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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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.)
1003 W. Cutting Blvd., 2nd Floor
Richmond, CA 94804 94939
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (510)620-2340
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 October 28, 1998, there were 19,260,680 shares of the Registrant's
Common Stock outstanding, par value $0.01. This quarterly report on Form 10-Q
consists of 26 pages of which this is page 1. The Exhibit Index is located at
page 25.
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QUADRAMED CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
for the three and nine months ended
September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
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Part I. Financial Information
Item 1. Financial Statements
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(Unaudited) (Restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 53,532 $ 44,666
Short-term investments 39,652 1,222
Accounts receivable, net 29,173 19,945
Unbilled receivables 4,551 4,018
Notes and other receivables 4,239 2,329
Prepaid expenses and other 2,143 2,784
---------- ----------
Total current assets 133,290 74,964
Long-term investments 42,958 --
Equipment, net 8,123 6,866
Capitalized software development costs, net 3,105 1,525
Acquired software, net 3,436 4,178
Non-marketable investments 1,200 1,200
Intangibles, net 34,745 16,150
Debt offering costs and other 4,824 354
---------- ----------
Total assets $ 231,681 $ 105,237
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 109 $ 168
Notes payable 24 10,640
Accounts payable 4,758 3,728
Accrued liabilities 36,673 31,559
Deferred revenue 10,086 11,826
---------- ----------
Total current liabilities 51,650 57,921
Capital lease obligations, less current portion 317 285
Notes payable, less current portion 19,182 13,154
Convertible subordinated debentures 115,000 --
---------- ----------
Total liabilities 186,149 71,360
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 133 97
Additional paid-in capital 186,348 129,563
Accumulated other comprehensive loss (63) --
Accumulated deficit (140,886) (95,783)
---------- ----------
Total stockholders' equity 45,532 33,877
---------- ----------
Total liabilities & stockholders' equity $ 231,681 $ 105,237
========== ==========
</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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Licenses $ 22,218 $ 13,183 $ 50,997 $ 30,019
Services 21,576 14,500 62,061 39,417
---------- ---------- ---------- ----------
Total revenues 43,794 27,683 113,058 69,436
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of licenses 7,837 4,889 21,376 12,426
Cost of services 13,556 9,513 39,698 24,875
General and administration 5,677 6,034 19,080 18,015
Sales and marketing 3,277 2,687 10,928 7,566
Research and development 3,375 2,828 12,836 7,478
Amortization of intangibles 1,397 466 3,397 1,022
Write-off of acquired research and
development in process 607 -- 32,731 --
Acquisition costs 7,215 -- 10,255 --
Non-recurring charges 3,022 346 4,202 1,040
---------- ---------- ---------- ----------
Total operating expenses 45,963 26,763 154,503 72,422
---------- ---------- ---------- ----------
INCOME(LOSS) FROM OPERATIONS (2,169) 920 (41,445) (2,986)
OTHER INCOME(EXPENSE), NET:
Interest income(expense), net (180) (247) (113) (479)
Other income(expense), net 41 49 (73) 157
---------- ---------- ---------- ----------
Total other income(expense), net (139) (198) (186) (322)
---------- ---------- ---------- ----------
INCOME(LOSS) BEFORE PROVISION FOR INCOME TAXES (2,308) 722 (41,631) (3,308)
Provision for income taxes 1,572 626 3,518 567
---------- ---------- ---------- ----------
NET INCOME(LOSS) $ (3,880) $ 96 $ (45,149) $ (3,875)
========== ========== ========== ==========
NET INCOME(LOSS) PER BASIC AND DILUTED SHARE $ (0.20) $ 0.01 $ (2.49) $ (0.30)
========== ========== ========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 19,181 14,453 18,161 12,732
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (45,149) $ (3,875)
---------- --------
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation and amortization 6,358 2,594
Amortization of deferred compensation -- 322
Write-off of in-process research and development 32,731 --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable and unbilled receivables (9,252) (6,324)
Prepaid expenses and other (456) (514)
Accounts payable and accrued liabilities 1,372 1,931
Deferred revenue (2,409) 1,374
---------- --------
Cash used in operating activities (16,805) (4,492)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for the acquisition of Medicus Systems,
net of cash acquired (922) --
Cash paid for the acquisition of Cabot Marsh,
net of cash acquired (2,748) --
Cash paid for the acquisition of Velox,
net of cash acquired (3,121) --
Cash paid for the acquisition of the InterLink
entities, net of cash acquired (1,412) --
Cash paid for the acquisition of Vision,
net of cash acquired (2,998) --
Cash paid for the acquisition of AHD,
net of cash acquired (1,500) --
Cash paid for the acquisition of Synergy and Queen City,
net of cash acquired -- (2,971)
Purchase of short and long-term investments (81,437) --
Change in notes receivable and other (759) --
Purchase of non-marketable investments -- (3,759)
Additions to equipment (4,081) (1,517)
Capitalization of computer software development costs (1,953) (578)
---------- --------
Cash used in investing activities (100,931) (8,825)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on capital lease obligations (110) (89)
Net borrowings (repayments) under notes payable 1,116 3,829
Proceeds from the issuance of convertible subordinated
notes payable, net of offering costs 110,827 --
Proceeds from the issuance of common stock
and exercise of common stock warrants and options 14,769 231
---------- --------
Cash provided by financing activities 126,602 3,971
---------- --------
Net increase (decrease) in cash and cash equivalents 8,866 (9,346)
CASH AND CASH EQUIVALENTS,
beginning of period 44,666 20,867
---------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 53,532 $ 11,521
========== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in connection with the
Synergy acquisition $ -- $ 2,000
Issuance of note payable in connection with the acquisition of
Queen City Microsystems $ -- $ 300
Issuance of common stock in connection with the
HRM acquisition $ -- $ 2,300
Issuance of common stock in connection with the
InterLink acquisition $ 1,500 $ --
Issuance of common stock in connection with the
Cabot Marsh acquisition $ 8,400 $ --
Issuance of common stock in connection with the
Velox acquisition $ 1,400 $ --
Issuance of common stock in connection with the
Medicus acquisition $ 17,200 $ --
</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
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. 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, 1997 included in the Company's Annual Report on Form 10-K/A. 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, 1998 or any other future period.
2. Summary of Significant Accounting Policies
Revenues
The Company licenses a variety of products and provides a variety of
services. License revenue includes license, installation and post-contract
customer 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 and health information management outsourcing, cash flow
management, compliance and consulting services. The product suite is comprised
of financial management, decision support, compliance 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 licensed either under term
arrangements (which range from one year to three years and typically include
monthly or annual payments over the term of the arrangement) or on a perpetual
basis.
Revenues from term licenses of financial management, decision support,
compliance and EDI products are recognized monthly or annually over the term of
the license arrangement, beginning at the date of installation. Revenues from
perpetual licenses of the financial management, decision support and EDI
products are recognized upon shipment of the software if there is persuasive
evidence of an agreement, collection of the resulting receivable is probable and
the fee is fixed and determinable. 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 and health information management
outsourcing, cash flow management compliance and consulting services to certain
hospitals under contract service arrangements. Outsourcing revenues typically
consist of fixed monthly fees plus, in the case of business office outsourcing,
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. Cash flow management
services typically consist of fixed fee services and additional incentive
payments based on a certain percentage of revenue returns realized by the
customer as a result of the services provided by the Company. The fixed fee
portion is recognized upon completion of the project with the customer.
Compliance and consulting revenues are recognized as the services are provided.
Other services are also provided to certain of the Company's licensees of
software products. These services consist primarily of consulting and
post-contract customer support. Consulting services generally consist of
installation of software at customer sites, and revenue is recognized upon
completion of installation. Unbilled receivables consist of work performed or
software delivered which has not been billed under the terms of the contractual
arrangement with the customer. Post-contract customer support is recognized
ratably over the term of the support period. Deferred revenue primarily consists
of revenue deferred under annual maintenance and annual license agreements on
which amounts have been received from customers and for which the earnings
process has not been completed.
Cost of license revenues consists primarily of salaries, benefits, hardware
costs and allocated costs related to the installation process, and customer
support and royalties to third parties.
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Cost of service revenues consists primarily of salaries, benefits and
allocated costs related to providing such services.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
consist of stock options and warrants (using the treasury stock method). Common
equivalent shares are excluded from the dilutive computation only if their
effect is anti-dilutive. As the Company recorded a net loss in the three months
ended September 30, 1998 and nine months ended September 30, 1998 and 1997, no
common equivalent shares are included in diluted weighted average common shares
outstanding for those periods.
Comprehensive Income
In 1997, the Financial Accounting Standards Board ("FASB") issued Statements
of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income," which was adopted by the Company in the first quarter of 1998. SFAS No.
130 requires companies to report a new, additional measure of income on the
income statement or to create a new financial statement that has the new measure
of income on it. The Company adopted SFAS No. 130 during 1998.
The components of comprehensive income (loss) for the three and nine month
periods ended September 30, 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
<S> <C> <C>
Net loss $(3,880) $(45,149)
Unrealized gain(loss) on available-for-sale
Securities $ 53 $ (63)
------- --------
Comprehensive loss $(3,827) $(45,212)
======= ========
</TABLE>
There was no difference between net income (loss) and comprehensive income
(loss) during 1997.
3. Acquisitions
In September 1998, the Company acquired all of the outstanding capital
stock of CodeMaster Corporation in exchange for 482,000 shares of common stock,
of which 48,000 shares of common stock have been placed into escrow for a period
of one year under the terms and conditions of the acquisition agreement. The
acquisition was accounted for as a pooling of interests. Upon closing of the
acquisition, the assets and liabilities of CodeMaster were recorded at net book
value. The accompanying consolidated financial statements have been restated to
reflect the acquisition of CodeMaster on a pooling of interests basis.
In September 1998, the Company acquired all of the outstanding capital stock
of Integrated Medical Networks, Inc. ("IMN") in exchange for 1,550,000 shares of
common stock. The acquisition was accounted for as a pooling of interests. Upon
closing of the acquisition, the assets and liabilities of IMN were recorded at
net book value. The accompanying consolidated financial statements have been
restated to reflect the acquisition of IMN on a pooling of interests basis.
The Company acquired Velox Systems Corporation in February 1998 and Cabot
Marsh Corporation and entities affiliated with InterLink in January 1998. All
three acquisitions were accounted for as purchases.
The unaudited pro forma results of operations of the Company and entities
acquired during the nine months ended September 30, 1998 for which purchase
accounting was applied (Velox Systems Corporation, Cabot Marsh Corporation, and
entities affiliated with InterLink) are noted as follows (in thousands):
<TABLE>
<CAPTION>
ACQUISITIONS
DURING THE NINE
QUADRAMED MONTHS ENDED PRO FORMA PRO FORMA
CORPORATION SEPTEMBER 30, 1998(a) ADJUSTMENTS COMBINED
----------- --------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 113,058 $ 1,753 -- $ 114,811
Net income (loss) $ (45,149) $(1,189) $32,731 $ (13,607)
Net income (loss) per share $ (2.49) $ (0.73)
</TABLE>
(a) Includes the results of operations of Cabot Marsh Corporation and entities
affiliated with InterLink for the month of January 1998 and Velox Systems
Corporation for the two months ended February 28, 1998. The results of
operations subsequent to January 31,
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1998 for Cabot Marsh and entities affiliated with InterLink and subsequent
to February 28, 1998 for Velox Systems Corporation are included in QuadraMed
Corporation.
A reconciliation of the current consolidated financial statements with
previous reported separate Company information for entities with which the
Company has pooled is presented below (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------------
1998 1997
--------- --------
<S> <C> <C>
Revenues:
QuadraMed $ 60,038 $ 32,295
Pyramid, CodeMaster & IMN $ 53,020 $ 37,141
--------- --------
Consolidated $ 113,058 $ 69,436
========= ========
Net income (loss):
QuadraMed $ (28,566) $ (5)
Pyramid, CodeMaster & IMN $ (16,583) $ (3,870)
--------- --------
Consolidated $ (45,149) $ (3,875)
========= ========
</TABLE>
4. Convertible Subordinated Debt
In May 1998, the Company completed an offering of $115 million principal
amount of Convertible Subordinated Debentures, including the underwriters'
over-allotment option. The debentures are due May 1, 2005 and bear interest at
5.25 percent per annum. The Debentures are convertible into Common Stock at any
time prior to redemption or final maturity, initially at the conversion price of
$33.25 per share (resulting in an initial conversion ratio of 30.075 shares per
$1,000 principal amount). Proceeds to the Company from the offering were
$110,827,000.
5. Debt Guarantee
In September 1998, the Company entered into an arrangement to guarantee a
line of credit of another company for up to $12,500,000. Outstanding balances
under the line of credit accrue interest at 8.5% and are due October 1, 2001.
The Company has also entered into a reseller agreement with the same company.
Under the terms of the reseller agreement, the Company has a non-exclusive
license to resell the company's software. This reseller agreement remains in
effect for an initial term of three (3) years, expiring on September 29, 2001,
and thereafter is subject to renewal for additional one (1) year terms.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"), which establishes standards
for reporting information about operating segments in annual financial
statements and interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. As defined in SFAS 131, operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company will adopt SFAS 131 in fiscal 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes accounting
and reporting standards for derivative instruments and hedging activities. The
Company does not expect the adoption of SFAS 133, required beginning January
2000, to have a material effect on its consolidated financial statements.
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 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; 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) variability in
quarterly operating results, (ii) identification, consummation and assimilation
of acquisitions, (iii) dependence on large orders and customer concentration,
(iv) dependence on hospitals and demand for the Company products and services in
the healthcare information systems and services markets, (v) legislative or
market-driven reforms in
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the health care industry, (vi) the Company's ability to develop and introduce
new products, (vii) management of the Company's changing operations, (viii)
dependence on key personnel, (ix) development by competitors of new or superior
products or entry into the market of new competitors, (x) risks related to
product defects, (xi) risks associated with pending litigation, (xii) dependence
on intellectual property rights, (xiii) volatility in the Company's stock price
and historically low trading volume, (xiv) the success or failure of strategic
alliances, (xv) risk of interruption in data processing, (xvi) risks associated
with certain investments in early stage companies, and (xvii) other risks
identified from time to time in the Company's reports and registration
statements filed with the SEC.
Overview
QuadraMed develops, markets and sells software products and services
designed to enable health care providers and payors to increase operational
efficiency, improve cash flow, measure the cost of care and effectively
administer managed care contracts. In addition, QuadraMed provides business
office and health information management outsourcing, as well as compliance and
consulting services. The Company has expanded significantly since its inception
in 1993, primarily through the acquisition of other businesses, products and
services. Through September 1998, the Company has completed 23 acquisition
transactions, seven of which have been accounted for as poolings of interests.
Accordingly, the Company's consolidated financial statements have been restated
to include historical results of entities acquired on a pooling of interests
basis.
The Company has completed several acquisitions during 1998, including
entities affiliated with InterLink in January 1998, Cabot Marsh Corporation in
January 1998, Velox Systems Corporation in February 1998 and Medicus Systems
Corporation in May 1998. All acquisitions were accounted for as purchases. The
Company also acquired Pyramid Health Group, Inc. in June 1998 which was
accounted for on a pooling of interests basis.
In September 1998, the Company acquired all of the outstanding capital stock
of CodeMaster Corporation in exchange for 482,000 shares of common stock, of
which 48,000 shares of common stock have been placed into escrow for a period of
one year under the terms and conditions of the acquisition agreement. The
acquisition was accounted for as a pooling of interests. Upon closing of the
acquisition, the assets and liabilities of CodeMaster were recorded at net book
value. The accompanying consolidated financial statements have been restated to
reflect the acquisition of CodeMaster on a pooling of interests basis.
In September 1998, the Company also acquired all of the outstanding capital
stock of Integrated Medical Networks, Inc. ("IMN") in exchange for 1,550,000
shares of common stock. The acquisition was accounted for as a pooling of
interests. Upon closing of the acquisition, the assets and liabilities of IMN
were recorded at net book value. The accompanying consolidated financial
statements have been restated to reflect the acquisition of IMN on a pooling of
interests basis.
As of September 30, 1998, QuadraMed and its subsidiaries had more than 3,700
customers, approximately 80% of which were hospitals, located in all 50 states,
the District of Columbia, Canada, Puerto Rico, South Africa and Singapore. The
Company expects to maintain a high percentage of hospital customers, but also
expects its customer mix to transition to a higher percentage of other
providers, including integrated delivery health care systems ("IDSs"), as well
as physicians, payors and employers. For the year ended December 31, 1995
revenues from one customer were 11%. No single customer accounted for more than
10% of the Company's revenues in 1996, 1997 or the quarter and nine months ended
September 30, 1998.
The Company's suite of products may be licensed either as an integrated
solution or as individual applications. The Company licenses its software
products pursuant to either a one-time payment for a perpetual license with the
option of purchasing support and maintenance or pursuant to annual renewable
licenses. The latter method provides the Company with a recurring component to
its revenues each year. Revenues from annual renewable license fees are
recognized ratably over the term of the license arrangement. Revenues from
perpetual software license agreements are significantly greater than license
fees under contracts that have annual renewal provisions on a per deal basis and
are generally recognized upon shipment and involve one-time license fees, which
can cause the Company's revenues to vary from quarter to quarter. To date, a
substantial majority of customers who have purchased perpetual licenses have
also purchased annual support and maintenance agreements, the revenues from
which are recognized monthly.
In addition to its software products, the Company provides business office
and health information management outsourcing, cash flow management, compliance
and consulting services. The Company offers partial and full outsourcing of
business office and health information management functions for hospitals,
physicians, home health care agencies and other providers. The Company often
uses its software products in delivering these services. The focus of these
services is to increase the cash flow and improve the efficiencies of business
operations for health care providers. The Company also provides cash flow
management services to update and organize a provider's standard billing and
charge information to facilitate appropriate reimbursement for the provider.
Outsourcing and cash flow management service revenues typically consist of fixed
monthly fees, in the case of business office outsourcing, plus incentive-based
payments based on a percentage of dollars recovered for the provider. The
monthly fees from outsourcing services are recognized as revenues on a monthly
basis, and incentive fees are recognized as revenues based on the collection of
accounts from payors. Compliance and consulting revenues are recognized as the
services are provided. Such services include the formulation of a compliance
program, including compliance assessment, auditing and education expertise. The
Company has experienced operating
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margins at differing levels related to licenses and services. The service
business has historically realized fluctuating margins that are significantly
lower than margins associated with licenses.
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) of the
products, commencing when each product is available to the market.
Revenues
License. License revenues for the quarter ended September 30, 1998 increased
68.5% to $22.2 million, compared to $13.2 million in the same period last year.
For the nine months ended September 30, 1998, license revenues increased 69.9%
to $51.0 million, compared to $30.0 million in the same period last year. The
increase in license revenues was due principally to new customers and revenues
associated with new customers from recent acquisitions. License revenues include
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. Service revenues for the quarter ended September 30, 1998 increased
48.8% to $21.6 million, compared to $14.5 million in the same period last year.
For the nine months ended September 30, 1998, service revenues increased 57.4%
to $62.1 million, compared to $39.4 million in the same period last year. The
increase in service revenues was due principally to revenues associated with new
customers acquired in the Cabot Marsh acquisition in the first quarter of 1998
and new customers associated with the health information management outsourcing
business.
Cost of Revenues
Cost of licenses. Cost of license revenues for the quarter ended September
30, 1998 increased 60.3% to $7.8 million, compared to $4.9 million in the same
period last year. For the nine months ended September 30, 1998, cost of licenses
increased 72.0% to $21.4 million, compared to $12.4 million in the same period
last year. Cost of licenses consists primarily of salaries, benefits and
allocated costs related to software installations, hardware costs, customer
support and royalties to third parties. As a percentage of license revenues,
cost of licenses decreased to 35.3% in the quarter ended September 30, 1998,
from 37.1% in the same period last year. As a percentage of license revenues,
cost of licenses were relatively constant at 41.9% for the nine months ended
September 30, 1998 compared to 41.4% in the same period last year. The increase
in cost of licenses was principally due to additional personnel hired to support
software installations and customer support, while the decrease in cost of
licenses as a percentage of license revenues during the quarter is principally
due to the leveraging of costs over an increased revenue base.
Cost of services. Cost of service revenues for the quarter ended September
30, 1998 increased 42.5% to $13.6 million, compared to $9.5 million, in the same
period last year. For the nine months ended September 30, 1998, costs of
services increased 59.6% to $39.7 million, compared to $24.9 million in the same
period last year. Cost of services includes expenses associated with services
performed in connection with business office outsourcing, compliance and
consulting services. As a percentage of service revenues, cost of services
decreased to 62.8% in the quarter ended September 30, 1998 from 65.6% in the
same period last year. As a percentage of service revenues, cost of services
increased to 64.0% for the nine months ended September 30, 1998 from 63.1% in
the same period last year. The increase in cost of services was due principally
to additional operating costs associated with the compliance operations which
resulted from the acquisition of Cabot Marsh in the first quarter of 1998 and
additional personnel costs associated with the Company's health information
management outsourcing division. Cost of services as a percentage of service
revenues decreased for the quarter ended September 30, 1998, principally due to
the closure of one of the Company's duplicative operating facilities within its
business office outsourcing operations. As a result of this facility closure,
the Company eliminated lower margin business. For the nine months ended
September 30, 1998, cost of services as a percentage of service revenues
increased due to a higher revenue contribution from the Company's health
information management outsourcing division during 1998.
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Operating Expenses
General and Administration. General and administration expenses for the
quarter ended September 30, 1998 decreased 5.9% to $5.7 million, compared to
$6.0 million in the same period last year and as a percentage of total revenues
decreased to 13.0% for the quarter ended September 30, 1998 from 21.8% in the
same period last year. For the nine months ended September 30, 1998, general and
administration expenses increased to $19.1 million, compared to $18.0 million in
the same period last year, and decreased as a percentage of total revenues to
16.9%, compared to 25.9% in the same period last year. The decrease in general
and administration expenses as a percentage of total revenues for the quarter
and nine months ended September 30, 1998 was principally due to a larger revenue
base and, to a lesser extent, the reduction of certain overhead costs associated
with prior acquisitions and legal fees the Company incurred in 1997 to settle
certain litigation.
Sales and Marketing. Sales and marketing expenses for the quarter ended
September 30, 1998 increased 22.0% to $3.3 million, compared to $2.7 million in
the same period last year, and decreased as a percentage of total revenues to
7.5% from 9.7% in the same period last year. For the nine months ended September
30, 1998, sales and marketing expenses increased 44.4% to $10.9 million,
compared to $7.6 million in the same period last year, and decreased as a
percentage of total revenues to 9.7%, compared to 10.9% in the same period last
year. The increase in sales and marketing expenses resulted principally from the
addition of sales and marketing personnel during 1998 and increased advertising
costs, including trade shows during 1998. As a percentage of total revenues,
sales and marketing expenses decreased principally due to a larger revenue base.
Research and Development. Research and development expenses for the quarter
ended September 30, 1998 increased 19.3% to $3.4 million, compared to $2.8
million in the same period last year and as a percentage of total revenues
decreased to 7.7% from 10.2% in the same period last year. For the nine months
ended September 30, 1998, research and development expenses increased 71.7% to
$12.8 million, compared to $7.5 million in the same period last year and
slightly increased as a percentage of total revenues to 11.4% compared to 10.8%
in the same period last year. As a percentage of total revenues, research and
development expenses decreased in the quarter ended September 30, 1998 as
compared to last year due to a reallocation of personnel associated with one of
the Company's product lines which completed development during the latter part
of the second quarter. Until that time, the Company expended significant
resources to bring the product to marketability which resulted in the increase
of research and development expenses as a percentage of total revenues to 11.4%
for the nine months ended September 30, 1998. Research and development expenses
increased principally due to additional software programmers hired from prior
acquisitions to complete the integration of acquired software products and new
products. The Company capitalized $1,953,000 and $578,000 of software
development costs in the nine months ended September 30, 1998 and 1997,
respectively, which represented 13.2% and 7.2% of total research and development
expenditures for the nine months ended September 30, 1998 and 1997,
respectively.
Amortization of Intangibles. Amortization of intangibles for the quarter and
nine months ended September 30, 1998 increased to $1.4 million and $3.4 million,
respectively, compared to $466,000 and $1.0 million in the same periods last
year. The increase in the amortization of intangibles is principally due to the
acquisition of 56.7% of Medicus in November 1997, the purchase of the remaining
43.3% of Medicus in May 1998, and the acquisitions of Cabot Marsh, Velox and the
entities affiliated with InterLink during the first quarter of 1998.
Acquired Research and Development In-Process. In connection with the
acquisition of American Hospital Directory, Inc. in July 1998, the Company
expensed $607,000 related to technologies, which had not achieved technological
feasibility and had no alternative future use. The acquired research and
development in-process represented 35% of the acquired intangible assets. For
the nine months ended September 30, 1998, acquired research and development
in-process is associated primarily with the acquisitions of Cabot Marsh
Corporation in January 1998, Velox Systems Corporation in February 1998 and the
consummation of the purchase of the remaining 43.3% interest of Medicus Systems
Corporation in May 1998.
Acquisition Costs. The Company incurred $7.2 million of acquisition costs
associated with the acquisitions of CodeMaster Corporation and Integrated
Medical Networks, Inc. in September 1998. Such costs were primarily for
financial advisor fees incurred by the Company and the acquired companies and to
a lesser extent, legal and accounting fees.
Non-Recurring Charges. Non-recurring charges of $3.0 million in the third
quarter of 1998 were associated with the closing of a duplicative operating
facility within the Company's business office outsourcing operations. Such costs
included future rents and lease obligations the Company is contractually
required to fulfill as well as severance packages for employees working out of
that office. Such employees were provided severance packages in which they were
paid through November 1998. Non-recurring charges during 1997 were associated
with start-up costs incurred for the claims processing arrangement entered into
with EDI USA, Inc. No such charges were incurred in 1998 as this arrangement was
terminated in December 1997.
Interest Income (expense), Net. Interest expense, net was $180,000 in the
quarter ended September 30, 1998, compared to interest expense of $247,000 for
the same period last year. For the nine months ended September 30, 1998,
interest expense, net was $113,000, compared to $479,000 in the same period last
year. Interest expense during 1998 was principally due to interest expense from
the Company's $115 million Convertible Subordinated Debentures which closed in
May 1998 and notes payable assumed from the acquisition of IMN in September
1998, partially offset by interest income from the Company's cash and
investments.
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Provision for income taxes. Provision for income taxes increased to
$1,572,000 in the quarter ended September 30, 1998 compared to a provision for
income taxes of $626,000 in the same period last year. The provision for income
taxes is primarily due to state and alternative minimum tax liabilities on
certain of the Company's legal entities. For financial reporting purposes, a
100% valuation allowance has been recorded against the Company's deferred tax
assets under SFAS No. 109, "Accounting for Income Taxes."
Liquidity and Capital Resources
In October 1996, the Company completed its initial public offering of common
stock, which resulted in net proceeds to the Company of approximately $26.4
million. In October 1997, the Company completed a follow-on offering of common
stock, which resulted in net proceeds to the Company of approximately $57.3
million. In May 1998, the Company completed an offering of $115.0 million
principal amount of Convertible Subordinated Debentures, including the initial
purchasers' over-allotment option. The debentures are due May 1, 2005 and bear
interest, which is payable semi-annually at 5.25 percent per annum. Proceeds to
the Company from the offering were $110.8 million.
Net cash used in operating activities was $16.8 million and $4.5 million in
the nine months ended September 30, 1998 and 1997, respectively. Net cash used
in operating activities in the nine months ended September 30, 1998 was
principally due to an increase in accounts receivable and a larger net
loss(excluding the effect of in-process research and development). This increase
was principally due to an increase in revenues for the nine months ended
September 30, 1998. Net cash used in operating activities for the nine months
ended September 30, 1997 was principally due to an increase in accounts
receivable. This increase in accounts receivable was primarily due to the
increase in revenues during 1997.
Net cash used in investing activities was $100.9 million and $8.8 million in
the nine months ended September 30, 1998 and 1997, respectively. Investing
activities primarily included the purchase of short and long-term investments
from the proceeds from the Company's offering of $115.0 million Convertible
Subordinated Debentures and cash paid for the acquisitions of Cabot Marsh,
Velox, entities associated with InterLink, Vision Software and American Hospital
Directory, as well as the purchase of capital equipment and the capitalization
of computer software development costs during 1998. Investing activities for the
nine months ended September 30, 1997 relate to the $2.5 million investment in
EDI USA, Inc., which was later repurchased by EDI USA, Inc. in the fourth
quarter of 1997, cash paid for the acquisition of Synergy during the second
quarter of 1997 and the purchase of equipment.
Net cash provided by financing activities was $126.6 million and $4.0 in the
nine months ended September 30, 1998 and 1997, respectively. Financing
activities in the nine months ended September 30, 1998 related to the offering
of $115.0 million Convertible Subordinated Debentures, which raised net proceeds
of $110.8 million and the exercise in May 1998 of common stock warrants issued
to former Medicus stockholders in November 1997. Financing activities for the
nine months ended September 30, 1997, primarily relate to borrowings made by
recently acquired Integrated Medical Networks.
In December 1997, the Company entered into an agreement with Arcadian
Management Services, Inc. ("Arcadian") to develop a centralized business office
("CBO") and to provide full business office outsourcing services for its four
managed hospitals. The CBO is located in Fresno, California at the Company's
west coast processing center. Under the terms of the agreement, the Company
receives (i) approximately $70,000 per month and (ii) additional revenue if the
Company meets certain performance-based targets. In
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connection with this agreement, the Company purchased certain accounts
receivable from Chama, Inc. ("Chama"), a customer of Arcadian, for the purpose
of increasing cash flow while the CBO is being implemented. As of September 30,
1998, approximately $2.2 million of these receivables remained outstanding. The
remaining balances are included in notes and other receivables on the
consolidated balance sheet. On October 7, 1998, Chama filed for reorganization
under Chapter 11. Prior to the filing, the Company had perfected a security
interest in the receivables purchased from Chama and, pursuant to a court order,
the receivables owned by the Company are being segregated as they are collected.
John H. Austin, a director of the Company, is President and Chief Executive
Officer of Arcadian. The foregoing transaction was negotiated on an arms-length
basis and the Company believes the terms are no less favorable to the Company
than could be obtained from disinterested third parties.
The Company believes that its current cash and investments will be
sufficient to fund operations at least through December 31, 1998.
FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
History of Operating Losses; Uncertain Profitability
The Company incurred net losses of $18.8 million, $958,000 and $25.6 million for
the years ended December 31, 1995, 1996 and 1997, respectively, and net losses
of $9.4 million, $19.9 million and $3.9 million for the fiscal quarters ended
March 31, June 30 and September 30, 1998. As of September 30, 1998, the Company
had an accumulated deficit of $140.9 million. These results include write-offs
for acquired in-process research and development in the years ended December 31,
1995 and 1997 and the nine months ended September 30, 1998 of $14.8 million,
$21.9 million and $32.7 million, respectively. In connection with its
acquisitions, the Company has and will incur significant non-recurring charges
and will be required to amortize significant expenses related to goodwill and
other intangible assets in future periods. There can be no assurance that the
Company will be able to achieve or sustain revenue growth or profitability on a
quarterly or annual basis.
Potential Variability in Quarterly Operating Results
The Company's quarterly operating results have varied significantly in the
past and are likely to vary substantially from quarter to quarter in the future.
Quarterly revenues and operating results may fluctuate significantly as a result
of a variety of factors, including: integration of acquired businesses,
variability in demand for the Company's products and services; 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 length of
the sales cycle or the timing of sales; the amount of new potential contracts at
the beginning of any particular quarter; customer budgeting cycles and changes
in customer budgets; investments by the Company 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.
The timing of customer purchases is difficult to predict given the complex
procurement decision process associated with most health care providers and
payors. As a result, the Company typically experiences sales cycles that extend
over several quarters. In addition, certain products acquired by the Company as
a result of the acquisition of Integrated Medical Networks in September, 1998
have higher average selling prices and longer sales cycles than many of the
Company's other products which may increase the volatility of the Company's
quarterly operating results. Moreover, the Company's operating expense levels,
which will increase with the addition of acquired businesses are relatively
fixed. If revenues are below expectations, net income is likely to be
disproportionately adversely affected. Further, it is likely that in some future
quarter the Company's revenues 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 be materially adversely affected.
Integration of Acquired Companies into the Company
The Company expects to realize significant benefits from its recent
acquisitions. Realizing these benefits will depend in significant part upon the
successful integration of the businesses, including their products and
employees, with the Company, and there can be no assurance that such integration
will not entail substantial costs, delays or other problems or that such
integration will be successfully completed. The effort to integrate the
businesses will divert the attention of management from other matters and will
result in significant operational and administrative expense. Any difficulties
encountered in the integration process could have a material adverse effect on
the revenues and operating results of the Company. In addition, the process of
integrating the businesses could cause the interruption of, or a disruption in,
the business of the Company, which could have a material adverse effect on the
operations and financial performance of the Company. Even if these businesses
are successfully integrated into the Company, the acquired operations
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may not achieve sales, productivity and profitability commensurate with the
Company's historical or projected operating results. Failure to achieve such
projected results would have a material adverse effect on the Company's
financial performance, and in turn, on the market value of the Company's Common
Stock. There can be no assurance that the Company will realize any of the
anticipated benefits of its acquisitions or that such acquisitions will enhance
the Company's business or financial performance.
Dependence on Acquisition Strategy
The Company 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 the new products, technologies or
businesses. There is significant competition for acquisition opportunities in
the Company's industry, which may intensify due to increasing consolidation in
the health care industry, thereby 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 could 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 it 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, 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 have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Associated With Acquisitions; Need to Manage Changing Operations
Acquisitions involve a number of special risks including, without
limitation, managing geographically dispersed operations, failure of the
acquired business to achieve expected results, failure to retain key personnel
of the acquired business, inability to integrate the new business into existing
operations and risks associated with unanticipated events or liabilities,
potential increases in stock compensation expense and increased compensation
expense resulting from newly hired employees, the assumption of unknown
liabilities and potential disputes with the sellers of one or more acquired
entities, all of which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Additionally, customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on the Company's reputation and
its sales and marketing initiatives. With the addition of the acquired
businesses, 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.
Dependence On Key Personnel
The Company's performance depends in significant part upon the continued
service of its executive officers, its product managers and other key sales,
marketing and development personnel. The loss of the services of any of its
executive officers or the failure to hire or retain other key employees could
have a material adverse effect on the Company's business, financial condition
and results of operations. 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.
Risks Related to Hospital and Managed Care Markets; Uncertainty in the Health
Care Industry
A substantial portion of the Company's revenues have been and are expected
to be derived from the sale of software products and services to hospitals.
Consolidation in the health care industry, particularly in the hospital and
managed care markets, could cause a decrease in the number of existing or
potential purchasers of the Company's products and services, which could have a
material adverse effect 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 members of management of a
hospital or health care provider. Consequently, it is difficult for the Company
to predict the timing or outcome of the buying decisions of customers or
potential customers.
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The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. The Company believes that
the commercial value and appeal of its products may be adversely affected if the
current health care financing and reimbursement system were to reverse its
current evolution to a managed care model back to a fee-for-service model. In
addition, many of the Company's customers are providing services under capitated
service agreements, and a reduction in the use of capitation arrangements as a
result of regulatory or market changes could have a material adverse effect on
the Company's business, financial condition and results of operations. During
the past several years, the health care industry has been subject to increasing
levels of governmental regulation of, among other things, reimbursement rates
and certain capital expenditures. Certain proposals to reform the health care
system have been and are being considered by Congress. These proposals, if
enacted, could change the operating environment for the Company's clients in
ways that cannot be predicted. Health care organizations may react to these
proposals by curtailing or deferring investments, including those for the
Company's products and services.
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
these occurrences could have a material adverse effect on the Company's
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 market-driven reforms could also have
adverse effects on the Company's business, financial condition and results of
operations.
Highly Competitive Market
Competition in the market for the Company's products and services is intense
and is expected to increase. 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. The Company's competitors include other providers of
health care information software and services, as well as health care consulting
firms. The combined company's principal competitors include: (i) CIS
Technologies, Inc., a division of National Data Corporation, Inc., and
Sophisticated Software, Inc. in the market for its EDI products; (ii) Envoy
Corp. and MedE AMERICA in the market for its claims processing service; (iii)
Healthcare Cost Consultants, Inc., a division of CIS Technologies, Inc., and
Trego Systems, Inc. in the market for its contract management products; (iv)
IMNET Systems, Inc., Optika Imaging Systems, Inc. and LanVision Systems, Inc. in
the market for its electronic document management products; (v) Transition
Systems, Inc. and Healthcare Microsystems, Inc., a division of Health Management
Systems Inc., HCIA Inc. and MediQual Systems, Inc., a division of Cardinal
Health, Inc., in the market for its decision support products; (vi) HMS and
ARTRAC, a division of Medaphis in the market for its business office outsourcing
services; (vii) a subsidiary of Minnesota Mining and Manufacturing, in the
market for its medical records products; and(viii)Transcend Services, Inc. and
SMART Corporation in the market for its health information management services.
In addition, current and prospective customers evaluate the Company's
capabilities against the merits of their existing information systems and
expertise. Furthermore, major software information systems companies, including
those specializing in the health care industry, not presently offering products
that compete with those offered by the Company may enter the Company's markets.
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, changes in customer requirements and political, economic
or regulatory changes in the health care industry 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.
Shares Eligible for Future Sale
Future sales of Common Stock by existing stockholders under Rule 144 of the
Securities Act and through the exercise of registration rights could have an
adverse effect on the price of the Company's Common Stock. As of September 30,
1998, approximately 1.0 million shares are available for sale in the public
market subject to compliance with Rule 144 . Certain existing stockholders
holding an aggregate of 144,059 shares of Common Stock as of September 30, 1998
have rights under certain circumstances to require the Company to register their
shares for future sale.
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In September 1998, the Company closed the acquisitions of CodeMaster
Corporation and Integrated Medical Networks, Inc. Pursuant to these
acquisitions, the Company issued 482,000 and 1,550,000 shares of its Common
Stock, respectively, all of which have registration rights. In June 1998, the
Company closed the acquisition of Pyramid Health Group, Inc. ("Pyramid"). In
connection with the acquisition of Pyramid, the Company issued an aggregate of
2,740,000 shares of Common Stock, all of which have registration rights. In May
1998, the Company closed the acquisition of Medicus. In connection with the
acquisition of Medicus, the Company issued an aggregate of 1,201,221 shares of
Common Stock, which includes 441,564 shares of Common Stock issued upon the
exercise of warrants issued in November 1997 to certain former stockholders of
Medicus (the"Warrants"). All of the shares of Common Stock issued in connection
with the acquisition of Medicus (including shares issuable upon exercise of the
Warrants) have been registered under the Securities Act and are freely
tradeable. In May 1998, the Company completed an offering of $115 million
principal aggregate amount of Convertible Subordinated debentures. The
Debentures are initially convertible into an aggregate of 3,458,647 shares of
the Company's Common Stock at a conversion price of $33.25 per share ( a
conversion ratio of 30.075 shares per $1,000 principal amount of Debentures).
The Debentures and the shares of Common Stock issuable upon conversion of the
Debentures have been registered under the Securities Act and are freely
tradable. In December 1997, the Company issued 1,588,701 shares of Common Stock
in connection with the RHP Mergers. The shares of Common Stock issued in
connection with the RHP Mergers have been registered for resale under the
Securities Act and are freely tradeable. An additional 242,590 shares subject to
registration rights were registered for resale concurrently with the shares
issued in connection with the RHP Mergers and are freely tradeable.
Sales of a substantial number of the aforementioned shares of the Company's
Common Stock could adversely affect or cause substantial fluctuations in the
market price of the Company's Common Stock and impair the Company's ability to
raise additional capital through the sale of its securities. Sales of
substantial amounts of Common Stock in the public market under Rule 144 under
the Securities Act, or otherwise, or the perception that such sales could occur,
may adversely affect prevailing market prices of the Common Stock and could
impair the future ability of the Company to raise capital through an offering of
its equity securities.
New Product Development and System Enhancement
The Company's 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 its operations and integrate the products and technologies
of acquired businesses. There can be no assurance that the Company will
successfully or in a timely manner develop, acquire, integrate, 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 or
other health care providers and payors and achieve or sustain market acceptance.
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. There can be no assurance that measures taken by the Company to
protect its 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 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. The Company has received notice of a claim filed with the
United States Trademark Appeal Board for the cancellation of its registered
QuanTIM(R) trademark, and also has received a letter from a separate third party
challenging this trademark. There can be no assurance that the Company will be
successful in its defense of these or similar claims.
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Risk of Product Defects; Failure to Meet Performance Criteria
Products such as those offered by the Company frequently contain errors or
failures, especially when initially introduced or when new versions are
released. Although QuadraMed conducts extensive testing, software errors have
been discovered in certain enhancements and products after their introduction.
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
products under development or in other enhancements or products after
commencement of commercial shipments, resulting in loss of revenues and
customers, delay in market acceptance, diversion of resources, damage to the
Company's reputation or increased service and warranty costs, any of which could
have a material adverse effect upon its business, financial condition and
results of operations.
Year 2000
Year 2000 Compliance. As is true for most companies, the Year 2000 computer
issue creates a risk for the Company. If systems do not correctly recognize
date information when the year changes to 2000, there could be an adverse
impact on the Company's operations. The risk for the Company exists in four
areas: systems used by the Company to run its business, systems used by the
Company's suppliers, potential warranty or other claims from customers, and the
potential reduced spending by other companies on the Company's solutions as a
result of significant information systems spending on Year 2000 remediation.
The Company has conducted a thorough inventory and evaluation of its
systems, equipment and facilities. The Company has a number of projects
underway to replace or upgrade systems, equipment and facilities that are known
to be Year 2000 non-compliant. The Company has not identified alternative
remediation plans if upgrade or replacement is not feasible. The Company will
consider the need for such remediation plans as it continues to assess the year
2000 risk. For the Year 2000 non-compliance issues identified to date, the cost
of upgrade or remediation is not expected to be material to the Company's
operating results. The Company expects to conclude its estimates of cost by the
end of the calendar year. If implementation of replacement systems is delayed,
or if significant new non-compliance issues are identified, the Company's
results of operations or financial condition could be materially adversely
affected.
The Company is also in the process of contacting its critical suppliers to
determine that the suppliers' operations and the products and services they
provide are Year 2000 compliant. To date, the Company is unaware of any current
suppliers that are not Year 2000 ready. In the event that suppliers are not
Year 2000 compliant, the Company will seek alternative sources of supplies.
However, such failures remain a possibility and could have an adverse impact on
the Company's results of operations or financial condition.
The Company believes its current products are Year 2000 compliant, however,
since all customer situations cannot be anticipated, particularly those
involving third party products, the Company may see an increase in warranty and
other claims as a result of the Year 2000 transition. In addition, litigation
regarding Year 2000 compliance issues is expected to escalate. For these
reasons, the impact of customer claims could have a material adverse impact on
the Company's results of operations or financial condition.
Year 2000 compliance is an issue for virtually all businesses, whose
computer systems and applications may require significant hardware and software
upgrades or modifications. Companies owning and operating such systems may plan
to devote a substantial portion of their information systems' spending to fund
such upgrades and modifications and divert spending away from the Company's
solutions. Such changes in customers' spending patterns could have a material
adverse impact on the Company's sales, operating results or financial condition.
Risk of Interruption of Data Processing
The Company currently processes substantially all its customer data at its
facilities in Richmond, California and Neptune, New Jersey. While the Company
backs up its data nightly and has safeguards for emergencies such as power
interruption or breakdown in temperature controls, it 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 Richmond 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 Outsourcing Business
The Company provides compliance, consulting and business office outsourcing
and cash flow management services, including the billing and collection of
receivables. The infrastructure for the Company's outsourcing business was
acquired by the Company. In addition, the Company often uses its software
products to provide outsourcing services. As a result, the Company has not been
required to make significant capital expenditures in order to service existing
outsourcing contracts. However, if the Company experiences a period of
substantial expansion in its outsourcing business, it may be required to make
substantial investments in capital assets and personnel, and there can be no
assurance that it 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
a contract was based could have a material adverse effect on its 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 these 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
17
<PAGE> 18
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. Such legislation
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 levels. 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.
Risk of Product-related Claims
Certain of the Company's products and services relate to the payment,
collection, coding and billing of health care claims and the administration of
managed care contracts. Any failure by employees of the Company or by the
Company's products to accurately assess, 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 that is in excess of, or excluded from, its insurance coverage could
have a material adverse effect on its 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 the Company's
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 it to incur additional unanticipated research and development
expenses.
Risks Associated with Certain Investments
The Company has made, and may continue to make in the future, certain
investments in which it obtains a minority equity interest in certain early
stage companies. The Company does not have the ability to control the operations
of any of these companies. Investing in early stage companies is subject to
certain significant risks, and there can be no assurance that any of these
companies will be successful or achieve profitability or that the Company will
ever realize a return on its investments. In addition, to the extent any of such
companies fail or become bankrupt or insolvent, the Company may be required to
report a loss on some or all of its investment, which could have a material
adverse effect on its results of operations during a particular reporting
period.
Potential Effect of Anti-takeover Provisions
Certain provisions of Delaware law applicable to the Company could have the
effect of delaying, deterring or preventing a change in control of the Company,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. In addition,
the Company's Certificate of Incorporation and Bylaws contain certain provisions
that could discourage potential takeover attempts and make attempts by
stockholders to change management more difficult. The Company's Board of
Directors is classified into three classes of directors serving staggered,
three-year terms and has the authority without action by the Company's
stockholders to fix the rights and preferences and issue shares of preferred
stock, and to impose various procedural and other requirements that could make
it more difficult for stockholders to effect certain corporate actions. The
Company's Certificate of Incorporation provides that directors may be removed
only by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the Company entitled to vote. Any vacancy on the Board of
Directors may be filled only by vote of the majority of directors then in
office. Further, the Company's Certificate of Incorporation provides that any
"Business Combination" (as therein defined) requires the affirmative vote of
two-thirds of the shares entitled to vote, voting together as a single class.
These provisions, and certain other provisions of the Certificate of
Incorporation which may have the effect
18
<PAGE> 19
of delaying proposed stockholder actions until the next annual meeting of
stockholders, could have the effect of delaying or preventing a tender offer for
the Company's Common Stock or other changes of control or management of the
Company, which could adversely affect the market price of the Company Common
Stock.
Volatility of Stock Price
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 may also be affected by movements in prices of equity
securities in general.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities and Use of Proceeds.
Between July 1, 1998 and September 30, 1998, the Registrant issued the
following securities which were not registered under the Securities Act of 1933
(the "Securities Act"):
(a) the Registrant issued an aggregate of 482,000 shares of Common Stock in
connection with the acquisition of CodeMaster Corporation.
(b) the Registrant issued an aggregate of 1,550,000 shares of Common Stock
in connection with the acquisition of Integrated Medical Networks, Inc.
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.
During the period covered by this report, there were no changes in the
rights of holders of any class of securities of the Company.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to Vote of Security Holders. None
Item 5. Other Information. None
19
<PAGE> 20
Item 6. Exhibits and Reports On Form 8-K.
a. Exhibits
<TABLE>
<S> <C>
2.1 Assets Purchase Agreement dated December 31, 1995, by and among QuadraMed Corporation, a Delaware corporation
and 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 "HRI
Acquisition Agreement and Plan of Merger").(3)
2.6 First Amendment to HRI Acquisition Agreement and Plan of Merger, dated as of April 22, 1997.(3)
2.7 Second Amendment to HRI Acquisition Agreement and Plan of Merger, dated as of April 24, 1997.(3)
2.8 Acquisition Agreement and Plan of Merger, dated as of September 24, 1997, by and among QuadraMed Corporation,
HRM Acquisition Corporation, Healthcare Revenue Management, Inc. and its Stockholders (the "Acquisition
Agreement and Plan of Merger").(4)
2.9 First Amendment to Acquisition Agreement and Plan of Merger, dated as of September 29, 1997.(4)
2.10 Agreement and Plan of Reorganization by and between QuadraMed Corporation and Medicus Systems Corporation,
dated as of November 9, 1997.(5)
2.11 Amendment No. 1 to Agreement and Plan of Reorganization, dated as of February 26, 1998.(10)
2.12 Amendment No. 2 to Agreement and Plan of Reorganization, dated as of March 24, 1998.(10)
2.13 Acquisition Agreement and Plan of Merger dated as of December 29, 1997, by and among QuadraMed Corporation and
Resource Health Partners, L.P.(6)
2.14 Acquisition Agreement and Plan of Merger dated as of February 2, 1998, by and among QuadraMed Corporation and
Cabot Marsh Corporation.(7)
2.15 Acquisition Agreement and Plan of Merger by and among QuadraMed Corporation and Pyramid Health Acquisition
Corporation and Pyramid Health Group, Inc. and its stockholders(11)
2.16 Acquisition Agreement and Plan of Merger by and among QuadraMed Corporation and and IMN Acquisition Corp. ,
and IMN Corp. dated September 30, 1998 (14)
3.1 Reserved.
3.2 Reserved
3.3 Reserved.
3.4 Amended and Restated Bylaws of the Company.(1)
3.5 Third Amended and Restated Certificate of Incorporation
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)
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
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)
4.9 Stock Purchase Warrant dated September 27, 1995 issued to James D. Durham and amendment #1 thereto dated
July 10, 1997.(8)
4.10 Reserved.
4.11 Form of Warrant to Purchase Common Stock.(1)
4.12 Registration Rights Agreement dated December 5, 1996, by and between the Company and the investors listed on
Schedule A thereto.(8)
4.13 Registration Rights Agreement, dated as of December 29, 1997, by and among QuadraMed Corporation, Resource
Health Partners, L.P. and certain stockholders.(6)
4.14 Registration Rights Agreement, dated as of June 5, 1998, by and among QuadraMed Corporation and the
stockholders of Pyramid Health group, Inc. named therein.(11)
4.15 Subordinated Indenture, dated as of May 1, 1998 between QuadraMed and The Bank of New York. (13)
4.16 Officers' Certificate delivered pursuant to Sections 2.3 and 11.5 of the Subordinated Indenture.(13)
4.17 Registration Rights Agreement dated April 27, 1998 by and among QuadraMed and the Initial Purchasers named
therein.(13)
4.18 Form of Global Debenture.(13)
4.19 Form of Certificated Debenture.(13)
4.20 Registration Rights Agreement, dated as of September 30, 1998, by and among QuadraMed Corporation, IMN Corp.
and the shareholders of IMN named therein (14)
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 Reserved.
10.9 Reserved.
10.10 Stock Purchase Agreement dated March 3, 1994, by and between the Company and James D. Durham.(1)
10.11 Reserved.
10.12 Reserved.
10.13 Reserved.
10.14 Reserved.
10.15 Credit Terms and Conditions dated July 2, 1997, by and between Imperial Bank and the Company, with addendum
thereto.(8)
10.16 Reserved.
10.16.1 Reserved.
10.17 Reserved.
10.18 Reserved.
10.19 Reserved.
10.20 Reserved.
10.21 Reserved.
10.22 Reserved.
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
10.23 Reserved.
10.24 Reserved.
10.25 Reserved.
10.26 Reserved.
10.27 Reserved.
10.28 Reserved.
10.29 Reserved.
10.30 Reserved.
10.31 Reserved.
10.32 Reserved.
10.32 Reserved.
10.34 Reserved.
10.35 Reserved.
10.36 Reserved.
10.37 Reserved.
10.38 Reserved.
10.39 Letter dated July 1, 1997 from the Company to Lemuel C. Stewart, Jr. regarding terms of employment.(9)
10.40 Form of Stock Purchase Agreement dated as of November 9, 1997 by and among QuadraMed Corporation and certain
stockholders of Medicus Systems Corporation.(5)
10.41 Form of Stock Purchase Warrant dated as of November 9, 1997 issued to certain stockholders of Medicus
(including as Appendix A to Exhibit 10.40).(5)
10.42 Letter dated November 1, 1997 from the Company to James D. Durham, regarding terms of employment.(5)
10.43 Letter dated November 13, 1997 from the Company to John V. Cracchiolo, regarding terms of employment.(5)
10.44 Reserved.
10.45 Letter dated January 15, 1998 from the Company to Andrew J. Hurd, regarding terms of employment.(10)
10.46 Employment Agreement dated September 29, 1997 by and between Steven D. McCoy and the Company.(10)
10.47 Letter dated March 17, 1998 from the Company to Keith M. Roberts regarding terms of employment.(10)
10.48 Employment Agreement dated February 4, 1998 by and between Ruthann Russo and the Company.(10)
10.49 Employment Agreement dated June 5, 1998 between Nitin T. Mehta and the Company
10.50 Mergers and Acquisitions Advisory Fee Agreement dated June 5, 1998 between the Company and Mehta & Company,
Inc.(12)
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated herein 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 herein 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 herein 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, as amended on July 8, 1997 and March 10, 1998.
(4) Incorporated herein 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
October 10, 1997, as amended on March 10, 1998.
(5) 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
November 21, 1997.
22
<PAGE> 23
(6) Incorporated herein by reference from Exhibit 2.11 to the Company's
Current Report on Form 8-K, as filed with the Commission on January 13,
1998.
(7) Incorporated herein by reference from Exhibit 2.12 to the Company's
Current Report on Form 8-K, as filed with the Commission on February 18,
1998.
(8) Incorporated herein by reference from the exhibit with the same number to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, as filed with the Commission on August 14, 1997, as amended
September 4, 1997.
(9) Incorporated by reference from the exhibit with the same number to the
Company's Registration Statement on Form S-3, No. 333-36189, as filed with
the Commission on September 23, 1997, as amended by Amendment No. 1 and
Amendment No. 2 thereto, as filed with the Commission on October 1, 1997
and October 15, 1997 respectively.
(10) Incorporated by reference from the exhibit with the same number to the
Company's Annual Report on Form 10-K/A for the year ended December 31,
1997, as filed with the Commission on April 20, 1998.
(11) Incorporated by reference to the Company's Current Report on Form 8-K, as
filed with the Commission on June 11, 1998.
(12) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed with the Commission on June 17, 1998
(13) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 333-55775, as filed with the Commission on June 2, 1998, as
amended by Amendment No. 1 thereto, as filed with the Commission on
June 17, 1998.
(14) Incorporated by reference to the Company's Current Report on Form 8-K, as
filed with the Commission on October 15, 1998.
b. Reports on Form 8-K.
The Company filed a report on Form 8-K on April 29, 1998 in which it
reported the completion of its offering of $115 million principal aggregate
amount of Convertible Subordinated Debentures pursuant to Rule 144A.
The Company filed a report on Form 8-K on May 11, 1998 in which it reported
the exercise of the over-allotment option in its offering of Convertible
Subordinated Debentures.
The Company filed a report on Form 8-K on May 29, 1998 in which it reported
the acquisition of the remaining 43.3% of Medicus Systems Corporation.
The Company filed a report on Form 8-K on June 11, 1998 in which it reported
the acquisition of Pyramid Health Group, Inc. and MetriCor, Inc.
The Company filed a report on Form 8-K/A on June 17, 1998 in which it
amended its previously filed report on Form 8-K relating to the acquisition of
Pyramid Health Group, Inc.
The Company filed a report on Form 8-K on September 11, 1998 in which it
reported the acquisition of CodeMaster Corporation.
The Company filed a report on Form 8-K on October 15, 1998 in which it
reported the acquisition of Integrated Medical Networks, Inc.
23
<PAGE> 24
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: November 16, 1998 By: /s/ KEITH M. ROBERTS
--------------------------------------
Keith M. Roberts
General Counsel and
Chief Financial Officer (Principal
Financial Officer)
By: /s/ BERNIE J. MURPHY
--------------------------------------
Bernie J. Murphy
Vice President, Finance and
Chief Accounting Officer (Principal
Accounting Officer)
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 53,532
<SECURITIES> 39,652
<RECEIVABLES> 32,160
<ALLOWANCES> 2,987
<INVENTORY> 0
<CURRENT-ASSETS> 133,290
<PP&E> 17,287
<DEPRECIATION> 9,164
<TOTAL-ASSETS> 232,681
<CURRENT-LIABILITIES> 51,650
<BONDS> 0
0
0
<COMMON> 131
<OTHER-SE> 45,401
<TOTAL-LIABILITY-AND-EQUITY> 231,681
<SALES> 43,794
<TOTAL-REVENUES> 43,794
<CGS> 21,393
<TOTAL-COSTS> 24,570
<OTHER-EXPENSES> (41)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> (2,308)
<INCOME-TAX> 1,572
<INCOME-CONTINUING> (3,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,880)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
