Health Systems Design Reports First- Quarter Results; Company Signs Major New Contract in Quarter, but Reports Loss.

OAKLAND, Calif.--(BUSINESS WIRE)--Jan. 26, 1999--Health Systems Design Corp. (Nasdaq:HSDC) Tuesday reported results for its first fiscal quarter ended Dec. 31, 1998, reflecting record bookings and backlog, although a net loss was recorded.

Revenues for the quarter totaled $5.4 million, with bookings reaching a record $13.5 million, leading to a record backlog of $29.4 million. The net loss for the quarter equaled $1.4 million, or $0.21 per share. A year ago, Health Systems Design reported a net loss of $1.2 million, or $0.18 per share, on revenues of $5.3 million. Bookings in the corresponding year-ago quarter were $12.5 million, and backlog was $22.1 million.

Regarding the loss, Russell J. Harrison, president and chief executive officer, said: "We had anticipated reporting a profit for the first quarter. Unfortunately, while we were successful in signing an important new license agreement, revenue recognition rules governing software companies precluded us from recognizing any significant revenue from the contract in the first quarter, contrary to our initial interpretation. Rather, this revenue, including that which we anticipated to be recognized in the first fiscal quarter, will now be recognized over the remaining implementation period of the contract."

Harrison added: "Our financial results this quarter do not reflect the solid operating performance Health Systems Design delivered over the past three months. As previously announced, we signed our license agreement with Blue Shield of California to implement Health Systems' DIAMOND(R) 950C/S software system as an integral part of that organization's plan to completely overhaul its core information technology system. The evaluation process at Blue Shield was the most rigorous our company's products have ever been through. Our win underscores the quality of our software systems and our entire organization. The visibility of this contract is an important calling card for future business opportunities."

Health Systems Design, with headquarters in Oakland, is a leading provider of managed care information systems software to payers and providers of health care services. HSD's DIAMOND systems enable companies to manage financial risk and operate their businesses in the complex administrative environment of managed care. Customers on the payer side include health maintenance organizations (HMOs), preferred provider organizations (PPOs) and indemnity insurers. Customers on the provider side include physician hospital organizations (PHOs) and independent practice organizations (IPAs). Health Systems Design was founded in 1988 and has traded on the Nasdaq Stock Market since its initial public offering in 1996.

HSDC "Safe Harbor" 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; variability of operating results due to the long sales cycle and implementation period of the company's products; 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 dependence on key personnel; intense competition; and other risks described in the company's Securities and Exchange Commission filings. -0-

                      HEALTH SYSTEMS DESIGN CORP.
           CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
               (In thousands, except per-share amounts)

                              (Unaudited)


                                     Three months ended
                                          Dec. 31,
                                     1998          1997
Revenues:
 System sales                     $  4,454      $  4,546
 Services and other                    927           745
 Total revenues                      5,381         5,291
Cost of revenues:                    2,203         1,724
 Gross margin                        3,178         3,567

Operating expenses:
 General and administrative          1,470         1,874
 Sales and marketing                 1,193           975
 Product development                 2,052         1,994
   Total operating expenses          4,715         4,843
   Income (loss) from operations    (1,537)       (1,276)
Other income (expense), net            112           122
   Income (loss) before provision
    for income taxes                (1,425)       (1,154)
Provision for income taxes               1            --
Net income (loss)                 $ (1,426)     $ (1,154)

Net income (loss) per share       $  (0.21)     $  (0.18)
Weighted average shares
 outstanding                         6,678         6,535

-0-

                      HEALTH SYSTEM DESIGN CORP.
                CONSOLIDATED CONDENSED BALANCE SHEETS
                            (In thousands)

                                ASSETS


                                          Dec. 31,          Sept. 30,
                                            1998              1998
                                         (Unaudited)

Current assets:
 Cash and cash equivalents                $ 8,339           $  9,440
   Accounts receivable, net                 7,071              5,646
   Unbilled revenue                         3,205              2,405
   Prepaids                                   428                384
         Total current assets              19,043             17,875

Property and equipment, net                 2,572              2,848
Deposits and other assets                     218                118
Software development costs, net             3,298              2,787
         Total assets                    $ 25,131          $  23,628


                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities  $ 3,212          $   3,308
   Unearned revenue                         5,715              2,728
         Total current liabilities          8,927              6,036
Total stockholders' equity                 16,204             17,592
         Total liabilities and
          stockholders' equity          $  25,131         $   23,628