<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 8-K/A2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 27, 1999
MEDICAL MANAGER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-17822 22-2975182
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
669 River Drive, River Drive Center II,
Elmwood Park, NJ 07407
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (201) 703-3400
<PAGE> 2
This Current Report on Form 8-K/A2 amends the Current Report on Form
8-K, event dated July 27, 1999, filed with the Securities and Exchange
Commission on July 27, 1999 (the "Form 8-K") by Medical Manager Corporation
(formerly known as Synetic, Inc.), a Delaware corporation (the "Registrant").
Unless otherwise defined herein, all capitalized terms shall have the meanings
ascribed to them in the Form 8-K.
The following amendments to Item 7 of the Form 8-K are hereby made.
Item 7. Financial Statements and Exhibits.
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(a) Financial statements of businesses acquired.
The following historical statements and notes thereto are of
Medical Manager Health Systems, Inc., f/k/a Medical Manager
Systems, Inc., f/k/a Medical Manager Corporation ("Medical
Manager Health Systems"; all references to Medical Manager in
the Form 8-K shall hereafter mean "Medical Manager Health
Systems") and are included herein:
- Consolidated Balance Sheets (unaudited)
as of March 31, 1999 and December 31, 1998. F-1
- Consolidated Statements of Income
(unaudited) for the three month periods ended
March 31, 1999 and March 31, 1998. F-2
- Consolidated Statements of Cash Flows
(unaudited) for the three month periods ended
March 31, 1999 and March 31, 1998. F-3
- Notes to the Consolidated Condensed
Financial Statements. F-4
- Report of Independent Certified
Public Accountants. F-8
- Consolidated Balance Sheets as of
December 31, 1998 and December 31, 1997. F-9
- Consolidated Statements of Operations
for the years ended December 31, 1998, December 31,
1997, and December 31, 1996. F-10
- Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1998,
December 31, 1997, and December 31, 1996. F-11
- Consolidated Statements of Cash Flows
for the years ended December 31, 1998, December 31,
1997, and December 31, 1996. F-12
- Notes to Consolidated Financial Statements. F-13
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(b) Pro forma financial information.
The following pro forma financial statements and notes thereto are
included herein:
- Note Preceding Unaudited Pro Forma Combined
Condensed Financial Data F-31
- Pro Forma Combined Condensed Statement of Income
(unaudited) for the year ended June 30, 1996. F-32
- Pro Forma Combined Condensed Statement of Income
(unaudited) for the year ended June 30, 1997. F-33
- Pro Forma Combined Condensed Statement of Income
(unaudited) for the year ended June 30, 1998. F-34
- Pro Forma Combined Condensed Statement of Income
(unaudited) for the nine months ended March 31, 1999. F-35
- Pro Forma Combined Condensed Balance Sheet
(unaudited) as of March 31, 1999. F-36
- Pro Forma Combined Condensed Statement of Income
(unaudited) for the nine months ended March 31, 1998. F-37
- Notes to Unaudited Pro Forma Combined Condensed
Financial Data. F-37
</TABLE>
3
<PAGE> 4
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
23.1 Consent of PricewaterhouseCoopers LLP.
4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDICAL MANAGER CORPORATION
Date: September 20, 1999 By: /s/ Charles A. Mele
-----------------------------------------
Name: Charles A. Mele
Title: Executive Vice President and
General Counsel
5
<PAGE> 6
MEDICAL MANAGER HEALTH SYSTEMS
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 43,173 $ 49,803
Accounts receivable, net 28,564 28,065
Inventory 2,204 2,321
Prepaid expenses and other current assets 2,420 1,764
Note receivable 5,000 0
Deferred income taxes 1,291 1,291
-------- --------
Total current assets 82,652 83,244
PROPERTY AND EQUIPMENT, net 9,306 9,194
GOODWILL AND OTHER INTANGIBLES, net 29,155 28,266
OTHER ASSETS 2,449 1,354
-------- --------
Total assets $123,562 $122,058
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,487 $ 2,512
Accounts payable and accrued liabilities 11,045 12,311
Customer deposits and deferred maintenance revenue 9,027 9,936
Income taxes payable 1,850 1,021
-------- --------
Total current liabilities 24,409 25,780
LONG-TERM OBLIGATIONS, net of current maturities 250 2,436
-------- --------
Total liabilities 24,659 28,216
-------- --------
STOCKHOLDERS' EQUITY
Common stock 224 223
Additional paid-in capital 76,870 75,643
Retained earnings 21,809 17,976
-------- --------
Total stockholders' equity 98,903 93,842
-------- --------
Total liabilities and stockholders' equity $123,562 $122,058
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
F-1
<PAGE> 7
MEDICAL MANAGER HEALTH SYSTEMS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue
Systems $ 24,702 $ 19,715
Maintenance and other 13,860 11,266
-------- --------
Total revenue 38,562 30,981
-------- --------
Cost of revenue
Systems 12,721 9,660
Maintenance and other 7,716 6,155
-------- --------
Total costs of revenue 20,437 15,815
-------- --------
Gross margin 18,125 15,166
-------- --------
Operating expenses
Selling, general and administrative 10,352 7,694
Research and development 1,296 1,026
Depreciation and amortization 1,140 728
-------- --------
Total operating expenses 12,788 9,448
-------- --------
Income from operations 5,337 5,718
Other income (expense)
Interest expense (8) (127)
Interest income 574 70
Other (expense) 18 16
-------- --------
Income before income taxes 5,921 5,677
Income taxes 2,075 2,147
-------- --------
Net income $ 3,846 $ 3,530
======== ========
Basic earnings per share $ 0.17 $ 0.17
Shares used in computing basic earnings per share 22,363 20,541
Diluted earnings per share $ 0.17 $ 0.16
Shares used in computing diluted earnings per share 23,288 21,481
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
F-2
<PAGE> 8
MEDICAL MANAGER HEALTH SYSTEMS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,846 $ 3,530
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,140 728
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (173) (2,392)
Inventory 423 (318)
Prepaid expenses and other current assets (565) (1,015)
Other assets (1,133) (24)
Accounts payable and accrued liabilities (1,646) (1,102)
Customer deposits and deferred maintenance revenue (1,748) 841
Income taxes payable 828 277
-------- --------
Net cash provided by operating activities 972 525
-------- --------
Cash flow from investing activities:
Issuance of notes receivable (5,000) 0
Purchases of property and equipment (805) (1,096)
Payments for acquisitions made, net of cash acquired (899) 0
-------- --------
Net cash used in investing activities (6,704) (1,096)
-------- --------
Cash flow from financing activities:
Proceeds from the issuance of notes payable 0 121
Payments of notes payable (2,211) (630)
Net proceeds from the exercise of stock options 1,326 469
Dividends (13) (105)
-------- --------
Net cash used in financing activities (898) (145)
-------- --------
Net change in cash and cash equivalents (6,630) (716)
-------- --------
Cash and cash equivalents:
Beginning of period 49,803 6,976
-------- --------
End of period $ 43,173 $ 6,260
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
F-3
<PAGE> 9
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION
Medical Manager Health Systems, Inc. (the "Company") was founded on
July 10, 1996 to bring together the research and development, sales, marketing
and support resources for The Medical Manager(R) 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.
During the three months ended March 31, 1999, the Company or its
affiliate acquired the following resellers of The Medical Manager software (the
"1999 Acquired Companies"): (i) Specialized Computer Systems, Inc. based in
DuBois, Pennsylvania; (ii) Advanced Medical Office Systems, Inc. d/b/a I.E.
Corporation based in Stockton, California; (iii) Shared Business Services, Inc.
based in Clearwater, Florida; (iv) Uniserv, Inc. based in Baton Rouge,
Louisiana; (v) Meditech, Inc. based in Clarksville, Indiana; and (vi) Business
Support Systems, Inc. based in Chesapeake, Virginia. The acquisitions of the
1999 Acquired Companies were accounted for using the pooling of interests method
of accounting. The aggregate consideration paid for the 1999 Acquired Companies
consisted of 188,489 shares of Common Stock.
On March 19, 1999, the Company or its affiliate acquired substantially
all of the assets of Medical Systems Plus ("MPS"), a reseller of The Medical
Manager software based in LaFayette, Louisiana. On March 24, 1999, the Company
or its affiliate acquired substantially all of the assets of Premier Support
Services, Inc. ("PSS"), a reseller of The Medical Manager software based in
Dallas, Texas. On March 31, 1999, the Company or its affiliate acquired
substantially all of the assets of the PM2000 Business of CSC Healthcare, Inc.
("CSC") based in Birmingham, Alabama. The acquisitions of MPS, PSS and CSC (the
"1999 Purchased Companies") were accounted for using the purchase method of
accounting. The aggregate consideration paid for the 1999 Purchased Companies
consisted of $2,174,040 in cash, resulting in goodwill of $2,053,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying interim financial statements
do not include all disclosures included in the financial statements for the
year ended December 31, 1998 as included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (the "Form 10-K"), and therefore
should be read in conjunction with the financial statements included in the
Form 10-K.
In the opinion of management, the interim financial statements filed
as part of this Quarterly Report on Form 10-Q reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and the results of operations and cash flows for the
interim periods presented.
F-4
<PAGE> 10
Prior year financial statements have been restated to reflect the
results of the 1999 Acquired Companies. The results of the 1999 Purchased
Companies are reflected from their respective acquisition dates.
Revenue Recognition. Revenue from the sale of systems is recognized in
accordance with Statement of Position 97-2, Software Revenue Recognition ("SOP
97-2"). SOP 97-2 requires the total contract revenue to be allocated to the
various elements of the contract based upon objective evidence of the fair
values of such elements and allows for only the allocated revenue to be
recognized upon completion of those elements. Amounts billed in advance of
recognized revenue 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 revenue for systems and cost of revenue for maintenance and other
based upon revenue, which basis management believes to be reasonable.
Note Receivable. The Company issued a note receivable to an unrelated
party in the amount of $5 million. The note receivable is due February 28, 2000
and bears interest at the rate of 14% per annum, payable on September 1, 1999
and February 28, 2000.
3. SUMMARY FINANCIAL DATA OF THE ACQUISITIONS
The acquisitions of the 1999 Acquired Companies discussed in Note 1
have been accounted for using the pooling of interests method of accounting,
and accordingly, the consolidated financial statements for the periods
presented have been restated to include the results of operations of the 1999
Acquired Companies. The 1999 Acquired Companies generated revenues of
$2,273,000 for the period from January 1, 1999 through their respective
acquisition date and revenues of $1,436,000 for the three months ended March
31, 1998. Net income of the 1999 Acquired Companies was $257,000 for the period
from January 1, 1999 through their respective acquisition date and $59,000 for
the three months ended March 31, 1998. There were changes in the 1999 Acquired
Companies' stockholders' equity of $13,000, excluding net income, for the
period from January 1, 1999 through their respective acquisition date. There
were no changes in the 1999 Acquired Companies' stockholders' equity other than
net income for the three months ended March 31, 1998.
The acquisitions of the 1999 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
1999 Purchased Companies only since their respective dates of acquisition. The
impact of the 1999 Purchased Companies on revenues, net income, and earnings
per share is not significant.
F-5
<PAGE> 11
4. EARNINGS PER SHARE
Basic and diluted earnings per share for the three months ended March
31, 1999 and 1998 are calculated as set forth below (in thousands, except per
share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------ --------------
<S> <C> <C>
Net income ................................................. $ 3,846 $ 3,530
------- -------
BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding ................. 22,363 20,541
------- -------
Basic earnings per share ................................... $ 0.17 $ 0.17
------- -------
DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding ................. 22,363 20,541
Effect of dilutive shares:
Stock awards ............................................... 0 36
Stock options .............................................. 925 904
------- -------
Diluted shares ............................................. 23,288 21,481
------- -------
Diluted earnings per share ................................. $ 0.17 $ 0.16
------- -------
</TABLE>
5. SEGMENT REPORTING
In 1998, the Company adopted SFAS 131. The segment information below
presents the Company's three reportable segments - (1) Research & Development,
(2) Sales & Marketing and (3) the Dealer Network, which represents the
Company-owned dealers.
The Company is organized primarily on the basis of the production,
distribution and service processes broken into nine production or distribution
units. Six of the distribution and service units have been aggregated into the
"Dealer Network" segment. These units derive their revenue from the sale and
service of The Medical Manager software. The "Sales & Marketing" unit consists
of a single distribution and service unit and derives its revenue from the sale,
licensing and distribution of The Medical Manager software to the Dealer Network
segment and the independent dealer network. Two of the production units have
been aggregated to form the "Research & Development" segment. These units derive
their revenue primarily from license royalty fees for The Medical Manager
software and other software packages.
The accounting policies of the segments are the same as those
described in footnote 2. Individual segment data includes intersegment
revenues, which are then eliminated on a consolidated basis. Revenues and net
income reported in the Research & Development segment and the Sales & Marketing
segment are derived primarily from intersegment sales. The Dealer Network
segment purchases software and licenses from the Sales & Marketing segment,
which recognizes these sales as revenue. The Research & Development segment
then collects royalties from the Sales & Marketing segment as it's primary
source of revenues. Sales to the Dealer Network segment by the Sales &
Marketing segment are made at the same wholesale
F-6
<PAGE> 12
price sold to independent dealers. Royalties to the Research & Development
segment are based on royalty agreements with Sales & Marketing. The Company
evaluates the performance of all three segments based on revenues and net
income, and additionally, it evaluates the Dealer Network on operating margins.
The table below presents information about reported segments and the
reconciliation of total segment information to the consolidated information as
reflected on the accompanying financial statements for the three months ending
March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Elimination of
Research & Sales & Dealer Intersegment Sales
Development Marketing Network Total All Others or Receivables Consolidated
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999:
Revenues $ 6,443 $ 5,347 $ 32,224 $44,014 $ 603 $ (6,055) $ 38,562
Net income 2,605 1,085 3,089 6,779 (2,933) 0 3,846
Total assets 37,439 33,070 175,848 246,357 201,353 (324,148) 123,562
1998:
Revenues $ 4,790 $ 5,095 $ 26,750 $ 36,635 $ 354 $ (6,008) $ 30,981
Net income 2,470 1,102 2,455 6,027 (2,497) 0 3,530
Total assets 23,144 24,497 118,763 166,404 106,785 (207,232) 65,958
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
A class action lawsuit was brought against the Company alleging Year
2000 issues regarding The Medical Manager software in versions
prior to Version 9.0. Seven additional lawsuits were also brought against the
Company, each purporting to sue on behalf of those similarly situated and
raising essentially the same issues. In December 1998, the Company
preliminarily entered into an agreement to settle the class action lawsuit, as
well as five of the seven other similar cases. The settlement created a
settlement class of all purchasers of Version 7 and 8 and upgrades to Version 9
of The Medical Manager software, and released the Company from
Year 2000 claims arising out of the sales of these versions of the Company's
product. Under the terms of the settlement, Version 8.12, containing the
Company's upgraded Version of 8.11 software in addition to the Year 2000 patch,
will be licensed without a license fee to Version 7 and 8 users who participate
in the settlement. In addition, the settlement also provides that participating
users who purchased a Version 9 upgrade will have the option to obtain one of
four optional modules from the Company without a license fee, or to elect to
take a share of a settlement cash fund. The settlement required the Company to
make a cash payment of $1.455 million. The settlement was approved by the
District Court of New Jersey on March 15, 1999. Pursuant to the settlement, the
Company was released from liability due to the Year 2000 non-compliance of
Versions 7 and 8 by all users of Versions 7 and 8 except 29 users who
"opted-out" of the class settlement.
A lawsuit was brought against the Company and certain of its officers
and directors, among other parties, on October 23, 1998 in the United States
District Court for the Middle District of Florida. The lawsuit, styled George
Ehlert, et al. vs. Michael A. Singer, et al., purports to bring an action on
behalf of the plaintiffs and others similarly situated to recover damages for
alleged violations of the federal securities laws and Florida laws arising out
of the Company's issuance of allegedly materially false and misleading
statements concerning its business operations, including the development and
sale of its principal product, during the class period. An amended complaint
was served on March 2, 1999. The class period is alleged to be between April
23, 1998 and August 5, 1998. The lawsuit seeks, among other things,
compensatory damages in favor of the plaintiffs and the other purported class
members and reasonable costs and expenses. The Company believes that this
lawsuit is without merit and intends to vigorously defend against it.
The Company is from time to time involved in other routine litigation
incidental to the conduct of its business. The Company believes that no such
currently pending routine litigation to which it is party will have a material
adverse effect on its financial condition or results of operations.
7. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the Company executed and closed
agreements to acquire the following resellers of The Medical Manager software:
(i) Quantum Healthcare Systems, Inc., based in Fresno, California, on June 9,
1999; (ii) Western Healthcare, based in San Luis Obispo, California, on June
11, 1999; (iii) Donald Friesen & Associates, based in Bakersfield, California,
on June 12, 1999; and (iv) Diversified Management Services, Inc., based in
Oklahoma City, Oklahoma, on June 30, 1999. The acquisitions were accounted for
using the pooling of interests method of accounting. The aggregate
consideration paid was 53,863 shares of Common Stock.
Also subsequent to March 31, 1999, the Company executed and closed
agreements to acquire substantially all of the assets of the following
companies or divisions: (i) Raven Healthcare Management, Inc., based in
Nashville, Tennessee, on June 4, 1999; (ii) the Network Group Division of Blue
Cross Blue shield of Georgia, based in Columbus, Georgia, on June 30, 1999,
(iii) the Wismer * Martin division of Physician Computer Network, Inc., based
in Spokane, Washington, on July 2, 1999; and (iv) Hyperion Business Systems,
based in Oakland, California, on July 20, 1999. The acquisitions were accounted
for using the purchase method of accounting. The aggregate consideration paid
was $11,000,000 in cash, the issuance of $350,000 of debt, and 74,277 shares of
Common Stock.
On July 23, 1999, the Company merged with Synetic, Inc. providing for a
strategic business combination in a tax-free pooling of interests transaction.
Each outstanding share of the Company's Common Stock was exchanged into 0.625
newly issued shares of Synetic, Inc's common stock. In connection
with the merger, Synetic, Inc. changed its name to Medical Manager Corporation,
and the Company changed its name to Medical Manager Health Systems, Inc.
F-7
<PAGE> 13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Medical Manager Health Systems, Inc.
In our opinion, the consolidated balance sheets, consolidated statements of
operations, consolidated statements of stockholders' equity and the consolidated
statements of cash flows present fairly, in all material respects, the financial
position of Medical Manager Health Systems, Inc. (formerly Medical Manager
Corporation) and its subsidiaries (the "Company") at December 31, 1998 and 1997,
and the results of their operations and of their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 14, on July 23, 1999, the Company merged with and
into Synetic, Inc. in a pooling of interests transaction.
PricewaterhouseCoopers LLP
February 5, 1999, except for the second paragraph
of Note 13, the third paragraph of Note 14, the first
and second paragraphs of Note 14 and the fourth
paragraph of Note 14, as to which the dates are
March 2, 1999, March 15, 1999, July 20, 1999 and
July 23, 1999, respectively
F-8
<PAGE> 14
MEDICAL MANAGER HEALTH SYSTEMS
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 49,583 $ 6,901
Accounts receivable, net of allowance of $2,413 and
$1,392, respectively................................... 27,624 17,769
Inventory................................................. 1,673 2,517
Prepaid expenses and other current assets................. 1,707 2,813
Deferred income taxes..................................... 1,291 727
-------- -------
Total current assets.............................. 81,878 30,727
PROPERTY AND EQUIPMENT, net................................. 8,888 6,724
GOODWILL AND OTHER INTANGIBLES, net......................... 28,266 23,775
OTHER ASSETS................................................ 1,354 125
-------- -------
Total assets...................................... $120,386 $61,351
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current.................................... $ 2,438 $ 5,115
Accounts payable and accrued liabilities.................. 11,855 8,582
Customer deposits and deferred maintenance revenue........ 8,350 9,466
Income taxes payable...................................... 1,021 617
-------- -------
Total current liabilities......................... 23,664 23,780
LONG-TERM OBLIGATIONS, net of current maturities............ 2,243 4,224
-------- -------
Total liabilities................................. 25,907 28,004
-------- -------
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......................................... 221 203
Additional paid-in capital................................ 75,704 29,818
Retained earnings......................................... 18,554 3,326
-------- -------
Total stockholders' equity........................ 94,479 33,347
-------- -------
Total liabilities and stockholders' equity........ $120,386 $61,351
======== =======
</TABLE>
See accompany notes to the consolidated financial statements.
F-9
<PAGE> 15
MEDICAL MANAGER HEALTH SYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenue
Systems................................................... $87,317 $55,028 $32,229
Maintenance and other..................................... 48,595 36,800 16,659
------- ------- -------
Total revenue.......................................... 135,912 91,828 48,888
------- ------- -------
Cost of revenue
Systems................................................... 40,802 24,978 16,565
Maintenance and other..................................... 26,796 20,604 8,582
------- ------- -------
Total costs of revenue................................. 67,598 45,582 25,147
------- ------- -------
Gross margin...................................... 68,314 46,246 23,741
------- ------- -------
Operating expenses
Selling, general and administrative....................... 34,877 26,450 14,560
Year 2000 litigation expenses............................. 2,366 0 0
Research and development.................................. 4,506 3,170 2,672
Depreciation and amortization............................. 3,488 1,688 661
------- ------- -------
Total operating expenses............................... 45,237 31,308 17,893
------- ------- -------
Income from operations............................ 23,077 14,938 5,848
Other income (expense)
Interest expense.......................................... (170) (288) (200)
Interest income........................................... 1,571 610 119
Other income (expense).................................... (39) 110 (570)
------- ------- -------
Income before income taxes.................................. 24,439 15,370 5,197
Income taxes................................................ 8,666 5,678 9
------- ------- -------
Net income........................................ $15,773 $ 9,692 $ 5,188
======= ======= =======
Basic earnings per share (Note 8):.......................... $ 0.73 $ 0.48
======= =======
Diluted earnings per share (Note 8):........................ $ 0.70 $ 0.47
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-10
<PAGE> 16
MEDICAL MANAGER HEALTH SYSTEMS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996, as restated............ 8,583 $ 86 $ 1,660 $ 2,749 $ 4,495
Dividends...................................... (8,691) (8,691)
Other.......................................... (33) (33)
Net income..................................... 5,188 5,188
------ ---- -------- ------- --------
Balance, December 31, 1996....................... 8,583 86 1,627 (754) 959
Dividends...................................... (5,567) (5,567)
Issuance of common stock at the Offering,
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 of
certain of the Acquired Companies......... 45 (45) 0
Stock options exercised........................ 11 0 126 126
Net income..................................... 9,692 9,692
------ ---- -------- ------- --------
Balance, December 31, 1997....................... 20,309 203 29,818 3,326 33,347
Dividends...................................... (545) (545)
Secondary public offering, net of transaction
costs....................................... 1,500 15 42,245 42,260
Acquisitions:
Issuance of Common Stock for Acquisitions of
Purchased Companies....................... 21 0 572 572
Stock options exercised and related tax
benefit..................................... 230 3 3,069 3,072
Net income..................................... 15,773 15,773
------ ---- -------- ------- --------
Balance, December 31, 1998....................... 22,060 $221 $ 75,704 $18,554 $ 94,479
====== ==== ======== ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-11
<PAGE> 17
MEDICAL MANAGER HEALTH SYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $15,773 $ 9,692 $ 5,188
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 3,488 1,688 661
Deferred income taxes................................... (563) (615) 0
Loss on sale of property and equipment.................. 0 6 1
Loss on impaired asset.................................. 0 0 533
Realized gain on marketable securities.................. 0 (52) (8)
Changes in assets and liabilities, net of effects from
acquisitions
Accounts receivable..................................... (10,229) (5,863) (687)
Inventory............................................... 503 (908) 258
Prepaid expenses and other assets....................... (187) (1,119) (227)
Accounts payable and accrued liabilities................ 3,021 (1,914) 381
Customer deposits and deferred maintenance revenue...... (1,323) (1,093) 1,724
Income taxes payable.................................... 1,497 345 8
------- -------- -------
Net cash provided by operating activities................. 11,980 167 7,832
------- -------- -------
Cash flow from investing activities:
Purchases of investments.................................. (30) 0 (61)
Proceeds from sale of investments......................... 30 264 110
Purchases of property and equipment....................... (3,891) (1,342) (641)
Proceeds from sale of property and equipment.............. 0 47 50
Payments for acquisitions made, net of cash acquired...... (4,069) (13,189) 0
------- -------- -------
Net cash used in investing activities..................... (7,960) (14,220) (542)
------- -------- -------
Cash flow from financing activities:
Proceeds from the issuance of notes payable............... 196 333 609
Payments of notes payable................................. (5,261) (7,704) (806)
Due to affiliates......................................... 0 4,998 17
Repurchase of treasury shares by one of the Acquired
Companies............................................... 0 0 (86)
Net proceeds from the issuance of common stock............ 42,260 58,230 0
Proceeds from the exercise of stock options............... 2,012 126 0
Equity contributions from a certain shareholder of one of
the Acquired Companies.................................. 0 0 55
Payments made to stockholder of MMR&D..................... 0 (35,062) 0
Dividends................................................. (545) (3,080) (5,982)
------- -------- -------
Net cash provided by (used in) financing activities....... 38,662 17,841 (6,193)
------- -------- -------
Net change in cash and cash equivalents..................... 42,682 3,788 1,097
------- -------- -------
Cash and cash equivalents:
Beginning of period....................................... 6,901 3,113 2,016
------- -------- -------
End of period............................................. $49,583 $ 6,901 $ 3,113
======= ======== =======
Non-cash dividends.......................................... $ 0 $ 2,468 $ 2,709
======= ======== =======
Cash paid for interest:..................................... $ 87 $ 275 $ 211
======= ======== =======
Cash paid for taxes:........................................ $ 7,435 $ 5,726 $ 17
======= ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-12
<PAGE> 18
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Medical Manager Health Systems ("MMC") was founded on July 10, 1996 to
bring together the research and development, sales, marketing and support
resources for The Medical Manager(R) 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 in separate mergers (the "Mergers") simultaneously with the
consummation of the initial public offering ("IPO"), five companies: (i) Medical
Manager Research & Development, Inc. (formerly Personalized Programming, Inc.)
("MMR&D"), the owner and developer of The Medical Manager software; (ii) Medical
Manager Sales & Marketing, Inc. (formerly Systems Plus, Inc.) ("MMS&M"), the
long-time national distributor of the software; (iii) Medical Manager Southeast
(formerly National Medical Systems, Inc.) ("MMSE"), a national dealer located in
Tampa, Florida; (iv) Medical Manager Northeast (formerly RTI Business Systems,
Inc.) ("MMNE"), a large, regional dealership in Albany, New York; and (v)
Medical Manager Midwest, Inc. (formerly Systems Management, Inc.) ("MMMW"), a
large, regional dealership in South Bend, Indiana (collectively, the "Founding
Companies"), which became separate, wholly-owned subsidiaries of MMC. The
aggregate consideration paid by MMC for the Founding Companies was approximately
$46.9 million in cash and 11.7 million shares of MMC's common stock par value
$.01 per share (the "Common Stock") 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.
During the year ended December 31, 1997, MMC or its affiliates executed and
closed agreements to acquire 10 resellers (the "1997 Acquired Companies") of The
Medical Manager software. These acquisitions were accounted for using the
pooling of interests method of accounting. The aggregate consideration paid for
the 1997 Acquired Companies consisted of 1,644,836 shares of Common Stock.
Also during the year ended December 31, 1997, MMC or its affiliates
executed and closed definitive agreements to acquire substantially all of the
assets or all of the outstanding equity securities of the following 12 resellers
(the "1997 Purchased Companies") of The Medical Manager software.
<TABLE>
<CAPTION>
COMPANY ACQUIRED DATE OF ACQUISITION LOCATION
- ---------------- ------------------- --------
<S> <C> <C>
Artemis, Inc. July 30, 1997 Indianapolis, Indiana
Package Computer Systems, Inc. d/b/a PAC-COMP August 1, 1997 Sterling Heights, Michigan
Boston Computer Systems, Inc. August 6, 1997 Norwood, Massachusetts
Matrix Computer Consultants, Inc. September 5, 1997 Norman, Oklahoma
Professional Management Systems, Inc. September 10, 1997 St. Charles, Illinois
AMSC, Inc., together with its wholly owned Orlando, Florida and
subsidiary, AMSC Midwest, Inc. September 11, 1997 Topeka, Kansas
Data Concepts, Inc. October 30, 1997 Boise, Idaho
Medical Systems, Consultants, Inc. October 30, 1997 Boise, Idaho
Advanced Practice Management, Inc. November 10, 1997 San Diego, California
Medico Support Services, Inc. November 18, 1997 Salem, Oregon
Companion Technologies of Florida, Inc. December 31, 1997 Tampa, Florida
Companion Technologies of Texas December 31, 1997 Arlington, Texas
</TABLE>
F-13
<PAGE> 19
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1997 Purchased Companies were accounted for using the purchase method
of accounting. The aggregate consideration paid for the 1997 Purchased Companies
was 380,230 shares of Common Stock, $4,265,866 in cash and the issuance of
$6,000,000 in debt.
During the year ended December 31, 1998, MMC or its affiliates executed and
closed agreements to acquire the following resellers of The Medical Manager
software (the "1998 Acquired Companies"): (i) Medical Practice Support Services,
Inc. ("MPSS") based in Pittsburgh, Pennsylvania; (ii) Health Care Management
Solutions, Inc. d/b/a Healthcare Informatics, Inc. ("HCMS") based in
Springfield, Illinois ; (iii) Strategic Systems, Inc. ("Strategic") based in
Denver, Colorado; (iv) Intelligent Concept, Ltd. (U.S.A.) ("IC") based in Los
Angeles, California; (v) Health-Tech Systems, Inc. ("Health-Tech") based in El
Paso, Texas; (vi) Healthcare Automation Associates, Inc. ("HAA") based in
Phoenix, Arizona; (vii) Qualified Technology, Inc. ("Qualified") based in Baton
Rouge, Louisiana; (viii) Medical Systems, Inc. ("MSI") based in Dallas, Texas;
(ix) Prism Microcomputers, Inc. ("Prism") based in Fairfax, Virginia; (x)
Advantage Medical Systems, Inc. ("Advantage") based in Hurricane, West Virginia;
(xi) Medical Design and Images, Inc. ("Medical Design") based in Austin, Texas;
(xii) Lee Data Systems, Inc. ("Lee Data") based in Plymouth Meeting,
Pennsylvania; and (xiii) MedData Corporation ("MedData") based in Elliot City,
Maryland. The acquisitions of the 1998 Acquired Companies were accounted for
using the pooling of interests method of accounting. The aggregate consideration
paid for the 1998 Acquired Companies consisted of 567,823 shares of Common
Stock.
During the year ended December 31, 1998, MMC or its affiliates executed
and closed agreements to acquire substantially all of the assets, or all of The
Medical Manager assets, of the following resellers ("the 1998 Purchased
Companies") of The Medical Manager software:
<TABLE>
<CAPTION>
COMPANY ACQUIRED DATE OF ACQUISITION LOCATION
- ---------------- ------------------- --------
<S> <C> <C>
Management Integrated Solutions April 4, 1998 Houston, Texas
CSA Provider Services June 25, 1998 Phoenix, Arizona
Wahltek, Inc. September 1, 1998 Des Moines, Iowa
LLBC Enterprises, Inc. September 21, 1998 San Antonio, Texas
Circle Software November 30, 1998 Ft. Lauderdale, Florida
ProMed Systems, Inc. December 31, 1998 New Haven, Connecticut
MSO Billing Services, Inc. December 31, 1998 Dallas, Texas
</TABLE>
The acquisitions of the 1998 Purchased Companies were accounted for using
the purchase method of accounting. The aggregate consideration paid for the 1998
Purchased Companies consisted of 21,445 shares of the MMC's Common Stock and
$4,082,500 in cash.
The 1997 Acquired Companies and the 1998 Acquired Companies are referred to
collectively as the Acquired Companies. The 1997 Purchased Companies and the
1998 Purchased Companies are referred to collectively as the Purchased
Companies. MMC, the Founding Companies, the Acquired Companies, and the
Purchased Companies are referred to collectively as the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying financial statements have
been presented on a consolidated basis for the years ended December 31, 1998,
1997 and 1996. 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
F-14
<PAGE> 20
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 subsequent to their respective acquisition date. The accompanying
financial statements have been adjusted retroactively to show the effect of the
acquisitions of the Acquired Companies as if they had occurred on January 1,
1996.
Revenue Recognition. Revenue from software licenses is recognized upon
sale and shipment. For the years ended December 31, 1997 and 1996, revenue from
the sale of systems was recognized when the system was installed and when the
related client training was completed, as established in Statement of Position
("SOP") 91-1, Software Revenue Recognition. Beginning January 1, 1998, revenue
from the sale of systems is recognized in accordance with SOP 97-2, Software
Revenue Recognition. SOP 97-2 requires the total contract revenue to be
allocated to the various elements of the contract based upon objective evidence
of the fair values of such elements and allows for only the allocated revenue to
be recognized upon completion of those elements. The effect of the adoption of
SOP 97-2 was not significant to the Company's results of operations for the year
ended December 31, 1998. Amounts billed in advance of recognized revenue 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 are recognized as they are
provided. Certain expenses are allocated between the cost of revenue for systems
and 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>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Goodwill arising from business acquisitions................. $30,032 $24,523
Covenants not to compete.................................... 300 227
------- -------
Total gross goodwill and other intangibles.................. 30,332 24,750
Accumulated amortization.................................... 2,066 975
------- -------
Total net goodwill and other intangibles.................... $28,266 $23,775
======= =======
</TABLE>
The covenants not to compete are being amortized over periods of two to
three years and the goodwill arising from business acquisitions is being
amortized over a 20 year period.
Asset Impairment. Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, 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 years ended December 31, 1998 or 1997.
Approximately $500,000 of goodwill was recorded by one of the Acquired
Companies, prior to their acquisition by the Company, and was written off in the
year ended December 31, 1996.
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 the straight-line
method 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.
F-15
<PAGE> 21
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. These cash equivalents are predominantly in U.S. dollar
domestic tax free municipal instruments.
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 11.
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.
Concentration of Credit Risk. The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. With regard to accounts receivables, credit
risk is 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.
With regards to cash, the Company places its funds with high credit quality
institutions. At times, such monies may be in excess of the FDIC or other
insurance limits, however, the Company has not experienced any losses in such
accounts.
Non-cash Transactions. Non-cash investing and financing activities during
the year ended December 31, 1998 included the purchase of approximately $2.3
million of assets of the 1998 Purchased Companies through the assumption of
liabilities and the issuance of Common Stock and the purchase of equipment
through the assumption of a lease obligation. Non-cash transactions during the
year ended December 31, 1997 included the purchase of approximately $23.7
million of assets of the other Founding Companies and the 1997 Purchased
Companies through the assumption of liabilities and the issuance of Common
Stock.
Reclassifications. Certain prior year amounts have been reclassified to
conform with 1998 presentations. These reclassifications had no impact on net
income or stockholders' equity.
Segment Reporting. In 1998, the Company adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS 131 supersedes
SFAS 14, "Financial Reporting for Segments of a Business Enterprise", replacing
the "industry segment" approach with the "management"approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of
F-16
<PAGE> 22
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAS 131 did not affect results of operations or financial position but did
affect the disclosure of segment information. See Note 12.
Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income". In
June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
effective for fiscal periods beginning after December 15, 1997. The new standard
requires that comprehensive income, which includes net income as well as certain
changes in assets and liabilities recorded in common equity, be reported in the
financial statements. The Company adopted SFAS No. 130 during the year ended
December 31, 1998. For the years ended December 31, 1998, 1997 and 1996 there
were no components of comprehensive income other than net income.
Employee Benefits Disclosures. SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". In February 1998, the Financial
Accounting Standards Board issued SFAS No. 132 which is effective for periods
ending after December 15, 1998. The new standard revises employers' disclosures
about pensions and other postretirement benefits. For the years ended December
31, 1998, 1997 and 1996, there was no impact on the Company's financial
statements.
SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities". SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company does not maintain any derivative investments nor does it conduct any
hedging activities, therefore, SFAS 133 is not expected to impact the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land and improvements....................................... $ 375 $ 360
Buildings................................................... 2,253 2,253
Furniture and fixtures...................................... 2,964 2,458
Office equipment and computers.............................. 7,952 5,328
Software.................................................... 871 160
Vehicles.................................................... 918 880
Leasehold improvements...................................... 533 288
------- -------
15,866 11,727
Less accumulated depreciation............................... (6,978) (5,003)
------- -------
Net property and equipment.................................. $ 8,888 $ 6,724
======= =======
</TABLE>
Depreciation expense was approximately $2.1 million, $1.1 million, and
$609,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
F-17
<PAGE> 23
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE
Notes payable at December 31, 1998 and 1997 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Note payable, stockholder (AAA distribution)(1) Interest:
5.8%, repaid in 1998...................................... $ 0 $ 693
Notes payable, stockholders Interest: various between 0% and
11%, repaid in 1998....................................... 0 404
Notes payable, remainder of purchase price for
acquisitions(2) Interest: 5.5%............................ 4,116 6,294
Promissory note, ($250,000 note)(3) Interest: 18%........... 250 250
Lines of credit(4) Interest: various between lender base
plus 2% and 10.5%, repaid in 1998......................... 0 189
Notes payable, various Interest: various between 6% and
12.75%, repaid in 1998.................................... 0 278
Mortgages payable Interest: 9%, repaid in 1998.............. 0 1,112
Non-compete agreements Due: various monthly amounts through
1998, repaid in 1998...................................... 0 34
Obligations under capital leases............................ 315 85
------ ------
Total debt.................................................. 4,681 9,339
Less current maturities..................................... 2,438 5,115
------ ------
Long-term debt.............................................. $2,243 $4,224
====== ======
</TABLE>
- ---------------
(1) Upon consummation of the IPO, MMR&D elected to terminate its S Corporation
status. The Notes Payable, Stockholder (AAA Distribution) represented
amounts due to the stockholder of MMR&D for dividends equal to the estimated
balance in the S Corporation's Accumulated Adjustment Account as of February
4, 1997.
(2) The Notes payable for the remainder of the purchase price for acquisitions
are due as follows: $25,000 due on demand; $2,000,000 due January 15, 1999;
$50,000 due April 7, 1999; $41,000 due June 29, 1999; $2,000,000 due January
15, 2000.
(3) 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.
(4) These lines of credit were all closed during the year ended December 31,
1998.
On January 14, 1998, the Company entered into a $10.0 million line of
credit agreement with NationsBank 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 borrower, 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. As of December 31, 1998 and 1997, there were no
outstanding balances on this line of credit.
F-18
<PAGE> 24
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under all other debt obligations, excluding capital
lease obligations, during the fiscal years subsequent to December 31, 1998 are
as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $2,366
2000........................................................ 2,000
------
Total....................................................... 4,366
Less current maturities..................................... 2,366
------
Long-term portion........................................... $2,000
======
</TABLE>
Future minimum payments under capital lease obligations during the years
subsequent to December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 88
2000........................................................ 73
2001........................................................ 73
2002........................................................ 73
2003........................................................ 28
----
Total....................................................... 335
Less amount representing interest........................... 20
----
Present value of future minimum lease payments.............. 315
Less current maturities..................................... 72
----
Long-term portion........................................... $243
====
</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 which have remaining lease terms ranging from one to six years.
Future minimum rental commitments under noncancellable operating leases are
as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $2,891
2000........................................................ 2,215
2001........................................................ 1,785
2002........................................................ 867
2003........................................................ 526
Thereafter.................................................. 166
------
Total....................................................... $8,450
======
</TABLE>
Rent expense was approximately $4.2 million, $2.6 million and $1.4 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
MMR&D and MMMW leases certain of its facilities under operating leases from
an 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 $448,000, $423,000 and
$254,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
F-19
<PAGE> 25
MEDICAL MANAGER HEALTH SYSTEMS
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 $11,138,000 for
the period January 1, 1998 through their respective acquisition date, revenues
of $23,873,000 for the year ended December 31, 1997 or through their respective
acquisition date and revenues of $36,418,000 for the year ended December 31,
1996. Net income of the Acquired Companies was $1,165,000 for the period January
1, 1998 through their respective acquisition date, a net loss of $793,000 for
the year ended December 31, 1997 or through their respective acquisition date,
and a net loss of $229,000 for the year ended December 31, 1996. Changes in the
Acquired Companies' stockholders' equity for the period January 1, 1998 through
their respective acquisition date was $545,000. Changes in the Acquired
Companies' stockholders' equity was $1,631,000 for the year ended December 31,
1997 or through their respective acquisition date. Changes in the Acquired
Companies' stockholders' equity was $917,000 for the year ended December 31,
1996.
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 date 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, and AMSC, 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. The
results of operations for Companion Technologies of Florida, Inc., Companion
Technologies of Texas, and AMSC, Inc. are included in the full year ended
December 31, 1998 and accordingly, no pro forma information is necessary for the
year ended December 31, 1998.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues.................................................... $106,393 $63,613
Net income.................................................. 8,942 5,415
Basic earnings per share.................................... $ 0.45
Diluted earnings per share.................................. $ 0.44
</TABLE>
7. STOCKHOLDERS' EQUITY
At December 31, 1998, the Company had two stock option plans as described
below:
AMENDED AND RESTATED 1996 LONG-TERM INCENTIVE PLAN
In September 1996, the Company adopted the 1996 Long-Term Incentive Plan,
amended on June 9, 1998 (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) non-qualified 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 12% of the aggregate number of shares of
F-20
<PAGE> 26
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Information regarding the stock option component of the Incentive Plan is
summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance, January 1, 1997.................................... 0 --
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
Granted..................................................... 411,397 25.493
Exercised................................................... (180,453) 11.150
Forfeited................................................... (29,062) 14.320
---------
Balance, December 31, 1998.................................. 1,859,044 $14.289
=========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE NUMBER WEIGHTED
OUTSTANDING REMAINING EXERCISABLE AVERAGE
EXERCISE AT DECEMBER 31, CONTRACTUAL AT DECEMBER 31, EXERCISE
PRICES 1998 LIFE 1998 PRICE
- -------- ----------------- ----------- ----------------- --------
<S> <C> <C> <C> <C>
$ 8.875 10,000 9 10,000 $ 8.875
11.000 1,389,795 9 621,920 11.000
17.000 61,001 9 12,126 17.000
17.875 125,000 10 0 17.875
21.750 15,000 10 0 21.750
23.125 1,000 10 250 23.125
26.563 10,000 10 0 26.563
26.688 4,000 10 0 26.688
27.000 3,000 10 750 27.000
29.563 240,248 10 60,062 29.563
--------- -------
1,859,044 705,108
========= =======
</TABLE>
With exception of 10,000 options, all of the 1,859,044 options which were
outstanding as of December 31, 1998, 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 vested fully on April 30, 1998. All
options expire 10 years after the date of grant. As of December 31, 1998,
705,108 options granted under the Incentive Plan were exercisable with a
weighted average exercise price of $12.68. 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 granted under the
Incentive Plan on April 18, 1997. Compensation expense equal to the fair value
of the Common Stock on the date of grant ($8.375 per share) is being recognized
over a six year vesting period of these stock awards.
F-21
<PAGE> 27
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
In September 1996, the Company adopted the 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.
Information regarding the Directors' Plan is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance, January 1, 1997............................. 0 --
Granted.............................................. 51,000 $12.250
------
Balance, December 31, 1997........................... 51,000 12.250
Granted.............................................. 28,000 29.000
------
Balance, December 31, 1998........................... 79,000 $18.187
======
</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 $29.00. As of December 31,
1998, 51,000 options granted under the Directors' Plan were exercisable with a
weighted average exercise price of $12.25.
FINANCIAL ACCOUNTING STANDARD NO. 123, "ACCOUNTING FOR STOCK BASED COMPENSATION"
In October of 1995, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 123, "Accounting for Stock Based Compensation"
("FAS 123") which is 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".
F-22
<PAGE> 28
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average fair value of the options granted during the year
ended December 31, 1998 was $13.12. 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):
<TABLE>
<S> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Net income
As reported............................................... $15,773
Pro forma................................................. 14,285
Basic earnings per common share
As reported............................................... $ 0.73
Pro forma................................................. 0.66
Diluted earnings per common share and common equivalent
share
As reported............................................... $ 0.70
Pro forma................................................. 0.64
FOR THE YEAR ENDED DECEMBER 31, 1997:
Net income
As reported............................................... $ 9,692
Pro forma................................................. 6,605
Basic earnings per common share
As reported............................................... $ 0.48
Pro forma................................................. 0.33
Diluted earnings per common share and common equivalent
share
As reported............................................... $ 0.47
Pro forma................................................. 0.32
</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 52% 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-23
<PAGE> 29
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended December 31, 1998
and 1997 are calculated as set forth below (in thousands, except per share
data):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net income.................................................. $15,773 $ 9,692
======= =======
BASIC EARNINGS PER SHARE:
Weighted average shares outstanding......................... 21,554 20,054
------- -------
Basic shares................................................ 21,554 20,054
======= =======
Basic earnings per share.................................... $ 0.73 $ 0.48
======= =======
DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding......................... 21,554 20,054
Effect of dilutive shares:
Stock options............................................. 877 410
Stock awards.............................................. 0 11
------- -------
Diluted shares.............................................. 22,431 20,475
======= =======
Diluted earnings per share.................................. $ 0.70 $ 0.47
======= =======
</TABLE>
9. EMPLOYEE BENEFIT PLAN
On July 1, 1997, the Company began a qualified 401(k) savings plan (the
"Plan") covering all employees meeting certain eligibility requirements. 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. During
the year ended December 31, 1998, the Company made a matching contribution of
15% of the first 6% of the compensation deferred by each participant. Effective
January 1, 1999, the Plan was amended so that the Company makes a contribution
of 25% 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 years ended December 31,
1998 and 1997, the Company made contributions of $181,000 and $69,000
respectively.
F-24
<PAGE> 30
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1998
and 1997 is as follows (in thousands, except per share data):
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE
As reported.............................. $27,651 $30,637 $35,233 $37,586
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. 2,040 2,029 736 --
As adjusted.............................. 29,691 32,666 35,969 37,586
GROSS MARGIN
As reported.............................. $13,844 $15,693 $17,912 $18,818
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. 813 993 241 --
As adjusted.............................. 14,657 16,686 18,153 18,818
NET INCOME
As reported.............................. $ 3,523 $ 4,210 $ 4,485 $ 3,375
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. (91) 322 (51) --
As adjusted.............................. 3,432 4,532 4,434 3,375
BASIC EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT
As reported.............................. $ 0.18 $ 0.20 $ 0.21 $ 0.15
Effect of acquisition treated as pooling
of interests completed subsequent to
quarter end........................... ($ 0.01) $ 0.01 ($ 0.01) --
As adjusted.............................. $ 0.17 $ 0.21 $ 0.20 $ 0.15
DILUTED EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
As reported.............................. $ 0.17 $ 0.19 $ 0.20 $ 0.15
Effect of acquisition treated as pooling
of interests completed subsequent to
quarter end........................... ($ 0.01) $ 0.01 ($ 0.01) --
As adjusted.............................. $ 0.16 $ 0.20 $ 0.19 $ 0.15
</TABLE>
F-25
<PAGE> 31
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE
As reported.............................. $16,554 $20,800 $23,105 $26,659
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. 2,117 1,809 784 --
As adjusted.............................. 18,671 22,609 23,889 26,659
GROSS MARGIN
As reported.............................. $ 8,631 $10,997 $11,545 $13,173
Effect of acquisitions treated as
poolings of interest completed
subsequent to quarter end............. 729 853 318 --
As adjusted.............................. 9,360 11,850 11,863 13,173
NET INCOME
As reported.............................. $ 2,740 $ 2,276 $ 2,282 $ 2,440
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. (365) 210 109 --
As adjusted.............................. 2,375 2,486 2,391 2,440
BASIC EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT
As reported.............................. $ 0.14 $ 0.12 $ 0.12 $ 0.12
Effect of acquisition treated as pooling
of interests completed subsequent to
quarter end........................... ($ 0.02) -- -- --
As adjusted.............................. $ 0.12 $ 0.12 $ 0.12 $ 0.12
DILUTED EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
As reported.............................. $ 0.14 $ 0.12 $ 0.11 $ 0.12
Effect of acquisition treated as pooling
of interests completed subsequent to
quarter end........................... ($ 0.02) -- -- --
As adjusted.............................. $ 0.12 $ 0.12 $ 0.11 $ 0.12
</TABLE>
F-26
<PAGE> 32
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ----
<S> <C> <C> <C>
Current:
Federal................................................... $8,076 $5,916 $ 9
State..................................................... 1,153 846 --
------ ------ ----
Total..................................................... 9,229 6,762 9
Deferred:
Federal................................................... (493) (949) --
State..................................................... (70) (135) --
------ ------ ----
Total..................................................... (563) (1,084) --
------ ------ ----
Total....................................................... $8,666 $5,678 $ 9
====== ====== ====
</TABLE>
Upon the consummation of the IPO and the acquisition of the Acquired
Companies, MMR&D and certain of the Acquired Companies which were S-Corporations
(collectively, the "S-Corporations") terminated their S-Corporation status.
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 provisions for 1998 and 1997 income taxes include a
$548,000 and $650,000, respectively, nonrecurring benefit resulting from the
termination of the S-Corporation election and the corresponding required
adoption of SFAS 109.
The significant components of deferred tax assets (liabilities) as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Bad debts................................................... $ (646) $ (570)
Deferred revenue............................................ 856 425
Accrued expenses............................................ 1,033 848
Inventory................................................... (21) (21)
Other....................................................... 69 45
------ ------
Total....................................................... $1,291 $ 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.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Statutory tax provision at 35%.............................. $8,554 $5,379 $ 1,819
State taxes, net of federal benefit......................... 1,189 778 --
S-Corporation income not subject to tax..................... (231) (227) (1,810)
Change in valuation allowance............................... -- 36 --
Termination of S-Corporation status......................... (548) (650) --
Tax exempt income........................................... (547) (180) --
Non-deductible expense and other............................ 249 542 --
------ ------ -------
Total....................................................... $8,666 $5,678 $ 9
====== ====== =======
</TABLE>
F-27
<PAGE> 33
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT REPORTING
In 1998, the Company adopted SFAS 131. The segment information below
presents the Company's three reportable segments -- (1) Research & Development,
(2) Sales & Marketing and (3) Dealer Network, which represents the Company-owned
dealers.
The Company is organized primarily on the basis of the production,
distribution and service processes broken into nine production or distribution
units. Six of the distribution and service units have been aggregated into the
"Dealer Network" segment. These units derive their revenue from the sale and
service of The Medical Manager software. The "Sales & Marketing" unit consists
of a single distribution and service unit and derives its revenue from the sale,
licensing and distribution of The Medical Manager software to the Dealer Network
segment and the independent dealer network. Two of the production units have
been aggregated to form the "Research & Development" segment. These units derive
their revenue primarily from license royalties fees for The Medical Manager
software and other software packages.
The accounting policies of the segments are the same as those described in
footnote 2. Segment data includes intersegment revenues. Revenues and net income
reported in the Research & Development segment and the Sales & Marketing segment
are derived primarily from intersegment sales. The Dealer Network segment
purchases software and licenses from the Sales & Marketing segment, which
recognizes these sales as revenue. The Research & Development segment then
collects royalties from the Sales & Marketing segment as it's primary source of
revenues. Sales to the Dealer Network segment by the Sales & Marketing segment
are made at the same wholesale price sold to independent dealers. Royalties to
the Research & Development segment are based on royalty agreements with Sales &
Marketing. The Company evaluates the performance of all three of its segments
based on revenues and net income, and additionally, it evaluates the Dealer
Network on operating margins.
The table below presents information about reported segments and the
reconciliation of total segment information to the consolidated information as
reflected on the accompanying financial statements for the years ending December
31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
ELIMINATION OF
RESEARCH & SALES & DEALER INTERSEGMENT SALES
DEVELOPMENT MARKETING NETWORK TOTAL ALL OTHERS OR RECEIVABLES CONSOLIDATED
----------- --------- -------- -------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998:
Revenues............... $22,897 $22,895 $115,203 $160,995 $ 461 $ (25,544) $135,912
Interest income........ 0 0 138 138 1,433 0 1,571
Interest expense....... 27 0 143 170 0 0 170
Depreciation and
amortization......... 347 214 2,695 3,256 232 0 3,488
Income tax expense..... 456 0 259 715 7,951 0 8,666
Net income............. 11,321 5,619 13,169 30,109 (14,336) 0 15,773
Total assets........... 30,313 24,529 141,192 196,034 159,791 (235,439) 120,386
Expenditures for
goodwill additions in
connection with the
Purchased
Companies............ $ 0 $ 0 $ 270 $ 270 $ 3,799 $ 0 $ 4,069
</TABLE>
F-28
<PAGE> 34
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
ELIMINATION OF
RESEARCH & SALES & DEALER INTERSEGMENT SALES
DEVELOPMENT MARKETING NETWORK TOTAL ALL OTHERS OR RECEIVABLES CONSOLIDATED
----------- --------- -------- -------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997:
Revenues............... $15,684 $17,078 $ 72,087 $104,849 $ 0 $ (13,021) $ 91,828
Interest income........ 11 0 36 47 563 0 610
Interest expense....... 90 22 176 288 0 0 288
Depreciation and
amortization......... 304 155 1,208 1,667 21 0 1,688
Income tax expense..... 278 1 21 300 5,378 0 5,678
Net income............. 8,197 3,303 6,367 17,867 (8,175) 0 9,692
Total assets........... 18,168 18,735 94,981 131,884 77,822 (148,355) 61,351
Expenditures for
goodwill additions in
connection with the
Purchased
Companies............ $ 0 $ (31) $ 1,338 $ 1,307 $ 11,882 $ 0 $ 13,189
1996:
Revenues............... $11,956 $ 0 $ 38,324 $ 50,280 $ 0 $ (1,392) $ 48,888
Interest income........ 108 0 11 119 0 0 119
Interest expense....... 0 0 200 200 0 0 200
Depreciation and
amortization......... 266 0 395 661 0 0 661
Income tax expense..... 0 0 9 9 0 0 9
Net income............. 5,846 0 (363) 5,483 (295) 0 5,188
Total assets........... 4,444 0 9,743 14,187 86 0 14,273
Expenditures for
goodwill additions in
connection with the
Purchased
Companies............ $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
13. LEGAL PROCEEDINGS
A class action lawsuit was brought against the Company alleging Year 2000
issues regarding The Medical Manager software in versions prior to Version 9.0.
Seven additional lawsuits were also brought against the Company, each purporting
to sue on behalf of those similarly situated and raising essentially the same
issues. In December 1998, the Company preliminarily entered into an agreement to
settle the class action lawsuit, as well as five of the seven other similar
cases. The settlement created a settlement class of all purchasers of Version 7
and 8 and upgrades to Version 9 of The Medical Manager software, and released
the Company from Year 2000 claims arising out of the sales of these version of
the Company's product. Under the terms of the settlement, Version 8.12,
containing the Company's upgraded Version of 8.11 software in addition to the
Year 2000 patch, will be licensed without a license fee to Version 7 and 8 users
who participate in the settlement. In addition, the settlement also provides
that participating users who purchased a Version 9 upgrade will have the option
to obtain one of four optional modules from the Company without a license fee,
or to elect to take a share of a settlement cash fund. The settlement required
the Company to make a cash payment of $1.455 million. See Note 14.
The Company has received notice of a lawsuit which was filed against the
Company and certain of its officers and directors, among other parties, on
October 23, 1998 in the United States District Court for the Middle District of
Florida. The lawsuit, styled George Ehlert, et al. vs. Michael A. Singer, et
al., purports to bring an action on behalf of the plaintiffs and others
similarly situated to recover damages for alleged violations of the federal
securities laws and Florida laws arising out of the Company's issuance of
allegedly materially false and misleading statements concerning its business
operations, including the development and sale of its principal product, during
the class period. An amended complaint was served on March 2, 1999. The class
period is alleged to be between April 23, 1998 and August 5, 1998. The lawsuit
seeks, among other things, compensatory damages in favor of the plaintiffs and
the other purported class members and reasonable
F-29
<PAGE> 35
MEDICAL MANAGER HEALTH SYSTEMS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs and expenses. The Company believes that this lawsuit is without merit and
intends to vigorously defend against it.
The Company is from time to time involved in other routine litigation
incidental to the conduct of its business. The Company believes that no such
currently pending routine litigation to which it is party will have a material
adverse effect on its financial condition or results of operations.
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company executed and closed
agreements to acquire the following resellers of The Medical Manager software:
(i)Advanced Medical Office Systems, Inc. d/b/a I.E. Corporation, based in
Stockton, California, on February 26, 1999; (ii) Specialized Computer Systems,
Inc., based in DuBois, Pennsylvania, on February 26, 1999; (iii) Shared Business
Services, Inc., based in Clearwater, Florida, on March 17, 1999; (iv) Uniserv,
Inc., based in Baton Rouge, Louisiana, on March 19, 1999; (v) Meditech, Inc.,
based in Clarksville, Indiana, on March 31, 1999; (vi) Business Support Systems,
Inc., based in Chesapeake, Virginia, on March 31, 1999; (vi) Quantum Healthcare
Systems, Inc., based in Fresno, California, on June 9, 1999; (vii) Western
Healthcare, based in San Luis Obispo, California, on June 11, 1999; (viii)
Donald Friesen & Associates, based in Bakersfield, California, on June 12, 1999;
and (ix) Diversified Management Services, Inc., based in Oklahoma City,
Oklahoma, on June 30, 1999. The acquisitions were accounted for using the
pooling of interests method of accounting. The aggregate consideration paid was
242,352 shares of Common Stock. These acquisitions, in aggregate, had revenues
of $8.3 million and a net loss of $0.1 million for the year ended December 31,
1998.
Also subsequent to December 31, 1998, the Company executed and closed
agreements to acquire substantially all of the assets of the following companies
or divisions: (i) Medical Systems Plus, based in LaFayette, Louisiana, on March
19, 1999; (ii) Premier Support Services, Inc., based in Dallas, Texas, on March
24, 1999; (iii) the PM2000 Business of CSC Healthcare, Inc., based in
Birmingham, Alabama, on March 31, 1999; (iv) Raven Healthcare Management, Inc.,
based in Nashville, Tennessee, on June 4, 1999; (v) the Network Group Division
of Blue Cross Blue Shield of Georgia, based in Columbus, Georgia, on June 30,
1999; (vi) the Wismer* Martin division of Physician Computer Network, Inc.,
based in Spokane, Washington, on July 2, 1999; and (vii) Hyperion Business
Systems, based in Oakland, California, on July 20, 1999. The acquisitions were
accounted for using the purchase method of accounting. The aggregate
consideration paid was $15.9 million in cash, the issuance of $0.3 million of
debt and 3,224 shares of Common Stock. These acquisitions, in aggregate, had
revenues of approximately $14.1 million and net income of approximately $1.8
million for the year ended December 31, 1998.
The settlement of the Company's Year 2000 class action lawsuit was
approved by the District Court of New Jersey on March 15, 1999. Pursuant to the
settlement, the Company was released from liability due to the Year 2000
non-compliance of Versions 7 and 8 by all users of Version 7 and 8 except 29
users who "opted-out" of the class settlement.
On July 23, 1999, the Company merged with Synetic, Inc. providing for a
strategic business combination in a tax-free pooling of interests transaction.
Each outstanding share of the Company's Common Stock was exchanged into 0.625
newly issued shares of Synetic, Inc.'s common stock. In connection with the
merger, Synetic, Inc. changed its name to Medical Manager Corporation, and the
Company changed its name to Medical Manager Health Systems, Inc.
F-30
<PAGE> 36
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
Medical Manager Corporation's historical fiscal year ends on June 30, while
Medical Manager Health Systems's historical fiscal year ends on December 31. For
purposes of combining Medical Manager Health Systems's historical financial data
with Medical Manager Corporation's historical financial data in the pro forma
condensed combined statements of operations in this document, the audited
financial data of Medical Manager Corporation for the fiscal years ended June
30, 1996, 1997 and 1998 have been combined with Medical Manager Health Systems's
unaudited financial data for the twelve months ended June 30, 1996, 1997 and
1998. Medical Manager Health Systems's unaudited data for the twelve months
ended June 30, 1996, 1997 and 1998 was derived from Medical Manager Health
Systems's books and records for the appropriate twelve month periods. Medical
Manager Corporation's unaudited financial data for the nine months ended March
31, 1999 have been combined with Medical Manager Health Systems's unaudited
financial data for the nine months ended March 31, 1999.
We have included this unaudited pro forma condensed combined summary data
only for the purpose of illustration, and it does not necessarily indicate what
the operating results or financial position would have been if the merger
between Medical Manager Corporation and Medical Manager Health Systems had been
completed at the dates indicated. Moreover, this data does not necessarily
indicate what the future operating results or financial position of the combined
company will be. You should read this unaudited pro forma condensed combined
summary financial data in conjunction with the "Summary Unaudited Pro Forma
Combined Condensed Financial Information" included elsewhere in this document
and with the historical financial statements of Medical Manager Corporation and
Medical Manager Health Systems and the related notes thereto, that are
incorporated by reference in this document. This unaudited pro forma combined
condensed summary financial data does not reflect any adjustments to conform
accounting practices as a result of the merger or any future merger related
expenses, as discussed in Note 4.
F-31
<PAGE> 37
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MEDICAL MEDICAL
MANAGER MANAGER HEALTH PRO FORMA PRO FORMA
CORPORATION SYSTEMS(1)(6) ADJUSTMENTS COMBINED
------------ ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales.................... $45,128 $50,166 $ -- $95,294
------- ------- -------
Costs and expenses:
Cost of sales.............. 25,108 26,998 -- 52,106
Selling general and
administrative(8)(9).... 14,930 17,013 -- 31,943
Interest and other
income.................. (8,112) (134) -- (8,246)
Interest and other
expenses................ -- 233 -- 233
------- ------- ---- -------
31,926 44,110 -- 76,036
------- ------- ---- -------
Income before provision for
taxes...................... 13,202 6,056 -- 19,258
Provision for taxes.......... 4,617 30 -- 4,647
------- ------- ---- -------
Net income(4)................ $ 8,585 $ 6,026 -- $14,611
======= ======= ==== =======
</TABLE>
F-32
<PAGE> 38
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MEDICAL
MANAGER MANAGER HEALTH PRO FORMA PRO FORMA
CORPORATION SYSTEMS(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales...................... $ 52,885 $70,746 $ -- $123,631
-------- ------- ---- --------
Costs and expenses:
Cost of sales................ 29,035 35,768 -- 64,803
Selling general and
administrative(8)(9)...... 20,841 25,652 -- 46,493
Acquired in-progress research
and development costs and
other..................... 37,413(2) -- -- 37,413
Interest and other income.... (12,894) (437) -- (13,331)
Interest and other
expenses.................. 3,116 862 -- 3,978
-------- ------- ---- --------
77,511 61,845 -- 139,356
-------- ------- ---- --------
(Loss) income before provision
for taxes.................... (24,626) 8,901 -- (15,725)
Provision for taxes............ 2,834 2,174 -- 5,008
-------- ------- ---- --------
Net (loss) income(4)........... $(27,460) $ 6,727 $ -- $(20,733)
======== ======= ==== ========
(Loss) income per share --
basic:(5)
Net (loss) income per share.... $ (1.60) $ 0.50 $ (0.81)
======== ======= ========
Weighted average shares
outstanding.................. 17,133 13,494 25,567
======== ======= ========
(Loss) income per share --
diluted:(5)
Net (loss) income per share.... $ (1.60) $ 0.50 $ (0.81)
======== ======= ========
Weighted average shares
outstanding.................. 17,133 13,520 25,567
======== ======= ========
</TABLE>
F-33
<PAGE> 39
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MEDICAL
MANAGER MANAGER HEALTH PRO FORMA PRO FORMA
CORPORATION SYSTEMS(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales...................... $ 64,945 $117,665 $ -- $182,610
-------- -------- ----- --------
Costs and expenses:
Cost of sales................ 34,508 59,226 -- 93,734
Selling general and
administrative(8)(9)...... 27,558 37,910 -- 65,468
Interest and other income.... (20,567) (754) -- (21,321)
Interest and other
expenses.................. 8,614 236 -- 8,850
-------- -------- ----- --------
50,113 96,618 -- 146,731
-------- -------- ----- --------
Income before provision for
taxes........................ 14,832 21,047 -- 35,879
Provision for taxes............ 5,788 8,029 -- 13,817
-------- -------- ----- --------
Net income(4).................. $ 9,044 $ 13,018 $ -- $ 22,062
======== ======== ===== ========
Income per share -- basic:(5)
Net income per share........... $ 0.51 $ 0.63 $ 0.72
======== ======== ========
Weighted average shares
outstanding.................. 17,671 20,765 30,649
======== ======== ========
Income per share -- diluted:(5)
Net income per share........... $ 0.46 $ 0.60 $ 0.66
======== ======== ========
Weighted average shares
outstanding.................. 19,834 21,573 33,317
======== ======== ========
</TABLE>
F-34
<PAGE> 40
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MEDICAL
MANAGER MANAGER HEALTH PRO FORMA PRO FORMA
CORPORATION SYSTEMS(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales......................... $68,730 $114,806 $ -- $183,536
------- -------- ---- --------
Costs and expenses:
Cost of sales................... 36,513 58,638 -- 95,151
Selling general and
administrative(8)(9)......... 31,890(3) 37,886 -- 69,776
Litigation costs................ 2,500(10) 2,366(7) -- 4,866
Interest and other income....... (13,669) (1,701) -- (15,370)
Interest and other expenses..... 6,726 70 -- 6,796
------- -------- ---- --------
63,960 97,259 -- 161,219
------- -------- ---- --------
Income before provision for
taxes........................... 4,770 17,547 -- 22,317
Provision for taxes............... 2,517 6,266 -- 8,783
------- -------- ---- --------
Net income(4)..................... $ 2,253 $ 11,281 $ -- $ 13,534
======= ======== ==== ========
Income per share -- basic:(5)
Net income per share.............. $ 0.12 $ 0.50 $ 0.41
======= ======== ========
Weighted average shares
outstanding..................... 18,977 22,363 32,954
======= ======== ========
Income per share -- diluted:(5)
Net income per share.............. $ 0.11 $ 0.49 $ 0.38
======= ======== ========
Weighted average shares
outstanding..................... 21,093 23,194 35,589
======= ======== ========
</TABLE>
F-35
<PAGE> 41
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MEDICAL MEDICAL
MANAGER MANAGER HEALTH PRO FORMA PRO FORMA
CORPORATION SYSTEMS(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents............ $ 47,575 $ 43,173 $ -- $ 90,748
Accounts receivable, net........... 15,056 28,564 -- 43,620
Other current assets............... 39,234 10,915 -- 50,149
-------- -------- ---- ---------
Total current assets................. 101,865 82,652 -- 184,517
-------- -------- ---- ---------
Property, plant and equipment, net... 46,707 9,306 -- 56,013
Marketable securities................ 234,493 -- -- 234,493
Capitalized software development
costs.............................. 31,330 -- -- 31,330
Goodwill and other intangibles,
net................................ 112,509 29,155 -- 141,664
Other assets......................... 13,058 2,449 -- 15,507
-------- -------- ---- ---------
Total assets......................... $539,962 $123,562 $ -- $ 663,524
======== ======== ==== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities.................. $ 22,073 $ 24,409 $ -- $ 46,482
Long-term debt, less current
portion............................ 168,965 250 -- 169,215
Deferred taxes and other............. 28,960 -- -- 28,960
Stockholders' equity................. 319,964 98,903 -- 418,867
-------- -------- ---- ---------
Total liabilities and stockholders'
equity............................. $539,962 $123,562 $ -- $ 663,524
======== ======== ==== =========
</TABLE>
F-36
<PAGE> 42
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MEDICAL
MANAGER MANAGER HEALTH PRO FORMA PRO FORMA
CORPORATION SYSTEMS(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................ $ 46,710 $83,593 $ -- $130,303
-------- ------- ---- --------
Costs and expenses:
Cost of sales...................... 24,986 42,492 -- 67,478
Selling general and
administrative(8)(9)............ 20,735 27,235 -- 47,970
Interest and other income.......... (15,732) (385) -- (16,117)
Interest and other expenses........ 6,496 207 -- 6,703
-------- ------- ---- --------
36,485 69,549 -- 106,034
-------- ------- ---- --------
Income before provision for taxes.... 10,225 14,044 -- 24,269
Provision for taxes.................. 4,064 5,678 -- 9,742
-------- ------- ---- --------
Net income(4)........................ $ 6,161 $ 8,366 $ -- $ 14,527
======== ======= ==== ========
Income per share -- basic:(5)
Net income per share................. $ 0.35 $ 0.41 $ 0.48
======== ======= ========
Weighted average shares
outstanding........................ 17,652 20,464 30,442
======== ======= ========
Income per share -- diluted:(5)
Net income per share................. $ 0.32 $ 0.39 $ 0.44
======== ======= ========
Weighted average shares
outstanding........................ 19,558 21,202 32,809
======== ======= ========
</TABLE>
- -------------------------
(1) Historical amounts have been adjusted to reflect all acquisitions accounted
for using the pooling of interests method of accounting for all periods.
(2) Relates to write-off of acquired in-process research and development costs
in conjunction with the purchase of Avicenna Systems Corporation and
CareAgents, Inc. and certain software costs.
(3) Includes a write-off of $2,381 of capitalized software costs which relate
to the abandonment of our development efforts with respect to certain of
our products and services. These services were abandoned as a result of
encountering a high risk development issue associated with integrating
those products and services with the acquired Cerner technology.
(4) Amount does not reflect the pro forma effect of future expenses for the
merger. In connection with the merger, Medical Manager Corporation and
Medical Manager Health Systems expect to incur investment banking, legal,
accounting and other related transaction costs and fees. Additionally, the
companies expect to incur other merger-related costs associated with the
integration of the separate companies. The merger-related expenses will be
charged to expense in the period in which the merger is consummated or in
subsequent periods when incurred. Since the merger has not yet been
consummated
F-37
<PAGE> 43
and transition plans are currently being developed, the merger-related
costs cannot be estimated at this time.
The accounting policies of Medical Manager Corporation and Medical Manager
Health Systems are currently being reviewed from a conformity perspective.
The impact of conforming accounting policies (if any) is not presently
estimable. If conforming adjustments are required, they will be recorded as
part of the restatement of prior periods, as required by the
pooling-of-interests accounting method.
(5) Net earnings per common share amounts assume the conversion of each share
of Medical Manager Health Systems Common Stock into .625 of a share of
Medical Manager Corporation Common Stock, based on the exchange ratio.
(6) On January 30, 1997 the common stock of Medical Manager Health Systems
began trading on the Nasdaq National Market System. Prior to this date,
there was no established trading market for Medical Manager Health Systems
Common Stock. As such, no per share data is presented for periods ending
prior to January 30, 1997.
(7) Includes $2,366 ($1,400 after tax) in charges relating to the settlement of
a class action lawsuit alleging that versions of The Medical Manager
software prior to version 9.0 will not properly recognize and process
information relating to dates in and after the year 2000.
(8) Includes $5,761, $7,670, $8,976, $12,358 and $6,584 of research and
development expenses for the years ended June 30, 1996, 1997 and 1998 and
for the nine months ended March 31, 1999 and 1998, respectively.
(9) Includes $5,234, $4,345, $4,739, $10,054 and $5,027 for depreciation and
amortization expenses for the years ended June 30, 1996, 1997 and 1998 and
for the nine months ended March 31, 1999 and 1998, respectively.
(10) Relates to $2,500 ($1,628 after tax) in charges incurred with the Merck
litigation.
F-38
<PAGE> 44
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23.1 Consent of PricewaterhouseCoopers LLP.
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Post-Effective
Amendment on Form S-8 (No. 333-81123) and Form S-8 (No. 33-34925, 33-34926,
33-38446, 33-46639, 33-46640, 333-19043, 333-21555 and 333-36041) of Medical
Manager Corporation (formerly Synetic, Inc.) of our report dated February 5,
1999, except for the second paragraph of Note 13, the third paragraph of Note
14, the first and second paragraphs of Note 14 and the fourth paragraph of Note
14, as to which the dates are March 2, 1999, March 15, 1999, July 20, 1999 and
July 23, 1999, respectively, relating to the financial statements of Medical
Manager Health Systems, Inc. (formerly Medical Manager Corporation), which
appears in the Current Report on Form 8-K of Medical Manager Corporation
(formerly Synetic, Inc.).
September 20, 1999 /s/ PricewaterhouseCoopers LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
