MEDICAL MANAGER CORP, 424B4, 1998-04-24

MEDICAL MANAGER CORP
424B4, 1998-04-24
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 333-49695

PROSPECTUS
APRIL 23, 1998

2,500,000 SHARES

(MEDICAL MANAGER CORPORATION LOGO)

COMMON STOCK
Of the 2,500,000 shares of Common Stock offered hereby, 1,500,000 shares
are being sold by Medical Manager Corporation and 1,000,000 shares are being
offered by certain Selling Stockholders identified herein. See "Principal and
Selling Stockholders." The Company will not receive any proceeds from the sale
of shares by the Selling Stockholders.

The Common Stock is traded on the Nasdaq National Market under the symbol
"MMGR." On April 23, 1998, the last sale price of the Common Stock as reported
by the Nasdaq National Market was $30 1/2 per share. See "Price Range of Common
Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $30.00 $1.50 $28.50 $28.50
Total(3)......................... $75,000,000 $3,750,000 $42,750,000 $28,500,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $500,000.

(3) The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable within 30 days hereof, to purchase up to an aggregate of
375,000 additional shares of Common Stock at the Price to the Public less
Underwriting Discounts and Commissions, solely for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to the Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to the Selling Stockholders will be
$86,250,000 $4,312,500, $49,162,500, and $32,775,000, respectively. See
"Underwriting."

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions, including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be made in New York, New York, on or about April 29, 1998.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
RAYMOND JAMES & ASSOCIATES, INC.
<PAGE> 2

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by Medical Manager
Corporation (the "Company") with the Commission are incorporated by reference
and made a part of this Prospectus: (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, which was filed with the Securities
and Exchange Commission (the "Commission") on March 12, 1998; (ii) all other
reports filed by the Company pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") since December
31, 1997, specifically including the Company's Current Report on Form 8-K, which
was filed with the Commission on January 15, 1998, and the Company's Amended
Current Reports on Form 8-K/A, which were filed with the Commission on March 16,
1998 and March 17, 1998, respectively; and (iii) the description of the Common
Stock contained in the Company's Registration Statement on Form 8-A, dated and
filed with the Commission on January 7, 1997.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document or information incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is, or is
deemed to be, incorporated herein by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

The making of a modifying or superseding statement shall not be deemed an
admission that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in which it was made.

The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, a copy of any and all of the
documents or information referred to above that has been or may be incorporated
by reference in this Prospectus (excluding exhibits to such documents unless
such exhibits are specifically incorporated by reference). Requests should be
directed to Franklyn M. Krieger, Secretary, Medical Manager Corporation, 3001
North Rocky Point Drive East, Suite 100, Tampa, Florida 33607, telephone (813)
287-2990.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."

------------------------------

THE COMPANY OWNS OR OTHERWISE HAS RIGHTS TO TRADEMARKS AND TRADE NAMES THAT
IT USES IN CONJUNCTION WITH THE SALE AND LICENSING OF ITS PRODUCTS. THE MEDICAL
MANAGER(R) TRADEMARK MENTIONED IN THIS PROSPECTUS IS OWNED BY THE COMPANY. OTHER
TRADEMARKS OR TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR RESPECTIVE OWNERS.
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the historical and pro
forma financial statements, including the notes thereto, appearing elsewhere in
this Prospectus or incorporated herein by reference. Unless otherwise indicated,
all share, per share and financial data set forth herein assume no exercise of
the Underwriters' over-allotment option. This Prospectus contains certain
forward-looking statements which may involve certain risks and uncertainties.
Actual results may differ materially from the results anticipated in these
forward-looking statements as a result of certain factors set forth under "Risk
Factors" and elsewhere in this Prospectus.

THE COMPANY

Medical Manager Corporation (the "Company") is a leading provider of
comprehensive physician practice management information systems to independent
physicians, independent practice associations ("IPAs"), management service
organizations ("MSOs"), physician practice management organizations ("PPMs"),
managed care organizations and other providers of health care services in the
United States. The Company develops, markets and supports The Medical Manager(R)
practice management system, which addresses the financial, administrative,
clinical and practice management needs of physician practices. The Company's
system has been implemented in a wide variety of practice settings from small
physician groups to multi-provider IPAs and MSOs. The Company's proprietary
systems enable physicians and their administrative staffs to efficiently manage
their practices while delivering quality patient care in a constantly changing
health care environment. Since the development of The Medical Manager in 1982,
the Company's installed base has grown to over 24,000 client sites, representing
more than 80 practice specialities, making it the most widely installed
physician practice management system in the United States.

Based on industry sources, there are over 650,000 physicians in more than
140,000 medical practices in the United States. Increasing economic and
regulatory pressures and the growth of managed care organizations have
significantly expanded the demand for all physicians to produce, maintain and
better utilize practice information while controlling costs. As a result, the
Company believes approximately 90% of physician practices now use some type of
computer system for all or a portion of their information processing
requirements.

The Company's business strategy is to build upon its leadership position as
the most widely utilized physician practice management system in the United
States. Key elements of this business strategy include: (i) capitalizing on the
Company's national market presence; (ii) continuing the consolidation and
rationalization of the existing national network of independent dealers for The
Medical Manager system; (iii) increasing penetration of MSOs and other large
physician groups; (iv) cross-selling existing and new products and services to
the Company's installed client base; and (v) continuing the Company's
development of new products, product enhancements and services.

As part of the Company's initial public offering in February 1997 (the
"IPO"), the Company acquired in separate transactions (the "Mergers") five
businesses (each a "Founding Company" and collectively the "Founding Companies")
which were involved in one or more aspects of the development, sale and support
of The Medical Manager practice management system. Since the IPO, the Company
has implemented its strategy of acquiring selected independent dealers. As part
of this acquisition program, the Company has acquired an additional 26
independent dealers throughout the United States, each of which was involved in
the development, sale and support of The Medical Manager practice management
system.

The Company conducts its operations through eight wholly-owned
subsidiaries. One of the subsidiaries engages in research and development
activities and another coordinates national sales and marketing activities. The
remaining six subsidiaries provide direct sales, marketing and support of The
Medical Manager to customers in the Company's six geographic regions, which
consist of the Northeast, Southeast, Midwest, Southwest, West and Northwest
regions.

The Company's principal executive offices are located at 3001 North Rocky
Point Drive East, Suite 100, Tampa, Florida 33607 and its telephone number is
(813) 287-2990.

3
<PAGE> 4

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................ 1,500,000 shares
Common Stock offered by the Selling Stockholders... 1,000,000 shares
-----------------
Total.................................... 2,500,000 shares
Common Stock to be outstanding after this 21,482,445 shares
Offering(1)......................................
Use of Proceeds.................................... To repay approximately $6.8 million of
acquisition-related indebtedness, for possible
future acquisitions, and for working capital and
other general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol...................... MMGR
</TABLE>

- ------------------------------

(1) Excludes 1,660,169 shares of Common Stock reserved for issuance pursuant to
outstanding options which have been granted under the Company's 1996
Long-Term Incentive Plan and Amended and Restated 1996 Non-Employee
Directors' Stock Plan.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

4
<PAGE> 5

SUMMARY FINANCIAL INFORMATION

The following summary financial information reflects the results of (i) the
Company, as it existed prior to the acquisition of the Founding Companies
("MMC"), (ii) Medical Manager Research & Development ("MMR&D"), one of the
Founding Companies and the Company's current research and development
subsidiary, and (iii) each of the entities acquired by the Company subsequent to
the Mergers and prior to December 31, 1997 in which the pooling of interests
method of accounting was used (the "Acquired Companies"), through February 4,
1997, the date of MMC's acquisition of the Founding Companies, after which the
summary financial information reflects the results of MMC, MMR&D, the other
Founding Companies and the Acquired Companies. The results of each of the
entities acquired by the Company subsequent to the Mergers in which the purchase
method of accounting was used (the "Purchased Companies") are reflected
subsequent to their respective acquisition dates. The summary financial
information for the years ended December 31, 1995 and 1996 has been derived from
the audited financial statements of MMC and MMR&D and the financial statements
of the Acquired Companies, only two of which were not audited. The summary
financial information at December 31, 1997 and for the year ended December 31,
1997 has been derived from the audited financial statements of the Company. The
summary financial information should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.

The following unaudited pro forma summary financial information reflects
the results of MMC, the Founding Companies, the Acquired Companies and four of
the Purchased Companies, which consist of Companion Technologies of Texas,
Companion Technologies of Florida, Inc., AMSC, Inc. and AMSC Midwest, Inc., for
the year ended December 31, 1997. The results of the other Purchased Companies
are not considered significant and are reflected subsequent to their respective
acquisition dates.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
PRO FORMA
1995 1996 1997 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................. $ 27,857 $32,952 $78,127 $ 96,224
Cost of revenue......................................... 12,743 14,957 36,833 46,741
---------- ------- ------- -----------
Gross profit........................................ 15,114 17,995 41,294 49,483
Selling, general and administrative expenses............ 6,580 8,588 20,238 27,284
Research and development expenses....................... 2,048 2,672 3,170 3,192
Depreciation and amortization........................... 557 502 1,543 3,140
---------- ------- ------- -----------
Income from operations.............................. 5,929 6,233 16,343 15,867
Interest expense........................................ (170) (111) (168) (663)
Interest income......................................... 137 116 604 717
Other income (expense).................................. (17) (570) 101 263
---------- ------- ------- -----------
Income before income taxes.......................... 5,879 5,668 16,880 16,184
Income taxes............................................ 6 6 5,657 5,779
---------- ------- ------- -----------
Net income.......................................... $ 5,873 $ 5,662 $11,223 $ 10,405
========== ======= ======= ===========
Basic earnings per share................................ $ 0.58 $ 0.53
======= ===========
Number of shares used in computing basic earnings per
share................................................. 19,490 19,603
Diluted earnings per share.............................. $ 0.56 $ 0.51
======= ===========
Number of shares used in computing diluted earnings per
share................................................. 20,169 20,282
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
ACTUAL AS ADJUSTED(1)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 6,410 $41,905
Working capital......................................... 11,543 49,794
Total assets............................................ 55,543 91,038
Long-term obligations, including current maturities..... 7,437 682
Stockholders' equity.................................... 35,556 77,806
</TABLE>

- ------------------------------

(1) Adjusted to give effect to the sale of 1,500,000 shares of Common Stock
offered by the Company hereby at a public offering price of $30 per share
(after deduction of underwriting discounts and commissions and estimated
offering expenses) and the application of the net proceeds therefrom. See
"Use of Proceeds."

5
<PAGE> 6

RISK FACTORS

Prospective investors should consider carefully the following risk factors,
together with the information contained in this Prospectus, in evaluating an
investment in the Common Stock offered hereby. The following factors and other
information set forth in this Prospectus contain certain forward-looking
statements involving risks and uncertainties. Actual results may differ
materially from the results anticipated in these forward-looking statements as a
result of certain factors set forth in this section and elsewhere in this
Prospectus.

RISKS ASSOCIATED WITH ACQUISITIONS

As part of its growth strategy, the Company intends to acquire additional
independent dealers of The Medical Manager physician practice management system
and complementary technologies. There can be no assurance that the Company will
be able to identify, acquire or profitably integrate and manage additional
dealers or complementary technologies, if any, into the Company without
substantial costs, delays or other operational or financial problems. Further,
acquisitions involve a number of special risks, including possible adverse
effects on the Company's operating results, diversion of management's attention,
failure to retain key personnel of acquired entities, amortization of acquired
intangible assets and risks associated with unanticipated events or liabilities,
some or all of which could have a material adverse effect on the Company's
results of operations, financial condition or business. Customer dissatisfaction
or performance problems at a single acquired company could have an adverse
effect on the reputation of the Company and render ineffective the Company's
national sales and marketing initiatives. In addition, there can be no assurance
that dealers or complementary technologies acquired in the future will achieve
anticipated revenue and earnings. There also can be no assurance that the
existing dealer network will continue to be receptive to the Company's
acquisition program or that dealers which are not acquired by the Company will
adhere to the Company's marketing, training, support and pricing directives. The
occurrence of either of these events would impair the Company's plans to
rationalize its distribution network. See "Business -- Business Strategy."

YEAR 2000 COMPLIANCE

The Year 2000 issue relates to whether computer systems will properly
recognize and process information relating to dates in and after the year 2000.
These systems could fail or produce erroneous results if they cannot adequately
process dates beyond the year 1999 and are not corrected. Significant
uncertainty exists in the software industry concerning the potential
consequences that may result from the failure of software to adequately address
the Year 2000 issue.

NON-PROPRIETARY (INTERNAL) SOFTWARE AND HARDWARE. The Year 2000 issue
creates risk for the Company from unforeseen problems in its own computer
systems and from third parties with which the Company deals nationwide. The
Company has begun to review software and hardware used internally in its support
systems to determine whether such software and hardware is Year 2000 compliant.
In addition, the Company intends shortly to commence a survey of parties with
which it conducts a material amount of business to determine the status of their
Year 2000 compliance programs. The Company's objective is to complete this
review and survey by June 30, 1998, and then develop solutions to any material
date-related deficiencies believed to be present in its computer systems and
systems of its major business partners. The Company intends to implement and
test these solutions prior to any anticipated impact of the Year 2000 issue on
its systems. Because the Company is currently assessing the expense and related
potential effect of Year 2000 compliance on the Company's results of operations,
financial condition and business, it cannot provide any assurance that the
effect will not be material.

PROPRIETARY (EXTERNAL) SOFTWARE. The Year 2000 issue also creates risk for
the Company from problems that may be experienced by customers of its software.
While the Company believes that Version 9 of The Medical Manager practice
management system, which was commercially released in November 1997, is Year
2000 compliant, prior versions of the system are not. The Company has encouraged
users of pre-Version 9 versions of the Medical Manager software to upgrade to
Version 9 in order to become Year 2000 compliant. If these or other customers
experience significant difficulties as a result of the Year 2000 issue, or if
the Company encounters difficulties in responding in a timely manner to customer
requests to upgrade to

6
<PAGE> 7

Version 9, there could be a material adverse impact on the Company's results of
operations, financial condition or business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance."

DEPENDENCE ON PRINCIPAL PRODUCTS

The Company currently derives a significant percentage of its revenue from
sales of The Medical Manager core system. As a result, any event adversely
affecting its core product could have a material adverse effect on the Company's
results of operations, financial condition or business. Revenue associated with
existing products could decline as a result of several factors, including price
competition and sales practices. There can be no assurance that the Company will
continue to be successful in marketing its current products or any new or
enhanced products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Research and Development."

DEPENDENCE ON PROPRIETARY SOFTWARE

The Company's success is dependent to a significant extent on its ability
to protect the proprietary and confidential aspects of its software technology.
The Company's software technology is not patented and existing copyright laws
offer only limited practical protection. The Company relies on a combination of
trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions and technical measures to establish and protect
its proprietary rights in its products. There can be no assurance that the legal
protections afforded to the Company or the steps taken by the Company will be
adequate to prevent misappropriation of the Company's technology. In addition,
these protections do not prevent independent third-party development of
competitive products or services. The Company believes that its products,
trademarks and other proprietary rights do not infringe upon the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against the Company in the future or that
any such assertion will not require the Company to enter into a license
agreement or royalty arrangement with the party asserting the claim. As
competing health care information systems increase in complexity and overall
capabilities and the functionality of these systems further overlap, providers
of such systems may become increasingly subject to infringement claims.
Responding to and defending any such claims may distract the attention of the
Company's management and otherwise have a material adverse effect on the
Company's results of operations, financial condition or business. See
"Business -- Proprietary Rights and Licenses."

RISKS RELATED TO TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT

The market for the Company's products is characterized by rapid change and
technological advances requiring ongoing expenditures for research and
development and the timely introduction of new products and enhancements of
existing products. The Company's future success will depend, in part, upon its
ability to enhance its current products, to respond effectively to technological
changes, to sell additional products to its existing client base and to
introduce new products and technologies that address the increasingly
sophisticated needs of its clients. The Company is devoting significant
resources to the development of enhancements to its existing products and the
migration of existing products to new software platforms. There can be no
assurance that the Company will successfully complete the development of new
products or the migration of products to new platforms or that the Company's
current or future products will satisfy the needs of the market for practice
management systems. Further, there can be no assurance that products or
technologies developed by others will not adversely affect the Company's
competitive position or render its products or technologies noncompetitive or
obsolete. See "Business -- Research and Development."

LIMITED COMBINED OPERATING HISTORY

The Company has been conducting operations and generating revenues through
the combined efforts of the Founding Companies since the closing of the IPO. The
Company has integrated the operations of these businesses by instituting
Company-wide systems and procedures that are necessary to successfully manage
the combined enterprise on a profitable basis. In addition, the Company has been
assimilating the operations of
7
<PAGE> 8

various dealers acquired after the IPO. There can be no assurance that the
Company will continue to be able to integrate the operations of these entities
and others that may subsequently be acquired on a successful and profitable
basis. See "Business -- Business Strategy."

POSSIBLE NEED FOR ACQUISITION FINANCING

The Company currently intends to finance future acquisitions by using
shares of its Common Stock for a substantial portion of the consideration to be
paid. In the event that its Common Stock does not maintain a sufficient market
value, or potential acquisition candidates are unwilling to accept Common Stock
as part of the consideration for the sale of their businesses, the Company may
be required to utilize a substantial portion of its available cash resources,
including a portion of the net proceeds from this Offering, in order to maintain
its acquisition program. If the Company does not have sufficient cash resources,
its growth could be limited unless it is able to obtain additional capital
through debt or equity financings. To expand its cash resources, the Company
entered into a $10.0 million line of credit agreement with Barnett Bank of Tampa
on January 14, 1998. The line of credit matures on May 31, 1999. There can be no
assurance that the Company will be able to obtain financing beyond the maturity
date of this line of credit. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

QUALITY ASSURANCE AND PRODUCT ACCEPTANCE CONCERNS

Health care providers demand the highest level of reliability and quality
from their information systems. Although the Company devotes substantial
resources to meeting these demands, its products may, from time to time, contain
errors. Such errors may result in a loss of, or delay in, market acceptance of
its products. Delays or difficulties associated with new product introductions
or product enhancements could have a material adverse effect on the Company's
results of operations, financial condition or business. See
"Business -- Research and Development" and "-- Competition."

RISK OF PRODUCT-RELATED CLAIMS

Certain of the Company's products provide applications that relate to
financial records, patient medical records and treatment plans. Any failure of
the Company's products to provide accurate, confidential and timely information,
including failures which may be traceable to the Year 2000 issue, could result
in product liability or breach of contract claims against the Company by its
clients, their patients or others. The Company's products manage and report on
financial data, and any errors in such financial data could result in liability
to the Company. In addition, because the Company's products facilitate
electronic claims submissions, any resulting loss of financial data could result
in liability to the Company. The Company maintains insurance to protect against
such claims, but there can be no assurance that such insurance coverage will be
available or, if available, will adequately cover any claim asserted against the
Company. A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's results
of operations, financial condition or business. Even unsuccessful claims could
result in the expenditure of funds in litigation, as well as diversion of
management time and resources. There can be no assurance that the Company will
not be subject to product liability or breach of contract claims, that such
claims will not result in liability in excess of its insurance coverage, that
the Company's insurance will cover such claims or that appropriate insurance
will continue to be available to the Company in the future at commercially
reasonable rates.

COMPETITION

The market for practice management systems such as The Medical Manager is
highly competitive. The Company's competitors vary in size and in the scope and
breadth of the products and services that they offer. The Company competes with
different companies in each of its target markets. Many of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. In addition, other entities not currently offering
products and services similar to those offered by the Company, including claims
processing organizations, hospitals, third-party administrators, insurers,
health care organiza-
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<PAGE> 9

tions and others, may enter certain markets in which the Company competes. There
can be no assurance that future competition will not have a material adverse
effect on the Company's results of operations, financial condition or business.
See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's operations are dependent on the continued efforts of its
executive officers and the senior management of the Founding Companies, the
Acquired Companies and the Purchased Companies. Furthermore, the Company will
likely be dependent on the senior management of any businesses acquired in the
future. If any of these persons becomes unable or unwilling to continue in his
or her role with the Company, or if the Company is unable to attract and retain
other qualified employees, the Company's business or prospects could be
adversely affected. Although the Company has entered into an employment
agreement, which includes confidentiality and non-compete provisions, with each
of the Company's executive officers, there can be no assurance that any
individual will continue in his present capacity with the Company for any
particular period of time. The success of the Company is also dependent to a
significant degree on its ability to attract, motivate and retain highly skilled
sales, marketing and technical personnel, including software programmers and
systems architects skilled in the computer language with which the Company's
products operate. Competition for such personnel in the software and information
services industries is intense. The loss of key personnel or the inability to
hire or retain qualified personnel could have a material adverse effect on the
Company's results of operations, financial condition or business. Although the
Company has been successful to date in attracting and retaining skilled
personnel, there can be no assurance that the Company will continue to be
successful in attracting and retaining the personnel it requires to successfully
develop new and enhanced products and to continue to grow and operate
profitably. See "Business -- Employees" and "Management."

UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT HEALTH CARE REFORM PROPOSALS

The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. The Company's products
are designed to function within the structure of the health care financing and
reimbursement system currently being used in the United States. During the past
several years, the health care industry has been subject to increasing levels of
government regulation of, among other things, reimbursement rates and certain
capital expenditures. From time to time, certain proposals to reform the health
care system have been considered by Congress. These proposals, if enacted, may
increase government involvement in health care, lower reimbursement rates and
otherwise change the operating environment for the Company's clients. Health
care organizations may react to these proposals and the uncertainty surrounding
such proposals by curtailing or deferring investments, including those for the
Company's products and services. The Company cannot predict with any certainty
what impact, if any, such proposals or health care reforms might have on its
results of operations, financial condition or business. See
"Business -- Government Regulation."

RISK ASSOCIATED WITH GOVERNMENT REGULATION

The United States Food and Drug Administration (the "FDA") has jurisdiction
under the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic
Act (the "FDA Act") to regulate computer products and software as medical
devices if they are intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease in humans. The FDA has issued a draft policy
statement under which manufacturers of medical image storage devices and related
software are required to submit to the FDA premarket notification applications
(each a "510(k) Application") and otherwise comply with the requirements of the
FDA Act applicable to medical devices. The Company intends to distribute in the
United States a medical image management device (the "Image Module"), which was
cleared by the FDA on April 4, 1997 and is manufactured by a third party in
accordance with specifications set forth in the cleared 510(k) Application.
Prior to marketing the Image Module, the Company will create an interface
between The Medical Manager practice management system and the Image Module. The
Company believes that the addition of its practice management system to the
Image Module does not change the Image Module's intended use or significantly
change the safety or efficacy of the product such that a new 510(k) Application
is

9
<PAGE> 10

required. The FDA is currently reviewing its policy for the regulation of
computer software and there is a risk that The Medical Manager software could in
the future become subject to some or all of the above requirements, which could
have a material adverse effect on the Company's results of operations, financial
condition or business. See "Business -- Government Regulation."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

Upon consummation of this Offering, the Company's directors, executive
officers and holders of more than 5% of the Common Stock will beneficially own
approximately 39.2% of the outstanding shares of Common Stock. Although these
persons do not presently have any agreements or understandings to act in
concert, any such agreement or understanding may allow them to exercise control
over the Company's affairs, to dictate the election of the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal and Selling Stockholders."

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market. The 2,500,000 shares sold in this Offering will be freely
tradeable unless held by affiliates of the Company. The stockholders of the
Founding Companies received 11,705,470 shares of Common Stock as a portion of
the consideration for the sale of their businesses to the Company. These shares
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and, therefore, may not be sold unless registered under the
Securities Act or sold pursuant to an exemption from registration, such as the
exemption provided by Rule 144. The stockholders who received these shares have
certain demand and piggyback registration rights with respect to these shares.
The Company has also registered 5,000,000 shares of Common Stock which may be
used in connection with future acquisitions. Such shares shall, upon issuance
thereof, be freely tradeable, unless acquired by parties to such acquisitions or
affiliates thereof, other than the issuer, in which case they may be sold
pursuant to Rule 145 under the Securities Act. In addition, resale of these
shares may be contractually restricted.

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Common Stock may be subject to significant
fluctuations in response to numerous factors, including variations in the annual
or quarterly financial results of the Company or its competitors, changes by
financial research analysts in their estimates of the earnings of the Company,
conditions in the economy in general or in the health care or technology sectors
in particular, announcements of technological innovations or new products or
services by the Company or its competitors, the development of proprietary
rights, unfavorable publicity or changes in applicable laws and regulations (or
judicial or administrative interpretations thereof) affecting the Company or the
health care or technology sectors. Moreover, from time to time, the stock market
experiences significant price and volume volatility that may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS

The Board of Directors of the Company is empowered to issue preferred stock
in one or more series without stockholder action. The existence of this
"blank-check" preferred stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. In addition, the Company's Certificate of
Incorporation provides for a classified Board of Directors, which may also have
the effect of inhibiting or delaying a change in control of the Company. Certain
provisions of the Delaware General Corporation Law may also discourage takeover
attempts that have not been approved by the Board of Directors. The Company's
By-laws contain other provisions that may have an anti-takeover effect. See
"Management -- Board Classification" and "Description of Capital Stock."

10
<PAGE> 11

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,500,000 shares of
the Common Stock offered by it, after deducting underwriting discounts and
estimated offering expenses, are estimated to be approximately $42.3 million
($48.7 million if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any proceeds from the sale of the 1,000,000 shares
offered by the Selling Stockholders.

The net proceeds to the Company of this Offering are expected to be used to
repay approximately $6.8 million of acquisition-related indebtedness, for
possible future acquisitions and for working capital and other general corporate
purposes. Pending such uses, the net proceeds will be invested in short-term,
interest-bearing, investment grade securities. Of the approximately $6.8 million
of indebtedness to be repaid, $693,000 has an interest rate of 5.85% and is
payable on demand, $6.0 million has an interest rate of 8.25% and is payable in
various installments through January 15, 2000 and $63,000 has an interest rate
of 5.5% and is payable in November 1998.

PRICE RANGE OF COMMON STOCK

The Common Stock began trading on the Nasdaq National Market on January 30,
1997 under the symbol "MMGR." The following table sets forth, for the quarters
indicated, the range of the high and low sale prices per share for the Common
Stock on the Nasdaq National Market.

<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
-----------------
HIGH LOW
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
1st Quarter (from January 30, 1997)......................... $ 11 1/2 $ 9
2nd Quarter................................................. 15 3/8 8
3rd Quarter................................................. 21 3/4 14 3/4
4th Quarter................................................. 21 1/8 15 1/2
YEAR ENDED DECEMBER 31, 1998:
1st Quarter................................................. $ 29 5/8 $17 1/4
2nd Quarter (through April 23, 1998)........................ 31 7/8 28
</TABLE>

On April 23, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $30 1/2. There were 238 record holders of the Common
Stock at April 23, 1998.

DIVIDEND POLICY

The Company intends to retain all of its earnings to finance the expansion
of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on the Common
Stock for the foreseeable future. In addition, the Company's line of credit with
Barnett Bank of Tampa includes restrictions on the ability of the Company to pay
dividends without the consent of the lender.

11
<PAGE> 12

CAPITALIZATION

The following table sets forth the cash position and capitalization of the
Company at December 31, 1997, as adjusted to reflect the sale of the shares of
Common Stock by it in this Offering (at a public offering price of $30 per
share) and the application of the estimated net proceeds from this Offering. See
"Use of Proceeds" and "Selected Financial Data." This table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
related notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED(2)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 6,410 $41,905
======= =======
Long-term obligations, including current maturities......... $ 7,437 $ 682
Stockholders' equity:
Preferred Stock: $0.01 par value, 500,000 shares
authorized; none issued or outstanding................ -- --
Common Stock: $0.01 par value, 50,000,000 shares
authorized; 19,741,989 shares issued and
outstanding(1)........................................ 197 212
Additional paid-in capital............................. 28,312 70,547
Retained earnings...................................... 7,047 7,047
------- -------
Total stockholders' equity........................ 35,556 77,806
------- -------
Total capitalization......................... $42,993 $78,488
======= =======
</TABLE>

- ------------------------------

(1) Excludes 1,708,162 shares of Common Stock reserved for issuance pursuant to
outstanding options which had been granted as of December 31, 1997 under
the Company's 1996 Long-Term Incentive Plan and Amended and Restated 1996
Non-Employee Directors' Stock Plan.

(2) Gives effect to the receipt and application of an estimated $42.3 million of
the net proceeds of this Offering. See "Use of Proceeds."

12
<PAGE> 13

SELECTED FINANCIAL DATA

The following selected historical financial data reflects the results of
MMC, MMR&D and the Acquired Companies through February 4, 1997, the date of
MMC's acquisition of the Founding Companies, after which the historical
financial statements reflect the results of MMC, MMR&D, the Acquired Companies,
and the other Founding Companies. The results of the Purchased Companies are
reflected subsequent to their respective acquisition date. The selected
historical financial data at December 31, 1997 and for the year ended December
31, 1997 have been derived from the audited financial statements of the Company.
The selected historical financial data at December 31, 1995 and 1996 and for the
years ended December 31, 1995 and 1996 have been derived from the audited
financial statements of MMC and MMR&D and the financial statements of the
Acquired Companies, only two of which were not audited. The selected historical
financial data at December 31, 1993 and 1994 have been derived from the audited
financial statements of MMR&D and the unaudited financial statements of the
Acquired Companies. The selected historical financial data for the years ended
December 31, 1993 and 1994 have been derived from the unaudited financial
statements of MMR&D and the Acquired Companies. The selected financial data
should be read in conjunction with the Company's Consolidated Financial
Statements and the notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................. $22,086 $25,613 $27,857 $32,952 $78,127
Cost of revenue..................... 10,884 11,971 12,743 14,957 36,833
------- ------- ------- ------- -------
Gross profit...................... 11,202 13,642 15,114 17,995 41,294
Selling, general and administrative
expenses.......................... 5,701 6,152 6,580 8,588 20,238
Research and development expenses... 1,062 1,525 2,048 2,672 3,170
Depreciation and amortization....... 403 511 557 502 1,543
------- ------- ------- ------- -------
Income from operations............ 4,036 5,454 5,929 6,233 16,343
Interest expense.................... (153) (161) (170) (111) (168)
Interest income..................... 1 1 137 116 604
Other income (expense).............. 182 65 (17) (570) 101
------- ------- ------- ------- -------
Income before income taxes........ 4,066 5,359 5,879 5,668 16,880
Income taxes........................ 5 5 6 6 5,657
------- ------- ------- ------- -------
Net income........................ $ 4,061 $ 5,354 $ 5,873 $ 5,662 $11,223
======= ======= ======= ======= =======
Basic earnings per share............ $ 0.58
=======
Diluted earnings per share.......... $ 0.56
=======
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $ (230) $ (536) $ 474 $ (35) $11,543
Total assets........................ 6,056 7,667 8,926 8,959 55,543
Long-term obligations, including
current maturities................ 529 807 1,679 2,008 7,437
Total stockholders' equity.......... 1,525 2,701 3,702 872 35,556
</TABLE>

13
<PAGE> 14

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The following pro forma financial information reflects the results of MMC,
the Founding Companies, the Acquired Companies and four of the Purchased
Companies, which consist of Companion Technologies of Texas, Companion
Technologies of Florida, Inc., AMSC, Inc., and AMSC Midwest, Inc., for the year
ended December 31, 1997. The results of the other Purchased Companies are not
considered significant and are reflected only subsequent to their respective
acquisition dates.

Certain pro forma adjustments have been made to more accurately reflect the
performance of the Company as if these Purchased Companies and the Founding
Companies had been acquired on January 1, 1997. Such adjustments include, among
other items, the elimination of a write-off of goodwill due to the determination
of impairment, the elimination of restructuring charges taken in connection with
the Company's IPO, reduction in compensation paid to certain stockholders of the
Founding Companies and inclusion of expenses, such as goodwill amortization and
interest expense, resulting from the acquisitions of these Purchased Companies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Unaudited Pro Forma Consolidated Statement of Operations."

<TABLE>
<CAPTION>
OTHER
FOUNDING
COMPANIES FOR
THE PERIOD
FROM
ACTUAL YEAR JANUARY 1, ACQUISITIONS FROM PRO FORMA
ENDED 1997 THROUGH JANUARY 1, 1997 YEAR ENDED
DECEMBER 31, FEBRUARY 4, THROUGH PRO FORMA DECEMBER 31,
1997 1997(1) ACQUISITION DATE(2) ADJUSTMENTS 1997
------------ ------------- ------------------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue..................... $78,127 $3,121 $14,976 $96,224
Costs of revenue............ 36,833 1,718 8,184 $ 6(3) 46,741
------- ------ ------- ------- -------
Gross profit........... 41,294 1,403 6,792 (6) 49,483
Selling, general and
administrative............ 20,238 1,632 6,410 (96)(4)
(879)(5)
(1)(3)
(20)(6) 27,284
Research and development.... 3,170 22 -- -- 3,192
Loss on impairment of
goodwill.................. -- -- 1,669 (1,669)(7) --
Depreciation and
amortization.............. 1,543 90 1,020 487(8) 3,140
------- ------ ------- ------- -------
Total operating
expenses............. 24,951 1,744 9,099 (2,178) 33,616
------- ------ ------- ------- -------
Income from
operations........... 16,343 (341) (2,307) 2,172 15,867
Interest expense....... (168) (119) (156) 275(9)
(495)(10) (663)
Interest income........ 604 -- 113 -- 717
Other income
(expense)............ 101 -- 162 -- 263
------- ------ ------- ------- -------
Income before income
taxes..................... 16,880 (460) (2,188) 1,952 16,184
Income taxes................ 5,657 20 (7) 109(11) 5,779
------- ------ ------- ------- -------
Net income............. $11,223 ($ 480) ($2,181) $ 1,843 $10,405
======= ====== ======= ======= =======
Basic earnings per share.... $ 0.58 $ 0.53
======= =======
Shares used in computing
basic earnings per
share..................... 19,490 113(12) 19,603
Diluted earnings per
share..................... $ 0.56 $ 0.51
======= =======
Shares used in computing
diluted earnings per
share..................... 20,169 113(12) 20,282
</TABLE>

- ------------------------------

(See next page for notes)

14
<PAGE> 15

- ------------------------------

(1) Includes the results of Systems Plus, Inc., now known as Medical Manager
Sales & Marketing, Inc.; National Medical Systems, Inc., now known as
Medical Manager Southeast, Inc.; RTI Business Systems, Inc., now known as
Medical Manager Northeast, Inc.; and Systems Management, Inc., now part of
Medical Manager Midwest, Inc. ("MMMW").

(2) Includes the results of Companion Technologies of Texas, Companion
Technologies of Florida, Inc., AMSC, Inc. and AMSC Midwest, Inc. from
January 1, 1997, through their respective acquisition dates. The results of
the remainder of the acquisitions accounted for as purchases are not
considered significant.

(3) Adjusts to the costs of certain building leases executed by the Company
with the stockholders of MMR&D and MMMW.

(4) Eliminates management fees charged by Companion Technologies of Florida,
Inc.'s parent company to Companion Technologies of Florida, Inc.

(5) Eliminates severance expenses for termination of two of the officers of one
of the Founding Companies and other one-time operational expenses related
to restructuring in connection with the Mergers and the IPO.

(6) Adjusts compensation expense to the level the stockholders of certain of
the Founding Companies have agreed to receive subsequent to the Mergers.

(7) Eliminates the loss on impairment of goodwill.

(8) Amortization of goodwill of approximately $8.2 million recorded for the
purchases of Companion Technologies of Texas and Companion Technologies of
Florida, Inc. over a period of twenty years and amortization of goodwill of
approximately $2.5 million recorded for the purchase of AMSC, Inc. and AMSC
Midwest, Inc. over a period of twenty years.

(9) Records change in interest expense for pro forma adjustments to debt.

(10) Records interest expense on the $6.0 million debt outstanding for the
purchase price of Companion Technologies of Texas and Companion
Technologies of Florida, Inc.

(11) Records the incremental provision for federal and state income taxes
relating to the pro forma adjustments, at a rate of 38.5%.

(12) Adjusts the shares outstanding to assume the shares issued for Companion
Technologies of Texas, AMSC, Inc. and AMSC Midwest, Inc. were outstanding
as of January 1, 1997.

15
<PAGE> 16

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements and related notes thereto and "Selected Financial Data" appearing
elsewhere in this Prospectus.

OVERVIEW

This Prospectus contains forward-looking statements within the meaning of
the Private Litigation Reform Act of 1995 (the "Reform Act"). All statements
contained in this Prospectus, other than statements of historical fact, may be
considered forward-looking statements. Such statements are based on current
plans and expectations of the Company and involve risks and uncertainties that
could cause future activities and actual results of operations to be materially
different from those set forth in the forward-looking statements. The Company's
actual results may differ due to the factors set forth under the heading "Risk
Factors" or elsewhere in this Prospectus. These factors include, among others,
risks associated with acquisitions, fluctuations in operating results because of
acquisitions, uncertainties relating to the ongoing development of the Company's
software and the Year 2000 issue, variations in stock prices, changes in
government regulations, competition, risk of operations and growth and
integration of newly acquired businesses. Forward-looking information provided
by the Company under the Reform Act should be evaluated in the context of the
foregoing factors and the other information included in this Prospectus. The
Company expressly disclaims any intent or obligation to update these forward
looking statements.

The Company is a leading provider of comprehensive physician management
systems to independent physicians, physician groups, MSOs, IPAs, managed care
organizations, and other providers of health care services in the United States.
The Company's revenue is derived primarily from the licensing of its core
product, The Medical Manager practice management software, the furnishing of
value-added services and the sale of hardware. The Company's primary focus is on
the sale and support of The Medical Manager software and services, while
hardware is sold primarily in response to customer demand. Since the development
of The Medical Manager software in 1982, the Company's installed base has grown
to over 24,000 client sites, representing more than 80 practice specialties,
making it the most widely installed physician practice management software in
the United States.

The Company derives revenue from systems sales, software licensing and
maintenance and other services. Systems sales include sales of The Medical
Manager physician practice management system to new customers, sales of The
Medical Manager system upgrades and add-ons to existing customers, and sales of
The Medical Manager software licenses to independent dealers. Systems sales to
new customers include software licensing, hardware, installation, training, 90
days of software warranty, and varying periods of hardware maintenance,
depending on the warranty of the manufacturer. Systems upgrades and add-ons
include software licensing, peripheral hardware, installation, and training.
Software license sales to independent dealers include software serializations
and other services included in independent dealer agreements. Cost of system
sales reflects the cost of The Medical Manager software, associated hardware,
operating systems, salaries, related benefits, travel and allocations of other
overhead costs.

Maintenance and other revenue includes software and hardware maintenance
contracts, additional training, programming, and sales of additional associated
products and services such as forms, electronic data interchange ("EDI")
services, and other products and services not included in system sales. Software
maintenance represents revenue derived from maintenance agreements, providing
customers with updates and enhancements developed by the Company, and access to
the Company's telephone support centers. Hardware maintenance represents revenue
derived from maintenance agreements for repairs and preventative maintenance to
the hardware. Both hardware and software maintenance are optional to the
customer for smaller installations and required for MSO and larger
installations. Cost of maintenance contracts revenue reflects salaries and
related benefits, travel, and allocations of other overhead costs.

The Company recognizes systems revenue in accordance with the provisions of
the American Institute of Certified Public Accountants ("AICPA") Statement of
Position No. 91-1 "Software Revenue Recognition." Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the
16
<PAGE> 17

contract period, which typically does not exceed one year. Revenue from other
services is recognized as the services are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and others based
upon management's estimates. Selling, general and administrative expenses
consist primarily of marketing and advertising, salaries and related benefits,
professional fees, administrative costs and allocations of other overhead costs
based on management's estimates.

Research and development expenses represent salaries, related benefits
expenses, and allocations of other overhead costs associated with research and
development activities. Software development costs are included in research and
development and are expensed as incurred. Statement of Financial Accounting
Standards ("SFAS") No. 86 requires the capitalization of certain software
development costs once technological feasibility is established. The capitalized
cost is then amortized over the estimated product life. The period between
achieving technological feasibility and the general availability of such
software is short and software development costs qualifying for capitalization
are insignificant.

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
experience volatility in its operating results from quarter to quarter and year
to year. The operating results for any quarter or year are not necessarily
indicative of the results for any future periods.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The pro forma consolidated statement of operations presents the Company as
if the Mergers and the acquisitions of Companion Technologies of Florida, Inc.,
Companion Technologies of Texas, AMSC, Inc. and AMSC Midwest, Inc. occurred on
January 1, 1997. For the thirty-five day period ended February 4, 1997, the date
the Mergers were consummated, the other Founding Companies added $3.1 million in
revenue, $1.4 million of gross profit, and ($0.5) million of net loss. For the
period from January 1, 1997 through each respective acquisition, the included
Purchased Companies contributed $15.0 million of revenue, $6.8 million of gross
profit and ($2.2) million of net loss.

Certain transactions included in the pro forma statements of operations for
the other Founding Companies for the thirty five day period ended February 4,
1997 and for the Purchased Companies included in the pro forma statement of
operations for the period from January 1, 1997 through each respective
acquisition date have been eliminated. In addition, certain adjustments are made
to the pro forma statement of operations to reflect expenses which would have
been incurred by the Company had these acquisitions occurred on January 1, 1997.
These eliminations and adjustments contributed $1.8 million of net income
including the elimination of a loss on impairment of $1.7 million and the
elimination of $0.9 million related to restructuring charges. Adjustments
include an increase in amortization expense of $0.5 million and a net increase
in interest expense of $0.2 million.

As a result, the Company's 1997 pro forma revenue was $96.2 million, total
pro forma gross profit was $49.5 million, and pro forma net income was $10.4
million. Although pro forma revenues and gross profits increased, pro forma net
income decreased $0.8 million. Since the acquisition of these Purchased
Companies, the Company has implemented initiatives to reduce inefficiencies
experienced by these Purchased Companies prior to their acquisition and allow
for benefits related to economies of scale subsequent to the integration of
these acquisitions to be realized in periods subsequent to the acquisition of
these Purchased Companies. No pro forma adjustments have been made to reflect
any improvements to the operating performance of these Purchased Companies after
their respective acquisition dates resulting from efficiencies gained from being
part of the Company as a whole.

CONSOLIDATED RESULTS OF OPERATIONS

The financial information referenced below includes MMC, MMR&D and the
Acquired Companies through February 4, 1997, the date of MMC's acquisition of
the Founding Companies, after which the financial information referenced below
reflects the results of MMC, MMR&D, the Acquired Companies, and

17
<PAGE> 18

the other Founding Companies. The results of the Purchased Companies are
reflected subsequent to their respective acquisition dates.

REVENUES

The following table reflects actual revenues for the Company's primary
business lines:

The increase in systems revenue in the year ended December 31, 1997 was
primarily due to the inclusion of the other Founding Companies beginning on
February 5, 1997. For the year ended December 31, 1997, the other Founding
Companies and the Acquired Companies contributed $22.1 million of systems
revenue. The increase in systems sales volume, combined with an increase in the
size of individual systems projects, was a contributing factor in the Company's
systems revenue growth. In addition, overall revenue increased because of the
Company's continued success in marketing to smaller physician groups and sole
practitioners, securing more MSO and large IPA contracts, and through
acquisitions. This success was the result of marketing to new clients,
development of existing clients, and the introduction of new services and
products. Secondly, average overall revenue per client increased primarily
because of the Company's continued success in marketing to MSOs, IPAs and other
larger local clients. The Company's Enterprise Business Group, which
specifically targets national/regional clients, recently obtained contracts with
a total contract price of over $6.8 million, of which $3.5 million was
recognized as income in the year ended December 31, 1997. In addition, for the
year ended December 31, 1997, the acquisitions of the Purchased Companies were
accounted for using the purchase method of accounting. Accordingly, these
acquisitions were included prospectively from their respective purchase dates.

The increase in maintenance and other revenue in the year ended December
31, 1997 was also primarily due to the inclusion of the other Founding
Companies. For the year ended December 31, 1997, the other Founding Companies
and the Acquired Companies contributed $16.2 million to the increase of
maintenance and other revenue. Also, in the year ended December 31, 1997, the
Company recognized approximately $1.5 million in maintenance and other revenue
related to the completion of project-oriented national interface and national
EDI agreements. 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 is recognized later than billed. Unearned
maintenance and other revenue as of December 31, 1997 was $4.8 million and will
be recognized in future quarters. The balance of unearned revenues on the
accompanying balance sheet represented customer deposits on systems revenue
projects. Revenue on these projects will be recognized in future periods as the
implementation of the system is completed.

The increase in systems revenue in the year ended December 31, 1996 was
primarily due to additional revenues of $2.7 million generated by the Acquired
Companies. The increase in maintenance and other revenue was primarily due to
additional revenues of $1.5 million generated by the Acquired Companies.

18
<PAGE> 19

OPERATING EXPENSES, NONOPERATING ITEMS AND INCOME TAXES

The following table reflects actual operating expenses for the Company's
primary business lines:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
(IN MILLIONS)
<S> <C> <C> <C>
Systems................................................... $ 8.7 $ 9.5 $20.0
Maintenance and other..................................... 4.0 5.5 16.8
----- ----- -----
Total cost of revenue................................ 12.7 15.0 36.8
Selling, general and administrative....................... 6.6 8.6 20.2
Research and development.................................. 2.0 2.7 3.2
Depreciation and amortization............................. 0.6 0.5 1.5
Systems gross profit percentage........................... 53.5% 57.7% 57.9%
Maintenance and other gross profit percentage............. 55.9 47.9 44.9
Total gross profit percentage........................ 54.3 54.6 52.9
</TABLE>

The increase in systems cost of goods sold in the year ended December 31,
1997 was due to the inclusion of the other Founding Companies beginning on
February 5, 1997. For the year ended December 31, 1997, the other Founding
Companies and the Acquired Companies contributed $9.4 million to the increase of
system cost of goods sold. The increase in maintenance and other was also
primarily due to the inclusion of the other Founding Companies. For the year
ended December 31, 1997, the other Founding Companies and the Acquired Companies
contributed $10.5 million to the increase of maintenance and other cost of goods
sold.

The increase in systems cost of goods sold of $0.8 million in the year
ended December 31, 1996 was primarily due to the associated revenue growth of
the Acquired Companies. The increase in maintenance and other cost of goods sold
was also primarily due to the associated revenue growth of the Acquired
Companies, adding additional costs of $1.5 million. Systems revenue included
sales of licenses, which carry a higher gross profit margin than sales of
systems, primarily due to the inclusion of the costs of equipment and
installation labor in systems sales.

In 1997, the increase in selling, general and administrative expenses was
attributable primarily to the inclusion of the other Founding Companies and the
Purchased Companies. For the year ended December 31, 1997, the other Founding
Companies and the Purchased Companies added $7.9 million of selling, general and
administrative expenses. Also included exclusively in 1997 were the corporate
general and administrative expenses related to common administration of a public
company and acquisition efforts. The increase in selling, general and
administrative expenses of $2.0 million in 1996 was primarily due to the support
of the growth in revenue during 1996.

The increases in research and development expenses of $0.5 million and $0.7
million in the years ended December 31, 1997 and December 31, 1996,
respectively, resulted from investments in new research and development projects
focusing on (i) graphical user interface and relational database technologies
for use in future versions of The Medical Manager software; (ii) significant
enhancements in the development of the Enterprise Manager modules; (iii)
enhancements of an electronic medical records module; and (iv) EDI modules for
focusing on pharmaceutical formularies and laboratories.

Depreciation and amortization expense for the year ended December 31, 1997
increased as a result of the Purchased Companies' acquisitions and the inclusion
of the other Founding Companies. The Purchased Companies were reflected in the
financial statements subsequent to their respective dates of acquisition, all of
which occurred during the year ended December 31, 1997. Thus, depreciation on
the assets acquired with the Purchased Companies was reflected in the year ended
December 31, 1997, while no depreciation expense was reported in the year ended
December 31, 1996 for the Purchased Companies. Additionally, in conjunction with
the acquisition of the Purchased Companies, goodwill approximating $18 million
was recognized. Also, the other Founding Companies had goodwill from
acquisitions prior to the Mergers, contributing approxi-

19
<PAGE> 20

mately $500,000 in amortization expense in 1997. This goodwill is being
amortized over twenty years subsequent to the acquisition date, all of which is
reflected in the year ended December 31, 1997.

Other income for the year ended December 31, 1997 consisted primarily of
interest revenues earned from the investment of the proceeds from the IPO. Other
expense for the year ended December 31, 1996 included $0.5 million of expense
related to the impairment of an intangible asset at one of the Acquired
Companies.

For the year ended December 31, 1997, income taxes were provided
considering the S corporation status of various acquired entities and the
one-time nonrecurring benefit from the termination of S corporation elections
and the corresponding required adoption of SFAS 109. In addition, the
availability of certain existing corporation deferred tax assets resulted in an
effective tax rate of 33.5%.

The Company's provision for income taxes for the years ended December 31,
1996 and 1995 resulted from those Acquired Companies which were separate C
corporations in those years. MMR&D, the acquiring company at the IPO, had
elected S corporation status and therefore did not provide for corporate federal
income taxes in years 1996 and 1995 since the income passed through and was
taxed at the individual shareholder level.

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth certain selected statements of cash flow
information for the periods presented:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
(IN MILLIONS)
<S> <C> <C> <C>
Net cash provided by (used in) operations................ $ 6.4 $ 7.4 $ (1.0)
Net cash used in investing activities.................... (1.4) (0.5) (14.1)
Net cash provided by (used in) financing activities...... (5.3) (5.8) 18.8
----- ----- ------
Net increase in cash and cash equivalents................ $(0.3) $ 1.1 $ 3.7
===== ===== ======
</TABLE>

Substantially all of the cash used in operating activities for the year
ended December 31, 1997 resulted from the increase in accounts receivable of
$6.2 million, the decrease in accounts payable of $2.9 million, and the decrease
of customer deposits and deferred maintenance revenue of $3.0 million. The
increase in accounts receivable was primarily due to the significant growth in
the volume of sales, coupled with an increase in the percentage of sales made to
end-users, which have an extended period of collection as compared to sales to
dealers. The decrease in accounts payable and accrued liabilities included $1.4
million in accounts payable of the other Founding Companies as well as a general
reduction in payable days outstanding for the Acquired Companies and Purchased
Companies. The customer deposits and deferred maintenance revenue decrease of
$3.0 million stemmed primarily from the mergers and acquisitions in the year
ended December 31, 1997. The Purchased Companies and Acquired Companies, on the
date acquired, had customer deposits and deferred maintenance balances $2.5
million greater than at December 31, 1997, relating primarily to the timing of
jobs in progress. In addition, customer deposits decreased by $0.4 million from
December 31, 1996 to December 31, 1997, also the result of timing issues.

For the year ended December 31, 1996, substantially all of the net cash
generated by operating activities resulted from net income, plus an increase of
$1.6 million in customer deposits and deferred maintenance revenue, less an
increase in accounts receivable of $1.1 million. The increase in accounts
receivable in the year ended December 31, 1996 was a result of the revenue
increase. The increase in customer deposits and deferred maintenance liabilities
was primarily the result of a $1.4 million timing difference of jobs in progress
at December 31, 1996 for the Acquired Companies and MMR&D. Investing activities
reflect the substantial completion of the facilities built by MMR&D in the prior
years. Financing activities included dividends paid by MMR&D and other Acquired
Companies to their stockholders.

20
<PAGE> 21

The Company generated net income of $5.9 million in the year ended December
31, 1995, which was the primary source of operating cash flow. Cash flows from
investing activities in 1995 reflected cash used to build facilities for MMR&D.
Financing activities cash flows principally included dividends paid by MMR&D and
the other Acquired Companies to their stockholders.

Investing activities included the purchase of fixed assets in the ordinary
course of business and amounts paid for the other Founding Companies and the
Purchased Companies. Amounts paid, net of cash acquired, for the other Founding
Companies was $9.4 million.

Cash flows from financing activities included cash flows from the IPO,
payments of debt acquired from the Founding Companies, Acquired Companies and
Purchased Companies and payments of dividends by MMR&D in 1997 prior to the IPO.
On February 4, 1997, the Company completed the IPO 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, including $35.0 million paid to the
MMR&D stockholder. Payments on notes payable included the payment, in full, of
the $5.7 million of the assumed debt of the Acquired and Purchased Companies. In
addition, $2.0 million was paid on debt issued in connection with the purchase
of one of the Purchased Companies. Lastly, cash dividends paid by MMR&D and the
Acquired Companies prior to the IPO and their respective purchase dates totaled
$2.4 million.

The Company entered into a $10 million credit line with Barnett Bank of
Tampa and executed the credit line agreement on January 14, 1998. The agreement
contains customary events of default and a number of customary covenants
including certain financial ratios and restrictions on dividends.

The Company's cash and cash equivalents were $6.4 million at December 31,
1997. For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturity dates of three months or less when
purchased to be cash equivalents. These cash equivalents were predominately in
U.S. dollar domestic tax-free municipal instruments.

The Company believes the net proceeds from the sale of the Common Stock in
this Offering, together with existing cash and cash equivalents and future funds
generated from operations and funds available under its $10 million credit line,
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
available for strategic investment opportunities or other potential cash needs
that may arise in the pursuit of the Company's long-term business strategy.

YEAR 2000 COMPLIANCE

The Company is aware of the issues associated with the programming code in
existing computer systems as the next millennium (Year 2000) approaches. The
Year 2000 issue relates to whether computer systems will properly recognize and
process information relating to dates in and after the year 2000. These systems
could fail or produce erroneous results if they cannot adequately process dates
beyond the year 1999 and are not corrected. Significant uncertainty exists in
the software industry concerning the potential consequences that may result from
the failure of software to adequately address the Year 2000 issue.

The Year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems and from third parties with which the Company deals
nationwide. The Company has begun to review software and hardware used
internally by the Company in all support systems to determine whether they are
Year 2000 compliant. In addition, the Company intends shortly to commence a
survey of parties with which it conducts a material amount of business to
determine the status of their Year 2000 compliance programs. The Company's
objective is to complete this review and survey by June 30, 1998, and then
develop solutions to any material date-related deficiencies believed to be
present in its computer systems and systems of its major business partners. The
Company intends to implement and test these solutions prior to any anticipated
impact of the Year 2000 issue on its systems. Any new software, hardware, or
support systems implemented in the future will be Year 2000 compliant or will
have updates or upgrades or replacements available before the Year 2000

21
<PAGE> 22

to enable the system to be Year 2000 compliant. Management is currently
assessing the Year 2000 compliance expense and related potential effect on the
Company's earnings.

The Year 2000 issue also creates risk for the Company from problems that
may be experienced by customers of its software. With regard to the Company's
sales of The Medical Manager practice management system, the Company believes
that Version 9 of the system is fully Year 2000 compliant. The Company has
undertaken an extensive campaign to notify its installed customer base of the
Year 2000 issue as it relates to pre-Version 9 of The Medical Manager system. If
these or other customers experience significant difficulties as a result of the
Year 2000 issue, or if the Company encounters difficulties in responding in a
timely manner to customer requests to upgrade to Version 9, there could be a
material adverse impact on the Company's results of operations, financial
condition or business.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 128, Earnings per Share, is effective for fiscal years ending
after December 15, 1997. This Statement establishes standards for computing and
presenting earnings per share (EPS). The provisions of this pronouncement have
been reflected in accompanying financial statements. Annual earnings per share
has not previously been reported; however, 1997 quarterly information has been
restated to comply with SFAS No. 128. Historical earnings per share calculations
for the years ended December 31, 1996 and 1995 have not been presented because
they are not considered meaningful as a result of the exclusion of the Founding
Companies in those years.

SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purposes financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company has addressed the
requirements of SFAS No. 130 and no material impact on the financial statements
is expected.

SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement establishes standards for reporting information about operating
segments in annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of and
allocation of resources to operating segments. The Company has not yet
determined to what extent the standard will impact its current practice of
reporting operating segment information.

Statements of Position ("SOP") 97-2, Software Revenue Recognition, is
effective for fiscal years beginning after December 15, 1997. This Statement
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and establishes certain criteria
for revenue recognition. The Company is currently assessing the impact that the
revenue recognition criteria stated in this pronouncement will have on the
financial statements.

22
<PAGE> 23

BUSINESS

GENERAL

The Company is a leading provider of comprehensive physician practice
management information systems to independent physicians, IPAs, MSOs, PPMs,
managed care organizations and other providers of health care services in the
United States. The Company develops, markets and supports The Medical Manager(R)
practice management system, which addresses the financial, administrative,
clinical and practice management needs of physician practices. The Company's
system has been implemented in a wide variety of practice settings from small
physician groups to multi-provider IPAs and MSOs. The Company's proprietary
systems enable physicians and their administrative staffs to efficiently manage
their practices while delivering quality patient care in a constantly changing
health care environment. Since the development of The Medical Manager in 1982,
the Company's installed base has grown to over 24,000 client sites, representing
more than 80 practice specialities, making it the most widely installed
physician practice management system in the United States.

The Company was founded in July 1996 to bring together the research and
development, sales, marketing and support resources for The Medical Manager
software. The Company completed its IPO in February 1997, and thereafter
executed and closed agreements to acquire the following independent dealers:

<TABLE>
<CAPTION>
DATE OF ACCOUNTING
REGION COMPANY ACQUIRED ACQUISITION LOCATION TREATMENT
<S> <C> <C> <C> <C>
NORTHEAST... LSM Computing, Inc. April 1997 Somerville, New Jersey Pooling
The Computer Clinic, Inc. and MedPlus, Inc.(1) July 1997 Valhalla, New York Pooling
Boston Computer Systems, Inc. August 1997 Norwood, Massachusetts Purchase
CompRx Systems Corporation December 1997 Hauppauge, New York Pooling
SOUTHEAST... AMSC, Inc.(2) September 1997 Orlando, Florida Purchase
Companion Technologies of Florida, Inc. December 1997 Tampa, Florida Purchase
MIDWEST..... Unico, Inc. May 1997 Evansville, Indiana Pooling
Great Lakes Medical Systems, Inc.(1) July 1997 Toledo, Ohio Pooling
Artemis, Inc. July 1997 Indianapolis, Indiana Purchase
Package Computer Systems, Inc. d/b/a PAC-COMP August 1997 Sterling Heights, Michigan Purchase
MediSys, Inc. August 1997 Fort Wayne, Indiana Pooling
Professional Management Systems, Inc. September 1997 St. Charles, Illinois Purchase
AMSC Midwest, Inc.(2) September 1997 Topeka, Kansas Purchase
Health Care Management Solutions, Inc. d/b/a
Healthcare Informatics, Inc. February 1998 Springfield, Illinois Pooling
Medical Practice Support Services, Inc. February 1998 Pittsburgh, Pennsylvania Pooling
SOUTHWEST... Treister-Thorne, Inc. d/b/a Advanced Medical
Management, Inc. June 1997 Houston, Texas Pooling
Matrix Computer Consultants, Inc. September 1997 Norman, Oklahoma Purchase
Unisource Systems, Inc. November 1997 Corpus Christi, Texas Pooling
Companion Technologies of Texas December 1997 Arlington, Texas Purchase
Management Integrated Solutions April 1998 Houston, Texas Purchase
WEST........ Specialized Systems, Inc. May 1997 Van Nuys, California Pooling
Computers for Medicine Corporation and
Carecom, Inc. September 1997 Englewood, Colorado Pooling
Advanced Practice Management, Inc. November 1997 San Diego, California Purchase
Strategic Systems, Inc. February 1998 Denver, Colorado Pooling
NORTHWEST... Adaptive Health Systems of Washington, Inc. May 1997 Federal Way, Washington Pooling
Data Concepts, Inc. October 1997 Boise, Idaho Purchase
Medical Systems Consultants, Inc. October 1997 Boise, Idaho Purchase
Medico Support Services, Inc. November 1997 Salem, Oregon Purchase
</TABLE>

- ------------------------------

(1) The Computer Clinic, Inc. and MedPlus, Inc., which were acquired by the
Northeast region, and Great Lakes Medical Systems, Inc., which was acquired
by the Midwest region, were affiliates of each other and were acquired by
the Company simultaneously, and were considered the acquisition of one
dealer.
(2) AMSC, Inc. and AMSC Midwest, Inc. were affiliates of each other and were
acquired by the Company simultaneously, and were considered the acquisition
of one dealer.

23
<PAGE> 24

INDUSTRY OVERVIEW

Over the past decade, health care costs in the United States have risen
faster than the overall rate of inflation. According to the U.S. Health Care
Financing Administration, health care expenditures have increased from less than
$250 billion, or approximately 9% of U.S. gross domestic product, in 1980 to
over $1.0 trillion, or approximately 15% of U.S. gross domestic product, in
1996. This increase has resulted in broad pressures to reduce costs without
sacrificing the quality of care and has caused significant changes in the health
care industry. While reimbursement for health care has historically been based
on a fee-for-service model of payment, managed care organizations and other
payors are increasingly utilizing alternative reimbursement models that shift
the financial risk of delivering health care from payors to health care
providers, including discounted fee schedules, single payment based on
diagnosis, capitation and other risk sharing arrangements.

The ongoing pressure to contain health care costs and the growing
administrative burdens placed on medical practices have caused physicians to
join together in group practices to share administrative costs and achieve
economies of scale. In addition, other providers and payors are buying and/or
managing physician practices and transforming them into integrated delivery
systems. The Company believes the movement toward group practices has
accelerated the trend toward automation as group practices require greater
efficiency and productivity provided by more powerful practice management
systems. This general increase in the size and complexity of medical practices
has created a greater need for analysis of data and production of timely
management information reports that allow physicians, other providers of medical
care and payors to reach informed conclusions regarding the quality and
appropriateness of various procedures and practices.

The expansion in the number of managed care and third-party payor
organizations, as well as additional governmental regulation and the change in
reimbursement modes, have greatly increased the complexity of pricing practices,
billing procedures and reimbursement policies impacting medical practices.
Practice management systems help providers reduce the costs and improve the
quality of delivering health care services by automating patient care
information systems and administrative processes, ensuring timely access to
relevant information, streamlining the storage and retrieval of information, and
efficiently matching patient needs with available resources. While early systems
concentrated principally on patient billing and collection activities, systems
are now available that record and store clinical information, automate the
processing of insurance and third-party payor claims and integrate the
operations of physician practices with larger health care organizations such as
hospitals, HMOs and MSOs.

BUSINESS STRATEGY

The Company's strategy is to build upon its leadership position as the most
widely utilized physician practice management system in the United States. Key
elements of this strategy include:

Capitalizing on National Presence. Since its IPO, the Company has
developed a national market presence and centralized client support, and
has implemented a national retail pricing structure. The Company is a
vertically-integrated entity that has greater financial strength and
stability than the individual companies acquired by the Company, which
allows the Company to compete more effectively on national, regional and
local levels. The Mergers and subsequent acquisitions have allowed the
Company to further develop its Enterprise Business Group, a national
accounts group that assists regional dealers in marketing to, and
addressing the support needs of, larger provider organizations such as
IPAs, PPMs, MSOs, and managed care organizations. The Company is also in
the process of establishing local and regional resource centers, supported
by centralized corporate and regional operations, including help desks, EDI
departments and advanced technical and programming personnel. The Company
expects this structure to result in greater overall consistency and a
higher level of client support.

Continuing the Consolidation and Rationalization of the Distribution
Network. The Company intends to continue the consolidation and
rationalization of The Medical Manager distribution network which began
upon the consummation of the IPO. Prior to the 1990s, when independent
physician practices were most prevalent, the local focus of The Medical
Manager independent dealer network effectively addressed the practice
management needs of the market. However, due to the numerous
24
<PAGE> 25

trends in the health care industry toward improved efficiency and cost
containment, physicians have been forced to consolidate into larger
practice organizations. To meet the needs of these larger groups, the
Company has implemented a product distribution strategy that includes the
acquisition of dealers in major medical communities and large metropolitan
markets. To date, the Company has acquired 26 independent dealers and
expects to acquire numerous others. The ownership of these dealers has
enabled the Company to market more effectively to larger customers while
assisting the remaining independent dealers in conducting their marketing
activities. The Company also intends to further standardize the sales and
support practices of the independent dealers in order to ensure that The
Medical Manager is sold and supported on a consistent and effective basis.

Increasing Penetration of Management Service Organizations and Other
Large Physician Groups. The Company will continue to seek to increase its
sales of enterprise-wide systems, products and services to IPAs, PPMs, MSOs
and large physician groups. As trends in the health care marketplace
continue to drive physician affiliations, the Company believes there is
significant opportunity to increase its share of this rapidly growing
segment of the practice management market. In order to capitalize on these
opportunities, the Enterprise Business Group coordinates large group sales
and support in conjunction with the Company's regional subsidiaries and the
Company's independent local and regional dealers. In addition, the Company
has enhanced the functionality of The Medical Manager software to deliver
increasingly comprehensive physician practice management services in
enterprise wide settings. With successful sales to such entities as Novant
Health, Inc., Children's Health System of San Diego, Physiotherapy
Associates (one of the nation's largest physiotherapy providers), and PHP
Healthcare Corporation (one of the largest primary care providers in New
Jersey), the Company has demonstrated its ability to deliver the software
and services which such large providers demand. The Company believes that
through continued efforts it can significantly increase its share of this
market segment.

Cross-Selling Products and Services to Existing Client Base. The
Company will continue to aggressively cross-sell additional products and
services to its existing client base. A majority of the Company's existing
clients do not currently use The Medical Manager software's entire suite of
products and services. Because of its substantial installed base of over
24,000 sites, as well as the modular, integrated product design of The
Medical Manager software, the Company intends to target many of its
customers as candidates for cross-selling opportunities, including system
upgrades, additional software application modules, services such as
hardware and software maintenance, system and process planning, project
management, custom programming and EDI capabilities.

Continuing Development of New Products, Product Enhancements and
Services. The Company intends to continue its leadership role in the
development and introduction of new products, product enhancements and
services for the physician practice marketplace. To do so, the Company
intends to continue to commit significant financial and human resources to
its research and development efforts. A key focus of the Company's research
and development efforts is the further enhancement of The Medical Manager
software's ability to operate within a variety of integrated delivery
environments. The Company's strategic development initiatives include
advanced systems, such as a version of The Medical Manager software
incorporating relational databases, a graphical user interface and enhanced
client server applications. The Company develops new products, product
enhancements and services with input from its physician-clients. For the
years ended December 31, 1996 and 1997, the Company's expenses for research
and development were $2.7 million and $3.2 million, respectively,
representing 8.1% and 4.0% of the Company's revenue for those periods.

PRODUCTS

The Medical Manager software is an integrated practice management system
encompassing patient care, clinical, financial and management applications. Due
to its scalable design, The Medical Manager system is a cost-effective solution
in a stand-alone or enterprise-wide environment. The Medical Manager software is
designed to operate on a wide range of hardware platforms, from Intel-based
computer systems for small and medium sized practices, to RISC-based systems,
such as the IBM RS/6000 and Hewlett-Packard 9000, for larger practices. Its
modular, fully integrated product portfolio allows clients to add incremental
capabilities to
25
<PAGE> 26

existing information systems while preserving and minimizing the need for
capital investments. The Company believes that the latest version of The Medical
Manager software, Version 9, is Year 2000 compliant.

The pricing of The Medical Manager system is a function of the number of
modules purchased, the number of users per site, the number of practices, the
operating system and the complexity of the installation. Hardware support and
services are priced separately from software products and are typically
coordinated by the dealer.

The Medical Manager system provides to physician practices a broad range of
patient care and practice management features, including:

CORE APPLICATION

The Medical Manager Core Application includes base financial, clinical and
practice management functions.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
The Medical Manager Provides accounts receivable, insurance billing, basic
appointment scheduling and recalls, clinical history,
financial history, referral of physician information,
encounter form tracking, e-mail, office notes, hospital
rounds and over 150 standard reports.
</TABLE>

OFFICE MANAGEMENT APPLICATION

The Medical Manager Office Management Application automates the essential
administrative tasks of a physician practice.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Automated Collections Maintains notes, promise to pay dates, budget payments, next
action to be taken indicators and prints collection letters;
automates "tickler" system to alert the user when an account
needs attention.
Chart and X-Ray Locator Tracks the location of a patient's medical charts and x-ray
jackets.
Advanced Billing Handles sophisticated billing needs, including the necessary
collapsing and sorting of charge items into revenue codes
for UB92 billing purposes; also used for the specialized
reporting needs for Workers' Compensation First Report of
Injury.
Custom Report Writer Provides access to all data elements of The Medical Manager;
allows for the creation of user defined custom reports.
Multiple Resource Scheduling Includes multi-resource display, search and posting of
scheduled appointments; coordinates the utilization of exam
rooms and equipment and schedules of teams of physicians,
nurses, therapists and others whose services are needed
within a specific time sequence of one another.
Patient Flow Tracking Allows patient encounters to be tracked from the time the
patient makes the appointment, through encounters in the
waiting room, examination rooms, labs and other areas;
reports on time and resource utilization.
Case Management System Tracks all clinical events related to a specific case;
provides the capability to view a snapshot of the diverse
aspects of a patient's case on a single screen and instantly
access the desired level of underlying detail.
</TABLE>

26
<PAGE> 27

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Laser Form Generator Encounter forms, prescriptions, insurance forms, patient
bills and statements, referrals, letterheads, and other
forms can be printed. Forms are automatically created and
merged with data during printing on plain letter or legal
size paper.
Patient Advisory System Allows the practice to locate and print patient education
sheets on a variety of topics spanning many different
medical specialities.
</TABLE>

DEVELOPMENT TOOLS

The Medical Manager Development Tools allow data to be accessed and
manipulated, adding flexibility to the system and allowing for customization to
meet specialized needs.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Data Merge A proprietary 4GL type language that allows the Company,
dealers and other qualified programmers to customize
functions and features of The Medical Manager without
changing source code; also supports the exchange of data
between The Medical Manager and hospital, lab, pharmacy and
other medical management systems.
</TABLE>

ELECTRONIC CONNECTIVITY

The Medical Manager Electronic Connectivity supports many different types
of electronic transactions between payors and providers and allows for the open
exchange of information between various medical institutions as well as the
transfer of administrative transactions to support managed care, through Medical
Manager Network Services.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Hospital Information Link A data merge tool that allows hospital interfaces to be
written to local hospital requirements.
HL7 Connectivity Engine Allows users to provide real time demographic and encounter
information to hospitals and other organizations (referred
to as a "Remote") and queries the Remote's master patient
index in order to retrieve data on existing patients; also
allows the Remote to automatically advise the user site of
patient admissions and discharges, changes to
inpatient/outpatient status and changes to patient
demographic information.
Electronic Data Interchange An interface that provides state of the art connectivity for
real-time access to various insurance providers, third-party
connectivity networks and other outside facilities; features
include pre-authorization status, benefit eligibility,
referral verification and rosters, as well as credit card
and check approval.
Electronic Claims Supports direct electronic submission of claims to Medicare,
Medicaid, commercial carriers and clearinghouses; expedites
insurance payment turnaround time; verifies claims for
accuracy and reports on submitted claims that have been
accepted or rejected; provides a complete audit trail and
reports to ensure that claims have been processed properly;
supports NSF and ANSI national standards.
</TABLE>

27
<PAGE> 28

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Electronic Remittance Used in combination with the Electronic Claims module to
electronically download Explanation of Benefits ("EOBs")
from Medicare or other insurance payors and to post directly
into patients' accounts, thereby saving a substantial amount
of data entry time and preventing keying errors.
Electronic Patient Statements An interface integrated within The Medical Manager that
allows for the batch submission of patient billing data to a
third party statement processing center. Electronic patient
statements greatly reduce the time needed to send patient
statements. Complete audit trail reports and history logs
are provided.
</TABLE>

MANAGED CARE APPLICATIONS

The Medical Manager Managed Care Applications allow physicians to contain
costs and deliver a higher quality of care in capitated environments.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Managed Care In addition to the managed care features offered in the base
system, supports the full functions required to track
incoming as well as outgoing referrals to facilities and
specialists; maintains membership eligibility lists,
capitation payment posting, contract management (including
number of visits, allowable time period, procedures and
diagnosis treatment plan) and reporting.
Claims Adjudication Fully integrated with the Managed Care module; provides full
risk management capabilities, including the processing of
received claims, comparing the claim against authorized
services to determine amounts due, generating checks for
payments and producing an EOB; also provides advanced
features in the form of claims repricing, bundling of
services, and optionally, provider credentialing and risk
pool management.
</TABLE>

28
<PAGE> 29

CLINICAL APPLICATIONS

The Medical Manager Clinical Application developments provide
fully-integrated components of a patient medical record that contain the
functionality and knowledge bases required in today's practices.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Quality Care Guidelines Automates the process of tracking both the curative and
preventative services the practice has specified that it
wishes to perform; provides reports on physician compliance
with recommended care guidelines that are based on the
patient's age, sex, diagnoses and other key health factors
and are automatically printed with the patient's encounter
form. The guidelines are derived from U.S. Preventative
Healthcare Guidelines or other clinical knowledge bases and
reflect the practice's own suggested intervals of exams,
tests, injections and other procedures specific to the
individual patient.
Laboratory Interface Electronically downloads test requests and patient
demographics to a laboratory, and electronically transfers
results directly into the patient's file in The Medical
Manager.
Prescription Writer Provides a full set of tools for managing both the clinical
and administrative aspects of the prescription process;
provides for extensive interaction checking, patient
information printouts and prescription history on the drugs
being prescribed; administratively reduces physician and
staff time spent preparing and issuing prescriptions.
Pharmacy Interface Offers a direct electronic link to transfer prescriptions
and handle authorization requests between the Prescription
Writer module and the pharmacy.
Voice Dictation Through The Medical Manager's link with Kurzweil Applied
Intelligence software, enables the physician to dictate,
edit and print patient charts and reports; pulls and stores
patient and physician information from the patient file into
the chart via a single, spoken command.
View Patient Chart Brings a snapshot of the patient's medical records to a
single screen and then gives the user instant access to
almost any desired level of underlying detail; allows the
screen to be used for valuable side-by-side analysis of
chart data.
Medical Records Designed to provide maximum flexibility and speed in
creating, storing and retrieving whatever medical
information the practice wishes to maintain on each patient,
fully integrated with the patient's clinical history, this
application addresses the four fundamental issues concerning
medical records: creation and maintenance of medical
records, simultaneous access to patient records, remote
access and data for analysis. Includes patient encounter
knowledge base and generates automated progress notes.
</TABLE>

29
<PAGE> 30

MSO ENTERPRISE SYSTEM

The Medical Manager MSO Enterprise System addresses the needs of the MSO
market by providing enterprise-wide solutions for the management of integrated
provider networks.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
MSO Enterprise Manager Provides the MSO or multi-practice environment with central
administration of multiple practices, enterprise-wide
roll-up reports, a master patient index for automatic
synchronization of demographic data-updates and remote
access across multiple systems.
</TABLE>

DIALYSIS VERTICAL MARKET OPTION

The Medical Manager Dialysis Vertical Market Option expedites the
repetitive process of posting dialysis patients' weekly treatments.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Dialysis Calendar Provides posting using a calendar posting screen; automates
and reduces the repetitive, recurring posting dictated by
dialysis treatment.
</TABLE>

CHEMOTHERAPY VERTICAL MARKET OPTION

The Medical Manager Chemotherapy Vertical Market Option automates both the
clinical and financial aspects of the oncology practice.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Chemotherapy Management Provides close control of chemotherapy drug administration
System based on standard and customized protocols. Using an online
encounter form, automates posting of each treatment session,
reducing operator input time and opportunities for error.
</TABLE>

IMAGE MANAGEMENT VERTICAL MARKET OPTION

The Medical Manager Image Management Vertical Market Option integrates
scanned documents with the patient's record.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ------------------------------------------------------------
<S> <C>
Image Management System Organizes and stores patient photographs, x-rays and other
scanned documents and retrieves images and associated image
information as part of the patient's medical record.
</TABLE>

MEDICAL MANAGER NETWORK SERVICES

The Company offers a complete single-source EDI solution for health care
providers that is integrated within The Medical Manager software. Medical
Manager Network Services is actively collaborating with clearinghouses,
insurance payors, Company sales and support offices, and key developers of EDI
technology. A comprehensive EDI package with connectivity to Medicare, Medicaid,
Blue Cross/Blue Shield plans, as well as commercial and managed care plans is
available. The EDI transactions currently available include batch mode
electronic claims, eligibility roster download, electronic remittance,
electronic patient statements, real-time eligibility verification, real-time
referral authorization and referral status inquiry, credit card and check
authorization, HL7 messages, as well as clinical transactions such as laboratory
requisitions and test results, and prescription information.

30
<PAGE> 31

CLIENT SERVICES

The Company's Client Services provide a wide range of services to the
Company's entire client base to ensure customer satisfaction and to maximize the
utility of The Medical Manager system. These services include both fundamental
and value-added services as described below:

Implementation Services. These services include planning, design and
installation of software, hardware and network solutions for stand-alone
practices to enterprise-wide environments. To ensure customer satisfaction,
the Company utilizes a team approach involving technical and professional
staff members who have a broad array of technical and business expertise.
This team approach includes project engineering, business redesign and
practice staff re-education. A client relationship manager, part of the
team from the outset, works with the client throughout the life of the
contract.

Support Services. A critical element in assuring proper use of and
satisfaction with the Company's products involves ongoing support services
provided to the end-users. The Company provides to its clients continuing
software and hardware support under agreements that typically have a one
year term. These agreements provide for general support via help desks,
error corrections to software, remote diagnostics and on-site hardware and
software technicians. Support services are provided during normal business
hours and can be expanded to include 24 hour coverage seven days a week. As
of March 31, 1998, the Company had approximately 400 full-time employees
devoted to providing support services to its customer base.

Value-Added Services. The Company advises its enterprise-wide clients
on how best to bring together disparate physician practices into an
integrated health care delivery network. The Company works in partnership
with its client's clinical and administrative management in the areas of
patient and workflow redesign, job function review and re-education,
standardization consultation, project engineering, timeline and resource
management and ongoing relationship management. The Company and many of its
independent dealers maintain substantial resources capable of providing
custom programming solutions for a broad range of client requests. Many of
these solutions may be generated at the regional and local levels using the
Company's Data Merge language, which allows modifications to be made
without changing source code.

Training and Continuing Education. The Company believes initial and
continuing education are key components in ensuring customer satisfaction
and retention and, accordingly, has devoted significant resources to its
Training and Continuing Education Departments. Because The Medical Manager
system has been in use since 1982, a substantial amount of experience and
expertise has been gained by the Company's training staff in optimizing
methodology and curriculum to achieve the best results. Training methods
include classroom and computer-based training, on-site visits for system
setup and review and video training tapes available on selected modules.
The Company also assists its clients in developing their own training
staff, materials and guidelines. Continuing education programs, a quarterly
newsletter and user group conferences are sponsored by the Company,
providing the user with valuable information as well as an opportunity for
the Company to demonstrate new enhancements and features of the product.
The Company makes available to clients extensive user documentation and
reference manuals including, among others, installation guides, advanced
system manuals, a custom report writer manual and an MSO implementation
workbook.

SALES AND MARKETING

The Company sells its products and services nationally through a direct
sales organization consisting of approximately 150 sales personnel, as well as
through its independent dealer network of approximately 140 dealers. This
distribution effort is responsible for sales to new clients, ranging in size
from solo practitioners to enterprise-wide clients, and follow-up sales of
upgrades and enhancements to existing clients. To enhance the effectiveness of
its sales effort, the Company provides its sales force and independent dealer
network with (i) comprehensive training in the Company's products and services,
(ii) marketing materials, and (iii) ongoing support.

31
<PAGE> 32

Small and medium-sized sales, routinely handled by the direct sales force
and independent dealers, generally involve a sales cycle of 30 to 60 days.
Larger sales, managed by the Enterprise Business Group, typically involve a
Request For Proposal process which lengthens the sales cycle to 60 to 90 days or
longer. Hardware and software maintenance agreements are generally renewed on an
annual basis. Standard payment terms are 50% due upon system order with the
balance due upon completion of system installation.

To address the more complex needs of larger clients, the Enterprise
Business Group coordinates the Company's sales effort for large clients (such as
MSOs, IPAs and managed care organizations) and assists in the implementation of
systems and the maintenance of ongoing client relationships. Many of the
independent dealers are experienced in selling to and supporting enterprise wide
clients. The Company intends to continue to utilize the Enterprise Business
Group to assist local and regional dealers in these efforts. At the enterprise-
wide client level, relationship managers work with the client throughout the
contract term to keep informed of customer expectations and help ensure customer
satisfaction.

The Company generates sales leads through referrals from customers and
management consultants, responses to requests for proposals, strategic alliances
with complementary companies, the Company's Internet web sites and associated
links, industry seminars, trade shows, direct telephone and mail campaigns and
advertisements in trade journals.

In order to capitalize on opportunities to cross-sell its products and
services to existing clients, the Company maintains contacts with its clients at
the local, regional and national levels through electronic mail links on its
Internet web sites, monthly and quarterly newsletters, technical updates,
product release bulletins, user meetings, training seminars, industry
conferences and market-specific seminars, such as its MSO User Conference. The
Company also works with certain of its client base on the selection,
implementation, use and benefits derived from the product and publishes these as
Client Profiles, providing both the client and the Company with market exposure
and the opportunity to share successes.

Since 1988, the Company has utilized an educational license of The Medical
Manager physician practice management system to teach office automation within
the medical field. The system has been installed in vocational schools, junior
colleges and universities nationwide. Delmar Publishers Inc., one of the leading
education textbook publishers in the country, markets a student textbook and
instructor's manual for courses that teach computer skills in the medical field,
using The Medical Manager software. Since 1988, more than 600 site licenses of
the educational version have been sold.

DISTRIBUTION NETWORK

Prior to the 1990s, when independent physician practices were most
prevalent, the local focus of independent dealers effectively addressed the
practice management needs of the market. However, due to the numerous trends in
the health care industry focusing attention on the delivery of high quality and
cost effective care (as well as the need to demonstrate such quality and
effectiveness), individual physicians and small group practices have been forced
to pool their resources in order to compete effectively. As a result, large
physician organizations have become much more prevalent in the medical
marketplace. To keep pace with the increasingly sophisticated practice
management needs of these larger groups, the independent dealers for The Medical
Manager software have been consolidating in order to build the necessary
technical, service and support resources.

The Company believes that a fundamental and unique strength of The Medical
Manager system is its nationwide dealer network, which currently includes
approximately 140 dealer organizations. The number has been reduced from
approximately 180 at the consummation of the IPO, due to the Company's
acquisition of 26 dealers and the independent consolidation of dealers among
themselves. As a result of the many years of selling and supporting The Medical
Manager product line, the personnel in the Company's dealer network represent a
valuable resource. The Company believes that the continued consolidation and
rationalization of the dealers for The Medical Manager system is a necessary
response to changes in the physician marketplace. The Company's strategy for its
dealer network includes the acquisition of dealers in strategic markets as well
as the rationalization of the remaining independent dealers in order to ensure
that The Medical Manager system is sold and supported on a consistent and
effective basis throughout the dealer network.
32
<PAGE> 33

The Company believes that it has developed a presence in most major medical
communities and metropolitan markets throughout the country. As a result, the
Company's dealer acquisition strategy will continue to focus on acquiring
dealerships that have both a strong presence in key markets and demonstrated
expertise with The Medical Manager product line.

The Company intends to continue to use its existing network of independent
dealers as an integral part of its distribution network for The Medical Manager
system. The Company is instituting a program with its independent dealers to
standardize hardware configurations, client training programs and service levels
developed by the Company. The Company will also provide services to the
independent dealers, many of which are unable to provide such resources as
independent entities. Such services include: (i) dealer training; (ii) help
desks; (iii) advanced technical services, such as custom programming services;
and (iv) sales support for large systems sales from the Enterprise Business
Group.

RESEARCH AND DEVELOPMENT

The Company seeks to meet the needs of its clients by continuing to develop
new products and enhancements of existing products. Accordingly, the Company
believes that continued leadership in the practice management systems industry
will require significant additional commitments of resources to research and
development. The Company maintains its research and development campus in
Alachua, Florida, where development of The Medical Manager software began in
1981. As of March 31, 1998, the Company had approximately 110 employees engaged
primarily in its research and development efforts.

The Company's research and development activities involve Company personnel
as well as physicians, physician practice staffs and leading health care
institutions. The Company's research and development efforts continue the
tradition of The Medical Manager system being a leader in product innovation, as
indicated by the following:

- In 1982, The Medical Manager software was first installed.

- In 1985, The Medical Manager Electronic Media Claims module was
released.

- In 1987, The Medical Manager software became the first practice
management system to perform electronic claims submission in all 50
states.

- In 1988, The Medical Manager Report Writer module was released.

- In 1990, The Medical Manager Data Merge Language module, was released,
allowing unlimited customization within The Medical Manager software
without changing the source code.

- In January 1991, The Medical Manager Electronic Remittance module was
released.

- In June 1991, The Medical Manager software became the first practice
management system to incorporate EDI with electronic interchange
partners.

- In 1992, The Medical Manager software became the first practice
management system to introduce electronic interfaces to laboratory
systems.

- In 1994, The Medical Manager Managed Care module was announced.

- In January 1995, The Medical Manager Quality Care Guidelines module was
released.

- In May 1995, The Medical Manager Dialysis Posting System was released.

- In October 1995, The Medical Manager integrated Claims Adjudication
System was released.

- In November 1995, The Medical Manager MSO Enterprise Manager was
announced.

- In April 1996, The Medical Manager prototype HL7 Connectivity Engine was
announced.

- In March 1997, The Medical Manager Case Management System was announced
and the Chemotherapy Management System was released.

33
<PAGE> 34

- In July 1997, The Medical Manager Patient Flow Tracking, Advanced
Appointment Search (MultiResource) and Laser Form Generator modules were
released.

- In September 1997, The Medical Manager Medical Records System was
released.

- In February 1998, The Medical Manager Patient Advisory System was
released.

A key goal of current research and development efforts involves adapting
The Medical Manager system to operate more effectively within integrated
delivery environments. To achieve this goal, the Company is pursuing a strategic
development initiative directed toward the development of advanced health care
information systems that include a relational database, graphical user
interfaces and enhanced client-server applications. Current focus areas for new
product development and enhancement include the following:

ENTERPRISE SYSTEM

The Company intends to develop an increasing number of automation tools to
support the growing number of integrated health care delivery systems across the
nation. Developments within The Medical Manager's MSO Enterprise System are
expected to include enterprise appointment and resource scheduling and
enterprise communications. In addition, further developments in The Medical
Manager software's connectivity engines should continue to promote the open
exchange of information between medical institutions.

MANAGED CARE

Physicians realize that sophisticated health care automation systems are
required to support managed care, compete for capitated contracts and contain
healthcare costs while providing effective, high quality care. Development
efforts within the Managed Care module are expected to result in a product that
provides referral outcome reporting that can perform outcome analysis across
multiple practices within the provider network. As managed care matures, new
markets will be created that require the support of automation. Development
efforts within the Managed Care module will be designed to support the evolving
subcapitation market by allowing primary care groups to receive the total
capitation payment from a payor and allocate the capitation payment among
contracted specialists for services they have provided.

CLINICAL APPLICATIONS

The Company recognizes that improvements in the technology that supports
the gathering, storing, retrieving and reporting of clinical data and the
creation of a sophisticated computerized patient record system are critical to
the enhancement and improvement of health care delivery across the nation. As a
result, the Company is engaged in efforts to rapidly develop fully-integrated
components of a computerized patient record containing functionality and
knowledge bases that support the way physicians provide health care services.
Research and analysis of various input technologies and devices continue with
the goal of providing physicians with usable tools that will allow them to
effectively gather and use clinical data at the point-of-care.

GRAPHICAL USER INTERFACE

The Company's graphical user interface is currently under development. The
Company's development efforts are intended to produce a product that will
support users opting to install technology to support a Windows environment.

PROPRIETARY RIGHTS AND LICENSES

The Company relies on a combination of trade secret, copyright and
trademark laws, license agreements, nondisclosure and other contractual
provisions and technical measures to establish and protect its proprietary
rights in its products. The Company distributes its products under software
license agreements that grant clients a nonexclusive, nontransferable license to
the Company's products and contain terms and conditions prohibiting the
unauthorized reproduction or transfer of the Company's products. In addition,
the Company

34
<PAGE> 35

attempts to protect its trade secrets and other proprietary information through
agreements with employees and consultants. Substantially all current employees
involved in product development have signed an assignment of inventions
agreement. There can be no assurance that the legal protections afforded to the
Company or the precautions taken by the Company will be adequate to prevent
misappropriation of the Company's technology. In addition, these protections do
not prevent independent third-party development of functionally equivalent or
superior technologies, products or services. Any infringement or
misappropriation of the Company's proprietary software could disadvantage the
Company in the efforts to attract and retain new clients in a highly competitive
market and could cause the Company to lose revenues or incur substantial
litigation expense. The Company believes that, due to the rapid pace of
innovation within the software industry, factors such as the technological and
creative skills of its personnel and ongoing reliable product maintenance and
support are more important in establishing and maintaining a leadership position
within the industry than are the various legal protections afforded to its
technology.

GOVERNMENT REGULATION

The FDA has jurisdiction under the FDA Act to regulate computer products
and software as medical devices if they are intended for use in the diagnosis,
cure, mitigation, treatment or prevention of disease in humans. The FDA is
currently reviewing its policy for the regulation of computer software and there
is a risk that The Medical Manager software could in the future become subject
to regulation by the FDA, which could have a material adverse effect on the
Company's results of operations, financial condition or business. Currently, the
Company believes that The Medical Manager software would not be subject to FDA
regulation requiring registration, listing, premarket notification or approval
and adherence with device good manufacturing practices or medical device
reporting requirements.

The FDA has issued a draft policy statement relating to picture archiving
and communications systems that requires manufacturers of medical image storage
devices and related software to submit to the FDA 501(k) Applications and
otherwise comply with the requirements of the FDA Act applicable to medical
devices. The Company intends to distribute in the United States, the Image
Module, which was cleared by the FDA on April 4, 1997 and is manufactured by a
third party in accordance with specifications set forth in the cleared 510(k)
Application. Prior to marketing the Image Module, the Company will create an
interface between The Medical Manager practice management system and the Image
Module. The Company believes that the addition of its practice management system
to the Image Module does not change the Image Module's intended use or
significantly change the safety or efficacy of the product such that a new
510(k) Application is required under applicable federal regulations.

COMPETITION

The market for physician practice management systems and services is highly
competitive. The Company believes that the principal competitive factors in this
market include the functionality and price of the practice management system,
the support provided to system users, ongoing research and development efforts
and the national presence and financial stability of the system. The industry is
fragmented and includes numerous competitors. The Company believes its principal
competitive advantages are the product's substantial installed client base, open
system design and the advanced features and capabilities, as well as the
Company's focus on customer support and training programs and its network of
dealers. The Company's principal competitors include other physician practice
management system companies, local software companies and other companies that
provide information systems to health care providers. Certain of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. In addition, as the market for the Company's
products develops, additional competitors may enter the market and competition
may intensify.

EMPLOYEES

At March 31, 1998, the Company had 939 employees. No employees are covered
by any collective bargaining agreements. The Company considers its relationships
with its employees to be good.

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<PAGE> 36

FACILITIES

The Company's principal corporate offices are located at 3001 North Rocky
Point Drive East, Tampa, Florida. The Company's research and support facilities
are located in Alachua, Florida. The Company also maintains national sales and
support offices in Mountain View, California, and has 59 additional offices in
various regions of the country.

The Company owns three of its facilities and leases the remainder of its
facilities. The leases have remaining terms ranging from one to five years. The
Company believes that its current facilities, together with a facility which it
plans to lease by December 31, 1998, are adequate for its current and
foreseeable needs and that suitable additional space will be available as
required.

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<PAGE> 37

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael A. Singer............. 50 Chairman of the Board; Chief Executive Officer
John H. Kang.................. 35 President; Director
Lee A. Robbins................ 56 Vice President, Treasurer and Chief Financial Officer
John P. Sessions.............. 56 Vice President and Chief Operating Officer
Frederick B. Karl, Jr......... 43 Vice President and General Counsel; Director
Franklyn M. Krieger........... 35 Secretary and Associate General Counsel
Courtney F. Jones............. 58 Director
Raymond Kurzweil.............. 50 Director
Richard W. Mehrlich........... 50 Director
Chris A. Peifer............... 50 Director
</TABLE>

Michael A. Singer has been Chairman of the Board and Chief Executive
Officer of the Company since the consummation of the IPO. Mr. Singer is the
founder of MMR&D and is the principal inventor of The Medical Manager software
program. From MMR&D's inception in 1981, Mr. Singer has been a director and its
President and Chief Executive Officer. Mr. Singer received a B.A. in Business
Administration from the University of Florida in 1969 and a Masters degree in
Economics from the University of Florida in 1971.

John H. Kang has been President and a director of the Company since July
1996. Mr. Kang is the founder of Medical Manager Southeast, Inc., the Company's
wholly-owned subsidiary which provides direct sales, marketing and support to
customers in its Southeast region, and has served as its President since its
inception in 1994. In 1987, Mr. Kang founded J. Holdsworth Capital, Ltd., a
private investment firm, and is currently its President. Since May 1995 Mr. Kang
has been a director of Amorphous Technologies International, a company engaged
in the research and development and manufacture of metal alloy. Mr. Kang also
has been a director of Nutcracker Snacks, Inc., a manufacturer of snack foods,
since December 1988. From June 1988 until September 1996, Mr. Kang was the
Chairman and a director of Clayton Group, Inc., a distributor of waterworks
materials. Mr. Kang is also currently a director of Coast Dental Services, Inc.,
a company which is traded on the Nasdaq National Market. Mr. Kang received an
A.B. in Economics from Harvard College in 1985.

Lee A. Robbins has been Vice President of the Company since November 1996
and Chief Financial Officer since the consummation of the IPO. From July 1995
through November 1996, Mr. Robbins served as Vice President and Chief Financial
Officer of American Ophthalmic Incorporated, a physician practice management
company. From 1985 to June 1995, he was Vice President and Chief Financial
Officer of Puritan-Bennett Corporation, a respiratory equipment company. Before
entering the health care management industry in 1985, Mr. Robbins held a number
of financial positions with Armco Inc., a Fortune 500 company based in
Middletown, Ohio. Mr. Robbins received a B.S. in Accounting from the University
of Cincinnati and an M.B.A. from Xavier University.

John P. Sessions has been Vice President and Chief Operating Officer of the
Company since April 1997. Prior to joining the Company, Mr. Sessions was
employed as Executive Vice President and Chief Operating Officer of Companion
Technologies, Inc., a subsidiary of Blue Cross/Blue Shield of South Carolina,
from 1995 to 1997. From 1986 to 1995, Mr. Sessions served as Vice President and
Chief Operating Officer of Companion Technologies, Inc. Mr. Sessions graduated
from the Electronic Computer Programming Institute of the University of South
Carolina in 1968 with a degree in Computer Science.

Frederick B. Karl, Jr. has been Vice President and General Counsel of the
Company since the consummation of the IPO. Mr. Karl also served as the Secretary
of the Company from the consummation of the IPO until July 1997. Mr. Karl has
been the General Counsel of MMR&D since 1988, and also has served as a Vice
President of MMR&D since 1990. Mr. Karl provided legal services to MMR&D from
1984 through

37
<PAGE> 38

1988 while he was in private practice. Mr. Karl received a B.A. from Florida
State University in 1977 and a J.D. from the University of Florida College of
Law in 1981.

Franklyn M. Krieger has been the Associate General Counsel of the Company
since October 1996 and has been the Secretary since July 1997. Prior to joining
the Company, Mr. Krieger was engaged in the private practice of law. Mr. Krieger
received a B.A. from the State University of New York at Buffalo in 1985 and a
J.D. from Wayne State University in 1988.

Courtney F. Jones has been a director of the Company since April 1997. Mr.
Jones has served as Director, Chairman of the Audit Committee and Member of the
Executive Committee of First Data Corporation since its inception in 1992. Prior
to that, Mr. Jones served as Managing Director in the Investment Banking
Division of Merrill Lynch & Co., Inc. from 1989 to 1990, Director, Executive
Vice President and Chief Financial Officer of Merrill Lynch & Co. from 1985 to
1989 and Secretary to the Finance Committee of the Board of Directors and
Treasurer of General Motors Corporation from 1982 to 1985. Mr. Jones received
his B.S. degree from Wayne State University in 1963 and his M.B.A. degree from
the University of Chicago in 1968.

Raymond Kurzweil has been a director of the Company since April 1997. Mr.
Kurzweil was the founder of Kurzweil Applied Intelligence, Inc. ("KAI") and
served as Chief Technology Officer of KAI from its inception in 1982 to 1997.
Mr. Kurzweil currently serves as a consultant to KAI. Mr. Kurzweil has also
served as the Chairman and Chief Executive Officer of Kurzweil Educational
Systems, Inc. and Kurzweil Technologies, Inc. since 1996 and 1995, respectively.
Mr. Kurzweil also serves on the Board of Directors of Wang Laboratories, Inc.
Mr. Kurzweil received a B.S. degree in Computer Science and Literature from
Massachusetts Institute of Technology in 1970.

Richard W. Mehrlich is the founder of Medical Manager Sales & Marketing,
Inc., the Company's wholly-owned subsidiary which coordinates its national sales
and marketing activities. Mr. Mehrlich served as the President and Chief
Executive Officer of Medical Manager Sales & Marketing, Inc. from 1980 through
1997. Mr. Mehrlich served as the Executive Vice President -- Sales & Marketing
of the Company from January 1997 through September of 1997, and he continues to
serve as a member of the Board of Directors of the Company. Mr. Mehrlich's
previous experience includes serving as Director of Marketing for Dynabyte
Corporation, a microcomputer hardware manufacturer, and as a regional sales
representative for Texas Instruments, Component Sales Division. Mr. Mehrlich
received a degree in Electrical Engineering from the Milwaukee School of
Engineering in 1970.

Chris A. Peifer has been a director of the Company since April 1997. Mr.
Peifer has been the President of Tice Financial Services, Inc. ("Tice") in
Tampa, Florida since 1987. Prior to joining Tice, Mr. Peifer was Chairman and
Chief Executive Officer of EESCO, Inc., a regional distributor of electrical
equipment headquartered in Chicago, Illinois, from 1985 to 1987. From 1982 to
1985, Mr. Peifer was President and Chief Executive Officer of Bass & Company of
Atlanta, Georgia. Mr. Peifer was a founder and served as a director of The
Commercial Bank of Georgia from 1988 to 1996. Mr. Peifer has served as a
director of PrimeSource of Dallas, Texas from 1989 to the present. Mr. Peifer
received a B.A. degree from Denison University in 1970 and an M.B.A. degree from
the Kellogg School at Northwestern University.

BOARD CLASSIFICATION

The Board is divided into three classes, with directors serving staggered
three-year terms, expiring at the annual meeting of stockholders in 1998, 1999
and 2000, respectively. At each annual meeting of stockholders, one class of
directors will be elected for a full term of three years to succeed that class
of directors whose terms are expiring. Mr. Singer has the right to designate up
to two directors of the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board has the responsibility for establishing broad corporate policies
and for the overall performance of the Company. The Board has established an
Audit Committee and a Compensation Committee, each of which consists solely of
independent directors, to assist it in carrying out its duties.

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<PAGE> 39

The Audit Committee is responsible for recommending to the Board the
selection of the independent certified public accountants, reviewing the
arrangements and scope of the independent audit, and reviewing all financial
statements. Messrs. Jones, Kurzweil and Peifer comprise the membership of the
Audit Committee.

The Compensation Committee is responsible for making recommendations to the
Board concerning executive compensation, including base salaries, bonuses and
criteria for their award, stock option plans, stock option grants and other
benefits. The Compensation Committee also administers the Company's 1996 Long-
Term Incentive Plan and Amended and Restated 1996 Non-Employee Directors' Stock
Plan. Messrs. Jones, Kurzweil and Peifer comprise the membership of the
Compensation Committee.

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<PAGE> 40

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 3, 1998, and as adjusted to
reflect the sale of the Common Stock offered hereby, by (i) each person known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors and executive officers, (iii) each
of the Selling Stockholders and (iv) all current directors and executive
officers of the Company as a group. Unless otherwise indicated, each person or
entity named below has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such person or entity,
subject to community property laws, where applicable, and the information set
forth in the footnotes to the table below.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING(1)
-------------------- NUMBER OF --------------------
NUMBER OF SHARES BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Michael A. Singer(2)................. 6,395,000 32.0% 500,000 5,895,000 27.4%
Richard W. Mehrlich(3)............... 2,305,783 11.5 500,000 1,805,783 8.4
John H. Kang......................... 515,614 2.6 -- 515,614 2.4
Lee A. Robbins(4).................... 35,000 * -- 35,000 *
John P. Sessions(5).................. 34,333 * -- 34,333 *
Frederick B. Karl, Jr.(6)............ 32,000 * -- 32,000 *
Franklyn M. Krieger(7)............... -- * -- -- *
Courtney F. Jones(8)................. 20,000 * -- 20,000 *
Raymond Kurzweil(9).................. 10,000 * -- 10,000 *
Chris A. Peifer(10)(11).............. 106,636 * -- 106,636 *
All directors and executive officers
as a group (10 persons)............ 9,454,366 47.0 1,000,000 8,454,366 39.1
</TABLE>

- ------------------------------

* Less than one percent (1%).

(1) The number of shares of Common Stock outstanding after this Offering
includes the 1,500,000 shares of Common Stock being offered for sale by the
Company in this Offering. Assumes no exercise of the Underwriters'
over-allotment option.

(2) Includes 6,370,000 shares owned by MAS 1997 Family Limited Partnership,
20,000 shares held by MDDS Ltd. and 5,000 shares held by Michael Singer,
custodian for Durga Singer UGMA/FL.

(3) Includes 2,160,000 shares held directly, 63,914 shares held through
Professional Management Systems, Inc. (of which Mr. Mehrlich is the
majority shareholder) and 81,869 shares held by Mr. Mehrlich's spouse who
shares the same household.

(4) Includes 30,000 shares underlying options which are exercisable. Does not
include 90,000 shares issuable in connection with options that are not
exercisable within 60 days of the date hereof.

(5) Includes 8,333 of the 50,000 shares of Common Stock awarded to Mr. Sessions
on April 18, 1997, the date of the execution of his employment agreement
with the Company, which share award vests in six equal annual installments
beginning on January 30, 1998, and 25,000 shares underlying options which
are exercisable. Excludes the remaining 41,667 shares awarded to Mr.
Sessions on April 18, 1997 and 75,000 shares issuable in connection with
options which are not exercisable within 60 days of the date hereof.

(6) Includes 31,500 shares underlying options which are exercisable within 60
days of the date hereof. Does not include 105,000 shares issuable in
connection with options that are not exercisable within 60 days of the date
hereof.

(7) Excludes 7,500 shares issuable in connection with options that are not
exercisable within 60 days of the date hereof.

(8) Includes 20,000 shares underlying options which are exercisable within 60
days of the date hereof. Excludes 7,000 shares issuable in connection with
options that are not exercisable within 60 days of the date hereof.

(9) Includes 10,000 shares underlying options which are exercisable within 60
days of the date hereof. Excludes 7,000 shares issuable in connection with
options that are not exercisable within 60 days of the date hereof.

(10) Includes 10,000 shares underlying options which are exercisable within 60
days of the date hereof. Excludes 7,000 shares issuable in connection with
options that are not exercisable within 60 days of the date hereof.

(11) Mr. Peifer acquired 51,636 of the 106,636 beneficially owned shares in
connection with the Company's acquisition of Medical Manager Southeast,
Inc., which was one of the Founding Companies.

40
<PAGE> 41

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.01 per share, and 500,000 shares of undesignated
preferred stock, par value $0.01 per share (the "Preferred Stock").

The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation (the "Certificate of Incorporation") and the Amended and Restated
By-laws and are qualified in their entirety by reference thereto.

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters voted upon by stockholders, including the
election of directors. The Certificate of Incorporation does not provide for
cumulative voting, and, accordingly, the holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to the rights of any then outstanding
shares of Preferred Stock, the holders of the Common Stock are entitled to such
dividends as may be declared in the discretion of the Board of Directors out of
funds legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of shares of Common Stock have no
preemptive rights to purchase shares of stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of the Company. All outstanding shares of Common Stock are,
and the shares of Common Stock to be issued pursuant to this Offering will be
upon payment therefor, fully paid and nonassessable.

The Common Stock trades on the Nasdaq National Market under the symbol
"MMGR."

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Certificate of
Incorporation and limitations prescribed by law, the Board of Directors is
expressly authorized to adopt resolutions to issue the shares, to fix the number
of shares and to change the number of shares constituting any series and to
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any series of the Preferred Stock, in each case without
any further action or vote by the stockholders. The Company has no current plans
to issue any shares of Preferred Stock.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to the provisions of Section 203 ("Section 203") of
the Delaware General Corporation Law ("DGCL"). Section 203 provides, with
certain exceptions, that a Delaware corporation may not engage in any of a broad
range of business combinations with a person or an affiliate or associate of
such person who is an "interested stockholder" for a period of three years from
the date that such person became an

41
<PAGE> 42

interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the Board of Directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66% of
the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.

The Company's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. The provisions of Section 203 could
delay or frustrate a change in control of the Company, deny stockholders the
receipt of a premium on their Common Stock and have an adverse effect on the
Common Stock. The provisions also could discourage, impede or prevent a merger
or tender offer, even if such event would be favorable to the interests of
stockholders.

LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION

Limitation on Liability. Pursuant to the Certificate of Incorporation and
as permitted by Section 102(b)(7) of the DGCL, directors of the Company are not
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty, except for liability in connection with a breach of duty of
loyalty, for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, for dividend payments or stock
repurchases that are illegal under Delaware law or for any transaction in which
a director has derived an improper personal benefit.

Indemnification. To the maximum extent permitted by law, the Certificate
of Incorporation provides for mandatory indemnification of directors and
officers of the Company against any expense, liability and loss to which they
become subject, or which they may incur as a result of having been a director or
officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with certain
claims.

POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS

The Certificate of Incorporation and the Amended and Restated By-laws
contain provisions that could have an antitakeover effect. The provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors. These provisions also are intended to help ensure that the
Board of Directors, if confronted by an unsolicited proposal from a third party
which has acquired a block of stock of the Company, will have sufficient time to
review the proposal and appropriate alternatives to the proposal and to act in
what it believes to be the best interest of the stockholders.

The following is a summary of such provisions in the Certificate of
Incorporation and the Amended and Restated By-laws. The Board of Directors has
no current plans to formulate or effect additional measures that could have an
antitakeover effect.

Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a relatively short period of time. At least two annual meetings
of stockholders, instead of one, generally will be required to effect a change
in a majority of the Board of Directors. Such a delay may help ensure that the
Board of Directors and the stockholders, if confronted with an unsolicited
proposal by a stockholder attempting to force
42
<PAGE> 43

a stock repurchase at a premium above market, a proxy contest or an
extraordinary corporate transaction, will have sufficient time to review the
proposal and appropriate alternatives to the proposal and to act in what it
believes to be the best interest of the stockholders. Directors, if any, elected
by holders of the Preferred Stock voting as a class, will not be classified as
aforesaid. Moreover, under Delaware law, in the case of a corporation having a
classified board, stockholders may remove a director only for cause. This
provision will preclude the stockholders from removing incumbent directors
without cause.

Advance Notice Requirements for Director Nominees. The Amended and
Restated By-laws establish an advance notice procedure with regard to the
nomination of candidates for election as directors at any meeting of
stockholders called for the election of directors. The procedure provides that a
notice relating to the nomination of directors must be timely given in writing
to the Secretary of the Company prior to the meeting. To be timely, notice
relating to the nomination of directors must be delivered not less than 90 days
prior to any annual meeting or 10 days following notice to the stockholder of
any special meeting called for the election of directors.

Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must be accompanied by each proposed
nominee's written consent and contain the name, address and principal occupation
of each proposed nominee and other information that may be required under the
proxy rules of the Commission. Such notice must also contain the total number of
shares of capital stock of the Company that will be voted for each of the
proposed nominees, the name and address of the notifying stockholder and the
number of shares of capital stock of the Company owned by the notifying
stockholder.

The presiding officer of a meeting of stockholders may determine that a
person is not nominated in accordance with the nomination procedure, in which
case such person's nomination will be disregarded. Nothing in the nomination
procedure will preclude discussion by any stockholder of any nomination properly
made or brought before any meeting called for the election of directors in
accordance with the above-mentioned procedures.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.

43
<PAGE> 44

UNDERWRITING

Subject to the terms and certain conditions contained in the Underwriting
Agreement dated April 23, 1998 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), who are represented by Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Morgan Stanley & Co. Incorporated,
Smith Barney Inc. and Raymond James & Associates, Inc. (the "Representatives"),
have severally agreed to purchase from the Company and the Selling Stockholders
the respective number of shares of Common Stock set forth opposite its name
below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... 700,000
Morgan Stanley & Co. Incorporated........................... 700,000
Smith Barney Inc............................................ 700,000
Raymond James & Associates, Inc............................. 400,000
---------
Total............................................. 2,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to the approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery for all the shares of Common Stock offered hereby
(other than those shares of the Common Stock covered by the over-allotment
option described below) if any are purchased.

The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $0.90 per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $0.10 per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice.

The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable for 30 days from the date of this Prospectus, to purchase
up to 375,000 additional shares of Common Stock at the price set forth on the
cover page of this Prospectus less underwriting discounts and commissions. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the Offering. To the extent that the Underwriters
exercise such option, each of the Underwriters become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such Underwriter's percentage underwriting commitment in the preceding
table.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

Each of the Company, its executive officers and directors and the Selling
Stockholders has agreed, subject to certain exceptions, not to (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 90 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed, subject to certain
exceptions, not to file any registration statement with respect to, and each of
its executive officers, directors and certain stockholders of the Company
(including the Selling Stockholders) has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of

44
<PAGE> 45

Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock without DLJ's prior written consent.

Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the offering of the Common Stock and the distribution
of this Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.

The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for or purchase shares of Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two month prior period, or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.

In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end any
of these activities at any time.

45
<PAGE> 46

LEGAL MATTERS

The validity of shares of the Common Stock offered hereby will be passed
upon for the Company by Akerman, Senterfitt & Eidson, P.A., Miami, Florida.
Certain matters will be passed upon for the Underwriters by Hogan & Hartson
L.L.P., Washington, D.C. Certain attorneys at Akerman, Senterfitt & Eidson, P.A.
own shares of the Common Stock.

EXPERTS

The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997, included in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.

The financial statements of Companion Technologies of Texas as of December
31, 1997 and 1996, and for the years ended December 31, 1997 and 1996, and the
financial statements of Companion Technologies of Florida, Inc. as of December
31, 1997 and 1996, and for the years ended December 31, 1997 and 1996,
incorporated by reference in this Prospectus, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and the rules and regulations promulgated thereunder, and, in accordance
therewith, files reports, proxy and information statements and other information
with the Commission. These reports, proxy and information statements and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices
located at Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Commission at
prescribed rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a site on the World Wide
Web at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby
(including all amendments and supplements thereto, the "Registration
Statement"). This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto can be inspected and copied at the public
reference facilities and regional offices of the Commission.

46
<PAGE> 47

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>

F-1
<PAGE> 48

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Medical Manager Corporation

We have audited the consolidated financial statements of Medical Manager
Corporation listed in the index on page F-1. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Medical Manager
Corporation as of December 31, 1997 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Tampa, Florida
February 6, 1998, except for certain information contained
in Note 13 for which the date is February 28, 1998

F-2
<PAGE> 49

MEDICAL MANAGER CORPORATION

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1997 1996
------- ------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 6,410 $2,693
Investments............................................ 0 202
Accounts receivable, net of allowance of $955 and $150,
respectively.......................................... 16,230 4,034
Inventory.............................................. 1,677 105
Prepaid expenses and other current assets.............. 2,449 196
Deferred income taxes.................................. 727 0
------- ------
Total current assets.............................. 27,493 7,230
PROPERTY AND EQUIPMENT, net................................. 4,158 1,403
GOODWILL AND OTHER INTANGIBLES, net......................... 23,775 0
OTHER ASSETS................................................ 117 326
------- ------
Total assets...................................... $55,543 $8,959
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.......................................... $ 3,400 $1,303
Accounts payable and accrued liabilities............... 6,036 2,665
Customer deposits and deferred maintenance revenue..... 5,897 3,285
Income taxes payable................................... 617 12
------- ------
Total current liabilities......................... 15,950 7,265
LONG-TERM OBLIGATIONS, net of current maturities............ 4,037 705
DUE TO AFFILIATE............................................ 0 117
------- ------
Total liabilities................................. 19,987 8,087
------- ------
Commitments and contingencies (Notes 4, 5 and 13)
STOCKHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized, none issued
and outstanding
Common stock, $.01 par value, 50,000,000 shares
authorized............................................ 197 80
Additional paid-in capital............................. 28,312 121
Retained earnings...................................... 7,047 671
------- ------
Total stockholders' equity........................ 35,556 872
------- ------
Total liabilities and stockholders' equity........ $55,543 $8,959
======= ======
</TABLE>

See Accompanying Notes to the Consolidated Financial Statements.
F-3
<PAGE> 50

MEDICAL MANAGER CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenue
Systems................................................ $47,693 $22,464 $18,824
Maintenance and other.................................. 30,434 10,488 9,033
------- ------- -------
Total revenue..................................... 78,127 32,952 27,857
------- ------- -------
Cost of revenue
Systems................................................ 20,054 9,493 8,761
Maintenance and other.................................. 16,779 5,464 3,983
------- ------- -------
Total costs of revenue............................ 36,833 14,957 12,743
------- ------- -------
Gross margin................................. 41,294 17,995 15,114
------- ------- -------
Operating expenses
Selling, general and administrative.................... 20,238 8,588 6,580
Research and development............................... 3,170 2,672 2,048
Depreciation and amortization.......................... 1,543 502 557
------- ------- -------
Total operating expenses.......................... 24,951 11,762 9,185
------- ------- -------
Income from operations....................... 16,343 6,233 5,929
Other income (expense)
Interest expense....................................... (168) (111) (170)
Interest income........................................ 604 116 137
Other income (expense)................................. 101 (570) (17)
------- ------- -------
Income before income taxes.................................. 16,880 5,668 5,879
Income taxes................................................ 5,657 6 6
------- ------- -------
Net income............................................. $11,223 $ 5,662 $ 5,873
======= ======= =======
Basic earnings per share (Note 8)........................... $ 0.58
=======
Diluted earnings per share (Note 8)......................... $ 0.56
=======
</TABLE>

See Accompanying Notes to the Consolidated Financial Statements.
F-4
<PAGE> 51

MEDICAL MANAGER CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
--------------- PAID IN GAIN (LOSS) RETAINED
SHARES AMOUNT CAPITAL ON INVESTMENT EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995, as restated... 8,015 $ 80 $ 121 $(95) $ 2,980 $ 3,086
Dividends......................... (5,354) (5,354)
Net income........................ 5,873 5,873
Change in unrealized (loss) on
investments.................. 97 0 97
------ ---- ------- ---- ------- -------
Balance December 31, 1995.............. 8,015 80 121 2 3,499 3,702
Dividends......................... (8,490) (8,490)
Net income........................ 5,662 5,662
Change in unrealized gain on
investment................... (2) (2)
------ ---- ------- ---- ------- -------
Balance December 31, 1996.............. 8,015 80 121 0 671 872
Dividends......................... (4,802) (4,802)
Issuance of Common Stock at the
IPO, net..................... 6,000 60 58,170 58,230
Mergers:
Payments to MMR&D
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:
Issuance of Common Stock for
acquisitions of
Purchased Companies..... 380 4 6,521 6,525
Contributions from former
stockholders............ 45 (45) 0
Stock options exercised........... 11 0 126 126
Net income........................ 11,223 11,223
------ ---- ------- ---- ------- -------
Balance December 31, 1997.............. 19,741 $197 $28,312 $ 0 $ 7,047 $35,556
====== ==== ======= ==== ======= =======
</TABLE>

See Accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE> 52

MEDICAL MANAGER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 11,223 $ 5,662 $ 5,873
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 1,543 502 557
Allowance for doubtful accounts........................ 144 23 45
Deferred income taxes.................................. (615) (8) (2)
Loss on sale of property and equipment................. 0 1 3
Loss on impaired asset................................. 0 532 0
Realized gain on marketable securities................. (52) 0 (2)
Changes in assets and liabilities, net of effects from
acquisitions
Accounts receivable.................................... (6,344) (1,133) (128)
Inventory.............................................. (322) (51) (4)
Prepaid expenses and other assets...................... (899) (281) (115)
Accounts payable and accrued liabilities............... (2,966) 562 160
Customer deposits and deferred maintenance revenue..... (3,011) 1,579 99
Income taxes payable................................... 345 8 2
-------- ------- -------
Net cash provided by (used in) operating
activities...................................... (954) 7,396 6,488
-------- ------- -------
Cash flow from investing activities:
Purchases of investments............................... 0 (51) (248)
Proceeds from sale of investments...................... 254 100 263
Purchases of property and equipment.................... (1,216) (571) (1,495)
Proceeds from sale of property and equipment........... 28 26 43
Payments for acquisitions made, net of cash acquired... (13,189) 0 0
-------- ------- -------
Net cash used in investing activities............. (14,123) (496) (1,437)
-------- ------- -------
Cash flow from financing activities:
Proceeds from the issuance of notes payable............ 312 142 323
Payments of notes payable.............................. (7,442) (210) (292)
Due to affiliates...................................... 4,998 17 0
Net proceeds from the issuance of Common Stock......... 58,357 0 0
Payments made to stockholder of MMR&D.................. (35,062) 0 0
Dividends.............................................. (2,369) (5,779) (5,355)
-------- ------- -------
Net cash provided by (used in) financing
activities...................................... 18,794 (5,830) (5,324)
-------- ------- -------
Net change in cash and cash equivalents........... 3,717 1,070 (273)
-------- ------- -------
Cash and cash equivalents:
Beginning of period.................................... 2,693 1,623 1,896
-------- ------- -------
End of period.......................................... $ 6,410 $ 2,693 $ 1,623
======== ======= =======
Supplemental Cash Flow Data:
Non-cash dividends..................................... $ 2,416 $ 2,709 $ 0
Cash paid for interest................................. $ 155 $ 123 $ 125
Cash paid for taxes.................................... $ 5,705 $ 14 $ 19
</TABLE>

See Accompanying Notes to the Consolidated Financial Statements.
F-6
<PAGE> 53

MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 software, a leading physician practice management system
for independent physicians, physician groups, management service organizations
("MSOs"), Physician Practice Management companies ("PPMs"), 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 IPO") 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 Midwest, 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 IPO. 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 IPO.

Subsequent to the consummation of the IPO, MMC and the Founding Companies
executed and closed agreements to acquire the following resellers of The Medical
Manager software (the "Acquired Companies"): (i) The Computer Clinic, Inc. and
its affiliates ("Computer Clinic") based in Valhalla, New York; (ii) Adaptive
Health Systems of Washington, Inc. ("Adaptive Health") based in Federal Way,
Washington; (iii) LSM Computing, Inc. ("LSM") based in Somerville, New Jersey;
(iv) Specialized Systems, Inc. ("SSI") based in Van Nuys, California; (v)
Treister-Thorne, Inc. d/b/a Advanced Medical Management, Inc. ("AMM") based in
Houston, Texas; (vi) UNICO, Inc. ("UNICO") based in Evansville, Indiana; (vii)
Medysis, Inc. based in Fort Wayne, Indiana; (viii) Computers for Medicine
Corporation and Carecom, Inc. ("C4M") based in Englewood, Colorado; (ix)
Unisource Systems, Inc. ("Unisource") based in Corpus Christi, Texas; and (x)
CompRx Systems Corporation ("CompRx") based in Hauppauge, New York. All of the
acquisitions of the Acquired Companies closed during the year ended December 31,
1997 and were accounted for using the pooling of interests method of accounting.
The aggregate consideration paid for the Acquired Companies consisted of
1,644,836 shares of Common Stock.

Also subsequent to the consummation of the IPO, MMC and the Founding
Companies executed and closed definitive agreements to acquire substantially all
of the assets or all of the outstanding equity securities of the following
resellers of The Medical Manager software (the "Purchased Companies"): (i)
Artemis, Inc. based in Indianapolis, Indiana, on July 30, 1997; (ii) Boston
Computer Systems, Inc. based in Norwood, Massachusetts, on August 6, 1997; (iii)
Package Computer Systems, Inc. d/b/a PAC-COMP based in Sterling Heights,
Michigan, on August 1, 1997; (iv) Matrix Computer Consultants, Inc. based in
Norman, Oklahoma, on September 5, 1997; (v) Professional Management Systems,
Inc. based in St. Charles, Illinois, on September 10, 1997; (vi) AMSC, Inc.
based in Orlando, Florida, together with its wholly-owned subsidiary, AMSC
Midwest, Inc. based in Topeka, Kansas, on September 11, 1997; (vii) Data
Concepts, Inc. based in Boise, Idaho, on October 30, 1997; (viii) Medical
Systems Consultants, Inc. based in Boise, Idaho, on October 30, 1997; (ix)
Advanced Practice Management, Inc. based in San Diego, California, on November
10, 1997; (x) Medico Support Services, Inc. based in Salem, Oregon, on November
18, 1997; (xi) Companion Technologies of Florida, Inc. based in Tampa, Florida,
on December 31, 1997; and (xii) Companion Technologies of Texas based in
Arlington, Texas, on December 31, 1997. All of the acquisitions of the Purchased
Companies were accounted for using the purchase method of accounting. The
F-7
<PAGE> 54
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

aggregate consideration paid for the Purchased Companies was 380,230 shares of
Common Stock and $4,265,866 in cash and the issuance of $6,000,000 in debt.

MMC, the Founding Companies, the Acquired Companies, and the Purchased
Companies are referred to collectively as the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The accompanying financial statements have been
presented on a consolidated basis for the year ended December 31, 1997. The
consolidated financial statements include MMC and its wholly owned subsidiaries.
All significant intercompany balances and intercompany transactions have been
eliminated in consolidation. The accompanying consolidated financial statements
include MMC, MMR&D and the Acquired Companies through February 4, 1997, the date
of MMC's acquisition of the Founding Companies, after which the historical
financial statements reflect the results of MMC, MMR&D, the Acquired Companies,
and the other Founding Companies. The results of the Purchased Companies are
reflected as of their respective acquisition dates.

The accompanying financial statements have been presented on a consolidated
basis for the years ended December 31, 1996 and 1995. The financial statements
of MMR&D have been presented on a consolidated basis with those of MMC from July
10, 1996 and with those of the Acquired Companies from January 1, 1995. As
discussed in Note 1, following the close of business of February 4, 1997, MMR&D
merged into a subsidiary of MMC upon consummation of the initial public offering
of the common stock of MMC. MMR&D is identified as the accounting acquirer.
Subsequent to the Offering, the Acquired Companies which were accounted for
under the pooling of interests method of accounting. The accompanying
consolidated financial statements have been adjusted retroactively to show the
effect of the recapitalization and the acquisition of the Acquired Companies as
if they had occurred on January 1, 1995.

Revenue Recognition. Revenue from software licenses is recognized upon
sale and shipment. Revenue from the sale of systems is recognized when the
system has been installed and when the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services is recognized as they are provided. Certain expenses are
allocated between the cost of sales for systems and sales of maintenance and
other based upon revenue, which basis management believes to be reasonable.

Goodwill and Other Intangibles. Goodwill and other intangibles consist of
covenants not to compete and goodwill arising from business acquisitions,
detailed as follows (in thousands):

<TABLE>
<S> <C>
Goodwill arising from business acquisitions............... $24,523
Covenants not to compete.................................. 227
-------
Total gross goodwill and other intangibles................ 24,750
Accumulated amortization.................................. 975
-------
Total net goodwill and other intangibles.................. $23,775
=======
</TABLE>

The covenants not to compete are being amortized over a period of two years
and the goodwill arising from business acquisitions is being amortized over a
twenty year period.

Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income.

F-8
<PAGE> 55
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation is provided principally on accelerated methods over the estimated
useful lives of the assets. Amortization of leasehold improvements is provided
for over the shorter of the estimated service life of the leased asset or the
lease term using the straight-line method.

Inventory. Inventory primarily consists of peripheral computer equipment.
Inventory cost is accounted for on the first-in, first-out basis and reported at
the lower of cost or market.

Research and Development. Software development costs are included in
research and development and are expensed as incurred. SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,
requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized cost is then amortized
over the estimated product life. To date, the period between achieving
technological feasibility and the general availability of such software has been
short and software development costs qualifying for capitalization have been
insignificant.

Cash and Cash Equivalents. The Company considers all highly liquid
investments with maturity dates of three months or less when purchased to be
cash equivalents.

Income Taxes. The Company utilizes the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years differences between the
tax basis of assets and liabilities and their financial reported amounts at each
year end based on enacted laws and statutory rates applicable to the periods in
which differences are expected to affect taxable income. A valuation allowance
is provided against the future benefits of deferred tax assets if it is
determined that it is more likely than not that the future tax benefits
associated with the deferred tax asset will not be realized. See Note 12.

Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.

Asset Impairment. SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long Lived Assets to be Disposed Of, effective for
years beginning after December 15, 1995, requires that long-lived assets and
certain intangibles to be held and used by the Company be reviewed for
impairment. The Company periodically assesses whether there has been a permanent
impairment of its long-lived assets, in accordance with SFAS No. 121. No
write-down of assets due to impairment was required in the year ended December
31,1997. Approximately $500,000 of goodwill recorded by one of the Acquired
Companies, prior to their acquisition by the Company, was written off in the
year ended December 31, 1996.

New Accounting Pronouncements. SFAS No. 128, Earnings per Share, is
effective for fiscal years ending after December 15, 1997. This Statement
establishes standards for computing and presenting earnings per share (EPS). The
provisions of this pronouncement have been reflected in accompanying financial
statements. Annual earnings per share has not previously been reported; however,
1997 quarterly information has been restated to comply with SFAS No. 128.
Historical earnings per share calculations for the years ended December 31, 1996
and 1995 have not been presented because it is not considered meaningful as a
result of the exclusion of the Founding Companies as discussed in Note 2.

SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal
years beginning after December 15, 1997. This Statement establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purposes financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.

F-9
<PAGE> 56
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has addressed the requirements of SFAS No. 130 and no material
impact on the financial statements is expected.

SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of and
allocation of resources to operating segments. The Company has not yet
determined to what extent the standard will impact its current practice of
reporting operating segment information.

SOP 97-2, Software Revenue Recognition, is effective for fiscal years
beginning after December 15, 1997. This Statement provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions and establishes certain criteria for revenue recognition. The
Company is currently assessing the impact that the revenue recognition criteria
stated in this pronouncement will have on the financial statements.

Reclassifications. Certain prior year amounts have been reclassified to
conform with 1997 presentations. These reclassifications had no impact on net
income or stockholders' equity.

Concentration of Credit Risk. The Company's credit concentrations are
limited due to the wide variety of customers in the health care industry and the
geographic areas into which the Company's systems and services are sold.

Non-cash Transactions. Non-cash transactions during the year included the
purchase of approximately $23.7 million of assets of the other Founding
Companies and the Purchased Companies through the assumption of liabilities and
the issuance of Common Stock.

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1997 and 1996 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land and improvements....................................... $ 10 $ 10
Buildings................................................... 310 310
Furniture and fixtures...................................... 1,954 892
Office equipment and computers.............................. 4,317 1,276
Vehicles.................................................... 751 222
Leasehold improvements...................................... 289 23
Other....................................................... 160 0
------ ------
7,791 2,733
Less accumulated depreciation............................... (3,633) (1,330)
------ ------
Net property and equipment.................................. $4,158 $1,403
====== ======
</TABLE>

Depreciation expense was approximately $1.0 million, $449,000 and $537,000
for the years ended December 31, 1997, 1996 and 1995, respectively.

F-10
<PAGE> 57
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. NOTES PAYABLE

Notes payable at December 31, 1997 and 1996 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Note payable, stockholder(1)
Interest: 5.85%........................................ $ 693 $ 0
Notes payable, stockholders
Interest: various between 9% and 11%................... 22 91
Note payable, bank(2)
Interest: 1% above prime (9.75% at December 31,
1996)................................................. 0 459
Notes payable, vehicles
Interest: various between 8.15% and 8.25%.............. 0 81
Notes payable, other
Interest: various between 6.6% and 10%................. 0 492
Notes payable, remainder of purchase price for acquisitions
Interest: 5.5% -- 8.25%(3)............................. 6,294 0
Promissory notes, stockholders
Interest: various between 10% and 15%.................. 0 13
Promissory note, ($250,000 note)(4)
Interest: 18%.......................................... 250 250
Lines of credit(5)
Interest: various between 10% and 3% above prime
(11.25% at December 31, 1996).......................... 0 170
Line of credit (2)
Interest: 10.5%........................................ 59 26
Mortgages payable
Interest: various between 8.625% and 2% above prime
(10.25% at December 31, 1996).......................... 0 255
Non-compete agreements
Due: various monthly amounts through 1998.............. 34 0
Obligations under capital leases............................ 85 171
------ ------
Total debt.................................................. 7,437 2,008
Less current maturities..................................... 3,400 1,303
------ ------
Total long-term debt........................................ $4,037 $ 705
====== ======
</TABLE>

- ------------------------------

(1) Upon consummation of the IPO, MMR&D elected to terminate its S Corporation
status. The "Notes payable, stockholder" represents amounts due to the sole
stockholder of MMR&D for dividends equal to the estimated balance in the S
Corporation's Accumulated Adjustment Account as of February 4, 1997 and is
payable on demand.

(2) Balance was paid in full in January 1998 and has been classified as current
maturities of long-term debt. The line of credit was closed in January 1998.

(3) The Notes payable for the remainder of the purchase price for acquisitions
are due as follows: $231,000 due March 23, 1998; $2,000,000 due June 30,
1998; $25,000 due November 10, 1998; $37,500 due November 17, 1998;
$2,000,000 due January 15, 1999; and $2,000,000 due January 15, 2000.

(4) On August 10, 1994, one of the Acquired Companies entered into a note
payable in the amount of $250,000. The note was issued in connection with
the Acquired Company's purchase of certain assets of Solutions Plus, Inc.
The note is payable in 48 monthly installments, beginning September, 1994.
Payment of this note is in dispute. The Company has not made payments
according to its terms; accordingly, the Company may be considered to be in
default. As a result of the potential default, the entire principal amount,
plus accrued interest of $99,900, has been recorded as a current liability.

(5) These lines of credit were closed during the year ended December 31, 1997.

F-11
<PAGE> 58
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum payments under debt obligations, excluding capital lease
obligations, during the years subsequent to December 31, 1997 are as follows (in
thousands):

<TABLE>
<S> <C>
1998........................................................ $3,352
1999........................................................ 2,000
2000........................................................ 2,000
------
Total....................................................... 7,352
Less current maturities..................................... 3,352
------
Total....................................................... $4,000
======
</TABLE>

Future minimum payments under capital lease obligations during the years
subsequent to December 31, 1997 are as follows (in thousands):

<TABLE>
<S> <C>
1998........................................................ $51
1999........................................................ 34
2000........................................................ 8
---
Total....................................................... 93
Less amount representing interest........................... 8
---
Present value of future minimum lease payments.............. 85
Less current maturities..................................... 48
---
Total....................................................... $37
===
</TABLE>

The carrying amount of all debt obligations approximates fair market value
because of the short maturity of these instruments.

5. COMMITMENTS AND CONTINGENCIES

The Company leases its office facilities and certain equipment under
operating leases having terms ranging from one to five years.

Future minimum rental commitments under noncancellable operating leases are
approximately as follows (in thousands):

<TABLE>
<S> <C>
1998........................................................ $2,200
1999........................................................ 1,500
2000........................................................ 1,000
2001........................................................ 600
2002........................................................ 60
------
Total....................................................... $5,360
======
</TABLE>

Rent expense was approximately $1.9 million, $841,000 and $511,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.

MMR&D and MMMW lease certain facilities under operating leases from
entities owned by certain stockholders. The leases expire between the years 1999
and 2001. The MMR&D lease provides for two options to renew for one year each
and the MMMW lease provides for three options to renew for five years each. Rent
paid to the stockholders for these leases was $423,000, $254,000 and $0 for the
years ended December 31, 1997, 1996 and 1995, respectively.

F-12
<PAGE> 59
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. SUMMARY FINANCIAL DATA OF THE ACQUISITIONS

The acquisitions of the Acquired Companies discussed in Note 1 have been
accounted for as 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 $12,818,000 for
the period of January 1, 1997 through their respective acquisition dates and
revenues of $22,387,000 and $16,838,000 for the years ended December 31, 1996
and 1995, respectively. Net income of the Acquired Companies was $199,000 for
the period of January 1, 1997 through their respective acquisition dates and
$111,000 for the year ended December 31, 1996. The Acquired Companies had a net
loss of $73,000 for the year ended December 31, 1995. Changes in the Acquired
Companies' stockholders' equity for the period of January 1, 1997 though their
respective acquisition dates were $790,000. Changes in the Acquired Companies'
stockholders' equity for the year ended December 31, 1996 were $890,000. Changes
in the Acquired Companies' stockholders' equity for the year ended December 31,
1995 were $248,000.

The acquisitions of the Purchased Companies discussed in Note 1 were
accounted for using the purchase method of accounting, and accordingly the
consolidated financial statements reflect the results of operations for the
Purchased Companies only since their respective dates of acquisition. Pro forma
revenues, net income and earnings per share of the Company are presented below
(in thousands, except per share data) as though the acquisitions of Companion
Technologies of Florida, Inc., Companion Technologies of Texas, AMSC, Inc. and
AMSC Midwest, Inc. had occurred as of January 1, 1996. The remainder of the
Purchased Companies' revenues, net income, and earnings per share are not
considered significant.

<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
<S> <C> <C>
Revenues.................................................... $92,692 $47,677
Net income.................................................. 10,473 5,889
Basic earnings per share.................................... $0.54 --
Diluted earnings per share.................................. $0.52 --
</TABLE>

7. STOCKHOLDERS' EQUITY

At December 31, 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
(the "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)
nonqualified stock options, (iii) stock appreciation rights, (iv) restricted or
deferred stock (v) dividend equivalents, (vi) bonus shares and awards in lieu of
the Company's 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 Incentive Plan),
certain conditions and restrictions relating to an award with respect to the
ability to exercise or settle such award will be accelerated.

The maximum number of shares of Common Stock that may be subject to
outstanding awards under the Incentive Plan 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.

F-13
<PAGE> 60
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information regarding the stock option component of the Incentive Plan is
summarized below:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE
NUMBER PRICE PER
OF SHARES SHARE
<S> <C> <C>
Balance, January 1, 1997................................... -- --
Granted.................................................... 1,753,100 $11.238
Exercised.................................................. (11,525) 11.000
Forfeited.................................................. (84,413) 11.120
---------
Balance, December 31, 1997................................. 1,657,162 $11.245
=========
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE NUMBER OF
EXERCISE OUTSTANDING AT REMAINING EXERCISABLE AT WEIGHTED AVERAGE
PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE DECEMBER 31, 1997 EXERCISE PRICE
<S> <C> <C> <C> <C>
$ 8.875 10,000 10 2,500 $ 8.875
11.000 1,575,850 10 393,963 11.000
17.000 71,312 10 -- 17.000
</TABLE>

With the exception of 10,000 options, all of the 1,657,162 options which
were outstanding as of December 31, 1997, have a vesting schedule providing for
25% vesting at 6 months, 18 months, 30 months, and 42 months after the grant
date. There are a total of 10,000 options which vest fully on April 30, 1998.
All options expire 10 years after the date of grant. As of December 31, 1997,
396,463 options granted under the Incentive Plan were exercisable with a
weighted average exercise price of $10.99. 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 Common Stock on the date
of grant.

A total of 50,000 shares of restricted stock awards were issued under the
Incentive Plan. Compensation expense equal to the fair value of the Common Stock
on the date of grant ($8.375) is being recognized over a five year vesting
period of these stock awards. A total of $49,000 was recognized during the year
ended December 31, 1997.

AMENDED AND RESTATED 1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN

In September 1996, the Company adopted the Amended and Restated 1996
Non-Employee Directors' Stock Plan (the "Directors' 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,
the Directors' 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 three
months, later amended to sixty days. This plan also provides that each
non-employee director may elect to receive 2,000 stock options in each calendar
year in lieu of an annual cash fee and other cash payments for attending board
meetings. A total of 250,000 shares are reserved for issuance under the
Directors' Plan. The exercise price of options granted under the Directors' Plan
may be no less than the fair market value of the Common Stock on the date of
grant, and accordingly, no compensation expense has been recorded in connection
with the stock options granted.

F-14
<PAGE> 61
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information regarding the Directors' Plan is summarized below:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
<S> <C> <C>
Balance, January 1, 1997.................................... -- --
Granted..................................................... 51,000 $12.250
------ -------
Balance, December 31, 1997.................................. 51,000 $12.250
====== =======
</TABLE>

All options under the Directors' Plan vest one year after the date of grant
and expire 10 years after the date of grant. The exercise price of the options
outstanding under this plan range from $8.875 to $17.25. As of December 31,
1997, no options granted under the Directors' Plan were exercisable.

FINANCIAL ACCOUNTING STANDARD NO. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION"

In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 123, Accounting for Stock Based Compensation ("FAS 123")
which was effective for fiscal years beginning after December 15, 1995. As
permitted by FAS 123, the Company has elected to account for its stock based
plans under APB No. 25, Accounting for Stock Issued to Employees.

If the Company had elected to recognize compensation expense for stock
options based on the fair value at grant date, consistent with the method
prescribed in FAS 123, net income and earnings per share would have been reduced
to the pro forma amounts shown below (in thousands, except per share data):

<S> <C>
Net income
As reported............................................ $11,223
Pro forma.............................................. 8,136
Basic earnings per share
As reported............................................ $0.58
Pro forma.............................................. 0.42
Diluted earnings per share
As reported............................................ $0.56
Pro forma.............................................. 0.40
</TABLE>

There were no options outstanding as of December 31, 1996, thus pro forma
information is not provided for the year ended December 31, 1996.

The pro forma amounts were determined using the Black-Scholes Valuation
Model with the following key assumptions: (i) a volatility factor initially
based on the Company's average trading price since the IPO, as well as the
average trading stock price of comparable companies over the previous five
years; (ii) no dividend yield; (iii) a discount rate equal to the rate available
on U.S. Treasury Strip (zero-coupon) bond on the grant date, and (iv) an average
expected option life of four years for directors' options and five years for
employees' options.

F-15
<PAGE> 62
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. EARNINGS PER SHARE

Basic and diluted earnings per share for the year ended December 31, 1997
are calculated as set forth below (in thousands, except per share data):

<S> <C>
Net income.................................................. $11,223
=======
BASIC EARNINGS PER SHARE:
Weighted average shares outstanding.................... 19,490
-------
Basic shares........................................... $19,490
=======
Basic earnings per share............................... $ 0.58
=======
DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding.................... 19,490
Effect of dilutive shares:
Stock options..................................... 664
Stock awards...................................... 15
-------
Diluted shares......................................... 20,169
=======
Diluted earnings per share............................. $ 0.56
=======
</TABLE>

9. EMPLOYEE BENEFIT PLAN

The Company began a qualified 401(k) savings plan (the "Plan") covering all
employees meeting certain eligibility requirements on July 1, 1997. The Plan
permits each participant to reduce his or her taxable compensation basis by up
to 15% and have the amount of such reduction contributed to the Plan. The
Company makes a matching contribution of 15% of the first 6% of the compensation
deferred by each participant. Salary reduction contributions are immediately
vested in full; matching contributions vest 20% per year over a five year
period. During the year ended December 31, 1997, the Company made contributions
of $69,000.

F-16
<PAGE> 63
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for the years ended December 31, 1997
and 1996 is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
FOR THE YEAR ENDED DECEMBER 31, 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C>
REVENUE
As reported....................... $ 9,997 $15,967 $19,864 $23,812
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end....... 5,151 2,930 406 --
As adjusted....................... 15,148 18,897 20,270 23,812
GROSS MARGIN
As reported....................... $ 6,357 $ 9,330 $10,709 $11,990
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end....... 1,895 1,068 (55) --
As adjusted....................... 8,252 10,398 10,654 11,990
NET INCOME
As reported....................... $ 2,550 $ 2,608 $ 2,858 $ 3,299
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end....... 283 (117) (258) --
As adjusted....................... 2,833 2,491 2,600 3,299
BASIC EARNINGS PER SHARE............... $ 0.15 $ 0.13 $ 0.13 $ 0.17
DILUTED EARNINGS PER SHARE............. $ 0.14 $ 0.13 $ 0.13 $ 0.16
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
FOR THE YEAR ENDED DECEMBER 31, 1996 1996 1996 1996 1996
<S> <C> <C> <C> <C>
REVENUE
As reported....................... $2,952 $5,408 $7,485 $8,765
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end....... 4,680 2,924 738 --
As adjusted....................... 7,632 8,332 8,223 8,765
GROSS MARGIN
As reported....................... $2,521 $3,648 $4,125 $4,889
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end....... 1,605 987 220 --
As adjusted....................... 4,126 4,635 4,345 4,889
NET INCOME
As reported....................... $1,602 $1,887 $1,248 $ 741
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end....... 160 (36) 60 --
As adjusted....................... 1,762 1,851 1,308 741
</TABLE>

F-17
<PAGE> 64
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal............................................ $ 5,898 $ 6 $ 6
State.............................................. 843 -- --
-------- -------- --------
Total.............................................. 6,741 6 6
Deferred:
Federal............................................ (949) -- --
State.............................................. (135) -- --
-------- -------- --------
Total.............................................. (1,084) -- --
-------- -------- --------
Total................................................... $ 5,657 $ 6 $ 6
======== ======== ========
</TABLE>

Upon the acquisition of MMR&D, Adaptive Health, LSM, SSI, UNICO, Computer
Clinic, C4M, Medysis, Unisource, and CompRx (collectively, the "S
Corporations"), the S Corporation status of these entities terminated.
Accordingly, current and deferred income taxes reflecting the tax effects of
temporary differences between the Company's financial statement tax bases of
certain assets and liabilities became assets and liabilities of the Company.
Accordingly, the above provision for 1997 income taxes includes a $650,000
nonrecurring benefit resulting from the termination of the S Corporation
election and the corresponding required adoption of FAS 109.

The significant components of deferred tax assets and liabilities as of
December 31, 1997 are as follows (in thousands):

<S> <C>
Accounts receivable........................................ $(570)
Deferred revenue........................................... 425
Accrued expenses........................................... 848
Other...................................................... 24
-----
Total...................................................... $ 727
=====
</TABLE>

The following table accounts for the differences between the actual tax
provision and amounts obtained by applying the statutory U.S. federal income
rate of 35% to the income before income taxes (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory tax provision at 35%............................. $5,908 $1,984 $2,058
State taxes, net of federal benefit........................ 794 -- --
S corporation income not subject to tax.................... (340) (1,978) (2,052)
Change in valuation allowance.............................. (418) -- --
Termination of S corporation status........................ (650) -- --
Tax free income............................................ (180) -- --
Non-deductible expense and other........................... 543 -- --
------ ------ ------
Total...................................................... $5,657 $ 6 $ 6
====== ====== ======
</TABLE>

In addition to the foregoing, a subsidiary of one of the Founding Companies
has a net operating loss carry forward of $470,000. Due to certain federal and
state separate return limitation issues, a 100% valuation allowance has been
established. This net operating loss carry forward expires beginning in the year
2015.

F-18
<PAGE> 65
MEDICAL MANAGER CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. UNAUDITED PRO FORMA INCOME TAX INFORMATION

Prior to their acquisition, MMR&D, Adaptive Health, LSM, SSI, UNICO,
Computer Clinic, C4M, Medysis, Unisource, and CompRx (collectively, the "S
Corporations") were S corporations and, accordingly, the combined historical
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
their acquisition, the S Corporations terminated their S corporation status. The
following unaudited pro forma income tax information (in thousands), based on
historical information, is presented in accordance with Statement of Financial
Accounting Standards No. 109 as if the S Corporations had each been a C
corporation subject to federal and state income taxes throughout the periods
presented.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1997 1996 1995
<S> <C> <C> <C>
Income before provision for income taxes................... $16,880 $ 5,668 $ 5,879
Provision for income taxes................................. (6,364) (2,182) (2,263)
------- ------- -------
Pro forma net income....................................... $10,516 $ 3,486 $ 3,616
======= ======= =======
</TABLE>

13. SUBSEQUENT EVENTS

On January 14, 1998, the Company entered into a $10.0 million line of
credit agreement with Barnett Bank of Tampa. The line of credit matures on May
31, 1999. The line of credit bears interest at Prime or LIBOR, at the election
of the Company, plus an applicable margin, as defined in the agreement. This
debt instrument is due on demand. The agreement contains customary events of
default and a number of customary covenants including certain financial ratios
and restrictions on dividends.

Also subsequent to year-end, the Company executed and closed agreements to
acquire the following resellers of The Medical Manager software: (i) Medical
Practice Support Services, Inc., based in Pittsburgh, Pennsylvania; (ii) Health
Care Management Solutions, Inc. d/b/a Healthcare Informatics, Inc., based in
Springfield, Illinois; and (iii) Strategic Systems, Inc., based in Denver,
Colorado. The acquisitions were accounted for using the pooling of interests
method of accounting. The aggregate consideration paid was 130,509 shares. These
acquisitions, in aggregate, had revenues of $5.8 million and net income of
$400,000 for the year ended December 31, 1997. The acquisitions closed between
February 20 and February 28, 1998.

F-19
<PAGE> 66

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THE PROSPECTUS.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 11
Price Range of Common Stock............. 11
Dividend Policy......................... 11
Capitalization.......................... 12
Selected Financial Data................. 13
Unaudited Pro Forma Consolidated
Statement of Operations............... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 16
Business................................ 23
Management.............................. 37
Principal and Selling Stockholders...... 40
Description of Capital Stock............ 41
Underwriting............................ 44
Legal Matters........................... 46
Experts................................. 46
Available Information................... 46
Index to Financial Statements........... F-1
</TABLE>

======================================================
======================================================

2,500,000 SHARES

(MEDICAL MANAGER CORPORATION LOGO)

COMMON STOCK
----------------------
PROSPECTUS
----------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MORGAN STANLEY DEAN WITTER

SALOMON SMITH BARNEY

RAYMOND JAMES & ASSOCIATES, INC.
April 23, 1998

======================================================