<PAGE> 1
Rule 424(b)(3)
Regis. No. 333-25215
Medical Manager Corporation
SUPPLEMENT NO. 1 DATED JUNE 9, 1997
TO PROSPECTUS DATED APRIL 23, 1997
On May 15, 1997, Medical Manager Corporation (the "Company") filed its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.
Accordingly, the information currently contained under the headings "Summary Pro
Forma Combined Financial Data," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements" beginning on pages 5, 16, 19 and F-1, respectively, of
the Prospectus is supplemented as follows.
<PAGE> 2
SUMMARY FINANCIAL DATA
MMC acquired the Founding Companies simultaneously with and as a condition
to the consummation of the Offering. For financial statement presentation
purposes, PPI has been identified as the accounting acquiror. The following
summary unaudited pro forma financial data present certain data for the Company,
as adjusted for (i) the effects of the Mergers on an historical basis; (ii) the
effects of certain pro forma adjustments to the historical financial statements;
and (iii) the consummation of the Offering. See "Selected Financial Data" and
the Unaudited Pro Forma Combined Financial Statements and the Unaudited
Consolidated Financial Statement and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CONSOLIDATED(1) COMBINED(1)
QUARTER --------------- ------------
ENDED QUARTER ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1997 1997 1996
--------- --------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................. $ 9,997 $13,138 $41,957
Cost of revenue..................................... 3,640 5,383 17,658
------- ------- -------
Gross profit........................................ 6,357 7,755 24,299
Selling, general and administrative expenses(2)..... 2,332 3,065 10,364
Research and development expenses................... 776 798 3,374
Depreciation and amortization....................... 227 317 1,169
------- ------- -------
Income before income taxes.......................... 3,126 3,679 9,392
Income taxes........................................ 576 1,389 3,616
------- ------- -------
Net income.......................................... $ 2,550 $ 2,290 $ 5,776
======= ======= =======
Net income per share................................ $ 0.14 $ 0.13 $ 0.33
======= ======= =======
Pro forma weighted average shares outstanding....... 17,705 17,705 17,705
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
AT MARCH 31, ------------------------------
1997 PRO FORMA(1) AS ADJUSTED(3)
------------ ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $18,903 $ 4,931 $17,047
Working capital................................... 13,425 2,937 15,053
Total assets...................................... 35,890 19,550 31,666
Stockholders' equity.............................. 22,863 11,542 23,658
</TABLE>
- ---------------
(1) The pro forma statements of operations and the pro forma balance sheet
assume that the Mergers were closed on January 1, 1996 and as of December
31, 1996, respectively. These results are not necessarily indicative of the
results the Company would have obtained or of the Company's future results.
The pro forma financial information contained in these statements (i) is
based on preliminary estimates, available information and certain
assumptions that management deems appropriate; and (ii) should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(2) The pro forma statement of operations includes the effect of a reduction in
salary and benefits to the owners and employees of two of the Founding
Companies. Additionally, the pro forma statement includes the effect of
certain assets distributed to and certain expenses assumed by the owners of
certain of the Founding Companies.
(3) Gives effect to the receipt and application of approximately $59.1 million
of the net proceeds of the Offering.
2
<PAGE> 3
SELECTED FINANCIAL DATA
MMC acquired the Founding Companies simultaneously with the consummation of
the Offering on February 4, 1997. For financial statement presentation purposes,
PPI has been identified as the accounting acquiror. The following selected
historical financial data of PPI at December 31, 1994, 1995 and 1996 and for the
years ended December 31, 1993, 1994, 1995 and 1996 have been derived from the
audited financial statements of PPI. The following selected historical financial
data of PPI at December 31, 1992 and 1993 and for the year ended December 31,
1992 have been derived from the unaudited financial statements of PPI, which
have been prepared on the same basis as the audited financial statements and, in
the opinion of PPI, reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such data. As described in
Note 1 of the Notes to the Consolidated Financial Statements, results of PPI are
presented below as if MMC and PPI were combined from July 10, 1996, the date of
MMC's formation. The following summary unaudited pro forma financial data
present certain data for the Company, as adjusted for (i) the effects of the
Mergers on an historical basis; (ii) the effects of certain pro forma
adjustments to the historical financial statements; and (iii) the consummation
of the Offering. See the Unaudited Pro Forma Combined Financial Statements and
the Unaudited Consolidated Financial Statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ------ ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PPI STATEMENT OF OPERATIONS DATA:
Revenue..................................... $8,377 $6,890 $9,617 $11,020 $11,956
Cost of revenue............................. 1,187 810 1,367 1,582 1,832
------ ------ ------ ------- -------
Gross profit................................ 7,190 6,080 8,250 9,438 10,124
Selling, general and administrative
expenses................................. 745 982 1,184 1,350 1,763
Research and development expenses........... 878 1,040 1,502 2,024 2,648
Depreciation and amortization............... 21 105 197 226 266
------ ------ ------ ------- -------
Income from operations...................... 5,546 3,953 5,367 5,838 5,447
Other income................................ 110 173 55 108 104
------ ------ ------ ------- -------
Income before income taxes.................. 5,656 4,126 5,422 5,946 5,551
Income taxes................................ 0 0 0 0 0
------ ------ ------ ------- -------
Net income.................................. $5,656 $4,126 $5,422 $ 5,946 $ 5,551
====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ------ ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PPI BALANCE SHEET DATA:
Working capital............................. $1,527 $ 778 $2,009 $ 1,921 $ 2,164
Total assets................................ 3,097 3,253 4,716 5,819 4,530
Stockholder's equity........................ 2,479 2,582 3,827 4,763 2,713
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CONSOLIDATED(1) COMBINED(1)
--------------- ------------
QUARTER ENDED QUARTER ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1997 1997 1996
------------- --------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 9,997 $13,138 $41,957
Cost of revenue................................... 3,640 5,383 17,658
------- ------- -------
Gross profit...................................... 6,357 7,755 24,299
Selling, general and administrative expenses(2)... 2,332 3,065 10,364
Research and development expenses................. 776 798 3,374
Depreciation and amortization..................... 227 317 1,169
------- ------- -------
Income before income taxes........................ 3,126 3,679 9,392
Income taxes...................................... 576 1,389 3,616
------- ------- -------
Net income........................................ $ 2,550 $ 2,290 $ 5,776
======= ======= =======
Net income per share.............................. $ 0.14 $ 0.13 $ 0.33
======= ======= =======
Pro forma weighted average shares outstanding..... 17,705 17,705 17,705
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
AT MARCH 31, ------------------------------
1997 PRO FORMA(1) AS ADJUSTED(3)
------------ ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $18,093 $ 4,931 $17,047
Working capital................................... 13,425 2,937 15,053
Total assets...................................... 35,890 19,550 31,666
Stockholders' equity.............................. 22,863 11,542 23,658
</TABLE>
- ---------------
(1) The pro forma statements of operations and the pro forma balance sheet
assume that the Mergers were closed on January 1, 1996 and as of December
31, 1996, respectively. These results are not necessarily indicative of the
results the Company would have obtained or of the Company's future results.
The pro forma financial information contained in these statements (i) is
based on preliminary estimates, available information and certain
assumptions that management deems appropriate; and (ii) should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(2) The pro forma statement of operations includes the effect of a reduction in
salary and benefits to the owners and employees of two of the Founding
Companies. Additionally, the pro forma statement includes the effect of
certain assets distributed to and certain expenses assumed by the owners of
certain of the Founding Companies.
(3) Gives effect to the receipt and application of an approximately $59.1
million of the net proceeds of the Offering.
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
This filing contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
current plans and expectations and involve risks and uncertainties that could
cause actual future activities and results of operations to be materially
different from those set forth in the forward-looking statements. Important
factors that could cause actual results to differ include, among others, risks
associated with acquisitions, fluctuations in operating results because of
acquisitions and variations in stock prices, changes in government regulations,
competition and risks of operations and growth of the newly acquired businesses.
Medical Manager Corporation ("MMC") was founded in July, 1996 to bring
together the research and development, sales, marketing and support resources
for The Medical Manager, a leading physician practice management system for
independent physicians, physician groups, management service organizations
("MSOs"), independent practice associations ("IPAs"), managed care organizations
and other providers of health care services in the United States. Simultaneously
with the closing of the Company's initial public offering (the "Offering") on
February 4, 1997, MMC acquired (the "Merger") the following five companies which
became wholly owned subsidiaries of MMC (the "Founding Companies"): Medical
Manager Research & Development, Inc. (formerly Personalized Programming, Inc.)
("PPI"), Medical Manager Sales & Marketing, Inc. (formerly Systems Plus, Inc.)
("SPI"), Medical Manager Southeast, Inc. (formerly National Medical Systems,
Inc.) ("NMS"), Medical Manager RTI, Inc. (formerly RTI Business Systems, Inc.)
("RTI") and Medical Manager Systems Management, Inc. (formerly Systems
Management, Inc.) ("SMI"). MMC and the Founding Companies are referred to
collectively as the "Company."
The Company has begun to realize savings by consolidating certain general
sales, administrative and purchasing functions. In addition, the Company has
begun to realize savings from the reduction in interest expense related to the
payment of the Founding Companies' debt and interest income from the investment
of offering proceeds. These savings and interest income are being partially
offset by the costs of being a public company and the incremental increase in
costs related to the Company's new corporate management. Neither these savings
nor the costs associated therewith have been included in the pro forma
statements of operations. As a result, pro forma results may not be comparable
to, or indicative of, future performance.
As a professional sales and services organization, the Company responds to
the product opportunities and service demands from its clients. Accordingly, the
Company has limited control over the timing and circumstances under which its
products and services are provided. Therefore, the Company can experience
volatility in its operating results from quarter to quarter. The operating
results for any quarter are not necessarily indicative of the results for any
future periods.
PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Revenue
The Company's total revenue for the three months ended March 31, 1997
increased to $13.1 million from $9.7 million for the corresponding period in
1996, an increase of $3.4 million or 35.2%. Revenue from systems for the three
months ended March 31, 1997 increased to $8.2 million (62.5% of total revenue)
from $5.9 million (60.7% of total revenue) for the corresponding period in 1996,
an increase of $2.3 million or 39.2%. The increase was primarily due to
increased sales to MSOs, which typically generate greater revenue per system
sold than do systems sold to individual practices. Revenue from maintenance and
other sources for the three months ended March 31, 1997 increased to $4.9
million (37.5% of total revenue) from $3.8 million (39.3% of total revenue) for
the corresponding period in 1996, an increase of $1.1 million or 29.0%. The
increase was primarily a result of sales of additional maintenance contracts due
to continued growth in the Company's installed base.
5
<PAGE> 6
Cost of Revenue
The total cost of revenue for the three months ended March 31, 1997
increased to $5.4 million from $3.9 million for the corresponding period in
1996, an increase of $1.5 million or 36.9%. The growth in the cost of revenue
resulted in a slight decline in gross margin to 59.0% for the three months ended
March 31, 1997 from 59.5% for the corresponding period in 1996. Cost of revenue
for systems for the three months ended March 31, 1997 increased to $2.9 million
from $1.8 million for the corresponding period in 1996, an increase of $1.1
million or 59.9%. The increase was due principally to increased equipment costs
for sales to MSOs. Cost of revenue for maintenance and other sources for the
three months ended March 31, 1997 increased to $2.4 million from $2.1 million
for the corresponding period in 1996, an increase of $0.3 million or 16.7%. The
increase was due principally to additional maintenance contracts and was
partially offset by a greater allocation of overhead to cost of revenue for
systems as revenue from systems increased at a greater rate than that for
maintenance and other.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $3.1 million for
the three months ended March 31, 1997 from $2.3 million for the corresponding
period in 1996, an increase of $0.8 million or 35.5% but remained unchanged as a
percentage of total revenue (23.3%). The increase was due to increased selling
costs resulting from increased revenue and the hiring of additional
administrative personnel and other costs incurred in conjunction with the
Mergers.
Research and Development
Research and development ("R&D") for the three months ended March 31, 1997
increased to $0.8 million (6.1% of total revenue) from $0.7 million (6.9% of
total revenue)for the corresponding period in 1996, an increase of $0.1 million
or 19.6%. The increase was due to an approximate 30% increase in R&D personnel
hired to support development activities relating to: (i) a new release of The
Medical Manager incorporating an advanced appointment scheduler and other
enhancements; (ii) graphical user interface and relational database technologies
for use in future versions of The Medical Manager; (iii) the development of a
module for use in the management of multiple physician practices; (iv) an
electronic medical records module; and (v) a module for use in claims
adjudication. Certain of these initiatives were begun in previous periods, but
required additional resources as they reached more advanced stages of
development.
Other Income, Net
Other income of $0.1 million for the three months ended March 31, 1997
resulted primarily from the investment of net proceeds from the Offering.
Provision for Income Taxes
Provision for income taxes was $1.4 million for an effective tax rate of
37.8% of income before income taxes for the three months ended March 31, 1997
compared to $1.0 million for an effective tax rate of 38.5% of income before
income taxes for the corresponding period in 1996. The reduced rate reflects the
effect of nontaxable investment income in the three months ended March 31, 1997.
HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Revenue
The Company's total revenue for the three months ended March 31, 1997
increased to $10.0 million from $3.0 million for the corresponding period in
1996, an increase of $7.0 million or 238.7%. The increase was primarily due to
the inclusion of $6.1 million in revenue of the other Founding Companies in the
first quarter of 1997. Revenue from systems for the three months ended March 31,
1997 increased to $6.2 million (61.9% of total revenue) from $2.2 million
(74.8%) for the corresponding period in 1996, an increase of $4.0 million
6
<PAGE> 7
or 180.5%. The increase was primarily due to the inclusion of $3.6 million in
systems revenue of the other Founding Companies in the first quarter of 1997,
after the elimination of inter-company sales. Revenue from maintenance and other
sources for the three months ended March 31, 1997 increased to $3.8 million
(38.1% of total revenue) from $0.7 million (25.2% of total revenue) for the
corresponding period in 1996, an increase of $3.1 million or 411.3%. The
increase was primarily due to the inclusion of $2.5 million in maintenance and
other revenue of the other Founding Companies in the first quarter of 1997 and
$0.5 million in revenue from national interfaces.
Cost of Revenue
The total cost of revenue for the three months ended March 31, 1997
increased to $3.6 million from $0.4 million for the corresponding period in
1996, an increase of $3.2 million or 744.5%. The increase was primarily due to
the inclusion of $3.1 million in cost of revenue of the other Founding Companies
in the first quarter of 1997, after elimination of inter-company debt. The
growth in the cost of revenue resulted in a decline in gross margin to 63.6% for
the three months ended March 31, 1997 from 85.4% for the corresponding period in
1996. Cost of revenue for systems for the three months ended March 31, 1997
increased to $1.8 million from $0.4 million for the corresponding period in
1996, an increase of $1.4 million or 393.9%. The increase was primarily due to
the inclusion of $1.4 million in cost of revenue for systems of the other
Founding Companies in the first quarter of 1997, principally for equipment costs
for systems sales to MSOs. Cost of revenue for maintenance and other sources for
the three months ended March 31, 1997 increased to $1.9 million from $0.1
million for the corresponding period in 1996, an increase of $1.8 million. The
increase was primarily due to the inclusion of $1.7 million in cost of revenue
for maintenance and other sources of the other Founding Companies in the first
quarter of 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $2.3 million for
the three months ended March 31, 1997 (23.3% of total revenue) from $0.3 million
(9.8% of total revenue) for the corresponding period in 1996, an increase of
$2.0 million or 706.9%. The increase was primarily due to the inclusion of $1.6
million in selling, general and administrative expenses of the other Founding
Companies and $0.3 million in administrative expenses incurred principally in
conjunction with the Mergers.
Research and Development
R&D for the three months ended March 31, 1997 increased to $0.8 million
(7.8% of total revenue) from $0.6 million (19.4% of total revenue) for the
corresponding period in 1996, an increase of $0.2 million or 35.2%. The increase
was due to an approximate 30% increase in R&D personnel hired to support
development activities relating to: (i) a new release of The Medical Manager
incorporating an advanced appointment scheduler and other enhancements; (ii) an
electronic medical records module; and (iii) an module for use in the management
of multiple physician practices. Certain of these initiatives were begun in
previous periods, but required additional resources as they reached more
advanced stages of development.
Other Income
Other income of $0.1 million for the three months ended March 31, 1997
resulted primarily from the investment of the net proceeds from the Offering.
Provision for Income Taxes
The Company's provision for income taxes increased to $0.6 million for the
three months ended March 31, 1997, net of a deferred tax benefit of $0.4 million
related to the termination of the S Corporation status of PPI effective February
4, 1997, and gives effect to PPI's income being taxed to its stockholder prior
to such termination and the effect of nontaxable investment income.
7
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth principally through proceeds from the
Offering.
Net cash provided by operating activities was $0.3 million for the three
months ended March 31, 1997. Included in net cash provided by operating
activities for the three months ended March 31, 1997 is a reduction of
approximately $0.7 million in accounts payable and accrued liabilities of the
other Founding Companies that were assumed in connection with the Mergers.
On February 4, 1997, the Company completed the Offering of 6,000,000 shares
of Common Stock, resulting in net proceeds of approximately $58.4 million.
Approximately $46.9 million of the net proceeds were used to pay the cash
portion of the purchase price for the Founding Companies.
MMC and each of the Founding Companies had separate banking relationships
through February 4, 1997. Effective February 5, 1997, these separate banking
relationships were consolidated into a single banking relationship with Barnett
Bank of Tampa. The Company is negotiating a line of credit of $30 million with
Barnett Bank of Tampa to be used for working capital and other general corporate
purposes, including future acquisitions.
The Company believes the net proceeds for the sale of Common Stock in the
Offering, together with existing sources of liquidity and funds generated from
operations, will provide adequate cash to fund its anticipated cash needs at
least through the next six months.
8
<PAGE> 9
FINANCIAL STATEMENTS
The following unaudited consolidated financial statements give effect to
the acquisition by Medical Manager Corporation ("MMC") of substantially all of
the net assets of (a) Personalized Programming, Inc. ("PPI"), Systems Plus, Inc.
("SPI"), RTI Business Systems, Inc. ("RTI"), National Medical Systems, Inc.
("NMS") and Systems Management, Inc. ("SMI") (together, the "Founding
Companies"). MMC and the Founding Companies are hereinafter referred to as the
"Company." These acquisitions (the "Mergers") occurred simultaneously with the
closing of MMC's initial public offering (the "Offering") and were accounted for
as a combination of the Founding Companies at historical cost for accounting
purposes. PPI, one of the Founding Companies, is identified as the acquiror for
financial statement presentation purposes. These statements are based on
historical financial statements of the Founding Companies and the estimates and
assumptions set forth below and in the notes to the Unaudited Consolidated
Financial Statements of the Company.
The unaudited pro forma consolidated statements of operations give effect
to these transactions as if they had occurred on January 1, 1996.
The unaudited consolidated financial data presented herein do not purport
to represent what the Company's financial position or results of operations
would have actually been had such events occurred at the beginning of the years
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Founding
Companies. Results of operations for the quarter ended March 31, 1997 are not
necessarily indicative of the results for the entire fiscal year ended December
31, 1997. The unaudited consolidated financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Report. Also see "Risk Factors" included elsewhere herein.
9
<PAGE> 10
MEDICAL MANAGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $18,903 $1,765
Investments............................................... 203 202
Accounts receivable....................................... 5,779 1,779
Inventory................................................. 537 0
Prepaid expenses and other current assets................. 568 118
Deferred income taxes..................................... 462 0
------- ------
Total current assets.............................. 26,452 3,864
PROPERTY AND EQUIPMENT, net................................. 2,397 505
GOODWILL AND OTHER INTANGIBLES, net......................... 6,178 0
OTHER ASSETS................................................ 863 161
------- ------
Total assets...................................... $35,890 $4,530
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................. $ 4,018 $ 0
Accounts payable and accrued liabilities.................. 4,018 760
Customer deposits and deferred maintenance revenue........ 3,992 940
Income taxes payable...................................... 999 0
------- ------
Total current liabilities......................... 13,027 1,700
DUE TO AFFILIATE............................................ 0 117
------- ------
Total liabilities................................. 13,027 1,817
------- ------
STOCKHOLDERS' EQUITY
Common stock.............................................. 177 64
Additional paid-in capital................................ 21,499 0
Retained earnings......................................... 1,187 2,649
------- ------
Total stockholders' equity........................ 22,863 2,713
------- ------
Total liabilities and stockholders' equity........ $35,890 $4,530
======= ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<PAGE> 11
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED PRO FORMA QUARTER
MARCH 31, ENDED MARCH 31,
-------------------- ------------------------
1997 1996 1997 1996
---------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Systems.................................... $ 6,193 $2,208 $ 8,215 $ 5,902
Maintenance and other...................... 3,804 744 4,923 3,816
---------- ------ ---------- ----------
Total revenue...................... 9,997 2,952 13,138 9,718
---------- ------ ---------- ----------
Cost of systems revenue...................... 1,788 362 2,936 1,836
Maintenance and other...................... 1,852 69 2,447 2,097
---------- ------ ---------- ----------
Total cost of revenue.............. 3,640 431 5,383 3,933
---------- ------ ---------- ----------
Gross margin....................... 6,357 2,521 7,755 5,785
---------- ------ ---------- ----------
Operating expenses
Selling, general and administrative........ 2,332 289 3,065 2,262
Research and development................... 776 574 798 667
Depreciation and amortization.............. 227 88 317 291
---------- ------ ---------- ----------
Total operating expenses........... 3,335 951 4,180 3,220
---------- ------ ---------- ----------
Income from operations............. 3,022 1,570 3,575 2,565
Other income (expense)
Interest expense........................... (45) 0 (45) 0
Interest income............................ 149 32 149 0
---------- ------ ---------- ----------
Income before income taxes................... 3,126 1,602 3,679 2,565
Income taxes................................. 576 0 1,389 988
---------- ------ ---------- ----------
Net income......................... $ 2,550 $1,602 $ 2,290 $ 1,577
========== ====== ========== ==========
Income per share............................. $ 0.14 $ 0.13 $ 0.09
Shares used in computing income per share.... 17,705,470 17,705,470 17,705,470
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
11
<PAGE> 12
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997.................. 6,370 $ 64 $ 0 $ 2,649 $ 2,713
Dividends (by PPI prior to Mergers)...... (4,012) (4,012)
Issuance of common stock at the Offering,
net.................................... 6,000 60 58,170 58,230
Mergers:
Payments to PPI stockholder............ (35,062) (35,062)
Issuance of Common Stock and payment to
other Founding Companies'
stockholders, net................... 5,335 53 (1,609) (1,556)
Net income............................... 2,550 2,550
------ ---- -------- ------- --------
Balance March 31, 1997................... 17,705 $177 $ 21,499 $ 1,187 $ 22,863
====== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
12
<PAGE> 13
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,550 $1,601
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 227 88
Deferred income taxes.................................. (350) 0
Changes in assets and liabilities, net of effects from
acquisitions
Accounts receivable.................................... (1,494) 148
Inventory.............................................. 134 0
Prepaid expenses and other assets...................... (384) (11)
Accounts payable and accrued liabilities............... (1,327) (233)
Customer deposits and deferred maintenance revenue..... 75 285
Income taxes payable................................... 866 0
------- ------
Net cash provided by operating activities................. 297 1,878
------- ------
Cash flows from investing activities:
Purchases of investments.................................. 0 (20)
Proceeds from sale of investments......................... 0 100
Purchases of property and equipment....................... (196) (101)
Payments for acquisitions made, net of cash acquired...... (9,466) 0
------- ------
Net cash used in investing activities..................... (9,662) (21)
------- ------
Cash flows from financing activities:
Payment of notes payable.................................. (46) 0
Due to affiliates......................................... 4,997 0
Net proceeds from sale of common stock.................... 58,230 0
Payments made to stockholder of PPI....................... (35,062) 0
Dividends................................................. (1,616) (578)
------- ------
Net cash provided by (used in) financing activities....... 26,503 (578)
------- ------
17,138 1,279
Net change in cash and cash equivalents
Cash and cash equivalents:
Beginning of period....................................... 1,765 1,167
------- ------
End of period............................................. $18,903 $2,446
======= ======
Non-cash dividends.......................................... $ 2,398 $ 0
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE> 14
MEDICAL MANAGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Medical Manager Corporation ("MMC") was founded on July 10, 1996 to bring
together the research and development, sales, marketing and support resources
for The Medical Manager, a leading physician practice management system for
independent physicians, physician groups, management service organizations
("MSOs"), independent practice associations ("IPAs"), managed care organizations
and other providers of health care services in the United States. On February 4,
1997 MMC acquired ("the Mergers") simultaneously with the closing of its initial
public offering of common stock ("the Offering") five companies (the "Founding
Companies"): Medical Manager Research & Development, Inc. (formerly Personalized
Programming, Inc.) ("PPI"), Medical Manager Sales & Marketing, Inc. (formerly
Systems Plus, Inc.) ("SPI"), Medical Manager Southeast, Inc. (formerly National
Medical Systems, Inc.) ("NMS"), Medical Manager RTI, Inc. (formerly RTI Business
Systems, Inc.) ("RTI") and Medical Manager Systems Management, Inc. (formerly
Systems Management, Inc.) ("SMI"). MMC and the Founding Companies are referred
to collectively as the "Company." All outstanding shares of the Founding
Companies' capital stock were converted into shares of MMC Common Stock
concurrently with the consummation of the Offering. The aggregate consideration
paid by MMC for the Founding Companies was approximately $46.9 million in cash
and 11.7 million shares of Common Stock of MMC for an aggregate value of $175.7
million. The acquisitions were accounted for as a combination of the Founding
Companies at historical cost for accounting purposes. PPI is identified as the
acquiror for financial statement presentation purposes and is presented on a
combined basis with MMC from July 10, 1996. MMC conducted no significant
operations and generated no revenue prior to the closing of the Offering.
The accompanying historical financial statements include MMC and PPI
through February 4, 1997, the date of the acquisition of the Founding Companies,
after which the financial statements reflect the results of MMC, PPI and the
other Founding Companies.
The pro forma statements of operations include the results of MMC, PPI and
the other Founding Companies as if they had been acquired on January 1, 1996.
Pro forma data also reflects adjustments for (i) compensation differentials to
employees and former stockholders of the Founding Companies (ii) effects of
assets distributed to and the costs of certain building leases executed by MMC
with the stockholders of PPI and SMI; (iii) changes in interest expense,
interest and dividend income and realized gains (losses) on investments for pro
forma adjustments to cash, investments and debt; (iv) termination costs for
certain leases and former employees resulting from the acquisition of the
Founding Companies and (v) income taxes as if the entities were combined and
subject to the effective federal and state statutory rates throughout the
periods presented.
The pro forma statements of operations may not be indicative of actual
results if the Mergers had occurred on the date indicated or which may be
realized in the future. Neither expected benefits and cost reductions
anticipated by the Company nor future corporate costs of MMC nor interest income
from investment of offering proceeds have been reflected in the pro forma
statements of operations for 1996, nor for the period from January 1, 1997
through February 4, 1997. The actual results of MMC, PPI and the other Founding
Companies for the period from February 5, 1997 through March 31, 1997, inclusive
of actual corporate costs and interest income, have been included in the pro
forma results for the three months ended March 31, 1997.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements do not include all
disclosures included in the financial statements for the years ended December
31, 1995 and 1996 as included in the Company's Form 10-K for the year ended
December 31, 1996, and therefore should be read in conjunction with the
financial statements included in the Form 10-K.
14
<PAGE> 15
MEDICAL MANAGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue from systems includes the sale of systems and revenue from software
licenses.
In the opinion of management, the interim financials reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position and the results of operations and of cash
flows for the interim periods presented.
NOTE 3. NOTES PAYABLE
Notes payable at March 31, 1997 include approximately $3.9 million for
amounts due to the stockholders of PPI and SPI for dividends equal to the
estimated balance in the S Corporations Accumulated Adjustment Account as of
February 4, 1997. Such amounts are due on demand and carry annual interest rates
from 5.85% to 8.0%. Approximately $1.5 million was paid in April, 1997.
NOTE 4. EARNINGS PER SHARE
Historical earnings per share calculations for the first quarter of 1996
have not been presented because it is not considered meaningful as a result of
the exclusion of the Founding Companies as discussed in Note 1.
In February 1997 the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share", which is effective for periods ending after December
15, 1997. This statement establishes standards for computing and presenting
earnings per share data. Management is currently assessing the impact of SFAS
No. 128 on the Company's presentation of earnings per share data in future
periods.
NOTE 5. UNAUDITED PRO FORMA INCOME TAX INFORMATION
Prior to the acquisition of the Founding Companies, PPI was an S
Corporation and, accordingly, the combined financial statements of MMC and PPI
did not reflect a provision for income taxes, as income taxes were the
responsibility of PPI's individual stockholder. Effective with the acquisition
of the Founding Companies, PPI, SPI and SMI terminated their S Corporation
status. The following unaudited pro forma income tax, based on historical
information, is presented in accordance with Statement of Financial Accounting
Standards No. 109 as if PPI, SPI and SMI had each been a C Corporation subject
to federal and state income taxes throughout the periods presented.
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Income before provision for income taxes.................... $3,126 $1,601
Provision for income taxes.................................. 1,176 616
------ ------
Pro forma net income........................................ $1,950 $ 985
====== ======
</TABLE>
NOTE 6. SUBSEQUENT EVENTS
Subsequent to the consummation of the Offering, the Company executed
definitive merger agreements to acquire the following Medical Manager dealers
(the "Acquisitions"): (i) Adaptive Health Systems of Washington based in Federal
Way, Washington; (ii) LSM Computing, Inc. based in Somerville, New Jersey; (iii)
UNICO, Inc. based in Evansville, Indiana; (iv) and Specialized Systems, Inc.
based in Van Nuys, California. The Acquisitions were accounted for using the
pooling-of-interests method of accounting. The aggregate consideration paid for
the Acquisitions consisted of 1,007,938 shares of Common Stock. The closings of
the Acquisitions occurred during the weeks of April 28, 1997 and May 19, 1997.
The impact of the Acquisitions on revenues, net income or earnings per share is
not considered material.
15
