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 ------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------------------- --------------- Commission file number 0-28740 --------------------------------------------------------- MIM CORPORATION -------------------------------------------------------- (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 --------------------- (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 ------ ---- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 120-2 of the Exchange Act). Yes X No ------ ---- 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.
<TABLE> <CAPTION> INDEX Page Number PART I FINANCIAL INFORMATION <S> <C> <C> 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 </TABLE>
PART I FINANCIAL INFORMATION Item 1. Financial Statements MIM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) <TABLE> <CAPTION> September 30, 2002 December 31, 2001 --------------------- -------------------- ASSETS (Unaudited) Current assets: <S> <C> <C> 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. </TABLE> 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: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ---------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Numerator: <S> <C> <C> <C> <C> 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 ============= ============= ============= ============= </TABLE> 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
<TABLE> <CAPTION> Pro Forma Income Statement Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------- ---------------------------------- 2002 2001 2002 2001 ---------------- ---------------- ---------------- ---------------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> 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 </TABLE> 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. <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, 2001 September 30, 2001 --------------------------------- ---------------------------------- Dollars Diluted EPS Dollars Diluted EPS --------------------------------- ---------------------------------- <S> <C> <C> <C> <C> 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 ============== ================= =============== ================= </TABLE> 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 <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, --------------------------- ----------------------------- 2002 2001 2002 2001 --------------------------- ----------------------------- Revenues: <S> <C> <C> <C> <C> 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 ======== ======== ======== ======== </TABLE> 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: <TABLE> <CAPTION> PBM Services ($ in thousands) Three Months Ended September 30, Nine Months Ended September 30, ----------------------------------------------- --------------------------------------------------- 2002 2001 % Inc/ (Dec) 2002 2001 % Inc/ (Dec) ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> 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% </TABLE> 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 $5.6 million in the nine months ended September 30, 2002 compared to the same periods in 2001, due to the liquidation of Access MedPLUS and the Company's termination of certain unprofitable PBM accounts. These decreases were partially offset by increases from continued growth in its retail network and mail services. 13
The following table provides details for the Specialty Pharmaceuticals segment for the three and nine month periods ending September 30, 2002 and 2001. <TABLE> <CAPTION> Specialty Pharmaceuticals ($ in thousands) Three Months Ended September 30, Nine Months Ended September 30, ------------------------------------------------- -------------------------------------------- 2002 2001 % Inc/ (Dec) 2002 2001 % Inc/ (Dec) -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 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% </TABLE> 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