VANTAGEMED CORP, 10-Q, 2000-08-14

VANTAGEMED CORP
10-Q, 2000-08-14
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<PAGE>

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 PERIOD ENDED JUNE 30, 2000

|_| TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-29367

-----------

VANTAGEMED CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE 68-0383530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3017 KILGORE ROAD, SUITE 195, RANCHO CORDOVA, CALIFORNIA 95670
(916) 638-4744

(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

-----------

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 the file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |_| No |X|

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the most recent practicable date.

CLASS OUTSTANDING AT
----- AUGUST 14, 2000
---------------
Common stock.................................. 8,602,560

<PAGE>

VANTAGEMED CORPORATION
FORM 10-Q

SECOND QUARTER

-----------

INDEX AND CROSS REFERENCE

ITEM NUMBER PAGE

PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:

Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000.................................. 3
Consolidated Statements of Operations for the three months and six months ended
June 30, 1999 and June 30, 2000....................................................................... 4
Consolidated Statements of Cash Flows for the three months and six months ended
June 30, 1999 and June 30, 2000........................................................................ 5
Notes to Consolidated Financial Statements............................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 11
Forward-Looking Statements and Risk Factors................................................................ 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................. 26

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.......................................................................................... 26
Item 2. Changes in Securities and Use of Proceeds.................................................................. 26
Item 4. Submission of Matters to a Vote of Security Holders........................................................ 28
Item 6. Exhibits and Reports on Form 8-K........................................................................... 28

Signatures................................................................................................. 29

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VANTAGEMED CORPORATION
CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

DECEMBER 31, JUNE 30,

1999 2000
---- ----
ASSETS (UNAUDITED)

<S> <C> <C>
CURRENT ASSETS:

Cash and cash equivalents.................................................................. $ 250 $17,682
Short-term investments..................................................................... - 3,893
Accounts receivable, net of allowance of $287 and $346, respectively....................... 2,463 2,151
Notes receivable, current portion.......................................................... 64 77
Inventories................................................................................ 480 387
Prepaid expenses and other................................................................. 2,064 327
-------- -------
Total current assets................................................................... 5,321 24,517
NOTES RECEIVABLE, net of current portion....................................................... 128 135
PROPERTY AND EQUIPMENT, net.................................................................... 2,564 1,648
INTANGIBLES, net of accumulated amortization of $4,592 and $8,638, respectively................ 28,451 24,551
-------- ------
Total assets........................................................................... $ 36,464 $50,851
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt......................................................... $ 5,574 $ 591
Accounts payable.......................................................................... 2,352 800
Accrued liabilities....................................................................... 2,501 2,113
Customer deposits and deferred revenue.................................................... 2,906 3,040
-------- --------
Total current liabilities................................................................. 13,333 6,544
LONG-TERM DEBT, net of current portion........................................................ 2,639 1,191
-------- --------
Total liabilities..................................................................... 15,972 7,735
-------- --------

CONTINGENCIES (Note 6)

STOCKHOLDERS' EQUITY:

Preferred stock, $0.001 par value, 5,000,000 shares authorized............................
Series A-1-1,795,300 and 0 shares issued and outstanding, respectively................ 2 -
Series B-120,000 and 0 shares issued and outstanding, respectively.................... - -
Common stock, $0.001 par value, 20,000,000 shares authorized; 4,355,325 and
8,602,560 shares issued and outstanding, respectively.............................. 4 9
Additional paid-in capital................................................................ 35,357 72,653
Unrealized gain on available-for-sale securities.......................................... - 2
Deferred compensation..................................................................... (78) (56)
Accumulated deficit....................................................................... (14,793) (29,492)
-------- --------
Total stockholders' equity............................................................ 20,492 43,116
-------- --------
Total liabilities and stockholders' equity............................................ $ 36,464 $ 50,851
======== ========

</TABLE>

The accompanying notes to consolidated
financial statements are an integral
part of these financial statements.

3
<PAGE>

VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,

---------------------------------------------------------
(AS RESTATED- (AS RESTATED-
SEE NOTE 7) SEE NOTE 7)

1999 2000 1999 2000
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)

REVENUES:

Software and systems $ 1,774 $ 1,590 $ 3,162 $ 3,864
Customer support and electronic services 2,287 3,847 4,062 7,655
---------- ----------- ---------- ---------

Total revenues....................................... 4,061 5,437 7,224 11,519
---------- ----------- ---------- ---------
OPERATING COSTS AND EXPENSES:

Software and systems................................... 934 630 1,648 1,454
Customer support and electronic services............... 1,627 2,591 2,781 5,012
Selling, general and administrative.................... 1,862 4,125 3,371 8,376
Product development.................................... 973 1,396 1,560 2,926
Depreciation and amortization.......................... 842 1,540 1,378 3,099
Restructuring, impairment and other charges............ 0 2,516 0 2,516
---------- ----------- ---------- ---------
Total operating costs and expenses..................... 6,238 12,797 10,738 23,383
---------- ----------- ---------- ---------
LOSS FROM OPERATIONS......................................... (2,177) (7,361) (3,514) (11,864)
---------- ----------- ---------- ---------
INTEREST INCOME (EXPENSE):

Interest income........................................ 3 361 12 623

Interest expense....................................... (174) (76) (307) (3,458)
---------- ----------- ---------- ---------
Total interest income (expense), net................. (171) 285 (295) (2,835)
---------- ----------- ---------- ---------
LOSS BEFORE INCOME TAXES..................................... (2,348) (7,076) (3,809) (14,699)

INCOME TAXES................................................. 0 0 0 0
---------- ----------- ---------- ---------

Net loss............................................. $ (2,348) $ (7,076) $ (3,809) $ (14,699)
========== =========== ========== =========
Basic and diluted net loss per share......................... $ (0.89) $ (0.82) $ (1.51) $ (1.95)
---------- ----------- ---------- ---------

Weighted-average shares-basic and diluted.................... 2,631,860 8,600,866 2,520,789 7,547,150
---------- ----------- ---------- ---------

</TABLE>

The accompanying notes to consolidated
financial statements are an integral
part of these financial statements.

4
<PAGE>

VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,

-----------------------
(AS RESTATED-
SEE NOTE 7)

1999 2000
---- ----
(UNAUDITED)

<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss................................................................ $ (3,809) $(14,699)
Adjustments to reconcile net loss to net cash used for operating
activities
Depreciation and amortization......................................... 1,378 3,099
Impairment of intangibles............................................. ---- 1,513
Bad debt expense...................................................... (80) 135
Beneficial interest conversion........................................ ---- 3,000
Amortization of deferred compensation................................. ---- 22
Loss on disposal of property and equipment through restructuring...... ---- 750
Changes in assets and liabilities, net of effects from acquisitions
Account receivable................................................ (203) 177
Inventories....................................................... 2 93
Prepaid expenses and other ....................................... (78) 1,738
Book overdraft.................................................... (1,632) ----
Accounts payable and accrued liabilities.......................... 1,022 (1,878)
Customer deposits and deferred revenue............................ (72) 134
------- ------
Net cash used for operating activities........................ (3,472) (5,916)
======= ======

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment, net of effects from acquisitions. (285) (339)
Purchase of Intangible................................................ ---- (147)
Cash (paid) received from business acquired, net...................... 115 ----
Purchases of investments.............................................. ---- (3,891)
Issuance of notes receivable.......................................... ---- (20)
------- ------
Net cash (used in) investing activities....................... (170) (4,397)
======= ======

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of common stock ............................................. 412 31,038
Issuance of preferred stock........................................... 3,000 ----
Proceeds from issuance of long-term debt.............................. 274 1,200
Payments on long-term debt............................................ (287) (4,493)
------- ------
Net cash provided by financing activities..................... 3,399 27,745
------- ------
Net change in cash and cash equivalents....................... (243) 17,432

CASH AND CASH EQUIVALENTS, beginning of period.......................... 435 250
------- ------
CASH AND CASH EQUIVALENTS, end of period................................ $ 192 $ 17,682
======= ======

</TABLE>

The accompanying notes to consolidated
financial statements are an integral
part of these financial statements.

5
<PAGE>

VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION:

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and pursuant to the instructions to
Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and six month periods ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000, or for any future period. These financial
statements and notes should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K, for the year ended December 31, 1999, which was filed with
the Securities and Exchange Commission on March 30, 2000.

ORGANIZATION

VantageMed Corporation (the Company) was incorporated in California
on June 11, 1995. On April 9, 1997, the Company was reincorporated in
Delaware. The Company is a healthcare information systems supplier
headquartered in Sacramento, California with regional offices in Los Angeles
and San Francisco, California; Honolulu, Hawaii; Seattle, Washington; Kansas
City, Missouri; Pompton Plains, New Jersey; Milford, Michigan; Pittsburgh,
Pennsylvania; Boston, Massachusetts; Boulder, Colorado; Salt Lake City, Utah;
Houston, Texas; Birmingham, Alabama; Greensboro, North Carolina; and Little
Rock, Arkansas. The Company develops, sells, installs and supports software
products and services that assist physicians, dentists, physician
organizations and other healthcare providers in the operation of their
practices and organizations. The Company is building a national distribution
network by acquiring established regional healthcare practice management
systems companies to sell and support its new generation software and
services.

The practice management software products offered by the Company
provide physicians, dentists and other healthcare professionals with office
management software designed to automate the administrative, financial, practice
management and clinical requirements of a practice. These systems range in
capacity from one to approximately one hundred users. The Company also provides
software, network and hardware support, training, electronic claims processing,
electronic statement printing and mailing and electronic remittance advices.

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:

SHORT-TERM INVESTMENTS

The Company considers its short-term securities, consisting primarily
of short-term A1/P1 or better-rated money market securities or government-backed
notes, to be available-for-sale-securities and, accordingly, these securities
are stated at fair value and are included in cash and cash equivalents if the
original maturity is three months or less. The difference between amortized cost
(cost adjusted for amortization of premiums and accretion of discounts which are
recognized as adjustments to interest income) and fair value, representing
unrealized holdings gains or losses, are recorded as a separate component of
stockholders' equity until realized. Any gains and losses on the sale of debt
securities are determined on a specific identification basis. Realized gains and
losses are included in interest income (expense) in the accompanying
consolidated statement of operations.

6
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VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED):

INTANGIBLES

Intangibles include goodwill, acquired software, customer lists,
covenants not to compete and assembled workforces. Goodwill represents the
amount of purchase price in excess of the fair value of the identifiable assets
purchased in acquisitions completed by the Company and is amortized on a
straight-line basis over a period of two to ten years, depending upon whether
the acquisition is established as a new regional office or is consolidated into
an existing one and whether or not there are continuing sales of the software
purchased in the acquisition. Acquired software consists of software purchased
in acquisitions completed by the Company and is amortized on a straight-line
basis over a period of two to four years depending on the estimated continued
use of the software product acquired. Covenants not to compete are amortized on
a straight-line basis over two to five years, representing the life of such
agreements. Customer lists are amortized on a straight-line basis over two to
ten years, representing the estimated future life of customer relationships.
Assembled workforce is amortized on a straight-line basis over a period of one
to ten years depending upon the average length of employment for the employees
of the acquired companies.

REVENUE RECOGNITION

Software and systems revenue is derived from the licensing of
proprietary software, the sale of third-party software, primarily desktop
operating systems and communication and security software and the sale of
computer hardware and supplies. Customer support and electronic services revenue
is derived from software maintenance and customer service, network and computer
hardware support, training, data conversion, system installation, electronic
claims processing and electronic statement printing and mailing.

The Company enters into license agreements with customers, which allow
for the use of the Company's products, usually restricted by the number of
employees, the number of users, or the license term. Fees from licenses are
recognized as revenue in accordance with Statement of Position 97-2 (SOP 97-2),
"Software Revenue Recognition", when all shipment obligations have been met,
fees are fixed and determinable, collection of the sale proceeds is deemed
probable and persuasive evidence of an agreement exists. Other customer support
and electronic services are also provided to the Company's licensees of software
products. These services consists primarily of software maintenance and customer
service, network and computer hardware support and installation of software at
customer sites. The revenue from the installations is recognized upon completion
of installation. The revenue from software maintenance, customer service and
support is recognized ratably over the term of the support period. For
arrangements that include multiple elements, the fee is allocated to the various
elements based on vendor-specific objective evidence of fair market value
established by independent sale of the elements sold separately. Revenues from
other services, which include training, data conversion, electronic claims
processing and electronic statement printing and mailing.

Deferred revenue consists of revenue deferred under annual maintenance
and support agreements under which amounts have been received from customers and
for which the earnings process has not been completed. Customer deposits consist
of cash collections for undelivered product and related services as of the
reporting period. The Company will recognize these deferred revenues in
accordance with its revenue recognition policy, typically over a period of one
year or less.

NET LOSS PER COMMON SHARE

The Company calculated net loss per share under the provisions of the
SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of
basic and diluted earnings per share on the face of the income statement.

Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock options,
warrants and the conversion of Series A-1 and Series B convertible

7
<PAGE>

VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED):

NET LOSS PER COMMON SHARE (CONTINUED):

preferred stock are excluded from the computation of net loss per share because
their effect is antidilutive, thereby decreasing net loss per common share.
Conversely, common equivalent shares from stock options, warrants and conversion
of preferred stock are included in the computation of net income per share to
the extent that the impact is dilutive. There were 1,795,300 and no shares of
Series A-1 convertible preferred stock outstanding at June 30, 1999 and 2000,
respectively. There were 100,000 and no shares of Series B convertible preferred
stock outstanding at June 30, 1999 and 2000, respectively. Both Series A-1 and
Series B preferred stock was converted into common stock on February 14, 2000.
In addition, there were 1,033,599 and 738,240 outstanding options and warrants
to purchase common stock as of June 30, 1999 and 2000, respectively.

COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. During the three
months and six months ended June 30, 1999, the Company had no comprehensive
income components; therefore, comprehensive loss was the same as the net loss
for both periods. During the three months and six months ended June 30, 2000,
other comprehensive income consists of unrealized holding losses on
available-for-sale investment securities. There was no material difference
between comprehensive and net loss for both periods presented.

RECENT PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required by fiscal year ending December 31, 2000. The
Company believes that the adoption of SAB 101 will not have a material effect
on the results of operations or financial condition.

3. INITIAL PUBLIC OFFERING:

In February 2000, VantageMed completed an initial public offering
("IPO") of 3 million shares of its common stock. The shares of common stock sold
in the IPO were registered under the Securities Act of 1933, as amended, on a
registration statement on Form S-1 (Registration No. 333-91657) that was
declared effective by the Securities and Exchange Commission on February 14,
2000. The IPO commenced on February 15, 2000. All 3 million shares of common
stock registered were sold at a price of $12 per share. The aggregate offering
price of the shares of common stock registered and sold was $36 million. The
Company paid an aggregate amount of approximately $2,520,000 in underwriting
discounts and commissions. In addition, expenses incurred in connection with the
offering totaling approximately $2,441,000.

During 1999, the Board of Directors approved a one-for-three reverse
stock split. The split was effective on February 14, 2000, prior to the
completion of the IPO and affected all outstanding shares of common stock. All
common share and per share data in these financial statements have been
retroactively adjusted to give effect to the reverse stock split. In addition,
the conversion and exercise provisions of the outstanding shares of preferred
stock, common stock options and warrants have been adjusted accordingly.

8
<PAGE>

VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INITIAL PUBLIC OFFERING: (CONTINUED)

Upon closing of the IPO, all outstanding shares of Series A-1 preferred
stock was converted at the option of the holder into 599,425 shares of common
stock, and all outstanding shares of Series B preferred stock was automatically
converted into 120,000 shares of common stock. Additionally, a secured
convertible promissory note with principal and interest totaling $3,061,500
converted into 510,685 shares upon closing of the IPO.

4. DEFERRED COMPENSATION:

As of December 31, 1999, the Company recorded deferred compensation
related to options granted to employees in the total amount of $111,000,
representing the difference between the deemed fair value of the Company's
common stock and the exercise price of the options at the grant date. The
amortization of the deferred compensation is charged to operations over the
vesting period of the options. Total amortization expense recognized was $0,
$3,900, $0, $19,500 for the three months and six months ended June 30, 1999 and
2000, respectively.

5. SUPPLEMENTAL CASH FLOW INFORMATION:

Cash payments for interest amounted to approximately $268,000 and
$77,000 for the three months ended June 30, 1999 and 2000, respectively. Cash
payments for interest amounted to approximately $449,000 and $504,000 for the
six months ended June 30, 1999 and 2000, respectively. Cash payments for income
taxes amounted to $4,000 and $0 for the three months ended June 30, 1999 and
2000, respectively. Cash payments for income taxes amounted to $4,000 and $0 for
the six months ended June 30, 1999 and 2000, respectively.

During the three months ended June 30, 1999, the Company acquired
Civitec Healthcare Computers, Inc., Acrotrex Corporation, Medical Software
Solutions, Inc. and Metropolitan Information Services, Inc. Aggregate
consideration for these acquisitions completed in the second quarter of 1999 was
245,386 common shares, $152,000 in cash, and $974,000 in notes payable for an
approximate aggregate value of $3,482,000. Additionally, during the first
quarter of 1999, the Company converted a $500,000 line of credit to 197,628
shares of Series A-1 preferred stock and financed $33,000 in the purchase of
property and equipment under capital leases.

During the three months ended June 30, 2000, the Company converted a
promissory note totaling $190,000 into 17,125 shares of common stock and
financed $61,000 in the purchase of property and equipment under capital leases.
Additionally, during the first quarter of 2000, the Company converted a
promissory note with principal and interest totaling $3,061,500 into 510,685
shares of common stock. The beneficial conversion feature of the note is $3
million and was recognized as interest expense on the date of conversion.

6. CONTINGENCIES:

Beginning on March 13, 2000 a series of securities class action
lawsuits have been filed against the Company, its officers and directors
alleging that the Company's S-1 Registration Statement and prospectus contained
false and misleading statements. These actions have now been consolidated
into a single action. The lawsuit alleges that the Company failed to
describe that the Company would be delayed in introducing a new version of one
of its software products, which delay would adversely effect the Company's
future results. The Company believes this action is without merit and it
intends to vigorously defend itself against them. However, depending on the
amount and timing, ultimate resolution of some or all of these matters could
materially affect future results of operations.

9
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7. RESTATEMENT OF JUNE 30, 1999 FINANCIAL STATEMENTS:

As originally calculated, the tax provision for the three months and
six months ended June 30, 1999 included a benefit. Certain deferred tax
liabilities were recorded in connection with purchase business combinations.
These deferred tax liabilities represent the tax effect of certain book and tax
basis differences of acquired companies. Net operating losses arising subsequent
to the related acquisition were benefited against the recorded deferred tax
liabilities.

Because the Company had a valuation allowance on its deferred tax
assets at the date of the business combinations, the deferred tax liabilities
should have been used to reduce the Company's valuation allowance with a
corresponding reduction in goodwill, rather than recognizing benefits of future
net operating losses as previously reported. Accordingly, no benefit is recorded
in the results of operations for the three month and six month periods ended
June 30, 1999, as restated.

8. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:

During the second quarter of 2000, management committed to a plan of
restructuring and reorganization to consolidate facilities, sunset obsolete
software products and eliminate staffing redundancies. This restructuring was
substantially completed in the second quarter of 2000.

In connection with the restructuring, management re-evaluated the
carrying value of some of its intangible assets and purchased software.
Management determined that certain intangible assets from prior acquisitions
were no longer realizable. This determination was based primarily on the
decision by management to sunset older legacy software products that are
technologically obsolete and for which the Company will no longer provide
support. Based on current market conditions and an analysis of projected
undiscounted future cash flows calculated in accordance with the provisions
of SFAS No. 121, "Impairment of Long-Lived Assets," recorded values from
these products were not deemed to be recoverable. The resultant impairment of
long-lived assets necessitated a write down of approximately $1,513,000. The
estimated fair values of these long-lived assets were determined by
calculating the present value of estimated expected future cash flows using a
discount rate commensurate with the risks involved. Additionally, the Company
recorded a $750,000 write off of software purchased for internal use that
will no longer be used.

The Company also recorded costs and accrued liabilities to close and
consolidate facilities, cancel leases and fulfill other obligations under the
terms of certain acquisition agreements. The components of restructuring,
impairment and other charges are as follows:

COSTS RELATED TO:

<S> <C>
Impairment of intangibles $ 1,513
Write-off of purchased software 750
Facility closure and consolidation 82
Compensation costs for severance and
other termination benefits 121
Other restructuring costs 50
-------
Total restructuring impairment and other charges $ 2,516
=======

</TABLE>

The remaining accrual for restructuring as of June 30, 2000 was
$131,000, consisting of $81,000 for facility closure and consolidation and
$50,000 for other restructuring costs.

10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. YOU CAN IDENTIFY
THESE STATEMENTS BY WORDS SUCH AS "EXPECTS," "ANTICIPATES," "INTENDS,"
"PLANS," "BELIEVES," "SEEKS," "ESTIMATES" AND SIMILAR EXPRESSIONS. BECAUSE
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS FOR A NUMBER OF REASONS, INCLUDING THOSE DISCUSSED
UNDER "FORWARD-LOOKING STATEMENTS AND RISK FACTORS" AND ELSEWHERE IN THIS
DOCUMENT.

YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY
BECAUSE THEY DISCUSS OUR EXPECTATIONS ABOUT OUR FUTURE PERFORMANCE, CONTAIN
PROJECTIONS OF OUR FUTURE OPERATING RESULTS OR OUR FUTURE FINANCIAL
CONDITION, OR STATE OTHER "FORWARD-LOOKING" INFORMATION. YOU SHOULD CAREFULLY
REVIEW THE RISKS DECLARED IN THE ANNUAL REPORT ON FORM 10-K, FOR THE YEAR
ENDED DECEMBER 31, 1999, FILED ON MARCH 30, 2000. YOU ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS
OF DATE OF QUARTERLY REPORT ON FORM 10-Q. WE UNDERTAKE NO OBLIGATION TO
PUBLICLY RELEASE ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS OR REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS DOCUMENT.

OVERVIEW

VantageMed is a national provider of healthcare information systems
and services. Our strategy is to continue to expand our national distribution
network through the acquisition of established regional healthcare products
and managed care systems companies who will sell and support our new software
products and services to an existing and expanding customer base. We plan to
continue to grow our recurring revenues through additional acquisitions and
the migration of current customers from legacy systems to our Windows-based,
Internet-enabled software products and Internet and electronic services,
while at the same time continuing to expand both our market penetration and
product offerings.

Of the 26 business combinations we have completed to date,
Healthcare Information Systems, Inc. and Northern Health Solutions, Inc. were
accounted for as pooling of interests, and therefore, our financial
statements include them as a part of our operations for all periods
presented. We acquired four established regional healthcare information
systems companies in 1997, with the first occurring in July 1997, eight
companies in 1998 and fourteen companies in 1999. We have financed our 26
business combinations to date through the issuance of approximately 3.1
million shares of common stock, 120,000 shares of Series B preferred stock,
$1.2 million in stock options, $4.3 million in promissory notes and $1.9
million in cash.

We derive revenues from two sources: software and systems; and
customer support and electronic services. Software and systems revenues
result from the licensing of our proprietary software, as well as third-party
software, computer hardware and supplies. The third-party software is
primarily desktop operating systems and standard communication/security
software. Customer support revenues are derived from software maintenance and
customer service, network and computer hardware support, training, data
conversion and system installation. Electronic services revenues are
generated by electronic insurance claims processing, electronic statement
printing and mailing.

Our revenues include both recurring and non-recurring revenues. We
define recurring revenues as any revenues derived from an existing or
acquired customer after the initial installation of the product and revenues
generated from sales of new products to existing customers. We consider our
non-recurring revenues to be revenues generated on sales to new customers. We
expect the mix of recurring and non-recurring revenues to fluctuate because
of our acquisition activities and our ability to sell our products to new
customers. Over time, we believe that recurring revenues will continue to
represent a large portion of our overall revenues. Recurring revenue is not a
measurement defined by generally accepted accounting principles (GAAP) and
should not be considered an alternative to, or more meaningful than, revenues
as defined by GAAP. All companies do not calculate recurring revenues in the
same manner or at all. Accordingly, our recurring revenue data may not be
comparable with that of other companies. We have included information
concerning recurring revenues because we believe recurring revenues provides
useful information regarding our overall revenue mix.

<PAGE>

Cost of revenues consists primarily of the costs of software and
computer hardware products sold to customers and associated shipping costs,
third-party costs for supplies and electronic services and salary and benefit
costs for employees performing customer support. Selling, general and
administrative expenses include the salaries, commissions and benefits of
sales staff, executive and administrative personnel costs, advertising and
promotional materials costs and travel, communications, facilities, insurance
and other administrative expenses. Product development expenses are primarily
payroll and related costs to develop new products and enhance existing
products.

BUSINESS SEGMENT GROSS PROFIT DATA

(IN THOUSANDS, EXCEPT PERCENTAGE DATA)

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30, JUNE 30,
------- -------

SOFTWARE AND SYSTEMS: 1999 2000 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues....................................................... $1,774 $1,590 $3,162 $3,864
Cost of revenues............................................. 934 630 1,648 1,454
------ ------ ------ ------
Gross profit................................................. $ 840 $ 960 $1,514 $2,410
====== ====== ====== ======
Gross profit percentage...................................... 47.4% 60.4% 47.9% 62.4%

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30, JUNE 30,
------- -------

CUSTOMER SUPPORT AND ELECTRONIC SERVICES: 1999 2000 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues..................................................... $2,287 $3,847 $4,062 $7,655
Cost of revenues............................................. 1,627 2,591 2,781 5,012
------ ------ ------ ------
Gross profit................................................. $ 660 $1,256 $1,281 $2,643
====== ====== ====== ======
Gross profit percentage...................................... 28.9% 32.6% 31.5% 34.5%

</TABLE>

Our acquisitions have resulted in significant intangibles and
related amortization. Amortization expenses result from the amortization of
intangible assets. Intangible assets acquired include acquired software,
covenants not to compete, customer lists, assembled workforce and goodwill
and has averaged 94.3% of the consideration paid by VantageMed for each
acquisition. Acquired software is amortized over two to four years depending
on the estimated continued use of the software product acquired. Covenants
not to compete are amortized over two to five years, representing the life of
such agreements. Customer lists are amortized over two to ten years,
representing the estimated future life of customer relationships. Assembled
workforce is amortized over one to ten years, depending upon the average
length of employment for the employees of those companies we have acquired.
Goodwill is amortized over two to ten years depending upon whether the
acquisition is established as a new regional office or is consolidated into
an existing regional office; and whether or not there is continuing sales of
the software purchased in the acquisition.

Depreciation and amortization expense also includes depreciation of
tangible property and equipment over their useful lives, which range from
three to seven years. Depreciation expenses are not material to our operating
results. Depreciation and amortization expenses have resulted in sizeable
non-cash charges to our historical operating results and are expected to
continue to generate significant operating expenses in future periods due to
our acquisition strategy.

We have invested approximately $9.5 million in product development
since our inception. These funds have been primarily invested in our medical
and dental products and to a lesser extent into our electronic claims
processing systems and a clinical information management system.

As of June 30, 2000, we had a post-acquisition federal and state net
operating loss carry forward benefit of approximately $9.5 million available
to offset future income tax, if any. These benefits will begin to expire
incrementally at various dates through 2021. A portion of the net operating
losses may be subject to limitations under governing tax law.

We expect our revenues to increase through both acquisitions and
internal growth. We believe that migration of current and acquired customers
to our Windows-based, Internet-enabled products and the development and
marketing of these products to new and existing customers are the keys to our
internal growth strategy. Our internal growth model is

<PAGE>

therefore focused on increasing revenues from software licensing and
electronic transaction services, as well as maintaining recurring support
revenues. We recognize revenues from software license fees in accordance with
American Institute of Certified Public Accountants Statement of Position
97-2. Software license fees are recognized as revenues upon delivery of our
software products to our customers, as long as evidence of an arrangement
exists, the amounts of fees are fixed and determinable and the collection of
the resulting receivable is probable. Computer hardware and supplies revenues
are recognized upon product shipment. Revenues from support and maintenance
contracts are recognized ratably over the life of the contract. Revenues from
other services are recognized as the services are provided.

Our strategy is to acquire companies with technology that will
enhance our overall product offerings or companies that build regional market
penetration in support of our national distribution channel. Since July 1997,
we have over 11,000 customer sites through acquisition and internal growth.
Our acquisitions have produced an established distribution channel of
regional offices nationwide, provided us access to an existing customer base,
new product offerings, and helped us to build our management team. As we
continue to grow, we expect our operating expenses as a percentage of sales
to decrease. Our operating expenses to date have grown faster than our
revenues as a result of building our infrastructure and a management team to
execute our strategy. We did not complete any acquisitions for the six months
ended June 30, 2000.

RESULTS OF OPERATIONS

The following table sets forth certain data expressed as a
percentage of total revenues for the periods indicated.

SELECTED CONSOLIDATED FINANCIAL DATA PERCENTAGES

THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
Revenues: 1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Software and systems.................................. 43.7% 29.2% 43.8% 33.5%
Customer support and electronic services.............. 56.3 70.8 56.2 66.5
--------- --------- --------- ---------
Total revenues........................................ 100.0 100.0 100.0 100.0
Operating costs and expenses:
Software and systems.................................. 23.0 11.6 22.8 12.6
Customer support and electronic services.............. 40.1 47.7 38.5 43.5
Selling, general and administrative................... 45.9 75.9 46.7 72.7
Product development................................... 24.0 25.7 21.6 25.4
Depreciation and amortization......................... 20.7 28.3 19.1 26.9
Restructuring and impairment of intangibles.......... -- 46.3 -- 21.8
--------- --------- --------- ---------
Total operating costs and expenses.................... 153.7 235.5 148.7 202.9
--------- --------- --------- ---------
Loss from operations.................................... (53.7) (135.5) (48.7) (102.9)
Interest income (expense), net.......................... (4.2) 5.2 (4.1) (24.6)
--------- --------- --------- ---------
Loss before income taxes................................ (57.9) (130.3) (52.8) (127.5)
--------- --------- --------- ---------
Income taxes............................................ -- -- -- --
--------- --------- --------- ---------
Net loss................................................ (57.9)% (130.3)% (52.8)% (127.5)%
========= ========= ========= =========

</TABLE>

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000

The variance between the three months ended June 30, 1999 and the
corresponding period of 2000 are attributable to three different factors. The
first factor involved the level of acquisition activity in 1999. During the
last six months of 1999, we completed ten business combinations, all of which
were accounted for using the purchase method of accounting. Therefore,
revenues and expenses from these companies were not included in the three
months ended June 30, 1999, but were included in the three months ended June
30, 2000. Additionally, there was an increase in electronic services revenues
in 2000 and a decrease in software and systems sales in 2000.

REVENUES. Total revenues increased 33.9% from $4.1 million in the three
months ended June 30, 1999 to $5.4 million in the corresponding period of 2000.
The revenue increase resulted from acquisitions and the increase in

<PAGE>

electronic services. Recurring revenues increased 31.6% from $3.3 million in
the three months ended June 30, 1999 to $4.4 million in the corresponding
period of 2000, while non-recurring revenues increased 44.5% from $726,000 in
the three months ended June 30, 1999 to $1.0 million in the corresponding
period of 2000.

SOFTWARE AND SYSTEMS. The software and systems component of
total revenues decreased 10.3% from $1.8 million, or 43.7% of total
revenues for the three months ended June 30, 1999 to $1.6 million, or
29.2% of total revenues in the corresponding period of 2000. Software
and systems revenues consist of software licensing revenues and
revenues from the sale of computer hardware and supplies. Software
licensing revenues were 41.6% and 53.8% and computer hardware and
supply revenues were 58.4% and 46.2% of total software and systems
revenues for the three months ended June 30, 1999 and 2000,
respectively. The decrease in software and systems revenues was due to
general market softness for new systems.

Revenues from software licensing increased 15.9% from $738,000
for the three months ended June 30, 1999 to $856,000 for the same
period in 2000. Legacy product sales were 62.8% of software licensing
revenues for the three months ended June 30, 1999 compared to 67.1% in
the corresponding period of 2000. The increase in legacy product
sales is primarily due to acquisitions. New product sales were 37.2% of
software licensing revenues for the three months ended June 30, 1999
compared to 32.9% in the corresponding period of 2000. The gross profit
for software licensing revenues increased 12.9% from $645,000 for the
three months ended June 30, 1999 to $728,000 in the corresponding
period of 2000.

Revenues from computer hardware and supplies decreased 29.1%
from $1,036,000 for the three months ended June 30, 1999 to $734,000 in
the corresponding period of 2000. The gross profit from computer
hardware and supplies revenues increased 19.3% from $194,000 for the
three months ended June 30, 1999 to $232,000 in for the corresponding
period of 2000.

CUSTOMER SUPPORT AND ELECTRONIC SERVICES. The customer support
and electronic services component of total revenues increased 68.2%
from $2.3 million, or 56.3% of total revenues in the three months ended
June 30, 1999, to $3.8 million, or 70.8% of total revenues in the
corresponding period of 2000. Customer support revenues are derived
from software maintenance and customer service, network and computer
hardware support, training, data conversion and system installation.
Electronic services revenues are generated by electronic insurance
claims processing and electronic statement printing and mailing.
Customer support revenues were 90.6% and 77.8% and electronic services
revenues were 9.4% and 22.2% of total customer support and electronic
services revenues for the three months ended June 30, 1999 and 2000,
respectively. A majority of the increase in Customer Support and
Electronic Services was due to acquisitions. The remaining increase was
due to internal growth of Electronic Services.

Revenues from customer support increased 44.4% from $2.1
million for the three months ended June 30, 1999 to $3.0 million in the
corresponding period of 2000. The gross profit for customer support
revenues increased 78.3% from $536,000 for the three months ended June
30, 1999 to $955,000 in the corresponding period of 2000.

Revenues from electronic services increased 296.1% from
$216,000 for the three months ended June 30, 1999 to $856,000 in the
corresponding period of 2000. The gross profit for electronic services
revenues increased 141.4% from $125,000 for the three months ended June
30, 1999 to $301,000 in the corresponding period of 2000.

COST OF REVENUES. Total cost of revenues increased 25.8% from $2.6 million, or
63.1% of total revenues for the three months ended June 30, 1999 to $3.2
million, or 59.2% of total revenues in the corresponding period of 2000.

SOFTWARE AND SYSTEMS. Software and systems costs include both
software licensing costs and computer hardware and supplies. Software
and systems costs decreased 32.6% from $934,000 or 23.0% of total
revenues for the three months ended June 30, 1999 to $630,000, or 11.6%
of total revenues in the corresponding period of 2000. Software
licensing costs were 9.9% and 20.2%, and computer hardware and supplies
costs were 90.1% and 79.8% of total software and systems costs for the
three months ended June 30, 1999 and 2000, respectively.

14
<PAGE>

Costs for software licensing increased 36.9% from $93,000, or
2.3% of total revenues in the three months ended June 30, 1999 to
$127,000, or 2.3% of total revenues in the corresponding period of
2000.

Costs for computer hardware and supplies decreased 40.2% from
$841,000, or 20.7% of total revenues in the three months ended June 30,
1999 to $503,000, or 9.2% of total revenues in the corresponding period
of 2000. The decrease as a percent of total revenues is due to a change
in the mix of product and services sold. Gross margin percentage for
computer hardware and supplies increased from 18.8% for the three
months ended June 30, 1999 to 31.5% in the corresponding period of
2000.

CUSTOMER SUPPORT AND ELECTRONIC SERVICES. Customer support and
electronic services costs increased 59.2% from $1.6 million, or 40.1%
of total revenues in the three months ended June 30, 1999 to $2.6
million, or 47.7% of total revenues in the corresponding period of
2000. Customer support costs were 94.4% and 78.6%, and electronic
services costs were 5.6% and 21.4% of total customer support and
electronic services costs for the three months ended June 30, 1999 and
2000, respectively.

Costs for customer support increased 32.6% from $1.5 million
or 37.8% of total revenues, in the three months ended June 30, 1999 to
$2.0 million, or 37.5% of total revenues in the corresponding period of
2000. The customer support gross margin percentage increased from 25.9%
for the three months ended June 30, 1999 to 31.9% in the corresponding
period of 2000, primarily due to acquisitions.

Costs for electronic services increased 507.4% from $91,000,
or 2.2% of total revenues, in the three months ended June 30, 1999 to
$555,000, or 10.2% of total revenues, in the corresponding period of
2000. The electronic services gross margin percentage decreased from
57.7% for the three months ended June 30, 1999 to 35.2% in the
corresponding period of 2000. The decrease in the gross margin
percentage is due to the difference in cost of services for various
electronic services.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 121.5% from $1.9 million, or 45.9% of total revenues for the
three months ended June 30, 1999, to $4.1 million, or 75.9% of total revenues in
the corresponding period of 2000. Of the $2.2 million increase, selling
expenses, corporate administration, and regional distribution channel expenses
increased approximately $491,000, $601,000, and $1.2 million, respectively. The
$491,000 increase in selling expenses is the direct result of selling costs of
the acquired distribution channel. The $601,000 increase in corporate
administration expenses resulted from increases in headcount and the building of
corporate staff and infrastructure. The $1.2 million increase in regional
distribution channel expenses resulted from regional operating costs directly
related to our acquired distribution channel. Additionally, VantageMed recorded
non-recurring charges associated with our strategic plan to reduce operating
expenses. Included in the $601,000 expense for corporate administration is
$65,000 of incremental costs for relocation for certain employees and included
in the $1.2 million expense for regional distribution channel expense is
$132,000 of incremental costs to consolidate certain regional offices.

PRODUCT DEVELOPMENT. Product development expenses increased from $973,000, or
24.0% of total revenues for the three months ended June 30, 1999, to $1.4
million, or 25.7% of total revenues in the corresponding period of 2000. The
dollar and percentage increases were due primarily to additional staffing and
related costs necessary for development of our new products.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
from $842,000, or 20.7% of total revenues, for the three months ended June 30,
1999, to $1.5 million, or 28.3% of total revenues, in the corresponding period
of 2000. Of these amounts, amortization expenses were $771,000 for the three
months ended June 30, 1999 and $1.3 million in the corresponding period of 2000.
At June 30, 2000, we had intangible assets totaling $33.2 million with
accumulated amortization of $8.6 million, which includes $1.5 million for the
impairment of intangibles. The weighted average life of these intangibles was
8.0 years.

RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES. For the three months ended June 30,
2000, we incurred non-recurring charges of $2.5 million or 46.3% of revenue
associated with a restructuring plan announced during the same quarter. These
charges were primarily associated with older legacy software products being
discontinued, a

15
<PAGE>

write-off of purchased software that has become obsolete and the payment to
employees for severance agreements and costs associated with closing a
regional office, combining two regional offices and consolidating our
technology into one center.

INTEREST INCOME (EXPENSE), NET. Interest expense was $171,000 or 4.2% of total
revenues for the three months ended June 30, 1999 compared to interest income of
$285,000 or 5.2% of total revenues for the same period in 2000. The dollar and
percentage increase in income is primarily the result of interest earned for the
quarter on cash equivalents and short-term investments and the decrease of
interest expense due to the payoff of long-term debt.

INCOME TAXES. No tax benefit was recorded for the years ended June 30, 1999 and
2000. The acquiring companies acquisition-date net operating loss carryovers
were greater than the additional deferred tax liabilities that were recorded in
connection with the purchase of intangibles other than goodwill. In accordance
with SFAS 109 "Accounting for Income Taxes," we recorded a valuation allowance
to fully offset any potential tax benefit associated with its post-acquisition
net operating losses.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000

A majority of the variances between the six months ended June 30, 1999
and the corresponding period of 2000 are attributable to our acquisition
activity. During the last six months of 1999, we completed ten business
combinations, all of which were accounted for using the purchase method of
accounting. Therefore, revenues and expenses from these companies were not
included in the six months ended June 30, 1999, but were included in the six
months ended June 30, 2000.

REVENUES. Total revenues increased 59.5% from $7.2 million in the
six months ended June 30, 1999 to $11.5 million in the corresponding period
of 2000. The revenue increase primarily resulted from acquisitions. Recurring
revenues increased 56.6% from $5.8 million in the six months ended June 30,
1999 to $9.1 million in the corresponding period of 2000, while non-recurring
revenues increased 71.6% from $1.4 million in the six months ended June 30,
1999 to $2.4 million in the corresponding period of 2000.

SOFTWARE AND SYSTEMS. The software and systems component of
total revenues increased 22.2% from $3.2 million, or 43.8% of total
revenues for the six months ended June 30, 1999 to $3.9 million, or
33.5% of total revenues in the corresponding period of 2000. Software
and systems revenues consist of software licensing revenues and
revenues from the sale of computer hardware and supplies. Software
licensing revenues were 41.3% and 60.9% and computer hardware and
supply revenues were 58.7% and 39.1% of total software and systems
revenues for the six months ended June 30, 1999 and 2000, respectively.
The increase in software and systems revenues was due to acquisitions.

Revenues from software licensing increased 79.9% from $1.3
million for the six months ended June 30, 1999 to $2.4 million for the
same period in 1999. Legacy product sales were 62.3% of software
licensing revenues for the six months ended June 30, 1999 compared to
55.0% in the corresponding period of 2000. New product sales were 37.7%
of software licensing revenues for the six months ended June 30, 1999
compared to 45.0% in the corresponding period of 2000. The gross profit
for software licensing revenues increased 76.1% from $1.1 million for
the six months ended June 30, 1999 to $2.0 million in the corresponding
period of 2000.

Revenues from computer hardware and supplies decreased 18.4%
from $1.9 million for the six months ended June 30, 1999 to $1.5
million in the corresponding period of 2000. The gross profit from
computer hardware and supplies revenues increased 7.3% from $371,000
for the six months ended June 30, 1999 to $398,000 in for the
corresponding period of 2000.

CUSTOMER SUPPORT AND ELECTRONIC SERVICES. The customer support
and electronic services component of total revenues increased 88.4%
from $4.1 million, or 56.2% of total revenues in the six months ended
June 30, 1999, to $7.7 million, or 66.5% of total revenues in the
corresponding period of 2000. Customer support revenues are derived
from software maintenance and customer service, network and computer
hardware support, training, data conversion and system installation.
Electronic services revenues are generated by electronic claims
processing and electronic statement printing and mailing. Customer
support revenues were 91.1% and 80.4% and

16
<PAGE>

electronic services revenues were 8.9% and 19.6% of total customer
support and electronic services revenues for the six months ended
June 30, 1999 and 2000, respectively. Approximately $3.2 million
of the increase in Customer Support and Electronic Services was
due to acquisitions. The remaining $395,000 of the increase was
due to internal growth.

Revenues from customer support increased 66.1% from $3.7
million for the six months ended June 30, 1999 to $6.2 million in the
corresponding period of 2000. The gross profit for customer support
revenues increased 90.5% from $1.1 million for the six months ended
June 30, 1999 to $2.0 million in the corresponding period of 2000.

Revenues from electronic services increased 317.4% from
$360,000 for the six months ended June 30, 1999 to $1.5 million in the
corresponding period of 2000. The gross profit for electronic services
revenues increased 186.8% from $211,000 for the six months ended June
30, 1999 to $604,000 in the corresponding period of 2000.

COST OF REVENUES. Total cost of revenues increased 46.0% from $4.4 million for
the six months ended June 30, 1999 to $6.5 million in the corresponding period
of 2000, but decreased as a percentage of total revenues from 61.3% for the six
month ended June 30, 1999 to 51.6% in the corresponding period of 2000.

SOFTWARE AND SYSTEMS. Software and systems costs include both
software licensing costs and computer hardware and supplies. Software
and systems costs decreased 11.8% from $1.6 million or 22.8% of total
revenues for the six months ended June 30, 1999 to $1.5 million, or
12.6% of total revenues in the corresponding period of 2000. Software
licensing costs were 10.0% and 23.3%, and computer hardware and
supplies costs were 90.0% and 76.7% of total software and systems costs
for the six months ended June 30, 1999 and 2000, respectively.

Costs for software licensing increased 106.6% from $164,000,
or 2.3% of total revenues in the six months ended June 30, 1999 to
$339,000, or 2.9% of total revenues in the corresponding period of
2000. The decrease as a percent of total revenues is due to a change in
the mix of products and services sold. Gross margin percentage for
software licensing decreased from 87.4% for the six months ended June
30, 1999 to 85.6% in the corresponding period of 2000.

Costs for computer hardware and supplies decreased 24.9% from
$1.5 million or 20.5% of total revenues in the six months ended June
30, 1999 to $1.1 million, or 9.7% of total revenues in the
corresponding period of 2000. The decrease as a percent of total
revenues is due to a change in the mix of product and services sold.
Gross margin percentage for computer hardware and supplies increased
from 20.0 % for the six months ended June 30, 1999 to 26.3% in the
corresponding period of 2000.

CUSTOMER SUPPORT AND ELECTRONIC SERVICES. Customer support and
electronic services costs increased 80.2% from $2.8 million, or 38.5%
of total revenues in the six months ended June 30, 1999 to $5.0
million, or 43.5% of total revenues in the corresponding period of
2000. Customer support costs were 94.6% and 82.0%, and electronic
services costs were 5.4% and 18.0% of total customer support and
electronic services costs for the six months ended June 30, 1999 and
2000, respectively.

Costs for customer support increased 56.2% from $2.6 million
or 36.4% of total revenues, in the six months ended June 30, 1999 to
$4.1 million, or 35.7% of total revenues in the corresponding period of
2000. The customer support gross margin percentage increased from 28.9%
for the six months ended June 30, 1999 to 33.2% in the corresponding
period of 2000, primarily due to acquisitions.

Costs for electronic services increased 501.3% from $150,000,
or 2.1% of total revenues, in the six months ended June 30, 1999 to
$900,000, or 7.8% of total revenues, in the corresponding period of
2000. The electronic services gross margin percentage decreased from
58.5% for the six months ended June 30, 1999 to 40.2% in the
corresponding period of 2000.

17
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 148.5% from $3.4 million, or 46.7% of total revenues for the
six months ended June 30, 1999, to $8.4 million, or 72.7% of total revenues in
the corresponding period of 2000. Of the $5.0 million increase, selling
expenses, corporate administration, and regional distribution channel expenses
increased approximately $1.0 million, $1.3 million, and $2.7 million,
respectively. The $1.0 million increase in selling expenses is the direct result
of selling costs of the acquired distribution channel. The $1.3 million increase
in corporate administration expenses resulted from increases in headcount and
the building of corporate staff and infrastructure. The $2.7 million increase in
regional distribution channel expenses resulted from regional operating costs
directly related to our acquired distribution channel. Additionally, VantageMed
recorded non-recurring charges associated with our plan to reduce operating
expenses. Included in the $1.3 million expense for corporate administration is
$65,000 of incremental costs for relocation for certain employees and included
in the $2.7 million expense for regional distribution channel expense is
$132,000 of incremental costs to consolidate certain regional offices.

PRODUCT DEVELOPMENT. Product development expenses increased from $1.6 million or
21.6% of total revenues for the six months ended June 30, 1999, to $2.9 million,
or 25.4% of total revenues in the corresponding period of 2000. The dollar and
percentage increases were due primarily to additional staffing and related costs
necessary for development of our new products.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased from $1.4 million or 19.1% of total revenues, for the six months
ended June 30, 1999, to $3.1 million, or 26.9% of total revenues, in the
corresponding period of 2000. Of these amounts, amortization expenses were
$1.2 million for the six months ended June 30, 1999 and $2.5 million in the
corresponding period of 2000. At June 30, 2000, we had intangible assets
totaling $33.2 million with accumulated amortization of $8.6 million, which
includes $1.5 million for the impairment of tangibles. The weighted average
life of these intangibles was 8.0 years.

RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES. In the quarter ended June 30, 2000,
we incurred non-recurring charges of $2.5 million or 21.8% of revenue associated
with a restructuring plan announced during the same quarter. These charges were
primarily associated with older legacy software products were being
discontinued, charge for write-off of purchased software that
has become obsolete and the payment to employees for severance agreements and
costs associated with closing a regional office, combining two regional
offices and consolidating our technology into one center.

INTEREST INCOME (EXPENSE), NET. Interest expense increased from $295,000, or
4.1% of total revenues for the six months ended June 30, 1999 to $2.8 million,
or 24.6% of total revenues in the corresponding period of 2000. The percentage
and dollar increases primarily resulted from a non-cash interest charge for the
beneficial conversion feature of a promissory note and the amortization of the
fair value of warrants totaling $3.1 million.

LIQUIDITY AND CAPITAL RESOURCES

Since 1996, we have financed our operations primarily through a
combination of indebtedness, capital leases and equity financings. Approximately
82.0% of the consideration paid for our acquisitions was paid with our stock or
stock options. The balance of the consideration was promissory notes and cash.

In January 2000, we borrowed $700,000 through Friedli Corporate
Finance, an entity controlled by one of our Directors. The outstanding principal
plus interest on this note was repaid in February 2000 with proceeds from our
IPO.

In January 2000, we borrowed $500,000 at an interest rate of 12% from
one of our vendors with a maturity date the earlier of ten days following the
completion of the IPO or December 31, 2000. This balance was paid off in
February 2000 with proceeds from the IPO.

18
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In February 2000, the Company completed its initial public offering of
common stock, which resulted in net proceeds of approximately $31.0 million. At
June 30, 2000, we had $21.6 million in cash and short-term investments, compared
to $250,000 at December 31, 1999.

Net cash used in operating activities was $5.9 million and $3.5 million
for the six months ended June 30, 2000 and 1999, respectively. Net cash used in
operating activities for the six months ended June 30, 2000 related to the net
loss for the period offset by an increase in depreciation and amortization
expense, impairment of certain intangibles, the recognition of a non-cash
interest charge for the beneficial conversion feature of a promissory note and
the amortization of the fair value of warrants and the loss on disposal of
property and equipment through restructuring. Net cash used in operating
activities for the six months ended June 30, 1999 related to the net loss for
the period, which was offset by depreciation and amortization expense.

Net cash used in investing activities was $4.4 million and $170,000
for the six months ended June 30, 2000, and 1999, respectively. Investing
activities for the six months ended June 30, 2000, primarily included the
purchase of short-term investments with maturity dates of 189 days or less,
as well as the purchase of computers and office equipment used in our
regional offices. Net cash provided by investing activities consisted of the
purchase of computers and office equipment used in our regions, offset by
cash received from businesses acquired.

Net cash provided by financing activities was $27.7 million and $3.4
million for the six months ended June 30, 2000 and June 30, 1999, respectively.
Financing activities for the six months ended June 30, 2000 consisted of $31.0
million in net proceeds from the issuance of common stock, $1.2 million in
issuance of long-term debt, and $4.5 million in payments of long-term debt. Cash
provided by financing activities for the six months ended June 30, 1999 related
primarily to the issuance of preferred stock.

In addition, at June 30, 2000 we had $358,000 in capital leases
primarily for computers and office equipment, most of which we assumed in
connection with acquisitions. In addition, we had $1.4 million in assumed debt
or promissory notes issued in connection with acquisitions that was outstanding
at June 30, 2000. Interest rates on the promissory notes range from non-interest
bearing to 12.5%. Future minimum principal payments under debt and lease
obligations (capital and operating) for 2001, 2002, 2003, 2004 and 2005 and
thereafter are $1.6 million, $1.2 million, $867,000, $626,000, and $453,000
respectively.

We have operated with negative working capital and with negative cash
flow primarily due to acquisition expenses, prior debt incurred by acquired
companies and the costs of building infrastructure and product development
activities. Our IPO eliminated our negative working capital position, however,
the negative cash flow from operations is expected to continue until
cross-selling of new products and add-on services to our existing customer base
produces positive cash flow.

We believe that the net proceeds from the IPO, together with other
available funds, will be sufficient to meet our capital requirements through
February of 2001.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS AND RISK
FACTORS -

THIS QUARTERLY REPORT CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"),
WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED THEREBY. INVESTORS
ARE CAUTIONED THAT FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD BE INACCURATE AND THEREFORE, THERE CAN BE NO ASSURANCE THAT
THE FORWARD-LOOKING STATEMENTS WILL PROVE TO BE ACCURATE. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS
OF THE COMPANY WILL BE ACHIEVED.

19
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VANTAGEMED IS SUBJECT TO VARIOUS RISK FACTORS, MANY OF WHICH ARE
OUTSIDE OF OUR CONTROL, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE
EXPRESSED IN FORWARD-LOOKING STATEMENTS MADE BY US THROUGHOUT THIS REPORT AND
ELSEWHERE. ALL STATEMENTS WHICH ADDRESS OPERATING PERFORMANCE, EVENTS OR
DEVELOPMENTS THAT WE EXPECT OR ANTICIPATE WILL OCCUR IN THE FUTURE, INCLUDING
STATEMENTS RELATING TO EXPECTED FUTURE OPERATING RESULTS AND FUTURE FINANCIAL
CONDITIONS OR STATEMENTS EXPRESSING GENERAL OPTIMISM ABOUT FUTURE OPERATING
RESULTS, ARE FORWARD-LOOKING STATEMENTS. THE FOLLOWING ARE THE IMPORTANT
FACTORS, WHICH MAY CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS.

RISKS ASSOCIATED WITH OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY, A HISTORY OF LOSSES, EXPECT OUR
EXPENDITURES TO INCREASE AND OUR LOSSES TO CONTINUE, AND MAY NEVER ACHIEVE
PROFITABILITY

We have incurred operating losses since we became a Delaware
corporation in April 1997. We operate with a negative cash flow primarily due
to acquisition expenses, prior debt incurred by acquired companies and
assumed by us, and the costs of improving our operations, sales and product
development infrastructure. Since 1997, we have incurred aggregate net losses
of $29.6 million, of which $8.9 million was amortization and depreciation.
Our business strategies may not be successful and we may not be able to
achieve or sustain revenue growth or profitability.

IF WE FAIL TO GENERATE RECURRING REVENUES FROM OUR EXISTING CUSTOMERS,
WE MAY BE UNABLE TO ACHIEVE OR SUSTAIN REVENUE GROWTH AND PROFITABILITY

Our financial success depends upon our ability to increase revenues
derived from existing customers. To this end, we focus our marketing efforts on
upgrading existing systems, and providing new software that enables our
customers to migrate from legacy to Windows-based products. If existing
customers fail to upgrade or migrate to our newer systems, we may not be able to
increase our revenues or obtain profitability in the near term or at all.

IF WE FAIL TO INTERNET-ENABLE OUR PRODUCTS IN A TIMELY FASHION WE MAY
LOSE OUR MARKET OPPORTUNITY AND MAY BE UNABLE TO ACHIEVE OR SUSTAIN REVENUE
GROWTH AND PROFITABILITY

Not all of our Windows-based products are Internet-enabled and those
that are have not been tested in the market for any substantial length of time.
If we fail to Internet-enable our products in a timely manner we may lose market
share opportunities to competitors and may be unable to increase our revenues or
to obtain profitability in the near term or at all.

OUR RESTRUCTURING PROGRAM MAY NOT BE SUCCESSFUL

During our second quarter we developed and implemented a restructuring
program designed to cut Company costs and overhead. The restructuring program
has included, among other things, the consolidation of offices, the
centralization of our technology centers, staff reductions, and the phasing out
of older products and product lines. There can be no assurances that our
restructuring program will result in cost reductions, and the phasing out of
products may result in decreased revenues if customers currently using those
products do not convert to our new product offerings.

INTERNET OR TELECOMMUNICATION SERVICE OR PERFORMANCE PROBLEMS OR SOFTWARE
ERRORS ARISING AFTER THE INSTALLATION OF OUR SOFTWARE AT CUSTOMER SITES COULD
DELAY MARKET ACCEPTANCE OF OUR PRODUCTS, LEAD TO CUSTOMER DISSATISFACTION AND
LOSS OF REVENUE AND INJURE OUR BUSINESS REPUTATION

The performance of our Internet-enabled products depends upon the
efficient operation of Internet and telephone connections, web browsers and
Internet service providers and upon the reliability of our software, including
third-party software incorporated into our software. The Internet and related
equipment has experienced periodic operational problems or outages. In addition,
software errors that we fail to detect may result in software performance
problems. The occurrence of any of these problems could cause customers to
experience system delays, failures and loss of data. Such problems could lead to
customer dissatisfaction, delays in market acceptance of our products, injury to
our business reputation and a loss of revenue.

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WE MAY BECOME SUBJECT TO STATE, FEDERAL OR FOREIGN TAXES THAT COULD HARM OUR
BUSINESS

We do not currently collect sales or other similar taxes with respect
to revenues from consumers in states other than the state of origin. However,
one or more states may seek to impose sales tax collection obligations on
out-of-state companies, similar to ours. Expansion of our operations into such
states could subject revenues from these states to state sales taxes under
current laws. In addition, a federal or foreign tax may potentially be imposed
on products and services sold over the Internet. A successful assertion by one
or more states or any foreign country that we should collect sales or other
taxes on the sale of merchandise or the imposition of federal taxes could
seriously harm our business.

On October 21, 1998, the Internet Tax Freedom Act was signed into law
placing a three-year moratorium on new state and local taxes on e-commerce in
the United States. The moratorium is expected to end on October 21, 2001.
Failure to renew this legislation could result in the broad imposition of state
and local taxes on e-commerce, which could seriously harm our business.

IF SECURITY AND LEGAL LIABILITY CONCERNS MAKE CUSTOMERS UNWILLING TO UTILIZE OUR
PRODUCTS AND SERVICES TO TRANSMIT MEDICAL INFORMATION OVER THE INTERNET, THE
DEMAND FOR OUR PRODUCTS MAY DIMINISH AND WE MAY BE UNABLE TO ACHIEVE OR SUSTAIN
PROFITABILITY

Potential customers may choose not to utilize our Internet-enabled
software products because of concerns related to the transfer and management of
medical information over the Internet, including: security of the patient
medical records being transferred through the Internet; errors in the
transmission of sensitive medical data over the Internet; legal liability for
data security failures or transmission errors; and regulatory burdens imposed on
healthcare participants who use the Internet to transfer confidential patient
medical information.

If these concerns prevent potential customers from buying our products
and prevent existing customers from upgrading to our Internet-enabled products,
our revenues may not increase and we may be unable to achieve or sustain
profitability.

BREACHES OF NETWORK SECURITY COULD DAMAGE OUR BUSINESS REPUTATION, LEAD TO
CUSTOMER DISSATISFACTION, DELAY MARKET ACCEPTANCE OF OUR PRODUCTS AND
RESULT IN LEGAL AND FINANCIAL LIABILITY AND A LOSS OF REVENUE

Our electronic transaction services involve the storage and
transmission of confidential medical information through our network data
centers, over the Internet and over dedicated private data lines. Despite the
implementation of security measures, our infrastructure may be vulnerable to
physical break-ins, computer viruses or similar disruptive problems. In the
event of such a security breach, proprietary and confidential information could
be misappropriated or our operations could be interrupted. These problems could
damage our business reputation, lead to customer dissatisfaction and delay
market acceptance of our products. We may also incur legal and financial
liability and a loss of revenue as a result of such problems.

CONCERNS RELATED TO THE INFRASTRUCTURE, SPEED AND RELIABILITY OF THE
INTERNET COULD DIMINISH THE DEMAND FOR AND DELAY MARKET ACCEPTANCE OF
OUR PRODUCTS AND COULD KEEP US FROM BECOMING PROFITABLE

The Internet may fail to become a viable mechanism for the delivery,
exchange and management of healthcare information due to a number of factors
that are out of our control, including: communication speed; reliability of
Internet service; Internet capacity; lack of development of complementary
products, such as communication devices; and delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity.

If concerns about such factors prevent potential customers from buying
our products and/or prevent existing customers from upgrading to our
Internet-enabled products, our Internet-enabled products may not gain market
acceptance, our sales revenues may not increase and we may be unable to achieve
or sustain profitability.

21
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FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE VOLATILITY OR
DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK

On March 9, 2000 we disclosed in a press release that the Company
estimates revenues for the first quarter of 2000 to be below analysts
expectations. It is possible that our revenues and operating results may
continue to fall below the expectations of securities analysts or investors
in future years. If we fail to meet or surpass the expectations of securities
analysts or investors, the market price of our common stock will most likely
decline. We expect that our quarterly revenue and operating results may
fluctuate as a result of a number of factors, including: future acquisitions;
entry into new healthcare markets; introduction of new products and service
offerings and reductions in prices of products by our competitors; delays in
development and other quality factors; changes in customer demand for our
applications and services; and changes within the healthcare industry.

We expect to increase activities and spending in substantially all of
our operational areas. We base our expense levels in part upon our expectations
concerning future revenues, and these expense levels are relatively fixed in the
short term. If we have lower revenues, we may not be able to make corresponding
reductions in our spending in the short term. Any shortfall in revenues would
have a direct impact on our results of operations. Fluctuations in our quarterly
results or the failure to meet analysts' expectations could affect the market
price of our common stock in a manner unrelated to our long-term operating
performance.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE ASSETS OR
INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS

We rely primarily on a combination of copyrights, trademarks, trade
secret laws and restrictions on disclosure to protect our intellectual property.
We currently have no patents and limited registered copyrights covering
technology related to our products. We have no plans to seek such legal
protection and, if we do, protection may not be granted.

Despite our efforts to protect our intellectual property, a third party
or a former employee could copy, reverse engineer or otherwise obtain and use
our intellectual property or trade secrets without authorization or could
develop software competitive to ours.

Our intellectual property may be misappropriated or infringed upon or
may infringe upon the rights of others. Consequently, litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our confidential information or trade secrets, or to determine the validity or
scope of the rights of others. Litigation could result in substantial costs and
diversion of management and other resources and may not successfully protect our
intellectual property. Additionally, we may deem it advisable to enter into
royalty or licensing agreements to resolve such claims. Such agreements, if
required, may not be available on commercially reasonable or desirable terms or
at all.

THE LOSS OF EXPERIENCED PERSONNEL TO COMPETITORS OR OUR INABILITY TO
ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY INTERRUPT OUR
BUSINESS OPERATIONS

Our future success will depend, to a significant extent, on the ability
of our management to operate effectively, both individually and as a group. The
loss of the services of any of our senior management could negatively impact our
ability to carry out our business plan. We are dependent on our ability to
attract, retain and motivate high caliber key personnel. Competition for
qualified personnel in our industry is intense, and we may not be successful in
attracting and retaining such personnel. There are a limited number of persons
with the requisite skills available to serve in these key positions and it may
become increasingly difficult to hire such persons. Our business will suffer if
we encounter delays in hiring these additional personnel. Competitors and others
have in the past and may in the future attempt to recruit our employees.

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<PAGE>

OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING, IF REQUIRED

We may need to raise additional funds to respond to business
contingencies which may include the need to: cover unexpected losses; fund more
rapid expansion; fund additional marketing expenditures; enhance our operating
infrastructure; respond to competitive pressures; or acquire or develop
complementary businesses or necessary technologies.

Additional financing may not be available on terms favorable to us, or
at all. In the event that such financing requires the issuance of additional
shares of our capital stock, you will experience dilution in your ownership. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our operations, take advantage of opportunities, develop
products or services or otherwise respond to competitive pressure could be
significantly limited.

DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD HAVE THE
EFFECT OF DELAYING OR PREVENTING A CORPORATE TAKEOVER, EVEN IF SUCH A
TRANSACTION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS

Some provisions of our certificate of incorporation and bylaws, as well
as provisions of Delaware law, may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable. These provisions include:
authorizing the board to issue additional preferred stock; limiting the persons
who may call special meetings of stockholders; prohibiting stockholder actions
by written consent; creating a classified board of directors pursuant to which
our directors are elected for staggered three-quarter terms; and establishing
advance notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted on by stockholders at
stockholder meetings.

RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY

IF WE FAIL TO IDENTIFY OR NEGOTIATE THE PURCHASE OF COMPLEMENTARY ACQUISITION
CANDIDATES OR IF COMPETITION FOR SUCH CANDIDATES INCREASES, WE MAY BE UNABLE TO
GROW OUR BUSINESS AND EXPAND OUR DISTRIBUTION NETWORK AND MAY FAIL TO ACHIEVE OR
SUSTAIN PROFITABILITY

We believe that some of our competitors are undertaking an acquisition
strategy similar to ours. If competition for acquisition targets increases,
there may be fewer qualified acquisition candidates available to us and the
terms of such acquisitions may become less favorable. Identifying appropriate
acquisition candidates, negotiating and consummating an acquisition can be a
lengthy and costly process, may divert management's attention and may prevent us
from growing our business and expanding our distribution network.

PROBLEMS INTEGRATING ACQUIRED COMPANIES COULD RESULT IN SUBSTANTIAL COSTS,
DIVERT THE ATTENTION OF OUR MANAGEMENT TEAM, CAUSE US TO LOSE VALUABLE
CUSTOMERS AND DILUTE THE VALUE OF OUR ACQUISITIONS

When we acquire new businesses we must cross-train existing and
acquired sales personnel; standardize accounting, operational and financial
functions of acquired businesses; retain key acquired personnel; and incorporate
acquired technology into our existing products.

Problems or delays in the integration process may result in substantial
costs and the diversion of management's attention from our existing business. In
addition, integration delays could cause us to lose key customers and employees
from the acquired company thereby diluting the value of the acquired company.

When we acquire businesses we amortize the acquired intangible
assets over the expected future life. If there is an impairment in the assets
due to cash flow, customer base, technology, market value or other indicators
of the assets impairment, the remaining book value may need to be written
down or we may need to accelerate the remaining useful life of the intangible
assets.

WE HAVE DISCOVERED MATERIAL WEAKNESSES IN OUR INTERNAL ACCOUNTING CONTROLS WHICH
MAY AFFECT OUR FINANCIAL REPORTING.

During the integration of our acquired companies, we discovered
material weaknesses in our internal accounting controls. These weaknesses
include inadequate monitoring of key financial processes, inconsistent
application of revenue recognition policies and procedures, difficulty in
closing the books in some of our offices and inadequate financial reporting. We
are implementing a common accounting software platform and closing procedures
for all of our regional offices. We have developed and implemented revenue
recognition guidelines, policies and procedures, and we are

<PAGE>

training our regional managers and accountants. We believe that these
measures will correct the noted weaknesses. However, there can be no
assurance that we will not continue to experience such deficiencies as we
continue to further expand our operations.

TECHNICAL PROBLEMS WITH ACQUIRED TECHNOLOGY OR PRODUCTS COULD HARM OUR
REPUTATION, RESULT IN UNEXPECTED COSTS AND CAUSE OUR REVENUES TO
DECREASE

Although we test and examine an acquisition target's technology and
products prior to consummating an acquisition, there may be technical product
problems that we fail to discover. These problems may result in unexpected costs
that decrease our revenues and may result in customer dissatisfaction and harm
to our business reputation.

WE MAY BECOME RESPONSIBLE FOR UNKNOWN OR UNEXPECTED FINANCIAL OR LEGAL
LIABILITIES FOLLOWING AN ACQUISITION

When we purchase a target company, we generally acquire all of that
company's liabilities. Although we perform due diligence prior to an
acquisition, we may become responsible for a liability that is unknown or
greater than anticipated. Any recourse we may have against the former
shareholders of an acquired company in such a situation is limited. Such
unexpected liabilities could have a significant negative impact on our profits.

IF OUR ACQUISITION ACTIVITIES DIVERT THE ATTENTION OF OUR MANAGEMENT TEAM
AWAY FROM THE DAY-TO-DAY OPERATIONS OF OUR COMPANY, PRODUCT DEVELOPMENT,
EXISTING CUSTOMER RELATIONSHIPS AND FINANCIAL PERFORMANCE COULD SUFFER

As a part of our growth strategy, we intend to acquire additional
healthcare information systems companies. The identification and investigation
of appropriate acquisition candidates and the negotiation of acquisitions will
require a substantial investment of time on the part of our management team.
These activities could divert time and attention from our product development
and from the day-to-day operations of our company. These disruptions could in
turn harm our relationships with existing customers and have a negative effect
on our overall financial performance.

OUR ACQUISITION STRATEGY MAY REQUIRE US TO RAISE ADDITIONAL CAPITAL, WHICH
COULD RESULT IN DILUTION

We intend to finance future acquisitions by issuing shares of common
and/or preferred stock for all or a substantial portion of the acquisition
price. In the event that the potential acquisition candidates are unwilling to
accept stock as part of the consideration for the sale of their businesses, we
may decide to utilize more of our cash resources, if available, in order to
maintain our acquisition program. This may result in the need to raise
additional capital. To the extent we issue shares of our capital stock to
finance acquisitions or raise capital, you will experience dilution in your
ownership.

RISKS ASSOCIATED WITH OUR INDUSTRY

INTENSE COMPETITION IN THE MARKET FOR HEALTHCARE INFORMATION SYSTEMS
AND SERVICES COULD PREVENT US FROM INCREASING OR SUSTAINING
REVENUES AND PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY

Our competitors vary in size, geographic coverage and scope of products
and services offered. The market demand for certain products varies across
geographic territories. Industry competitors include organizations such as
Medical Manager Corporation, Physician Computer Network, Inc., Infocure
Corporation, Medic Computer Systems, Inc., IDX Systems Corporation, CyCare, a
division of McKessonHBOC, Quality Systems Inc., MedicaLogic Inc., Dentrix Dental
Systems, Inc., and National Data Corporation. Additionally, within each regional
market there are several smaller competitors who have developed technologically
advanced products offered at lower prices. Finally, with the integration of
clinical information systems into practice management systems, several
well-funded pharmaceutical, medical supply and biotech companies have entered
the practice management systems market. New healthcare information Internet
companies may become direct competitors in the future. Many of our competitors
have greater financial, research and development, technical, marketing and sales
resources than we do. In addition, other entities not currently offering

<PAGE>

products and services similar to ours may enter our market. We may not be able
to compete successfully with current and/or future competitors. Failure to do so
could prevent us from increasing or sustaining revenues and achieving
profitability.

ECONOMIC AND COST REDUCTION PRESSURES FACED BY HEALTHCARE PROVIDERS
MAY LIMIT THE ABILITY OF OUR CUSTOMERS TO BUY OUR PRODUCTS AND SERVICES
AND COULD LIMIT OUR PROFITABILITY

Economic and cost reduction pressures may limit the ability of
healthcare providers to make expenditures for new software systems or for
upgrades to existing software systems. A reluctance or inability on the part of
healthcare providers to make such expenditures could result in fewer sales and
could limit our ability to achieve or sustain profitability.

IF WE FAIL TO RESPOND TO THE RAPIDLY CHANGING TECHNOLOGY THAT CHARACTERIZES OUR
MARKET, OUR PRODUCTS MAY BE RENDERED OBSOLETE, WE MAY LOSE OUR MARKET
OPPORTUNITY AND FAIL TO ACHIEVE OR SUSTAIN PROFITABILITY

On March 9, 2000 we disclosed that the release of the new version of
our Ridgemark product has been delayed. This delay was among the factors which
the Company anticipates would have a negative impact on revenues for the first
quarter of our fiscal quarter 2000. We can make no assurances that similar
delays in product releases will not occur in the future. The market for our
products is highly competitive and changes rapidly. Therefore, timely
introduction of new products, features and services to existing customers will
significantly impact our future success. We will be required to meet rapidly
changing market demands, respond to market requirements, develop new proprietary
solutions, and successfully market new products and enhancements to new
customers and our existing customer base.

ANY FAILURE TO COMPLY WITH REGULATIONS GOVERNING THE CONFIDENTIALITY AND
INTEGRITY OF HEALTHCARE INFORMATION TRANSMITTED ELECTRONICALLY COULD RESULT IN
SEVERE LEGAL AND FINANCIAL LIABILITY, HARM OUR BUSINESS REPUTATION AND RESULT IN
A SIGNIFICANT LOSS OF CUSTOMERS

Federal regulations under the Health Insurance Portability and
Accountability Act of 1996 governing the confidentiality and integrity of
healthcare information transmitted electronically are complex and are evolving
rapidly. Although we believe that our software products meet the current
regulatory standards described more fully in the "Business" section of this
prospectus, any failure on the part of our software to comply with current or
future regulations could subject us to severe legal and financial liability.
Such failures could also result in harm to our business reputation and a
significant loss of customers.

FUTURE STATE OR FEDERAL LEGISLATION MAY IMPOSE RESTRICTIONS ON THE ABILITY TO
TRANSMIT PATIENT DATA OVER THE INTERNET WITHOUT SPECIFIC PATIENT CONSENT AND
COULD DIMINISH THE VALUE OF OUR INTERNET-ENABLED SOFTWARE PRODUCTS AND SERVICES
AND LOWER OUR REVENUES AND PROFITS

The confidentiality of patient records is the subject of substantial
regulation by state and federal governments. Although compliance with these laws
and regulations is at present principally the responsibility of healthcare
providers, additional legislation governing the dissemination of medical records
has been discussed. If such legislation imposes restrictions on the ability of
third-party processors, like us, to transmit certain patient data without
specific patient consent, the value of our Internet-enabled products and
services to our customers could be diminished, causing our revenues to decrease.

OUR BILLING AND CLAIMS SERVICES ARE SUBJECT TO FEDERAL AND STATE REGULATION
AND ANY NON-COMPLIANCE WITH THESE REGULATIONS COULD LEAD TO CIVIL,
CRIMINAL AND FINANCIAL LIABILITY

The performance of our billing and claims services are governed by
numerous federal and state civil and criminal laws. Increased scrutiny has been
placed on the billing and collection practices of healthcare providers and
related entities. Although we believe that we are in compliance with any such
regulations that may relate to the provision of our billing and claims services,
any non-compliance could lead to civil monetary penalties, criminal fines,
imprisonment or exclusion from participation in Medicare, Medicaid and other
federally funded healthcare programs for us and the customer involved in the
non-compliance.

<PAGE>

REGULATIONS THAT RESTRICT THE ABILITY TO DISPENSE OR REFILL CONTROLLED
SUBSTANCES THROUGH AN ELECTRONICALLY TRANSMITTED PRESCRIPTION COULD LIMIT THE
FUNCTIONALITY OF OUR INTERNET-ENABLED SOFTWARE PRODUCTS AND COULD DIMINISH THE
REVENUE GENERATED FROM THESE PRODUCTS

The Federal Drug Enforcement Agency has promulgated regulations that
may prohibit a pharmacy from dispensing and/or refilling controlled substances
through an electronically transmitted prescription. These regulations may limit
the scope of the prescription ordering and refill functions in our current and
future Internet-enabled software products and may diminish the revenues we
obtain from the sale of these products.

IF OUR SOFTWARE PRODUCTS ARE DEEMED MEDICAL DEVICES, WE WILL BE SUBJECT TO
ADDITIONAL REGULATION THAT COULD RESULT IN CRIMINAL, CIVIL AND FINANCIAL
LIABILITY, INCREASE OUR COSTS AND DELAY THE MARKETING OF OUR NEW OR EXISTING
PRODUCTS

The U.S. Food and Drug Administration has jurisdiction under the 1976
Medical Device Amendments to the Federal Food, Drug and Cosmetic Act to regulate
computer products and software as medical devices if they are intended for use
in the diagnosis, cure, mitigation, treatment or prevention of disease in
humans. We believe that our healthcare information systems are not subject to
FDA regulation. If, however, the FDA determined that our products were subject
to regulation, non-compliance with applicable requirements could result in,
among other things, fines, injunctions, civil penalties, total or partial
suspension of production, refusal by the government to approve products,
revocation of approval or clearance previously granted and criminal prosecution.
Future FDA policies, laws or regulations concerning the development or marketing
of healthcare information systems may cause our products to be subject to FDA
regulation, which could increase our costs or delay the marketing of new or
existing products.

FUTURE REGULATIONS ENACTED BY CONGRESS OR BY STATE GOVERNMENTS MAY
ADVERSELY IMPACT THE HEALTHCARE INDUSTRY IN WAYS THAT COULD DAMAGE
OUR BUSINESS OPPORTUNITIES OR PROFITABILITY

The healthcare industry is highly regulated and has been the subject of
increasing levels of government regulation during the past several years. We
cannot predict with any certainty the types of regulations that might be imposed
or the impact that those regulations might have on our business. The adoption of
regulations currently unanticipated by us or by the healthcare industry could
impose burdensome requirements or restrictions on our products or on the
activities of healthcare providers. These restrictions could decrease the demand
for our products and could prevent us from growing our business and attaining
profitability.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
and commodity market prices and rates. We are exposed to market risk due to
changes in United States interest rates. This exposure is directly related to
our normal operating and funding activities. Historically and as of June 30,
2000, we have not used derivative instruments or engaged in hedging activities.

We invest our excess funds in cash equivalents consisting primarily of
short-term A1/P1 or better-rated money market securities or government-backed
notes, which have original maturities not greater than 90 days, and short-term
investments which have maturities original maturities not greater than 189 days.
All investments have been classified as available-for-sale and, accordingly are
stated at fair value. The difference between amortized cost (cost adjusted for
amortization of premiums and accretion of discounts which are recognized as
adjustments to interest income) and fair value, representing unrealized holdings
gains or losses, are recorded as a separate component of stockholders' equity
until realized. As a result, we do not believe that near-term changes in
interest rates will result in a material effect on our future earnings, fair
values or cash flows.

<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Beginning on March 13, 2000, a series of similar securities class
action lawsuits were filed alleging that VantageMed and certain directors and
officers violated the Securities Act of 1933. These actions have now been
consolidated into a single action in the United States District Court for the
Eastern District of California, entitled Zinno v. The VantageMed Corporation,
et. al., No. CIV.S-00-0523 MLS DAD.

Plaintiffs purport to represent a class of all persons who purchased
the Company's common stock pursuant to its February 15, 2000 IPO. The
complaints allege that VantageMed's S-1 Registration Statement and Prospectus
contained materially false and misleading statements and it did not state
that the Company would be delayed in introducing a new version of its
Ridgemark product, and did not state that sales of its eMCee product would be
lower than expected.

The proceedings are in the early stages, and no prediction can be made
as to the outcome. The Company believes these actions are without merit and
intends to defend itself against them vigorously.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In February 2000, VantageMed Corp. completed an IPO of 3 million shares
of its common stock. Advest, Inc. and J.C. Bradford & Co. acted as managing
underwriters. The shares of common stock sold in the IPO were registered under
the Securities Act of 1933, as amended, on a registration statement on Form S-1
(Registration No. 333-91657) that was declared effective by the Securities and
Exchange Commission on February 14, 2000. The IPO commenced on February 15,
2000. All 3 million shares of common stock registered were sold at a price of
$12 per share. The aggregate offering price of the shares of common stock
registered and sold was $36 million. We paid an aggregate of approximately
$2,520,000 in underwriting discounts and commissions. In addition, the following
table itemizes the expenses incurred in connection with the offering:

<TABLE>
<CAPTION>
AMOUNT

------------------
(IN THOUSANDS)
<S> <C>
Securities and Exchange Commission registration fee................................. $11
National Association of Securities Dealers, Inc. filing fee......................... 4
Nasdaq National Market listing fee.................................................. 73
Accountants' fees and expenses...................................................... 1,245
Legal fees and expenses............................................................. 606
Transfer Agent's fees and expenses.................................................. 23
Printing and engraving expenses..................................................... 332
Miscellaneous....................................................................... 147
------
Total $2,441
======

</TABLE>

None of the amounts shown were paid directly or indirectly to any
director or officer of VantageMed or their associates, persons owning 10 percent
or more of any class of equity securities of VantageMed or an affiliate of
VantageMed.

After deducting the underwriter's discounts and commissions and the
offering expenses, the net proceeds to us from the offering were approximately
$31.0 million. In February 2000 we used $3,545,000 of these net proceeds to
repay outstanding principal and interest due on 20 promissory notes. Also in
February 2000 we used $67,000 of net proceeds to repay deferred compensation and
applicable bonuses for our executive officers through June 30, 2000.

<PAGE>

Out of working capital during the first quarter of 2000, we paid
$61,000 of deferred compensation and applicable bonuses for January 2000 for our
executive officers and $93,000 of deferred compensation for other management
members who elected to defer payment during the time period from December 1999
through January 2000. Additionally, we paid off five convertible promissory
notes totaling $549,000 at the request of the note holders.

During the second quarter of 2000, we used approximately $405,000 of
such net proceeds for product development, approximately $119,000 on sales and
marketing, and $5.2 million for working capital and other general corporate
purposes.

We intend to use the residual net proceeds of our IPO as follows:

<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT

----------------
(IN THOUSANDS)
<S> <C>
For potential acquisitions.......................................................... $ 8,000
For increased product development activities........................................ 2,595
For increased sales and marketing activities........................................ 2,881
For working capital and other general corporate purposes............................ 7,574
-------

$21,050
=======

</TABLE>

Final allocation of proceeds depends on numerous factors, including
amounts spent on acquisitions, growth of our business and the need for
additional marketing and development activities. A substantial portion of the
net proceeds have not been allocated to any specific use. We will continue to
retain broad discretion over actual use of these proceeds.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On July 6, 2000, the annual meeting of the stockholders of VantageMed
Corporation was held for the purpose of electing Richard Pendleton and Peter
Friedli as directors and to ratify and approve the selection of Arthur Andersen
LLP as VantageMed's independent public auditors for the fiscal year ending
December 31, 2000. Holders of 4,903,288 shares were represented at the meeting.
Holders of a majority of the shares voted in favor of each of the proposals as
follows:

FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Elect Richard W. Pendleton 4,776,298 126,990 ---
Elect Peter Friedli 4,801,427 101,861 ---
Ratify Arthur Andersen LLP as Auditors 4,864,079 13,120 26,089

</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
1.1 - Financial Data Schedule (filed only electronically with the SEC)

(b) Reports on Form 8-K:

On June 12, 2000, the Company filed a report on Form 8-K
noting a press release dated June 5, 2000, naming Paul W.
Souza to the position of Senior Vice President and Chief
Financial Officer.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

VANTAGEMED CORPORATION
By:

/S/ PAUL W. SOUZA

PAUL W. SOUZA
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

Date: August 14, 2000