Health Systems Design Reports First- Quarter 2000 Results.

Business Editors

OAKLAND, Calif.--(BUSINESS WIRE)--Feb. 10, 2000

Health Systems Design Corp. (Nasdaq:HSDC) today reported results for its first fiscal quarter ended Dec. 31, 1999.

Revenues for the quarter totaled $5.2 million. This is down 4 percent from the same period last year, when the company reported revenues totaling $5.4 million. The net loss for the quarter was $1.8 million, or 27 cents per share, compared with a net loss of $1.4 million, or 21 cents per share, reported in the corresponding period a year ago.

&uot;This quarter was disappointing. It reflects the impact of the previously announced slowdown in our bookings over the past several quarters related to Y2K concerns and the difficulties facing many health insurers, HMOs, physician groups and other potential customers,&uot; said Arthur M. Southam, M.D., president and chief executive officer of Health Systems Design.

&uot;Results for the quarter reflect a drop in license revenues as some major projects were completed, along with our continued investment in product development and marketing. Looking ahead, we remain optimistic due to the high level of evaluation interest on the part of many health plans.&uot;

There were a number of key installations and developments during the quarter that demonstrate the strength of the company's DIAMOND(R) systems:

--   The company's DIAMOND 950 system went live for Kaiser Health
     Plans' Mid-Atlantic Region, serving more than 550,000 members,
     and HSD is working to extend the DIAMOND solution to additional
     Kaiser markets.
--   Health Alliance Plan, located in Detroit, continues to
     demonstrate high levels of performance with large membership
     volumes. Particularly significant has been its demonstration of
     high-volume auto-adjudication of electronic claims using the
     DIAMOND system. At a time when many health insurers are
     processing less than 10 percent of commercial claims
     electronically, HAP, using the DIAMOND system, is automatically
     adjudicating more than 70 percent of incoming claims. This
     performance translates directly into cost savings and service
     improvements.
--   The company also went live during the quarter at Health Plan of
     Michigan, a 20,000-member plan, with a DIAMOND 725 system
     implementation, completed in a record two months.
--   During the quarter, Health Systems Design completed large-scale
     performance testing of DIAMOND 950. In collaboration with Oracle
     and IBM, the testing demonstrated the ability of the DIAMOND 950
     Client Server to handle high volumes of online and batch
     transactions for a simulated health plan with more than 5 million
     members. &uot;Because many of our potential clients are evaluating
     significant mergers and consolidation, the demonstration of this
     level of performance supports the ability of DIAMOND to be the
     core system of the largest health plans,&uot; Southam said.

The company noted that Blue Shield of California, a major DIAMOND customer, announced during the quarter a number of significant management changes and the decision to &uot;pause&uot; most of its major information-technology initiatives, of which DIAMOND is one part. This has slowed the project while Blue Shield of California recruits a new chief information officer and reviews its technology plan.

&uot;We are optimistic that we will continue to work with Blue Shield after they identify a new CIO and finish their evaluation,&uot; Southam added.

&uot;We believe that the most important achievement of the quarter involves our work to evolve our business model. We are moving quickly to adapt our architecture and develop a broader suite of technology solutions that takes full advantage of the Internet to reduce costs and improve service.

&uot;We are actively engaged in discussions with several organizations to deploy DIAMOND through an ASP model. Consistent with this objective, we have just signed an agreement with Covation (a joint venture of Andersen Consulting and Bank of America) to market ASP services to health plans and other payor organizations.&uot;

Consistent with this strategy, as announced previously, Health Systems Design has engaged Robertson Stephens to evaluate various potential merger, acquisition and business opportunities that would complement the capabilities and assets of the company.

The company is focused on opportunities that would provide current and future customers with a broader set of Internet, ASP and other technology solutions to supplement the functionality and transactional capabilities of DIAMOND products.

Southam concluded: &uot;Health Systems Design believes that the evolution of the Internet, the potential to automate many health-care administrative transactions, competitive pressures and regulatory forces, including the Health Insurance Portability and Accountability Act (HIPAA), will drive technology investments in our sector.

&uot;We strongly believe that an alignment with other organizations will allow our customers and shareholders to benefit from this opportunity.&uot;

Health Systems Design, with headquarters in Oakland, is a leading provider of information-systems solutions for organizations that administer health benefits. The company's DIAMOND systems manage large and complex databases and the high-volume, complex transactions associated with the administration of health benefits and provider payments.

The company's systems and services allow clients to control costs and improve the service they provide to their members. The company's 119 clients include health insurers, HMOs, PPOs, third-party administrators and provider organizations that serve more than 15 million enrollees. Customers include health insurers, health- maintenance organizations (HMOs), preferred-provider organizations (PPOs) and health-care provider organizations.

Health Systems Design was founded in 1988 and has traded on the Nasdaq National Market since its initial public offering in 1996.

HSDC &uot;safe-harbor&uot; statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this release that are not historical fact are forward-looking and are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward- looking statements. Risks and uncertainties include the company's dependence upon a single product line; the dynamic nature of the market in which the company's product line competes; continued market acceptance of the company's products; development of new products and enhancements of the current product; dependence of the company's results of operations on certain large customers; the company's ability to attract and retain qualified personnel; intense competition; and other risks described in the company's Securities and Exchange Commission filings.

                     HEALTH SYSTEMS DESIGN CORP.
           Consolidated Condensed Statements of Operations
               (In thousands, except per-share amounts)
                             (Unaudited)

                                                   Three months ended
                                                         Dec. 31,
                                                     1999       1998
Revenues:
 System sales                                     $ 3,888    $ 4,454
 Services and other                                 1,282        927
 Total revenues                                     5,170      5,381
Cost of revenues                                    2,742      2,203
Gross margin                                        2,428      3,178
Operating expenses:
 General and administrative                         1,489      1,470
 Sales and marketing                                  861      1,193
 Product development                                1,936      2,052
 Total operating expenses                           4,286      4,715
Loss from operations                               (1,858)    (1,537)
Interest, net                                          81        112
Loss before provision for income taxes             (1,777)    (1,425)
Provision for income taxes                             14          1
Net loss                                          $(1,791)   $(1,426)
Net loss per share:
 Basic                                            $ (0.27)   $ (0.21)
 Diluted                                          $ (0.27)   $ (0.21)
Weighted average shares outstanding:
 Basic                                              6,734      6,678
 Diluted                                            6,734      6,678

                     HEALTH SYSTEMS DESIGN CORP.
                Consolidated Condensed Balance Sheets
                            (In thousands)

                                                   Dec. 31,   Sept. 30,
                                                     1999       1999
                                                 (Unaudited)
Assets:
 Current assets:
  Cash and cash equivalents                       $ 7,824    $ 9,205
  Accounts receivable, net                          6,839      4,440
  Unbilled revenue                                  2,870      6,007
  Prepaids                                            327        272
  Total current assets                             17,860     19,924
 Property and equipment, net                        2,829      2,907
 Deposits and other assets                            446        623
 Software development costs, net                    3,279      3,330
 Total assets                                     $24,414    $26,784
Liabilities and stockholders' equity:
 Current liabilities:
  Accounts payable and accrued liabilities        $ 4,073    $ 4,359
  Current portion of capital lease obligations        301        294
  Unearned revenue                                  4,428      4,700
  Total current liabilities                         8,802      9,353
 Capital lease obligations, net of current portion    183        262
 Other long-term liabilities                           59         21
 Total stockholders' equity                        15,370     17,148
 Total liabilities and stockholders' equity       $24,414    $26,784