<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVEN REPORTED): December 31, 1997
MEDICAL MANAGER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-29090 59-3396629
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
3001 North Rocky Point Drive East, Suite 100, Tampa, Florida 33607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 287-2990
N/A
(FORMER NAME OR FORMER ADDRESS; IF CHANGED SINCE LAST REPORT)
<PAGE> 2
This Current Report on Form 8-K/A amends the Current Report on Form 8-K
filed by Medical Manager Corporation on January 15, 1998 solely to add the
financial statements of the businesses acquired as required by Item 7(a) and the
pro forma financial information required by Item 7(b).
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of Businesses Acquired
<TABLE>
<CAPTION>
Page
----
<S> <C>
Companion Technologies of Texas
Report on Audits of Financial Statements for the Years
Ended December 31, 1997 and 1996.............................. 2
Companion Technologies of Florida, Inc.
Report on Audits of Financial Statements for the Years
Ended December 31, 1997 and 1996.............................. 13
</TABLE>
1
<PAGE> 3
COMPANION TECHNOLOGIES OF TEXAS
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Stockholder's Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 9
</TABLE>
3
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Companion Technologies of Texas
We have audited the accompanying balance sheets of Companion Technologies of
Texas (the Company) as of December 31, 1997 and 1996, and the related statements
of operations, changes in stockholder's equity and cash flows for the years then
ended. 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 examin ing, on a test basis, evidence supporting
the amounts and disclosures in the financial state ments. An audit also includes
assessing the accounting principles used and significant esti mates 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 re spects, the financial position of the Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with gener ally accepted accounting principles.
Tampa, Florida
February 16, 1998
4
<PAGE> 6
COMPANION TECHNOLOGIES OF TEXAS
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash $ 122,096 $ 345,734
Accounts receivable, less allowance for doubtful accounts of $90,604
and $44,030, respectively 362,949 293,691
Inventory 253,247 321,658
Deferred tax asset in 1996 and 1997 36,000 26,400
Prepaid expenses and other current assets 61,569 68,729
----------- -----------
Total current assets 835,861 1,056,212
Property and equipment, net 272,324 148,272
Goodwill, net 3,970,678 6,108,882
Deferred tax asset 98,631 0
Other assets 0 2,067
----------- -----------
Total assets $ 5,177,494 $ 7,315,433
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 307,717 $ 494,650
Due to parent 194,685 3,034
Customer deposits and deferred maintenance revenue 393,818 232,567
Income taxes payable 0 3,357
----------- -----------
Total current liabilities 896,220 733,608
----------- -----------
Commitment and contingencies (see note 7)
Stockholder's equity:
Common stock (No par, 1,000,000 shares authorized, one share issued
and outstanding) 6,771,431 6,768,031
Retained earnings (2,490,157) (186,206)
----------- -----------
Total stockholder's equity 4,281,274 6,581,825
----------- -----------
Total liabilities and stockholder's equity $ 5,177,494 $ 7,315,433
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
COMPANION TECHNOLOGIES OF TEXAS
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenue:
Systems $ 4,184,561 $ 1,635,783
Maintenance and other 2,379,399 1,408,293
----------- -----------
Total revenue 6,563,960 3,044,076
----------- -----------
Cost of revenue:
Systems 2,220,006 967,872
Maintenance and other 79,233 275,847
----------- -----------
Total cost of revenue 2,299,239 1,243,719
----------- -----------
Gross margin 4,264,721 1,800,357
----------- -----------
Operating expenses and other income:
Selling, general and administrative 4,641,537 1,850,682
Depreciation and Amortization 536,001 257,824
Loss on the Impairment of Goodwill 1,669,582 0
Interest expense 2,971 1,805
Interest income (9,748) (651)
Other income (163,440) (100,054)
----------- -----------
Total operating expenses and other income 6,676,903 2,009,606
----------- -----------
Net loss before provision for income taxes (2,412,182) (209,249)
Provision (benefit) for income taxes (108,231) (23,043)
----------- -----------
Net loss $(2,303,951) $ (186,206)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
COMPANION TECHNOLOGIES OF TEXAS
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 475,434 $ 0 $ 475,434
Contribution by Owner (6,292,597) 6,292,597
Net income (186,206) (186,206)
Balance, December 31, 1996 6,768,031 (186,206) 6,581,825
Contribution by Owner 3,400 3,400
Net income (2,303,951) (2,303,951)
----------- ----------- -----------
Balance, December 31, 1997 $ 6,771,431 $(2,490,157) $ 4,281,274
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 9
COMPANION TECHNOLOGIES OF TEXAS
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $(2,117,745) $ (186,206)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation/amortization 2,205,583 257,824
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (69,258) 287,326
Inventory 68,411 (148,059)
Prepaid expenses and other assets 7,160 (13,961)
Accounts payable and accrued liabilities (190,290) 169,885
Customer deposits and deferred maintenance revenue 161,251 (6,936)
Deferred tax asset (108,231) (23,331)
Due to parent 191,651 3,034
----------- -----------
Net cash provided by operating activities 148,532 339,576
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (188,030) (107,402)
Other assets 2,067 7,933
----------- -----------
(185,963) (99,469)
Cash flows from financing activities:
Capital contribution from parent (186,207) (43,106)
Note payable 0 (4,738)
----------- -----------
(186,207) (47,844)
----------- -----------
Net change in cash (223,638) 192,263
Cash, beginning of period 345,734 153,471
----------- -----------
Cash, end of period $ 122,096 $ 345,734
=========== ===========
Cash, paid for interest 2,971 1,805
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 10
COMPANION TECHNOLOGIES OF TEXAS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Companion Technologies of Texas (the Company) is an independent dealer
for The Medical Manager physician practice management system that is
sold to clients in the Southwestern part of the United States.
On June 1, 1996 Companion Technologies Corporation, a wholly owned
subsidiary of Blue Cross and Blue Shield of South Carolina, purchased
the outstanding stock of Management Solutions Unlimited, Inc. and Easy
Claims, Inc. Effective September 1, 1996, Management Solutions
Unlimited, Inc. purchased Precision Business Systems, Inc. On October
18, 1996, Management Solutions Unlimited, Inc. purchased Medical
Solutions, Inc.
On October 8, 1997, Companion Technologies of Texas was incorporated as
a wholly owned subsidiary of Companion Technologies Corporation.
Effective October 10, 1997, Management Solutions Unlimited, Inc. and
Easy Claims, Inc. were merged into Companion Technologies of Texas. All
of the outstanding shares of Management Solutions Unlimited, Inc. and
Easy Claims, Inc. were canceled upon the execution of the merger.
The accompanying financial statements reflect the results of Management
Solutions Unlimited, Inc., and Easy Claims, Inc. for the period January
1, 1996 through December 31, 1997, as though the purchases had occurred
on January 1, 1996. The results of Precision Business Systems, Inc. and
Medical Solutions, Inc. are reflected subsequent to their respective
purchase dates. In addition, the accompanying financial statements have
been adjusted retroactively to show the effect of the recapitalization
of the merger as though it had happened on January 1, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION - Revenue from the sale of systems is recognized
when the system has been installed and 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 the
services are provided. Certain expenses are allocated between the cost
of sales for systems and maintenance and other based upon revenue,
which basis management believes to be reasonable.
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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. Estimates also
affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates;
however, management does not believe these differences would have a
material effect on operating results.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist
principally of accounts receivable and lease receivable. 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.
INVENTORY - Inventory primarily consists of customized forms,
computers, peripheral equipment and replacement parts. Inventory cost
is accounted for on the first-in, first-out basis and reported at the
lower of cost or market.
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. Depreciation is provided
principally on straight-line methods over the estimated useful lives of
the assets.
GOODWILL - Goodwill originated from the acquisitions of Management
Solutions Unlimited, Inc., Easy Claims, Inc., Precision Business
Systems, Inc., and Management Solutions, Inc. Goodwill resulting from
the acquisition of Management Solutions Unlimited, Inc. is being
amortized utilizing the straight-line basis over a 15-year period.
Goodwill resulting from the acquisition of Easy Claims, inc., Precision
Business Systems, Inc., and Management Solutions, Inc.. is being
amortized utilizing the straight-line basis over an 8-year period. The
Company periodically reviews the value of its goodwill to determine if
an impairment has occurred.
IMPAIRMENT OF LONG LIVED ASSETS - The Company reviews long-lived assets
and certain identifiable intangibles for impairment and writes down to
fair value whenever events of changes in circumstances indicate that
the carrying value may not be recoverable.
INCOME TAXES - The company utilizes the assets and liability method f
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 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 5.)
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1997
and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Furniture and equipment $ 423,128 $ 234,530
Vehicles 11,095 11,095
--------- ---------
434,223 245,625
Less accumulated depreciation (161,899) (97,353)
--------- ---------
Property and equipment, net $ 272,324 $ 148,272
========= =========
</TABLE>
Depreciation expense was approximately $64,500 and $17,500 for the
years ended December 31, 1997 and 1996, respectively.
4. GOODWILL:
Goodwill originated from the acquisitions of Management Solutions
Unlimited, Inc., Easy Claims, Inc., Precision Business Systems, Inc.,
and Management Solutions, Inc. During 1997, the Company recorded an
impairment loss of approximately $1.7 million based on management's
determination of the fair market value of the Company. This impairment
loss is recorded in the statement of operations.
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Goodwill arising from business acquisitions $6,352,590
Accumulated depreciation 2,381,912
----------
Total net goodwill and intangibles $3,970,678
==========
</TABLE>
5. INCOME TAXES:
The provision for Income Taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current:
Federal $ 0 $ 2,937
State 0 420
--------- ---------
0 3,357
--------- ---------
Deferred:
Federal (94,702) (23,100)
State (13,529) (3,300)
--------- ---------
(108,231) (26,400)
--------- ---------
Total $(108,231) $ (23,043)
========= =========
</TABLE>
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INCOME TAXES, CONTINUED:
The significant components of the deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred taxes:
Current deferred taxes:
Accounts receivable $ 36,000 $ 26,400
-------- --------
Total current deferred tax assets 36,000 26,400
Non-current deferred tax assets:
Net operating loss 98,631 0
-------- --------
Total non-current deferred tax assets 98,631 0
-------- --------
Total deferred tax assets $134,631 $ 26,400
======== ========
</TABLE>
6. COMMITMENTS:
The Company leases office facilities noncancelable operating lease
agreements. Rental expense under these agreements was approximately
$236,000 and $70,000 for the years ended December 31, 1997 and 1996,
respectively. Future minimum lease payments as of December 31, 1997 for
leases with noncancelable terms in excess of one year are approximately
as follows:
<TABLE>
<S> <C>
FISCAL YEAR
1998 $249,387
1999 236,682
2000 190,230
2001 0
2002 0
Thereafter 0
--------
Total minimum payments $676,299
========
</TABLE>
7. SUBSEQUENT EVENT:
Subsequent to year-end, the Company entered into a definitive agreement
to be acquired by Medical Manager Corporation (MMC), the developer of
the Medical Manager physician practice management system. The
acquisition is expected to be accounted for using the purchase method
of accounting. The acquisition closed effective December 31, 1997.
As of December 31, 1997, the Company had accounts payable to Medical
manager of approximately $35,910.
12
<PAGE> 14
COMPANION TECHNOLOGIES OF FLORIDA
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
13
<PAGE> 15
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Stockholder's Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 10
</TABLE>
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Companion Technologies of Florida
We have audited the accompanying balance sheets of Companion Technologies of
Florida (the Company) as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholder's equity and cash flows for the
years then ended. 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 financial position of the Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Tampa, Florida
February 16, 1998
15
<PAGE> 17
COMPANION TECHNOLOGIES OF FLORIDA
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash $ 310,778 $ 112,182
Accounts receivable, less allowance for doubtful account of $42,164 and
$119,178, respectively 264,893 259,173
Financed receivables, current portion 263,766 157,089
Inventory 229,983 273,943
Prepaid expenses and other current assets 205,281 43,946
----------- -----------
Total current assets 1,274,701 846,333
Financed receivables, long-term 516,466 354,099
Property and equipment, net 331,080 356,173
Goodwill, net 3,313,863 3,082,308
Due from parent 1,706,422 100,359
Other assets 12,659 12,659
Deferred tax asset 156,108 372,735
----------- -----------
Total assets $ 7,311,299 $ 5,124,666
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 116,165 $ 633,592
Customer deposits and deferred maintenance revenue 334,890 180,441
Income taxes payable 5,748 0
----------- -----------
Total current liabilities 456,803 814,033
----------- -----------
Due to parent 3,337,522 1,670,242
----------- -----------
Commitments and contingencies (See Note 7)
Stockholders' equity:
Common stock, no par, 100,000 shares authorized, 1 share issued and
outstanding 3,548,632 3,042,704
Prior year retained earnings (402,313) 9,821
Retained earnings 370,655 (412,134)
----------- -----------
Total stockholder's equity 3,516,974 2,640,391
----------- -----------
Total liabilities and stockholder's equity $ 7,311,299 $ 5,124,666
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 18
COMPANION TECHNOLOGIES OF FLORIDA
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenue:
Systems $ 3,353,682 $ 2,836,013
Maintenance and other 1,809,942 1,116,628
----------- -----------
Total revenue 5,163,624 3,952,641
----------- -----------
Cost of revenue:
Systems 2,548,064 2,712,775
Maintenance and other 1,177,264 1,311,136
----------- -----------
Total cost of revenue 3,725,328 4,023,911
----------- -----------
Gross margin 1,438,296 (71,270)
----------- -----------
Operating expenses:
Selling, general and administrative 465,886 568,540
Depreciation and amortization 377,501 146,632
----------- -----------
Total operating expenses 843,387 715,172
----------- -----------
Income from operations 594,909 (786,442)
Interest revenue 102,666 87,669
Interest expense (104,545) (86,096)
----------- -----------
Net income (loss) before provision for income taxes 593,030 (784,869)
Provision for income taxes 222,375 (372,735)
----------- -----------
Net income (loss) $ 370,655 $ (412,134)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 19
COMPANION TECHNOLOGIES OF FLORIDA
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1996 $ 505,000 $ 9,821 $ 514,821
Contribution by owners 2,537,704 2,537,704
Net loss (412,134) (412,134)
----------- ----------- -----------
Balance, December 31, 1996 3,042,704 (402,313) (2,640,391)
Contribution by owners 505,928 505,928
Net income 370,655 370,655
----------- ----------- -----------
Balance, December 31, 1997 $ 3,548,632 $ (31,658) $ 3,516,974
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 20
COMPANION TECHNOLOGIES OF FLORIDA
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 370,655 $ (412,134)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 377,501 146,632
Changes in assets and liabilities:
Accounts receivable (5,720) (87,385)
Financed receivables (269,044) 0
Inventory 43,960 (171,426)
Prepaid expenses and other assets (161,335) (31,498)
Accounts payable and accrued liabilities (517,427) 557,074
Customer deposits and deferred maintenance revenue 154,449 (119,023)
Income taxes payable 5,748 0
Deferred tax asset 216,627 (372,735)
Due to/from parent 61,236 1,177,171
----------- -----------
Net cash provided by operating activities 276,650 686,676
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (88,614) (172,149)
Other assets 0 (11,836)
Payment of contingent consideration 0 (2,537,705)
----------- -----------
Net cash provided by investing activities (88,614) (2,721,690)
----------- -----------
Cash flows from financing activities:
Payment on loan payable (395,992)
Capital contribution from parent 10,560 2,537,704
----------- -----------
Net cash provided from financing activities 10,560 2,141,712
----------- -----------
Net change in cash 198,596 106,698
Cash, beginning of period 112,182 5,484
----------- -----------
Cash, end of period $ 310,778 $ 112,182
=========== ===========
Cash paid for interest $ $
=========== ===========
Cash paid for taxes $ $
=========== ===========
Non-cash investing activities: $ $
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 21
COMPANION TECHNOLOGIES OF FLORIDA
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Companion Technologies of Florida (the Company) is an independent
dealer for The Medical Manager physician practice management system
that is sold to clients in the southeastern part of the United States.
The Company commenced operations on April 1, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION - Revenue from the sale of systems is recognized
when the system has been installed and 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 the
services are provided. Certain expenses are allocated between the cost
of sales for systems and maintenance and other based upon revenue,
which basis management believes to be reasonable.
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. Estimates also
affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates;
however, management does not believe these differences would have a
material effect on operating results.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist
principally of accounts receivable and lease receivable. 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.
INVENTORY - Inventory primarily consists of customized forms,
computers, peripheral equipment and replacement parts. Inventory cost
is accounted for on the first-in, first-out basis and reported at the
lower of cost or market.
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. Depreciation is provided
principally on straight-line methods over the estimated useful lives of
the assets. For leasehold improvements, depreciation is provided over
the estimated useful life of the asset or the lease term, whichever, is
shorter.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
GOODWILL - Goodwill consists of goodwill arising from business
acquisition including the acquisition of Companion Technologies of
Florida by Companion Technology Corporation.
<TABLE>
<S> <C>
Goodwill arising from business acquisitions $3,732,358
Accumulated amortization 407,914
----------
Total net goodwill and other intangibles $3,324,444
==========
</TABLE>
The goodwill arising from business acquisitions is being amortized over
a fifteen-year period.
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 ___).
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1997
and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Furniture and equipment $ 147,121 $ 127,839
Leasehold improvements 88,941 91,496
Computer equipment and software 151,573 79,683
Vehicles 117,702 117,702
--------- ---------
505,337 416,720
Less accumulated depreciation (174,257) (60,547)
--------- ---------
Property and equipment, net $ 331,080 $ 356,173
========= =========
</TABLE>
Depreciation expense was approximately $113,709 and $59,000 for the years
ended December 31, 1997 and 1996, respectively.
4. RELATED PARTY TRANSACTIONS:
The Company is charged a management fee by the parent company, Companion
Technologies. The cost of such services included in operating expenses
totaled $96,000 and $78,000 for the years ended December 31, 1997 and
1996, respectively.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current:
Federal $ 4,982 $ 0
State 766 0
--------- ---------
5,748 0
--------- ---------
Deferred:
Federal 187,743 (318,068)
State 28,884 (54,667)
--------- ---------
216,627 (372,735)
--------- ---------
Total $ 222,375 $(372,735)
========= =========
</TABLE>
The significant components of the deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred taxes:
Current deferred taxes:
Accounts receivable $ 61,796 $176,384
-------- --------
Total current deferred tax assets 61,796 176,384
Non-current deferred tax assets:
Net operating loss 88,561 196,351
Tax credits 5,748 0
-------- --------
Total non-current deferred tax assets 94,309 196,351
-------- --------
Total deferred tax assets $156,105 $372,735
======== ========
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. FINANCE RECEIVABLE:
The Company is engaged in purchasing computer equipment and software
and leasing the equipment and software to customers under direct
financing leases.
Component of finance receivables, net are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Gross receivables $ 1,110,993 $ 906,554
Unearned interest (206,926) (186,609)
Allowance for doubtful accounts (123,835) (208,757)
----------- -----------
Lease receivables 780,232 511,188
Less current portion (263,766) (157,089)
----------- -----------
$ 516,466 $ 354,099
=========== ===========
</TABLE>
At December 31, 1997, future minimum payments to be received under
direct financing leases are as follows:
<TABLE>
<S> <C>
1998 $ 263,776
1999 246,969
2000 248,184
2001 126,991
2002 18,147
</TABLE>
7. COMMITMENTS:
The Company leases office facilities under noncancelable operating
lease agreements. Rental expense under these agreements was
approximately $109,601 and $79,000 for the years ended December 31,
1997 and 1996, respectively. Future minimum lease payments as of
December 31, 1997 for leases with noncancelable terms in excess of one
year are approximately as follows:
<TABLE>
<S> <C>
FISCAL YEAR
1998 $ 88,000
1999 69,000
2000 69,000
2001 28,000
2002 23,000
Thereafter 0
---------
Total minimum payments $ 277,000
=========
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. SUBSEQUENT EVENT:
During December 1997, the Company entered into a definitive agreement
to be acquired by Medical Manager Corporation (MMC), the developer of
the Medical Manager physician practice management system. The
acquisition is expected to be accounted for using the purchase method
of accounting. The acquisition closed effective December 31, 1997.
24
<PAGE> 26
(b) Pro Forma Financial Information
Companion Technologies of Texas ("CTT") and Companion
Technologies of Florida, Inc. ("CTF") were acquired as of December 31, 1997 and
were included in the Company's audited Consolidated Balance Sheet as of December
31, 1997 included in the Company's Annual Report on Form 10-K, filed on March
12, 1998 and herein incorporated by reference. Thus, a pro forma balance sheet
has been omitted from the pro forma presentation. The required unaudited pro
forma statement of operations is set forth below.
25
<PAGE> 27
MEDICAL MANAGER CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL
MANAGER PRO FORMA PRO FORMA
CORPORATION CTT CTF ADJUSTMENTS COMBINED
------------ ------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue
Systems $ 47,693 $ 4,185 $ 3,354 -- $ 55,232
Maintenance and other 30,434 2,379 1,810 -- 34,623
------------ ------------ ------- ------- ------------
Total revenue 78,127 6,564 5,164 -- 89,855
------------ ------------ ------- ------- ------------
Cost of revenue
Systems 20,054 2,220 2,548 -- 24,822
Maintenance and other 16,779 79 1,177 -- 18,035
------------ ------------ ------- ------- ------------
Total costs of revenue 36,833 2,299 3,725 -- 42,857
------------ ------------ ------- ------- ------------
Gross margin 41,294 4,265 1,439 -- 46,998
------------ ------------ ------- ------- ------------
Operating expenses
Selling, general and administrative 20,238 4,642 466 $ (96)(b) 25,250
Research and development 3,170 -- -- -- 3,170
Depreciation and amortization 1,543 536 378 410(a) 2,867
------------ ------------ ------- ------- ------------
Total operating expenses 24,951 5,178 844 314 31,288
------------ ------------ ------- ------- ------------
Income from operations 16,343 (913) 595 (314) 15,710
Other income (expense)
Loss on impairment of goodwill -- (1,669) -- -- (1,669)
Interest expense (168) (3) (105) (495)(d) (771)
Interest income 604 10 103 -- 614
Other income (expense) 101 163 -- -- 264
------------ ------------ ------- ------- ------------
Income before income taxes 16,880 (2,412) 593 (809) 14,252
Income taxes 5,657 (108) 0 (311)(c) 5,339
------------ ------------ ------- ------- ------------
Net income (benefit) $ 11,223 $ (2,304) $ 593 $ (498) $ 8,913
============ ============ ======= ======= ============
Basic earnings per share $ 0.58 $ 0.46
============ ============
Shares used in computing basic earnings
per share 19,490,173 19,490,173
============ ============
Diluted earnings per share $ 0.56 $ 0.44
============ ============
Shares used in computing diluted earnings
per share 20,168,819 20,168,819
============ ============
</TABLE>
See accompanying notes to the pro forma combined statement of operations.
26
<PAGE> 28
MEDICAL MANAGER CORPORATION
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
1. BASIS OF ACCOUNTING
On December 31, 1997, Medical Manager Corporation (hereinafter, the
"Company") executed and closed definitive agreements to acquire substantially
all of the assets of CTF and all of the outstanding equity securities of CTT.
The purchase price for the assets acquired from CTF was $1,025,000 in cash, the
assumption and payment of CTF's $1,400,000 liability to its parent company,
Companion Technologies Corporation ("CTC"), and additional cash payments of
$3,075,000 to be paid in various installments over a two year period. The
purchase price for the common stock of CTT was $975,000 in cash, 14,044 shares
of the Company's Common Stock, and additional cash payments of $2,925,000 to be
paid in various installments over a two year period.
The unaudited pro forma combined statement of operations is presented
using the Company's audited consolidated statement of operations for the year
ended December 31, 1997 combined with CTF's and CTT's audited statements of
operations for the year ended December 31, 1997, as if the transaction had taken
place on January 1, 1997.
The pro forma combined financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of the
Company and with the financial statements and notes thereto of CTT and CTF.
The following pro forma combined statement of operations is not
necessarily indicative of the future results of operations of the Company or the
results of operations which would have resulted had the Company, CTT, and CTF
been combined during the period presented. In addition the pro forma results are
not intended to be a projection of future results.
2. PRO FORMA COMBINED STATEMENT OF OPERATIONS
The accompanying pro forma combined statement of operations reflects
adjustments for the following items:
(a) Amortization of goodwill of approximately $8.2 million over a period of
twenty years.
(b) Elimination of management fees charged by CTC to CTF.
(c) Reduction in income tax expense for the income tax effect of the pro
forma adjustments.
(c) Exhibits
Exhibit Number Description
23.1 Consent of Coopers & Lybrand L.L.P.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDICAL MANAGER CORPORATION
Dated: March 16, 1998 By: /s/ Lee A. Robbins
--------------------------------
Lee. A. Robbins
Vice President and
Chief Financial Officer
28
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion of our report dated February 16, 1998 with respect
to the balance sheets of Companion Technologies of Texas as of December 31,
1997 and 1996 and the related statements of operations, stockholder's equity,
and cash flows for the years ended December 31, 1997 and 1996, which report
appears in the Form 8-K/A of Medical Manager Corporation dated March 16, 1998.
COOPERS & LYBRAND L.L.P.
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion of our report dated February 16, 1998 with respect
to the balance sheets of Companion Technologies of Florida, Inc. as of December
31, 1997 and 1996 and the related statements of operations, stockholder's
equity, and cash flows for the years ended December 31, 1997 and 1996, which
report appears in the Form 8-K/A of Medical Manager Corporation dated March 16,
1998.
COOPERS & LYBRAND L.L.P.
