-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mg70xPqH2qMVqXtbkcqJU4IZw63Y6yFocDZ3c50T4ptZC+H8ex0qT4usMpwFLuMM YPmLXNmP6c4ZLTsaReVKLw== 0000891554-98-001138.txt : 19980909 0000891554-98-001138.hdr.sgml : 19980909 ACCESSION NUMBER: 0000891554-98-001138 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980824 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980908 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIM CORP CENTRAL INDEX KEY: 0001014739 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 050489664 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-28740 FILM NUMBER: 98705594 BUSINESS ADDRESS: STREET 1: ONE BLUE HILL PLAZA CITY: PEARL RIVER STATE: NY ZIP: 10965 BUSINESS PHONE: 9147353555 MAIL ADDRESS: STREET 1: 25 NORTH ROAD CITY: PEACE DALE STATE: RI ZIP: 02883 8-K 1 FORM 8-K U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 August 24, 1998 Date of Report (Date of earliest event reported) MIM CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 0-28740 05-0489664 (State of Organization) (Commission File Number) (IRS Employer Identification No.) One Blue Hill Plaza Pearl River, New York 10965 (Address of Registrant's Principal Executive Office) (Zip Code) (914) 735-3555 (Registrant's telephone number, including area code) Item 2. Acquisition or Disposition of Assets. On August 24, 1998, CMP Acquisition Corp. ("CMP"), an Ohio corporation and a wholly-owned subsidiary of MIM Corporation (the "Company"), was merged (the "Merger") with and into Continental Managed Pharmacy Services, Inc. ("Continental"), pursuant to the terms of an Agreement and Plan of Merger, dated as of January 27, 1998, by and among CMP, the Company, Continental and certain principal shareholders of Continental (as amended, the "Merger Agreement"), whereby Continental became a wholly-owned subsidiary of the Company. As a result of the Merger, the former shareholders of Continental received 3,912,448 shares of common stock of the Company (representing approximately 21% of the total outstanding shares after the Merger). Information regarding Continental and the Merger is incorporated herein by reference to the Company's Registration Statement on Form S-4 (File No. 333-60647) filed with the Securities and Exchange Commission (the "Commission") on August 4, 1998, as amended by Amendment No. 1 thereto filed with the Commission on August 5, 1998 (the "Registration Statement"). A copy of the Company's press release dated August 25, 1998 announcing the consummation of the Merger, is attached hereto as Exhibit 99.1 and is incorporated herein by reference. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Financial Statements. The historical consolidated financial statements (including Notes thereto) of Continental for the fiscal years ended December 31, 1995, 1996 and 1997 are incorporated herein by reference to pages F-25 through F-36 of the Registration Statement, which are attached hereto as Exhibit 99.2. The historical consolidated financial statements (including Notes thereto) of Continental for the six months ended June 30, 1998 are attached hereto as Exhibit 99.3 and are incorporated herein by reference. Pro Forma Financial Information. The unaudited combined condensed pro forma financial statements (including Notes thereto) for the fiscal year ended December 31, 1997 and the six months ended June 30, 1998 are attached hereto as Exhibit 99.4 and are incorporated herein by reference. Exhibits. 2.1 Merger Agreement (incorporated by reference to Exhibit 2.1 to the Registration Statement). 99.1 Press release dated August 25, 1998. 99.2 Consolidated financial statements (including Notes thereto) of Continental for the fiscal years ended December 31, 1995, 1996 and 1997 (incorporated by reference to pages F-25 through F-36 of the Registration Statement). 99.3 Consolidated financial statements (including Notes thereto) of Continental for the six months ended June 30, 1998. 99.4 Unaudited combined condensed pro forma financial statements (including Notes thereto) for the fiscal year ended December 31, 1997 and the six months ended June 30, 1998. 2 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 hereunto duly authorized. MIM CORPORATION By: /s/ Barry A. Posner ---------------------------------- Barry A. Posner Vice President and General Counsel Date: September 8, 1998 EXHIBIT INDEX Exhibit No. Exhibit 2.1 Merger Agreement (incorporated by reference to Exhibit 2.1 to the Registration Statement). 99.1 Press Release, dated August 25, 1998. 99.2 Consolidated financial statements (including Notes thereto) of Continental for the fiscal years ended December 31, 1995, 1996 and 1997 (incorporated by reference to pages F-25 through F-36 of the Registration Statement). 99.3 Consolidated financial statements (including Notes thereto) of Continental for the six months ended June 30, 1998. 99.4 Unaudited combined condensed pro forma financial statements (including Notes thereto) for the fiscal year ended December 31, 1997 and the six months ended June 30, 1998. 4 EX-99.1 2 PRESS RELEASE MIM News Exhibit 99.1 For Release: August 25, 1998 Contact: Mr. Scott M. Kates Mr. Richard H. Friedman Tel 212-614-4872 MIM Corporation Fax 212-598-5368 Tel 914-735-3555 Fax 914-735-3599 MIM CORPORATION COMPLETES ACQUISITION OF CONTINENTAL MANAGED PHARMACY SERVICES -- Broadens services by acquiring pharmacy benefit management company: gains mail order fulfillment capability-- PEARL RIVER, NY - August 25, 1998 - MIM Corporation (NASDAQ: MIMS), a pharmacy benefit management company, today announced the completion of its acquisition of Continental Managed Pharmacy Services, Inc., a Cleveland-based pharmacy benefit management company and institutional mail order pharmacy, for 3.9 million shares of MIM's Common Stock. Continental's gross profit was $6.3 million on revenues totaling $30.8 million in the first half of 1998. The acquisition was structured as a merger, whereby Continental becomes a wholly-owned subsidiary of MIM. The acquisition will be treated as a purchase for accounting and financial reporting purposes. The acquisition enables MIM to expand into the mail order, drug distribution and physician services businesses. Continental targets small and mid-sized corporations as well as specific groups of individuals affected with diseases, particularly diabetes and AIDS, which require long-term maintenance medication on a more frequent basis than the average patient. The Company also has registered sales in the Attention Deficit Disorder and Infertility areas. Continental currently provides benefits to over 640,000 lives. Mr. Richard H. Friedman, Chairman and Chief Executive Officer of MIM Corporation said, "Continental's lines of businesses are a natural fit for MIM Corporation. Continental's outstanding mail order facility and distribution capabilities will add a new dimension to MIM. There are a number of synergies that we will take advantage of in the coming months." MIM Corporation is an independent pharmacy benefit management corporation that partners with managed care organizations and healthcare providers to control prescription drug costs. MIM provides its customers with innovative pharmacy benefit products and services utilizing clinically sound guidelines to ensure cost control and quality care. MIM encourages improved quality of care, increased patient accessibility and medical cost effectiveness. This press release may contain statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the intent, belief of current expectations of the company, its directors, or its officers with respect to the future operating performance of the Company (including Continental and their respective or consolidated results). Investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. Important factors that could cause such differences are described in the Company's periodic filings with the Securities and Exchange Commission, including the Company's most recent Form 10-K, and quarterly reports on Form 10-Q, each as amended, and the Company's Prospectus/Proxy Statement on Form S-4 relating to matters described in this press release. # # # EX-99.3 3 CONSOLIDATED BALANCE SHEETS CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
December 31, June 30, 1997 1998 ---------- ---------- (unaudited) ASSETS Current Assets Cash & equivalents ..................................... $ 166 $ 628 Receivables ............................................ 9,911 9,402 Inventories ............................................ 779 902 Prepaid expenses ....................................... 95 336 Deferred income taxes .................................. 239 235 ---------- ---------- Total current assets ...................... 11,190 11,503 Property & equipment, net .............................. 704 552 Goodwill, net .......................................... 4,364 4,260 Deferred income taxes .................................. 35 35 Other assets ........................................... 15 30 Other intangible assets, net ........................... 937 1,190 ---------- ---------- Total assets .............................. $ 17,245 $ 17,570 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of capital lease obligations ........... $ 26 $ 15 Current portion of long term debt ...................... 340 288 Accounts payable ....................................... 4,295 5,054 Claims payable ......................................... 1,171 1,029 Accrued expenses ....................................... 1,429 1,065 Income taxes payable ................................... 510 782 ---------- ---------- Total current liabilities ................. 7,771 8,233 Other non-current liabilities .......................... 199 54 Capital lease obligations, less current portion ........ 21 17 Long-term debt, less current portion ................... 4,069 3,152 Shareholders' Equity Common stock ........................................... 12 12 Additional paid-in capital ............................. 4,309 4,584 Retained earnings ...................................... 864 1,518 ---------- ---------- Total shareholders' equity ................ 5,185 6,114 ---------- ---------- Total liabilities & shareholders' equity .. $ 17,245 $ 17,570 ========== ==========
See notes to unaudited consolidated financial statements F-1 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except share and per share amounts)
Six months ended June 30, 1997 1998 --------------- --------------- Revenues ..................................................... $ 18,064 $ 30,764 Cost of revenues ............................................. 13,410 24,477 --------------- --------------- Gross profit .......................................... 4,654 6,287 Selling, general & administrative expenses ................... 4,377 4,824 --------------- --------------- Operating profit ...................................... 277 1,463 Interest expense ............................................. (139) (163) --------------- --------------- Income before provision for income taxes .............. 138 1,300 Income taxes ................................................. 111 646 --------------- --------------- Net income ............................................ $ 27 $ 654 =============== =============== Basic and diluted earnings per share ......................... $ 2.33 $ 56.14 =============== =============== Weighted average shares used to compute earnings per share ... 11,600 11,649 =============== ===============
See notes to unaudited consolidated financial statements F-2 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands)
Six Months ended June 30, ---------------------------- 1997 1998 ------------ ------------ Operating activities Net income ................................................ $ 27 $ 654 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......................... 306 346 Changes in operating assets and liabilities: Accounts receivable ................................ (475) 509 Inventory .......................................... (199) (123) Prepaid expenses and other assets .................. 20 (257) Accounts payable ................................... 588 759 Claims payable ..................................... (42) (142) Accrued commissions, wages and payroll related items 1 (363) Income taxes ....................................... (54) 272 Other liabilities .................................. 75 (145) ------------ ------------ Net cash provided by operating activities ..... 247 1,510 ------------ ------------ Investing activities Purchases of property and equipment, net .................. (64) (28) Purchase of SRX pharmacy .................................. (1) (311) ------------ ------------ Net cash used in investing activities ........ (65) (339) ------------ ------------ Financing activities Proceeds on line of credit ................................ 11,382 21,515 Payments on line of credit ................................ (11,475) (22,315) Proceeds on note receivable ............................... 95 0 Payments on capital leases ................................ (23) (14) Payments on notes payable ................................. (166) (169) Proceeds from stock issuance .............................. 0 274 ------------ ------------ Net cash used in financing activities ......... (187) (709) ------------ ------------ Increase (decrease) in cash ................................. (5) 462 Cash at beginning of period .................................. 244 166 ------------ ------------ Cash at end of period ........................................ $ (239) $ 628 ============ ============
See notes to unaudited consolidated financial statements F-3 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended December 31, 1997 (Audited) and the Six months ended June 30, 1998 and 1997 (Unaudited) (In thousands, except share and per share amounts) A. Description of Business Continental Managed Pharmacy Services, Inc. (CMPS or the Company) is a national provider of pharmaceutical benefits management services, plan design and consultation, and physician billing. Through its subsidiaries, the Company markets prescription drug programs and provides mail order and network pharmacy services and billing and administrative services for customers that provide medical and health care cost containment services. On January 28, 1998, the Company announced the signing of a merger agreement with MIM Corporation under which all of the shares of the Company's common stock would be exchanged for shares of common stock of MIM Corporation (the "Merger"). The Merger was consummated on August 24, 1998. B. Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of CMPS and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Net Revenue and Accounts Receivable Net revenue and the related accounts receivable for services rendered are reported at the estimated net realizable amounts from customers and third-party payors. The allowance for uncollectible accounts receivable was approximately $639 at December 31, 1997 and $690 at June 30, 1998. Inventory Inventory is stated at the lower of cost or market. The cost of the inventory is determined using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated on the basis of cost. Depreciation on furniture and equipment is computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements and leased assets are amortized on a straight-line basis over the lesser of the related lease term or estimated useful life of the asset. Amortization of capital leased assets is included in depreciation expense. The estimated useful lives of the assets are as follows: Machinery and equipment................................... 5 years Computer equipment........................................ 3-5 years Furniture, fixtures and leasehold improvements............ 7 years Depreciation expense was $155 and $181 for the six months ended June 30, 1997 and 1998, respectively. Intangible Assets Goodwill, less accumulated amortization of $831 at December 31, 1997 and $935 on June 30, 1998, represents the cost in excess of the fair value of net assets acquired and is amortized using the straight-line method over a period of 15 to 25 years. Other intangible assets, less accumulated amortization of $238 at December 31, 1997 and $296 on June 30, 1998, consist of customer records and files and organizational costs which are amortized using the straight-line method over 5 to 15 years, and a five year non-compete agreement which is being amortized over the term of the agreement. F-4 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Year Ended December 31, 1997 (Audited) and the Six months ended June 30, 1998 and 1997 (Unaudited) (In thousands, except share and per share amounts) B. Summary of Significant Accounting Policies - Continued Income Taxes The Company accounts for income taxes using the liability method. Deferred taxes are recognized based on temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Financial Instruments The fair value of long-term debt is estimated based on the present value of the underlying cash flows discounted at the Company's estimated borrowing rate. At December 31, 1997 and June 30, 1998, the fair value of long-term debt approximates its carrying value. Stock Options CMPS applies the intrinsic value based method in accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, to account for options granted to employees and directors to purchase common shares. Accordingly, no compensation expense is recognized on the grant date since at that date the option price is equal to the estimated fair market value of the underlying common shares. Earnings Per Share Earnings per Common Share are calculated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." issued by the Financial Accounting Standards Board during 1997. Basic earnings per share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities to issue common shares were converted into common shares. Such common shares consist of shares issuable upon exercise of stock options computed by using the treasury stock method. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. C. Long-Term Debt In March 1997, the Company extended its Revolving Note Agreement (the Agreement) with a bank (the "Bank") through May 1999. The Company can borrow up to $6.5 million under the Agreement. Advances are limited to 85% of eligible receivables, as defined, and outstanding amounts bear interest at the bank's prime rate plus .75% through August 24, 1998 and the Bank's prime rate thereafter (9.25% at December 31, 1997 and 9.25% at June 30, 1998). At December 31, 1997, $2,994 was available and on June 30, 1998, $3,794 was available for borrowing under the Agreement. The Company has two Installment Notes (Installment Notes I and II). Installment Note I bears interest at the Bank's prime rate plus 1.25% (9.75% at December 31, 1997 and 9.75% at June 30, 1998). Payments are due in monthly installments of $9 plus interest, with the final payment due February 1, 2000. Installment Note II bears interest at the same rate as Installment Note I. Payments of principal of $14 plus interest are made monthly on Installment Note II with the final payment due February 28, 1999. The Agreement and Installment Notes I and II are secured by accounts receivable and furniture and equipment of the Company and until August 24, 1998 were personally guaranteed by a shareholder up to $1 million. From and after August 24, 1998, the personal guaranty was released and replaced with an unlimited guaranty by MIM Corporation, the Company's parent company following the Merger. The Company has also granted a security interest in the inventory, accounts receivable and furniture and equipment to a vendor (the "Supplier"). F-5 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Year Ended December 31, 1997 (Audited) and the Six months ended June 30, 1998 and 1997 (Unaudited) (In thousands, except share and per share amounts) Long-Term Debt - Continued Under the terms of an Inter Creditor Agreement among the Company, the Bank and the Supplier, the Supplier will not exercise any right or remedy it may have with respect to the Bank's collateral, until the amounts owed to the Bank are fully paid and satisfied and the Bank's security interests have been terminated in writing. The Inter Creditor Agreement does not preclude the Supplier from taking such action to enforce payment of indebtedness to the Supplier not involving collateral of the Bank. Under the terms of the Agreement and Installment Notes, the Company is required to comply with certain financial covenants which among other matters require the Company to maintain a specified level of net worth. The Company has notes payable outstanding to a former shareholder (now a stockholder of MIM as a result of the Merger). The notes bear interest at the greater of 9% or prime plus 1% (9.5% at December 31, 1997 and 9.25% at June 30, 1998) and are payable in monthly installments of principal and interest of $7 through June 30, 2001. Long-term debt consists of the following at: December 31, June 30, 1998 1997 --------------- --------------- Master revolving note ...................... $ 3,506 $ 2,706 Variable rate Installment Notes I and II ... 641 504 Notes payable--shareholder ................. 262 230 --------------- --------------- 4,409 3,440 Less current portion ....................... 340 288 --------------- --------------- $ 4,069 $ 3,152 =============== =============== After December 31, 1997, future maturities of long-term debt for the next five years are as follows: 1998--$340; 1999--$3,714; 2000--$312; 2001--$43; and 2002--$0. D. Leases The Company is obligated under various capital leases for certain equipment that expire at various dates during the next 5 years. The carrying amount of equipment and the related accumulated amortization recorded under capital leases is as follows: December 31, 1997 June 30, 1998 ----------------- ------------- Equipment ................................ $ 115 $ 115 Less accumulated amortization ............ 61 83 --------- -------- $ 54 $ 32 ========= ======== The Company also has several operating leases, primarily for office space and equipment, that expire at various times through 1998. Rent expense was $54 and $54 for the six months ending June 30, 1997 and 1998, respectively. F-6 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Year Ended December 31, 1997 (Audited) and the Six months ended June 30, 1998 and 1997 (Unaudited) (In thousands, except share and per share amounts) D. Leases--Continued Future minimum lease payments under noncancelable leases as of December 31, 1997 are: Capital Operating Leases Leases ---------- --------- At December 31: 1998 ......................................... $ 29 $ 84 1999 ......................................... 8 2000 ......................................... 8 2001 ......................................... 8 ---------- --------- Total minimum lease payments .................... 53 $ 84 ========== Less amount representing interest ............... 6 ---------- Present value of minimum capital lease payments.. $ 47 ========== During the six months ending June 30, 1998, the Company did not enter into any noncash investing activities related to capital lease obligations. E. Other Liabilities Accrued wages, commissions and other liabilities consist of the following: December 31, 1997 June 30, 1998 --------------- --------------- Commissions .............................. $ 725 $ 429 Wages .................................... 420 350 Other .................................... 284 286 ---------- -------- $ 1,429 $ 1,065 ========== ======== Other noncurrent liabilities primarily consist of a customer advance. F. Stock Options The Company maintains an Employee and Director Stock Option Plan (the "Plan"). The Plan authorizes the granting of options to qualified individuals, as defined, to purchase up to 400 shares of common stock. Options granted under the Plan are exercisable at not less than the fair market value at the date of grant and expire five years from the date of grant. All options granted under the Plan vest six months after the date of grant. The following is a summary of stock option activity during the year ended December 31: 1995 1996 1997 ------- ------- ------- Outstanding at beginning of year ($800 per share) 66.875 195.625 256.250 Granted ($800 per share) ........................ 128.750 90.625 86.875 Forfeited ....................................... (30.000) ------- ------- ------- Outstanding at end of year ($800 per share) ..... 195.625 256.250 343.125 ======= ======= ======= Exercisable at end of year ...................... 151.250 211.250 300.625 ======= ======= ======= F-7 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Year Ended December 31, 1997 (Audited) and the Six months ended June 30, 1998 and 1997 (Unaudited) (In thousands, except share and per share amounts) F. Stock Options - Continued The Company applies APB 25 in accounting for stock options. Accordingly, no compensation cost has been recognized for its stock options because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant. Had compensation cost for the stock options granted been determined based on the fair value at grant date, consistent with the fair value method of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company's net income would have been reduced by $2, $5 and $8 in 1995, 1996 and 1997, respectively. The fair value of the stock option at the grant date was determined using the minimum value method with an assumed risk free interest rate of 5.38% in 1995, 7.41% in 1996, and 6.50% in 1997. A five year average life was used for all years. The pro forma results are not necessarily indicative of what would have occurred had the Company adopted SFAS No. 123. All outstanding stock options were exercised on June 22, 1998 in anticipation of the Merger. No additional stock options will be granted under the Plan. G. Income Taxes A summary of income tax expense for the six months ending June 30, 1997 and 1998 is as follows: June 30, 1997 June 30, 1998 --------------- --------------- Current: Federal ................................... $ 81 $ 527 State and local ........................... 19 104 --------- --------- 110 631 Deferred: Federal ................................... 1 14 State and local ........................... 0 1 --------- --------- 1 15 --------- --------- $ 111 $ 646 ========= ========= The income tax rate for financial reporting purposes for the six months ending June 30, 1997 and 1998 varied from the Federal statutory rate as follows: June 30, 1997 June 30, 1998 ------------ ------------ Federal statutory income tax rate ................ 34.0% 34.0% Increase (decrease): State and local taxes, net of Federal benefit . 18.9 4.5 Goodwill amortization ......................... 31.8 4.9 Other, net .................................... (4.3) 6.3 ------- ------- Effective income tax rate ........................ 80.4% 49.7% ======= ======= F-8 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Year Ended December 31, 1997 (Audited) and the Six months ended June 30, 1998 and 1997 (Unaudited) (In thousands, except share and per share amounts) G. Income Taxes - Continued Significant components of the Company's deferred tax liabilities and assets are as follows: December 31, June 30, 1997 1998 ------------ -------- Deferred tax liabilities: Tax over book depreciation ............... $ 3 $ 3 Deferred tax assets: Allowance for doubtful accounts .......... 174 174 State taxes .............................. 29 29 Accrued expenses ......................... 74 70 -------- -------- Total deferred tax assets ..... 277 273 -------- -------- Net deferred tax assets ..................... $ 274 $ 270 ======== ======== H. Employee Benefit Plans The Company maintains a defined contribution 401(k) plan covering substantially all employees who have completed three months of service. Contributions by the Company are discretionary. Costs related to the 401(k) totaled $34 for the six months ending June 30, 1997 and $26 for the six months ending June 30, 1998. I. Related Party Transactions Preferred Rx., Inc. (Preferred) had an agreement with an entity owned by a shareholder of CMPS whereby the entity provided various marketing related services to Preferred. Preferred agreed to pay 1.5% of the monthly cash receipts collected from its non-corporate customers for such services. Commission expense was $97 for the six months ending June 30, 1997 and $102 for the six months ending June 30, 1998. This agreement was terminated in connection with the Merger. J. Acquisitions and 1994 Reorganization On July 25, 1997, the Company acquired certain assets of Rx Advantage, Inc., a provider of pharmaceutical benefits management services, for $150 plus direct acquisition costs. The excess of the purchase price paid over the fair value of the net assets acquired has been recorded as goodwill and is being amortized over 15 years. The acquisition has been accounted for under the purchase method of accounting, and the consolidated results of operations include the results of the business from the date of acquisition. The terms of the purchase agreement require the Company to make additional payments through 1999 based on prescription volume. During 1997, the Company has paid or accrued approximately $250 of additional amounts under the purchase agreement which have increased the recorded amount of goodwill. Unaudited pro forma financial information for the six months ending June 30, 1997 as though the Company had completed the acquisition at the beginning of 1997 is as follows: Six Months ending June 30, 1997 -------------------- Pro forma net revenue............................... $ 26,358 Pro forma net income................................ $ 29 The pro forma operating results are not necessarily indicative of what would have occurred had the transactions taken place on January 1, 1997. F-9 CONTINENTAL MANAGED PHARMACY SERVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Year Ended December 31, 1997 (Audited) and the Six months ended June 30, 1998 and 1997 (Unaudited) (In thousands, except share and per share amounts) J. Acquisitions and 1994 Reorganization - Continued On December 15, 1995, the Company acquired the customer records and files of a mail order pharmacy organization and obtained noncompete agreements from the principal shareholders for $405 and $90, respectively. The terms of the purchase agreement provide for the Company to make additional payments through 1998 contingent upon sales volume. During the first six months of 1997 and 1998, the Company made contingent payments of $0 and $0, respectively. The acquisition was accounted for using the purchase method of accounting; accordingly, the purchase price was allocated to the assets acquired based on their estimated fair values as set forth in the purchase agreement. The recorded values of customer records and files (goodwill), have been increased by the amount of contingent cash payments made in 1996 and 1997, and are being amortized over 15 years. Goodwill also relates to the Company's plan of reorganization which took place in 1994. Under the plan, Continental Pharmacy, Inc., Preferred, Automated Scripts, Inc., and Valley Physician Services, Inc. became wholly-owned subsidiaries of the Company through a series of business acquisitions accounted for using the purchase method of accounting. The total cost in excess of net assets acquired was recorded as goodwill and is being amortized over 25 years. There was no acquisition or reorganization activity in the six months ending June 30, 1998. F-10 EX-99.4 4 UNAUDITED PRO FORMA Exhibit 99.4 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the Merger of the Company and Continental using the purchase method of accounting. The unaudited pro forma combined condensed financial statements are based on the respective historical financial statements of the Company and Continental and the notes thereto. The unaudited pro forma combined condensed balance sheet assumes that the Merger took place on June 30, 1998. The unaudited pro forma combined condensed statements of operations assume that the Merger took place as of January 1, 1997. The unaudited pro forma combined condensed financial statements are based on the estimates and assumptions set forth in the notes to such statements. The pro forma adjustments made in connection with the development of the pro forma information are preliminary and have been made solely for purposes of developing such pro forma information for illustrative purposes. The amount of the purchase price in excess of Continental's net assets acquired has been allocated to goodwill and other intangible assets based on management estimates and the allocation will be finalized based on an appraisal. Although the Company does not expect that the final allocation will be materially different from these estimates, there can be no assurance that such differences, if any, will not be material. The unaudited pro forma combined condensed financial statements do not purport to be indicative of the results of operations for future periods or the combined financial position or results of operations that actually would have resulted had the entities been a single entity during these periods. The Company incurred direct transaction costs of approximately $0.9 million associated with the Merger and Continental incurred related costs of approximately $1.0 million which were expensed prior to the Merger. These amounts are preliminary estimates only and therefore are subject to change. In addition, the Company may incur cash and non-cash restructuring charges to operations in the third quarter of 1998. However, the amounts of such charges cannot be estimated at this time. There can be no assurance that the Company will not incur additional charges in subsequent periods to reflect costs associated with the Merger. P-1
Unaudited Pro Forma Combined Condensed Statement of Operations (in thousands, except per share data) (unaudited) Six months ended June 30, 1998 -------------------------------------------------------------------- MIM Continental Pro Forma MIM (Historical) (Historical) Adjustments Pro Forma ------------ ------------ ----------- --------- Revenues $ 207,841 $ 30,764 $ 238,605 Cost of revenues 196,044 24,477 220,521 --------- --------- --------- Gross profit 11,797 6,287 18,084 Selling, general and administrative expenses 9,261 4,824 564 (1) 14,487 --------- --------- --------- (104)(1) (58)(1) Operating profit 2,536 1,463 (402) 3,597 Interest income (expense) 990 (163) 827 Minority interest (1) -- (1) --------- --------- --------- --------- Profit before taxes 3,525 1,300 (402) 4,423 Taxes -- 646 (646)(2) -- --------- --------- --------- --------- Net income $ 3,525 $ 654 $ 244 $ 4,423 ========= ========= ========= ========= Basic income per share (7) $ 0.26 $ 56.14 $ 0.25 Diluted income per share (7) $ 0.23 $ 56.14 $ 0.23 Weighted average common shares used in computing basic income per share (7) 13,471 12 3,900 17,383 Weighted average common shares used in computing diluted income per share (3)(7) 15,467 12 3,900 19,379
Year ended December 31, 1997 -------------------------------------------------------------------- MIM Continental Pro Forma MIM (Historical) (Historical) Adjustments Pro Forma ------------ ------------ ----------- --------- Revenues $ 242,291 $ 47,280 $ 289,571 Cost of revenues 239,002 36,320 275,322 --------- --------- --------- --------- Gross profit 3,289 10,960 14,249 Selling, general and administrative expenses 19,098 9,503 1,128 (1) 29,439 --------- --------- --------- --------- (208)(1) (82)(1) Operating profit (15,809) 1,457 (838) (15,190) Interest income (expense) 2,295 (291) 2,004 Minority interest 17 -- 17 --------- --------- --------- --------- Profit (loss) before taxes (13,497) 1,166 (838) (13,169) Taxes -- 632 (632)(2) -- --------- --------- --------- --------- Net income (loss) $ (13,497) $ 534 $ (206) $ (13,169) ========= ========= ========= ========= Basic and diluted income (loss) per share (7) $ (1.07) $ 46.03 $ (0.80) Weighted average common shares used in computing basic and diluted income (loss) per share (4)(7) 12,620 12 3,900 16,532
See accompanying notes to the unaudited pro forma combined condensed financial statements. P-2
Unaudited Pro Forma Combined Condensed Balance Sheet (in thousands) (unaudited) Six Months Ended June 30, 1998 ---------------------------------------------------------------------- MIM Continental Pro Forma MIM (Historical) (Historical) Adjustments Pro Forma ------------ ------------ ----------- --------- Assets Cash & cash equivalents $ 2,583 $ 628 $ (1,900)(5) $ 1,311 Investment securities 20,715 -- 20,715 Receivables 41,005 9,402 50,407 Inventory -- 902 902 Prepaid expense 1,222 336 1,558 Deferred income taxes -- 235 235 -------- -------- -------- -------- Total current assets 65,525 11,503 (1,900) 75,128 Investment securities 351 -- 351 Investments 2,300 -- 2,300 Property & equipment, net 3,832 552 4,384 Goodwill and other intangible assets, net -- 5,450 17,333(6) 1,900(5) (5,450)(6) 19,233 Deferred income taxes -- 35 35 Other assets 353 30 383 -------- -------- -------- -------- Total assets $ 72,361 $ 17,570 $ 11,883 $101,814 ======== ======== ======== ======== Liabilities & stockholders equity Current portion of capital lease obligations $ 231 $ 15 $ 246 Current portion of long term debt -- 288 288 Accounts payable 1,042 5,054 6,096 Claims payable 31,829 1,029 32,858 Payables to plan sponsors and others 13,073 -- 13,073 Accrued expenses 4,105 1,065 5,170 Income taxes payable -- 782 782 --------- -------- -------- Total current liabilities 50,280 8,233 58,513 Other non-current liabilities -- 54 54 Capital lease obligations, less current portion 639 17 656 Minority interest 1,112 -- 1,112 Long-term debt, less current portion -- 3,152 3,152 Liabilities & stockholders' equity Common stock 1 12 (12)(6)(7) 1(6)(7) 2 Additional paid-in capital 73,603 4,584 (4,584)(6)(7) (1)(6)(7) 17,997(5)(6)(7) 91,599 Retained earnings (51,536) 1,518 (1,518)(6) (51,536) Stockholder notes receivable (1,738) -- (1,738) --------- -------- -------- -------- Total stockholders' equity 20,330 6,114 10,883 38,327 Total liabilities & stockholders' equity $ 72,361 $ 17,570 $ 11,883 $101,814 ======== ======== ======== ========
See accompanying notes to the unaudited pro forma combined condensed financial statements. P-3 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (1) To record amortization of goodwill (over 25 years) and other intangibles (over an estimated 7.5 years) and elimination of prior amortization of goodwill and other intangibles. (2) Elimination of income taxes as a result of consolidated losses or utilization of operating loss carryforwards. (3) The unaudited pro forma diluted income per common share is based on the weighted average number of common shares and common share equivalents of the Company and Continental outstanding for each period, at an exchange ratio of 327.59 shares of Common Stock for each Continental share. (4) The unaudited pro forma basic and diluted income per common share is based on the weighted average number of common shares of the Company and Continental outstanding for each period, at an exchange ratio of 327.59 shares of Common Stock for each Continental share. Diluted loss per common share is the same as basic loss per common share which excludes common share equivalents since they would be antidilutive. (5) To record direct transaction costs of approximately $0.9 million associated with the Merger, consisting primarily of fees for investment banking, legal, accounting and other related costs to be paid by the Company. Continental incurred approximately $1.0 million of costs related to the Merger, including transaction fees payable to former officers of Continental. As these costs are non-recurring, they are not reflected in the pro forma combined condensed statement of operations. (6) To record the issuance of 3,912,448 shares of Common Stock in exchange for the 11,943.125 Continental Shares (see Note 7) in connection with the Merger. The Common Stock has been valued at $4.60 per share (the average price per share of the Common Stock several days before and after the date of the Merger Agreement). The amount of the purchase price (including $1.9 million of transaction costs) in excess of Continental's net assets acquired has been allocated to goodwill ($14.6 million) and other intangible assets ($3.6 million) based on management estimates and the allocation will be finalized based on an appraisal. Other intangible assets primarily consist of customer lists and non-compete agreements. (7) In June 1998, all holders of Continental stock options exercised all outstanding options to purchase 343.125 Continental shares. These Continental shares have been reflected in the unaudited pro forma combined condensed financial statements as if they were exercised as of the beginning of the respective period presented. These Continental shares have been included in the determination of the purchase price. P-4 -----END PRIVACY-ENHANCED MESSAGE-----