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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-21031
QUADRAMED CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 52-1992861
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
80 E. SIR FRANCIS DRAKE BLVD., SUITE 2A, 94939
LARKSPUR, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 461-7725
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 1, 1997, there were 6,205,816 shares of the Registrant's Common
Stock outstanding, par value $0.01.
This quarterly report on Form 10-Q consists of 19 pages of which this is
page 1. The Exhibit Index is located at page 19.
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QUADRAMED CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31,
1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 16,009 $ 18,486
Restricted cash ................................ 31 30
Accounts receivable, net ....................... 5,515 4,040
Prepaid expenses and other ..................... 497 328
-------- --------
Total current assets ................... 22,052 22,884
-------- --------
EQUIPMENT:
Equipment ...................................... 3,960 3,528
Accumulated depreciation ....................... (1,765) (1,533)
-------- --------
Equipment, net ......................... 2,195 1,995
-------- --------
Capitalized software development costs, net .... 1,007 950
Acquired software, net ......................... 1,535 1,617
Goodwill, net .................................. 1,918 2,038
Other .......................................... 85 85
-------- --------
$ 28,792 $ 29,569
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 80 $ 79
Accounts payable ............................... 619 1,523
Accrued liabilities ............................ 1,176 1,410
Deferred revenue ............................... 1,369 1,515
-------- --------
Total current liabilities .............. 3,244 4,527
-------- --------
Capital lease obligations, less current portion 127 149
-------- --------
Total liabilities ................................ 3,371 4,676
-------- --------
STOCKHOLDERS' EQUITY:
Common stock ................................... 58 57
Deferred compensation .......................... (314) (336)
Additional paid-in capital ..................... 40,304 40,244
Accumulated deficit ............................ (14,627) (15,072)
-------- --------
Total stockholders' equity ............. 25,421 24,893
-------- --------
$ 28,792 $ 29,569
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------------
1997 1996
------- -------
<S> <C> <C>
REVENUES:
Licenses ..................................... $ 4,163 $ 4,026
Services ..................................... 971 740
------- -------
Total revenues ....................... 5,134 4,766
------- -------
OPERATING EXPENSES:
Cost of licenses ............................. 1,601 1,734
Cost of services ............................. 573 759
General and administration ................... 832 656
Sales and marketing .......................... 765 632
Research and development ..................... 647 666
Amortization of goodwill ..................... 120 112
Non-recurring start-up charges ............... 334 --
------- -------
Total operating expenses ............. 4,872 4,559
------- -------
INCOME FROM OPERATIONS ......................... 262 207
OTHER INCOME (EXPENSE):
Interest income (expense) .................... 226 (115)
Other income (expense) ....................... (5) (26)
------- -------
Total other income (expense) ......... 221 (141)
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES ....... 483 66
Provision for income taxes ................... 38 --
------- -------
NET INCOME ..................................... $ 445 $ 66
======= =======
NET INCOME PER SHARE .......................... $ 0.06 $ 0.02
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING ............ 7,404 3,611
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................... $ 445 $ 66
-------- --------
Adjustments to reconcile net income
to net cash used for operating
activities ................................... --
Depreciation & amortization .................. 473 340
Amortization of deferred
compensation .............................. 22 --
Changes in assets and liabilities:
Accounts receivable, net ..................... (1,475) (564)
Restricted cash .............................. (1) 14
Prepaid expenses and other ................... (169) 95
Other assets ................................. -- 11
Accounts payable and accrued
liabilities ............................... (1,138) 384
Deferred revenue ............................. (146) (540)
-------- --------
Cash used for operating activities ...... (1,989) (194)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash payment related to Healthcare
Design Systems acquisition ................... -- (3,750)
Additions to equipment .......................... (432) (94)
Capitalization of computer
software development costs ................... (96) (151)
-------- --------
Cash used for investing
activities ........................... (528) (3,995)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on capital
lease obligations ............................ (21) (57)
Borrowings under notes payable
to related parties ........................... -- 3,890
Borrowings under line of credit ................. -- 686
Proceeds from the issuance of
common stock ................................. 61 --
-------- --------
Cash provided by financing
activities ........................... 40 4,519
-------- --------
Net increase (decrease) in cash
and cash equivalents ............................ (2,477) 330
CASH AND CASH EQUIVALENTS,
beginning of period ............................. 18,486 266
-------- --------
CASH AND CASH EQUIVALENTS, end
of period ....................................... $ 16,009 $ 596
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest .......................... $ -- $ 60
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements and notes thereto
should be read in conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 1996 included in the Company's Annual
Report on Form 10-KSB. The unaudited information contained herein has been
prepared on the same basis as the Company's audited consolidated financial
statements and, in the opinion of the Company's management, includes all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information for the periods presented. The interim
results presented herein are not necessarily indicative of the results of
operations that may be expected for the full fiscal year ending December 31,
1997 or any other future period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company licenses a variety of software products and provides a variety
of services. License revenue includes license, installation, consulting and
post-contract support fees, third-party hardware sales and other revenues
related to licensing of the Company's software products. Service revenue is
composed of business office outsourcing services. The Company's product suite
is comprised of three primary elements: financial management, decision
support and EDI software. Each of these elements includes a variety of products
which can be licensed individually or as a suite of interrelated products.
Products are generally licensed under term arrangements (which range from one
year to three years) which typically include monthly payments over the term of
the arrangement. However, the product suite can also be licensed on a perpetual
basis.
Revenues from term licenses of EDI products are recognized ratably over the
term of the license arrangement, beginning at the date of installation. Revenues
from perpetual licenses of the financial management and decision support
products are recognized upon shipment of the software if there are no
significant post-delivery obligations, payment of the license fee is due within
one year and collectibility is probable. If an acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
The Company provides business office outsourcing services to certain
hospitals under contract service arrangements. Business office outsourcing
revenues typically consist of fixed monthly fees plus incentive-based payments
that are based on a percentage of dollars recovered for the provider for which
the service is being performed. The monthly fees are recognized as revenue on a
monthly basis at the end of each month. Incentive fees are recognized as the
conditions upon which such fees are based are realized based on collection of
accounts from payors.
Other services are also provided to certain of the Company's licensees of
software products, which consist primarily of consulting and post-contract
customer support. Consulting services generally consist of installation of
software at customer sites and revenues for such services is recognized upon
completion of installation. Such services generally do not include customization
or modification of the underlying software code. If included in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers. If
customization of the software code is performed, the license and service fees
are recognized together on a percentage-of-completion basis during the
customization period. Post-contract customer support is recognized ratably over
the term of the support period. If support is included in a perpetual license
agreement such amounts are unbundled from the license fee at its fair market
value based on the value established by the independent sale of such support to
customers.
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Cost of license revenues consist primarily of salaries, benefits and allocated
costs related to the installation process and customer support and royalties to
third parties.
Cost of service revenues consist primarily of salaries, benefits and allocated
costs related to providing such services.
Deferred revenue primarily consists of revenue deferred under annual maintenance
and annual license agreements.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares include Convertible Preferred Stock (using the if converted method in the
three months ended March 31, 1996) and stock options and warrants in both
periods(using the treasury stock method). Common stock options and warrants are
excluded from the computation if their effect is antidilutive except that,
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins
and staff policy, such computations for the three months ended March 31, 1996
include all common and common equivalent shares issued within the 12 months
preceding the filing date of the Company's initial public offering as if they
were outstanding for all periods presented (under the treasury stock method
using an assumed initial public offering price). Convertible Preferred Stock
outstanding during the 1996 period is included (using the if converted method)
in the computation as common equivalent shares even though the effect is
antidilutive. Primary and fully diluted earnings per share were substantially
the same in all periods presented.
In March 1997, the Financial Accounting Standards Board issued Statement No.
128 (SFAS No. 128), "Earnings per Share" and requires adoption of such
provisions in 1997. The Company will adopt the provisions of SFAS No. 128
effective December 31, 1997 for its year ending December 31, 1997. The pro forma
effect of SFAS No. 128 for the first quarter 1997 would be as follows:
<TABLE>
<S> <C>
Reported earnings per share $0.06
Basic earnings per share (pro forma) $0.07
Diluted earnings per share (pro forma) $0.06
</TABLE>
3. SUBSEQUENT EVENTS
In April 1997, the Company purchased all of the outstanding stock of
Healthcare Recovery, Inc., an accounts receivable management company based in
New Jersey and doing business as Synergy HMC ("Synergy"), for an aggregate
purchase price of $3,300,000 paid in cash and common stock of the Company. The
acquisition was accounted for as a purchase. In connection with the acquisition,
the Company repaid substantially all the debt of Synergy of approximately
$1,700,000.
In April 1997, the Company acquired a 10.2% equity interest in EDI USA,
Inc. an organization owned by thirteen independent Blue Cross and Blue Shield
Plans which established EDI USA to build and operate a national electronic
information highway to facilitate all electronic healthcare transactions. The
Company paid $2,500,000 for its 10.2% equity stake in EDI USA. The investment
will be accounted for on the cost method.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical financial information contained herein, the
matters discussed in this Quarterly Report on Form 10-Q may be considered
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements include declarations regarding the intent, belief or
current expectations of the Company and its management. Prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties and that
actual results could differ materially from those indicated by such
forward-looking statements. Among the important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are: (i) that the information is of a preliminary nature and may be
subject to further adjustment, (ii) the Company's ability to reduce operational
costs of its newly acquired operations from Synergy, (iii) variability in
quarterly operating results, (iv) identification, consummation and assimilation
of
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<PAGE> 8
acquisitions, (v) demand for the Company's products and services in the health
care information systems and services markets, (vi) legislative or market-driven
reforms in the health care industry, (vii) the Company's ability to develop and
introduce new products, (viii) management of the Company's changing operations,
(ix) dependence on key personnel, (x) development by competitors of new or
superior products or entry into the market of new competitors, (xi) risks
related to product defects, (xii) risks associated with pending litigation,
(xiii) dependence on intellectual property rights, (xiv) volatility in the
Company's stock price, (xv) the success or failure of strategic alliances, (xvi)
risk of interruption in data processing, (xviii) dependence on larger orders,
and (xix) other risks identified from time to time in the Company's reports and
registration statements filed with the Securities and Exchange Commission,
including the registration statement on Form SB-2 related to the Company's
initial public offering and the Annual Report on Form 10-KSB for the year ended
December 31, 1996.
OVERVIEW
QuadraMed develops, markets and sells a suite of financial management,
decision support and electronic data interchange software products and network
services designed to enable health care providers and payors to increase
operational efficiency, measure the cost of care and more effectively administer
managed care contracts and capitation agreements. The Company was formed in
September 1993 and has completed a number of acquisitions. In October 1993,
QuadraMed acquired the net assets of Coast Micro, Inc., through which the
Company acquired the predecessor of the Company's EDI product. In November 1993,
the Company acquired the net assets of Seton Financial, through which the
Company acquired the foundation of its business office outsourcing business. In
December 1995, the Company purchased the net assets of Healthcare Design
Systems, and thereby acquired several of the predecessor Company's decision
support and other related software products. In December 1996, the Company
completed the acquisition and merger of InterMed Healthcare Systems Inc., a
provider of client-server information systems that assist health care payors in
managing administrative and financial transactions with providers. In April
1997, the Company acquired Synergy, an accounts receivable management company.
The Company has experienced operating margins at differing levels related to
licenses and services. The service business has historically realized
fluctuating margins that were significantly lower than margins associated with
licenses. The Company expects this trend to continue with the recent acquisition
of Synergy.
The Company has and believes it will continue to experience seasonal
patterns in its operating results, with the second and fourth fiscal quarters
having higher revenues and net income. The Company attributes this seasonality
in large part to software licenses that are based on annual renewals. In
addition, the signing of a major perpetual license agreement could generate an
increase in revenues and net income for any given quarter or fiscal year. The
Company typically experiences long sales cycles for new customers that may
extend over several quarters. As a result, the Company believes that quarterly
results of operations will continue to be subject to significant fluctuations
and that its results of operations for any particular quarter or year may not be
indicative of results of operations for future periods.
The Company believes continued significant investment in the development of
new products and the further development and integration of acquired
technologies into the Company's suite of products, as well as the expansion of
its direct sales force, are critical to its success. Specifically, the Company's
development plans include enhancing the functionality of its products and
rewriting certain of its products to function within the Microsoft Windows(TM)
NT operating system. Accordingly, the aggregate amounts invested in research and
development and sales and marketing are expected to increase.
The Company capitalizes a portion of its software costs for internally
developed software products. These capitalized costs relate primarily to the
development of new products and the extension of applications to new markets or
platforms using existing technologies. The capitalized costs are amortized on a
straight-line basis over the estimated lives (usually five years), commencing
when each product is available to the market.
In February 1997, the Company entered into an arrangment with EDI USA to
serve as the exclusive provider of EDI processing and management services for
all transactions on EDI USA's transaction network. The Company recorded
non-recurring charges of $334,000 in the first quarter of 1997 related to
start-up costs incurred in connection with the processing arrangement. QuadraMed
expects to incur similar charges in the remaining three quarters of 1997, until
the electronic transaction network is operational.
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REVENUES
License revenues for the quarter ended March 31, 1997 increased to
$4,163,000, from $4,026,000 in the same period last year. Service revenues for
the quarter ended March 31, 1997 increased 31% to $971,000, compared to $740,000
in the same period last year. The increase in service revenues was due
principally to several new outsourcing contracts which began in the first
quarter of 1997. Revenues were impacted by delays in finalizing the acquisition
of Synergy, which was originally planned for the first quarter of 1997,
but consummated in April 1997. The Company believes that its planned
augmentation in sales and marketing efforts for its outsourcing business and the
recent acquisition of Synergy will contribute to increasing service revenues
related to this business, although there can be no assurance in this regard.
COST OF REVENUES
Cost of license revenues for the quarter ended March 31, 1997 decreased to
$1,601,000 from $1,734,000 in the same period last year. Cost of licenses
includes installation, customer support and royalties. As a percentage of
license revenues, cost of licenses decreased to 38% in the first quarter of 1997
from 43% in the first quarter of 1996. The decrease in cost of licenses and cost
of licenses as a percentage of license revenues reflects fewer third-party
hardware sales in the first quarter of 1997.
Cost of service revenues for the quarter ended March 31, 1997 decreased to
$573,000 from $759,000 in the same period last year. Cost of services includes
expenses associated with services performed in connection with business office
outsourcing. As a percentage of service revenues, cost of services decreased to
59% in the first quarter of 1997 from 103% in the first quarter of 1996. The
decline in cost of services was principally due to fewer personnel who support
the service business, while cost of services as a percentage of service revenues
decreased principally due to fewer personnel, coupled with an increase in
service revenues from several new contracts in the first quarter of 1997.
OPERATING EXPENSES
General and Administration. General and administration expenses for the
quarter ended March 31, 1997 increased 27% to $832,000, or 16% of total revenues
from $656,000, or 14% of total revenues in the same period last year. Increases
in general and administration expense reflects significant legal expenses
incurred in the first quarter of 1997 to settle certain litigation. The Company
believes that general and administration expenses will increase in the future,
but should decline slightly as a percentage of total revenues, although there
can be no assurance in this regard.
Sales and Marketing. Sales and marketing expenses for the quarter ended
March 31, 1997 increased 21% to $765,000, or 15% of total revenues from
$632,000, or 13% of total revenues in the same period last year. The increase in
sales and marketing expenses resulted principally from the addition of sales
personnel hired by the Company during the first quarter of 1997. The Company
believes sales and marketing expenses will continue to increase primarily due to
the hiring of additional sales and marketing personnel, but should remain
relatively constant as a percentage of total revenues, although there can be no
assurance in this regard.
Research and Development. Research and development expenses for the quarter
ended March 31, 1997 decreased slightly to $647,000, or 13% of total revenues
from $666,000, or 14% of total revenues in the same period last year. The
Company intends to continue to make substantial investments in the development
of new products and in the further integration of acquired technologies into the
Company's suite of products and, accordingly, believes that these expenses will
increase significantly in the future.
Amortization of Goodwill. Amortization of goodwill for the quarter ended
March 31, 1997 was $120,000 compared to $112,000 in the same period last year.
Goodwill is principally due to the acquisition of Healthcare Design Systems Inc.
in December 1995. The Company expects to record a significant charge in the
second quarter of 1997 in connection with the acquisition of Synergy.
Non-Recurring Start-Up Charges. Non-recurring start-up charges of $334,000
in the first quarter of 1997 were associated with start-up costs incurred for
the claims processing arrangement entered into with EDI USA, Inc. during the
first quarter of 1997. The Company expects to incur similar charges in the
remaining three quarters of 1997, until the electronic transaction network is
operational.
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Interest Income (Expense). Interest income was $226,000 in the quarter
ended March 31, 1997, compared to interest expense of $115,000 for the same
period last year. Interest income is the result of the Company's initial public
offering in October 1996, which raised net proceeds of approximately
$26,400,000. Interest expense in the first quarter of 1996 was principally the
result of debt the Company incurred for the acquisition of Healthcare Design
Systems Inc. and for working capital purposes.
LIQUIDITY AND CAPITAL RESOURCES
From inception until the Company's initial public offering in October
1996, the Company's primary source of working capital was private placements of
Preferred Stock through which it raised approximately $12,800,000, net of
expenses. In 1994 and 1995, Series A Preferred Stock was issued for cash and
forgiveness of indebtedness totalling $4,200,000. Also in 1995, Series B
Preferred Stock was issued for cash of $4,000,000 and the conversion of notes
payable and accrued interest of $680,000. In June 1996, the Company completed a
second Series B Preferred Stock financing for the conversion of notes payable of
$3,900,000, which provided the downpayment for the acquisition of the net assets
of Healthcare Design Systems. In October 1996, the Company completed its initial
public offering of 2,500,000 shares of common stock, which raised net proceeds
of approximately $26,400,000.
Net cash used in operating activities was $1,989,000 and $194,000 in the
quarters ended March 31, 1997 and 1996, respectively. Net cash used in operating
activities in the quarter ended March 31, 1997 was principally due to a decrease
in accounts payable and accrued liabilities and an increase in accounts
receivable. Accounts payable and accrued liabilities decreased due to payments
to vendors using the proceeds from the initial public offering in October 1996.
Accounts receivable increased primarily due to the timing of payments received
from customers and to a lessor extent, an increase in volume of monthly
billings. Net cash used in operating activities in the quarter ended March 31,
1996 was principally due to investments in the Company's infrastructure.
Net cash used in investing activities was $528,000 and $3,995,000 in the
quarters ended March 31, 1997 and 1996, respectively. Investing activities
primarily included additions to capital equipment and the capitalization of
computer software development costs and the partial payment for the Healthcare
Design Systems acquisition in the first quarter of 1996.
Net cash provided by financing activities was $40,000 and $4,519,000 in the
quarters ended March 31, 1997 and 1996, respectively. Financing activities in
the quarter ended March 31, 1997 related to the issuance of common stock through
the Company's Stock Purchase Plan, offset by payments made under capital lease
obligations. Financing activities in the quarter ended March 31, 1996 related to
the issuance of convertible notes and borrowings under the Company's line of
credit.
The Company had a line of credit agreement to borrow up to $1,200,000 at
the bank's prime rate plus 1.5% for additional working capital and financing
equipment purchases. This line of credit expired on January 2, 1997. The Company
is currently negotiating a new line of credit arrangement.
FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
DEPENDENCE ON HOSPITAL MARKET; MARKET ACCEPTANCE; DEPENDENCE ON STRATEGIC
ALLIANCES; SYSTEM ENHANCEMENTS
The Company's customers are typically hospitals and other health care
providers, and substantially all of the Company's revenues in 1996 and the three
months ended March 31, 1997 were derived from the sale of software products and
services to hospitals. The Company's performance is dependent on continued
demand for its products and services in the health care information systems and
services industry. Consolidation in the health care information systems and
services industry could have a material adverse effect on the Company due to the
decrease in the number of potential purchasers of the Company's products and
services or the acquisition of one or more of the Company's customers by an
acquiror that uses products that compete with those of the Company. Legislative
or market-driven reforms could also have unpredictable effects on the Company's
business, financial condition and results of operations. In addition, the
decision to purchase the Company's products often involves the approval of
several individuals within hospitals and other health care providers.
Consequently, it is difficult for the Company to predict the timing or outcome
of the buying decisions of customers or potential customers.
The Company's future performance is also dependent in part on the success of
its marketing strategy which involves, to a substantial degree, a reliance upon
strategic alliance partners to sell the Company's products as a component of the
integrated systems being marketed by such partner or to endorse the Company's
products. If these strategic alliance partners elect to remove their product
endorsement or elect not to include the Company's products as components in
their integrated systems or are
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unsuccessful in achieving significant sales of the systems into which the
Company's products are to be integrated, the Company's business, financial
condition and results of operations would be materially adversely affected.
Moreover, the Company's future performance will depend in large part upon
the Company's ability to provide the increasing functionality required by its
customers through the timely development and successful introduction of new
products and enhancements to its existing suite of products. The Company has
historically devoted significant resources to product enhancements and research
and development and believes that significant continuing development efforts
will be required to sustain the Company's operations. There can be no assurance
that the Company will successfully develop, acquire, introduce and market new
product enhancements or products, or that product enhancements or new products
developed by the Company will meet the requirements of hospitals and other
health care providers and achieve market acceptance.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has expanded, and intends to continue to expand, in substantial
part through acquisitions of products, technologies and businesses. The
Company's ability to expand successfully through acquisitions depends on many
factors, including the successful identification and acquisition of products,
technologies or businesses and management's ability to effectively negotiate and
consummate acquisitions and integrate and operate, including reducing operating
expenses through synergies, the new products, technologies or businesses. There
is significant competition for acquisition opportunities in the Company's
industry, which may intensify due to consolidation in the health care industry,
increasing the costs of capitalizing on acquisition opportunities. The Company
competes for acquisition opportunities with other companies that have
significantly greater financial and management resources than the Company. The
inability to successfully identify appropriate acquisition opportunities,
consummate acquisitions or successfully integrate acquired products,
technologies, operations, personnel or businesses would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, acquisitions may divert management's attention from other business
concerns, expose the Company to the risks of entering markets in which the
Company has no direct prior experience or to risks associated with the market
acceptance of acquired products and technologies, or result in the loss of key
employees of the Company or the acquired company. Moreover, future acquisitions
by the Company may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt and the recognition of
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's business, financial condition and results
of operations. The acquisition and merger of InterMed Healthcare Systems Inc. in
December 1996 increased the number and complexity of software products offered
by the Company. The further integration of this company's products and
operations into the products and operations of the Company will divert
management attention from other matters, will place further pressure on the
Company's executive officers and may result in additional administrative
expense. Failure to complete successfully this integration of products and
operations and assimilation of new employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
The acquisition of Synergy in April 1997, substantially increased the number of
employees of the Company and the breadth of services offered by the Company. The
Company's acquisition of Synergy will require the reduction of operating
expenses and the successful integration of the Company's business office
outsourcing services with those services of Synergy. Failure to successfully
reduce operating expenses and integrate the services of Synergy could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATION
In any given fiscal quarter or year, the Company's revenues may consist of
large orders from a limited number of customers. While the individual customer
may vary from period to period, the Company may nevertheless be dependent upon
these large orders for a substantial portion of its total revenues. There can be
no assurance that the Company will obtain such large orders on a consistent
basis. The Company's inability to obtain sufficient large orders could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the timing and shipment of such orders may
cause the operating results of the Company in any given quarter to differ from
projections of securities analysts, which could adversely affect the trading
price of the Company's Common Stock. Losses arising from customer disputes
regarding shipping schedules, product condition or performance, or the Company's
inability to collect accounts receivable from any major customer could also have
a material adverse effect on the Company's business, financial condition and
results of operations.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the following: variability in demand
for the Company's products and services; the timing of acquisitions;
the timing of large orders; the number, timing and significance of announcements
and releases of product enhancements and new products by the Company and its
competitors; the timing and significance of announcements concerning the
Company's present or prospective strategic alliances; the termination of, or a
reduction in, offerings of the Company's products and services; the loss of
customers due to consolidation in the health care industry, delays in product
delivery requested by customers; the timing of revenue recognition; the amount
of backlog at the beginning of any particular quarter; customer budgeting cycles
and changes in customer budgets; investments by the Company in certain
projects or in marketing, sales, research and development, and administrative
personnel necessary to support the Company's anticipated operations; marketing
and sales promotional activities; software defects and other quality factors;
and general economic conditions.
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In particular, the timing of revenue recognition can be affected by many
factors, including the timing of customer purchases which are difficult to
predict given the complex procurement decision process that exists in most
health care providers. As a result, the Company typically experiences sales
cycles that extend over several quarters for new customers. There can be no
assurance that the Company will not experience delays in recognizing revenues in
the future. Moreover, the Company's operating expense levels are relatively
fixed and, to a large degree, are based on anticipated revenues. If revenues are
below expectations, net income is likely to be disproportionately affected.
Further, it is likely that in some future quarter the Company's revenues,
backlog or operating results will be below the expectations of securities
analysts and investors. In such event, the trading price of the Company's Common
Stock would likely be materially adversely affected.
HIGHLY COMPETITIVE MARKET
Competition in the market for the Company's products and services is intense
and is expected to increase. The Company's competitors include other providers
of health care information software and services, as well as health care
consulting firms. The Company's principal competitors include CIS Technologies,
Inc., a division of National Data Corporation, Inc., and Sophisticated Software,
Inc. in the market for its EDI products; Healthcare Cost Consultants, Inc.
("HCC"), a division of CIS Technologies, Inc. and Trego Systems, Inc. in the
market for its contract management products; IMNET Systems, Inc., Optika Imaging
Systems, Inc. and LanVision Systems, Inc. in the market for its electronic
document management products; Transition Systems, Inc. ("TSI") and Healthcare
Microsystems, Inc., a division of Health Management Systems Inc. ("HMS"), HCIA
Inc. and MediQual Systems, Inc. in the market for its decision support products;
and HMS and ARTRAC, a division of Medaphis Corp., in the market for its business
office outsourcing services. In addition, current and prospective customers
evaluate the Company's capabilities against the merits of their existing
information systems and expertise. Furthermore, major health care information
companies not presently offering products that compete with those offered by the
Company may enter the Company's markets. Increased competition could result in
price reductions, reduced gross margins, and loss of market share, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. In addition, many of the Company's competitors and
potential competitors have significantly greater financial, technical, product
development, marketing and other resources and market recognition than the
Company. Many of the Company's competitors also currently have, or may develop
or acquire, substantial installed customer bases in the health care industry. As
a result of these factors, the Company's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.
NEED TO MANAGE CHANGING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL
The Company's anticipated future operations may place a strain on its
management systems and resources. The Company expects that it will be required
to continue to improve its financial and management controls, reporting systems
and procedures, and will need to expand, train and manage its work force. There
can be no assurance that the Company will be able to effectively manage these
tasks, and the failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations. In 1994, 1995
and 1996 the Company experienced significant turnover in its sales personnel,
including its Senior Vice President of Sales. The Company has hired in the last
year and intends to continue to hire a significant number of additional sales
personnel. Thus, a substantial percentage of the Company's sales force is
currently inexperienced in selling the Company's products and will remain so for
some time. In addition, competition for experienced sales personnel is intense,
and there can be no assurance that the Company will be able to attract,
assimilate or retain highly qualified employees in the future. If the Company is
unable to hire and retain such personnel, particularly those in key positions,
the Company's business, financial condition and results of operations could be
materially adversely affected. The Company's future success also depends in
significant part upon the continued service of its executive officers, its
product managers and other key sales, marketing, and development personnel.
Additions of new and departures of existing personnel can be disruptive and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
The Company relies on a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions to protect its
proprietary rights. The Company has not filed any patent applications covering
its technology or registered any of its copyrights with state or federal
agencies. There can be no assurance that measures taken by the Company to
protect its
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intellectual property will be adequate or that the Company's competitors will
not independently develop products and services that are substantially
equivalent or superior to those of the Company. Substantial litigation regarding
intellectual property rights exists in the software industry, and the Company
expects that software products may be increasingly subject to third-party
infringement claims as the number of competitors in the Company's industry
segment grows and the functionality of products overlaps. Although the Company
believes that its products do not infringe upon the proprietary rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that a license or
similar agreement will be available on reasonable terms in the event of an
unfavorable ruling on any such claim. In addition, any such claim may require
the Company to incur substantial litigation expenses or subject the Company to
significant liabilities and could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA
Products such as those offered by the Company frequently contain errors or
failures, especially when first introduced or when new versions are released.
Although the Company conducts extensive testing, the Company has discovered
software errors in certain of its enhancements and products after their
introduction. The Company is currently developing various new applications as
well as new versions of certain of its existing applications designed to
function with the Microsoft Windows(TM) NT operating system. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors or performance failures will not occur in these products under
development or in other enhancements or products after commencement of
commercial shipments, resulting in loss of revenues or delay in market
acceptance, diversion of development resources, damage to the Company's
reputation or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH PENDING LITIGATION
The Company is a defendant in several legal proceedings any of which, if
resolved adversely to the Company, could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company has agreed to issue to certain principal stockholders additional
shares of Common Stock without payment of further consideration in the event
that the Company is required to pay damages or issue equity securities in excess
of agreed-upon amounts to the plaintiffs in certain pending litigation. Any
issuance of Common Stock under this arrangement or in the related litigation
will cause dilution to the Company's other stockholders, and such dilution could
be significant.
RISK OF INTERRUPTION OF DATA PROCESSING
The Company currently processes large amounts of customer data at its
facilities in Larkspur, California and Neptune, New Jersey. While the Company
has safeguards for emergencies such as power interruption or breakdown in
temperature controls, the Company has no mirror processing site to which
processing could be transferred in the case of a catastrophic event at either of
these facilities. The occurrence of a major catastrophic event at either the
Larkspur facility or the Neptune facility could lead to an interruption of data
processing and could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS RELATED TO PRODUCT CONVERSION TO WINDOWS NT
The Company intends to enhance its products to run on the Microsoft
Windows(TM) NT operating system. Some potential clients may delay purchasing
decisions until Windows(TM) NT versions of the Company's products are available.
There can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful and timely development, introduction and
marketing of the new Windows(TM) NT versions of its products, or that such
products will achieve or sustain market acceptance. The occurrence of product
conversion problems or the failure to achieve or sustain market acceptance of
the Windows(TM) NT versions could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS RELATED TO OUTSOURCING BUSINESS
The Company provides business office outsourcing, including the billing and
collection of receivables. The infrastructure for the Company's outsourcing
business was acquired by the Company from Seton Financial in November 1993 and
from Synergy in April 1997, and the Company typically
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<PAGE> 14
uses its software products to provide outsourcing services. As a result, the
Company has not been required to make significant investments since the
acquisition of Seton Financial in order to service existing outsourcing
contracts. However, if the Company experiences a period of substantial expansion
in its outsourcing business, the Company may be required to make substantial
investments in capital assets and personnel, and there can be no assurance that
the Company will be able to assess accurately the investment required and
negotiate and perform in a profitable manner any of the outsourcing contracts it
may be awarded. The Company's failure to estimate accurately the resources and
related expenses required for a project or its failure to complete its
contractual obligations in a manner consistent with the project plan upon which
its contract was based could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's failure to meet a client's expectations in the performance of its
services could damage the Company's reputation and adversely affect its ability
to attract new business. Finally, the Company could incur substantial costs and
expend significant resources correcting errors in its work, and could possibly
become liable for damages caused by such errors.
GOVERNMENT REGULATION
The United States Food and Drug Administration (the "FDA") is responsible
for assuring the safety and effectiveness of medical devices under the Federal
Food, Drug and Cosmetic Act. Computer products are subject to regulation when
they are used or are intended to be used in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment or prevention of disease, or
are intended to affect the structure or function of the body. The FDA could
determine in the future that any predictive aspects of the Company's products
make them clinical decision tools subject to FDA regulation. Compliance with
these regulations could be burdensome, time consuming and expensive. The Company
also could become subject to future legislation and regulations concerning the
development and marketing of health care software systems. These could increase
the cost and time necessary to market new products and could affect the Company
in other respects not presently foreseeable. The Company cannot predict the
effect of possible future legislation and regulation.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases are
subject to substantial regulation by state governments. These state laws and
regulations govern both the disclosure and the use of confidential patient
medical record information. Although compliance with these laws and regulations
is at present principally the responsibility of the hospital, physician or other
health care provider, regulations governing patient confidentiality rights are
evolving rapidly. Additional legislation governing the dissemination of medical
record information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may require substantial expenditures by the Company. There can be
no assurance that changes to state or federal laws will not materially restrict
the ability of health care providers to submit information from patient records
using the Company's products.
UNCERTAINTY IN THE HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care organizations. Changes in current health care financing and
reimbursement systems could result in the need for unplanned product
enhancements, in delays or cancellations of product orders or shipments or in
the revocation of endorsement of the Company's products by hospital associations
or other customers. Any of such occurrences could have a material adverse effect
on the Company's business, financial condition and results of operations. During
the past several years, the United States health care industry has been subject
to an increase in governmental regulation of, among other things, reimbursement
rates. Certain proposals to reform the U.S. health care system are periodically
under consideration by Congress. These programs may contain proposals to
increase government involvement in health care and otherwise change the
operating environment for the Company's customers. Health care organizations may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments in cost containment tools and related
technology such as the Company's products. The Company cannot predict what
impact, if any, such factors might have on its business, financial condition and
results of operations. In addition, many health care providers are consolidating
to create integrated health care delivery systems with greater regional market
power. As a result, these emerging systems could have greater bargaining power,
which may lead to price erosion of the Company's products. The failure of the
Company to maintain adequate price levels would have a material adverse effect
on the Company's business, financial condition and results of operations. Other
legislative or market-driven reforms could have unpredictable effects on the
Company's business, financial condition and results of operations.
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RISK OF PRODUCT-RELATED CLAIMS
Certain of the Company's products and services relate to the payment or
collection of health care claims. Any failure by employees of the Company or by
the Company's products to accurately process or collect such claims could result
in claims against the Company by its customers. The Company has been and
currently is involved in claims for money damages related to services provided
by its accounts receivable management business. The Company maintains insurance
to protect against certain claims associated with the use of its products, but
there can be no assurance that its insurance coverage would adequately cover any
claim asserted against the Company. A successful claim brought against the
Company in excess of, or excluded from, its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and management time and resources. There can
be no assurance that the Company will not be subject to material claims in the
future, that such claims will not result in liability in excess of its insurance
coverage, that the Company's insurance will cover such claims or that
appropriate insurance will continue to be available to the Company in the future
at commercially reasonable rates. In addition, if liability of the Company were
to be established, substantial revisions to its products could be required that
may cause the Company to incur additional unanticipated research and development
expenses.
POSSIBLE VOLATILITY OF STOCK PRICE; LOW TRADING VOLUME
The stock market historically has experienced volatility which has affected
the market price of securities of many companies and which has sometimes been
unrelated to the operating performance of such companies. The trading price of
the Company's Common Stock could also be subject to significant fluctuations in
response to variations in quarterly results of operations, announcements of new
products or acquisitions by the Company or its competitors, governmental
regulatory action, other developments or disputes with respect to proprietary
rights, general trends in the industry and overall market conditions, and other
factors. The market price of the Company's Common Stock may also be
significantly affected by factors such as announcements of new products by the
Company's competitors, as well as variations in the market conditions in the
medical cost containment or software industries in general. The market price may
also be affected by movements in prices of equity securities in general. In
addition, the average daily trading volume of the Company's Common Stock since
public trading of the Common Stock commenced has been low. To the extent this
trading pattern continues, the price of the Common Stock may fluctuate
significantly as a result of changes in demand for such shares and sales of
stock by stockholders.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Pendleton, et al. v. QuadraMed Corporation, et al. In February 1995, Richard
W. Pendleton ("Pendleton") and Daniel T. Soldahl ("Soldahl") filed a lawsuit now
pending in state court in Marin County, California, naming QuadraMed, James D.
Durham and Walter Channing, Jr. as defendants (collectively, the "Defendants").
An amended complaint added Coast Micro, Inc. ("Coast") as a plaintiff. The
plaintiffs allege breach of contract, breach of the implied covenant of good
faith and fair dealing, intentional and negligent misrepresentation, suppression
of fact, breach of employment contract, interference with contractual
relationship and conspiracy in connection with the October 1993 purchase by
QuadraMed of the assets of Coast. Pendleton, Soldahl and Coast allege money
damages in the amount of $27 million and Pendleton and Soldahl seek certain
equitable relief, including the issuance of options covering approximately two
percent of the Company's outstanding Common Stock, as well as punitive damages.
In August 1995, QuadraMed filed a cross-complaint naming Pendleton and
VantageMed Corporation ("VantageMed") as cross-defendants (collectively, the
"Cross-Defendants") and alleging fraud, misappropriation of trade secrets,
interference with economic relations and conspiracy. QuadraMed is seeking an
unspecified amount of money damages and an injunction against disclosure or use
by Cross-Defendants of QuadraMed's confidential information and against further
interference by CrossDefendants with QuadraMed's economic relations with others.
On February 26, 1997, the parties reached a settlement in principle of this
litigation, and the Company's Board of Directors subsequently approved this
settlement in principle on February 27, 1997. On March 5, 1997, the parties
agreed to a forty-five (45) day stay of all litigation activities in this
litigation, effective February 26, 1997, in order to allow the parties adequate
time for the preparation and execution of a written settlement. As of the date
hereof, a written settlement agreement has not been executed. The parties are
continuing to seek to execute such settlement agreement, and all litigation
activities in this litigation are effectively stayed.
The Company believes, based in part on its discussions with its litigation
counsel, that it has meritorious defenses to the above-described claims and it
intends to defend the litigation vigorously. However, due to the nature of the
litigation and because the lawsuit is in the pre-trial discovery stage, the
Company cannot determine the total expense or possible loss, if any, that may
ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. With regard to Pendleton and Soldahl's claims for the
issuance of stock options, it is the Company's position that such parties are
only entitled to stock options covering less
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than one percent of the Company's outstanding capital stock. Regardless of
the ultimate outcome of the litigation, it could result in significant diversion
of time by the Company's personnel. While after consideration of the nature of
the claims and facts relating to the litigation, and after consultation with
litigation counsel, management believes that the resolution of this matter will
not have a material adverse effect on the Company's business, financial
condition and results of operations, the results of these proceedings, including
any potential settlement, are uncertain, and there can be no assurance to that
effect. The proceedings are likely to cause the Company to issue stock options
to each of Pendleton and Soldahl, and, as a consequence, additional shares to
certain investors pursuant to an agreement, resulting in dilution to investors.
For a description of other material legal proceedings, see the Company's
Annual Report on Form 10-KSB filed on March 28, 1997.
ITEM 2. CHANGES IN SECURITIES.
Between January 1, 1997 and March 31, 1997, the Registrant issued the
following securities which were not registered under the Securities Act of 1933
(the "Securities Act"): the Registrant granted stock options to its employees
under its 1996 Stock Incentive Plan covering an aggregate of 535,225 shares of
the Registrant's Common Stock, at exercise prices ranging from $9.625 to $11.50
per share.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
2.1 Form of Agreement and Plan of Merger by and between QuadraMed
Corporation, a Delaware corporation and QuadraMed Corporation, a
California corporation.(1)
2.2 Assets Purchase Agreement dated December 31, 1995, by and among
QuadraMed Acquisition Corporation, Kaden Arnone, Inc. and its
stockholders.(1)
2.3 Exchange Agreement dated June 25, 1996, by and among QuadraMed
Holdings, Inc., QuadraMed Corporation, and certain stockholders
listed on Schedule A thereto.(1)
2.4 Acquisition Agreement and Plan of Merger dated December 2, 1996,
between the Company and InterMed Acquisition Corporation, a wholly
owned subsidiary of the Company, and InterMed Healthcare Systems
Inc. and its Stockholders.(2)
2.5 Acquisition Agreement and Plan of Merger, dated as of March 1,
1997, by and among QuadraMed Corporation, Healthcare Recovery
Acquisition Corporation, Healthcare Recovery, Incorporated and its
Shareholders (the "Acquisition Agreement and Plan of Merger"). (3)
2.6 First Amendment to Acquisition Agreement and Plan of Merger, dated
as of April 22, 1997. (3)
2.7 Second Amendment to Acquisition Agreement and Plan of Merger, dated
as of April 24, 1997. (3)
3.1 Reserved.
3.2 Second Amended and Restated Certificate of Incorporation of the
Company.(1)
3.3 Reserved.
3.4 Amended and Restated Bylaws of the Company.(1)
4.1 Reference is made to Exhibits 3.2 and 3.4.(1)
4.2 Form of Common Stock certificate.(1)
4.3 Form of Exchange Agreement dated March 16, 1994, by and among the
Company, THCS Holding, Inc. and certain stockholders listed on
Schedule A thereto.(1)
4.4 Reserved.
4.5 Reserved.
4.6 Reserved.
4.7 Amended and Restated Agreement Regarding Adjustment Shares dated
June 25, 1996, by and among the Company, QuadNet Corporation and
the individuals listed on Schedule A thereto.(1)
4.8 Amended and Restated Shareholder Rights Agreement dated June 25,
1996, by and between the Company and the investors listed on
Schedule A thereto.(1)
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4.9 Reserved.
4.10 Reserved.
4.11 Form of Warrant to Purchase Common Stock.(1)
4.12 Reserved.
4.13 Stock Purchase Warrant dated September 27, 1995 issued to
James D. Durham(4)
10.1 1996 Stock Incentive Plan of the Company.(1)
10.2 1996 Employee Stock Purchase Plan of the Company.(1)
10.3 Summary Plan Description, QuadraMed Corporation 401(k) Plan.(1)
10.4 Form of Indemnification Agreement between the Company and its
directors and executive officers.(1)
10.5 Reserved.
10.6 Lease dated February 26, 1996 for facilities located at 1345 Campus
Parkway, Building M, Block #930, Lot #51.02, Neptune, New
Jersey.(1)
10.7 Lease dated May 23, 1994 for facilities located at 80 East Sir
Francis Drake Boulevard, Suite 2A, Larkspur, California.(1)
10.8 Lease Agreement dated December 14, 1989 for facilities located at
1130 East Shaw Avenue, Suites 108 and 209, Fresno, California.(1)
10.9 Employment Agreement dated March 1, 1994 by and between James D.
Durham and the Company.(1)
10.10 Stock Purchase Agreement dated March 3, 1994, by and between the
Company and James D. Durham.(1)
10.11 Letter dated April 17, 1995 from James D. Durham, as President and
Chief Executive of QuadraMed Corporation, to John V. Cracchiolo
regarding terms of employment.(1)
10.12 Letter dated March 14, 1996 from James D. Durham, as President and
Chief Executive Officer of QuadraMed Corporation, to Robert Burrows
regarding terms of employment.(1)
10.13 Letter from Walter Channing to Thomas McNulty effective December
1995, regarding service as Chairman of the Board of Directors.(1)
10.14 Agreement dated May 11, 1994, by and between Colson Investments and
the Company.(1)
10.15 Credit Terms and Conditions dated January 18, 1996, by and between
Imperial Bank and the Company, with addendum thereto.(1)
10.16 Security and Loan Agreement (Accounts Receivable) dated January 18,
1996, by and Between Imperial Bank and the Company.(1)
10.16.1 Amendment No. 1 dated September 5, 1996 to the Security and Loan
Agreement (Accounts Receivable) dated January 8, 1996, by and
between the Company and Imperial Bank.(5)
10.17 General Security Agreement (Tangible and Intangible Personal
Property) dated January 18, 1996, by and between Imperial Bank and
the Company.(1)
10.18 ERA/Secondary Billing and Claimstar Licenses Agreement dated April
10, 1995, by and between the Company and Blue Cross of California,
as amended by the Second Amendment dated April 19, 1995.(1)
10.19 Cooperative Agreement dated June 30, 1995, by and between The
Compucare Company and the Company, with Amendment thereto.(1)
10.20 Agreement dated April 1, 1995, by and between the Company and
National Electronic Information Corporation (now Envoy
Corporation).(1)
10.21 QuadraMed Corporation Cooperative Marketing Agreement dated August
15, 1995, by and between the Company and Health Systems Design
Corporation.(1)
10.22 Agreement to Market QuadraMed Software dated June 1, 1996 between
the Company and Health Communication Services, Inc.(1)
10.23 Joint Marketing and Services Agreement dated November 1, 1995, by
and between QuadraMed Acquisition Corporation, the Company and
Kaden Arnone, Inc.(1)
10.24 License Agreement dated November 1, 1994, by and between the
Company and Learned-Mahn, Inc.(1)
10.25 Master Agreement dated June 1, 1995, by and between Premier Health
Alliance, Inc. and the Company.(1)
10.26 Agreement dated October 3, 1995, by and between Shared Services
Healthcare, Inc. and the Company.(1)
10.27 Letter Agreement dated March 3, 1994 by and between NJUP Plus and
the Company.(1)
10.28 Endorsement Agreement dated November 1, 1994, by and between
ServiShare of Iowa and the Company, relating to ContraQ.(1)
10.29 Endorsement Agreement dated November 1, 1994, by and between
ServiShare of Iowa and the Company, relating to ClaimStar.(1)
10.30 Memorandum of Understanding dated October 24, 1995, by and between
the Company and St. Anthony Publishing, Inc. (now NexUS Capital
Healthcare Information Corp.).(1)
10.31 Software Development Agreement dated August 3, 1995, by and between
St. Joseph's Hospital of Atlanta, Inc. and the Company.(1)
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10.32 Letter Agreement dated December 27, 1995, by and between the
Company and UniHealth, with related Joint Development Proposal for
a Capitation Management System dated October 20, 1995.(1)
10.33 Employment Agreement with Kevin H. Arner, President of EDI Services
Division.(6)
10.34 Letter dated March 6, 1997 from James D. Durham, as President and
Chief Executive Officer of QuadraMed Corporation, to Keith M.
Roberts regarding terms of employment.(7)
10.35 Employment Agreement dated December 19, 1996 by and between
Frederick Stodolak and the Company.(7)
10.36 Letter dated January 1, 1997 from the Company to James Durham
regarding terms of employment.(7)
10.37 Letter dated April 22, 1997 from the Company to Eugene M. Arnone
regarding terms of employment.(3)
10.38 Non-Competition and Non-Circumvention Agreement, dated March 1,
1997, by and among the Company, Healthcare Recovery
Acquisition Corporation and Eugene M. Arnone.(3)
11.1 Calculation of Net Income Per Share.
27.1 Financial Data Schedule.
- ----------
(1) Incorporated by reference from the exhibit with the same number to the
Company's Registration Statement on Form SB-2, No. 333-5180-LA, as filed
with the Commission on June 28, 1996, as amended by Amendment No. 1,
Amendment No. 2 and Amendment No. 3 thereto, as filed with the Commission on
July 26, 1996, September 9, 1996, and October 2, 1996, respectively.
(2) Incorporated by reference from the exhibit with the same number to the
Company's Current Report on Form 8-K, as filed with the Commission on
January 9, 1997.
(3) Incorporated by reference from the exhibit with the same number to the
Company's Current Report on Form 8-K, as filed with the Commission on May
9, 1997.
(4) Incorporated by reference from Exhibit 99.16 to the Company's Registration
Statement on Form S-8, No. 333-16385, as filed with the Commission and
declared effective on November 19, 1996.
(5) Incorporated by reference from Exhibit 10.16 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1996, as filed
with the Commission on November 14, 1996.
(6) Incorporated by reference from Exhibit 10.32 to the Company's Current Report
on Form 8-K, as filed with the Commission on January 9, 1997.
(7) Incorporated by reference from the exhibit with the same number to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996,
as filed with the Commission on March 28, 1997, as amended by Amendment No.
1 thereto, as filed with the Commission on April 18, 1997.
b. Reports on Form 8-K.
The Company filed a report on Form 8-K on January 9, 1997 in which it
reported the acquisition and merger of InterMed Healthcare Systems Inc. through
the Company's wholly-owned subsidiary InterMed Acquisition Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUADRAMED CORPORATION
(Company)
Date: May 14, 1997 By: /s/ JOHN V. CRACCHIOLO
--------------------------------------------
John V. Cracchiolo
Executive Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C>
11.1 Calculation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
19
<PAGE> 1
EXHIBIT 11.1
QUADRAMED CORPORATION
STATEMENTS OF COMPUTATION OF COMMON SHARES AND EQUIVALENTS
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
------ ------
<S> <C> <C>
Primary
Net income........................................................... $ 445 66
====== =====
Weighted average common shares outstanding........................... 6,015 627
Weighted average common equivalent shares:
Weighted average preferred stock outstanding....................... - 835
Common stock option grants and warrants.............................. 1,389 136
Adjustments to reflect requirements of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 83:
Common stock issuances............................................. - 45
Preferred stock issuances.......................................... - 969
Preferred stock and common stock warrants.......................... - 999
------ ------
Total weighted average common shares and equivalents................. 7,404 3,611
====== ======
Net income per share................................................. $ 0.06 $ 0.02
====== ======
Fully Diluted
Net income........................................................... $ 445 $ 66
====== ======
Weighted average common shares outstanding........................... 6,015 627
Weighted average common equivalent shares:
Weighted average preferred stock outstanding....................... - 835
Common stock option grants and warrants.............................. 1,389 136
Adjustments to reflect requirements of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 83:
Common stock issuances............................................. - 45
Preferred stock issuances.......................................... - 969
Common stock warrants.............................................. - 999
------ ------
Total weighted average common shares and equivalents................. 7,404 3,611
====== ======
Net income per share................................................. $ 0.06 $ 0.02
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED MARCH 31, 1997 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,009
<SECURITIES> 0
<RECEIVABLES> 5,738
<ALLOWANCES> 223
<INVENTORY> 0
<CURRENT-ASSETS> 22,052
<PP&E> 3,960
<DEPRECIATION> 1,765
<TOTAL-ASSETS> 28,792
<CURRENT-LIABILITIES> 3,244
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 25,363
<TOTAL-LIABILITY-AND-EQUITY> 28,792
<SALES> 5,134
<TOTAL-REVENUES> 5,134
<CGS> 0
<TOTAL-COSTS> 4,872
<OTHER-EXPENSES> (221)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 483
<INCOME-TAX> 38
<INCOME-CONTINUING> 445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 445
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
