<PAGE> 1
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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, 1999
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)
<TABLE>
<S> <C>
DELAWARE 68-0422446
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1003 W. CUTTING BLVD., 2ND FLOOR 94804
RICHMOND, CA 94804 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
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 November 1, 1999, there were 25,142,000 shares of the Registrant's
Common Stock outstanding, par value $0.01. This quarterly report on Form 10-Q
consists of 31 pages of which this is page 1. The Exhibit Index is located at
page 32.
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<PAGE> 2
QUADRAMED CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item Financial Statements (unaudited) Condensed Consolidated
1. Balance Sheets as of September 30, 1999 and December 31,
1998........................................................ 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 1999 and 1998..... 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998.................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item Management's Discussion and Analysis of Financial Condition
2. and Results of Operations................................... 11
Item Quantitative and Qualitative Disclosures About Market
3. Risk........................................................ 16
PART II. OTHER INFORMATION
Item Legal Proceedings...........................................
1. 25
Item Changes in Securities and Use of Proceeds...................
2. 25
Item Defaults Upon Senior Securities.............................
3. 25
Item Submission of Matters to a Vote of Security Holders.........
4. 25
Item Other Information...........................................
5. 25
Item Exhibits and Reports on Form 8-K............................
6. 25
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(RESTATED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,972 $ 66,531
Short-term investments.................................... 11,709 23,043
Accounts receivable, net.................................. 51,169 39,991
Unbilled receivables...................................... 15,588 10,335
Notes and other receivables............................... 5,126 3,989
Prepaid expenses and other................................ 6,830 2,778
--------- ---------
Total current assets.............................. 100,394 146,667
Long-term investments..................................... 31,844 41,641
Equipment, net............................................ 11,957 11,380
Capitalized software development costs, net............... 7,987 4,864
Acquired software, net.................................... 9,736 3,211
Non-marketable investments................................ 4,700 1,200
Intangibles, net.......................................... 43,526 50,672
Debt offering costs and other............................. 9,012 5,098
--------- ---------
Total assets...................................... $ 219,156 $ 264,733
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations........... $ 407 $ 525
Notes payable............................................. 25 2,728
Accounts payable.......................................... 4,069 4,389
Accrued liabilities....................................... 24,456 30,133
Deferred revenue.......................................... 9,109 14,021
--------- ---------
Total current liabilities......................... 38,066 51,796
Capital lease obligations, less current portion........... 430 606
Notes payable, less current portion....................... -- 19,186
Convertible subordinated debentures....................... 115,000 115,000
Net liabilities of discontinued operations................ 6,957 9,157
--------- ---------
Total liabilities................................. 160,453 195,745
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock.............................................. 175 159
Additional paid-in capital................................ 269,904 266,087
Deferred compensation..................................... (3,349) (3,940)
Unrealized loss on available-for-sale securities.......... (246) (157)
Accumulated deficit....................................... (207,781) (193,161)
--------- ---------
Total stockholders' equity........................ 58,703 68,988
--------- ---------
Total liabilities & stockholders' equity.......... $ 219,156 $ 264,733
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
1999 1998 1999 1998
------- ---------- -------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
REVENUES:
Licenses......................................... $32,797 $33,595 $ 96,202 $ 83,266
Services....................................... 29,260 23,352 83,531 66,584
------- ------- -------- --------
Total revenues......................... 62,057 56,947 179,733 149,850
------- ------- -------- --------
OPERATING EXPENSES:
Cost of licenses............................... 15,402 13,532 41,082 37,651
Cost of services............................... 17,709 14,801 49,681 43,995
General and administration..................... 7,914 7,901 23,335 24,957
Sales and marketing............................ 5,750 4,587 16,374 14,771
Research and development....................... 5,941 4,871 16,798 16,998
Amortization of intangibles.................... 2,055 2,027 5,847 4,349
Write-off of acquired research and development
in process.................................. 1,722 607 1,722 14,494
Acquisition costs.............................. -- 7,215 6,898 10,254
Impairment of intangible assets................ -- -- 10,592 --
Non-recurring charges.......................... -- 3,022 18,752 4,202
------- ------- -------- --------
Total operating expenses............... 56,493 58,563 191,081 171,671
------- ------- -------- --------
INCOME (LOSS) FROM OPERATIONS.................... 5,564 (1,616) (11,348) (21,821)
OTHER INCOME (EXPENSE), NET:
Interest expense, net.......................... (927) (170) (2,019) (102)
Other income (expense), net.................... 133 47 126 (102)
------- ------- -------- --------
Total other income (expense), net...... (794) (123) (1,893) (204)
------- ------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES,
MINORITY INTEREST, AND DISCONTINUED
OPERATIONS..................................... 4,770 (1,739) (13,241) (22,025)
Provision for income taxes..................... (243) (1,521) (1,379) (3,494)
Minority interest in earnings of Medicus....... -- -- -- (379)
------- ------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS......... 4,527 (3,260) (14,620) (25,898)
DISCONTINUED OPERATIONS........................ -- (106) -- (1,854)
------- ------- -------- --------
NET INCOME (LOSS)................................ $ 4,527 $(3,366) $(14,620) $(27,752)
======= ======= ======== ========
NET INCOME (LOSS) PER BASIC AND DILUTED SHARE.... $ 0.18 $ (0.14) $ (0.59) $ (1.23)
======= ======= ======== ========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING............................. 25,114 23,651 24,834 22,631
======= ======= ======== ========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING............................. 25,460 23,651 24,834 22,631
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
-------- ----------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(14,620) $(27,752)
-------- --------
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 9,940 8,382
Amortization of deferred compensation.................. 591 --
Write-off of in-process research and development....... 1,722 14,494
Impairment of intangible assets........................ 10,592 --
Cash flows from discontinued operations................ (2,200) (1,074)
Minority interest in earnings of Medicus............... -- --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable and unbilled receivables......... (15,987) (10,559)
Prepaid expenses and other........................... (7,793) 193
Accounts payable and accrued liabilities............. (7,406) 2,353
Deferred revenue..................................... (6,052) (1,053)
-------- --------
Cash used in operating activities................. (31,213) (15,016)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of non-marketable investments.................... (3,000) --
Additions to equipment.................................... (4,188) (5,720)
Increase in notes receivable and other.................... (1,637) (759)
Capitalization of computer software development costs..... (3,605) (2,338)
Purchase of technology rights............................. (7,200) --
Net maturities (purchases) of short and long-term
investments............................................ 21,042 --
Cash paid for acquisitions in 1998, net of cash
acquired............................................... -- (94,138)
Cash paid for acquisitions in 1999, net of cash
acquired............................................... (7,772) --
-------- --------
Cash used in investing activities................. (6,360) (102,955)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of principal on capital lease
obligations............................................... (294) (2,200)
Net borrowings (repayments) under notes payable............. (21,889) 1,779
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......................... 3,197 21,300
-------- --------
Cash used in financing activities................. (18,986) 131,706
-------- --------
Net (decrease) increase in cash and cash equivalents........ (56,559) 13,735
CASH AND CASH EQUIVALENTS, beginning of period.............. 66,531 48,384
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 9,972 $ 62,119
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable to common stock............... $ -- $ 8,000
Conversion of note receivable to equity investment in
VantageMed............................................. $ 500 $ --
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.
5
<PAGE> 6
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, 1998 included in the Company's Annual Report on Form 10-K. 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, 1999 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 Company's product offering 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 are recognized
monthly or annually over the term of the license arrangement, beginning at the
date of installation. Revenues from perpetual licenses 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.
Revenues from certain products, including the Company's enterprise solutions,
are recognized on a percentage of completion basis of accounting.
Certain 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.
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
6
<PAGE> 7
QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. The Company has
experienced operating margins at differing levels related to licenses and
services. The service business has historically realized fluctuating margins
that were significantly lower than margins associated with licenses.
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.
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. Dilutive net income
(loss) per share is computed using the weighted average number of common and
potentially dilutive common shares outstanding during the period. Potentially
dilutive common shares consist of stock options, warrants (using the treasury
stock method) and the Company's convertible subordinated debentures. Potentially
dilutive common 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 in the nine months ended September 30, 1999 and
1998, no potentially diluted common shares are included in dilutive weighted
average common shares outstanding for those periods.
Comprehensive Income
The components of comprehensive income (loss) for the three and nine months
ended September 30, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss).................................. $4,527 $(3,366) $(14,620) $(27,752)
Unrealized gain (loss) on available-for-sale
securities......................................... 35 53 (89) (63)
------ ------- -------- --------
Comprehensive income (loss)........................ $4,562 $(3,313) $(14,709) $(27,815)
====== ======= ======== ========
</TABLE>
3. ACQUISITIONS
In March 1999, the Company acquired all of the outstanding capital stock of
The Compucare Company ("Compucare") in exchange for 2,957,000 shares of common
stock, of which 242,000 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 Compucare were
recorded at net book value. The accompanying consolidated financial statements
have been restated to reflect the acquisition of Compucare on a pooling of
interests basis.
7
<PAGE> 8
QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the current consolidated financial statements with
previously reported separate Company information for significant entities with
which the Company has pooled is presented below (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
QuadraMed.............................................. $139,534 $118,786
Compucare............................................ $ 40,199 $ 31,064
-------- --------
Consolidated......................................... $179,733 $149,850
======== ========
Net (loss) income:
QuadraMed............................................ $(11,280) $(31,766)
Compucare(a)......................................... $ (3,340) $ 4,014
-------- --------
Consolidated......................................... $(14,620) $(27,752)
======== ========
</TABLE>
- ---------------
(a) Includes acquisition costs related to the acquisition of Compucare during
the first quarter of 1999.
In July 1999, the Company acquired the assets of Med Data Systems, Inc.
("Med Data") for $5 million in cash. In connection with this acquisition, the
Company recorded a charge of $1.7 million associated with in-process research
and development. Goodwill and other intangibles associated with the purchase of
Med Data are amortized over an estimated useful life of seven years.
4. LINE OF CREDIT AND 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.
5. DISCONTINUED OPERATIONS
In connection with the acquisition of Compucare in March 1999, the Company
assumed the net liabilities of discontinued operations from certain prior
acquisitions of Compucare. In November 1996, Compucare consummated the sale of
Antrim Corporation ("Antrim"), a wholly-owned subsidiary of Compucare. In
December of 1996, Compucare announced it was evaluating a plan of "spin-off" or
sale of operations of Health Systems Integration, Inc. ("HSII"), a wholly-owned
subsidiary of Compucare. Compucare completed transactions related to the sale of
HSII's intellectual property and the majority of its customer base in December
1997. The results of operations for the three and nine months ended September
30, 1999 and 1998, respectively, present Antrim and HSII as discontinued
operations. Results from discontinued operations for the three and nine months
ended September 30, 1999 were not material. The loss from discontinued
operations for the three and nine months ended September 30, 1998 was $106,000
and $1,854,000, respectively. The assets and liabilities related to the
discontinued operations have been segregated on each of the aforementioned
balance sheets. Net liabilities related to discontinued operations at September
30, 1999 were $6,957,000.
8
<PAGE> 9
QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NON-RECURRING CHARGES
During the first quarter of 1999, the Company recorded approximately
$18,800,000 of non-recurring charges. Those charges consisted of costs
associated with the closing of several duplicative operating facilities
primarily within the Company's Business Office Division and certain integration
costs related to prior acquisitions. The charge included approximately
$10,000,000 related to severance payments to employees ranging from several
weeks to two years in the case of certain management of Compucare. In addition,
the charge included $8,800,000 for future rents and lease obligations the
Company is obligated to fulfill as well as other incremental costs to wind-down
the operations of the offices. Future rents and lease obligations are expected
to be paid through July 2003. In 1997 and 1998, respectively, the Company closed
several other offices related to acquired companies. At December 31, 1998, there
was $1,579,000 accrued for future rents and lease obligations related to such
facilities. During the quarter ended September 30, 1999, the Company paid
$449,000 related to rent and lease obligations for these facilities.
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
DECEMBER 31, COSTS AND SEPTEMBER 30,
1998 EXPENSES PAYMENTS 1999
------------ ---------- -------- -------------
<S> <C> <C> <C> <C>
DESCRIPTION
Personnel costs............................................. $ -- $10,000 $(10,000) $ --
Rents and lease obligations................................. 1,579 3,282 (1,945) 2,916
Other incremental operating costs........................... -- 5,470 (4,619) 851
------ ------- -------- ------
Total Restructuring Accrual......................... $1,579 $18,752 $(16,564) $3,767
====== ======= ======== ======
</TABLE>
7. IMPAIRMENT OF INTANGIBLES
During the quarter ended March 31, 1999, the Company recorded a $10,600,000
charge for the write-down of certain intangible assets. The intangible assets
were associated with the Business Office Division, and were related to the
acquisitions of Synergy in 1997, InterLink, Velox and American Hospital
Directory in 1998. In accordance with SFAS No. 121, "Impairment of Long-Lived
Assets", projected cash flows from these product lines were not sufficient to
cover future amortization of the intangible assets and therefore were
written-down during the quarter ended March 31, 1999.
8. SEGMENT REPORTING
The Company reported on three operating segments in 1999: the Business
Office Division (BO), the Health Information Management (HIM) Division and the
Enterprise Division. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before income
taxes not including nonrecurring gains and losses. The Company does not track
long-lived assets by segment and therefore related disclosures are not relevant
and are not presented.
For the nine months ended September 30, 1999 and 1998, respectively, the
following table reports selected segment information required by SFAS No. 131:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------- ----------------------------------------------
BO HIM ENTERPRISE TOTAL BO HIM ENTERPRISE TOTAL
-------- ------- ---------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
License revenues..... $ 32,565 $21,109 $42,528 $ 96,202 $ 33,154 $ 12,174 $37,938 $ 83,266
Service revenues..... $ 20,559 $62,972 -- 83,531 10,195 56,389 -- 66,584
-------- ------- ------- -------- -------- -------- ------- --------
$ 53,124 $84,081 $42,528 $179,733 $ 43,349 $ 68,563 $37,938 $149,850
Segment earnings
(loss)............. $(17,737) $ 6,379 $(3,262) $(14,620) $(13,950) $ (8,316) $(5,486) $(27,752)
</TABLE>
9
<PAGE> 10
QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition," which defers for one year the application of provisions in
SOP 97-2 which limit what is considered vendor-specific objective evidence of
the fair value of the various elements in a multiple element arrangement. All
other provisions in SOP 97-2 remain in effect. This SOP was effective as of
March 31, 1998. In December 1998, the AICPA issued SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
which amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition, to
require recognition of revenue using the "residual value method" under certain
conditions. Effective December 15, 1998, SOP 98-9 amends SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2," "Software Revenue Recognition,"
to extend the deferral of the application of certain passages of SOP 97-2
provided by SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of this SOP are effective for transactions entered into in
fiscal years beginning after March 31, 1999. The Company does not anticipate
that these statements will have a material adverse impact on its statement of
operations.
10
<PAGE> 11
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 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 Corporation uses technology to transform disparate healthcare
data into valuable, enterprise-wide information. Providing and distributing
meaningful information through its software, services and Internet solutions,
QuadraMed has enabled its 4,000 customers in the U.S. and Canada to generate
operational efficiencies, improve cash flow and measure the cost and quality of
care. QuadraMed has implemented its product and service solutions in more than
60% of the nation's hospitals. The Company has expanded significantly since its
inception in 1993, primarily through the acquisition of other businesses,
products and services. Accordingly, the Company's consolidated financial
statements have been restated to include historical results of entities acquired
on a pooling of interests basis.
In March 1999, the Company acquired all of the outstanding capital stock of
The Compucare Company ("Compucare") in exchange for 2,957,000 shares of common
stock, of which 295,000 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. The
accompanying consolidated financial statements have been restated to reflect the
acquisition of Compucare on a pooling of interests basis.
In July 1999, the Company acquired Med Data Systems, Inc. ("Med Data") for
$5 million in cash. In connection with this acquisition, the Company recorded a
charge of $1.7 million associated with in-process research and development.
Goodwill associated with the purchased is amortized over an average life of
seven years.
As of September 30, 1999, QuadraMed and its subsidiaries had 4,000
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, payers and employers. No single customer accounted for more than
10% of the Company's revenues in the nine months ended September 30, 1999 or
1998.
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.
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The Company's product offering 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 are recognized
monthly or annually over the term of the license arrangement, beginning at the
date of installation. Revenues from perpetual licenses 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.
Revenues from certain products, including the Company's enterprise solutions are
recognized on a percentage of completion basis of accounting.
Certain 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.
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 payers. 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.
The Company has experienced operating margins at differing levels related to
licenses and services. The service business has historically realized
fluctuating margins that were significantly lower than margins associated with
licenses.
The Company 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, 1999 were
$32.8 million, compared to $33.6 million in the same period last year. For the
nine months ended September 30, 1999, license revenues increased 15.5% to $96.2
million compared to $83.3 million in the same period last year. The increase in
license revenues during the nine months ended September 30, 1999 was due
principally to sales to new customers associated with the Company's coding and
capitation products and sales to new and existing customers associated with
enterprise products from the recently acquired Compucare. 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, 1999
increased 25.3% to $29.3 million, compared to $23.4 million in the same period
last year. For the nine months ended September 30, 1999, services revenues
increased 25.5% to $83.5 million, compared to $66.6 million in the same period
last year.
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The increase in service revenues was due principally to new customers associated
with the Company's health information management outsourcing, compliance and
specialty audit services.
The Company experienced a substantial increase in revenues in 1998 which
reflected the completion of numerous acquisitions, several of which were
significant. The Company currently expects to complete fewer acquisitions in
1999 and 2000. As a result the Company does not expect revenues to increase at
historical rates in the future.
Cost of Revenues
Cost of licenses. Cost of license revenues for the quarter ended September
30, 1999 increased 13.8% to $15.4 million, compared to $13.5 million in the same
period last year. For the nine months ended September 30, 1999, cost of license
revenues increased 9.1% to $41.1 million, compared to $37.7 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 increased to 47.0% in the quarter ended September 30, 1999,
from 40.3% in the same period last year. As a percentage of license revenues,
cost of licenses decreased to 42.7% in the nine months ended September 30, 1999,
from 45.2% in the same period last year. The increase in cost of licenses in
absolute dollars for the three and nine month periods ended September 30, 1999
and as a percentage of revenue for the three month period ended September 30,
1999 was principally due to higher hardware sales during the quarter, which
typically has a lower margin than the sale of software. The decrease in cost of
licenses as a percentage of license revenues for the nine months ended September
30, 1999 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, 1999 increased 19.6% to $17.7 million, compared to $14.8 million, in the
same period last year. For the nine months ended September 30, 1999, cost of
services revenues increased 12.9% to $49.7 million, compared to $44.0 million in
the same period last year. Cost of services includes expenses associated with
services performed in connection with health information management and business
office outsourcing, compliance, consulting and other audit services. As a
percentage of service revenues, cost of services decreased to 60.5% in the
quarter ended September 30, 1999 from 63.4% in the same period last year. As a
percentage of service revenues, cost of services decreased to 59.5% in the nine
months ended September 30, 1999 from 66.1% in the same period last year. The
increase in cost of services was due principally to additional operating costs
associated with the health information management outsourcing services and to a
lesser extent, the hiring of additional compliance consultants. Cost of services
as a percentage of service revenues decreased for the three and nine months
ended September 30, 1999, principally due to a higher revenue contribution from
the Company's health information management outsourcing business unit and to a
lesser extent, the closure of one of the Company's duplicative operating
facilities within its business office outsourcing operations in the third
quarter of 1998. As a result of this facility closure, the Company reduced
operations in a lower margin business. In addition, the Company's audit services
provided higher revenues and operating margins than certain of its other service
businesses in 1999.
Operating Expenses
General and Administration. General and administration expenses for the
quarter ended September 30, 1999 remained static at $7.9 million, compared to
the same period last year and, as a percentage of total revenues, decreased to
12.8% compared to 13.9% in the same period last year. For the nine months ended
September 30, 1999, general and administration expenses decreased 6.5% to $23.3
million, compared to $25.0 million in the same period last year, and as a
percentage of total revenues, decreased to 13.0%, compared to 16.7% in the same
period last year. The decrease in general and administration expenses in
absolute dollars for the nine month period was due to the reduction of certain
overhead costs associated with prior acquisitions as the Company has centralized
many of its administrative functions. The decrease in general and administration
expenses as a percentage of total revenues for the three and nine months ended
September 30, 1999 was principally due to a combination of a larger revenue base
and the reduction of certain overhead costs.
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Sales and Marketing. Sales and marketing expenses for the quarter ended
September 30, 1999 increased 25.4% to $5.8 million, compared to $4.6 million in
the same period last year, and increased as a percentage of total revenues to
9.3% from 8.1% in the same period last year. For the nine months ended September
30, 1999, sales and marketing expenses increased 10.9% to $16.4 million,
compared to $14.8 million in the same period last year, and as a percentage of
total revenues, decreased to 9.1%, compared to 9.9% in the same period last
year. The increase in sales and marketing expenses in absolute dollars for the
three month and nine month periods ended September 30, 1999 and as a percentage
of total revenues for the three month period ended September 30, 1999, resulted
principally from the addition of sales and marketing personnel in 1999 and
higher advertising costs, which included a more expansive participation at the
annual healthcare information management conference in February 1999. The
decrease as a percentage of revenues for the nine month period is due to a
larger revenue base for the nine month period.
Research and Development. Research and development costs include costs
incurred by the Company to further its efforts for enhancing its products, which
ultimately supports the Company's license revenues. Research and development
expenses for the quarter ended September 30, 1999 increased 22.0% to $5.9
million, compared to $4.9 million in the same period last year and as a
percentage of total revenues increased to 9.6% from 8.6% in the same period last
year. For the nine months ended September 30, 1999, research and development
expenses decreased marginally to $16.8 million, compared to $17.0 million in the
same period last year, and as a percentage of total revenues, decreased to 9.3%,
compared to 11.3% in the same period last year. Research and development
expenses increased for the quarter ended September 30, 1999 principally due to
higher development costs incurred for the Company's Enovation product lines. The
Company capitalized $3.6 million and $2.1 million of software development costs
in the nine months ended September 30, 1999 and 1998, respectively, which
represented 17.6% and 12.8% of total research and development expenditures for
the nine months ended September 30, 1999 and 1998, respectively. The Company
believes that research and development expenditures are essential to maintaining
its competitive position. As a result, the Company intends to continue to make
investments in the development of new products and in the further integration of
acquired technologies into the Company's suite of products.
Amortization of Intangibles. Amortization of intangibles for the quarter
ended September 30, 1999 remained static at $2.1 million compared to the same
period last year. For the nine months ended September 30, 1999, amortization of
intangibles increased 34.4% to $5.8 million compared to $4.3 million in the same
period last year. The increase in the amortization of intangibles is principally
due to the acquisition of the remaining 43.3% interest in Medicus in May 1998,
and the acquisition of Cabot Marsh in February 1998.
Acquired Research and Development In-Process. In connection with the
acquisition of MedData in July of 1999, and the acquisitions of Cabot Marsh,
Velox and entities affiliated with InterLink during the first nine months of
1998, the Company expensed $1.7 million and $14.5 million, respectively, of
acquired in-process research and development as the technology had not achieved
technological feasibility and had no alternative future use.
Acquisition Costs. The Company incurred $6.9 million of acquisition costs
for the nine months ended September 30, 1999. These acquisition costs primarily
related to the Compucare acquisition in the first quarter of 1999. Such costs
were primarily for financial advisor fees of approximately $5.7 million incurred
by the Company and Compucare and to a lesser extent, legal and accounting fees
of approximately $1.2 million.
Non-Recurring Charges. Non-recurring charges of $29.3 million in the first
nine months of 1999 were associated with the closing of duplicative operating
facilities within several of the Company's business units and the write-down of
certain intangibles from past acquisitions which were determined to be impaired.
The Company incurred approximately $18.8 million to close four office facilities
and to reduce the related workforce by more than one hundred employees. The
charge included approximately $10 million related to severance payments to
employees ranging from several weeks to two years in the case of certain
management of Compucare. In addition, the charge included $8.8 million of future
rents and lease obligations the Company is contractually obligated to fulfill as
well as other incremental costs to wind-down the operations of the offices. The
Company recorded a $10.6 million charge to write-down certain intangible assets
from companies
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acquired in 1997 and 1998. The write-down related to the acquisitions of
Synergy, InterLink, Velox and American Hospital Directory. No such charges were
incurred during the quarter ended September 30, 1999.
Interest expense, net. Interest expense, net was $927,000 and $2.0 million
in the three and nine months ended September 30, 1999, respectively, compared to
interest expense of $170,000 and $102,000 for the same periods last year,
respectively. Interest expense during 1999 was principally due to interest
expense from the Company's $115 million Convertible Subordinated Debentures
which closed in May 1998 and, prior to June 30, 1999, interest expense on notes
payable assumed from the acquisition of IMN in September 1998. Interest expense
was partially offset by interest income from the Company's cash and investments.
Provision for income taxes. Provision for income taxes was $243,000 and
$1,521,000 in the quarters ended September 30, 1999 and 1998 and $1.4 million
and $3.5 million in the nine months ended September 30, 1999 and 1998,
respectively. 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 $31.2 million and $15.0 million
in the nine months ended September 30, 1999 and 1998, respectively. Net cash
used in operating activities in the nine months ended September 30, 1999 was
principally due to an increase in accounts receivable and prepaid expenses and
other and a decrease in accounts payable and deferred revenue. Accounts
receivable increased primarily due to an increase in receivables associated with
the Company's Enterprise products and BO service businesses. Prepaids and other
assets increased primarily due to prepaid royalties related to purchased
technology rights during the second quarter of 1999. Net cash used in operating
activities for the nine months ended September 30, 1998 related to the net loss
for the period, which was adjusted for depreciation and amortization, the write
off of in-process research and development and the increase in accounts
receivable and unbilled receivables.
Net cash used in investing activities was $6.4 million and $103.0 million
in the nine months ended September 30, 1999 and 1998, respectively. Investing
activities for the nine months ended September 30, 1999 primarily included the
purchase of technology rights of $7.2 million, the additional equity investment
of $3.0 million in VantageMed, $7.8 million paid for acquisitions which
primarily consisted of $5 million paid in the acquisition of Med Data, purchases
of capital equipment, and the capitalization of computer software development
costs. These cash outflows were offset by $21.0 million received from net
maturities of short term investments. Investing activities for the nine months
ended September 30, 1998 related to purchases of short and long term investments
and cash paid for the acquisitions of Cabot Marsh, Velox and entities associated
with InterLink, as well as the purchase of capital equipment and the
capitalization of computer software development costs during 1998.
Net cash used in financing activities was $19.0 million in the nine months
ended September 30, 1999 compared to net cash provided by financing activities
of $131.7 million in the nine months ended September 30, 1998. Financing
activities in the nine months ended September 30, 1999 related to the repayment
of the outstanding balances under the line of credit assumed as part of the
Compucare acquisition and under a note payable assumed as part of the IMN
acquisition, offset by the proceeds from the exercise of common stock options.
Cash provided by financing activities in the nine months ended September 30,
1998 related to the issuance of convertible subordinated debentures and the
issuance of common stock.
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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. In 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 was implemented. As of
September 30, 1999, approximately $1.0 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.
The Company believes that its current cash and investments will be
sufficient to fund operations at least through December 31, 1999.
See "FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS" for discussion on
year 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to market risk for changes in interest rates
primarily relates to its investment portfolio and Subordinated Convertible
Debentures. The Company invests in high-quality issuers which includes money
market funds, corporate debt securities and securities issued by the United
States Government. It is the Company's intent to ensure the safety and
preservation of its invested principal funds by limiting default risk, market
risk and reinvestment risk. The Company continually reviews both its investment
policy and its investments to ensure this objective is being met.
FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
History of Operating Losses; Uncertain Profitability
We incurred net losses of $37.4 million and $20.7 million for the years
ended December 31, 1997 and 1998, respectively, and a net loss of $14.6 million
for the nine months ended September 30, 1999. As of September 30, 1999, our
accumulated deficit was $207.8 million. These results include write-offs for
acquired in-process research and development in the years ended December 31,
1997, 1998 and 1999 of $21.9 million, $14.5 million and $1.7 million,
respectively. In connection with our acquisitions, we have 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. It
is uncertain whether we will be able to achieve or sustain revenue growth or
profitability on a quarterly or annual basis.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
Our quarterly operating results have varied significantly in the past. Our
quarterly revenues and operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. These factors include:
- integration of acquired businesses with our business;
- variability in demand for our products and services;
- the introduction of product enhancements and new products by us and our
competitors;
- the timing and significance of announcements concerning our present or
prospective strategic alliances;
- the termination of, or a reduction in, the products and services we
offer,
- the loss of customers due to consolidation in the health care industry;
- delays in product delivery requested by our customers;
- the length of the sales cycle for our products or the timing of our
sales;
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- the amount of new potential contracts at the beginning of any particular
quarter;
- budgeting cycles of our customers and changes in our customer's budgets;
- our investment in marketing, sales, research and development, and
administrative personnel necessary to support our anticipated operations;
- costs incurred in connection with our marketing and sale promotional
activities;
- software defects and other quality factors in our products; and
- general economic conditions and resulting effects on the health care
industry.
We cannot accurately forecast the timing of our customer purchases due to
the complex procurement decision process associated with most health care
providers and payers. As a result, we typically experience sales cycles that
extend over several quarters. In addition, certain products we acquired as a
result of our acquisition of Integrated Medical Networks in September 1998 and
The Compucare Company in March 1999 have higher average selling prices and
longer sales cycles than many of our other products. This may increase the
volatility of our quarterly operating results. Moreover, our operating expense
levels, which will increase with the addition of acquired businesses, are
relatively fixed. Accordingly, if future revenues are below our expectations, we
would experience a disproportionate adverse affect on our net income and
financial results. Further, it is likely that, in some future quarter, our
revenues or operating results may fall below the expectations of securities
analysts and investors. In such an event, the trading price of our Common Stock
would likely be materially and adversely affected.
Integration Of Acquired Companies Into The Company
Realizing benefits from acquisitions depends in significant part upon
several factors and is accompanied by a number of risks, including:
- successful integration of the operations, products and personnel of the
acquired company;
- possible costs, delays or other problems we may incur to successfully
complete such integration;
- the potential interruption or disruption of our ongoing business and the
distraction of management from other matters; and
- significant operational and administrative expense relating to such
integration.
Any difficulties encountered in the integration process could have a
material adverse effect on our business, operating results and financial
condition. Even if we are able to successfully integrate these businesses with
our business, the acquired operations may not achieve sales, productivity and
profitability commensurate with our historical or projected operating results.
Failure to achieve such projected results would have a material adverse effect
on our financial performance, and in turn, on the market value of the our Common
Stock. There can be no assurance that we will realize any of the anticipated
benefits of our acquisitions or that such acquisitions will enhance our business
or financial performance.
Dependence On Acquisition Strategy
We intend to continue to expand in part through acquisitions of products,
technologies and businesses. Our ability to expand successfully through
acquisition depends on many factors, including:
- the successful identification and acquisition of products, technologies
or businesses;
- management's ability to effectively negotiate and consummate acquisitions
and integrate and operate the new products, technologies or businesses;
- significant competition for acquisition opportunities in our industry,
which may intensify due to increasing consolidation in the health care
industry, thereby increasing the costs of capitalizing on acquisition
opportunities;
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- competition for acquisition opportunities with other companies that have
significantly greater financial and management resources than us;
RISKS ASSOCIATED WITH ACQUISITIONS; NEED TO MANAGE CHANGING OPERATIONS
Acquisitions involve a number of special risks including:
- 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; and
- the assumption of unknown liabilities and potential disputes with the
sellers of one or more acquired entities; and
- exposure to the risks of entering markets in which we have no direct
prior experience or to risks associated with the market acceptance of
acquired products and technologies.
Management evaluated, purchased and is implementing a new management and
accounting system during 1999. Information systems expansion or replacement can
be a complex, costly and time-consuming process, and there can be no assurance
that our system transition and further implementation can be accomplished
without disruption of our business. Any business disruption or other system
transition difficulties could have a material adverse effect on our business,
financial condition and results of operations.
We may not be successful in addressing these risks and our failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.
Additionally, customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on its sales and marketing
initiatives and on our reputation. With the addition of the acquired businesses,
our anticipated future operations may place a strain on our management systems
and resources. We expect that we will be required to continue to improve our
financial and management controls, reporting systems and procedures, and will
need to expand, train and manage our workforce. There can be no assurance that
we will be able to effectively manage these tasks, and the failure to do so
could have a material adverse effect on our business, financial condition and
results of operations.
Moreover, future acquisitions by us 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. Our inability to successfully deal with these factors could have a
material adverse effect on our business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
We are substantially dependent upon the continued service of our executive
officers, product managers and other key sales, marketing and development
personnel. If we fail to retain the services of any of our executive officers or
fail to hire, retain and motivate other key employees, our business will be
adversely affected. Furthermore, additions of new, and departures of existing,
personnel could have a disruptive effect on our business and operations.
RISKS RELATED TO HOSPITAL AND MANAGED CARE MARKETS; UNCERTAINTY IN THE
HEALTHCARE INDUSTRY
A substantial portion of our 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 our
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products and services, which could adversely affect our business. In addition,
the decision to purchase our products often involves the approval of several
members of management of a hospital or health care provider. Consequently, it is
difficult for us to predict the timing or outcome of the buying decisions of our
customers or potential customers.
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. We believe that the
commercial value and appeal of our 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 our 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 our
business, financial condition and operating results. 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 of our clients in ways that cannot be
predicted. Health care organizations may react to these proposals by curtailing
or deferring investments, including those for our 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 our products by hospital associations or other customers. Any of these
occurrences could have a material adverse effect on our business. 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
our products. If we fail to maintain adequate price levels, our business,
financial condition and results of operations would be adversely affected. Other
market-driven reforms could also have adverse effects on our business, financial
condition and results of operations.
HIGHLY COMPETITIVE MARKET
Competition in the market for our 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 our business, financial condition and results of operations. We
compete with other providers of health care information software and services,
as well as health care consulting firms. Some principal competitors include,
among others:
- CIS Technologies, Inc., a division of National Data Corporation, Inc.,
and Sophisticated Software, Inc. in the market for our EDI products;
- MedE AMERICA in the market for our claims processing service;
- Healthcare Cost Consultants, Inc., a division of CIS Technologies, Inc.,
and Trego Systems, Inc. in the market for our contract management
products;
- McKesson HBOC, Inc., Optika Imaging Systems, Inc. and LanVision Systems,
Inc. in the market for our electronic document management products;
- 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 our decision support
products;
- McKesson HBOC, Inc., Shared Medical Systems, Inc., MediTech Corporation
and Eclipsys Corporation in the market for our enterprise products;
- HMS and ARTRAC, a division of Medaphis in the market for our business
office outsourcing services;
- a subsidiary of Minnesota Mining and Manufacturing, in the market for our
medical records products; and
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- Transcend Services, Inc. and SMART Corporation in the market for our
health information management services.
In addition, current and prospective customers evaluate our 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 us, may enter our markets. In addition, many of
our competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources and market
recognition than us. Many of our competitors also currently have, or may develop
or acquire, substantial installed customer bases in the health care industry. As
a result of these factors, our 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 and may devote
greater resources to the development, promotion and sale of their products than
us. There can be no assurance that we will be able to compete successfully
against current and future competitors or that such competitive pressures will
not materially adversely affect our business, financial condition and operating
results.
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 lower the
market price of our Common Stock. As of September 30, 1999, approximately
1,765,000 shares are available for sale in the public market subject to
compliance with Rule 144. Certain of our existing stockholders holding an
aggregate of 1,639,000 shares of Common Stock as of September 30, 1999 have
rights under certain circumstances to require us to register their shares for
future sale, excluding shares issued in the acquisitions of Compucare, discussed
below.
In March 1999, we closed the acquisition of Compucare. In connection with
the acquisition of Compucare, we issued an aggregate of 2,957,000 shares of
Common Stock. In September 1998, we closed the acquisition of IMN . In
connection with the acquisition of IMN, we issued an aggregate of 1,550,000
shares of Common Stock. In June 1998, we closed the acquisition of Pyramid. In
connection with the acquisition of Pyramid, we issued an aggregate of 2,847,218
shares of Common Stock. All of the shares of Common Stock issued in connection
with the acquisitions of IMN, Pyramid and Compucare have been registered under
the Securities Act and are freely tradeable.
Sales of a substantial number of the aforementioned shares in the public
markets or the prospect of such sales could adversely affect or cause
substantial fluctuations in the market price of the Common Stock and impair our
ability to raise additional capital through the sale of our securities.
NEW PRODUCT DEVELOPMENT AND SYSTEM ENHANCEMENT
Our performance depends in large part upon our ability to provide the
increasing functionality required by our customers through the timely
development and successful introduction of new products and enhancements to our
existing suite of products. We have historically devoted significant resources
to product enhancements and research and development and believe that
significant continuing development efforts will be required to sustain our
operations and integrate the products and technologies of acquired businesses
with our products. There can be no assurance that we 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 us 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
We rely on a combination of trade secrets, copyright and trademark laws,
nondisclosure and other contractual provisions to protect our proprietary
rights. We have not filed any patent applications covering our technology. There
can be no assurance that measures taken by us to protect our intellectual
property will be adequate or that our competitors will not independently develop
products and services that are substantially equivalent or superior to the
products and services we offer.
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<PAGE> 21
There is substantial litigation regarding intellectual property rights in
the software industry. We expect that software products may be increasingly
subject to third-party infringement claims as the number of competitors in our
industry segment grows and the functionality of products overlaps. We believe
that our products do not infringe upon the proprietary rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against us in the future. The Company may incur substantial
litigation expenses in defending any such claim regardless of the merit of the
claim. In the event of an unfavorable ruling on any such claim, we cannot
guarantee that a license or similar agreement will be available to us on
reasonable terms, if at all. Infringement may result in significant monetary
liabilities which would have a material adverse effect on our business,
financial condition and results of operations. We cannot guarantee that we will
be successful in the defense of these or similar claims.
RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA
Products such as our products frequently contain errors or failures,
especially when initially introduced or when new versions are released. Although
we conduct extensive testing on our products, software errors have been
discovered in certain enhancements and products after their introduction. We
cannot guarantee that despite such testing by us, and by our current and
potential customers, products under development, enhancements or shipped
products will be free of errors or performance failures, resulting in, among
other things:
- loss of revenues and customers;
- delay in market acceptance;
- diversion of resources;
- damage to our reputation; or
- increased service and warranty costs.
The occurrence of any of these consequences could have a material adverse
effect upon our business, financial condition and results of operations.
YEAR 2000
As is true for most companies, the Year 2000 computer issue creates a risk
for us. If systems do not correctly recognize date information when the year
changes to 2000, there could be an adverse impact on our operations. We face
risks in four areas: systems used by us to run our business, systems used by our
suppliers, potential warranty or other claims from our customers, and the
potential reduction in spending by other companies on our products and solutions
as a result of significant information systems spending on Year 2000
remediation.
We have conducted a thorough inventory and evaluation of our systems,
equipment and facilities. We have a number of projects underway to replace or
upgrade systems, equipment and facilities that we know to be Year 2000
non-compliant. We have not identified alternative remediation plans if upgrade
or replacement is not feasible. We will consider the need for such remediation
plans as we continue 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 our operating results. If implementation of
replacement systems is delayed, or if significant new non-compliance issues are
identified, our results of operations or financial condition could be materially
adversely affected.
We are also in the process of contacting our critical suppliers to
determine that such suppliers' operations and the products and services they
provide are Year 2000 compliant. To date, we are unaware of any current
suppliers that are not Year 2000 ready. In the event that our suppliers are not
Year 2000 compliant, we will seek alternative sources of supplies. However, such
failures remain a possibility and could have an adverse impact on our results of
operations or financial condition.
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<PAGE> 22
We believe our current products are Year 2000 compliant. However, since all
customer situations cannot be anticipated, particularly those involving third
party products, we 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 our 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 our products and
solutions. Such changes in our customers' spending patterns could have a
material adverse impact on our sales, operating results or financial condition.
RISK OF INTERRUPTION OF DATA PROCESSING
We currently process substantially all our customer data at our facilities
in Richmond, California and Neptune, New Jersey. Although we back up our data
nightly and have safeguards for emergencies such as power interruption or
breakdown in temperature controls, we have no mirror processing site to which
processing could be transferred in the case of a catastrophic event at either of
these facilities. In the event that a major catastrophic event occurs at either
the Richmond or the Neptune facility, possibly leading to an interruption of
data processing, our business, financial condition and results of operations
could be adversely affected.
RISKS RELATED TO OUTSOURCING BUSINESS
We provide compliance, consulting and business office outsourcing and cash
flow management services, including the billing and collection of receivables.
We acquired the infrastructure for our outsourcing business through an
acquisition. In addition, we often use our software products to provide
outsourcing services. As a result, we have not been required to make significant
capital expenditures in order to service existing outsourcing contracts.
However, if we experience a period of substantial expansion in our outsourcing
business, we may be required to make substantial investments in capital assets
and personnel. We cannot guarantee that we will be able to assess accurately the
investment required and negotiate and perform in a profitable manner any of the
outsourcing contracts we may be awarded. Our failure to either estimate
accurately the resources and related expenses required for a project, or to
complete our contractual obligations in a manner consistent with the project
plan upon which a contract was based, could have a material adverse effect on
our business, financial condition and results of operations. In addition, our
failure to meet a client's expectations in the performance of our services could
damage our reputation and adversely affect our ability to attract new business.
Finally, we could incur substantial costs and expend significant resources
correcting errors in our 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 intended to affect the structure or function of the body. The FDA could
determine in the future that any predictive aspects of our products make them
clinical decision tools subject to FDA regulation. Compliance with these
regulations could be burdensome, time consuming and expensive. We could also
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 us in other
respects not presently foreseeable. We cannot predict the effect of possible
future legislation and regulation.
State governments substantially regulate the confidentiality of patient
records and the circumstances under which such records may be released for
inclusion in our databases. These state laws and regulations
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<PAGE> 23
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 us to incur substantial expenditures. We are not sure
that changes to state or federal laws will not materially restrict the ability
of health care providers to submit information from patient records using our
products.
RISK OF PRODUCT-RELATED CLAIMS
Some of our products and services are used in the payment, collection,
coding and billing of health care claims and the administration of managed care
contracts. If our employees or our products fail to accurately assess, process
or collect these claims, our customers may file claims against us. We have been
and currently are involved in claims for money damages related to services
provided by our accounts receivable management business. We maintain insurance
to protect against certain claims associated with the use of our products, but
there can be no assurance that our insurance coverage would adequately cover any
claim brought against us. A successful claim brought against us that is in
excess of, or is not covered by, our insurance coverage could adversely affect
our business, financial condition and results of operations. Even a claim
without merit could result in significant legal defense costs and would consume
management time and resources. We do not know whether we will be subject to
material claims in the future which may result in liability in excess of our
insurance coverage, or which our insurance may not cover. We may not be able to
obtain appropriate insurance in the future at commercially reasonable rates. In
addition, if we are found liable, we would have to significantly alter our
products resulting in additional unanticipated research and development
expenses.
RISKS ASSOCIATED WITH CERTAIN INVESTMENTS
We have made equity investments to acquire minority interests in certain
early stage companies. We do not have the ability to control the operations of
any of these companies. Investing in such early stage companies is subject to
certain significant risks. There can be no assurance that any of these companies
will be successful or achieve profitability or that we will ever realize a
return on our investments. In addition, to the extent any of such companies fail
or become bankrupt or insolvent, we may lose some or all of our investment. We
intend to continue to make additional investments in such companies in the
future. Losses resulting from such investment could have a material adverse
effect on our operating results.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISION
Our Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock may be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change of
control of the Company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock. We
have no present plans to issue shares of Preferred Stock.
Further, certain provisions of our Certificate of Incorporation and Bylaws
could discourage potential takeover attempts and make attempts by stockholders
to change management more difficult. For example, our Board of Directors is
classified into three classes of directors serving staggered, three-year terms
and has the authority without action by our stockholders to impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. In addition, our 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, our Certificate of
Incorporation provides that any "Business Combination" (as therein defined)
requires the affirmative vote of two-thirds of the shares
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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 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 our Common Stock.
Finally, certain provisions of Delaware law 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.
VOLATILITY OF STOCK PRICE
The stock market in general, and the Nasdaq National Market, has
historically experienced extreme price and volume fluctuations that have often
been unrelated to the operating performance of companies and which has affected
the market price of securities of many companies. The trading price of our
Common Stock is likely to be highly volatile and could also be subject to
significant fluctuations in price in response to such factors as:
- variations in quarterly results of operations;
- announcements of new products or acquisitions by us or our competitors;
- governmental regulatory action;
- developments or disputes with respect to proprietary rights;
- general trends in our industry and overall market conditions; and
- other event or factors, many of which are beyond our control.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Between July 1, 1999 and September 30, 1999, 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 410,770 shares of Common
Stock in connection with the acquisition of Linksoft Technologies, 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
QuadraMed's Annual Meeting of Stockholders was held on August 23, 1999. The
sole matter under consideration was the election of James D. Durham as a
director. The matter was approved. QuadraMed's directors currently consist of
James D. Durham, Albert L. Greene, Kenneth E. Jones, Michael J. King, Joan P.
Neuscheler and E.A. Roskovensky.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
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2.1 Form of Agreement and Plan of Merger by and between
QuadraMed Corporation, a Delaware corporation and QuadraMed
Corporation, a California corporation.(1)
2.2 Assets Purchase Agreement dated December 31, 1995, by and
among QuadraMed Acquisition Corporation, Kaden Arnone, Inc.
and its stockholders.(1)
2.3 Exchange Agreement dated June 25, 1996, by and among
QuadraMed Holdings, Inc., QuadraMed Corporation, and certain
stockholders listed on Schedule A thereto.(1)
2.4 Acquisition Agreement and Plan of Merger dated December 2,
1996, between the Company and InterMed Acquisition
Corporation, a wholly owned subsidiary of the Company and
InterMed Healthcare Systems Inc. and its Stockholders.(2)
2.5 Acquisition Agreement and Plan of Merger, dated as of March
1, 1997, by and among QuadraMed Corporation, Healthcare
Recovery Acquisition Corporation, Healthcare Recovery
Incorporated and its Shareholders (the "HRI Acquisition
Agreement and Plan of Merger").(3)
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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 IMN Acquisition Corp., and IMN
Corp. dated September 30, 1998.(14)
2.17 Acquisition Agreement and Plan of Merger dated December 23,
1998 by and among the Company and Premiere Healthcare
Acquisition Corporation, and Premiere Healthcare Corporation
and its subsidiaries(19)
2.18 Acquisition Agreement and Plan of Merger by and among
QuadraMed Corporation and Compucare Acquisition Corporation,
and The Compucare Company and certain of its stockholders
dated February 3, 1999.(15)
2.19 First Amendment to Acquisition Agreement and Plan of Merger
by and among QuadraMed Corporation and Compucare Acquisition
Corporation and The Compucare Company and certain of its
stockholders, dated March 3, 1999.(18)
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 of
the Company.(16)
4.1 Reference is made to Exhibits 3.2 and 3.5.(1)(16)
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.
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4.7 Amended and Restated Agreement Regarding Adjustment Shares
dated June 25, 1996, by and among the Company, QuadNet
Corporation and the individuals listed on Schedule A
thereto.(1)
4.8 Amended and Restated Shareholder Rights Agreement dated June
25, 1996, by and between the Company and the investors
listed on Schedule A thereto.(1)
4.9 Stock Purchase Warrant dated September 27, 1995 issued to
James D. Durham and amendment no. 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)
4.21 Registration Rights Agreement dated December 23, 1998 by and
between the Company and the shareholders listed therein.(19)
4.22 Registration Rights Agreement, dated as of March 3, 1999, by
and among QuadraMed Corporation and the stockholders of The
Compucare Company named therein.(18)
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 1999 Supplemental Stock Option Plan for The Company
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.
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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.
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 Reserved.
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.(5)
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)
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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.(16)
10.50 Mergers and Acquisitions Advisory Fee Agreement dated June
5, 1998 between the Company and Mehta & Company, Inc.(12)
10.51 Employment Agreement dated January 1, 1999 between James D.
Durham and the Company.(20)
10.52 Employment Agreement dated April 1, 1999 between Michael
Sanderson and the Company.(21)
10.53 Employment Agreement dated April 1, 1999 between Michael
Wilstead and the Company.(21)
10.54 Employment Agreement dated April 1, 1999 between Nancy
Nelson and the Company.(21)
10.55 Employment Agreement dated April 1, 1999 between Andrew Hurd
and the Company.(21)
10.56 Employment Agreement dated April 1, 1999 between Patrick
Ahearn and the Company.(21)
10.57 Employment Agreement dated April 1, 1999 between Keith
Roberts and the Company.(21)
10.58 Employment Agreement dated April 27, 1999 between E. Payson
Smith and the Company.(21)
10.59 Employment Agreement dated May 18, 1999 between John V.
Cracchiolo and the Company.(21)
10.60 Employment Agreement dated May 25, 1999 between Brian
Moriarity and the Company.(21)
21 List of subsidiaries of the Company.(17)
27.1 Financial Data Schedule
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(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.
(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.
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<PAGE> 30
(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 from the Company's Current Report on Form 8-K, as
filed with the Commission on June 11, 1998.
(12) Incorporated by reference from the Company's Current Report on Form 8-K/A
filed with the Commission on June 17, 1998
(13) Incorporated by reference from 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 from the Company's Current Report on Form 8-K, as
filed with the Commission on October 15, 1998.
(15) Incorporated by reference from Exhibit 2.1 to the Company's Current Report
on Form 8-K, as filed with the Commission on February 18, 1999.
(16) Incorporated 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,
1998, as filed with the Commission on August 14, 1998, as amended August
24, 1988.
(17) Incorporated herein by reference from the Company's Annual Report on Form
10-K, as filed with the Commission on March 31, 1998, as amended April 20,
1998.
(18) Incorporated herein by reference from the Company's Current Report on Form
8-K/A filed with the Commission on March 22, 1999.
(19) Incorporated herein by reference from the Company's Registration Statement
on Form S-3, No. 333-80617, as filed with the Commission on June 14, 1999,
as amended by Amendment No. 1 thereto, as filed with the Commission on
August 4, 1999.
(20) Incorporated herein by reference from the exhibit with the same number to
the Company's Quarterly Report on the Form 10-Q for the quarter ended March
31, 1999 as filed with the Commission on May 17, 1999.
(21) Incorporated herein by reference from the exhibit with the same number to
the Company's Quarterly Report on the Form 10-Q for the quarter ended June
30, 1999 as filed with the Commission on August 16, 1999
b. Reports on Form 8-K.
The Company filed a report on Form 8-K on August 18, 1999 in which it
reported the acquisition of the Compucare Company.
30
<PAGE> 31
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 15, 1999
By: /s/ E. PAYSON SMITH, JR.
------------------------------------
E. Payson Smith, Jr.
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
By: /s/ BERNIE J. MURPHY
------------------------------------
Bernie J. Murphy
Vice President, Finance and Chief
Accounting Officer
(Principal Accounting Officer)
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED SEPTEMBER 30, 1999 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,972
<SECURITIES> 43,553
<RECEIVABLES> 74,771
<ALLOWANCES> (8,014)
<INVENTORY> 11
<CURRENT-ASSETS> 100,394
<PP&E> 36,520
<DEPRECIATION> (24,563)
<TOTAL-ASSETS> 219,156
<CURRENT-LIABILITIES> 38,066
<BONDS> 115,000
0
0
<COMMON> 175
<OTHER-SE> 58,528
<TOTAL-LIABILITY-AND-EQUITY> 219,156
<SALES> 62,057
<TOTAL-REVENUES> 62,057
<CGS> (33,111)
<TOTAL-COSTS> (56,493)
<OTHER-EXPENSES> (794)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (927)
<INCOME-PRETAX> 4,770
<INCOME-TAX> (243)
<INCOME-CONTINUING> 4,527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,527
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
