<PAGE> 1
Rule 424(b)(3)
Regis. No. 333-25215
Medical Manager Corporation
SUPPLEMENT NO. 4 DATED AUGUST 29, 1997
TO PROSPECTUS DATED APRIL 23, 1997
On August 14, 1997, Medical Manager Corporation (the "Company") filed its
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 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, as previously supplemented by Supplement No. 1 dated June 9,
1997, Supplement No. 2 dated June 25, 1997 and Supplement No. 3 dated August
29, 1997, 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 current year
financial data includes the results of Adaptive Health Systems of
Washington, Inc., LSM Computing, Inc., Specialized Systems, Inc., Treister
Thorne, Inc., d/b/a Advanced Medical Management, and UNICO, Inc., all of which
were merged into Medical Manager Corporation during the quarter ended June 30,
1997. All mergers were accounted for based upon the pooling-of-interests method
of accounting. Prior year financial data has been restated to reflect the
results of the mergers. 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 SIX MONTHS ----------------- ------------
ENDED ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1997 1997 1997 1996
--------- ---------- --------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................. $15,967 $28,099 $31,221 $51,794
Cost of revenue..................................... 6,637 11,471 13,195 23,665
------- ------- ------- -------
Gross profit........................................ 9,330 16,628 18,026 28,129
Selling, general and administrative expenses(2)..... 4,277 7,353 8,086 12,929
Research and development expenses................... 812 1,588 1,610 3,374
Depreciation and amortization....................... 314 561 651 1,329
------- ------- ------- -------
Income before income taxes.......................... 4,138 7,450 8,003 9,948
Income taxes........................................ 1,530 2,151 2,991 3,830
------- ------- ------- -------
Net income.......................................... $ 2,608 $ 5,299 $ 5,012 $ 6,118
======= ======= ======= =======
Net income per share................................ $ 0.14 $ 0.28 $ 0.27 $ 0.33
======= ======= ======= =======
Pro forma weighted average shares outstanding....... 18,830 18,828 18,828 18,821
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
AT JUNE 30, ------------------------------
1997 PRO FORMA(1) AS ADJUSTED(3)
------------ ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $16,113 $ 5,560 $17,696
Working capital................................... 16,291 3,325 15,441
Total assets...................................... 36,045 21,985 34,101
Stockholders' equity.............................. 25,263 11,851 23,967
</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. The current year financial data includes the results of
Adaptive Health Systems of Washington, Inc., LSM Computing, Inc., Specialized
Systems, Inc., Treister Thorne, Inc. d/b/a Advanced Medical Management and
UNICO, Inc., all of which were merged into Medical Manager Corporation during
the quarter ended June 30, 1997. All mergers were accounted for based upon the
pooling-of-interests method of accounting. Prior year financial data has been
restated to reflect the results of the mergers. 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 SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1997 1997 1997 1996
------------- ---------------- ---------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $15,967 $28,099 $31,221 $51,794
Cost of revenue................................... 6,637 11,471 13,195 23,665
------- ------- ------- -------
Gross profit...................................... 9,330 16,628 18,026 28,129
Selling, general and administrative expenses(2)... 4,277 7,353 8,086 12,929
Research and development expenses................. 812 1,588 1,610 3,374
Depreciation and amortization..................... 314 561 651 1,329
------- ------- ------- -------
Income before income taxes........................ 4,138 7,450 8,003 9,948
Income taxes...................................... 1,530 2,151 2,991 3,830
------- ------- ------- -------
Net income........................................ $ 2,608 $ 5,299 $ 5,012 $ 6,118
======= ======= ======= =======
Net income per share.............................. $ 0.14 $ 0.28 $ 0.27 $ 0.33
======= ======= ======= =======
Pro forma weighted average shares outstanding..... 18,830 18,828 18,828 18,821
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
AT JUNE 30, ------------------------------
1997 PRO FORMA(1) AS ADJUSTED(3)
------------ ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $16,113 $ 5,560 $17,696
Working capital................................... 16,291 3,325 15,441
Total assets...................................... 36,045 21,985 34,101
Stockholders' equity.............................. 25,263 11,851 23,967
</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
ITEM 2. 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 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 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.) ("MMR&D"), Medical Manager Sales & Marketing, Inc. (formerly
Systems Plus, Inc.) ("MMS&M"), Medical Manager Southeast, Inc. (formerly
National Medical Systems, Inc.) ("MMSE"), Medical Manager Northeast, Inc.
(formerly RTI Business Systems, Inc.) ("MMNE") and Medical Manager Mid-West,
Inc. (formerly Systems Management, Inc.) ("MMMW"). 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 mergers were accounted for as a combination of the Founding
Companies at historical cost for accounting purposes. MMR&D is identified as the
acquirer 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.
Subsequent to the consummation of the Offering, MMC and the Founding
Companies executed definitive merger agreements to acquire the following Medical
Manager dealers ("the Acquired Companies"): (i) Adaptive Health Systems of
Washington, Inc. ("Adaptive Health") based in Federal Way, Washington; (ii) LSM
Computing, Inc. ("LSM") based in Somerville, New Jersey; (iii) Specialized
Systems, Inc. ("SSI") based in Van Nuys, California; (iv) Treister Thorne, Inc.
d/b/a Advanced Medical Management ("AMM") based in Houston, Texas, and (v)
UNICO, Inc. ("UNICO") based in Evansville, Indiana. The acquisitions of the
Acquired Companies were accounted for using the pooling-of-interests method of
accounting. The aggregate consideration paid for the Acquisitions consisted of
1,115,938 shares of Common Stock. MMC, the Founding Companies, and the Acquired
Companies are referred to collectively as the Company.
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 fully offset by the costs of being a public company and the
incremental increase in costs related to the Company's new corporate management
structure. While the interest income from the investment of offering proceeds
has not been included in the pro forma statements of operations, the savings
from the reduction of interest expense and 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 value-added 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
5
<PAGE> 6
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
Revenue
The following table reflects pro forma revenues for the Company's primary
business lines (in millions):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- PERCENT ------------- PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Systems.................................... $10.0 $ 7.0 43.8% $19.1 $13.8 38.3%
Maintenance and other...................... 6.0 4.9 20.5% 12.1 9.4 29.1%
----- ----- ---- ----- ----- ----
Total............................ $16.0 $11.9 34.1% $31.2 $23.2 34.6%
===== ===== ==== ===== ===== ====
</TABLE>
An increase in systems sales volume, combined with an increase in the size
of individual systems projects, have been contributing factors in the Company's
systems revenue growth. Average overall revenue per client has increased
primarily because of the Company's continued success in securing more MSO and
large IPA contracts. Revenues from these MSOs, IPAs and other larger local
contracts have been developed by the Company's recently formed Enterprise
Business Group, which specifically targets national/regional clients. Contracts
recently obtained by the Enterprise Business Group have a total contract price
of over $3.4 million, of which only $0.4 million has been recognized as income
in the three months ended June 30, 1997 and $.5 million recognized as income in
the six months ended June 30, 1997. In addition to gaining these larger clients,
the Company has continued its successful marketing to smaller physician groups
and sole practitioners, making up the balance of the increase in systems revenue
over corresponding periods in the prior year.
While maintenance and other revenue increased over the corresponding
periods in the prior year, its growth was at a lower rate than systems revenue.
In the first quarter of 1997, the Company recognized approximately $500,000 in
maintenance and other revenue related to the completion of non-recurring
national interface contracts. With the exclusion of the revenue recognized on
this project, there appears a consistent growth in maintenance and other revenue
across quarters. The Company obtains a maintenance contract for a minimum of one
year with most new systems installed, therefore a portion of the Company's
maintenance and other revenue will be recognized later than billed. Unearned
maintenance and other revenue as of June 30, 1997 on the accompanying balance
sheet was $4.1 million, which will be recognized in future quarters.
The balance of unearned revenues represents customer deposits on systems
revenue projects. Revenue on these projects will be recognized in future periods
as the implementation of the system is completed.
Operating Expenses, Nonoperating Items, and Income Taxes
The following table reflects pro forma operating expenses for the Company's
primary business lines (in millions):
<TABLE>
<CAPTION>
THREE
MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------- PERCENT ------------ PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------- ----- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Systems..................................... $3.4 $1.9 75.8% $ 6.8 $4.4 53.7%
Maintenance and other....................... 3.2 3.0 8.1% 6.4 5.5 16.3%
---- ---- ----- ----
Total Cost of Revenue....................... $6.6 $4.9 34.7% $13.2 $9.9 33.0%
Selling, General and Administrative......... 4.3 3.1 38.6% 8.1 6.0 34.7%
Research and Development.................... $ .8 $ .9 (6.7)% $ 1.6 $1.5 4.8%
</TABLE>
6
<PAGE> 7
Systems gross profit margin was 66.0% for the second quarter of fiscal year
1997 compared to 72.2% for the second quarter of fiscal year 1996, and 64.4% in
the first six months of fiscal year 1997 versus 67.9% in the first six months of
1996. Systems revenue consists of sales of licenses, carrying a higher gross
profit margin, and sales of complete systems, carrying a lower gross profit
margin due to the inclusion of the costs of equipment and installation labor in
the cost of the sale. As the systems revenue mix has shifted toward complete
systems sales, including the MSO and IPA contracts, total systems gross profit
margin has decreased. Maintenance and other gross profit margin was 45.7% for
the second quarter of fiscal year 1997 compared to 39.5% for the second quarter
of fiscal year 1996, and 47.2% in the first six months of fiscal 1997 versus
41.4% in the first six months of 1996. This increase was principally due to the
maintenance personnel and other associated costs being allocated to a larger
base of maintenance revenue.
Selling, general and administrative expenses as a percentage of revenue
remained unchanged at just under 27% for the three months ended June 30, 1997
and 1996 and the six months ended June 30, 1997 and 1996, indicating that the
Company has been able to implement a corporate structure without impacting the
mix of selling, general and administrative expenses to revenues.
Although there has not been a significant change in research and
development dollars spent, there has been a shift in research and development
activities. In the first six months of 1997, especially the second quarter,
research and development activities on the Pro-Claim(TM) product have been
scaled back as this software is now commercially available. This reduction in
expenditures has been offset with new research and development projects focusing
on (i) a new release of The Medical Manager incorporating an advanced
appointment scheduler and other enhancements; (ii) graphical user interface and
relational database technologies; (iii) significant enhancements in the
development of the Enterprise Manager modules; (iv) an electronic medical
records module; and (v) EDI modules for focusing on pharmaceutical formularies
and laboratories.
Other income of $0.1 for the three months ended June 30, 1997 resulted
primarily from the investment of net proceeds from the Offering.
Provision for income taxes was $1.5 million for an effective tax rate of
36.9% of income before income taxes for the three months ended June 30, 1997
compared to $1.1 million for an effective tax rate of 38.5% of income before
income taxes for the corresponding period in 1996, and $3.0 million for an
effective tax rate of 37.4% in the first six months of 1997 versus $2.0 million
for an effective tax rate of 38.5% of income before taxes for the corresponding
period in 1996. The reduced rate reflects the nontaxable investment income in
the three and six months ended June 30, 1997.
HISTORICAL CONSOLIDATED RESULTS OF OPERATIONS
Revenue
The following table reflects actual revenues for the Company's primary
business lines (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------- PERCENT ----------------- PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
----- ---- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Systems........................ $10.0 $3.9 155.3% $17.1 $7.1 141.5%
Maintenance and other.......... 6.0 1.5 300.3% 11.0 2.8 285.7%
----- ---- ----- ----
Total.......................... $16.0 $5.4 195.2% $28.1 $9.9 182.8%
===== ==== ===== ====
</TABLE>
The increase in systems revenue was primarily due to the inclusion of $6.0
million and $9.5 million in systems revenue of the other Founding Companies in
the second quarter of 1997 and the first half of fiscal 1997, respectively,
after the eliminations of inter-company sales. The increase in maintenance and
other revenue was primarily due to the inclusion of $3.2 million and $5.7
million in maintenance and other revenue of the Founding Companies in the second
quarter of 1997 and the first half of 1997, respectively. In addition, there was
approximately .5 million of national interface revenue recognized in 1997.
7
<PAGE> 8
Operating Expenses, Nonoperating Items, and Income Taxes
The following table reflects actual operating expenses for the Company's
primary business lines (in millions):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- PERCENT -------------- PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Systems.......................... $3.4 $1.1 202.9% $ 5.7 $2.1 166.2%
Maintenance and other............ 3.2 0.7 407.5% 5.8 1.2 418.0%
---- ---- ----- ----
Total Cost of Revenue............ $6.6 $1.8 277.1% $11.5 $3.3 252.7%
Selling, General and
Administrative ................ 4.3 1.1 307.3% 7.4 2.0 268.6%
Research and Development......... $ .8 $ .6 25.1% $ 1.6 $1.2 29.7%
</TABLE>
The increase in cost of systems revenue was primarily due to the inclusion
of $2.1 million and $3.6 million in cost of revenue for systems of the other
Founding Companies in the second quarter of 1997 and the first half of 1997,
respectively. The increase in maintenance and systems cost of revenue was
primarily due to the inclusion of $2.5 million and $4.2 million in cost of
revenue for maintenance and other sources of the other Founding Companies in the
second quarter of 1997 and the first half of 1997, respectively.
The increase in selling, general and administrative was primarily due to
the inclusion of $2.4 million and $4.0 million in selling, general and
administrative expenses of the other Founding Companies in the second quarter of
1997 and the first half of 1997, respectively. In addition, there were $.3
million in administrative expenses incurred in the first quarter of 1997,
principally in conjunction with the Mergers.
The increase in research and development expenses was due to the inclusion
of $0.1 million in research and development expense of the other Founding
Companies in the second quarter of 1997 and the first half of 1997. In addition,
in 1997 there were additional R&D personnel hired to support development of
several new features of The Medical Manager product.
Other income of $0.1 million for the three months ended June 30, 1997
resulted primarily from the investment of the net proceeds from the Offering.
The Company's provision for income taxes increased to $2.2 million for the
six months ended June 30, 1997, net of a deferred tax benefit of $0.4 million
related to the termination of the S Corporation status of MMR&D effective
February 4, 1997, and gives effect to MMR&D's income being taxed to its
stockholder prior to such termination and the effect of nontaxable investment
income.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated net income of $5.3 million in the six months ended
June 30, 1997. This source of cash was offset by an increase in accounts
receivable of $2.2 million, a result of large billings at the end of the period.
An additional use of operating cash flows was the decrease of $1.9 million in
accounts payable and accrued liabilities, primarily the result of a reduction of
approximately $1.2 million in accounts payable 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 $25 million with
Barnett Bank of Tampa to be used for working capital and other general corporate
purposes, including future acquisitions.
8
<PAGE> 9
The Company believes the net proceeds from the sale of Common Stock in the
Offering, together with existing cash and cash equivalents and funds generated
from operations, will provide adequate cash to fund its anticipated cash needs
at least through the next twelve months. The Company's cash and cash equivalents
are also managed to be available for strategic investment opportunities or other
potential large-scale cash needs that may arise in the pursuit of the Company's
long-term strategies.
9
<PAGE> 10
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. The current year financial statements
include the results of Adaptive Health Systems of Washington, Inc., LSM
Computing, Inc., Specialized Systems, Inc., Treister Thorne, Inc., d/b/a
Advanced Medical Management, and UNICO, Inc., all of which were merged into
Medical Manager Corporation during the quarter ended June 30, 1997. All mergers
were accounted for based upon the pooling-of-interests method of accounting.
Prior year financial statements have been restated to reflect the results of the
mergers. 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.
10
<PAGE> 11
MEDICAL MANAGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $16,113 $2,413
Investments............................................... 0 202
Accounts receivable....................................... 7,715 2,989
Inventory................................................. 1,039 64
Prepaid expenses and other current assets................. 1,566 158
Deferred income taxes..................................... 462 0
------- ------
Total current assets.............................. 26,895 5,826
PROPERTY AND EQUIPMENT, net................................. 2,983 864
GOODWILL AND OTHER INTANGIBLES, net......................... 6,086 0
OTHER ASSETS................................................ 81 275
------- ------
Total assets...................................... $36,045 $6,965
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................. $ 1,774 $ 189
Accounts payable and accrued liabilities.................. 4,122 1,425
Customer deposits and deferred maintenance revenue........ 4,214 1,661
Income taxes payable...................................... 494 0
------- ------
Total current liabilities......................... 10,604 3,275
LONG-TERM OBLIGATIONS, net of current maturities............ 178 550
DUE TO AFFILIATE............................................ 0 118
------- ------
Total liabilities................................. 10,782 3,943
STOCKHOLDERS' EQUITY
Common stock.............................................. 188 75
Additional paid-in capital................................ 21,583 39
Retained earnings......................................... 3,492 2,908
------- ------
Total stockholders' equity........................ 25,263 3,022
------- ------
Total liabilities and stockholders' equity........ $36,045 $6,965
======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE> 12
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED PRO FORMA QUARTER
JUNE 30, ENDED JUNE 30,
------------------- -----------------
1997 1996 1996
---------- ------ -----------------
<S> <C> <C> <C>
Revenue
Systems................................................. $ 10,006 $3,919 $ 6,958
Maintenance and other................................... 5,961 1,489 4,947
---------- ------ ----------
Total revenue................................... 15,967 5,408 11,905
---------- ------ ----------
Cost of revenue
Systems................................................. 3,399 1,122 1,933
Maintenance and other................................... 3,238 638 2,995
---------- ------ ----------
Total costs of revenue.......................... 6,637 1,760 4,928
---------- ------ ----------
Gross margin.................................... 9,330 3,648 6,977
Operating expenses
Selling, general and administrative..................... 4,277 1,050 3,085
Research and development................................ 812 649 870
Depreciation and amortization........................... 314 84 260
---------- ------ ----------
Total operating expenses........................ 5,403 1,783 4,215
---------- ------ ----------
Income from operations.......................... 3,927 1,865 2,762
Other income (expense)
Interest expense........................................ (44) (1) (1)
Interest income......................................... 193 25 4
Other................................................... 62 1 18
---------- ------ ----------
Income before income taxes................................ 4,138 1,890 2,783
Income taxes.............................................. 1,530 3 1,071
---------- ------ ----------
Net income...................................... $ 2,608 $1,887 $ 1,712
========== ====== ==========
Earnings per common share and common equivalent share
(Note 4):............................................... $ 0.14 $ 0.09
Shares used in computing earnings per common share and
common equivalent share (Note 4):....................... 18,830,414 18,821,411
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE> 13
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED PRO FORMA SIX MONTHS
JUNE 30, ENDED JUNE 30,
------------------- -----------------------
1997 1996 1997 1996
---------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Systems.......................................... $ 17,123 $7,090 $ 19,119 $ 13,823
Maintenance and other............................ 10,976 2,846 12,102 9,377
---------- ------ ---------- ----------
Total revenue............................ 28,099 9,936 31,221 23,200
Cost of revenue
Systems.......................................... 5,680 2,134 6,809 4,431
Maintenance and other............................ 5,791 1,118 6,386 5,491
---------- ------ ---------- ----------
Total costs of revenue................... 11,471 3,252 13,195 9,922
---------- ------ ---------- ----------
Gross margin............................. 16,628 6,684 18,026 13,278
Operating expenses
Selling, general and administrative.............. 7,353 1,995 8,086 6,002
Research and development......................... 1,588 1,224 1,610 1,537
Depreciation and amortization.................... 561 210 651 590
---------- ------ ---------- ----------
Total operating expenses................. 9,502 3,429 10,347 8,129
---------- ------ ---------- ----------
Income from operations................... 7,126 3,255 7,679 5,149
Other income (expense)
Interest expense................................. (95) (3) (95) (3)
Interest income.................................. 343 41 343 7
Other............................................ 76 24 76 18
---------- ------ ---------- ----------
Income before income taxes......................... 7,450 3,317 8,003 5,171
Income taxes....................................... 2,151 6 2,991 1,991
---------- ------ ---------- ----------
Net income............................... $ 5,299 $3,311 $ 5,012 $ 3,180
========== ====== ========== ==========
Earnings per common share and common equivalent
share (Note 4):.................................. $ 0.28 $ 0.27 $ 0.17
Shares used in computing earnings per common share
and common equivalent share (Note 4):............ 18,827,730 18,827,730 18,821,411
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 14
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997............................ 7,486 $ 75 $ 39 $2,908 $ 3,022
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)
Acquisitions:
Distributions.................................... (658) (658)
Contributions.................................... 45 (45)
Net income......................................... 5,299 5,299
------ ---- ------- ------ -------
Balance June 30, 1997.............................. 18,821 $188 $21,583 $3,492 $25,263
====== ==== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE> 15
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 5,299 $ 3,311
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 561 210
Deferred income taxes.................................. (350) 1
(Gain) on sale of property and equipment............... 0 (3)
Realized gain on marketable securities................. (52) 0
Changes in assets and liabilities, net of effects from
acquisitions
Accounts receivable.................................... (2,169) (363)
Inventory.............................................. (264) (30)
Prepaid expenses and other current assets.............. (584) 4
Other assets........................................... 47 296
Accounts payable and accrued liabilities............... (1,919) 506
Customer deposits and deferred maintenance revenue..... (442) (4)
Income taxes payable................................... 360 0
-------- -------
Net cash provided by operating activities................. 487 3,928
-------- -------
Cash flow from investing activities:
Purchases of investments.................................. 0 (50)
Proceeds from sale of investments......................... 254 100
Purchases of property and equipment....................... (499) (224)
Proceeds from sale of property and equipment.............. 7 26
Collections on notes receivable -- related party, net..... 0 27
Payments for acquisitions made, net of cash acquired...... (9,466) 0
-------- -------
Net cash used in investing activities..................... (9,704) (121)
-------- -------
Cash flow from financing activities:
Proceeds from the issuance of notes payable............... 283 0
Payments of notes payable................................. (3,276) (31)
Due to affiliates......................................... 4,997 0
Net proceeds from the issuance of common stock............ 58,230 0
Payments made to stockholder of PPI....................... (35,062) 0
Dividends................................................. (2,255) (2,077)
-------- -------
Net cash provided by (used in) financing activities....... 22,917 (2,108)
-------- -------
Net change in cash and cash equivalents..................... 13,700 1,699
-------- -------
Cash and cash equivalents:
Beginning of period....................................... 2,413 1,405
-------- -------
End of period............................................. $ 16,113 $ 3,104
======== =======
Non-cash dividends.......................................... $ 2,416 $ 2,442
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 16
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.) ("MMR&D"), Medical Manager Sales & Marketing, Inc. (formerly
Systems Plus, Inc.) ("MMS&M"), Medical Manager Southeast, Inc. (formerly
National Medical Systems, Inc.) ("MMSE"), Medical Manager Northeast, Inc.
(formerly RTI Business Systems, Inc.) ("MMNE") and Medical Manager Mid-West,
Inc. (formerly Systems Management, Inc.) ("MMMW"). 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. MMR&D is identified as the
acquirer 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.
Subsequent to the consummation of the Offering, MMC and the Founding
Companies executed definitive merger agreements to acquire the following Medical
Manager dealers ("the Acquired Companies"): (i) Adaptive Health Systems of
Washington, Inc. ("Adaptive Health") based in Federal Way, Washington; (ii) LSM
Computing, Inc. ("LSM") based in Somerville, New Jersey; (iii) Specialized
Systems, Inc. ("SSI") based in Van Nuys, California; (iv) Treister Thorne, Inc.
d/b/a Advanced Medical Management ("AMM") based in Houston, Texas, and (v)
UNICO, Inc. ("UNICO") based in Evansville, Indiana. The acquisitions of the
Acquired Companies closed during the quarter ended June 30, 1997 and were
accounted for using the pooling-of-interests method of accounting. The aggregate
consideration paid for the Acquired Companies consisted of 1,115,938 shares of
Common Stock.
MMC, the Founding Companies, and the Acquired Companies are referred to
collectively as the Company. The accompanying historical financial statements
include MMC, MMR&D and the Acquired Companies through February 4, 1997, the date
of the acquisition of the Founding Companies, after which the financial
statements reflect the results of MMC, MMR&D, the Acquisitions and the other
Founding Companies.
The pro forma statements of operations include the results of MMC, MMR&D,
the Acquired Companies and the other Founding Companies as if they had been
acquired as of 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 MMR&D and MMMW; (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 and Acquisitions had occurred on the date indicated or
which may be realized in the future. Neither expected benefits and costs
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,
16
<PAGE> 17
MEDICAL MANAGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MMR&D, the Acquired Companies and the Founding Companies for the period from
February 5, 1997 through June 30, 1997, inclusive of actual corporate costs and
interest income, have been included in the pro forma results for the three and
six months ended June 30, 1997. It is suggested that these pro forma combined
and pro forma consolidated statements of operations be read in conjunction with
the pro forma combined financial statements of MMC and the Founding Companies
and the notes thereto included in the Company's Registration Statement of Form
S-1 (Reg. No. 333-25215) relating to the Shelf Registration of Common Stock,
which was filed with the Securities and Exchange Commission ("SEC") on April 15,
1997, and supplemented on June 9, 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 (the "Form 10-K"), and therefore should be read in conjunction
with the financial statements included in the Form 10-K.
Goodwill and other intangibles consist of covenants not to compete and
goodwill arising from business acquisitions. These intangible assets are being
amortized over periods ranging from two to 20 years.
In the opinion of management, the interim financials filed as part of this
Form 10-Q 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 June 30, 1997 include approximately $1.6 million for
amounts due to the stockholders of MMR&D 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 an annual interest rate of 5.85%.
Approximately $1.5 million was paid in April, 1997 and approximately $1.0
million was paid in June, 1997.
NOTE 4. EARNINGS PER SHARE
Historical earnings per share calculations for the three months and six
months ended June 30, 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.
NOTE 5. UNAUDITED PRO FORMA INCOME TAX INFORMATION
Prior to the acquisition of the Founding Companies, MMR&D, Adaptive Health,
LSM, SSI and UNICO (collectively, the "S Corporations") were S Corporations and,
accordingly, the combined financial statements of MMC, MMR&D and the Acquired
Companies did not reflect a provision for income taxes for the S Corporations,
as income taxes were the responsibility of the S Corporations' individual
stockholders. Effective with the acquisition of the Founding Companies and the
Acquisitions, the S Corporations, MMS&M and MMMW 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
17
<PAGE> 18
MEDICAL MANAGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Standards No. 109 as if the S Corporations, MMS&M and MMMW had each been a C
Corporation subject to federal and state income taxes throughout the periods
presented.
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Income before provision for income taxes.................... $4,138 $1,890
Provision for income taxes.................................. 1,530 726
------ ------
Pro forma net income........................................ $2,608 $1,164
====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Income before provision for income taxes.................... $7,450 $3,317
Provision for income taxes.................................. 2,778 1,275
------- -------
Pro forma net income........................................ $4,672 $2,042
======= =======
</TABLE>
NOTE 6. SUMMARY FINANCIAL DATA OF THE ACQUISITIONS
The Acquired Companies discussed in Note 1 have been accounted for as a
pooling-of-interests, and accordingly, the consolidated financial statements for
the periods presented have been restated to include the Acquired Companies. The
Acquired Companies generated revenues of $3,187,000 for the three months ended
June 30, 1997 and $2,689,000 for the three months ended June 30, 1996. Revenues
for the six months ended June 30, 1997 and June 30, 1996 were $5,510,000 and
$4,370,000, respectively. The Acquired Companies generated net income of
$561,000 for the three months ended June 30, 1997 and $596,000 for the three
months ended June 30, 1996. Net income for the six months ended June 30, 1997
and June 30, 1996 was $747,000 and $418,000 respectively. Changes in the
Acquired Companies' stockholders' equity for the six months ended June 30, 1996
included distributions of $612,000 and issuance of common stock of $10,000.
NOTE 7. STOCKHOLDERS' EQUITY
At June 30, 1997, the Company had two stock option plans as described
below:
1996 LONG-TERM INCENTIVE PLAN
In September 1996, the Company adopted the 1996 Long-Term Incentive Plan
under which the Compensation Committee has discretion to grant one or more of
the following awards to executive officers, key employees, consultants and other
service providers: (i) incentive stock options, (ii) non-qualified stock
options, (iii) stock appreciation rights, (iv) restricted or deferred stock, (v)
dividend equivalents, (vi) bonus shares and awards in lieu of Company
obligations to pay cash compensation, and (vii) other awards the value of which
is based in whole or in part upon the value of the Common Stock. Upon a change
of control of the Company (as defined in the Plan), certain conditions and
restrictions relating to an award with respect to the exercisability or
settlement of such award will be accelerated.
The maximum number of shares of Common Stock that may be subject to
outstanding awards may not exceed the greater of 2,000,000 shares or 10% of the
aggregate number of shares of Common Stock outstanding. The number of shares
deliverable upon exercise of incentive stock options is limited to 500,000, and
the number of shares deliverable as non-performance based restricted stock and
deferred stock, is limited to 500,000.
18
<PAGE> 19
MEDICAL MANAGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding the stock option component of this plan is summarized
below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Balance, January 1, 1997................................... -- --
Granted.................................................... 1,670,100 $11.00
Forfeited.................................................. (44,750) $11.00
--------- -------
Balance, June 30, 1997..................................... 1,625,350 $11.00
========= =======
</TABLE>
As of June 30, 1997, no options granted under this plan were exercisable.
All of the 1,625,350 options have a vesting schedule providing for 25% vesting
at 6 months, 18 months, 30 months, and 42 months after the grant date. All
options expire 10 years after the date of grant and have an exercise price of
$11.00.
No compensation expense related to the options has been recorded as the
options were granted at an exercise price equal to or greater than the fair
market value of the Company's common stock on the date of grant.
A total of 50,000 shares of restricted stock awards were issued under this
plan. Compensation expense equal to the fair value of the Company's Common Stock
on the date of grant ($8.375) is being recognized over the vesting period of
these stock awards.
1996 NON-EMPLOYEE DIRECTOR'S STOCK PLAN
In September 1996, the Company adopted the 1996 Non-Employee Director's
Stock Plan which provides for the automatic grant to each non-employee director
an initial option to purchase 10,000 shares upon such person's initial election
as a director. In addition, this plan provides for an automatic annual grant to
each non-employee director of an option to purchase 5,000 shares at each annual
meeting of stockholders; provided, however, that a director will not be granted
an annual option if he or she was granted an initial option during the preceding
sixty days. A total of 250,000 shares are reserved for issuance under this plan.
The exercise price of options granted under this plan may be no less than the
fair market value of the Company's Common Stock on the date of grant, and
accordingly, no compensation expense has been recorded in connection with the
stock options granted.
Information regarding this plan is summarized below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Balance, January 1, 1997.................................... -- --
Granted..................................................... 40,000 $8.88
------ ------
Balance, June 30, 1997...................................... 40,000 $8.88
====== ======
</TABLE>
As of June 30, 1997, no options granted under this plan were exercisable.
All options under this plan vest one year after the date of grant and expire 10
years after the date of grant. The exercise price of all options under this plan
is $8.875.
NOTE 8. SUBSEQUENT EVENTS
Subsequent to the period ended June 30, 1997, the Company executed a
definitive merger agreement to acquire the following Medical Manager dealers:
(i) Computer Clinic, Inc. and Affiliates based in Valhalla, New York and (ii)
Medisys, Inc. based in Fort Wayne, Indiana.
19
<PAGE> 20
MEDICAL MANAGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These acquisitions were accounted for using the pooling-of interests method
of accounting. The aggregate consideration paid for the acquisitions consisted
of 323,717 shares of Common Stock. The closing of these acquisitions occurred
during the weeks of July 21, 1997 and August 18, 1997.
The impact of the Computer Clinic, Inc. acquisition on revenues, net income
and earnings per share is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
PRO FORMA
QUARTER ENDED QUARTER ENDED QUARTER ENDED
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues....................................... $1,939 $1,955 $1,955
Net income (loss).............................. (353) (70) (70)
Earnings per common share and common share
equivalent................................... $(0.02) $(0.01)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues............... $4,066 $4,049 $4,066 $4,049
Net income (loss)...... (317) 112 (317) 112
Earnings per common
share and common
share equivalent..... $(0.02) $(0.02) $ 0.00
</TABLE>
The impact of the Medisys, Inc. acquisition on revenues, net income, and
earnings per share is not considered material.
Also subsequent to the period ended June 30, 1997, the Company executed
bill of sale agreements to acquire substantially all of the assets of the
following Medical Manager dealers: (i) Artemis, Inc. based in Indianapolis,
Indiana, (ii) Boston Computer, Inc. based in Norwood, Massachusetts and (iii)
PAC-COMP, Inc. based in Sterling Heights, Michigan. These acquisitions were
accounted for using the purchase method of accounting. The aggregate
consideration paid for the acquisitions consisted of $56,000 in cash and 120,636
shares of Common Stock. The closing of these acquisitions occurred during the
weeks of July 28, and August 4, 1997.
20
