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.
Deferred tax assets are recognized based on temporary differences between book and tax basis of assets and liabilities. A valuation allowance is recorded against these assets when, in the opinion of the Company, it is uncertain that the Company will realize the benefit from its deferred tax assets.
Gross profit increased $6.5 million to $13.1 million in 2001 compared to $6.6 million in 2000. This is a result of the same changes in revenue discussed above. The gross profit percentage declined from 2001 to 2000 as a result of an increase in the BioScrip(R) injectable therapy revenue which has a lower gross profit percentage than infusion therapy.
Cost of revenue increased $83.0 million to $374.8 million in 2001 compared to $291.8 million in 2000. This increase is the result of increased business in the retail network and mail services, as discussed above.
Gross profit increased $11.8 million to $40.3 million in 2001 compared to $28.5 million in 2000. This is a result of the same reasons discussed above.
In 2002 and 2001 the Company recorded amortization of intangibles of $1.4 million and $2.2 million, respectively. The decrease of $0.8 million in 2002 is a result of the adoption of SFAS No. 142 (see Note 5 of Notes to Consolidated Financial Statements), partially offset by increased amortization of intangibles acquired from Vitality on January 31, 2002.
For 2002, net cash provided to the Company from operating activities totaled $20.8 million compared to $10.9 million for 2001. This improvement is the result of continued growth in the Company's businesses resulting in increased cash earnings.
The Facility is an asset-based loan, secured by the Company's receivables, with any borrowings repaid by the cash flow from customer payments. The borrowing and repayment processes under the Facility are outlined below:
MIM Corporation (the "Company" or "MIM") is a pharmaceutical healthcare organization delivering innovative pharmacy benefit management, specialty pharmaceutical management and 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, labor unions, self-funded employer groups, government agencies, and other self-funded plan sponsors, directly or indirectly through third party administrators (collectively, "Plan Sponsors"). These services are organized under two reportable operating segments: pharmacy benefit management and mail services (collectively, "PBM Services"), and specialty pharmacy distribution and clinical management services ("Specialty Management and Distribution Services").
Payables to Plan Sponsors represent the sharing of pharmaceutical rebates with the Plan Sponsors, and on a limited bases, profit sharing plans with certain capitated contracts.
The Company has recorded a net deferred tax asset of approximately $3 million at December 31, 2002. Realization of this asset is dependent on generating sufficient taxable income in future periods. Management believes it is more likely than not that the deferred tax asset will be realized. As reflected in the preceding table, the majority of the valuation allowance relates to net operating loss carry forwards generated from stock exercises, where there is uncertainty regarding full realizability due to use limitations.
On April 17, 1998, the Company granted a former officer an option to purchase 1,000,000 shares of Common Stock at $4.50 (then-current market price) in connection with his employment agreement to become the Company's President, Chief Operating Officer and Chief Financial Officer. This option was not granted under the Plan. During 2001, all of the options granted to the former officer were exercised.