOGNITION
CAPITATED AGREEMENTS. The Company's capitated contracts with plan sponsors
require the Company to provide covered pharmacy services to plan sponsor members
in return for a fixed fee per member per month paid by the plan sponsor.
Capitated contracts have terms varying from six months to one year. These
contracts are subject to rate adjustment or termination upon the occurrence of
certain events. At such time as management estimates that a contract will
sustain losses over its remaining contractual life, a reserve is established for
these estimated losses. There are currently no expected loss contracts.
FEE-FOR-SERVICE. Under fee-for-service contracts, revenues from orders
dispensed by the Company's pharmacy networks are recognized when the pharmacy
services are reported to the Company by the dispensing pharmacist through the on
line claims processing systems.
All revenue is recorded net of any rebate share payable to plan sponsors.
The Company does not sell products separately from the services offered to
members and plan sponsors and does not maintain revenue or cost of revenue
information with regard to product sales.
When the Company independently has a contractual obligation to pay a
network pharmacy provider for benefits provided to its plan sponsors' members,
the Company includes payments from these plan sponsors as revenue, and payments
to the network pharmacy providers as cost of revenue ("gross") in accordance
with Emerging Issues Task Force ("EITF") 99-19, "Recording Revenue Gross as a
Principal versus Net as an Agent". These transactions require the Company to
assume credit risk and act as a principal. If the Company was merely
administering plan sponsors' network pharmacy contracts in which the Company
does not assume credit risk, but acts as an agent, the Company records only the
administrative or dispensing fees as revenue ("net").
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 any of the Company's pharmacy dispensing locations.
Revenue is recognized for these products and services when they are dispensed
and/or shipped.
5
COST OF REVENUE
Cost of revenue includes pharmacy claims, fees paid to pharmacists and other
direct costs associated with pharmacy management, claims processing operations
and mail order services, offset by volume rebates received from pharmaceutical
manufacturers. The Company does not maintain cost of revenue information with
regards to product sales.
CLAIMS PAYABLE
The Company is responsible for all covered prescription drugs provided to
plan members during the contract period. Claims payable also includes estimates
of certain prescriptions that were dispensed to members for whom the related
claims had not yet been submitted.
PAYABLES TO PLAN SPONSORS
Payables to plan sponsors represent the sharing of pharmaceutical rebates
with the plan sponsors, as well as profit sharing plans with certain capitated
contracts.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic income per common
share and diluted income per common share:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Numerator:
Net income ................................. $ 4,491 $ 4,322 $ 14,303 $ 11,013
============= ============= ============= =============
Denominator - Basic:
Weighted average number of common
shares outstanding ......................... 22,944 21,361 22,801 20,894
============= ============= ============= =============
Basic income per common share .............. $ 0.20 $ 0.20 $ 0.63 $ 0.53
============= ============= ============= =============
Denominator - Diluted:
Weighted average number of common
shares outstanding ......................... 22,944 21,361 22,801 20,894
Common share equivalents of outstanding
stock options .............................. 869 1,228 1,150 730
------------- ------------- ------------- -------------
Total diluted shares outstanding ........... 23,813 22,589 23,951 21,624
============= ============= ============= =============
Diluted income per common share ............ $ 0.19 $ 0.19 $ 0.60 $ 0.51
============= ============= ============= =============
NOTE 3 - DUE FROM COMPANY OFFICER
On March 23, 2002, officer repaid in full a $1,700 loan from the Company,
together with all accrued and unpaid interest thereon, totaling approximately
$2,100.
6
NOTE 4 - TENNCARE(R) RESERVE ADJUSTMENTS
There were no TennCare(R) reserve adjustments in the current quarter of
2002. The TennCare(R) reserve adjustments of $851 and $1,496 in the first
quarter of 2002 and the third quarter of 2001, respectively, were a result of
the collection of receivables from Xantus Healthplans of Tennessee, Inc., which
were previously reserved. During the first quarter of 2001, the Company recorded
a reserve adjustment of $980 to reflect a favorable settlement with Tennessee
Health Partnership ("THP") relative to the amount initially reserved. This
dispute related to several improper reductions of payments from THP for services
provided to THP and its enrollees.
NOTE 5 - TREASURY STOCK
In February 2001, the Company repurchased 1,298 shares of the Company's
common stock for $2,596, at a price of $2.00 per share of common stock.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In 1998, the Company recorded a $2,200 special charge against earnings in
connection with an agreement in principle with respect to a civil settlement of
a Federal and State of Tennessee investigation for conduct involving two former
officers of the Company occurring prior to the Company's August 1996 initial
public offering. The definitive agreement covering that settlement was executed
on June 15, 2000, and required payment of $775 in 2000, payment of $900 in 2001,
and payment of $525 in 2002. On July 1, 2002, this settlement was paid in full.
NOTE 7 - ACQUISITIONS
On January 31, 2002, the Company acquired all of the issued and outstanding
capital stock of Vitality Home Infusion Services, Inc. ("Vitality"). Vitality is
a New York-based provider of specialty pharmaceutical services. Vitality
provides such services on a national basis to chronically ill and genetically
impaired patients, particularly focusing on oncology, infectious disease,
immunology and rheumatory disease.
The aggregate purchase price for Vitality was $46,416 (including $1,416 in
transaction costs), payable $35,000 in cash and 612,419 shares of MIM common
stock valued at $10,355, including 20,002 shares of common stock, valued at
$355, for transaction costs. The common stock of MIM was valued using the
average market price for twenty days prior to the date of the purchase
agreement. The purchase price for Vitality has been allocated to assets and
liabilities based on management's best estimates of fair value and based on a
final valuation performed by an independent outside valuation firm. The
following table sets forth the allocation of the purchase price as of September
30, 2002:
Purchase price:
Funded from the Company's line of credit $ 35,000
Common stock value 10,355
Transaction costs 1,061
-------------
Total purchase price 46,416
Less: net tangible assets as of January 31, 2002 4,441
-------------
Excess of purchase price over net tangible assets acquired $ 41,975
=============
Allocation of excess purchase price:
Customer relationships $ 11,000
Trademarks 4,700
Non-compete agreements 730
Goodwill 25,545
-------------
Total $ 41,975
=============
VITALITY PRO FORMA FINANCIAL INFORMATION
The following unaudited consolidated pro forma financial information for
the three and nine month periods ended September 30, 2002 and 2001,
respectively, has been prepared assuming Vitality was acquired as of January 1,
2001, utilizing the purchase method of accounting, with pro forma adjustments
for non-amortizing goodwill, amortizing intangibles, interest expense, rent
expense and income tax benefit. The pro forma financial information is presented
for informational purposes only and is not necessarily indicative of the results
that would have been realized had the acquisition occurred on January 1, 2001.
This pro forma financial information is not intended to be a projection of
future operating results.
7
Pro Forma Income Statement
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
Revenues $ 138,530 $ 138,153 $ 432,956 $ 385,884
Net income $ 4,491 $ 4,536 $ 14,115 $ 13,411
Basic income per common share $ 0.20 $ 0.21 $ 0.62 $ 0.62
Diluted income per common share $ 0.19 $ 0.20 $ 0.59 $ 0.60
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets," which establish accounting and
reporting standards governing business combinations, goodwill and intangible
assets. SFAS No. 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting. SFAS No. 142
states that goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill will be subject to at least an annual assessment
for impairment by applying a fair-value based test. Under the new rules, an
acquired intangible asset should be separately recognized and amortized over its
useful life (unless an indefinite life) if the benefit of the intangible asset
is obtained through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented or exchanged regardless of the
acquirer's intent to do so. The Company adopted these standards on January 1,
2002.
Pursuant to SFAS No. 142, substantially all of the Company's intangible
assets will no longer be amortized and the Company is required to perform an
annual impairment test for goodwill and intangible assets. Goodwill and
intangible assets are allocated to various reporting units, which are either the
operating segment or one reporting level below the operating segment. SFAS No.
142 requires the Company to compare the fair value of the reporting unit to its
carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying
value an impairment loss would be recorded to the extent that the fair value of
the goodwill within the reporting unit is less than the carrying value. The
impairment test for intangible assets consists of comparing the fair value of
the intangible asset to its carrying value. If the carrying value of the
intangible asset exceeds its fair value an impairment loss is recognized. Fair
value for goodwill and intangible assets are determined based on discounted cash
flows and appraised values. During the first quarter of 2002, the Company
completed its initial impairment review which indicated that there was no
impairment of goodwill or intangible assets.
The following table provides a reconciliation of reported net income for the
three and nine month periods ended September 30, 2001, to adjusted net income as
if SFAS No. 142 had been applied as of January 1, 2001.
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
--------------------------------- ----------------------------------
Dollars Diluted EPS Dollars Diluted EPS
--------------------------------- ----------------------------------
Net income as reported $ 4,322 $ 0.19 $ 11,013 $ 0.51
Add back goodwill amortization (net of tax) 439 0.02 1,298 0.06
-------------- ----------------- --------------- -----------------
Net income as adjusted $ 4,761 $ 0.21 $ 12,311 $ 0.57
============== ================= =============== =================
8
The changes in the net carrying amount of goodwill for the nine months ended
September 30, 2002, are as follows:
Balance as of December 31, 2001 $ 37,033
Goodwill acquired (Vitality) 25,545
Miscelleanous purchase price adjustments 204
----------
Balance (net of amortization) as of September 30, 2002 $ 62,782
==========
Gross amortizable intangible assets with definite lives at September 30,
2002 consist of customer relationships of $13,948 amortized over four to twenty
years and noncompete agreements of $862 amortized over three to four years and
$127 of trademarks amortized over three years. Gross intangible assets with
indefinite lives at September 30, 2002 are trademarks of $4,700 and goodwill of
$66,938. Accumulated amortization for intangibles and goodwill at September 30,
2002 is $6,081.
NOTE 9 - OPERATING SEGMENTS
The Company operates in two distinct segments: (1) PBM Services, which is
comprised of fully integrated pharmacy benefit management and mail services; and
(2) Specialty Pharmaceuticals, which is comprised of specialty pharmacy
distribution and clinical management services.
The accounting polices applied to business segments are the same as those
described in the summary of significant accounting policies as disclosed in Note
2 of Notes to Consolidated Financial Statements in the Form 10-K.
Segment Reporting Information
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
2002 2001 2002 2001
--------------------------- -----------------------------
Revenues:
PBM Services $ 94,826 $110,176 $306,819 $304,295
Specialty Pharmaceuticals 43,704 9,710 119,094 28,478
-------- -------- -------- --------
Total $138,530 $119,886 $425,913 $332,773
======== ======== ======== ========
Depreciation expense:
PBM Services $ 666 $ 971 $ 2,461 $ 2,860
Specialty Pharmaceuticals 238 111 675 328
-------- -------- -------- --------
Total $ 904 $ 1,082 $ 3,136 $ 3,188
======== ======== ======== ========
Income from operations:
PBM Services $ 1,460 $ 4,025 $ 6,207 $ 8,781
Specialty Pharmaceuticals 4,375 749 12,326 3,191
-------- -------- -------- --------
Total $ 5,835 $ 4,774 $ 18,533 $ 11,972
======== ======== ======== ========
Total assets:
PBM Services $ 74,280 $ 98,889
Specialty Pharmaceuticals 100,926 32,867
-------- --------
Total $175,206 $131,756
======== ========
Capital expenditures:
PBM Services $ 179 $ 455 $ 752 $ 1,835
Specialty Pharmaceuticals 205 107 1,024 483
-------- -------- -------- --------
Total $ 384 $ 562 $ 1,776 $ 2,318
======== ======== ======== ========
9
Revenues for the three months ended September 30, 2002 included $14,116
from capitated arrangements compared to $24,308 for the same period in 2001.
This represents 10.1% of the Company's current quarterly revenues compared to
20.3% for the same quarter in 2001.
Revenues for the nine months ended September 30, 2002 included $37,886 from
capitated arrangements compared to $80,222 for the same period a year ago. This
represents 8.9% of the Company's current nine month revenues compared to 24.1%
for the same period in 2001.
* * * *
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements of MIM Corporation and subsidiaries
(collectively, the "Company"), including the notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "Form 10-K") filed with the U.S. Securities and Exchange
Commission (the "Commission"), as well as the Company's unaudited consolidated
interim financial statements and the related notes thereto included elsewhere in
this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2002 (this "Report").
This Report contains statements not purely historical and which may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934,
as amended, including statements regarding the Company's expectations, hopes,
beliefs, intentions or strategies regarding the future. These forward-looking
statements may include statements relating to the Company's business development
activities; sales and marketing efforts; the status of material contractual
relationships and the expenditures associated with one or more of them; the
effect of regulation and competition on our business; future operating
performance and results of the company; the benefits and risks associated with
the integration of acquired companies; and the likely outcome and effect of
legal proceedings on the company and its business and operations and/or the
resolution or settlement thereof. Although we believe any and all of these
statements should be based on reasonable assumptions, there is no way to
guarantee that we will always be able to meet the expectations arising from
those forward-looking statements and their underlying assumptions. Actual
results may differ materially from those implied in the forward-looking
statements because of the various factors enumerated in our periodic filings
with the SEC. These factors include, among other things, the status of contract
negotiations; increased government regulation relating to the health care and
insurance industries in general, and more specifically, pharmacy benefit
management, mail service and specialty pharmaceutical distribution
organizations; the existence of complex laws and regulations relating to the
Company's business; increased competition from the Company's competitors,
including those competitors with greater financial, technical, marketing and
other resources, and risks associated with risk-based or capitated contracts.
This Report contains information regarding important factors that could cause
such differences. The Company does not undertake any obligation to supplement
these forward looking statements to reflect any future events and circumstances.
OVERVIEW
The Company is a pharmaceutical healthcare organization delivering
innovative pharmacy benefit management, specialty pharmaceutical distribution
and other pharmacy-related healthcare solutions. The Company combines its
clinical management expertise, sophisticated data management and therapeutic
fulfillment capabilities to serve the particular needs of each of its customers
and respective pharmacy benefit recipients covered by a customer's
pharmacy-related health benefits. The Company provides a broad array of pharmacy
benefits and pharmacy products and services to individual enrollees ("Members")
receiving health benefits, principally through health insurers, including
managed care organizations ("MCOs") and other insurance companies, and, to a
lesser extent, third party administrators, labor unions, self-funded employer
groups, government agencies, and other self-funded plan sponsors (collectively,
"Plan Sponsors"). These services are organized under two reported operating
segments: pharmacy benefit management and mail services (collectively, "PBM
Services"), and specialty pharmacy distribution and clinical management services
("Specialty Pharmaceuticals").
The Company offers small and mid-sized Plan Sponsors a broad range of PBM
Services designed to promote the cost-effective delivery of clinically
appropriate pharmacy benefits through its network of retail pharmacies and its
own mail service distribution facility. PBM Services revenues are recognized two
different ways. When the Company has a contractual obligation to pay its network
pharmacy providers for services provided to Members of Plan Sponsors and assumes
credit risk for these benefits, it recognizes the total payments (including the
cost of the prescription drug) from these Plan Sponsors as revenue, and payments
to network pharmacy providers as cost of revenue ("gross"). When the Company
does not assume credit risk for the network pharmacy payments, it records only
the administrative or dispensing fees as revenue ("net").
11
The Company's Specialty Pharmaceuticals programs are offered to Plan
Sponsors of all sizes and include the distribution of biotech and other
specialty prescription medications and the provision of pharmacy-related
clinical management services and disease state programs to the chronically ill
and genetically impaired directly and through Plan Sponsors. These services are
offered through its BioScrip(R) specialty injectable and infusion therapy
programs.
The Company also distributes high-cost injectable and infusion prescription
medications and therapies, through its Vitality Home Infusion Services, Inc.
("Vitality") and American Disease Management Associates L.L.C. ("ADIMA")
subsidiaries.
Depending on the goals and objectives of its Plan Sponsor customers, the
Company provides some or all of the following clinical services to each Plan
Sponsor as part of its PBM Services and Specialty Pharmaceuticals services:
pharmacy case management, therapy assessment, compliance monitoring, health risk
assessment, patient education and drug usage and interaction evaluation,
pharmacy claims processing, mail services and related prescription distribution,
benefit design consultation, drug utilization review, formulary management and
consultation, drug data analysis, drug interaction management, patient
compliance, program management and pharmaceutical rebate administration.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Revenue for the PBM is recognized either at the time that the pharmacy service
is reported to the Company from participating pharmacies under the
fee-for-service contracts or, in the case of a capitated agreement, in the month
in which the services are performed. As outlined above, revenue is recorded
gross or net based on whether or not the credit risk is assumed by the Company.
Allowances for doubtful accounts are based on estimates of losses related to
customer receivable balances. Estimates are developed by using standard
quantitative measures based on historical losses, adjusting for current economic
conditions and, in some cases, evaluating specific customer accounts for risk of
loss. The establishment of reserves requires the use of judgment and assumptions
regarding the potential for losses on receivable balances.
REBATES
Manufacturers' rebates are recorded as estimates until such time as the rebate
monies are received. These estimates are based on historical results and trends
as well as the Company's forecasts. In January 2001, the Company adopted
Emerging Issues Task Force Issue No. 00-22 ("EITF 00-22"), "Accounting for
`Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers,
and Offers for Free Products or Services to Be Delivered in the Future". EITF
00-22, states, among other things, that rebates received from pharmaceutical
manufacturers should be recognized as a reduction of cost of revenue and rebates
shared with Plan Sponsors as a reduction of revenue.
PURCHASE PRICE ALLOCATION
The Company accounts for its acquisitions under the purchase method of
accounting and accordingly, the acquired assets and liabilities assumed are
recorded at their respective fair values. The recorded values of assets and
liabilities are based on third party estimates and independent valuations when
available. The remaining values are based on management's judgments and
estimates, and accordingly, the Company's financial position or results of
operations may be affected by changes in estimates and judgments.
12
INCOME TAXES
As part of the process of preparing the Company's consolidated financial
statements, management is required to estimate income taxes in each of the
jurisdictions in which it operates. The process involves estimating actual
current tax expense along with assessing temporary differences resulting from
differing treatment of items for book and tax purposes. These timing differences
result in deferred tax assets and liabilities, which are included in the
Company's consolidated balance sheet.
RESULTS OF OPERATIONS
REVENUES AND GROSS PROFIT
The following table provides details for the PBM Services segment for the
three and nine month periods ended September 30, 2002 and 2001:
PBM Services
($ in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------------- ---------------------------------------------------
2002 2001 % Inc/ (Dec) 2002 2001 % Inc/ (Dec)
------------------------------------------------------------------------------------------------------
Revenues $94,826 $110,176 (13.9%) $306,819 $304,295 0.8%
Cost of revenues 87,633 99,729 (12.1%) 283,335 275,170 3.0%
------- -------- -------- -------- -------- -------
Gross profit $ 7,193 $ 10,447 (31.1%) $ 23,484 $ 29,125 (19.4%)
======= ======== ======== ======== ======== ========
Gross profit percentage 7.6% 9.5% 7.7% 9.6%
PBM Services revenues decreased 13.9% to $94.8 million in the third quarter
compared to $110.2 million in the third quarter of 2001 and increased slightly
to $306.8 for the nine months ended September 30, 2002 compared to the same
period in 2001. In the second quarter of 2002, the Company changed the terms of
some of its PBM customers, where the Company no longer accepted credit risk on
these customers. After giving effect to that change, current accounting rules
required the Company to classify these customers' gross PBM Services revenue on
a net basis. That change had the effect of reducing the gross PBM Services
revenue and cost of revenue by $20.4 million and $51.1 million for the quarter
and nine months ended September 30, 2002, respectively, with no resulting effect
on reported gross profit. The third quarter 2002 revenue decrease and the
minimal revenue increase for the nine months ended September 30, 2002, were the
result of decreases in revenue associated with the Company's classification of
certain PBM Services revenues from gross to net, the liquidation of Access
MedPLUS in the fourth quarter of 2001, and the Company's termination of certain
unprofitable PBM accounts, partially offset by increases from continued growth
in its retail network and mail services.
Cost of revenue decreased $12.1 million in the third quarter of 2002 and
increased $8.2 million in the nine months ended September 30, 2002 compared to
the same periods in 2001. The changes are a result of the same reasons discussed
above.
Gross profit decreased $3.3 million in the third quarter of 2002 and $5.6
million in the nine months ended September 30, 2002 compared to the same periods
in 2001, due to the liquidation of Access MedPLUS and the Company's termination
of certain unprofitable PBM accounts. These decreases were partially offset by
increases from continued growth in its retail network and mail services.
13
The following table provides details for the Specialty Pharmaceuticals
segment for the three and nine month periods ending September 30, 2002 and 2001.
Specialty Pharmaceuticals
($ in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------- --------------------------------------------
2002 2001 % Inc/ (Dec) 2002 2001 % Inc/ (Dec)
--------------------------------------------------------------------------------------------------
Revenues $ 43,704 $ 9,710 350.1% $ 119,094 $ 28,478 318.2%
Cost of revenues 32,933 6,502 406.5% 91,137 18,877 382.8%
------------ ------------ ----------- ------------- ------------ --------------
Gross profit $ 10,771 $ 3,208 235.7% $ 27,957 $ 9,601 191.2%
============ ============ =========== ============= ============ ==============
Gross profit percentage 24.6% 33.0% 23.5% 33.7%
Specialty Pharmaceuticals revenues increased $34.0 million in the third
quarter of 2002 to $43.7 million, and $90.6 million to $119,094 million for the
nine months ended September 30, 2002 compared to the same periods last year.
These increases were the result of the inclusion of Vitality's revenues from
February 2002 (the acquisition date) (see Note 7 of Notes to Unaudited
Consolidated Financial Statements), and continued growth in the Company's
BioScrip(R) injectable and infusion therapy programs.
Cost of revenue increased $26.4 million in the third quarter of 2002 and
$72.3 million for the nine months ended September 30, 2002 compared to the same
periods in 2001. These increases are commensurate with the inclusion of Vitality
since February 2002 and the growth in the Company's BioScrip(R) programs from
2001.
Gross profit increased $7.6 million for the third quarter of 2002 and $18.4
million for the nine months ended September 30, 2002 from the same periods in
2001, due to the inclusion of Vitality from February 2002, as well as increases
from the BioScrip(R) programs, reflecting their revenue growth from 2001.
The gross profit percentages declined in both the third quarter of 2002 and
the nine months ended September 30, 2002 compared to the same periods in 2001 as
a result of increases in the lower margin BioScrip(R) injectable therapy
programs. The current gross profit percentages now reflect a higher proportion
of injectable therapy programs in the total Specialty Pharmaceuticals business,
when, in the previous year, the infusion therapy program represented a higher
percentage of the total Specialty Pharmaceuticals business. Infusion therapy
historically has yielded a higher gross profit percentage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased to $11.7
million for the third quarter of 2002, or 8.5% of revenue, from $9.8 million, or
8.2% of revenue for the same period a year ago. This increase is principally the
result of operating cost increases commensurate with the Company's business
growth, the inclusion of Vitality's SG&A in the Company's results since February
2002, as well as overall higher insurance premiums. SG&A expenses for the first
nine months of 2002 increased to $32.8 million, or 7.7% of revenue, from $27.6
million, or 8.3% of revenue, in the first nine months of 2001, for the same
reasons previously discussed.
TENNCARE(R) RESERVE ADJUSTMENTS
There were no TennCare(R) reserve adjustments in the current quarter of
2002. The TennCare(R) reserve adjustments of $0.9 million in the first quarter
of 2002 and $1.5 million in the third quarter of 2001, respectively, were the
result of the collection of receivables from Xantus Healthplans of Tennessee,
Inc., which were previously reserved. During the first quarter of 2001, the
Company also recorded a reserve adjustment of $1.0 million to reflect a
favorable settlement with Tennessee Health Partnership ("THP") relating to
several improper reductions of payments from THP for which the Company had
provided services.
14
AMORTIZATION OF INTANGIBLES
For the third quarter of 2002 and the nine months ended September 30, 2002,
the Company recorded amortization of $0.4 million and $1.0 million,
respectively, compared to $0.6 million and $1.6 million for the same periods,
respectively, in 2001. These decreases in 2002 are the result of the adoption of
SFAS No. 142 (see Note 8 of Notes to Unaudited Consolidated Financial
Statements), which were partially offset by the amortization of identifiable
intangibles resulting from the acquisition of Vitality on January 31, 2002.
NET INTEREST EXPENSE
Net interest expense was $0.2 million and $0.7 million for the three months
and nine months ended September 30, 2002, respectively, compared to nominal
amounts of net interest expense for the same periods in 2001. The interest
expense in 2002 is primarily a result of using the Company's revolving credit
facility to fund the $35 million cash portion of the Vitality $45 million
purchase price on January 31, 2002.
PROVISION FOR INCOME TAXES
Tax expense for the third quarter of 2002 and for the nine months ended
September 30, 2002 was $1.1 million and $3.6 million, respectively, compared to
$0.4 million and $0.9 million, respectively, for the same periods last year. The
effective tax rates for the third quarter and nine months ended September 30,
2002 were 20.0%, compared to 8.6% and 7.8%, respectively, for the same periods
last year. The Company was able to fully offset taxable income in 2001 with its
Federal net operating loss carry forwards, but expects to only partially offset
expected 2002 taxable income with available Federal net operating loss carry
forwards.
INCOME FROM OPERATIONS
Income from operations for the third quarter of 2002 increased 22% over the
same period last year to $5.8 million. 2001 income from operations of $4.8
million includes a benefit of $1.0 million (a special gain from a TennCare(R)
reserve adjustment of $1.5 million, offset by amortization of goodwill).
Earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the third quarter of 2002 totaled $7.3 million, compared to $6.6 million for the
same period last year. EBITDA for 2001 includes the special gain above of $1.5
million.
Income from operations for the nine months ended September 30, 2002
increased 55% to $18.5 million from $12.0 million for the same period last year.
Income from operations includes a special gain from a TennCare(R) reserve
adjustment of $0.9 million in 2002 and a benefit of $1.1 million in 2001
(special gains from TennCare(R) adjustments of $2.5 million, above offset by
amortization of goodwill). EBITDA for the nine months of 2002 grew 34% to $23.1
million, compared to $17.3 million in the previous year's period. EBITDA
includes the special gains above of $0.9 million and $2.5 million in 2002 and
2001, respectively.
NET INCOME AND EARNINGS PER SHARE
Net income for the third quarter of 2002 was $4.5 million or $0.19 per
diluted share, compared to net income of $3.4 million or $0.15 per diluted share
for the same period last year, excluding a 2001 special gain from a TennCare(R)
reserve adjustment of $0.06 per diluted share and adding back the 2001 impact of
$0.02 for the application of SFAS No. 142 regarding the amortization of
goodwill. Average diluted shares outstanding for the third quarter increased by
1.2 million to 23.8 million shares.
Net income for the nine months ended September 30, 2002 was $13.6 million
or $0.57 per diluted share, compared to net income of $10.0 million or $0.47 per
diluted share for the same period last year, excluding 2002 and 2001 special
gains from TennCare(R) reserve adjustments of $0.03 and $0.10 per diluted share,
respectively, and adding back the 2001 impact of $0.06 per diluted share for the
application of SFAS No. 142 regarding the amortization of goodwill. Average
diluted shares outstanding for the nine months increased by 2.3 million to 24.0
million shares.
15
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes both funds generated from operations and available
credit under its Facility (as defined below) for acquisitions, capital
expenditures and general working capital needs.
For the nine months ended September 30, 2002, net cash provided by
operating activities totaled $18.2 million compared to $2.6 million for the same
period last year. This improvement is the result of continued growth in the
Company's businesses and the inclusion of Vitality results from February 2002.
Net cash used in investing activities during the nine months ended
September 30, 2002 was $34.6 million compared to $4.3 million used in the same
period in 2001. This increase reflects approximately $35 million of the Facility
used for the acquisition of Vitality (see Note 7 of Notes to Unaudited
Consolidated Financial Statements), partially offset by the repayment in full,
in March 2002, of a $2.1 million officer loan (see Note 3 of Notes to Unaudited
Consolidated Financial Statements).
For the nine months ended September 30, 2002, net cash provided by
financing activities was $6.7 million compared to $1.8 million in the same
period in 2001. The increase is primarily the result of $5.6 million currently
outstanding under the Facility after repaying most of the borrowings used to pay
the cash portion of the purchase price for the Vitality acquisition and the
absence of treasury stock purchases in 2002 that, in the 2001 period, totaled
$2.6 million.
At September 30, 2002, the Company had a working capital deficit of $2.1
million compared to working capital of $9.3 million at December 31, 2001. This
change is primarily the result of the acquisition of Vitality. Goodwill and
intangible assets, classified as non-current, increased $41.5 million while the
$5.6 million unpaid balance under the Facility was classified as a current
liability.
The allowance for doubtful accounts at September 30, 2002 of $3.4 million,
or 4.8% of accounts receivable, decreased $2.1 million from $5.5 million, or
7.9% of accounts receivable at December 31, 2001. This decrease was primarily
the result of a reduction to a reserve, in the first quarter of 2002,
established in a prior period for the collection of receivables from Xantus
Healthplans of Tennessee, Inc., which was no longer required (as discussed in
Note 4 of Notes to Unaudited Consolidated Financial Statements).
On November 1, 2000, the Company entered into a $45 million revolving
credit facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of
Healthcare Finance Group, Inc. ("HFG"). The Facility has a three-year term and
is secured by the Company's receivables. Interest is payable monthly and
provides for borrowing of up to $45 million at the London Inter-Bank Offered
Rate (LIBOR) plus 2.1%. The Facility contains various covenants that, among
other things, require the Company to maintain certain financial ratios, as
defined in the agreements governing the Facility. As of September 30, 2002,
there was $5.6 million outstanding under the Facility as a result of the
Company's acquisition of Vitality. The Facility terminates on October 31, 2003.
The Company beleives that it will be able to extend or renew the Facility, or
alternatively, obtain a new credit facility with another lender, however, there
can be no assurances that the Company will be able to renew or extend the
Facility or obtain a new one on terms favorable to the Company. Failure to renew
or extend the Facility or enter into a new credit facility could have a material
adverse effect on the Company.
As the Company continues to grow, it anticipates that its working capital
needs will also continue to increase. The Company believes that its cash on
hand, together with funds available under the Facility and cash expected to be
generated from operating activities will be sufficient to fund the Company's
anticipated working capital and other cash needs for at least the next 12
months.
The Company also may pursue joint venture arrangements, business
acquisitions and other transactions designed to expand its PBM Services and
Specialty Pharmaceuticals businesses, which the Company would expect to fund
from cash on hand, borrowings under the Facility, other future indebtedness or,
if appropriate, the private and/or public sale or exchange of equity securities
of the Company.
16
At December 31, 2001, the Company had unused Federal net operating loss
carryforwards of $40.3 million, which will begin expiring in 2009. Since the
Company has not had a history of consistent profitability, it is uncertain
whether the Company will realize the benefit from its deferred tax assets and
has provided a valuation allowance.
As of December 31, 2001, certain of the Company's Federal net operating
loss carryforwards are subject to limitation and may be utilized in a future
year upon release of the limitation. If Federal net operating loss carryforwards
are not utilized in the year they are available they may be utilized in a future
year to the extent they have not expired.
OTHER MATTERS
The TennCare(R) program operates under a demonstration waiver from The
United States Center for Medicare and Medicaid Services ("CMS"). That waiver is
the basis of the Company's ongoing service to those MCOs in the TennCare(R)
program. The waiver expired on December 31, 2001 and was renewed without
material modification through December 31, 2002 and further extended through
December 31, 2004, without material modification to those goods and services
being provided by the Company or the manner in which the Company is compensated.
While the Company believes that pharmacy benefits will continue to be provided
to Medicaid and other eligible TennCare(R) enrollees through MCOs in one form or
another through at least December 31, 2004. Should the funding sources and/or
conditions for the TennCare(R) program change significantly, the TennCare(R)
program's ability to pay the MCOs, and in turn the MCO's ability to pay the
Company, could materially and adversely affect the Company's financial position
and results of operations.
In the first quarter of 2001, the Company commenced a stock repurchase
program pursuant to which the Company is authorized to repurchase up to $5.0
million of its common stock from time to time on the open market or in private
transactions. To date, the Company has used, in the aggregate, approximately
$2.6 million towards the repurchase of its common stock under this program.
On October 1, 2002, the U.S. Department of Health and Human Services Office
of Inspector General ("OIG") released its Draft Compliance Program Guidance for
Pharmaceutical Manufacturers (the "Draft Guidance") designed to provide
voluntary, nonbinding guidance to assist pharmaceutical manufacturers in
devising effective legal compliance programs. The Draft Guidance identifies in
general terms certain areas of potential legal risk that OIG encourages
pharmaceutical manufacturers to consider in structuring compliance programs. OIG
has solicited public comment on the Draft Guidance and will at some time in the
future publish final guidance along with a discussion of relevant comments. The
Company currently maintains a compliance program that includes the key
compliance program elements described in the Draft Guidance. We do not believe
that the Draft Guidance, if adopted in its current form, would be likely to have
a material effect on our business operations or financial results. However, it
is possible that the Draft Guidance could be changed prior to publication of the
final version, and any such changes could impact our business operations,
possibly materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no material change from the information provided in Item 7a
of the Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of November 12, 2002, an evaluation was performed under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company's disclosure
controls and procedures were effective as of November 12, 2002. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to November 12,
2002.
17
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 31, 2002, the Company issued 612,419 shares of its common stock
in connection with the acquisition of Vitality. (see Note 7 of Notes to
Unaudited Consolidated Financial Statements).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3.1 Amended and restated Certificate of Incorporation
(incorporated by reference to Exhibit 3-1 to the
Company's Registration Statement on Form S-1, File No.
333-05327)
Exhibit 3.2 Amended and Restated By-Laws of MIM Corporation
Exhibit 4.1 Amended and Restated Rights Agreement dated as of May
20, 1999 between MIM Corporation and American Stock
Transfer and Trust Company (incorporated by reference
to Exhibit 4.1 to post-effective amendment No. 2 to the
Company's Form 8-A/A dated May 20, 1999.
Exhibit 10.1 Employment letter dated October 1, 2002, between
the Company and James S. Lusk.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIM CORPORATION
November 14, 2002 /s/ James S. Lusk
---------------------------
James S. Lusk
Chief Financial Officer
19
CERTIFICATION
I, Richard H. Friedman, certify that:
1. I have reviewed this quarterly report on Form 10-Q;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(i) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(ii) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(iii) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(i) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
-----------------
/s/ Richard H. Friedman
-----------------------
Chief Executive Officer
20
CERTIFICATION
I, James S. Lusk, certify that:
1. I have reviewed this quarterly report on Form 10-Q;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(i) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(ii) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(iii) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(i) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
-----------------
/s/ James S. Lusk
-----------------
Chief Financial Officer
21
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 Amended and restated Certificate of Incorporation (incorporated by
reference to Exhibit 3-1 to the Company's registration Statement of Form
S-1, File No. 333-05327)
3.2 Amended and restated By-Laws of MIM Corporation
4.1 Amended and Restated Rights Agreement dated as of May 20, 1999 between MIM
Corporation and American Stock Transfer and Trust Company (incorporated by
reference to Exhibit 4.1 to post-effective amendment No. 2 to the Company's
Form 8-A/A dated May 20, 1999.
10.1 Employment letter dated October 1, 2002, between the Company and James S.
Lusk
22