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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER: 0-21031
QUADRAMED CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 68-0422446
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1003 W. Cutting Blvd., 2nd Floor
Richmond, CA 94804 94804
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (510)620-2340
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of Aug 6, 1999, there were 25,128,782 shares of the Registrant's Common
Stock outstanding, par value $0.01. This quarterly report on Form 10-Q consists
of 202 pages of which this is page 1. The Exhibit Index is located at page 29.
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QUADRAMED CORPORATION
TABLE OF CONTENTS
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
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Part I. Financial Information
Item 1. Financial Statements
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30, DECEMBER 31,
1999 1998
------------ ---------
(UNAUDITED) (UNAUDITED)
(RESTATED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,891 $ 66,531
Short-term investments 23,546 23,043
Accounts receivable, net 46,268 39,991
Unbilled receivables 10,577 10,335
Notes and other receivables 6,031 3,989
Prepaid expenses and other 7,375 2,959
--------- ---------
Total current assets 106,688 146,848
Long-term investments 33,861 41,641
Equipment, net 11,081 11,380
Capitalized software development costs, net 6,795 4,864
Acquired software, net 8,761 3,211
Non-marketable investments 4,700 1,200
Intangibles, net 38,364 50,672
Debt offering costs and other 7,684 4,917
--------- ---------
Total assets $ 217,934 $ 264,733
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 404 $ 525
Notes payable 26 2,728
Accounts payable 4,604 4,389
Accrued liabilities 24,378 30,133
Deferred revenue 11,877 14,021
--------- ---------
Total current liabilities 41,289 51,796
Capital lease obligations, less current portion 473 606
Notes payable, less current portion -- 19,186
Convertible subordinated debentures 115,000 115,000
Net liabilities of discontinued operations 7,750 9,157
--------- ---------
Total liabilities 164,512 195,745
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 175 159
Additional paid-in capital 269,382 266,087
Deferred compensation (3,546) (3,940)
Unrealized loss on available-for-sale securities (281) (157)
Accumulated deficit (212,308) (193,161)
--------- ---------
Total stockholders' equity 53,422 68,988
--------- ---------
Total liabilities & stockholders' equity $ 217,934 $ 264,733
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(RESTATED) (RESTATED)
REVENUES:
Licenses $ 29,676 $ 26,712 $ 63,405 $ 49,670
Services 27,928 22,935 54,271 43,230
--------- --------- --------- ---------
Total revenues 57,604 49,647 117,676 92,900
--------- --------- --------- ---------
OPERATING EXPENSES:
Cost of licenses 12,195 12,155 25,680 24,119
Cost of services 15,665 15,021 31,972 29,194
General and administration 7,919 8,458 15,421 17,056
Sales and marketing 5,472 5,355 10,624 10,184
Research and development 5,160 6,015 10,857 12,127
Amortization of intangibles 1,660 1,497 3,792 2,322
Write-off of acquired research and
development in process -- 6,879 -- 13,887
Acquisition costs 563 3,039 6,898 3,039
Impairment of intangible assets -- -- 10,592 --
Non-recurring charges -- 1,180 18,752 1,180
--------- --------- --------- ---------
Total operating expenses 48,634 59,599 134,588 113,108
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 8,970 (9,952) (16,912) (20,208)
OTHER INCOME (EXPENSE), NET:
Interest income (expense), net (636) 2 (1,092) 68
Other income (expense), net (79) 135 (7) (154)
--------- --------- --------- ---------
Total other income (expense), net (715) 137 (1,099) (86)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES, MINORITY INTEREST, AND DISCONTINUED
OPERATIONS 8,255 (9,815) (18,011) (20,294)
Provision for income taxes (937) (1,339) (1,136) (1,973)
Minority interest in earnings of Medicus -- -- -- (379)
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 7,318 (11,154) (19,147) (22,646)
DISCONTINUED OPERATIONS -- (1,744) -- (1,744)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 7,318 $ (12,898) $ (19,147) $ (24,390)
========= ========= ========= =========
NET INCOME (LOSS) PER BASIC AND DILUTED SHARE $ 0.29 $ (0.57) $ (0.84) $ (1.10)
========= ========= ========= =========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 24,820 22,633 22,838 22,099
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 25,192 22,633 22,838 22,099
========= ========= ========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1999 1998
-------- ----------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,147) $ (24,390)
-------- ---------
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation and amortization 6,783 4,036
Amortization of deferred compensation 394 --
Write-off of in-process research and development -- 13,887
Impairment of intangible assets 10,592 --
Cash flows from discontinued operations (1,407) (3,674)
Minority interest in earnings of Medicus -- 379
Changes in assets and liabilities, net of acquisitions:
Accounts receivable and unbilled receivables (6,519) (4,247)
Prepaid expenses and other (9,881) 1,464
Accounts payable and accrued liabilities (3,150) (1,072)
Deferred revenue (2,144) 2,468
-------- ---------
Cash used in operating activities (24,479) (11,149)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of non-marketable investments (3,000) --
Additions to equipment (2,325) (3,287)
Increase in notes receivable and other (2,542) (3,183)
Capitalization of computer software development costs (2,218) (779)
Purchase of technology rights (6,000) --
Net maturities (purchases) of short and long-term investments 7,153 (44,268)
Cash paid for the acquisition of Cabot Marsh, net of cash acquired -- (2,748)
Cash paid for the acquisition of Velox, net of cash acquired -- (3,121)
Cash paid for the acquisition of the InterLink entities,
net of cash acquired -- (1,412)
Cash paid for the acquisition of Vision -- (2,998)
Cash paid for immaterial acquisitions under purchase accounting (762) --
-------- ---------
Cash used in investing activities (9,694) (61,796)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of principal on capital lease obligations (254) 377
Net borrowings (repayments) under notes payable (21,888) (843)
Proceeds from the issuance of convertible subordinated
notes payable, net of offering costs -- 110,827
Proceeds from the issuance of common stock
and exercise of common stock warrants and options 2,675 17,103
-------- ---------
Cash used in financing activities (19,467) 127,464
-------- ---------
Net decrease in cash and cash equivalents (53,640) (54,519)
CASH AND CASH EQUIVALENTS, beginning of period 66,531 48,384
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 12,891 $ 102,903
======== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable to common stock $ -- $ 8,000
Conversion of note receivable to equity investment in VantageMed $ 500 $ --
Issuance of common stock in connection with the InterLink acquisition $ -- $ 1,500
Issuance of common stock in connection with the Cabot Marsh acquisition $ -- $ 8,400
Issuance of common stock in connection with the Velox acquisition $ -- $ 1,400
Issuance of common stock in connection with the Medicus acquisition $ -- $ 28,800
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These condensed consolidated
financial statements and notes thereto should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 1998 included in the Company's Annual Report on Form 10-K. The unaudited
information contained herein has been prepared on the same basis as the
Company's audited consolidated financial statements and, in the opinion of the
Company's management, includes all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information for
the periods presented. The interim results presented herein are not necessarily
indicative of the results of operations that may be expected for the full fiscal
year ending December 31, 1999 or any other future period.
2. Summary of Significant Accounting Policies
Revenues
The Company licenses a variety of products and provides a variety of
services. License revenue includes license, installation and post-contract
customer support fees, third-party hardware sales and other revenues related to
licensing of the Company's software products. Service revenue is composed of
business office and health information management outsourcing, cash flow
management, compliance and consulting services.
The Company's product offering includes a variety of products which can be
licensed individually or as a suite of interrelated products. Products are
licensed either under term arrangements (which range from one year to three
years and typically include monthly or annual payments over the term of the
arrangement) or on a perpetual basis. Revenues from term licenses are recognized
monthly or annually over the term of the license arrangement, beginning at the
date of installation. Revenues from perpetual licenses are recognized upon
shipment of the software if there is persuasive evidence of an agreement,
collection of the resulting receivable is probable and the fee is fixed and
determinable. If an acceptance period is required, revenues are recognized upon
the earlier of customer acceptance or the expiration of the acceptance period.
Revenues from certain products, including the Company's enterprise solutions,
are recognized on a percentage of completion basis of accounting.
Certain services are also provided to certain of the Company's licensees of
software products. These services consist primarily of consulting and
post-contract customer support. Consulting services generally consist of
installation of software at customer sites, and revenue is recognized upon
completion of installation. Unbilled receivables consist of work performed or
software delivered which has not been billed under the terms of the contractual
arrangement with the customer. Post-contract customer support is recognized
ratably over the term of the support period. Deferred revenue primarily consists
of revenue deferred under annual maintenance and annual license agreements on
which amounts have been received from customers and for which the earnings
process has not been completed.
The Company provides business office and health information management
outsourcing, cash flow management, compliance and consulting services to certain
hospitals under contract service arrangements. Outsourcing revenues typically
consist of fixed monthly fees plus, in the case of business office outsourcing,
incentive-based payments that are based on a percentage of dollars recovered for
the provider for which the service is being performed. The monthly fees are
recognized as revenue on a monthly basis at the end of each month. Incentive
fees are recognized as the conditions upon which such fees are based are
realized based on collection of accounts from payors. Cash flow management
services typically consist of fixed fee services and additional incentive
payments based on a certain percentage of revenue returns realized by the
customer as a result of the services provided by the Company. The fixed fee
portion is recognized upon completion of the project with the customer.
Compliance and consulting revenues are recognized as the
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services are provided. The Company has experienced operating margins at
differing levels related to licenses and services. The service business has
historically realized fluctuating margins that were significantly lower than
margins associated with licenses.
Cost of license revenues consists primarily of salaries, benefits, hardware
costs and allocated costs related to the installation process, and customer
support and royalties to third parties.
Cost of service revenues consists primarily of salaries, benefits and
allocated costs related to providing such services.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Dilutive net income
(loss) per share is computed using the weighted average number of common and
potentially dilutive common shares outstanding during the period. Potentially
dilutive common shares consist of stock options, warrants (using the treasury
stock method) and the Company's convertible subordinated debentures. Potentially
diluted common shares are excluded from the dilutive computation only if their
effect is anti-dilutive. As the Company recorded a net loss in the three months
ended June 30, 1998 and in the six months ended June 30, 1999 and 1998, no
potentially diluted common shares are included in dilutive weighted average
common shares outstanding for those periods.
Comprehensive Income
The components of comprehensive income (loss) for the three and six months
ended June 30, is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
Net income (loss) $ 7,318 $(12,898) $(19,147) $(24,390)
Unrealized gain (loss) on available-for-sale Securities (199) (116) (124) (116)
-------- -------- -------- --------
Comprehensive income (loss) $ 7,119 $(13,014) $(19,271) $(24,506)
======== ======== ======== ========
3. Acquisitions
In March 1999, the Company acquired all of the outstanding capital stock of
The Compucare Company ("Compucare") in exchange for 2,957,000 shares of common
stock, of which 295,000 shares of common stock have been placed into escrow for
a period of one year under the terms and conditions of the acquisition
agreement. The acquisition was accounted for as a pooling of interests. Upon
closing of the acquisition, the assets and liabilities of Compucare were
recorded at net book value. The accompanying consolidated financial statements
have been restated to reflect the acquisition of Compucare on a pooling of
interests basis.
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A reconciliation of the current consolidated financial statements with
previously reported separate Company information for entities with which the
Company has pooled is presented below (in thousands):
FOR THE SIX MONTHS
ENDED JUNE 30,
1999 1998
--------- ---------
Revenues:
QuadraMed $ 91,880 $ 72,774
Compucare $ 25,796 $ 20,126
--------- ---------
Consolidated $ 117,676 $ 92,900
========= =========
Net income (loss):
QuadraMed $ (14,118) $ (27,709)
Compucare(a) $ (5,029) $ 3,319
--------- ---------
Consolidated $ (19,147) $ (24,390)
========= =========
- ----------
(a) Includes acquisition costs related to the acquisition of Compucare during
the first quarter of 1999.
4. Notes Payable and Convertible Subordinated Debt
As of December 31, 1998, the Company held long term notes payable of
$19,186,000. The Company repaid the outstanding balance and accrued interest
related to these notes payable during the second quarter of 1999.
In May 1998, the Company completed an offering of $115 million principal
amount of Convertible Subordinated Debentures, including the underwriters'
over-allotment option. The debentures are due May 1, 2005 and bear interest at
5.25 percent per annum. The Debentures are convertible into Common Stock at any
time prior to redemption or final maturity, initially at the conversion price of
$33.25 per share (resulting in an initial conversion ratio of 30.075 shares per
$1,000 principal amount). Proceeds to the Company from the offering were
$110,827,000.
5. Line of Credit and Debt Guarantee
In connection with the acquisition of Compucare in March 1999, the Company
assumed a line of credit arrangement with Compucare's bank. Under the terms of
the agreement, the Company may borrow up to $7,000,000 limited to 85 percent of
eligible billed receivables plus 50 percent of eligible unbilled receivables.
The Company pays interest at a rate of prime plus 1 percent. All outstanding
borrowings under the line of credit were repaid by the Company in March 1999.
The line of credit was terminated by the Company subsequent to the repayment of
the outstanding balance. The Company also had letters of credit with its bank
for $1,000,000.
In September 1998, the Company entered into an arrangement to guarantee a
line of credit of another company for up to $12,500,000. Outstanding balances
under the line of credit accrue interest at 8.5% and are due October 1, 2001.
The Company has also entered into a reseller agreement with the same company.
Under the terms of the reseller agreement, the Company has a non-exclusive
license to resell the company's software. This reseller agreement remains in
effect for an initial term of three (3) years, expiring on September 29, 2001,
and thereafter is subject to renewal for additional one (1) year terms.
6. Discontinued Operations
In connection with the acquisition of Compucare in March 1999, the Company
assumed the net liabilities of discontinued operations from certain prior
acquisitions of Compucare. In November 1996, Compucare consummated the sale of
Antrim Corporation ("Antrim"), a wholly-owned subsidiary of Compucare. In
December of 1996, Compucare announced it was evaluating a plan of "spin-off" or
sale of operations of Health Systems Integration, Inc. ("HSII"), a wholly-owned
subsidiary of Compucare. Compucare completed transactions related to the sale of
HSII's intellectual property and the majority of its customer base in December
1997. The results of operations for the three and six months ended June 30, 1999
and 1998, respectively, present Antrim and HSII as discontinued operations.
Results from discontinued operations for the three and six months ended June 30,
1999 were not
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material. The loss from discontinued operations for the three and six months
ended June 30, 1998 was $1,744,000. The assets and liabilities related to the
discontinued operations have been segregated on each of the aforementioned
balance sheets. Net liabilities related to discontinued operations at June 30,
1999 were $7,750,000.
7. Non-recurring Charges
During the first quarter of 1999, the Company recorded approximately
$18,800,000 of non-recurring charges. Those charges consisted of costs
associated with the closing of several duplicative operating facilities
primarily within the Company's Business Office Division and certain integration
costs related to prior acquisitions. The charge included approximately
$10,000,000 related to severance payments to employees ranging from several
weeks to two years in the case of certain management of Compucare. Such
severance payments are expected to be paid to involuntarily terminated employees
through August of 1999. In addition, the charge included $8,800,000 for future
rents and lease obligations the Company is obligated to fulfill as well as other
incremental costs to wind-down the operations of the offices. Future rents and
lease obligations are expected to be paid through July 2003. In 1997 and 1998,
respectively, the Company closed several other offices related to acquired
companies. At December 31, 1998, there was $1,579,000 accrued for future rents
and lease obligations related to such facilities. During the quarter ended June
30, 1999, the Company paid $860,000 related to rent and lease obligations for
these facilities.
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO BALANCE AT CHARGED TO BALANCE AT
DECEMBER 31, COSTS AND DECEMBER 31, COSTS AND JUNE 30,
1997 EXPENSES PAYMENTS 1998 EXPENSES PAYMENTS 1998
------------ ----------- -------- ----------- ----------- -------- ----------
DESCRIPTION
Personnel costs ................... -- $ 820 $ (820) $ -- $ 10,000 $ (8,742) $ 1,258
Rents and lease obligations ....... 1,334 1,260 (1,015) 1,579 3,282 (865) 3,996
Other incremental operating costs . -- 940 (940) -- 5,470 (3,270) 2,200
-------- -------- -------- -------- -------- -------- --------
Total Restructuring Accrual ..... $ 1,334 $ 3,020 $ (2,775) $ 1,579 $ 18,752 $(12,877) $ 7,454
======== ======== ======== ======== ======== ======== ========
8. Impairment of Intangibles
During the quarter ended March 31, 1999, the Company recorded a $10,600,000
charge for the write-down of certain intangible assets. The intangible assets
were associated with the Business Office Division, and were related to the
acquisitions of Synergy in 1997, InterLink, Velox and American Hospital
Directory in 1998. In accordance with SFAS #121, "Impairment of Long-Lived
Assets", projected cash flows from these product lines was not sufficient to
cover future amortization of the intangible assets and therefore were
written-down during the quarter ended March 31, 1999.
9. Segment Reporting
The Company Reported on three operating segments in 1999: the Business Office
Division (BO), and Health Information Management (HIM) Division and the
Enterprise Division. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before income
taxes not including nonrecurring gains and losses. The Company does not track
long-lived assets by segment and therefore related disclosures are not relevant
and are not presented.
For the six months ended June 30, 1999 and 1998, respectively, the following
table reports selected segment information required by SFAS No. 131: (TO BE
COMPLETED ON MONDAY)
1999 1998
-------------------------------------------- --------------------------------------------
BO HIM ENTERPRISE TOTAL BO HIM ENTERPRISE TOTAL
-------- -------- ---------- -------- -------- -------- ---------- --------
License revenues $ 24,298 $ 12,870 $ 26,237 $ 63,405 $ 16,593 $ 7,602 $22,082 $ 46,277
Service revenues $ 13,001 $ 41,270 -- 54,271 8,547 38,076 -- 46,623
-------- -------- -------- -------- -------- -------- ------- --------
$ 37,299 $ 54,140 $ 26,237 $117,676 $ 25,140 $ 45,678 $22,082 $ 92,900
Segment earnings (loss) $(21,386) $ 6,852 $ (4,613) $(19,147) $(10,962) $ (6,659) $(6,769) $(24,390)
Recent Accounting Pronouncements
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In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
'Software Revenue Recognition,'" which defers for one year the application of
provisions in SOP 97-2 which limit what is considered vendor-specific objective
evidence of the fair value of the various elements in a multiple element
arrangement. All other provisions in SOP 97-2 remain in effect. This SOP was
effective as of March 31, 1998. In December 1998, the AICPA issued SOP 98-9,
"Modification of SOP 97-2, 'Software Revenue Recognition,' With Respect to
Certain Transactions," which amends paragraphs 11 and 12 of SOP 97-2, Software
Revenue Recognition, to require recognition of revenue using the "residual value
method" under certain conditions. Effective December 15, 1998, SOP 98-9 amends
SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, 'Software
Revenue Recognition,'" to extend the deferral of the application of certain
passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of this SOP are effective for
transactions entered into in fiscal years beginning after March 31, 1999. The
Company does not anticipate that these statements will have a material adverse
impact on its statement of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes accounting
and reporting standards for derivative instruments and hedging activities. The
Company does not expect the adoption of SFAS 133, required beginning January
2001, to have a material effect on its consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for the historical financial information contained herein, the matters
discussed in this Form 10-Q may be considered "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include declarations regarding the intent, belief or current expectations of the
Company and its management. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties; actual results could differ materially from
those indicated by such forward-looking statements. Among the important factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements are: (i) variability in quarterly operating
results, (ii) identification, consummation and assimilation of acquisitions,
(iii) dependence on large orders and customer concentration, (iv) dependence on
hospitals and demand for the Company products and services in the healthcare
information systems and services markets, (v) legislative or market-driven
reforms in the health care industry, (vi) the Company's ability to develop and
introduce new products, (vii) management of the Company's changing operations,
(viii) dependence on key personnel, (ix) development by competitors of new or
superior products or entry into the market of new competitors, (x) risks related
to product defects, (xi) risks associated with pending litigation, (xii)
dependence on intellectual property rights, (xiii) volatility in the Company's
stock price and historically low trading volume, (xiv) the success or failure of
strategic alliances, (xv) risk of interruption in data processing, (xvi) risks
associated with certain investments in early stage companies, and (xvii) other
risks identified from time to time in the Company's reports and registration
statements filed with the SEC.
Overview
QuadraMed Corporation uses technology to transform disparate healthcare
data into valuable, enterprise-wide information. Providing and distributing
meaningful information through its software, services and Internet solutions,
QuadraMed has enabled its 3,850 customers in the U.S. and Canada to generate
operational efficiencies, improve cash flow and measure the cost and quality of
care. QuadraMed has implemented its product and service solutions in more than
60% of the nation's hospitals. The Company has expanded significantly since its
inception in 1993, primarily through the acquisition of other businesses,
products and services. Accordingly, the Company's consolidated financial
statements have been restated to include historical results of entities acquired
on a pooling of interests basis.
In March 1999, the Company acquired all of the outstanding capital stock of
The Compucare Company ("Compucare") in exchange for 2,957,000 shares of common
stock, of which 295,000 shares of common stock have been placed into escrow for
a period of one year under the terms and conditions of the acquisition
agreement. The acquisition was accounted for as a pooling of interests. The
accompanying consolidated financial statements have been restated to reflect the
acquisition of Compucare on a pooling of interests basis.
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As of June 30, 1999, QuadraMed and its subsidiaries had more than 3,800
customers, approximately 80% of which were hospitals, located in all 50 states,
the District of Columbia, Canada, Puerto Rico, South Africa and Singapore. The
Company expects to maintain a high percentage of hospital customers, but also
expects its customer mix to transition to a higher percentage of other
providers, including integrated delivery health care systems ("IDSs"), as well
as physicians, payors and employers. No single customer accounted for more than
10% of the Company's revenues in the six months ended June 30, 1999 or 1998.
The Company licenses a variety of products and provides a variety of
services. License revenue includes license, installation and post-contract
customer support fees, third-party hardware sales and other revenues related to
licensing of the Company's software products. Service revenue is composed of
business office and health information management outsourcing, cash flow
management, compliance and consulting services.
The Company's product offering includes a variety of products which can be
licensed individually or as a suite of interrelated products. Products are
licensed either under term arrangements (which range from one year to three
years and typically include monthly or annual payments over the term of the
arrangement) or on a perpetual basis. Revenues from term licenses are recognized
monthly or annually over the term of the license arrangement, beginning at the
date of installation. Revenues from perpetual licenses are recognized upon
shipment of the software if there is persuasive evidence of an agreement,
collection of the resulting receivable is probable and the fee is fixed and
determinable. If an acceptance period is required, revenues are recognized upon
the earlier of customer acceptance or the expiration of the acceptance period.
Revenues from certain products, including the Company's enterprise solutions are
recognized on a percentage of completion basis of accounting as determined by
the achievement of certain performance milestones during the product
installation process.
Certain services are also provided to certain of the Company's licensees of
software products. These services consist primarily of consulting and
post-contract customer support. Consulting services generally consist of
installation of software at customer sites, and revenue is recognized upon
completion of installation. Unbilled receivables consist of work performed or
software delivered which has not been billed under the terms of the contractual
arrangement with the customer. Post-contract customer support is recognized
ratably over the term of the support period. Deferred revenue primarily consists
of revenue deferred under annual maintenance and annual license agreements on
which amounts have been received from customers and for which the earnings
process has not been completed.
The Company provides business office and health information management
outsourcing, cash flow management, compliance and consulting services to certain
hospitals under contract service arrangements. Outsourcing revenues typically
consist of fixed monthly fees plus, in the case of business office outsourcing,
incentive-based payments that are based on a percentage of dollars recovered for
the provider for which the service is being performed. The monthly fees are
recognized as revenue on a monthly basis at the end of each month. Incentive
fees are recognized as the conditions upon which such fees are based are
realized based on collection of accounts from payors. Cash flow management
services typically consist of fixed fee services and additional incentive
payments based on a certain percentage of revenue returns realized by the
customer as a result of the services provided by the Company. The fixed fee
portion is recognized upon completion of the project with the customer.
Compliance and consulting revenues are recognized as the services are provided.
The Company has experienced operating margins at differing levels related to
licenses and services. The service business has historically realized
fluctuating margins that were significantly lower than margins associated with
licenses.
The Company capitalizes a portion of its software costs for internally
developed software products. These capitalized costs relate primarily to the
development of new products and the extension of applications to new markets or
platforms using existing technologies. The capitalized costs are amortized on a
straight-line basis over the estimated lives (usually five years) of the
products, commencing when each product is available to the market.
Revenues
License. License revenues for the quarter ended June 30, 1999 increased 11.1%
to $29.7 million, compared to $26.7 million in the same period last year. For
the six months ended June 30, 1999, license revenues increased 27.7% to $63.4
million compared to $49.7 million in the same period last year. The increase in
license revenues was due principally to new customers associated with the
Company's coding, capitation products and enterprise products from recently
acquired Compucare. License revenues include license, installation, consulting
and post-contract support fees, third-party hardware sales and other revenues
related to licensing of the Company's software products.
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Service. Service revenues for the quarter ended June 30, 1999 increased 21.8%
to $27.9 million, compared to $22.9 million in the same period last year. For
the six months ended June 30, 1999, services revenues increased 25.5% to $54.3
million, compared to $43.2 million in the same period last year. The increase in
service revenues was due principally to new customers associated with the
Company's health information management outsourcing, compliance and specialty
audit services.
The Company experienced a substantial increase in revenues in 1998 which
reflected the completion of numerous acquisitions, several of which were
significant. The Company currently expects to complete fewer acquisitions in
1999. As a result the Company does not expect revenues to increase at historical
rates in the future.
Cost of Revenues
Cost of licenses. Cost of license revenues of $12.2 million for the quarter
ended June 30, 1999 increased nominally, compared to the same period last year.
For the six months ended June 30, 1999, cost of license revenues increased 6.5%
to $25.7 million, compared to $24.1 million in the same period last year. Cost
of licenses consists primarily of salaries, benefits and allocated costs related
to software installations, hardware costs, customer support and royalties to
third parties. As a percentage of license revenues, cost of licenses decreased
to 41.1% in the quarter ended June 30, 1999, from 45.5% in the same period last
year. As a percentage of license revenues, cost of licenses decreased to 40.5%
in the six months ended June 30, 1999, from 48.9% in the same period last year.
The increase in cost of licenses for the six months ended June 30, 1999 was
principally due to additional personnel hired to support installations of the
Company's software products, while the decrease in cost of licenses as a
percentage of license revenues during the quarter is principally due to the
leveraging of costs over an increased revenue base.
Cost of services. Cost of service revenues for the quarter ended June 30,
1999 increased 4.3% to $15.7 million, compared to $15.0 million, in the same
period last year. For the six months ended June 30, 1999, cost of services
revenues increased 9.5% to $32.0 million, compared to $29.2 million in the same
period last year. Cost of services includes expenses associated with services
performed in connection with health information management and business office
outsourcing, compliance, consulting and other audit services. As a percentage of
service revenues, cost of services decreased to 56.1% in the quarter ended June
30, 1999 from 65.5% in the same period last year. As a percentage of service
revenues, cost of services decreased to 58.9% in the six months ended June 30,
1999 from 67.5% in the same period last year. The increase in cost of services
was due principally to additional operating costs associated with the health
information management outsourcing services and to a lesser extent, the hiring
of additional compliance consultants. Cost of services as a percentage of
service revenues decreased for the three and six months ended June 30, 1999,
principally due to a higher revenue contribution from the Company's health
information management outsourcing business unit and to a lesser extent, the
closure of one of the Company's duplicative operating facilities within its
business office outsourcing operations in the third quarter of 1998. As a result
of this facility closure, the Company eliminated a lower margin business. In
addition, the Company's audit services provided higher revenues and operating
margins than certain of its other service businesses in 1999.
Operating Expenses
General and Administration. General and administration expenses for the
quarter ended June 30, 1999 decreased 6.4% to $7.9 million, compared to $8.5
million in the same period last year and, as a percentage of total revenues,
decreased to 13.8% compared to 17.0% in the same period last year. For the six
months ended June 30, 1999, general and administration expenses decreased 9.6%
to $15.4 million, compared to $17.1 million in the same period last year, and as
a percentage of total revenues, decreased to 13.1% , compared to 18.4% in the
same period last year. The decrease in general and administration expenses in
absolute dollars and as a percentage of total revenues for the three and six
months ended June 30, 1999 was principally due to a larger revenue base and, to
a lesser extent, the reduction of certain overhead costs associated with prior
acquisitions as the Company has centralized many of its administrative
functions.
Sales and Marketing. Sales and marketing expenses for the quarter ended June
30, 1999 increased 2.2% to $5.5 million, compared to $5.4 million in the same
period last year, and decreased as a percentage of total revenues to 9.5% from
10.9% in the same period last year. For the six months ended June 30, 1999,
sales and marketing expenses increased 4.3% to $10.6 million, compared to $10.2
million in the same period last year, and as a percentage of total revenues,
decreased to 9.0%, compared to 11.0% in the same period last year. The increase
in sales and marketing expenses resulted principally from the addition of sales
and marketing personnel in 1999 and higher advertising costs, which included a
more expansive participation at the annual healthcare information management
conference in February 1999. Sales and marketing expenses as a percentage of
total revenues, decreased principally due to a larger revenue base.
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Research and Development. Research and development costs include costs incurred
by the Company to further its efforts for enhancing it's products, which
ultimately supports the Company's license revenues. Research and development
expenses for the quarter ended June 30, 1999 decreased 14.2% to $5.2 million,
compared to $6.0 million in the same period last year and as a percentage of
total revenues decreased to 9.0% from 12.1% in the same period last year. For
the six months ended June 30, 1999, research and development expenses decreased
10.5% to $10.9 million, compared to $12.1 million in the same period last year,
and as a percentage of total revenues, decreased to 9.2%, compared to 13.1% in
the same period last year. Research and development expenses decreased
principally due to the completion of certain software development projects
during the latter half of 1998 and the reallocation of those resources to other
areas, as well as the further integration of acquired companies and their
development efforts. The Company capitalized $2.2 million and $656,000 of
software development costs in the six months ended June 30, 1999 and 1998,
respectively, which represented 16.8% and 6.6% of total research and development
expenditures for the six months ended June 30, 1999 and 1998, respectively. The
Company believes that research and development expenditures are essential to
maintaining its competitive position. As a result, the Company intends to
continue to make investments in the development of new products and in the
further integration of acquired technologies into the Company's suite of
products. The Company believes that these expenses will increase in the future,
both in absolute terms and as a percentage of total revenues.
Amortization of Intangibles. Amortization of intangibles for the quarter
ended June 30, 1999 increased 10.9% to $1.7 million compared to $1.5 million in
the same period last year. For the six months ended June 30, 1999, amortization
of intangibles increased 63.3% to $3.8 million compared to $2.3 million in the
same period last year. The increase in the amortization of intangibles is
principally due to the acquisition of the remaining 43.3% interest in Medicus in
May 1998, and the acquisition of Cabot Marsh in February 1998.
Acquired Research and Development In-Process. In connection with the
acquisitions of Cabot Marsh, Velox and entities affiliated with InterLink during
the first six months of 1998, the Company expensed $13.9 million of acquired
in-process research and development as the technology had not achieved
feasibility and had no alternative future use. There were no such charges in the
first six months of 1999.
Acquisition Costs. The Company incurred $563,000 and $6.9 million of
acquisition costs for the three and six months ended June 30, 1999. These
acquisition costs primarily related to the Compucare acquisition in the first
quarter of 1999. Such costs were primarily for financial advisor fees of
approximately $5.7 million incurred by the Company and Compucare and to a lesser
extent, legal and accounting fees of approximately $1,200,000.
Non-Recurring Charges. Non-recurring charges of $29.3 million in the first
three months of 1999 were associated with the closing of duplicative operating
facilities within several of the Company's business units and the write-down of
certain intangibles from past acquisitions which were determined to be impaired.
The Company incurred approximately $18.8 million to close four office facilities
and to reduce the related workforce by more than one hundred employees. The
charge included approximately $10 million related to severance payments to
employees ranging from several weeks to two years in the case of certain
management of Compucare. In addition, the charge included $8.8 million of future
rents and lease obligations the Company is contractually obligated to fulfill as
well as other incremental costs to wind-down the operations of the offices. The
Company recorded a $10.6 million charge to write-down certain intangible assets
from acquired companies in 1997 and 1998. The write-down related to the
acquisitions of Synergy, InterLink, Velox and American Hospital Directory. No
such charges were incurred during the quarter ended June 30, 1999.
Interest Income (expense). Interest expense, net was $636,000 and $1.1
million in the three and six months ended June 30, 1999, respectively, compared
to interest income of $2,000 and $68,000 for the same periods last year,
respectively. Interest expense during 1999 was principally due to interest
expense from the Company's $115 million Convertible Subordinated Debentures
which closed in May 1998 and notes payable assumed from the acquisition of IMN
in September 1998, partially offset by interest income from the Company's cash
and investments.
Provision for income taxes. Provision for income taxes was $937,000 and
$1,339,000 in the quarters ended June 30, 1999 and 1998 and $1.1 million and
$2.0 million in the six months ended June 30, 1999 and 1998, respectively. The
provision for income taxes is primarily due to state and alternative minimum tax
liabilities on certain of the Company's legal entities. For financial reporting
purposes, a 100% valuation allowance has been recorded against the Company's
deferred tax assets under SFAS No. 109, "Accounting for Income Taxes."
Liquidity and Capital Resources
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In October 1996, the Company completed its initial public offering of common
stock, which resulted in net proceeds to the Company of approximately $26.4
million. In October 1997, the Company completed a follow-on offering of common
stock, which resulted in net proceeds to the Company of approximately $57.3
million. In May 1998, the Company completed an offering of $115.0 million
principal amount of Convertible Subordinated Debentures, including the initial
purchasers' over-allotment option. The debentures are due May 1, 2005 and bear
interest, which is payable semi-annually at 5.25 percent per annum. Proceeds to
the Company from the offering were $110.8 million.
Net cash used in operating activities was $24.5 million and $11.1 million
in the six months ended June 30, 1999 and 1998, respectively. Net cash used in
operating activities in the six months ended June 30, 1999 was principally due
to an increase in accounts receivable and prepaid expenses and other. Accounts
receivable increased primarily due to an increase in receivables associated with
the Company's Enterprise products. Prepaids and other assets increased primarily
due to prepaid royalties related to purchased technology rights during the
second quarter of 1999. Net cash used in operating activities for the six months
ended June 30, 1998 related to the net loss for the period, which was offset by
the write-off of in-process research and development.
Net cash used in investing activities was $9.7 million and $61.8 million in
the six months ended June 30, 1999 and 1998, respectively. Investing activities
for the six months ended June 30, 1999 primarily included the purchase of
technology rights of $6.0 million, the additional equity investment of $3.0
million in VantageMed rights, as well as the purchase of capital equipment and
the capitalization of computer software development costs. These cash outflows
were offset by $7.2 million received from net maturities of short term
investments. Investing activities for the six months ended June 30, 1998 related
to purchases of short and long term investments and cash paid for the
acquisitions of Cabot Marsh, Velox and entities associated with InterLink, as
well as the purchase of capital equipment and the capitalization of computer
software development costs during 1998.
Net cash used in financing activities was $19.5 million in the six months
ended June 30, 1999 compared to net cash provided by financing activities of
$127.5 million in the six months ended June 30, 1998. Financing activities in
the six months ended June 30, 1999 related to the repayment of the outstanding
balances under the line of credit assumed as part of the Compucare acquisition
and under a note payable assumed as part of the IMN acquisition, offset by the
proceeds from the exercise of common stock options. Cash provided by financing
activities in the six months ended June 30, 1998 related to the issuance of
convertible subordinated debentures, which was offset by the issuance of common
stock and the proceeds from the exercise of common stock options.
In December 1997, the Company entered into an agreement with Arcadian
Management Services, Inc. ("Arcadian") to develop a centralized business office
("CBO") and to provide full business office outsourcing services for its four
managed hospitals. In connection with this agreement, the Company purchased
certain accounts receivable from Chama, Inc. ("Chama"), a customer of Arcadian,
for the purpose of increasing cash flow while the CBO was implemented. As of
June 30, 1999, approximately $1.0 million of these receivables remained
outstanding. The remaining balances are included in notes and other receivables
on the consolidated balance sheet. On October 7, 1998, Chama filed for
reorganization under Chapter 11. Prior to the filing, the Company had perfected
a security interest in the receivables purchased from Chama and, pursuant to a
court order, the receivables owned by the Company are being segregated as they
are collected.
The Company believes that its current cash and investments will be sufficient
to fund operations at least through December 31, 1999.
See "FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS" for discussion on year
2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
The Company's exposure to market risk for changes in interest rates primarily
relates to its investment portfolio and Subordinated Convertible Debentures. The
Company invests in high-quality issuers which includes money market funds,
corporate debt securities and securities issued by the United States Government.
It is the Company's intent to ensure the safety and preservation of its invested
principal funds by limiting default risk, market risk and reinvestment risk. The
Company continually reviews both its investment policy and its investments to
ensure this objective is being met.
FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
History of Operating Losses; Uncertain Profitability
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We incurred net losses of $33.9 million and $18.6 million for the years ended
December 31, 1997 and 1998, respectively, and a net loss of $19.1 million for
the six months ended June 30, 1999. As of June 30, 1999, our accumulated deficit
was $212.3 million. These results include write-offs for acquired in-process
research and development in the years ended December 31, 1997 and 1998 of $21.9
million and $14.5 million, respectively. In connection with our acquisitions, we
have and will incur significant non-recurring charges and will be required to
amortize significant expenses related to goodwill and other intangible assets in
future periods. It is uncertain whether we will be able to achieve or sustain
revenue growth or profitability on a quarterly or annual basis.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
Our quarterly operating results have varied significantly in the past.
Our quarterly revenues and operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. These factors include:
- - integration of acquired businesses with our business;
- - variability in demand for our products and services;
- - the introduction of product enhancements and new products by us and our
competitors;
- - the timing and significance of announcements concerning our present or
prospective strategic alliances;
- - the termination of, or a reduction in, the products and services we
offer,
- - the loss of customers due to consolidation in the health care industry;
- - delays in product delivery requested by our customers;
- - the length of the sales cycle for our products or the timing of our
sales;
- - the amount of new potential contracts at the beginning of any particular
quarter;
- - budgeting cycles of our customers and changes in our customer's budgets;
- - our investment in marketing, sales, research and development, and
administrative personnel necessary to support our anticipated
operations;
- - costs incurred in connection with our marketing and sale promotional
activities;
- - software defects and other quality factors in our products; and
- - general economic conditions and resulting effects on the health care
industry.
We cannot accurately forecast the timing of our customer purchases due
to the complex procurement decision process associated with most health care
providers and payors. As a result, we typically experience sales cycles that
extend over several quarters. In addition, certain products we acquired as a
result of our acquisition of Integrated Medical Networks in September 1998 and
The Compucare Company in March 1999 have higher average selling prices and
longer sales cycles than many of our other products. This may increase the
volatility of our quarterly operating results. Moreover, our operating expense
levels, which will increase with the addition of acquired businesses, are
relatively fixed. Accordingly, if future revenues are below our expectations, we
would experience a disproportionate adverse affect on our net income and
financial results. Further, it is likely that, in some future quarter, our
revenues or operating results may fall below the expectations of securities
analysts and investors. In such an event, the trading price of our Common Stock
would likely be materially and adversely affected.
Integration Of Acquired Companies Into The Company
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Realizing benefits from acquisitions depends in significant part upon
several factors and is accompanied by a number of risks, including:
- - successful integration of the operations, products and personnel of the
acquired company;
- - possible costs, delays or other problems we may incur to successfully
complete such integration;
- - the potential interruption or disruption of our ongoing business and the
distraction of management from other matters; and
- - significant operational and administrative expense relating to such
integration.
Any difficulties encountered in the integration process could have a
material adverse effect on our business, operating results and financial
condition. Even if we are able to successfully integrate these businesses with
our business, the acquired operations may not achieve sales, productivity and
profitability commensurate with our historical or projected operating results.
Failure to achieve such projected results would have a material adverse effect
on our financial performance, and in turn, on the market value of the our Common
Stock. There can be no assurance that we will realize any of the anticipated
benefits of our acquisitions or that such acquisitions will enhance our business
or financial performance.
Dependence On Acquisition Strategy
We intend to continue to expand in part through acquisitions of
products, technologies and businesses. Our ability to expand successfully
through acquisition depends on many factors, including:
- - the successful identification and acquisition of products, technologies
or businesses;
- - management's ability to effectively negotiate and consummate
acquisitions and integrate and operate the new products, technologies or
businesses;
- - significant competition for acquisition opportunities in our industry,
which may intensify due to increasing consolidation in the health care
industry, thereby increasing the costs of capitalizing on acquisition
opportunities;
- - competition for acquisition opportunities with other companies that have
significantly greater financial and management resources than us;
RISKS ASSOCIATED WITH ACQUISITIONS; NEED TO MANAGE CHANGING OPERATIONS
Acquisitions involve a number of special risks including:
- - managing geographically dispersed operations;
- - failure of the acquired business to achieve expected results;
- - failure to retain key personnel of the acquired business;
- - inability to integrate the new business into existing operations and
risks associated with unanticipated events or liabilities;
- - potential increases in stock compensation expense and increased
compensation expense resulting from newly hired employees; and
- - the assumption of unknown liabilities and potential disputes with the
sellers of one or more acquired entities; and
- - exposure to the risks of entering markets in which we have no direct
prior experience or to risks associated with the market acceptance of
acquired products and technologies.
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Management evaluated, purchased and is implementing a new management and
accounting system during 1999. Information systems expansion or replacement can
be a complex, costly and time-consuming process, and there can be no assurance
that our system transition and further implementation can be accomplished
without disruption of our business. Any business disruption or other system
transition difficulties could have a material adverse effect on our business,
financial condition and results of operations.
We may not be successful in addressing these risks and our failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.
Additionally, customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on its sales and marketing
initiatives and on our reputation. With the addition of the acquired businesses,
our anticipated future operations may place a strain on our management systems
and resources. We expect that we will be required to continue to improve our
financial and management controls, reporting systems and procedures, and will
need to expand, train and manage our workforce. There can be no assurance that
we will be able to effectively manage these tasks, and the failure to do so
could have a material adverse effect on our business, financial condition and
results of operations.
Moreover, future acquisitions by us may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and the
recognition of amortization expenses related to goodwill and other intangible
assets. Our inability to successfully deal with these factors could have a
material adverse effect on our business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
We are substantially dependent upon the continued service of our executive
officers, product managers and other key sales, marketing and development
personnel. If we fail to retain the services of any of our executive officers or
fail to hire, retain and motivate other key employees, our business will be
adversely affected. Furthermore, additions of new, and departures of existing,
personnel could have a disruptive effect on our business and operations.
RISKS RELATED TO HOSPITAL AND MANAGED CARE MARKETS; UNCERTAINTY IN THE
HEALTHCARE INDUSTRY
A substantial portion of our revenues have been and are expected to be
derived from the sale of software products and services to hospitals.
Consolidation in the health care industry, particularly in the hospital and
managed care markets, could cause a decrease in the number of existing or
potential purchasers of our products and services, which could adversely affect
our business. In addition, the decision to purchase our products often involves
the approval of several members of management of a hospital or health care
provider. Consequently, it is difficult for us to predict the timing or outcome
of the buying decisions of our customers or potential customers.
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. We believe that the
commercial value and appeal of our products may be adversely affected if the
current health care financing and reimbursement system were to reverse its
current evolution to a managed care model back to a fee-for-service model. In
addition, many of our customers are providing services under capitated service
agreements, and a reduction in the use of capitation arrangements as a result of
regulatory or market changes could have a material adverse effect on our
business, financial condition and operating results. During the past several
years, the health care industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures. Certain proposals to reform the health care system have
been and are being considered by Congress. These proposals, if enacted, could
change the operating environment of our clients in ways that cannot be
predicted. Health care organizations may react to these proposals by curtailing
or deferring investments, including those for our products and services.
Changes in current health care financing and reimbursement systems could
result in the need for unplanned product enhancements, in delays or
cancellations of product orders or shipments or in the revocation of endorsement
of our products by hospital associations or other customers. Any of these
occurrences could have a material adverse effect on our business. In addition,
many health care providers are consolidating to create integrated health care
delivery systems with greater regional market power. As a result, these emerging
systems could have greater bargaining power, which may lead to price erosion of
our products. If we fail to maintain adequate price levels, our business,
financial condition and results of operations would be adversely affected. Other
market-driven reforms could also have adverse effects on our business, financial
condition and results of operations.
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HIGHLY COMPETITIVE MARKET
Competition in the market for our products and services is intense and is
expected to increase. Increased competition could result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and results of operations. We
compete with other providers of health care information software and services,
as well as health care consulting firms. Some principal competitors include,
among others:
- - CIS Technologies, Inc., a division of National Data Corporation, Inc., and
Sophisticated Software, Inc. in the market for our EDI products;
- - MedE AMERICA in the market for our claims processing service;
- - Healthcare Cost Consultants, Inc., a division of CIS Technologies, Inc., and
Trego Systems, Inc. in the market for our contract management products;
- - McKesson HBOC, Inc., Optika Imaging Systems, Inc. and LanVision Systems, Inc.
in the market for our electronic document management products;
- - Transition Systems, Inc. and Healthcare Microsystems, Inc., a division of
Health Management Systems Inc., HCIA Inc. and MediQual Systems, Inc., a
division of Cardinal Health, Inc., in the market for our decision support
products;
- - McKesson HBOC, Inc., Shared Medical Systems, Inc., MediTech Corporation and
Eclipses Corporation in the market for our enterprise products;
- - HMS and ARTRAC, a division of Medaphis in the market for our business office
outsourcing services;
- - a subsidiary of Minnesota Mining and Manufacturing, in the market for our
medical records products; and
- - Transcend Services, Inc. and SMART Corporation in the market for our health
information management services.
In addition, current and prospective customers evaluate our capabilities
against the merits of their existing information systems and expertise.
Furthermore, major software information systems companies, including those
specializing in the health care industry, not presently offering products that
compete with those offered by us, may enter our markets. In addition, many of
our competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources and market
recognition than us. Many of our competitors also currently have, or may develop
or acquire, substantial installed customer bases in the health care industry. As
a result of these factors, our competitors may be able to respond more quickly
to new or emerging technologies, changes in customer requirements and political,
economic or regulatory changes in the health care industry and may devote
greater resources to the development, promotion and sale of their products than
us. There can be no assurance that we will be able to compete successfully
against current and future competitors or that such competitive pressures will
not materially adversely affect our business, financial condition and operating
results.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 of the
Securities Act and through the exercise of registration rights could lower the
market price of our Common Stock. As of June 30, 1999, approximately 1,500,000
shares are available for sale in the public market subject to compliance with
Rule 144. Certain of our existing stockholders holding an aggregate of 725,934
shares of Common Stock as of June 30, 1999 have rights under certain
circumstances to require us to register their shares for future sale, excluding
shares issued in the acquisitions of Compucare, discussed below.
In March 1999, we closed the acquisition of Compucare. In connection with the
acquisition of Compucare, we issued an aggregate of 2,957,000 shares of Common
Stock, all of which have registration rights. In September 1998, we closed the
acquisition of IMN . In connection with the acquisition of IMN, we issued an
aggregate of 1,550,000 shares of Common Stock. In June 1998, we closed the
acquisition of Pyramid. In connection with the acquisition of Pyramid, we issued
an aggregate of 2,784,508 shares of Common Stock
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19
and warrants to purchase 62,710 shares of Common Stock. All of the shares of
Common Stock issued in connection with the acquisitions of IMN and Pyramid have
been registered under the Securities Act and are freely tradeable.
Sales of a substantial number of the aforementioned shares in the public
markets or the prospect of such sales could adversely affect or cause
substantial fluctuations in the market price of the Common Stock and impair our
ability to raise additional capital through the sale of our securities.
NEW PRODUCT DEVELOPMENT AND SYSTEM ENHANCEMENT
Our performance depends in large part upon our ability to provide the
increasing functionality required by our customers through the timely
development and successful introduction of new products and enhancements to our
existing suite of products. We have historically devoted significant resources
to product enhancements and research and development and believe that
significant continuing development efforts will be required to sustain our
operations and integrate the products and technologies of acquired businesses
with our products. There can be no assurance that we will successfully or in a
timely manner develop, acquire, integrate, introduce and market new product
enhancements or products, or that product enhancements or new products developed
by us will meet the requirements of hospitals or other health care providers and
payors and achieve or sustain market acceptance.
LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
We rely on a combination of trade secrets, copyright and trademark laws,
nondisclosure and other contractual provisions to protect our proprietary
rights. We have not filed any patent applications covering our technology. There
can be no assurance that measures taken by us to protect our intellectual
property will be adequate or that our competitors will not independently develop
products and services that are substantially equivalent or superior to the
products and services we offer.
There is substantial litigation regarding intellectual property rights in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segment grows and the functionality of products overlaps. We believe that our
products do not infringe upon the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against us in the future. The Company may incur substantial litigation expenses
in defending any such claim regardless of the merit of the claim. In the event
of an unfavorable ruling on any such claim, we cannot guarantee that a license
or similar agreement will be available to us on reasonable terms, if at all.
Infringement may result in significant monetary liabilities which would have a
material adverse effect on our business, financial condition and results of
operations. We cannot guarantee that we will be successful in the defense of
these or similar claims.
RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA
Products such as our products frequently contain errors or failures,
especially when initially introduced or when new versions are released. Although
we conduct extensive testing on our products, software errors have been
discovered in certain enhancements and products after their introduction. We
cannot guarantee that despite such testing by us, and by our current and
potential customers, products under development, enhancements or shipped
products will be free of errors or performance failures, resulting in, among
other things;
- - loss of revenues and customers;
- - delay in market acceptance;
- - diversion of resources;
- - damage to our reputation; or
- - increased service and warranty costs.
The occurrence of any of these consequences could have a material adverse
effect upon our business, financial condition and results of operations.
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YEAR 2000
As is true for most companies, the Year 2000 computer issue creates a risk
for us. If systems do not correctly recognize date information when the year
changes to 2000, there could be an adverse impact on our operations. We face
risks in four areas: systems used by us to run our business, systems used by our
suppliers, potential warranty or other claims from our customers, and the
potential reduction in spending by other companies on our products and solutions
as a result of significant information systems spending on Year 2000
remediation.
We have conducted a thorough inventory and evaluation of our systems,
equipment and facilities. We have a number of projects underway to replace or
upgrade systems, equipment and facilities that we know to be Year 2000
non-compliant. We have not identified alternative remediation plans if upgrade
or replacement is not feasible. We will consider the need for such remediation
plans as we continue to assess the year 2000 risk. For the Year 2000
non-compliance issues identified to date, the cost of upgrade or remediation is
not expected to be material to our operating results. If implementation of
replacement systems is delayed, or if significant new non-compliance issues are
identified, our results of operations or financial condition could be materially
adversely affected.
We are also in the process of contacting our critical suppliers to determine
that such suppliers' operations and the products and services they provide are
Year 2000 compliant. To date, we are unaware of any current suppliers that are
not Year 2000 ready. In the event that our suppliers are not Year 2000
compliant, we will seek alternative sources of supplies. However, such failures
remain a possibility and could have an adverse impact on our results of
operations or financial condition.
We believe our current products are Year 2000 compliant. However, since all
customer situations cannot be anticipated, particularly those involving third
party products, we may see an increase in warranty and other claims as a result
of the Year 2000 transition. In addition, litigation regarding Year 2000
compliance issues is expected to escalate. For these reasons, the impact of
customer claims could have a material adverse impact on our results of
operations or financial condition.
Year 2000 compliance is an issue for virtually all businesses whose computer
systems and applications may require significant hardware and software upgrades
or modifications. Companies owning and operating such systems may plan to devote
a substantial portion of their information systems' spending to fund such
upgrades and modifications and divert spending away from our products and
solutions. Such changes in our customers' spending patterns could have a
material adverse impact on our sales, operating results or financial condition.
RISK OF INTERRUPTION OF DATA PROCESSING
We currently process substantially all our customer data at our facilities in
Richmond, California and Neptune, New Jersey. Although we back up our data
nightly and have safeguards for emergencies such as power interruption or
breakdown in temperature controls, we have no mirror processing site to which
processing could be transferred in the case of a catastrophic event at either of
these facilities. In the event that a major catastrophic event occurs at either
the Richmond or the Neptune facility, possibly leading to an interruption of
data processing, our business, financial condition and results of operations
could be adversely affected.
RISKS RELATED TO OUTSOURCING BUSINESS
We provide compliance, consulting and business office outsourcing and cash
flow management services, including the billing and collection of receivables.
We acquired the infrastructure for our outsourcing business through an
acquisition. In addition, we often use our software products to provide
outsourcing services. As a result, we have not been required to make significant
capital expenditures in order to service existing outsourcing contracts.
However, if we experience a period of substantial expansion in our outsourcing
business, we may be required to make substantial investments in capital assets
and personnel. We cannot guarantee that we will be able to assess accurately the
investment required and negotiate and perform in a profitable manner any of the
outsourcing contracts we may be awarded. Our failure to either estimate
accurately the resources and related expenses required for a project, or to
complete our contractual obligations in a manner consistent with the project
plan upon which a contract was based, could have a material adverse effect on
our business, financial condition and results of operations. In addition, our
failure to meet a client's expectations in the performance of our services could
damage our reputation and adversely affect our ability to attract new business.
Finally, we could incur substantial costs and expend significant resources
correcting errors in our work, and could possibly become liable for damages
caused by these errors.
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GOVERNMENT REGULATION
The United States Food and Drug Administration (the "FDA") is responsible for
assuring the safety and effectiveness of medical devices under the Federal Food,
Drug and Cosmetic Act. Computer products are subject to regulation when they are
used or are intended to be used in the diagnosis of disease or other conditions,
or in the cure, mitigation, treatment or prevention of disease, or are intended
to affect the structure or function of the body. The FDA could determine in the
future that any predictive aspects of our products make them clinical decision
tools subject to FDA regulation. Compliance with these regulations could be
burdensome, time consuming and expensive. We could also become subject to future
legislation and regulations concerning the development and marketing of health
care software systems. Such legislation could increase the cost and time
necessary to market new products and could affect us in other respects not
presently foreseeable. We cannot predict the effect of possible future
legislation and regulation.
State governments substantially regulate the confidentiality of patient
records and the circumstances under which such records may be released for
inclusion in our databases. These state laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of the hospital, physician or other health care provider,
regulations governing patient confidentiality rights are evolving rapidly.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal levels. This legislation may
require holders of such information to implement security measures that may
require us to incur substantial expenditures. We are not sure that changes to
state or federal laws will not materially restrict the ability of health care
providers to submit information from patient records using our products.
RISK OF PRODUCT-RELATED CLAIMS
Some of our products and services are used in the payment, collection, coding
and billing of health care claims and the administration of managed care
contracts. If our employees or our products fail to accurately assess, process
or collect these claims, our customers may file claims against us. We have been
and currently are involved in claims for money damages related to services
provided by our accounts receivable management business. We maintain insurance
to protect against certain claims associated with the use of our products, but
there can be no assurance that our insurance coverage would adequately cover any
claim brought against us. A successful claim brought against us that is in
excess of, or is not covered by, our insurance coverage could adversely affect
our business, financial condition and results of operations. Even a claim
without merit could result in significant legal defense costs and would consume
management time and resources. We do not know whether we will be subject to
material claims in the future which may result in liability in excess of our
insurance coverage, or which our insurance may not cover. We may not be able to
obtain appropriate insurance in the future at commercially reasonable rates. In
addition, if we are found liable, we would have to significantly alter our
products resulting in additional unanticipated research and development
expenses.
RISKS ASSOCIATED WITH CERTAIN INVESTMENTS
We have made equity investments to acquire minority interests in certain
early stage companies. We do not have the ability to control the operations of
any of these companies. Investing in such early stage companies is subject to
certain significant risks. There can be no assurance that any of these companies
will be successful or achieve profitability or that we will ever realize a
return on our investments. In addition, to the extent any of such companies fail
or become bankrupt or insolvent, we may lose some or all of our investment. We
intend to continue to make additional investments in such companies in the
future. Losses resulting from such investment could have a material adverse
effect on our operating results.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISION
Our Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock may be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change of
control of the Company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock. We
have no present plans to issue shares of Preferred Stock.
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22
Further, certain provisions of our Certificate of Incorporation and Bylaws
could discourage potential takeover attempts and make attempts by stockholders
to change management more difficult. For example, our Board of Directors is
classified into three classes of directors serving staggered, three-year terms
and has the authority without action by our stockholders to impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. In addition, our Certificate
of Incorporation provides that directors may be removed only by the affirmative
vote of the holders of two-thirds of the shares of capital stock of the Company
entitled to vote. Any vacancy on the Board of Directors may be filled only by
vote of the majority of directors then in office. Further, our Certificate of
Incorporation provides that any "Business Combination" (as therein defined)
requires the affirmative vote of two-thirds of the shares entitled to vote,
voting together as a single class. These provisions, and certain other
provisions of the Certificate of Incorporation which may have the effect of
delaying proposed stockholder actions until the next annual meeting of
stockholders, could have the effect of delaying or preventing a tender offer for
the Company's Common Stock or other changes of control or management of the
Company, which could adversely affect the market price of our Common Stock.
Finally, certain provisions of Delaware law could have the effect of delaying,
deterring or preventing a change in control of the Company, including Section
203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder unless certain conditions are met.
VOLATILITY OF STOCK PRICE
The stock market in general, and the Nasdaq National Market, has historically
experienced extreme price and volume fluctuations that have often been unrelated
to the operating performance of companies and which has affected the market
price of securities of many companies. The trading price of our Common Stock is
likely to be highly volatile and could also be subject to significant
fluctuations in price in response to such factors as:
- - variations in quarterly results of operations;
- - announcements of new products or acquisitions by us or our competitors;
- - governmental regulatory action;
- - developments or disputes with respect to proprietary rights;
- - general trends in our industry and overall market conditions; and
- - other event or factors, many of which are beyond our control.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities and Use of Proceeds.
Between December 31, 1998 and June 30, 1999, the Registrant issued the
following securities which were not registered under the Securities Act of 1933
(the "Securities Act"):
(a) the Registrant issued an aggregate of 2,957,000 shares of Common Stock in
connection with the acquisition of The Compucare Company.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.
During the period covered by this report, there were no changes in the rights
of holders of any class of securities of the Company.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports On Form 8-K.
a. Exhibits
2.1 Form of Agreement and Plan of Merger by and between QuadraMed
Corporation, a Delaware corporation and QuadraMed Corporation, a
California corporation.(1)
2.2 Assets Purchase Agreement dated December 31, 1995, by and among
QuadraMed Acquisition Corporation, Kaden Arnone, Inc. and its
stockholders.(1)
2.3 Exchange Agreement dated June 25, 1996, by and among QuadraMed
Holdings, Inc., QuadraMed Corporation, and certain stockholders listed
on Schedule A thereto.(1)
2.4 Acquisition Agreement and Plan of Merger dated December 2, 1996,
between the Company and InterMed Acquisition Corporation, a wholly
owned subsidiary of the Company and InterMed Healthcare Systems Inc.
and its Stockholders.(2)
2.5 Acquisition Agreement and Plan of Merger, dated as of March 1, 1997,
by and among QuadraMed Corporation, Healthcare Recovery Acquisition
Corporation, Healthcare Recovery Incorporated and its Shareholders
(the "HRI Acquisition Agreement and Plan of Merger").(3)
2.6 First Amendment to HRI Acquisition Agreement and Plan of Merger, dated
as of April 22, 1997.(3)
2.7 Second Amendment to HRI Acquisition Agreement and Plan of Merger,
dated as of April 24, 1997.(3)
2.8 Acquisition Agreement and Plan of Merger, dated as of September 24,
1997, by and among QuadraMed Corporation, HRM Acquisition Corporation,
Healthcare Revenue Management, Inc. and its Stockholders (the
"Acquisition Agreement and Plan of Merger").(4)
2.9 First Amendment to Acquisition Agreement and Plan of Merger, dated as
of September 29, 1997.(4)
2.10 Agreement and Plan of Reorganization by and between QuadraMed
Corporation and Medicus Systems Corporation, dated as of November 9,
1997.(5)
2.11 Amendment No. 1 to Agreement and Plan of Reorganization, dated as of
February 26, 1998.(10)
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2.12 Amendment No. 2 to Agreement and Plan of Reorganization, dated as of
March 24, 1998.(10)
2.13 Acquisition Agreement and Plan of Merger dated as of December 29,
1997, by and among QuadraMed Corporation and Resource Health Partners,
L.P.(6)
2.14 Acquisition Agreement and Plan of Merger dated as of February 2, 1998,
by and among QuadraMed Corporation and Cabot Marsh Corporation.(7)
2.15 Acquisition Agreement and Plan of Merger by and among QuadraMed
Corporation and Pyramid Health Acquisition Corporation and Pyramid
Health Group, Inc. and its stockholders.(11)
2.16 Acquisition Agreement and Plan of Merger by and among QuadraMed
Corporation and IMN Acquisition Corp. , and IMN Corp. dated September
30, 1998.(14)
2.17 Acquisition Agreement and Plan of Merger dated December 23, 1998 by
and among the Company and Premiere Healthcare Acquisition Corporation,
and Premiere Healthcare Corporation and its subsidiaries(19)
2.18 Acquisition Agreement and Plan of Merger by and among QuadraMed
Corporation and Compucare Acquisition Corporation, and The Compucare
Company and certain of its stockholders dated February 3, 1999.(15)
2.19 First Amendment to Acquisition Agreement and Plan of Merger by and
among QuadraMed Corporation and Compucare Acquisition Corporation and
The Compucare Company and certain of its stockholders, dated March 3,
1999.(18)
3.1 Reserved.
3.2 Reserved
3.3 Reserved.
3.4 Amended and Restated Bylaws of the Company.(1)
3.5 Third Amended and Restated Certificate of Incorporation of the
Company.(16)
4.1 Reference is made to Exhibits 3.2 and 3.5.(1)(16)
4.2 Form of Common Stock certificate.(1)
4.3 Form of Exchange Agreement dated March 16, 1994, by and among the
Company, THCS Holding, Inc. and certain stockholders listed on
Schedule A thereto.(1)
4.4 Reserved.
4.5 Reserved.
4.6 Reserved.
4.7 Amended and Restated Agreement Regarding Adjustment Shares dated June
25, 1996, by and among the Company, QuadNet Corporation and the
individuals listed on Schedule A thereto.(1)
4.8 Amended and Restated Shareholder Rights Agreement dated June 25, 1996,
by and between the Company and the investors listed on Schedule A
thereto.(1)
4.9 Stock Purchase Warrant dated September 27, 1995 issued to James D.
Durham and amendment #1 thereto dated July 10, 1997.(8)
4.10 Reserved.
4.11 Form of Warrant to Purchase Common Stock.(1)
4.12 Registration Rights Agreement dated December 5, 1996, by and between
the Company and the investors listed on Schedule A thereto.(8)
4.13 Registration Rights Agreement, dated as of December 29, 1997, by and
among QuadraMed Corporation, Resource Health Partners, L.P. and
certain stockholders.(6)
4.14 Registration Rights Agreement, dated as of June 5, 1998, by and among
QuadraMed Corporation and the stockholders of Pyramid Health group,
Inc. named therein.(11)
4.15 Subordinated Indenture, dated as of May 1, 1998 between QuadraMed and
The Bank of New York. (13)
4.16 Officers' Certificate delivered pursuant to Sections 2.3 and 11.5 of
the Subordinated Indenture.(13)
4.17 Registration Rights Agreement dated April 27, 1998 by and among
QuadraMed and the Initial Purchasers named therein.(13)
4.18 Form of Global Debenture.(13)
4.19 Form of Certificated Debenture.(13)
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4.20 Registration Rights Agreement, dated as of September 30, 1998,
by and among QuadraMed Corporation, IMN Corp. and the
shareholders of IMN named therein (14)
4.21 Registration Rights Agreement dated December 23, 1998 by and
between the Company and the shareholders listed therein(19).
4.22 Registration Rights Agreement, dated as of March 3, 1999, by and
among QuadraMed Corporation and the stockholders of The
Compucare Company named therein.(18)
10.1 1996 Stock Incentive Plan of the Company.(1)
10.2 1996 Employee Stock Purchase Plan of the Company.(1)
10.3 Summary Plan Description, QuadraMed Corporation 401(k) Plan.(1)
10.4 Form of Indemnification Agreement between the Company and its
directors and executive officers.(1)
10.5 1999 Supplemental Stock Option Plan for The Company
10.6 Lease dated February 26, 1996 for facilities located at 1345
Campus Parkway, Building M, Block #930, Lot #51.02, Neptune, New
Jersey.(1)
10.7 Lease dated May 23, 1994 for facilities located at 80 East Sir
Francis Drake Boulevard, Suite 2A, Larkspur, California.(1)
10.8 Reserved.
10.9 Reserved.
10.10 Stock Purchase Agreement dated March 3, 1994, by and between the
Company and James D. Durham.(1)
10.11 Reserved.
10.12 Reserved.
10.13 Reserved.
10.14 Reserved.
10.15 Credit Terms and Conditions dated July 2, 1997, by and between
Imperial Bank and the Company, with addendum thereto.(8)
10.16 Reserved.
10.16.1 Reserved.
10.17 Reserved.
10.18 Reserved.
10.19 Reserved.
10.20 Reserved.
10.21 Reserved.
10.22 Reserved.
10.23 Reserved.
10.24 Reserved.
10.25 Reserved.
10.26 Reserved.
10.27 Reserved.
10.28 Reserved.
10.29 Reserved.
10.30 Reserved.
10.31 Reserved.
10.32 Reserved.
10.32 Reserved.
10.34 Reserved.
10.35 Reserved.
10.36 Reserved.
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26
10.37 Reserved.
10.38 Reserved.
10.39 Letter dated July 1, 1997 from the Company to Lemuel C. Stewart,
Jr. regarding terms of employment.(9)
10.40 Form of Stock Purchase Agreement dated as of November 9, 1997 by
and among QuadraMed Corporation and certain stockholders of
Medicus Systems Corporation.(5)
10.41 Form of Stock Purchase Warrant dated as of November 9, 1997 issued
to certain stockholders of Medicus (including as Appendix A to
Exhibit 10.40).(5)
10.42 Reserved.
10.43 Letter dated November 13, 1997 from the Company to John V.
Cracchiolo, regarding terms of employment.(5)
10.44 Reserved.
10.45 Letter dated January 15, 1998 from the Company to Andrew J. Hurd,
regarding terms of employment.(5)
10.46 Employment Agreement dated September 29, 1997 by and between
Steven D. McCoy and the Company.(10)
10.47 Letter dated March 17, 1998 from the Company to Keith M. Roberts
regarding terms of employment.(10)
10.48 Employment Agreement dated February 4, 1998 by and between Ruthann
Russo and the Company.(10)
10.49 Employment Agreement dated June 5, 1998 between Nitin T. Mehta and
the Company.(16)
10.50 Mergers and Acquisitions Advisory Fee Agreement dated June 5, 1998
between the Company and Mehta & Company, Inc.(12)
10.51 Employment Agreement dated January 1, 1999 between James D. Durham
and the Company.(20)
10.52 Employment Agreement dated April 1, 1999 between Michael Sanderson
and the Company.
10.53 Employment Agreement dated April 1, 1999 between Michael Wilstead
and the Company.
10.54 Employment Agreement dated April 1, 1999 between Nancy Nelson and
the Company.
10.55 Employment Agreement dated April 1, 1999 between Andrew Hurd and
the Company.
10.56 Employment Agreement dated April 1, 1999 between Patrick Ahearn
and the Company.
10.57 Employment Agreement dated April 1, 1999 between Keith Roberts
and the Company.
10.58 Employment Agreement dated April 27, 1999 between E. Payson Smith
and the Company.
10.59 Employment Agreement dated May 18, 1999 between John V.
Cracchiolo and the Company.
10.60 Employment Agreement dated May 25, 1999 between Brian Moriarity
and the Company.
21 List of subsidiaries of the Company.(17)
27.1 Financial Data Schedule
(1) Incorporated herein by reference from the exhibit with the same number to
the Company's Registration Statement on Form SB-2, No. 333-5180-LA, as
filed with the Commission on June 28, 1996, as amended by Amendment No. 1,
Amendment No. 2 and Amendment No. 3 thereto, as filed with the Commission
on July 26, 1996, September 9, 1996, and October 2, 1996, respectively.
(2) Incorporated herein by reference from the exhibit with the same number to
the Company's Current Report on Form 8-K, as filed with the Commission on
January 9, 1997.
(3) Incorporated herein by reference from the exhibit with the same number to
the Company's Current Report on Form 8-K, as filed with the Commission on
May 9, 1997, as amended on July 8, 1997 and March 10, 1998.
(4) Incorporated herein by reference from the exhibit with the same number to
the Company's Current Report on Form 8-K, as filed with the Commission on
October 10, 1997, as amended on March 10, 1998.
(5) Incorporated by reference from the exhibit with the same number to the
Company's Current Report on Form 8-K, as filed with the Commission on
November 21, 1997.
(6) Incorporated herein by reference from Exhibit 2.11 to the Company's Current
Report on Form 8-K, as filed with the Commission on January 13, 1998.
(7) Incorporated herein by reference from Exhibit 2.12 to the Company's Current
Report on Form 8-K, as filed with the Commission on February 18, 1998.
(8) Incorporated herein by reference from the exhibit with the same number to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, as filed with the Commission on August 14, 1997, as amended September
4, 1997.
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(9) Incorporated by reference from the exhibit with the same number to the
Company's Registration Statement on Form S-3, No. 333-36189, as filed with
the Commission on September 23, 1997, as amended by Amendment No. 1 and
Amendment No. 2 thereto, as filed with the Commission on October 1, 1997
and October 15, 1997 respectively.
(10) Incorporated by reference from the exhibit with the same number to the
Company's Annual Report on Form 10-K/A for the year ended December 31,
1997, as filed with the Commission on April 20, 1998.
(11) Incorporated by reference from the Company's Current Report on Form 8-K, as
filed with the Commission on June 11, 1998.
(12) Incorporated by reference from the Company's Current Report on Form 8-K/A
filed with the Commission on June 17, 1998
(13) Incorporated by reference from the Company's Registration Statement on Form
S-3, No. 333-55775, as filed with the Commission on June 2, 1998, as
amended by Amendment No. 1 thereto, as filed with the Commission on June
17, 1998.
(14) Incorporated by reference from the Company's Current Report on Form 8-K, as
filed with the Commission on October 15, 1998.
(15) Incorporated by reference from Exhibit 2.1 to the Company's Current Report
on Form 8-K, as filed with the Commission on February 18, 1999.
(16) Incorporated by reference from the Exhibit with the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, as filed with the Commission on August 14, 1998, as amended August
24, 1988.
(17) Incorporated herein by reference from the Company's Annual Report on Form
10-K, as filed with the Commission on March 31, 1998, as amended April 20,
1998.
(18) Incorporated herein by reference from the Company's Current Report on Form
8-K/A filed with the Commission on March 22, 1999.
b. Reports on Form 8-K.
None.
(19) Incorporated herein by reference from the Company's Registration Statement
on Form S-3, No. 333-80617, as filed with the Commission on June 14, 1999,
as amended by Amendment No. 1 thereto, as filed with the Commission on
August 4, 1999.
(20) Incorporated herein by reference from the exhibit with the same number to
the Company's Quarterly Report on the Form 10-Q for the quarter ended March 31,
1999 as filed with the Commision on May 17, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
QUADRAMED CORPORATION (Company)
Date: August 16, 1999 By: /s/ E. PAYSON SMITH
----------------------------------------
E. Payson Smith
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
By: /s/ BERNIE J. MURPHY
----------------------------------------
Bernie J. Murphy
Vice President, Finance and Chief
Accounting Officer (Principal Accounting
Officer)
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EXHIBIT INDEX
EXHIBIT
NO.
-------
10.5 1999 Supplemental Stock Option Plan for The Company
10.52 Employment Agreement dated April 1, 1999 between Michael
Sanderson and the Company.
10.53 Employment Agreement dated April 1, 1999 between Michael Wilstead
and the Company.
10.54 Employment Agreement dated April 1, 1999 between Nancy Nelson and
the Company.
10.55 Employment Agreement dated April 1, 1999 between Andrew Hurd and
the Company.
10.56 Employment Agreement dated April 1, 1999 between Patrick Ahearn
and the Company.
10.57 Employment Agreement dated April 1, 1999 between Keith Roberts
and the Company.
10.58 Employment Agreement dated April 27, 1999 between E. Payson Smith
and the Company.
10.59 Employment Agreement dated May 18, 1999 between John V.
Cracchiolo and the Company.
10.60 Employment Agreement dated May 25, 1999 between Brian Moriarity
and the Company.
1999 Stock Option Plan
27.1 Financial Data Schedule
29