VANTAGEMED CORP
10-Q, 2000-11-13
PREPACKAGED SOFTWARE
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================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   -----------

                                    FORM 10-Q

     |X|      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934

                     For the period ended September 30, 2000
                                       OR

     |_|      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.

                                                   Outstanding at
Class                                             November 9, 2000
-----                                             ----------------
Common stock.....................................    8,625,971

================================================================================
<PAGE>

                             VantageMed Corporation
                                    Form 10-Q
                                  Third Quarter

                                   -----------

                            Index and Cross Reference

<TABLE>
<CAPTION>
Item Number                                                                                       Page
-----------                                                                                       ----
<S>         <C>                                                                                     <C>
                                    PART I - FINANCIAL INFORMATION
Item 1.     Financial Statements:
                Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000.......    3
                Consolidated Statements of Operations for the three and nine months ended
                September 30, 1999 and 2000......................................................    4
                Consolidated Statements of Cash Flows for the nine months ended
                September 30, 1999 and 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....................................................................   28
Item 2.     Changes in Securities and Use of Proceeds............................................   28
Item 5.     Other Information....................................................................   29
Item 6.     Exhibits and Reports on Form 8-K.....................................................   30

            Signatures...........................................................................   30
</TABLE>


                                                                               2
<PAGE>

                         PART 1 - FINANCIAL INFORMATION

Item 1.     Financial Statements

                             VANTAGEMED CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                     December 31,      September 30,
                                                                                         1999              2000
                                                                                     ------------      -------------
<S>                                                                                    <C>               <C>
                                           ASSETS                                                       (unaudited)
CURRENT ASSETS:
  Cash and cash equivalents ........................................................   $    250          $  2,076
  Short-term investments ...........................................................         --            17,182
  Accounts receivable, net of allowance of $287 and $354, respectively .............      2,463             2,247
  Notes receivable, current portion ................................................         64                73
  Inventories ......................................................................        480               422
  Prepaid expenses and other .......................................................      2,064               332
                                                                                       --------          --------
      Total current assets .........................................................      5,321            22,332
NOTES RECEIVABLE, net of current portion ...........................................        128               119
PROPERTY AND EQUIPMENT, net ........................................................      2,564             1,658
INTANGIBLES, net of accumulated amortization of $4,592 and $9,771, respectively ....     28,451            23,419
                                                                                       --------          --------
      Total assets .................................................................   $ 36,464          $ 47,528
                                                                                       ========          ========

                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt ................................................   $  5,574          $    555
  Accounts payable .................................................................      2,352             1,262
  Accrued liabilities ..............................................................      2,501             1,894
  Customer deposits and deferred revenue ...........................................      2,906             2,824
                                                                                       --------          --------
      Total current liabilities ....................................................     13,333             6,535
LONG-TERM DEBT, net of current portion .............................................      2,639             1,127
                                                                                       --------          --------
      Total liabilities ............................................................     15,972             7,662
                                                                                       --------          --------

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; 4,636,532 and
        8,623,823 shares issued and outstanding, respectively ......................          4                 9
  Additional paid-in capital .......................................................     35,357            72,654
  Unrealized gain (loss) on available-for-sale securities ..........................         --                --
  Deferred compensation ............................................................        (78)              (44)
  Accumulated deficit ..............................................................    (14,793)          (32,753)
                                                                                       --------          --------
      Total stockholders' equity ...................................................     20,492            39,866
                                                                                       --------          --------
      Total liabilities and stockholders' equity ...................................   $ 36,464          $ 47,528
                                                                                       ========          ========
</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)

<TABLE>
<CAPTION>
                                                             Three Months Ended                   Nine Months Ended
                                                                September 30,                       September 30,
                                                       -------------------------------------------------------------------
                                                       (As restated-                       (As restated-
                                                        see Note 7)                         see Note 7)
                                                            1999              2000              1999              2000
                                                            ----              ----              ----              ----
                                                        (unaudited)       (unaudited)       (unaudited)       (unaudited)
<S>                                                     <C>               <C>               <C>               <C>
REVENUES:
  Software and systems ...........................      $     2,589       $     1,682       $     5,751       $     5,546
  Customer support and electronic services .......            2,647             4,322             6,709            11,977
                                                        -----------       -----------       -----------       -----------
       Total revenues ............................            5,236             6,004            12,460            17,523
                                                        -----------       -----------       -----------       -----------

 OPERATING COSTS AND EXPENSES:
  Software and systems ...........................              955               617             2,603             2,071
  Customer support and electronic services .......            1,681             2,578             4,462             7,590
  Selling, general and administrative ............            2,842             3,623             6,213            12,000
  Product development ............................            1,237             1,413             2,797             4,338
  Depreciation and amortization ..................            1,089             1,301             2,467             4,400
  Restructuring, impairment and other charges ....               --                --                --             2,516
                                                        -----------       -----------       -----------       -----------
       Total operating costs and expenses ........            7,804             9,532            18,542            32,915
                                                        -----------       -----------       -----------       -----------
LOSS FROM OPERATIONS .............................           (2,568)           (3,528)           (6,082)          (15,392)
                                                        -----------       -----------       -----------       -----------
INTEREST INCOME (EXPENSE):
  Interest income ................................               15               337                27               960
  Interest expense ...............................             (139)              (70)             (446)           (3,528)
                                                        -----------       -----------       -----------       -----------
       Total interest income (expense), net ......             (124)              267              (419)           (2,568)
                                                        -----------       -----------       -----------       -----------
LOSS BEFORE INCOME TAXES .........................           (2,692)           (3,261)           (6,501)          (17,960)
INCOME TAXES .....................................               --                --                --                --
                                                        -----------       -----------       -----------       -----------
       Net loss ..................................      $    (2,692)      $    (3,261)      $    (6,501)      $   (17,960)
                                                        ===========       ===========       ===========       ===========
Basic and diluted net loss per share .............      $     (0.73)      $     (0.38)      $     (2.26)      $     (2.27)
                                                        -----------       -----------       -----------       -----------
Weighted-average shares-basic and diluted ........        3,684,985         8,614,578         2,873,550         7,905,479
                                                        -----------       -----------       -----------       -----------
</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)

<TABLE>
<CAPTION>
                                                                                           Nine Months Ended
                                                                                             September 30,
                                                                                      ---------------------------
                                                                                      (As restated-
                                                                                       see Note 7)
                                                                                           1999           2000
                                                                                           ----           ----
                                                                                       (unaudited)    (unaudited)
<S>                                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .........................................................................      $ (6,501)      $(17,960)
  Adjustments to reconcile net loss to net cash used for operating activities
  Depreciation and amortization ..................................................         2,467          4,400
  Impairment of intangibles ......................................................            --          1,513
  Bad debt expense ...............................................................           128            146
  Provision for deferred income taxes ............................................           (82)            --
  Beneficial interest conversion .................................................            --          3,000
  Amortization of deferred compensation ..........................................            --             34
  Loss on disposal of property and equipment through restructuring ...............            --            750
  Changes in assets and liabilities, net of effects from acquisitions
    Account receivable ...........................................................          (176)            70
    Inventories ..................................................................          (151)            58
    Prepaid expenses and other ...................................................          (141)         1,733
    Book overdraft ...............................................................        (1,333)            --
    Accounts payable and accrued liabilities .....................................          (438)        (1,635)
    Customer deposits and deferred revenue .......................................          (346)           (82)
                                                                                        --------       --------
     Net cash used in operating activities .......................................        (6,573)        (7,973)
                                                                                        --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment, net of effects from acquisitions ..........          (200)          (404)
  Purchase of intangible asset ...................................................            --           (147)
  Cash received from business acquired, net ......................................         4,200             --
  Purchases of investments, net ..................................................            --        (17,182)
  Proceeds from sale of property and equipment ...................................            --             18
                                                                                        --------       --------
     Net cash provided by (used in) operating activities .........................         4,000        (17,715)
                                                                                        --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock .......................................................           636         31,039
  Issuance of preferred stock ....................................................         3,000             --
  Proceeds from issuance of long-term debt .......................................           374          1,200
  Payments on long-term debt .....................................................          (682)        (4,725)
                                                                                        --------       --------
     Net cash provided by financing activities ...................................         3,328         27,514
                                                                                        --------       --------
     Net increase in cash and cash equivalents ...................................           755          1,826
CASH AND CASH EQUIVALENTS, beginning of period ...................................           435            250
                                                                                        --------       --------
CASH AND CASH EQUIVALENTS, end of period .........................................      $  1,190       $  2,076
                                                                                        ========       ========
</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 nine month periods
ended September 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
<PAGE>

                             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 workforce. 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 consist 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 are recognized as the
services are provided.

      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 this deferred revenue 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. Such
securities, had they been dilutive, would have been included in the computation
of diluted net loss per share using treasury stock method. There were 1,795,300
and no shares of Series A-1 convertible preferred stock outstanding at September
30, 1999 and 2000, respectively. There were 100,000 and no shares of Series B
convertible preferred stock outstanding at September 30, 1999 and 2000,
respectively. Both Series A-1 and Series B preferred stock were converted into
common stock on February 14, 2000. In addition, there were 538,372 and 904,260
outstanding options and warrants to purchase common stock as of September 30,
1999 and 2000, respectively.

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 for the 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
totaled 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 were converted at the option of the holder into 599,425 shares of common
stock, and all outstanding shares of Series B preferred stock were 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 common 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,
$11,700, $0, $35,100 for the three months and nine months ended September 30,
1999 and 2000, respectively.

5. SUPPLEMENTAL CASH FLOW INFORMATION:

      Cash payments for interest amounted to approximately $404,000 and $420,000
for the nine months ended September 30, 1999 and 2000, respectively. Cash
payments for income taxes amounted to $7,000 and $0 for the nine months ended
September 30, 1999 and 2000, respectively.

      During the nine months ended September 30, 1999, the Company acquired
Civitec Healthcare Computers, Inc., Acrotrex Corporation and Metropolitan
Information Services, Inc., Medical Software Solutions, Inc., Brand Software,
Inc., Care Information Systems, Inc., Mariner Systems, Inc., Health Information
Network, Logos Systems, Inc. Aggregate consideration for these acquisitions
completed during this period in 1999 was 1,421,773 common shares for a total of
$14,960,000 in common stock, 20,000 shares of preferred stock for a total of
$240,000 in preferred stock, $152,000 in cash, $1,606,000 in notes payable, and
$1,111,000 in stock options for an approximate aggregate value of $18,069,000.
Additionally, the Company converted a $500,000 line of credit to 197,628 shares
of Series A-1 preferred stock and financed the purchase of property and
equipment under capital leases of approximately $62,000.

      For the nine months ended September 30, 2000, the Company converted two
promissory notes with principal and interest totaling $3,251,500 into 527,810
shares of common stock, converted both Series A-1 and Series B preferred stock
into common stock and financed $193,000 in the purchase of property and
equipment under capital leases.

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,
and which delay would adversely effect the Company's future results of
operations. VantageMed has filed a motion to dismiss the consolidated complaint
for failure to state a claim upon which relief can be granted. The motion is
scheduled for hearing in January 2001. 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
<PAGE>

7. RESTATEMENT OF 1999 FINANCIAL STATEMENTS:

      As originally calculated, the tax provision for the three months and
nine months ended September 30, 1999 included a benefit. Certain deferred tax
liabilities were recorded in connection with purchase business combinations.
These deferred tax liabilities represented 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 nine month periods ended September
30, 1999, as restated.

8. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:

      During the second quarter of 2000, management committed to a plan of
restructuring 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 acquired 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 Statement of Financial
Accounting Standards No. 121, "Impairment of Long-Lived Assets," recorded values
from these products were not deemed to be recoverable. The resulting 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:
      Impairment of intangibles ................................    $1,513
      Write-off of acquired 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
                                                                    ======

      The restructuring accrual established as of June 30, 2000 was $131,000,
consisting of $81,000 for facility closure and consolidation and $50,000 for
other restructuring costs. The remaining accrual for restructuring as of
September 30, 2000 was $71,000, consisting of $32,000 for facility closure
and consolidation and $39,000 for other restructuring costs. The decrease of
$60,000 represents cash payments.

                                                                              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 the date of this 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.


                                                                              11
<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)

<TABLE>
<CAPTION>
                                                     Three Months Ended     Nine Months Ended
                                                        September 30,         September 30,
                                                     ------------------    ------------------
Software and Systems:                                  1999       2000       1999       2000
                                                     -------    -------    -------    -------
<S>                                                  <C>        <C>        <C>        <C>
Revenues .........................................   $ 2,589    $ 1,682    $ 5,751    $ 5,546
  Cost of revenues ...............................       955        617      2,603      2,071
                                                     -------    -------    -------    -------
  Gross profit ...................................   $ 1,634    $ 1,065    $ 3,148    $ 3,475
                                                     =======    =======    =======    =======
  Gross profit percentage ........................      63.1%      63.3%      54.7%      62.7%

<CAPTION>
                                                     Three Months Ended     Nine Months Ended
                                                        September 30,         September 30,
                                                     ------------------    ------------------
Customer Support and Electronic Services:              1999       2000       1999       2000
                                                     -------    -------    -------    -------
<S>                                                  <C>        <C>        <C>        <C>
  Revenues .......................................   $ 2,647    $ 4,322    $ 6,709    $11,977
  Cost of revenues ...............................     1,681      2,578      4,462      7,590
                                                     -------    -------    -------    -------
  Gross profit ...................................   $   966    $ 1,744    $ 2,247    $ 4,387
                                                     =======    =======    =======    =======
  Gross profit percentage ........................      36.5%      40.4%      33.5%      36.6%
</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. The Company
intends to revaluate the realizability of all intangible assets during the
fourth quarter of 2000.

      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 $11.0 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 September 30, 2000, we had a post-acquisition federal and state net
operating loss carry forward benefit of approximately $10.5 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


                                                                              12
<PAGE>

these products to new and existing customers are the keys to our internal growth
strategy. Our internal growth model is 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. We did
not complete any acquisitions for the nine months ended September 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

<TABLE>
<CAPTION>
                                                    Three Months Ended     Nine Months Ended
                                                       September 30,         September 30,
                                                    ------------------     -----------------
Revenues:                                             1999       2000       1999       2000
                                                     ------     ------     ------     ------
<S>                                                   <C>        <C>        <C>       <C>
  Software and systems ...........................     49.4%      28.0%      46.2%      31.7%
  Customer support and electronic services .......     50.6       72.0       53.8       68.3
                                                     ------     ------     ------     ------
  Total revenues .................................    100.0      100.0      100.0      100.0
Operating costs and expenses:
  Software and systems ...........................     18.2       10.3       20.9       11.8
  Customer support and electronic services .......     32.1       42.9       35.8       43.3
  Selling, general and administrative ............     54.3       60.3       49.9       68.5
  Product development ............................     23.6       23.5       22.4       24.8
  Depreciation and amortization ..................     20.8       21.7       19.8       25.1
  Restructuring and impairment of intangibles ....       --         --         --       14.4
                                                     ------     ------     ------     ------
  Total operating costs and expenses .............    149.0      158.7      148.8      187.9
                                                     ------     ------     ------     ------
Loss from operations .............................    (49.0)     (58.7)     (48.8)     (87.9)
Interest income (expense), net ...................     (2.4)       4.4       (3.4)     (14.6)
                                                     ------     ------     ------     ------
Loss before income taxes .........................    (51.4)     (54.3)     (52.2)    (102.5)
                                                     ------     ------     ------     ------
Income taxes .....................................       --         --         --         --
Net loss .........................................    (51.4)%    (54.3)%    (52.2)%   (102.5)%
                                                     ======     ======     ======     ======
</TABLE>

Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 2000

      The variances between the three months ended September 30, 1999 and the
corresponding period of 2000 are attributable to four different factors. The
first factor involved the level of acquisition activity in 1999. During the
fourth quarter of 1999, we completed five 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
September 30, 1999, but were included in the three months ended September 30,
2000. Additionally, there was an increase in electronic services revenues in
2000, a decrease in software and systems revenues in 2000 and a decrease in
operating expenses as a result of the second quarter 2000 restructuring.


                                                                              13
<PAGE>

      Revenues. Total revenues increased 14.7% from $5.2 million in the three
months ended September 30, 1999 to $6.0 million in the corresponding period of
2000. The revenue increase resulted from acquisitions and the increase in
electronic services. Recurring revenues increased 17.6% from $4.2 million in the
three months ended September 30, 1999 to $4.9 million in the corresponding
period of 2000, while non-recurring revenues increased 3.2% from $1.08 million
in the three months ended September 30, 1999 to $1.1 million in the
corresponding period of 2000.

            Software and Systems. The software and systems component of total
      revenues decreased 35.0% from $2.6 million, or 49.4% of total revenues for
      the three months ended September 30, 1999 to $1.7 million, or 28.0% 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 50.7%
      and 56.1% and computer hardware and supply revenues were 49.3% and 43.9%
      of total software and systems revenues for the three months ended
      September 30, 1999 and 2000, respectively. The decrease in software and
      systems revenues was primarily due to general market softness for new
      system sales.

            Revenues from software licensing decreased 28.1% from $1.3 million
      for the three months ended September 30, 1999 to $944,000 for the same
      period in 2000. Legacy product sales were 47.5% of software licensing
      revenues for the three months ended September 30, 1999 compared to 58.2%
      in the corresponding period of 2000. New product sales were 52.5% of
      software licensing revenues for the three months ended September 30, 1999
      compared to 41.8% in the corresponding period of 2000. The increase in
      legacy product sales is primarily due to acquisitions. The gross profit
      for software licensing revenues decreased 32.1% from $1.2 million for the
      three months ended September 30, 1999 to $846,000 in the corresponding
      period of 2000.

            Revenues from computer hardware and supplies decreased 42.2% from
      $1.3 million for the three months ended September 30, 1999 to $738,000 in
      the corresponding period of 2000. The gross profit from computer hardware
      and supplies revenues decreased 43.6% from $388,000 for the three months
      ended September 30, 1999 to $219,000 in for the corresponding period of
      2000. The three months ended September 30, 1999 included one- time
      hardware sales to customers in order to become "Year 2000" compliant.
      Additionally, there has been general market softness for new system sales
      during the three months ended September 30, 2000.

            Customer Support and Electronic Services. The customer support and
      electronic services component of total revenues increased 63.3% from $2.6
      million, or 50.6% of total revenues in the three months ended September
      30, 1999, to $4.3 million, or 72.0% 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
      92.2% and 76.5% and electronic services revenues were 7.8% and 23.5% of
      total customer support and electronic services revenues for the three
      months ended September 30, 1999 and 2000, respectively. Appropriately
      $914,000 of the increase in customer support and electronic services was
      due to acquisitions. The remaining $761,000 of the increase was due to
      internal growth.

            Revenues from customer support increased 33.5% from $2.4 million for
      the three months ended September 30, 1999 to $3.3 million in the
      corresponding period of 2000. The gross profit for customer support
      revenues increased 56.8% from $865,000 for the three months ended
      September 30, 1999 to $1.4 million in the corresponding period of 2000.
      The increase in this category is due to acquisition growth.

            Revenues from electronic services increased 392.2% from $206,000 for
      the three months ended September 30, 1999 to $1.0 million in the
      corresponding period of 2000. The gross profit for electronic services
      revenues increased 284.2% from $101,000 for the three months ended
      September 30, 1999 to $388,000 in the corresponding period of 2000. The
      increase in this category is due to internal growth.

Cost of Revenues. Total cost of revenues increased 21.2% from $2.6 million, or
50.3% of total revenues for the three months ended September 30, 1999 to $3.2
million, or 53.2% of total revenues in the corresponding period of 2000.


                                                                              14
<PAGE>

Software and Systems. Software and systems costs include both software licensing
costs and computer hardware and supplies. Software and systems costs decreased
35.4% from $955,000 or 18.2% of total revenues for the three months ended
September 30, 1999 to $617,000, or 10.3% of total revenues in the corresponding
period of 2000. Software licensing costs were 7.0% and 15.9%, and computer
hardware and supplies costs were 93.0% and 84.1% of total software and systems
costs for the three months ended September 30, 1999 and 2000, respectively. The
decrease in cost is consistent with the decrease in revenue.

            Costs for software licensing increased 46.3% from $67,000, or 1.3%
      of total revenues in the three months ended September 30, 1999 to $98,000,
      or 1.6% of total revenues in the corresponding period of 2000. The
      software licensing gross margin percentage decreased from 94.9% to the
      three months ended September 30, 1999 to 89.6% in the corresponding period
      of 2000.

            Costs for computer hardware and supplies decreased 41.6% from
      $888,000, or 17.0% of total revenues in the three months ended September
      30, 1999 to $519,000, or 8.6% 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 decreased from 30.4% for the three
      months ended September 30, 1999 to 29.7% in the corresponding period of
      2000.

            Customer Support and Electronic Services. Customer support and
      electronic services costs increased 53.4% from $1.7 million, or 32.1% of
      total revenues in the three months ended September 30, 1999 to $2.6
      million, or 42.9% of total revenues in the corresponding period of 2000.
      Customer support costs were 93.8% and 75.7%, and electronic services costs
      were 6.2% and 24.3% of total customer support and electronic services
      costs for the three months ended September 30, 1999 and 2000,
      respectively. The increase in cost is consistent with the increase in
      revenue.

            Costs for customer support increased 23.9% from $1.6 million or
      30.1% of total revenues, in the three months ended September 30, 1999 to
      $2.0 million, or 32.5% of total revenues in the corresponding period of
      2000. The customer support gross margin percentage increased from 35.4%
      for the three months ended September 30, 1999 to 41.0% in the
      corresponding period of 2000, primarily due to acquisitions.

            Costs for electronic services increased 496.2% from $105,000, or
      2.0% of total revenues, in the three months ended September 30, 1999 to
      $626,000, or 10.4% of total revenues, in the corresponding period of 2000.
      The electronic services gross margin percentage decreased from 49.0% for
      the three months ended September 30, 1999 to 38.3% in the corresponding
      period of 2000. The increase in cost is consistent with the increase in
      revenue. The decrease in the gross margin percentage is due to the
      difference in cost of services of electronic statements as compared to
      electronic claims.

Selling, General and Administrative. Selling, general and administrative
expenses increased 27.5% from $2.8 million, or 54.3% of total revenues for the
three months ended September 30, 1999, to $3.6 million, or 60.3% of total
revenues in the corresponding period of 2000. Of the $781,000 increase, selling
and marketing expenses, corporate administration, and regional distribution
channel expenses increased approximately $205,000, $458,000, and $118,000,
respectively. The $205,000 increase in selling expenses is the direct result of
selling costs of the acquired distribution channel. The $458,000 increase in
corporate administration expenses resulted from increases in headcount and the
building of corporate staff and infrastructure. The $118,000 increase in
regional distribution channel expenses resulted from regional operating costs
directly related to our acquired distribution channel.

Product Development. Product development expenses increased from $1.2 million,
or 23.6% of total revenues for the three months ended September 30, 1999, to
$1.4 million, or 23.5% of total revenues in the corresponding period of 2000.
The dollar increase was due primarily to additional staffing and related costs
necessary for development of our new products.

Depreciation and Amortization. Depreciation and amortization expenses increased
from $1.1 million, or 20.8% of total revenues, for the three months ended
September 30, 1999, to $1.3 million, or 21.7% of total revenues, in the
corresponding period of 2000. Of these amounts, amortization expenses were
$637,000 for the three months ended


                                                                              15
<PAGE>

September 30, 1999 and $1.1 million in the corresponding period of 2000. At
September 30, 2000, we had intangible assets totaling $33.2 million with
accumulated amortization of $9.8 million, which includes $1.5 million for the
impairment of intangibles. The weighted average life of these intangibles was
8.3 years.

Interest Income (Expense), Net. Interest expense was $124,000 or 2.4% of total
revenues for the three months ended September 30, 1999 compared to interest
income of $267,000 or 4.4% 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 in prior
quarters.

Income Taxes. No tax benefit was recorded for the three months ended September
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.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
2000

      A portion of the variances between the nine months ended September 30,
1999 and the corresponding period of 2000 are attributable to our acquisition
activity. During the last three months of 1999, we completed five 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 nine months ended September 30, 1999, but were included in the
nine months ended September 30, 2000.

      Revenues. Total revenues increased 40.6% from $12.5 million in the nine
months ended September 30, 1999 to $17.5 million in the corresponding period of
2000. The revenue increase primarily resulted from acquisitions. Recurring
revenues increased 40.4% from $10.0 million in the nine months ended September
30, 1999 to $14.0 million in the corresponding period of 2000, while
non-recurring revenues increased 41.6% from $2.5 million in the nine months
ended September 30, 1999 to $3.5 million in the corresponding period of 2000.

            Software and Systems. The software and systems component of total
      revenues decreased 3.6% from $5.8 million, or 46.2% of total revenues for
      the nine months ended September 30, 1999 to $5.5 million, or 31.7% 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 45.6%
      and 59.4% and computer hardware and supply revenues were 54.4% and 40.6%
      of total software and systems revenues for the nine months ended September
      30, 1999 and 2000, respectively. The decrease in software and systems was
      primarily due to general market softness for new systems.

            Revenues from software licensing increased 25.8% from $2.6 million
      for the nine months ended September 30, 1999 to $3.3 million for the same
      period in 2000. Legacy product sales were 54.9% of software licensing
      revenues for the nine months ended September 30, 1999 compared to 55.9% in
      the corresponding period of 2000. New product sales were 45.1% of software
      licensing revenues for the nine months ended September 30, 1999 compared
      to 44.1% in the corresponding period of 2000. The gross profit for
      software licensing revenues increased 19.7% from $2.4 million for the nine
      months ended September 30, 1999 to $2.9 million in the corresponding
      period of 2000.

            Revenues from computer hardware and supplies decreased 28.1% from
      $3.2 million for the nine months ended September 30, 1999 to $2.2 million
      in the corresponding period of 2000. The gross profit from computer
      hardware and supplies revenues decreased 18.7% from $759,000 for the nine
      months ended September 30, 1999 to $617,000 in for the corresponding
      period of 2000.

            Customer Support and Electronic Services. The customer support and
      electronic services component of total revenues increased 78.5% from $6.7
      million, or 53.8% of total revenues in the nine months ended September 30,
      1999, to $12.0 million, or 68.3% of total revenues in the corresponding
      period of 2000. Customer support revenues are derived from software
      maintenance and customer service, network and computer hardware


                                                                              16
<PAGE>

      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
      91.6% and 79.0% and electronic services revenues were 8.4% and 21.0% of
      total customer support and electronic services revenues for the nine
      months ended September 30, 1999 and 2000, respectively. Approximately $4.4
      million of the increase in customer support and electronic services was
      due to acquisitions. The remaining $831,000 of the increase was due to
      internal growth.

            Revenues from customer support increased 54.0% from $6.1 million for
      the nine months ended September 30, 1999 to $9.5 million in the
      corresponding period of 2000. The gross profit for customer support
      revenues increased 75.4% from $1.9 million for the nine months ended
      September 30, 1999 to $3.4 million in the corresponding period of 2000.
      The increase in this category is due to acquisition growth.

            Revenues from electronic services increased 344.6% from $566,000 for
      the nine months ended September 30, 1999 to $2.5 million in the
      corresponding period of 2000. The gross profit for electronic services
      revenues increased 218.4% from $312,000 for the nine months ended
      September 30, 1999 to $992,000 in the corresponding period of 2000. The
      increase in this category is due to internal growth.

Cost of Revenues. Total cost of revenues increased 36.7% from $7.1 million for
the nine months ended September 30, 1999 to $9.7 million in the corresponding
period of 2000, but decreased as a percentage of total revenues from 56.7% for
the nine months ended September 30, 1999 to 55.1% 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 20.4% from $2.6 million or 20.9% of total revenues
      for the nine months ended September 30, 1999 to $2.1 million, or 11.8% of
      total revenues in the corresponding period of 2000. Software licensing
      costs were 8.9% and 21.1%, and computer hardware and supplies costs were
      91.1% and 78.9% of total software and systems costs for the nine months
      ended September 30, 1999 and 2000, respectively. The decrease in cost is
      consistent with the decrease in revenue.

            Costs for software licensing increased 89.1% from $231,000, or 1.9%
      of total revenues in the nine months ended September 30, 1999 to $437,000,
      or 2.5% 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 91.2% for the nine months ended September 30, 1999 to 86.7%
      in the corresponding period of 2000.

            Costs for computer hardware and supplies decreased 31.1% from $2.4
      million or 19.0% of total revenues in the nine months ended September 30,
      1999 to $1.6 million, or 9.3% 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 24.2 % for the nine
      months ended September 30, 1999 to 27.4% in the corresponding period of
      2000.

            Customer Support and Electronic Services. Customer support and
      electronic services costs increased 70.1% from $4.5 million, or 35.8% of
      total revenues in the nine months ended September 30, 1999 to $7.6
      million, or 43.3% of total revenues in the corresponding period of 2000.
      Customer support costs were 94.3% and 79.9%, and electronic services costs
      were 5.7% and 20.1% of total customer support and electronic services
      costs for the nine months ended September 30, 1999 and 2000, respectively.
      The increase in cost is consistent with the increase in revenue.

            Costs for customer support increased 44.1% from $4.2 million or
      33.8% of total revenues, in the nine months ended September 30, 1999 to
      $6.1 million, or 34.6% of total revenues in the corresponding period of
      2000. The customer support gross margin percentage increased from 31.5%
      for the nine months ended September 30, 1999 to 35.9% in the corresponding
      period of 2000, primarily due to acquisitions.

            Costs for electronic services increased 499.2% from $255,000, or
      2.0% of total revenues, in the nine months ended September 30, 1999 to
      $1.5 million, or 8.7% of total revenues, in the corresponding period of


                                                                              17
<PAGE>

      2000. The increase in cost is consistent with the increase in revenue. The
      electronic services gross margin percentage decreased from 55.0% for the
      nine months ended September 30, 1999 to 39.4% in the corresponding period
      of 2000. This decrease in the gross margin percentage is due to the
      difference in cost of services of electronic statements as compared to
      electronic claims.

Selling, General and Administrative. Selling, general and administrative
expenses increased 93.1% from $6.2 million, or 49.9% of total revenues for the
nine months ended September 30, 1999, to $12.0 million, or 68.4% of total
revenues in the corresponding period of 2000. Of the $5.8 million increase,
selling expenses, corporate administration, and regional distribution channel
expenses increased approximately $1.2 million, $1.7 million, and $2.9 million,
respectively. The $1.2 million increase in selling expenses is the direct result
of selling costs of the acquired distribution channel. The $1.7 million increase
in corporate administration expenses resulted from increases in headcount and
the building of corporate staff and infrastructure. The $2.9 million increase in
regional distribution channel expenses resulted from regional operating costs
directly related to our acquired distribution channel. Additionally, during the
second quarter of 2000, the Company recorded non-recurring charges associated
with a plan to reduce operating expenses. Included in the $1.7 million expense
for corporate administration is $65,000 of incremental costs for relocation for
certain employees and included in the $2.9 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 $2.8 million or
22.4% of total revenues for the nine months ended September 30, 1999, to $4.3
million, or 24.8% 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 $2.5 million or 19.8% of total revenues, for the nine months ended
September 30, 1999, to $4.4 million, or 25.1% of total revenues, in the
corresponding period of 2000. Of these amounts, amortization expenses were $1.9
million for the nine months ended September 30, 1999 and $3.7 million in the
corresponding period of 2000. At September 30, 2000, we had intangible assets
totaling $33.2 million with accumulated amortization of $9.8 million, which
includes $1.5 million for the impairment of tangibles. The weighted average life
of these intangibles was 8.3 years.

Restructuring, Impairment and Other Charges. In the quarter ended June 30, 2000,
we incurred non-recurring charges of $2.5 million associated with a
restructuring plan announced during the same quarter. These charges were
primarily associated with older legacy software products that 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 $419,000, or
3.4% of total revenues for the nine months ended September 30, 1999 to $2.6
million, or 14.6% 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.

Income Taxes. No tax benefit was recorded for the years ended September 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.

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.


                                                                              18
<PAGE>

      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.

      In February 2000, the Company completed its initial public offering of
common stock, which resulted in net proceeds of approximately $31.0 million. At
September 30, 2000, we had $19.3 million in cash and short-term investments,
compared to $250,000 at December 31, 1999.

      Net cash used in operating activities was $8.0 million and $6.6 million
for the nine months ended September 30, 2000 and 1999, respectively. Net cash
used in operating activities for the nine months ended September 30, 2000
related to the net loss for the period offset primarily 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 nine months ended September 30, 1999 related to
the net loss for the period, which was offset primarily by depreciation and
amortization expense.

      Net cash used in investing activities was $17.7 million for the nine
months ended September 30, 2000 compared to net cash provided by investing
activities of $3.9 million for the same period of 1999. Investing activities for
the nine months ended September 30, 2000, primarily included the purchase of
higher-yield short-term investments, as well as the purchase of computers and
office equipment used in our regional offices. Net cash provided by investing
activities in 1999 consisted primarily of cash received from businesses
acquired.

      Net cash provided by financing activities was $27.5 million and $3.4
million for the nine months ended September 30, 2000 and 1999, respectively.
Financing activities for the nine months ended September 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 $4.7 million in payments of long-term debt. Cash
provided by financing activities for the nine months ended September 30, 1999
related primarily to the issuance of preferred stock.

      In addition, at September 30, 2000 we had $416,000 in capital leases
primarily for computers and office equipment, most of which we assumed in
connection with acquisitions. In addition, we had $1.3 million in assumed debt
or promissory notes issued in connection with acquisitions that was outstanding
at September 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 $1.5 million, $1.2 million, $870,000, $630,000, and $288,000
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
the Company expands its cross-selling of new products, add-on services to our
existing customer base and reduces operating expenses.

      We believe that our cash and short-term investments will be sufficient to
meet our cash flow needs through September 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


                                                                              19
<PAGE>

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.

      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 operated and continue to operate with a negative cash flow.
Since 1997, we have incurred aggregate net losses of $32.8 million, of which
$10.1 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 and Sustain Margins From Our
Customers, We May Be Unable To Achieve Or Sustain Revenue Growth And
Profitability

      Our financial success depends upon our ability to increase revenues and
sustain margins on our products and services. To this end, we focus our
marketing efforts on upgrading existing systems, providing new software that
enables our customers to migrate from legacy to Windows-based products and to
increase the use of electronic services. 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 the second quarter of 2000, 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


                                                                              20
<PAGE>

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.

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
<PAGE>

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.

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


                                                                              22
<PAGE>

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.

We May Not be Able to Realize the Benefits of Our Marketing Programs and
Relationships

      We have entered into certain marketing agreements intended to increase the
awareness of our Company in the market and increase future revenues. The
marketing programs may not be successful nor generate the level of interest we
expect and we may not be able to realize revenues from these programs.

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. We did not
complete any acquisitions for the nine months ended September 30, 2000. We may
not be able to attract and/or complete acquisitions in the future due to market
conditions, stock price or other factors that may be unfavorable to the Company.

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.


                                                                              23
<PAGE>

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 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


                                                                              24
<PAGE>

WebMD Corporation (formally Medical Manager Corporation), 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
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. 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 in our most
recent Form 10-K, 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.


                                                                              25
<PAGE>

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.

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 September
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. 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


                                                                              26
<PAGE>

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.


                                                                              27
<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 new 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.

      VantageMed has filed a motion to dismiss the consolidated complaint for
failure to state a claim upon which relief can be granted. The motion is
scheduled for hearing in January 2001.

      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:

                                                                      Amount
                                                                  --------------
                                                                  (In thousands)

    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
                                                                      ======

      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.


                                                                              28
<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 third quarter of 2000, we used approximately $544,000 of such
net proceeds for product development, approximately $142,000 on sales and
marketing, and $1.9 million for working capital and other general corporate
purposes.

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

                                                                   Approximate
                                                                      Amount
                                                                  --------------
                                                                  (In thousands)

    For potential acquisitions ...................................   $ 8,000
    For increased product development activities .................     2,051
    For increased sales and marketing activities .................     2,739
    For working capital and other general corporate purposes .....     5,687
                                                                     -------
                                                                     $18,477
                                                                     =======

      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 5. Other Information

Richard W. Pendleton Separation Agreement

      The Company entered into a Separation Agreement, dated November 3, 2000,
with Richard W. Pendleton, Senior Vice President and Director pursuant to which
Mr. Pendleton's employment with the Company terminated effective November 3,
2000. Mr. Pendleton also resigned as of October 31, 2000 as a director and/or
officer of all subsidiaries and affiliates of the Company.

      Pursuant to the Separation Agreement, the Company shall make the following
benefits available to Mr. Pendleton:

      As payment in full of its obligations under Mr. Pendleton's employment to
pay all salaries and wages due through November 3, 2000 including all accrued
and unused vacation.

      Accelerated vesting of 10,000 previously granted common stock options to
Mr. Pendleton for a total of 10,000 fully vested options, which options will
remain exercisable for two years.

      Continuation of indemnification of Mr. Pendleton for two years with
respect to acts occurring prior to termination of his Board membership and
employment.

      Mr. Pendleton is entitled to reimbursement for all customary, ordinary and
necessary business expenses incurred in connection with his employment through
November 3, 2000.

      The Company provided Mr. Pendleton a $200,000 full recourse loan secured
by 300,000 shares of VantageMed Corporation stock owned by Mr. Pendleton. The
loan is due in 24 months at the prime interest rate. Interest accrues at the
prime rate on the outstanding balance and is payable on November 3, 2001 for the
first twelve months accrued amount. Monthly interest payments are payable on the
13th through 24th months. The total principal and any remaining interest due are
payable on November 3, 2002.


                                                                              29
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits:

Exhibit
 Number     Exhibit Title
 ------     -------------

 27.1    -  Financial Data Schedule (filed only electronically with the SEC)

      (b)   Reports on Form 8-K:

      During the quarter ended September 30, 2000, the Company filed no current
reports on Form 8-K with the Commission.

                                   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: November 9, 2000


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