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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------

For the Fiscal Year Ended December 31, 2001

|o | TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Transition Period From  to

Commission File Number 000-29367

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VantageMed Corporation

(Exact name of Registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

68-0383530(I.R.S. Employer Identification No.)


3017 Kilgore Road, Suite 195, Rancho Cordova, California 95670    (916) 638-4744(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)

Securities
registered pursuant to Section 12(b) of the Act: None

Securities
registered pursuant to Section 12(g) of the Act: Common Stock

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required the file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes o    No ý

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (220.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

As
of May 7, 2002, the aggregate market value of the outstanding shares of our common stock, held by non-affiliates was approximately $2,666,000, based upon $0.37, the
average bid and ask price of our
common stock as reported by the Nasdaq National Market on May 7, 2002. Determination of affiliate status for this purpose is not a determination of affiliate status for any other purpose.

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

Class

Outstanding at
May 7, 2002Common stock

8,535,831


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VantageMed Corporation

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Index and Cross Reference

|Item
Number |  |                                                                                            |  | Page
|----------- |  | ------------------------------------------------------------------------------------------ |  | ----
|PART I     
|Item 1      |  | Business                                                                                   |  | 3   
|Item 2      |  | Properties                                                                                 |  | 11  
|Item 3      |  | Legal Proceedings                                                                          |  | 12  
|PART II    
|Item 5      |  | Market for Registrant's Common Equity and Related Stockholders Matters                     |  | 13  
|Item 6      |  | Selected Financial Data                                                                    |  | 15  
|Item 7      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations      |  | 16  
|            |  | Forward-Looking Statements and Risk Factors                                                |  | 27  
|Item 7A     |  | Quantitative and Qualitative Disclosures About Market Risk                                 |  | 36  
|Item 8      |  | Financial Statements                                                                       |  | 36  
|Item 9      |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure       |  | 67  
|PART III   
|Item 10     |  | Directors and Executive Officers of VantageMed (incorporated by reference)                 |  | 68  
|Item 11     |  | Executive Compensation (incorporated by reference)                                         |  | 70  
|Item 12     |  | Security Ownership of Certain Beneficial Owners and Management (incorporated by reference) |  | 74  
|Item 13     |  | Certain Relationships and Related Transactions (incorporated by reference)                 |  | 75  
|PART IV    
|Item 14     |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                           |  | 77  
|            |  | Signatures                                                                                 |  | 79  

2

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PART I

Item 1. Business

The Company

VantageMed Corporation is a national provider of healthcare information systems and services distributed to over 11,000 customer sites through a network of
regional offices. Our suite of software products and services automates administrative, financial, clinical and management functions for physicians, other healthcare providers and provider
organizations. Because of the existing relationships with our customers, we are uniquely positioned to manage their transition from legacy products to our Windows-based products and services. Our
software manages the patient data necessary to effectively integrate Internet-based solutions with the functions performed by our systems. With the addition of the federal Health Insurance Portability
and Accountability Act of 1996 ("HIPAA") compliant transaction capabilities to our Windows-based products, we expect to increase our customers' access to information and their ability to communicate
with numerous healthcare participants such other providers, third-party insurance payers, managed care organizations, and other ancillary service providers and we are not currently pursuing any
acquisitions.

Since
forming the Company in 1995, we have acquired 26 healthcare information systems companies. Due to the change in the financial market and the uncertainty in the healthcare industry,
we decided not to pursue additional acquisitions during the years 2000 and 2001.

Our
recurring revenues were approximately 82% of total revenues for each of the years ended December 31, 2001 and 2000. We define recurring revenues as any revenues derived from
an existing or acquired customer after the initial installation of the product, including revenues from sales of new products to existing customers. To increase recurring revenues, we are expanding
our service offerings
and migrating existing customers to our Windows-based, Internet-enabled products and services, and expanding our electronic services.

Our
installed customer base, software products and services, and Internet strategy have positioned us to address the information needs of healthcare providers through the development of
an integrated technology solution.

The VantageMed Solution

We offer integrated Windows-based, Internet-enabled healthcare information systems that reduce the growing impact of economic pressures, administrative burdens
and increased information requirements now faced by healthcare providers and physician organizations. Our products enable our customers to access and process information more efficiently and reliably,
reduce staff time, and more effectively meet the challenges of healthcare cost containment while improving patient care. With our established distribution network, we are well positioned to take
advantage of the opportunities that result from the increasingly complex needs of the healthcare industry.

Our
objective is to expand our market share and increase our recurring revenues in order to strengthen our position as one of the leading suppliers of information systems and services to
healthcare providers. We intend to increase our revenues and market share through growth strategies that focus on:



3

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Principal Products

We classify our software products as either "Windows-based" or "legacy." Our Windows-based products are the primary products currently offered to our new
customers and are the primary focus of our ongoing product development efforts. Our suite of Windows-based products includes RidgeMark, eMCee®, eMCee Connect, SecureConnect, BillAdvantage,
CodeAdvantage, ChartKeeper® and Therapist Helper. Our Windows-based products provide our customers with software designed to automate administrative, financial, clinical and other practice
management and managed care functions. These products offer advanced functionality and are compatible with the latest generation of operating systems and hardware platforms. These products can
accommodate from one to hundreds of healthcare providers and users.

As
a result of our acquisitions, we support 17 legacy systems. These systems operate on variations of UNIX or DOS-based platforms and generally lack the current
state-of-the-art technology of our Windows-based products. These systems provide ongoing revenues derived from support services, software and hardware upgrades,
electronic transaction services and new system sales. We are in the process of migrating customers from the legacy systems to our Windows-based products and believe this represents a significant sales
and marketing opportunity.

We
have designed our products to enable our customers to transition from their legacy systems to Windows-based products and services. The features, functions and targeted customers of
our Windows-based products and services are described below.

|Products
and Services |  | Features and Functions                                                                                                                              |  | Primary Customer
Type of Practice or Organization                                                                                                                                                                                                            
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|RidgeMark             |  | Scheduling, billing, patient registration, electronic claims, reporting.                                                                            |  | Primary and specialty medical practices.                                                                                                                                                                                                                     
|eMCee®                |  | Member tracking, patient eligibility and authorizations, referral tracking, claims adjudication, utilization review, risk and contracting analysis. |  | Managed healthcare organizations and physician associations contracted with third-party payers, traditionally referred to as Management Services Organizations (MSOs), Independent Physician Associations (IPAs) and Physician Hospital Organizations
(PHOs).
|                      |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                              

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|eMCee Connect    |  | Internet access to member demographics, patient eligibility and referrals, authorization and claim payment status.                                       |  | Managed healthcare organizations and physician associations: MSOs, IPAs and PHOs.
|---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|SecureConnect    |  | Electronic Data Interchange (EDI) module for translation and communications of HIPAA compliant transactions.                                             |  | Healthcare providers submitting electronic transactions.                         
|BillAdvantage    |  | Electronic Statement Processing automates the process of preparing and sending patient statements                                                        |  | Healthcare providers outsourcing statement processing                            
|CodeAdvantage    |  | Coding Assistant to improve the accuracy and efficiency of medical coding                                                                                |  | Primary and Specialty Medical Practices.                                         
|ChartKeeper®     |  | Electronic storage and tracking of patient charts, transcription notes, document imaging, security and authentication and electronic chart distribution. |  | Primary and Specialty Medical Practices.                                         
|Therapist Helper |  | Patient registration, scheduling, billing, managed care tracking, electronic claims and reporting. Palm Pilot-enabled.                                   |  | Psychologists and behavioral health practitioners.                               

Our Internet Strategy

We believe that most of the clinical and financial problems facing healthcare providers require solutions that integrate Internet functionality with software
systems that support the management of healthcare practices. Our Internet strategy is to provide a range of Windows-based, Internet-enabled products and services that reduce inefficiencies and expand
the quality and scope of information exchanged between healthcare participants. This strategy is designed to:



Many
clinical and administrative functions are poorly automated and require manual processing. The following table describes the functional areas addressed by our Internet strategy and
the benefits we believe can be achieved by utilizing our Internet-enabled products and services.

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|                                                 |  | Current Delivery                            |  | Business Constraints                                                             |  | Internet Strategy                                                                          |  | Value-Added                                                                                   
|------------------------------------------------ |  | ------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------
|Clinical Functions                               |  |                                             |  |                                                                                  |  |                                                                                           
|Patient Chart Dictation                          |  | Voice recognition recorder with transcriber |  | Time consuming, labor intensive                                                  |  | Transmit transcribed documents                                                             |  | Wireless pad or PC                                                                            
|Laboratory Orders and Results                    |  | Paper, fax or printer                       |  | Time consuming, errors, misplaced documents                                      |  | Access laboratory and store data on patient chart system                                   |  | Patient and hospital system Internet access                                                   
|Doctor On-Call                                   |  | Telephone or paper                          |  | Lack of familiarity with patient                                                 |  | Remote access to patient chart                                                             |  | Access from portable devices                                                                  
|Administrative Functions                         |  |                                             |  |                                                                                  |  |                                                                                           
|Patient Appointment Reminder                     |  | Telephone or none                           |  | Time consuming, missed appointments                                              |  | Request appointments through browser                                                       |  | Attach patient education or visit instructions and forms; patient directed access to scheduler
|Patient Billing and Statements                   |  | Mail                                        |  | Time consuming, potential errors, cash management delays                         |  | Access billing statements from the billing system                                          |  | Enable consumer payment of outstanding bills via credit card acceptance                       
|Billing to Insurance                             |  | Telephone, electronic or paper              |  | Time consuming, data errors, patient eligibility and benefits not verified       |  | Access electronic claims clearinghouse; access benefit systems to determine benefit status |  | Provide doctor access to claim status, faster payment of claims                               
|Insurance Remittance Advice                      |  | Check or paper                              |  | Delays in payment and time consuming to post payments                            |  | Receive electronic file and post to accounts receivable system                             |  | Electronically receive and post funds                                                         
|Verification of Patient Eligibility and Benefits |  | Telephone                                   |  | Ineligible patients scheduled and services are rendered without knowing benefits |  | Access benefit plans before patient visit                                                  |  | Verify before or at time of appointment                                                       
|Authorization of Additional Medical Services     |  | Telephone, fax or mail                      |  | Delays in patient care, time consuming                                           |  | Electronically send and receive authorizations                                             |  | Automatic approval of standard authorization requests                                         

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Electronic Services

Our products enable electronic data interchange, or EDI functions. EDI can improve a healthcare practice's cash flow by enabling more cost-efficient
processing of patient statements, accurate and timely submission of claims to third-party payers, and more rapid receipt of payer reimbursements. Our EDI services currently include the following:



We
generate revenues by providing these electronic services on a per transaction or flat monthly fee basis. We also offer additional EDI services such as eligibility verification,
referral authorization, and claims status services through our Internet-enabled product eMCee Connect. SecureConnect will expand on these services to include all transactions made available through
HIPAA code set standardization.

Support Services

We believe that customer satisfaction with support and services is critical to our ongoing success. The scope of our support services includes software and
hardware installation, training, software maintenance, data conversion, network support and hardware maintenance. To achieve a higher level of customer satisfaction, many of these services are
performed at the customer's site. Our technical service is organized by regional office, product, and practice specialty. In addition to providing on-site training for certain of our
product lines, we maintain classroom-based training facilities. We publish periodic newsletters and sponsor user group conferences. These forums provide the user with current information and provide
us with an opportunity to demonstrate new products.

We
provide our customers with ongoing software support and services under monthly and annual agreements. These agreements provide for help desk support, software maintenance, and remote
diagnostics. As of December 31, 2001, our customer service and support groups consisted of 143 employees, representing approximately 49% of our total employee base.

Hardware and Supplies

In many cases, the sale of our software products is combined with the sale of hardware systems and installation services. In addition, because many medical
practices require additional hardware as their practices grow, we sell computers and other peripherals as part of our product offerings. We typically receive installation and ongoing maintenance
revenues as a result of these hardware sales.

Product Development

As of December 31, 2001, our Windows-based product development organization consisted of 41 employees. We focus our product development efforts on
improving the functionality and performance of our Windows-based products and on developing new products that operate on a common architecture. This common architecture gives our products the
capability to simultaneously operate on

7

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different systems such as standard desktop computers or less sophisticated and lower cost workstations using standard Internet browsers.

Our
development teams are organized by product. Each product team has a product manager, a project manager and various developers. Our quality assurance and testing teams follow
established guidelines. Subject matter experts and analysts contribute to work flow design, content and business rule development. A formalized process for software enhancement requests provides
feedback from end
users and our sales teams. Project management tools, project scheduling and distribution of technical and training notes are managed through our corporate Intranet.

Privacy Issues

Because our products and services are utilized to transmit and manage highly sensitive and confidential medical information, we must address the security and
confidentiality concerns of our customers and of patients and consumers. To enable the use of our products and services for the transmission of sensitive and confidential medical information, we
utilize advanced technology designed to provide a high degree of security. This technology includes:



We
intend to be in compliance with the guidelines set forth in HIPAA as amended within the timeframes set forth therein and in rules promulgated thereunder. We also encourage each of our
customers to implement their own firewall to protect the confidentiality of information being transferred into and out of their computer network.

Internally,
we work to ensure the safe handling of confidential data by employees in our electronic services department by:



We
monitor proposed regulations that might affect our software products and services in order to ensure that we are in compliance with such regulations when and if they are adopted.

Sales and Marketing Strategy

Although we are a national company, we manage our sales and marketing efforts to serve our customers on both a regional and national basis. This allows us to meet
the unique needs and expectations of each customer. Organized by specialty practice area and product line, the members of our sales force focus on maintaining strong customer relationships within
regional markets to build recurring revenues. Within our existing customer base, we promote and sell system upgrades,

8

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maintenance services, add-on software modules and electronic data interchange services. Our sales force focuses on cross-selling to existing customers as well as attracting new customers.

As
a result of our acquisition strategy, we have acquired a number of qualified sales personnel with strong experience and customer relationships in the regions they serve. As of
December 31, 2001, we had 32 sales and marketing personnel, including national sales management, regional sales specialists and direct sales representatives throughout the continental United
States and Hawaii.

Acquisition Integration

There were no acquisitions completed in the year 2000 or 2001 or to date in 2002. As opportunities arise we are positioned to use our existing infrastructure to
support the acquisition and integration of targeted businesses. An integration team, which includes existing operational personnel, identifies and completes the various post-acquisition
tasks of integration, including incorporation of desired product features into our products and consolidation of administrative and financial functions.

As
part of our integration process, we facilitate communications with acquired businesses through our corporate Intranet and software systems. Our corporate Intranet connects our
regional offices and provides up-to-date and complete information on our policies and procedures, product descriptions, and administrative functions along with full
e-mail and contact management.

We
believe that our existing infrastructure and our integration practices and procedures effectively position us to continue the acquisition of new companies as such opportunities arise.

Competition

The healthcare information systems market is highly competitive on both a regional and a national level. We believe that the primary competitive factors in this
market are:



We
believe that our principal competitive advantage stems from our offerings of feature-rich products based on an open system architecture designed to meet our customers'
needs, our substantial installed customer base, our focus on customer support and training programs, and our network of offices.

Our
principal competitors include practice management systems and Internet companies. Industry competitors include organizations such as WebMD Corporation (formerly Medical Manager
Corporation), Infocure Corporation, doing business as VitalWorks and PracticeWorks, Inc., Misys Healthcare Systems, McKessonHBOC, Quality Systems, Inc., Millbrook Corporation, Dentrix
Dental Systems, Inc., and NDC Health. Additionally, within each regional market there are several smaller competitors who have developed technologically advanced niche products offered at lower
prices. Finally, with the integration of clinical information systems into practice management systems, several
well-funded pharmaceutical, medical supply and biotech companies have entered the practice management systems market. Many of our competitors have greater financial, development,
technical, marketing and sales resources than we do. These competitors may be able to respond more rapidly to new or emerging technologies and changes in customer requirements than we can. In
addition, as the market for our products develops, additional competitors may enter the market and competition may intensify, requiring us to lower the prices of our products and services.

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Intellectual Property

Our success is dependent, in part, on our ability to protect our proprietary software and confidential information from unauthorized use and disclosure. We rely
on a combination of trade secrets, common law intellectual property rights, license agreements, nondisclosure and other contractual provisions and technical measures to establish and protect our
proprietary rights in our intellectual property and confidential information. We do not own any patents on our products. Employees and technical consultants and contractors are required to execute
agreements with us providing for the confidentiality of information and the assignment to us of all proprietary rights. The legal protections afforded to us or the steps taken by us may not be
adequate to prevent misappropriation of our technology and confidential information. In addition, these protections do not prevent independent third-party development of competitive products or
services. We believe that our proprietary rights do not infringe upon the proprietary rights of third parties. However, third parties may assert infringement claims against us in the future and any
such assertion may require us to enter into a license agreement or royalty arrangement with the party asserting the claim. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our confidential information or trade secrets, or to determine the validity or scope of the rights of others. Litigation could result in substantial costs and diversion of
management and other resources and could seriously harm our business.

Government Regulation

The confidentiality of patient records and the circumstances under which such information may be used or released are subject to substantial regulation by state
and federal laws and regulations. Regulations governing the electronic transmission of patient medical information are evolving rapidly and are often unclear and difficult to apply.

HIPAA
was enacted in 1996 and required the Department of Health and Human Services, or HHS, to adopt national standards for the transmission of certain types of patient medical
information and the data elements used in such transmissions, and to adopt standards to ensure the integrity and confidentiality of such information.

HHS
proposed federal privacy regulations (the "Regulations") in 1999 and, after reviewing and considering thousands of comments on them, published final Regulations in
December 2000. In March 2001, HHS received thousands of more comments after the Bush administration requested additional public input on the Regulations. Those comments and other public
input was used to develop certain proposed changes which were published in the Federal Register on March 27, 2002, with a 30-day comment period. HHS has indicated it will consider
public comments on the proposed changes to the Regulations before issuing new final Regulations. The Regulations impose significant regulatory burdens on health care providers, health plans and health
care clearinghouses ("covered entities"), as well as these entities' business associates. The covered entities have until April 14, 2003 to comply with the Regulations. Under the law, certain
small health plans have until April 14, 2004 to comply. We are in the process of analyzing the Regulations and taking steps to ensure that we are fully compliant well in advance of their
effective date.

In
general, the Regulations apply to covered entities that electronically transmit healthcare information in connection with certain standard transactions, such as a claim for payment or
provision of health care services. Certain of our activities may fall under the definition of health care clearinghouse and therefore those functions are expected to be subject to the Regulations. The
Regulations are intended to protect the privacy of individually identifiable health information that is transmitted in any format, including electronic media, paper or orally. The general rule is that
patient health information may not be used or disclosed unless the disclosure is either authorized by the patient (or someone able to act on the patient's behalf) or is specifically required or
permitted under

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the Regulations. Patients are also granted several rights under the Regulations, including a right to receive a description of a covered entity's privacy practices, a right to access protected health
information, a right to request amendment of protected health information and a right to request restrictions on communication of protected health information by covered entities.

Because
we also provide services to many covered entities, we will be required to enter into written contracts with certain of our customers that provide assurances that we will
appropriately safeguard any protected information we receive from such customers. The contracts must establish the permitted and required disclosures of protected information, must preclude use or
further disclosures of the information in a manner that would violate the Regulations if done by a covered entity and must allow the covered entity to terminate the contract in the case of a material
breach by us. We will be allowed to use and in certain instances disclose protected information for proper management and administration of our business, carrying out our legal responsibilities and
other permitted uses. We can disclose protected information to certain third parties so long as we obtain reasonable assurances from such third parties that the information's privacy will be
safeguarded. We are also expected to be required to make available any protected information we have in response to proper requests by patients, provide patients with an accounting of the disclosures
and make our internal records relating to compliance available for inspection by our customers. We are in the process of developing appropriate contracts and consulting with our customers to develop a
set of standard compliance procedures. We continue to monitor HIPAA activity and are prepared to incorporate any changes to our software products or our operations that are necessary to ensure
compliance.

The
U.S. Food and Drug Administration (the "FDA") has jurisdiction under the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act to regulate computer products and
software
as medical devices if they are intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease in humans. We believe that our healthcare information systems products are not
medical devices currently subject to FDA regulation. However, FDA regulations are constantly changing and the FDA may promulgate regulations, or interpret current regulations in a way that would cover
our products. In addition, we may develop products that subject us to FDA regulation. Compliance with FDA regulations could substantially increase our cost of doing business and may limit the extent
of our planned product development.

The
Federal Drug Enforcement Agency has promulgated regulations that may prohibit a pharmacy from the initial dispensing and/or refilling of certain controlled substances through an
electronically transmitted prescription. A violation of these regulations may result in civil and criminal penalties. Such regulations may limit the scope of our planned prescription ordering and
refill functions.

Employees

As of December 31, 2001, we employed 290 persons, including 32 in sales and marketing, 143 in customer support services, 41 in product development and 74
in administration, finance and management. In order to augment our hiring of ready-to-work skilled individuals, we utilize several programs to educate and train our work force.
Our employees are not represented by a labor union. We have not experienced any work stoppages and consider relations with our employees to be good.

Item 2. Properties

We currently lease approximately 2,000 square feet at our principal executive and corporate headquarters at 3017 Kilgore Road, Rancho Cordova, California, which
expires November 2002. We also lease space at each of our regional offices throughout the United States, with lease terms expiring at various dates through 2007. We believe that these regional
facilities are adequate for our current operations, and additional leased space can be obtained as needed.

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Item 3. Legal Proceedings

The Company and certain of its officers and directors have been named as defendants in lawsuits alleging violations of the federal securities laws. The first of
these lawsuits was filed on March 13, 2000 in the United States District Court for the Eastern District of California. This action and several additional, similar actions were consolidated by
the court into a single action entitled Zinno V. VantageMed Corporation, et al., No. CIV.S-00-0523 MLS DAD. The law suit alleges claims under the
Securities Act of 1933 in connection with the Company's February 15, 2000 initial public offering ("IPO").

Plaintiffs
purport to represent a class of all persons who purchased the Company's common stock pursuant to its February 15, 2000 IPO. The Plaintiffs allege that the prospectus
pursuant to which the IPO was effected contained materially false and misleading statements and it did not state that the Company would be delayed in introducing a new version of its RidgeMark
product, and did not state that sales of its eMCee product would be lower than expected. Plaintiffs have also named the Company's underwriters, J.C. Bradford and Advest, Inc., and the Company's
prior accountants, Arthur Andersen LLP, as defendants.

A
settlement in principle was reached on December 6, 2001, subject to approval by the court. A hearing to approve the settlement is scheduled for July 18, 2002. The Company
believes the lawsuit is completely without merit, but entered into the settlement agreement solely to avoid further costs, uncertainties and distractions caused by the litigation. Under the terms of
the proposed settlement, all claims against the Company and all other defendants will be dismissed without admission of liability or wrongdoing. The shareholder class will receive a cash payment of
$2.5 million, out of which the court will be asked to award attorneys' fees to class counsel. The Company recorded a $1.3 million charge to operations in the fourth quarter of 2001 to
reflect its portion of the cost of settlement. The Company expects Court approval of the settlement to occur during the third quarter of 2002.

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PART II

Item 5. Market for Registrant's Common Stock and Related Stockholders Matters

VantageMed's common stock has been quoted on the Nasdaq National Market since February 15, 2000 and has traded under the symbol "VMDC" through
April 17, 2002. As of the opening of business on April 18, 2002, in accordance with Nasdaq Stock Market rules, the ticker symbol for the Company's common stock has been changed to
"VMDCE." The additional fifth character was added because of our late filing of this Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The following
table sets forth the high and low of the average daily bid and ask prices for our common stock as reported by Nasdaq for the periods indicated:

2001

2000PeriodHigh

Low

High

LowFirst Quarter

$
1.63

$
0.94

$
15.00

$
3.50Second Quarter

$
1.20

$
0.65

$
4.00

$
1.00Third Quarter

$
1.50

$
0.70

$
4.75

$
1.00Fourth Quarter

$
1.04

$
0.72

$
2.25

$
0.75


As
of May 7, 2002, the number of registered holders of our common stock is 143 and the number of beneficial owners of our common stock is approximately 1,562.

We
have not declared any cash dividends on our common stock since our inception in 1995. We currently intend to retain any future growth and, therefore, do not anticipate paying cash
dividends in the foreseeable future.

On
March 25, 2002 VantageMed received a letter from Nasdaq notifying the Company that it is not in compliance with Marketplace Rule 4450(a)(5) relating to the minimum bid
price per share ($1.00) requirement for continued listing on The Nasdaq National Market System. The letter does not delist the Company's securities, but rather provides that we have 90 calendar days,
or until June 19, 2002, to regain compliance with National Market System continued listing requirements. We are required to demonstrate compliance by maintaining a $1.00 minimum closing bid for
a minimum of 10 consecutive trading days by that date.

If
VantageMed is unable to demonstrate compliance by June 19, it may appeal a determination that it be delisted from the National Market System, which would stay delisting until
the appeal is resolved. We also could decide to file an application to transfer our securities to The Nasdaq SmallCap Market, which also would stay delisting until the application is considered. For
that application, we would be required to meet the SmallCap continued listing criteria other than the minimum bid price requirement (which is also $1.00). If accepted, the Company's securities would
transfer to the SmallCap Market, and we would have another 90 days, or until September 17, 2002, to comply with the minimum bid price requirement. If we have not regained compliance with
the minimum bid price requirement at the end of the 90 day period, it may then be eligible for an additional 180 day period in which to regain compliance if it satisfied certain initial
SmallCap listing standards under Marketplace Rule 4310(c)(2)(A).

VantageMed
scheduled a hearing with the Nasdaq listing Qualifications Panel on May 17, 2002, to discuss the above-related matters. Pending the outcome of this hearing, VantageMed
securities will continue to be listed on the Nasdaq National Market. There can be no assurances of the outcome of this hearing.

Use of Proceeds

In February 2000, VantageMed Corp. completed an initial public offering ("IPO") of 3 million shares of its common stock. Advest Group, Inc.
(an operating subsidiary of the MONY Group, Inc.) and UBS/Paine Webber (formally J.C. Bradford & Co.) acted as managing underwriters. The shares of

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

Amount(In thousands)Securities and Exchange Commission registration fee

$
11National Association of Securities Dealers, Inc. filing fee


4Nasdaq National Market listing fee


73Accountants' fees and expenses


1,245Legal fees and expenses


606Transfer Agent's fees and expenses


23Printing and engraving expenses


332Miscellaneous


146Total Expenses

$
2,440


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

After
deducting the underwriter's discounts and commissions and the offering expenses, the net proceeds to us from the offering were approximately $31.0 million. In
February 2000 we used $3,545,000 of these net proceeds to repay outstanding principal and interest due on 20 promissory notes. Also in February 2000 we used $67,000 of net proceeds to
repay deferred compensation and applicable bonuses for our executive officers through December 31, 1999. Additionally, out of working capital during the first quarter 2000, we paid $61,000 of
deferred compensation and applicable bonuses for January 2000 for our executive officers and $93,000 of deferred compensation for other management members who elected to defer payment during
the time period from December 1999 through January 2000. Additionally, we paid off five convertible promissory notes totaling $549,000 at the request of the note holders.

Application of Net Proceeds

Since the completion of the IPO in February of 2000, we used approximately $2.6 million of such net proceeds for increased product development activities,
approximately $1.3 million on sales and marketing, and $15.3 million for working capital and other general corporate purposes. The following table sets forth the intended use of our
residual net proceeds. Due to the change in the financial market and the uncertainty in the healthcare industry, we decided not to pursue additional acquisitions during the years 2000 and 2001. Final
allocation of proceeds depends on numerous factors, including amounts spent on acquisitions, growth of our business and the need for additional marketing and development activities. A substantial
portion of the net proceeds have not been allocated to any specific use. We will continue to retain broad discretion over actual use of these proceeds.

Approximate
Amount(In thousands)For potential acquisitions

$
3,000For increased product development activities


381For increased sales and marketing activities


1,721For working capital and other general corporate purposes


2,938$
8,040


14

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Item 6. Selected Financial Data

The selected consolidated financial data set forth below are derived from our audited financial statements and should be read in conjunction with our consolidated
financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operation" included in this Form 10-K. The
consolidated statement of operations for the years ended December 31, 1997, 1998, 1999 and 2000, and the consolidated balance sheets at December 31, 1998, 1999 and 2000 have been audited
by Arthur Andersen LLP, independent public accountants. The consolidated statement of operations for the year ended December 31, 2001, and the consolidated balance sheet at December 31,
2001 have been audited by Grant Thornton LLP.

Selected Consolidated Financial Data  (In thousands, except per share amounts)

|                                           |                                             | Years Ended December 31, |      
|------------------------------------------ | ------------------------------------------- | ------------------------ | -----
|
|Consolidated Statement of Operations Data: |                                             |                          |      
|Revenues:                                  |                                             |                          |      
|                                           | Software and systems                        |                          | $    
|                                           | Customer support and electronic services    |                          |      
|                                           |                                             |                          |      
|                                           | Total revenues                              |                          |      
|Operating costs and expenses:              |                                             |                          |      
|                                           | Software and systems                        |                          |      
|                                           | Customer support and electronic services    |                          |      
|                                           | Selling, general and administrative         |                          |      
|                                           | Product development                         |                          |      
|                                           | Depreciation and amortization               |                          |      
|                                           | Restructuring, impairment and other charges |                          |      
|                                           |                                             |                          |      
|                                           | Total operating costs and expenses          |                          |      
|                                           |                                             |                          |      
|Loss from operations                       |                                             |                          | (609 
|Shareholder litigation settlement          |                                             |                          |     
|Interest income (expense), net             |                                             |                          | (20  
|                                           |                                             |                          |      
|Loss before income taxes                   |                                             |                          | (629 
|(Provision) benefit for income taxes       |                                             |                          | 195  
|                                           |                                             |                          |      
|Net Loss                                   |                                             | $                        | (434 
|                                           |                                             |                          |      
|Basic loss per share                       |                                             | $                        | (0.27
|Diluted loss per share(1)                  |                                             | $                        | (0.27
|Weighted-average sharesbasic              |                                             |                          | 1,620
|Weighted-average sharesdiluted(1)         |                                             |                          | 1,620

|                                            |  | As of December 31, |      
|------------------------------------------- |  | ------------------ | -----
|
|Consolidated Balance Sheet Data:            |  |                    |      
|Net working capital                         |  | $                  | 106  
|Short-term investments and cash equivalents |  |                    |     
|Long-term investments                       |  |                    |     
|Total assets                                |  |                    | 5,165
|Long-term debt, net of current portion      |  |                    | 1,501
|Accumulated deficit                         |  |                    | (267 
|Total stockholders' equity                  |  |                    | 2,242

---

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward Looking Statements

This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties.
You can identify these statements by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of reasons, including those discussed under
"Special Cautionary Notice Regarding Forward-Looking Statements and Risk Factors" and elsewhere in this document.

You should read statements that contain these words carefully because they discuss our expectations about our future performance, contain projections of our
future operating results or our future financial condition, or state other "forward-looking" information. You should carefully review the risks declared in this document under "Special Cautionary
Notice Regarding Forward-Looking Statements and Risk Factors". You are cautioned not to place undue reliance on the forward-looking, statements, which speak only as of date of this Annual Report on
Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this
document.

Overview

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

Of
the 26 business combinations we have completed to date, Healthcare Information Systems, Inc. and Northern Health Solutions, Inc. were accounted for as pooling of
interests, and therefore, our financial statements include them as a part of our operations for all periods presented. We acquired four established regional healthcare information systems companies in
1997, with the first occurring in July 1997, eight companies in 1998 and fourteen companies in 1999. We have financed our 26 business combinations to date through the issuance of approximately
3.1 million shares of common stock, 120,000 shares of Series B preferred stock, $1.2 million in stock options, $4.3 million in promissory notes and $1.9 million in
cash. We have made no acquisitions in the years 2000 and 2001 or to date in 2002 due to the change in the financial market and the uncertainty in the healthcare industry.

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

Our
revenues include both recurring and non-recurring revenues. We define recurring revenues as any revenues derived from an existing or acquired customer after the initial
installation of the product and revenues generated from sales of new products to existing customers. We consider our non-recurring revenues to be revenues generated on sales to new
customers. We expect the mix of recurring and non-recurring revenues to fluctuate because of our acquisition activities and our ability to

16

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sell our products to new customers. Over time, we believe that recurring revenues will continue to represent a large portion of our overall revenues. Recurring revenue is not a measurement defined by
accounting principles generally accepted in the United States of America (GAAP) and should not be considered an alternative to, or more meaningful than, revenues as defined by GAAP. All companies do
not calculate recurring revenues in the same manner or at all. Accordingly, our recurring revenue data may not be comparable with that of other companies. We have included information concerning
recurring revenues because we believe recurring revenues provides useful information regarding our overall revenue mix.

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

Gross Margin Data  (In thousands, except percentage data)

|                      |                         | Years Ended December 31, |  
|--------------------- | ----------------------- | ------------------------ | -
|
|Software and Systems: |                         |                          |  
|                      | Revenues                |                          | $
|                      | Cost of revenues        |                          |  
|                      |                         |                          |  
|                      | Gross margin            |                          | $
|                      |                         |                          |  
|                      | Gross margin percentage |                          |  

|                                          |                         | Years Ended December 31, |  
|----------------------------------------- | ----------------------- | ------------------------ | -
|
|Customer Support and Electronic Services: |                         |                          |  
|                                          | Revenues                |                          | $
|                                          | Cost of revenues        |                          |  
|                                          |                         |                          |  
|                                          | Gross margin            |                          | $
|                                          |                         |                          |  
|                                          | Gross margin percentage |                          |  

Our
acquisitions have resulted in significant intangibles and related amortization. Amortization expenses result from the amortization of intangible assets. Intangible assets acquired
include acquired software, covenants not to compete, customer lists, assembled workforce and goodwill, and have averaged 94.3% of the consideration paid by VantageMed for an acquisition. Acquired
software is amortized over two to four years depending on the estimated continued use of the software product acquired. Covenants not to compete are amortized over two to five years, representing the
life of such agreements. Customer lists are amortized over two to ten years, representing the estimated future life of customer relationships. Assembled workforce is amortized over one to ten years,
depending upon the average length of employment for the employees of those companies we have acquired. Goodwill is amortized over two to ten years depending upon whether the acquisition is established
as a new regional office or is consolidated into an existing regional office; and whether or not there is continuing sales of the software purchased in the acquisition. We periodically review whether
there has been a permanent impairment of our long-lived assets, in accordance with Statement of Financial Accounting Standards No. 121. In 2000 and 2001, we recorded an impairment
charges of $11,935,000 and $5,770,000, respectively, for the impairment of these intangibles.

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Depreciation expense includes depreciation of property and equipment over their useful lives, which range from three to seven years. Depreciation expenses are not material to our
operating results. In 2000, we recorded a $750,000 net write-off of property and equipment.

We
have invested approximately $17.3 million in product development since our inception. These funds have been primarily invested in our Windows-based, Internet-enabled products.
The costs have been expensed as incurred.

As
of December 31, 2001, we had a post-acquisition federal and state net operating loss carry forward benefit of approximately $12.2 and $1.4 million,
respectively available to offset future income tax, if any. These benefits will expire incrementally at various dates ending in 2022.

Since
July 1997, we have developed a customer base of over 11,000 sites through both acquisitions and internal growth. We expect our revenues to increase through both internal
growth and acquisitions in the future. We believe that migration of current and acquired customers to our Windows-based, internet-enabled products and the development and marketing of these products
to new and existing customers are the keys to our internal growth strategy. Our internal growth model is therefore focused on increasing revenues from software licensing and electronic transaction
services, as well as maintaining recurring support revenues. We recognize revenues from software license fees in accordance with American Institute of Certified Public Accountants Statement of
Position 97-2. Software license fees are recognized as revenues upon delivery of our software products to our customers, as long as evidence of an arrangement exists, the amounts of fees
are fixed and determinable and the collection of the resulting receivable is probable. Computer hardware and supplies revenues are recognized upon product shipment. Revenues from support and
maintenance contracts are recognized ratably over the life of the contract. Revenues from other services are recognized as the services are provided.

Our
strategy is to acquire companies with technology that will enhance our overall product offerings or companies that build regional market penetration in support of our national
distribution channel. Our acquisitions have produced an established distribution channel of regional offices nationwide, provided us access to an existing customer base, new product offerings, and
helped us to build our management team. No acquisitions were completed during the years 2000 and 2001 or to date in 2002.

Results of Operations

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

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Selected Consolidated Financial Data Percentages

|                                     |                                             | Years Ended December 31,           |     
|------------------------------------ | ------------------------------------------- | ---------------------------------- | ----
|
|Revenues:                            |                                             |                                    |     
|                                     | Software and systems                        |                                    | 53.4
|                                     | Customer support and electronic services    |                                    | 46.6
|                                     |                                             |                                    |     
|                                     |                                             | Total revenues                     |     
|Operating costs and expenses:        |                                             |                                    |     
|                                     | Software and systems                        |                                    | 24.3
|                                     | Customer support and electronic services    |                                    | 22.9
|                                     | Selling, general & administrative           |                                    | 48.9
|                                     | Product development                         |                                    | 8.4 
|                                     | Depreciation and amortization               |                                    | 7.2 
|                                     | Restructuring, impairment and other charges |                                    |    
|                                     |                                             |                                    |     
|                                     |                                             | Total costs and operating expenses |     
|Loss from operations                 |                                             | (11.7                              | )   
|Shareholder litigation settlement    |                                             |                                   |     
|Interest income (expense), net       |                                             | (0.4                               | )   
|                                     |                                             |                                    |     
|Loss before income taxes             |                                             | (12.1                              | )   
|                                     |                                             |                                    |     
|(Provision) benefit for income taxes |                                             | 3.7                                |     
|                                     |                                             |                                    |     
|                                     |                                             | Net loss                           |     
|                                     |                                             |                                    |     

Year ended December 31, 2000 Compared to December 31, 2001

Revenues.Total revenues remained unchanged at $23.9 million for the years ended December 31, 2000 and
December 31, 2001. Recurring revenues increased 0.5% from $19.5 million for the year ended December 31, 2000 to $19.6 million in the corresponding period of 2001, while
non-recurring revenues decreased 2.3% from $4.4 million for the year ended December 31, 2000, to $4.3 million in the corresponding period of 2001.



19

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Cost of Revenues.Total cost of revenues decreased 3.0% from $13.0 million for the year ended December 31, 2000
compared to $12.6 million in the corresponding period of 2001, and decreased as a percentage of total revenues from 54.5% for the year ended December 31, 2000 to 52.7% in the
corresponding period of 2001.



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Selling, General and Administrative.Selling, general and administrative expenses decreased 20.1% from $15.5 million,
or 64.8% of total revenues for the year ended December 31, 2000, to $12.4 million, or 51.7% of total revenues in the corresponding period of 2001. The dollar and percentage decrease was
primarily due to improved operating efficiencies derived from our restructuring plan implemented in June 2000. As of December 31, 2001, we employed 290 persons compared to approximately
345 as of December 31, 2000. Additionally, in the second quarter of 2001, the Company resolved an issue
pertaining to outstanding legal fees that were expensed in previous years, but remained unpaid. The formal resolution of this issue allowed the Company to reverse approximately $140,000 from legal
expense.

Product Development.Product development expenses decreased 8.0% from $5.6 million, or 23.3% of total revenues for the
year ended December 31, 2000, to $5.1 million, or 21.4% of total revenues in the corresponding period of 2001. The dollar and percentage decreases were primarily due to improved
operating efficiencies derived from consolidating our Windows-based products technology groups into one center.

Depreciation and Amortization.Depreciation and amortization expenses decreased 41.9% from $5.7 million or 23.7% of
total revenues, for the years ended December 31, 2000, to $3.3 million, or 13.7% of total revenues, in the corresponding period of 2001. Of these amounts, amortization expenses were
$4.7 million for the year ended December 31, 2000 and $2.4 million in the corresponding period of 2001. The decrease in depreciation and amortization expense for the year ended
December 31, 2001 is primarily due to the write-down of assets due to impairment in the amount of $12.7 million recorded in the year 2000. This write-down will
result in a reduction in depreciation and amortization in future periods.

Restructuring, Impairment and Other Charges.In May 2001, we made the decision to close the Salt Lake City regional
office. This closure resulted in an impairment write-down of $161,000 on certain intangible assets and other charges in connection with this closure totaling $22,000. Additionally in 2001,
we performed periodic reviews of the recoverability of our intangible assets and property and equipment. During 2001, these reviews resulted in the Company recording an impairment of
$5.6 million for certain intangible assets. In June 2000, we implemented a restructuring plan announced during the same quarter, to improve our future operating results. Additionally, we
perform periodic reviews of the recoverability of our intangible assets and property and equipment. In 2000, these reviews resulted in the Company recording an impairment of certain intangible assets
and software rights. We incurred non-recurring charges of $12.9 million associated with the restructuring plan,

21

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impairment of certain intangibles and software rights. These charges were primarily associated with older legacy software products that were being discontinued, a charge for write-off of
purchased software that has become obsolete and the payment to employees for severance agreements and costs associated with closing a regional office and combining two regional offices.

Other Income (Expense).Total other expense, net was $2.3 million, or 9.5% of total revenues for the year ended
December 31, 2000, compared to other expense, net of $686,000 or 2.6% of total revenues for the year ended December 31, 2001. The year ended December 31, 2000 included a
non-cash interest charge for the beneficial conversion feature of a promissory note totaling $3.0 million. The year ended December 31, 2001 included a shareholder litigation
settlement charge of $1.3 million to record its portion of the cost to settle the class action lawsuits against the Company. (See Item 3.Legal Proceedings for additional
information.) The year ended December 31, 2000 included interest income earned on our investment securities and other miscellaneous income of approximately $1.2 million, compared to
$782,000 for the same corresponding period in 2001. This interest decrease is due to two
factors: Average cash investments decreased from $13.3 million for the year ended December 31, 2000 to $6.7 million for the year ended December 31, 2001 and the interest
rate earned on these investments decreased from 6.09% for the year ended December 31, 2000 to 4.44% for the year ended December 31, 2001. These income items were offset by interest
expense on our short and long-term debt of $484,000 and $168,000 for the year ended December 31, 2000 and 2001, respectively.

Income Taxes.No tax benefit was recorded for the years ended December 31, 2000 and 2001. In 2000 and 2001, we
recorded $18,000 and $15,000 respectively to recognize the minimum tax liability in several states that require such payment. The acquired companies acquisition-date net operating loss
carryovers were greater than the additional deferred tax liabilities that were recorded in connection with the purchase of intangibles other than goodwill. In accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes," we recorded a valuation allowance to fully offset any potential tax benefit associated with
post-acquisition net operating losses.

Year Ended December 31, 1999 Compared to December 31, 2000

A portion of the variances between the year ended December 31, 1999 and the corresponding year of 2000 are attributable to our acquisition activity. During
the year ended December 31, 1999, we completed fourteen business combinations, all of which were accounted for using the purchase method of accounting. Therefore, revenues and expenses from
these companies were only included for a portion of the year ended December 31, 1999, but were included in the entire year ended December 31, 2000. Due to a change in the financial
market and the uncertainty in the healthcare industry, there were no acquisitions for the year ended December 31, 2000.

Revenues.Total revenues increased 23.2% from $19.4 million for the year ended December 31, 1999 to
$23.9 million for the year ended December 31, 2000. The revenue increase primarily resulted from the increase in customer support and electronic service revenues. Recurring revenues
increased 27.3% from $15.3 million for the year ended December 31, 1999 to $19.5 million in the corresponding year of 2000, while non-recurring revenues increased 7.8%
from $4.1 million in for the year December 31, 1999 to $4.4 million in the corresponding year of 2000.



22

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Cost of Revenues.Total cost of revenues increased 26.4% from $10.3 million for the year ended December 31,
1999 to $13.0 million in the corresponding year of 2000, and increased as a percentage of total revenues from 53.1% for the year ended December 31, 1999 to 54.5% in the corresponding
year of 2000.



23

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Selling, General and Administrative.Selling, general and administrative expenses increased 49.3% from $10.4 million,
or 53.5% of total revenues for the year ended December 31, 1999, to $15.5 million, or 64.8% of total revenues in the corresponding year of 2000. Of the $5.1 million increase,
selling expenses, corporate administration, and regional distribution channel expenses increased approximately $1.2 million, $1.4 million, and $2.5 million, respectively. The
$1.2 million increase in selling expenses is the direct result of selling costs of the acquired distribution channel. The $1.4 million increase in corporate administration expenses
resulted from a full year of salaries in 2000 from acquired companies compared to a partial year in 1999 due to the timing of acquisitions, and the building of corporate staff and infrastructure. The
$2.5 million increase in regional distribution channel expenses resulted from regional operating costs directly related to our acquired distribution channel.

Product Development.Product development expenses increased 35.2% from $4.1 million or 21.2% of total revenues for the
year ended December 31, 1999, to $5.6 million, or 23.3% of total revenues in the corresponding year of 2000. The dollar and percentage increases were due primarily to a full year of
staffing costs in 2000 from acquired companies, compared to a partial year of these costs in 1999 due to the timing of acquisitions, and related costs necessary for development of our new products.

Depreciation and Amortization.Depreciation and amortization expenses increased 46.0% from $3.9 million or 20.0% of
total revenues, for the year ended December 31, 1999, to $5.7 million, or 23.7% of total revenues, in the corresponding year of 2000. Of these amounts, amortization expenses were
$3.0 million for the year ended December 31, 1999 and $4.7 million in the corresponding year of

24

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2000. At December 31, 2000, we had intangible assets totaling $21.3 million with accumulated amortization of $9.3 million. The weighted average life of these intangibles was
7.5 years.

Restructuring, Impairment and Other Charges.Due to a change in business conditions and the operating results at that time,
in June of 2000 we implemented a restructuring plan to improve our future operating results. Additionally, we perform periodic reviews of the recoverability of our intangible assets and property and
equipment. During the year, these reviews resulted in the Company recording an impairment of certain intangible assets and software rights. We incurred non-recurring charges of
$12.9 million associated with the restructuring plan, impairment of certain intangibles and software rights. These charges were primarily associated with older legacy software products that
were being discontinued, a charge for write-off of purchased software that has become obsolete and the payment to employees for severance agreements and costs associated with closing a
regional office and combining two regional offices.

Interest Income (Expense), Net.Interest expense increased from $948,000, or 4.9% of total revenues for the year ended
December 31, 1999 to $2.3 million, or 9.5% of total revenues in the corresponding year of 2000. The percentage and dollar increases primarily resulted from a non-cash
interest charge for the beneficial conversion feature of a promissory note and the amortization of the fair value of warrants, totaling $3.1 million, interest expense on debt of $428,000,
offset by interest income earned on our investment securities of $1.2 million.

Income Taxes.No tax benefit was recorded for the years ended December 31, 1999 and 2000. In 2000, we recorded $18,000
to recognize the minimum tax liability in several states that required such payment. The acquired companies acquisition-date net operating loss carryovers were greater than the additional
deferred tax liabilities that were recorded in connection with the purchase of intangibles other than goodwill. In accordance with Statement of Financial Accounting Standards No. 109
(SFAS 109) "Accounting for Income Taxes," we recorded a valuation allowance to fully offset any potential tax benefit associated with post-acquisition net operating losses.

Critical Accounting Policies

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. However, certain of our accounting
policies are particularly important to the presentation of our financial position and results of operations and require the application of significant judgment by our management; as a result they are
subject to an inherent degree of uncertainty. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain
estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information
available from other outside sources, as appropriate. Our significant accounting policies include:

Revenue Recognition.Revenue on product sales is recognized when persuasive evidence of an arrangement exists, the price is
fixed and final, delivery has occurred and there is a reasonable assurance of collection of the sales proceeds. We generally obtain written purchase authorizations from our customers for a specified
amount of product at a specified price and consider delivery to have occurred at the time of installation. We provide our customers with a limited right of return and record a reserve for sales
returns when revenue is recorded. The Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition" provides guidance on the application of generally
accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting
principles and SAB No. 101.

25

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Inventories.Inventories are stated at the lower of cost or market, cost being determined on the specific identification
method. Reserves for slow moving and obsolete inventories are provided based on historical experience and current product demand. We evaluate the adequacy of these reserves quarterly.

Intangibles.Intangibles include goodwill, acquired software, customer lists, covenants not to compete and assembled
workforce. Goodwill represents the amount of purchase price in excess of the fair value of
the identifiable assets purchased in acquisitions completed by the Company and is amortized on a straight-line basis over a period of two to ten years, depending upon whether the
acquisition is established as a new regional office or is consolidated into an existing one and whether or not there are continuing sales of the software purchased in the acquisition. Acquired
software consists of software purchased in acquisitions completed by the Company and is amortized on a straight-line basis over a period of two to four years, depending on the estimated
continued use of the software product acquired. Covenants not to compete are amortized on a straight-line basis over two to five years, representing the life of such agreements. Customer
lists are amortized on a straight-line basis over two to ten years, representing the estimated future life of customer relationships. Assembled workforce is amortized on a
straight-line basis over a period of one to ten years depending upon the average length of employment for the employees of the acquired companies. Intangibles and other
long-lived assets, such as property and equipment are periodically evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not
be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. When any such impairment exists, the related assets will be written down to fair value, which
is determined by reference to the present value of estimated future cash flows.

Liquidity and Capital Resources

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

Cash,
cash equivalents and investments totaled $9.5 million at December 31, 2001 compared to $17.3 million at December 31, 2000. Net cash used for operating
activities was $9.3 million, $9.5 million and $7.2 million for the years ended December 31, 1999, 2000 and 2001, respectively. Net cash used in operating activities for the
years ended December 31, 1999 related to the net loss for the period, which was offset primarily by depreciation and amortization expense. Net cash used in operating activities for the year
ended December 31, 2000 related to the net loss for the period offset primarily by an increase in depreciation and amortization expense, impairment of certain intangibles, the recognition of
non-cash interest charge for the beneficial conversion feature of a promissory note, the amortization of the fair value of warrants and the loss on disposal of property and equipment.
    Net cash used in operating activities for the year ended December 31, 2001 related to the net loss for the period offset primarily by depreciation and amortization expense and an
impairment of certain intangibles.

Net
cash provided by investing activities was $2.9 million for the year ended December 31, 1999 and consisted primarily of cash received from businesses acquired offset
slightly by purchases of property and equipment. Net cash used for investing activities was $14.3 million for the year ended December 31, 2000 and consisted primarily of the purchases of
higher-yield short-term and long-term investments, as well as the purchase of computers and office equipment used in our regional offices. Net cash provided by investing
activities was $6.8 million for the year ended December 31, 2001 and consisted primarily of the sale of short-term investments.

Net
cash provided by financing activities was $6.2 million for the year ended December 31, 1999 and was related primarily to the issuance of preferred stock and proceeds
from issuance of long-term

26

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debt. Net cash provided by financing activities was $27.3 million for the year ended December 31, 2000 and consisted of $31.0 million in net proceeds from the issuance of common
stock and $1.2 million from the issuance of long-term debt, partially offset by $4.9 million in principal payments on long-term debt. Net cash used for financing
activities was $580,000 for the year ended December 31, 2001 and consisted of payments on principal long-term debt and the repurchase of the Company's common stock

In
addition, at December 31, 2001 we had $460,000 in capital leases primarily for computers and office equipment. In addition, we had $1,017,000 in assumed debt or promissory
notes issued in connection with acquisitions that was outstanding at December 31, 2001. Interest rates on the promissory notes range from non-interest bearing to 11.98%. Future
minimum payments under debt and lease obligations (capital and operating) for 2002, 2003, 2004, 2005, 2006 and thereafter are $1.8 million, $1.4 million, $1.0 million, $632,000,
$182,000 and $49,000, respectively.

Prior
to the IPO, we operated with negative working capital and with negative cash flow. Since the IPO, we have eliminated our negative working capital position. However, the negative
cash flow from operations has continued, and is expected to continue, until we expand our cross-selling of new products and add-on services to our existing customer base or further reduce
operating expenses.

We
believe that our cash, short-term and long-term investments will be sufficient to meet our cash flow needs through at least December 2002. However, we
may seek to raise additional funds to cover unexpected losses, fund more rapid expansion, fund additional marketing expenditures, enhance our operating infrastructure, respond to competitive
pressures, or acquire or develop complimentary businesses or necessary technologies. Additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available
on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products or services or otherwise respond to competitive pressure could be significantly limited.

Recent Accounting Pronouncements

See Note 2 of Notes to Consolidated Financial Statements for the recent accounting pronouncements.

Forward-Looking Statements and Risk Factors

Special Cautionary Notice Regarding Forward-Looking Statements and Risk Factors

This annual report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and
Section 21 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Investors are cautioned that forward-
looking statements involve risks and uncertainties. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be
inaccurate and therefore, there can be no assurance that the forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We are not obligated and
expressly disclaim any obligation, to update any forward-looking statements.

We are subject to various risk factors, many of which are outside of our control, that could cause our actual results to differ from those expressed in
forward-looking statements made by us throughout this report and elsewhere. All statements which address operating performance, events or developments that we expect or anticipate will occur in the
future, including statements relating to expected future operating results and future financial conditions or statements expressing general optimism about future operating results, are forward-looking
statements. The following are the important factors, which may cause actual results to differ from those expressed in such forward-looking statements.

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RISKS ASSOCIATED WITH OUR BUSINESS

Internal Control Deficiencies Noted As A Result Of The Resignation By Our Independent Auditors And An Independent Investigation By Our Audit Committee And Outside Counsel May
Represent Material Weaknesses In Our Internal Controls.

On February 8, 2002, Arthur Andersen LLP ("Andersen") resigned as our independent auditors. Andersen stated that the reason for its resignation was that it
was unable to continue to rely on management's representations on certain issues concerning the financial statements because of a disagreement between Andersen and the Company as to whether certain
information concerning the funding of the sale of the Company's dental care business had been timely provided to Andersen. Our audit committee, with the assistance of outside counsel, has conducted
and completed an internal investigation related the issues raised by Andersen in its resignation as our independent auditors. The investigation found no evidence of manipulation on the part of
VantageMed or our management, but determined that the issues raised by Andersen were the result of inadequate internal controls. While not reported as such, these deficiencies could represent material
weaknesses in our internal controls.

As
a result of the investigation, we have hired a new chief financial officer, and have instituted certain measures to improve internal controls including improved communication between
management and the audit committee. We believe that these measures will correct the noted internal control deficiencies. However, there can be no assurance that we will not continue to experience such
deficiencies in the future.

The Resignation By Our Independent Auditors Has Prompted Inquiries By Nasdaq And The SEC

The resignation by Andersen and the subsequent independent investigation by our audit committee and outside counsel has prompted informal inquiries by Nasdaq and
the SEC. Senior management and the audit committee have met with Nasdaq and the SEC and provided all information requested. In response to certain Nasdaq recommendations, we have taken proactive
measures to enhance internal controls and enhance our senior management team and board of directors.

There
can no assurance that the Nasdaq or the SEC will not expand their investigations or whether the proactive measures we have instituted will be sufficient to avoid disciplinary
action by the Nasdaq or the SEC.

We Have A Limited Operating History, A History Of Losses, Expect Our Expenditures To Increase And Our Losses To Continue, And May Never Achieve Profitability

We have incurred operating losses since our incorporation in April 1997. We operated and continue to operate with a negative cash flow. Since 1997, we have
incurred aggregate net losses of $61.9 million, of which $14.6 million was amortization and depreciation, $17.7 million for the impairment of intangibles and $750,000 for the net
write-off of software purchased for internal use that will no longer be used by the Company. Our business strategies may not be successful and we may not be able to achieve or sustain
revenue growth or profitability.

Our Need For Additional Financing Is Uncertain, As Is Our Ability To Raise Further Financing, If Required

We expect our cash and other current resources to sustain us through at least the end of 2002. However, we may need to raise additional funds to respond to
business contingencies which may include the need to: cover unexpected losses; fund more rapid expansion; fund additional marketing expenditures; enhance our operating infrastructure; respond to
competitive pressures; or acquire or develop complementary businesses or necessary technologies. Further, we can offer no assurances that our current resources will sustain us beyond December 2002.

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

Our Stock May Be Delisted From The NASDAQ National Market

In March 2002, we received written notification from The Nasdaq National Market regarding the Company's failure to maintain the minimum closing bid price
requirement to remain listed on The Nasdaq National Market. In April 2002 we received further notification from The Nasdaq National Market advising us that the Company's stock ticker symbol was
being changed to "VMDCE" because of our failure to timely file our Form 10-K. We were given until June 19, 2002 to cure the deficiencies or request a hearing appealing the
Nasdaq staff's decision to delist our stock. If our stock is delisted and the market price for our stock remains below $1.00, the stock may be deemed a penny stock, which would subject the stock to
additional sales practice rules on broker-dealers who sell the Company's securities. As a result of the additional obligations, some brokers may not effect transactions in penny stocks, which could
adversely affect the liquidity of our stock.

If We Fail To Generate Recurring Revenues and Sustain Margins From Our Customers, We May Be Unable To Achieve Or Sustain Revenue Growth And Profitability

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

If We Fail To Internet-Enable Our Products In A Timely Fashion We May Lose Our Market Opportunity And May Be Unable To Achieve Or Sustain Revenue Growth And Profitability

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

If The Expansion Of The Internet And Internet Services In The Healthcare Information Technology Industry Sector Continues On A Slow Pace, We May Be Unable To Achieve Or Sustain
Revenue Growth And Profitability From The Internet

Our current systems and anticipated future services are dependent on the use of the Internet. To the extent that the use of the Internet does not further
penetrate the healthcare information technology industry our ability to realize revenue from Internet services will be limited and we may not be able to increase our revenues.

Internet Or Telecommunication Service Or Performance Problems Or Software Errors Arising After The Installation Of Our Software At Customer Sites Could Delay Market Acceptance
Of Our Products, Lead To Customer Dissatisfaction And Loss Of Revenue And Injure Our Business Reputation

The performance of our Internet-enabled products depends upon the efficient operation and timely installation of Internet and telephone connections, web browsers
and Internet service providers

29

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

We May Become Subject To State, Federal Or Foreign Taxes That Could Harm Our Business

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

Currently,
decisions of the U.S. Supreme Court restrict the imposition of obligations to collect state and local sales and use taxes with respect to sales made over the Internet.
However, a number of states, as well as the U.S. Congress, have been considering various initiatives that could limit or supersede the Supreme Court's position regarding sales and use taxes on
Internet sales. If any of these initiatives addressed the Supreme Court's constitutional concerns and resulted in a reversal of its current position, we could be required to collect sales and use
taxes. The imposition by state and local governments of various taxes upon Internet commerce could create administrative burdens for us and could decrease our future sales.

If Security And Legal Liability Concerns Make Customers Unwilling To Utilize Our Products And Services To Transmit Medical Information Over The Internet, The Demand For Our
Products May Diminish And We May Be Unable To Achieve Or Sustain Profitability

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

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

Breaches Of Network Security Could Damage Our Business Reputation, Lead To Customer Dissatisfaction, Delay Market Acceptance Of Our Products And Result In Legal And Financial
Liability And A Loss Of Revenue

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

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Fluctuations In Our Quarterly Operating Results May Cause Volatility Or Decline In The Market Price Of Our Common Stock

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

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

If We Are Unable To Protect Our Intellectual Property We May Lose Assets Or Incur Costly Litigation To Protect Our Rights

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

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

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

The Loss Of Experienced Personnel To Competitors Or Our Inability To Attract And Retain Qualified Personnel Could Significantly Interrupt Our Business Operations

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

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Delaware Law And Our Charter Documents Contain Provisions That Could Have The Effect Of Delaying Or Preventing A Corporate Takeover, Even If Such A Transaction Would Be
Beneficial To Our Stockholders

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

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

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

RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY

If We Fail To Identify Or Negotiate The Purchase Of Complementary Acquisition Candidates Or If Competition For Such Candidates Increases, We May Be Unable To Grow Our Business
And Expand Our Distribution Network And May Fail To Achieve Or Sustain Profitability

We believe that some of our competitors are undertaking an acquisition strategy similar to ours. If competition for acquisition targets increases, there may be
fewer qualified acquisition candidates available to us and the terms of such acquisitions may become less favorable. Identifying appropriate acquisition candidates, negotiating and consummating an
acquisition can be a lengthy and costly process, may divert management's attention and may prevent us from growing our business and expanding our distribution network. We did not complete any
acquisitions for the year ended December 31, 2000 and 2001. We may not be able to attract and/or complete acquisitions in the future due to market conditions, stock price or other factors that
may be unfavorable to the Company.

Problems Integrating Acquired Companies Could Result In Substantial Costs, Divert The Attention Of Our Management Team, Cause Us To Lose Valuable Customers And Dilute The Value
Of Our Acquisitions

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

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

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

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Technical Problems With Acquired Technology Or Products Could Harm Our Reputation, Result In Unexpected Costs And Cause Our Revenues To Decrease

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

RISKS ASSOCIATED WITH OUR INDUSTRY

Intense Competition In The Market For Healthcare Information Systems And Services Could Prevent Us From Increasing Or Sustaining Revenues And Prevent Us From Achieving Or
Sustaining Profitability

Our competitors vary in size, geographic coverage and scope of products and services offered. The market demand for certain products varies across geographic
territories. Industry competitors include organizations such as WebMD Corporation (formerly Medical Manager Corporation), Infocure Corporation, doing business as VitalWorks and
PracticeWorks, Inc., Misys Healthcare Systems, McKessonHBOC, Quality Systems Inc., Millbrook Corporation, Dentrix Dental Systems, Inc., and NDC Health. Additionally, within each
regional market there are several smaller competitors who have developed technologically advanced products offered at lower prices. Finally, with the integration of clinical information systems into
practice management systems, several well-funded pharmaceutical, medical supply and biotech companies have entered the practice management systems market. New healthcare information
Internet companies may become direct competitors in the future. Many of our competitors have greater financial, research and development, technical, marketing and sales resources than we do. In
addition, other entities not currently offering products and services similar to ours may enter our market. We may not be able to compete successfully with current and/or future competitors. Failure
to do so could prevent us from increasing or sustaining revenues and achieving profitability.

Economic And Cost Reduction Pressures Faced By Healthcare Providers May Limit The Ability Of Our Customers To Buy Our Products And Services And Could Limit Our Profitability

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

If There Is A Delay In The Release Of Products and If We Fail To Respond To The Rapidly Changing Technology That Characterizes Our Market, Our Products May Be Rendered
Obsolete, We May Lose Our Market Opportunity And Fail To Achieve Or Sustain Profitability

We can make no assurances that delays in product releases will not occur in the future. The market for our products is highly competitive and changes rapidly.
Therefore, timely development and introduction of new products, features and services to existing customers will significantly impact our future success. We will be required to meet rapidly changing
market demands, respond to market requirements, develop new proprietary solutions, and successfully market new products and enhancements to new customers and our existing customer base.

Any Failure To Comply With Regulations Governing The Confidentiality And Integrity Of Healthcare Information Could Result In Severe Legal And Financial Liability, Harm Our
Business Reputation And Result In A Significant Loss Of Customers

Federal regulations under HIPAA governing the confidentiality and integrity of healthcare information transmitted electronically are complex and are evolving
rapidly. Any failure on our part

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however to comply with current or future regulations could subject us to severe legal and financial liability. We may also fail to enter into appropriate HIPAA compliance contracts with our
customers. Such failures could also result in harm to our business reputation and a significant loss of customers.

Future State Or Federal Legislation May Impose Restrictions On The Ability To Transmit Patient Data Over The Internet Without Specific Patient Consent And Could Diminish The
Value Of Our Internet-Enabled Software Products And Services And Lower Our Revenues And Profits

The confidentiality of patient records is the subject of substantial regulation by state and federal governments. Such regulations may impose restrictions on the
ability of third-party processors, like us, to transmit certain patient data without specific patient consent. Such restrictions may cause the value of our Internet-enabled products and services to be
diminished, causing our revenues to decrease.

Our Billing And Claims Services Are Subject To Federal And State Regulation And Any Non-Compliance With These Regulations Could Lead To Civil, Criminal And
Financial Liability

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

Regulations That Restrict The Ability To Dispense Or Refill Controlled Substances Through An Electronically Transmitted Prescription Could Limit The Functionality Of Our
Internet-Enabled Software Products And Could Diminish The Revenue Generated From These Products

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

If Our Software Products Are Deemed Medical Devices, We Will Be Subject To Additional Regulation That Could Result In Criminal, Civil And Financial Liability, Increase Our
Costs And Delay The Marketing Of Our New Or Existing Products

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

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Future Regulations Enacted By Congress Or By State Governments May Adversely Impact The Healthcare Industry In Ways That Could Damage Our Business Opportunities Or
Profitability

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

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Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risk.

Our
exposure to market risk for changes in interest rates relates primarily to our investment portfolio and the long-term debt obligations.

The
primary objective of the Company's investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this
objective, the Company maintains its portfolio of cash equivalents, short-term and long-term investments in A-1/P-1 or better-rated Commercial Paper and
U.S. Government Agencies. All investments have been classified as available-for-sale and, accordingly, are stated at fair value. The difference between amortized cost (cost
adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments to interest income) and fair value, representing unrealized holding gains or losses, are recorded
as a separate component of stockholders' equity until realized. As of December 31, 2001, the Company had approximately $8.0 million in total available-for-sale
investment securities (see Note 5 of Notes to Consolidated Financial Statements.) Market risk represents the risk of loss that may impact our financial position, operating results or cash flows
due to adverse changes in financial and commodity market prices and rates. The Company's investment portfolio is exposed to market risk and will decline in value if interest rates increase. However,
due to the short duration of our investment portfolio, an immediate 10 percent increase in interest rates is not expected to have a material effect on the Company's near-term
financial condition or results of operations. Historically, and as of December 31, 2001, we have not used derivative instruments or engaged in hedging activities.

The
Company has one promissory note with interest at prime plus 1.5%, not to exceed 10.5%. The Company is subject to interest rate fluctuations whereby interest payments could increase
if market interest rates increase, but estimates that a 10 percent increase in interest rates is not expected to have a material effect on the Company's near-term condition or
results of operations.

Item 8. Financial Statements

The Company's Consolidated Financial Statements and Financial Statement Schedule are located on the pages indicated below:

INDEX TO FINANCIAL STATEMENTS  VANTAGEMED CORPORATION

|                              |                                                                                                                                          | Page
|----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ----
|Financial Statements:         |                                                                                                                                          |     
|                              | Report of Independent Public Accountants for 2001                                                                                        |     
|                              | Report of Independent Public Accountants for 2000 and 1999                                                                               |     
|                              | Consolidated Balance Sheets as of December 31, 2000 and 2001                                                                             |     
|                              | Consolidated Statements of Operations for each of the three years in the period ended December 31, 2001                                  |     
|                              | Consolidated Statements of Stockholders' Equity and Comprehensive Loss for each of the three years in the period ended December 31, 2001 |     
|                              | Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2001                                  |     
|                              | Notes to Consolidated Financial Statements                                                                                               |     
|Financial Statement Schedule: |                                                                                                                                          |     
|                              | Schedule IIValuation and Qualifying Accounts for each of the three years in the period ended December 31, 2001                          |     

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Report of Independent Certified Public Accountants

Board
of Directors
VantageMed Corporation

We
have audited the accompanying consolidated balance sheet of VantageMed Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for the year then ended. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of VantageMed Corporation and subsidiaries as of
December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

We
have also audited Schedule II for the year ended December 31, 2001. In our opinion, this schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information therein.

/s/GRANT
THORNTON LLP

San
Francisco, California
May 1, 2002

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
VantageMed Corporation:

We
have audited the accompanying consolidated balance sheet of VANTAGEMED CORPORATION (a Delaware corporation) and subsidiaries as of December 31, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2000. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of VantageMed Corporation and subsidiaries as of
December 31, 2000, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

Our
audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed as Schedule II is presented
for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/S/
ARTHUR ANDERSEN LLP

Sacramento,
California
February 16, 2001

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PART 1FINANCIAL INFORMATION

Item 1. Financial Statements

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

|                                                |                                                                                                                                   | December 31,                               |       
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------
|
|ASSETS                                          |                                                                                                                                   |                                            |       
|CURRENT ASSETS:                                 |                                                                                                                                   |                                            |       
|                                                | Cash and cash equivalents                                                                                                         |                                            | $     
|                                                | Short-term investments                                                                                                            |                                            |       
|                                                | Accounts receivable, net of allowance of $240 and $171, respectively                                                              |                                            |       
|                                                | Current portion of notes receivable                                                                                               |                                            |       
|                                                | Inventories                                                                                                                       |                                            |       
|                                                | Prepaid expenses and other                                                                                                        |                                            |       
|                                                |                                                                                                                                   |                                            |       
|                                                |                                                                                                                                   | Total current assets                       |       
|LONG-TERM INVESTMENTS                           |                                                                                                                                   |                                            | 1,001 
|NOTES RECEIVABLE, net of current portion        |                                                                                                                                   |                                            | 301   
|PROPERTY AND EQUIPMENT, net                     |                                                                                                                                   |                                            | 1,736 
|INTANGIBLES, net                                |                                                                                                                                   |                                            | 11,914
|                                                |                                                                                                                                   |                                            |       
|                                                |                                                                                                                                   | Total assets                               |       
|                                                |                                                                                                                                   |                                            |       
|LIABILITIES AND STOCKHOLDERS' EQUITY            |                                                                                                                                   |                                            |       
|CURRENT LIABILITIES:                            |                                                                                                                                   |                                            |       
|                                                | Current portion of long-term debt                                                                                                 |                                            | $     
|                                                | Accounts payable                                                                                                                  |                                            |       
|                                                | Accrued liabilities                                                                                                               |                                            |       
|                                                | Customer deposits and deferred revenue                                                                                            |                                            |       
|                                                |                                                                                                                                   |                                            |       
|                                                |                                                                                                                                   | Total current liabilities                  |       
|LONG-TERM DEBT, net of current portion          |                                                                                                                                   |                                            | 1,155 
|                                                |                                                                                                                                   |                                            |       
|                                                |                                                                                                                                   | Total liabilities                          |       
|COMMITMENTS AND CONTINTGENCIES (Note 10 and 16) |                                                                                                                                   |                                            |       
|STOCKHOLDERS' EQUITY:                           |                                                                                                                                   |                                            |       
|                                                | Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 shares outstanding                                              |                                            |       
|                                                | Common stock, $0.001 par value, 20,000,000 shares authorized; 8,625,971 and 8,535,831 shares issued and outstanding, respectively |                                            |       
|                                                | Additional paid-in capital                                                                                                        |                                            |       
|                                                | Accumulated other comprehensive (loss) income                                                                                     |                                            |       
|                                                | Deferred compensation                                                                                                             |                                            |       
|                                                | Accumulated deficit                                                                                                               |                                            |       
|                                                |                                                                                                                                   |                                            |       
|                                                |                                                                                                                                   | Total stockholders' equity                 |       
|                                                |                                                                                                                                   |                                            |       
|                                                |                                                                                                                                   | Total liabilities and stockholders' equity |       
|                                                |                                                                                                                                   |                                            |       

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

39

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VANTAGEMED CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS        (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

|                                          |                                             | Year ended December 31,            |          
|----------------------------------------- | ------------------------------------------- | ---------------------------------- | ---------
|
|REVENUES:                                 |                                             |                                    |          
|                                          | Software and systems                        |                                    | $        
|                                          | Customer support and electronic services    |                                    |          
|                                          |                                             |                                    |          
|                                          |                                             | Total revenues                     |          
|                                          |                                             |                                    |          
|OPERATING COSTS AND EXPENSES:             |                                             |                                    |          
|                                          | Software and systems                        |                                    |          
|                                          | Customer support and electronic services    |                                    |          
|                                          | Selling, general and administrative         |                                    |          
|                                          | Product development                         |                                    |          
|                                          | Depreciation and amortization               |                                    |          
|                                          | Restructuring, impairment and other charges |                                    |          
|                                          |                                             |                                    |          
|                                          |                                             | Total operating costs and expenses |          
|                                          |                                             |                                    |          
|LOSS FROM OPERATIONS                      |                                             |                                    | (9,267   
|                                          |                                             |                                    |          
|OTHER INCOME (EXPENSE):                   |                                             |                                    |          
|                                          | Shareholder litigation settlement           |                                    |          
|                                          | Interest income                             |                                    |          
|                                          | Interest expense                            |                                    |          
|                                          |                                             |                                    |          
|                                          |                                             | Total other expense, net           |          
|                                          |                                             |                                    |          
|LOSS BEFORE INCOME TAXES                  |                                             |                                    | (10,215  
|INCOME TAXES                              |                                             |                                    |         
|                                          |                                             |                                    |          
|                                          |                                             | Net loss                           |          
|                                          |                                             |                                    |          
|Basic and diluted net loss per share      |                                             | $                                  | (3.13    
|                                          |                                             |                                    |          
|Weighted-average sharesbasic and diluted |                                             |                                    | 3,261,712
|                                          |                                             |                                    |          

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

40

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VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

|                           |                                                                        | Preferred Stock |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|-------------------------- | ---------------------------------------------------------------------- | --------------- | ---------- | - | - | -- | ------- | -------- | - | - | - | --------- | --------- | --------- | - | - | -
|
|
|
|
|BALANCE, December 31, 1998 |                                                                        | 413,018         |            | $ |  |    | 100,000 |          | $ |  |   | 2,405,996 |           | $         | 2 |   | $
|                           | Issuance of common stock                                               |                 |           |   |   |   |         |         |   |   |  |           | 73,317    |           |   |  |  
|                           | Issuance of common stock in connection with acquisitions               |                 |           |   |   |   |         |         |   |   |  |           | 1,845,508 |           |   | 2 |  
|                           | Issuance of stock options and warrants in connection with acquisitions |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           | Conversion of Series A preferred stock to Series A-1 preferred stock   |                 | (413,018   | ) |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           | Issuance of Series A-1 preferred stock                                 |                 | 1,795,300  |   |   | 2  |         |         |   |   |  |           |          |           |   |  |  
|                           | Issuance of Series B preferred stock in connection with acquisition    |                 |           |   |   |   |         | 20,000   |   |   |  |           |          |           |   |  |  
|                           | Conversion of notes payable into common stock                          |                 |           |   |   |   |         |         |   |   |  |           | 29,549    |           |   |  |  
|                           | Exercise of stock options                                              |                 |           |   |   |   |         |         |   |   |  |           | 955       |           |   |  |  
|                           | Deferred compensation                                                  |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           | Amortization of deferred compensation                                  |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           | Issuance of warrants                                                   |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           | Net loss                                                               |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|BALANCE, December 31, 1999 |                                                                        | 1,795,300       |            |   | 2 |    | 120,000 |          |   |  |   | 4,355,325 |           |           | 4 |   |  
|                           | Issuance of common stock in connection with IPO                        |                 |           |   |   |   |         |         |   |   |  |           | 3,000,000 |           |   | 3 |  
|                           | Conversion of Series A-1 preferred stock into common stock             |                 | (1,795,300 | ) |   | (2 | )       |         |   |   |  |           | 599,425   |           |   | 1 |  
|                           | Conversion of Series B preferred stock into common stock               |                 |           |   |   |   |         | (120,000 | ) |   |  |           | 120,000   |           |   |  |  
|                           | Conversion of notes payable into common stock                          |                 |           |   |   |   |         |         |   |   |  |           | 527,810   |           |   | 1 |  
|                           | Exercise of stock options                                              |                 |           |   |   |   |         |         |   |   |  |           | 23,411    |           |   |  |  
|                           | Amortization of deferred compensation                                  |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           |                                                                        | Subtotal        |            |  |   |    |        |          |  |   |   |          |           | 8,625,971 |   |   | 9
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|Comprehensive Income:      |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           | Unrealized loss on investment                                          |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           | Net loss                                                               |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|Comprehensive Loss         |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|BALANCE, December 31, 2000 |                                                                        |                |            |   |  |    |        |          |   |  |   | 8,625,971 |           |           | 9 |   |  
|                           | Exercise of stock options                                              |                 |           |   |   |   |         |         |   |   |  |           | 17,367    |           |   |  |  
|                           | Repurchase of common stock                                             |                 |           |   |   |   |         |         |   |   |  |           | (107,507  | )         |   |  |  
|                           | Amortization of deferred compensation                                  |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           |                                                                        | Subtotal        |            |  |   |    |        |          |  |   |   |          |           | 8,535,831 |   |   | 9
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|Comprehensive Income:      |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           | Unrealized gain on investment                                          |                 |           |   |   |   |         |         |   |   |  |           |          |           |   |  |  
|                           | Net loss                                                               |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|Comprehensive Loss         |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  
|BALANCE, December 31, 2001 |                                                                        |                |            | $ |  |    |        |          | $ |  |   | 8,535,831 |           | $         | 9 |   | $
|                           |                                                                        |                 |            |   |   |    |         |          |   |   |   |           |           |           |   |   |  

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

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VANTAGEMED CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS        (IN THOUSANDS)

|                                             |                                                                              | Year Ended December 31,                |    
|-------------------------------------------- | ---------------------------------------------------------------------------- | -------------------------------------- | ---
|
|CASH FLOWS FROM OPERATING ACTIVITIES:        |                                                                              |                                        |    
|                                             | Net loss                                                                     |                                        | $  
|                                             | Adjustments to reconcile net loss to net cash used for operating activities |                                        |    
|                                             |                                                                              | Depreciation and amortization          |    
|                                             |                                                                              | Loss on disposal of assets             |    
|                                             |                                                                              | Bad debt expense                       |    
|                                             |                                                                              | Impairment of intangibles              |    
|                                             |                                                                              | Beneficial interest conversion         |    
|                                             |                                                                              | Amortization of deferred compensation  |    
|                                             |                                                                              | Amortization of warrants               |    
|                                             | Changes in assets and liabilities, net of effects from acquisitions         |                                        |    
|                                             |                                                                              | Accounts receivable                    |    
|                                             |                                                                              | Inventories                            |    
|                                             |                                                                              | Prepaid expenses and other             |    
|                                             |                                                                              | Book overdraft                         |    
|                                             |                                                                              | Accounts payable                       |    
|                                             |                                                                              | Accrued liabilities                    |    
|                                             |                                                                              | Customer deposits and deferred revenue |    
|                                             |                                                                              |                                        |    
|                                             | Net cash used for operating activities                                       |                                        |    
|                                             |                                                                              |                                        |    
|CASH FLOWS FROM INVESTING ACTIVITIES:        |                                                                              |                                        |    
|                                             | Purchases of property and equipment, net of effects from acquisitions        |                                        |    
|                                             | Purchase of intangible asset                                                 |                                        |    
|                                             | Purchase of investments                                                      |                                        |    
|                                             | Proceeds from maturities of investments                                      |                                        |    
|                                             | Proceeds from sale of property and equipment                                 |                                        |    
|                                             | Paydown (issuance) of notes receivable                                       |                                        |    
|                                             | Cash received from businesses acquired, net                                  |                                        |    
|                                             |                                                                              |                                        |    
|                                             | Net cash provided by (used for) investing activities                         |                                        |    
|                                             |                                                                              |                                        |    
|CASH FLOWS FROM FINANCING ACTIVITIES:        |                                                                              |                                        |    
|                                             | Issuance of common stock                                                     |                                        |    
|                                             | Repurchase of common stock                                                   |                                        |    
|                                             | Issuance of preferred stock                                                  |                                        |    
|                                             | Proceeds from issuance of long-term debt                                     |                                        |    
|                                             | Payments on long-term debt                                                   |                                        |    
|                                             |                                                                              |                                        |    
|                                             | Net cash provided by (used for) financing activities                         |                                        |    
|                                             |                                                                              |                                        |    
|                                             | Net change in cash and cash equivalents                                      |                                        |    
|CASH AND CASH EQUIVALENTS, beginning of year |                                                                              |                                        | 435
|                                             |                                                                              |                                        |    
|CASH AND CASH EQUIVALENTS, end of year       |                                                                              | $                                      | 250
|                                             |                                                                              |                                        |    

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

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VANTAGEMED CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND RISKS:

VantageMed Corporation (the Company) was incorporated in California on June 1, 1995. On April 9, 1997, the Company was reincorporated in Delaware.
In February 2000, the Company completed its initial public offering (IPO) of 3 million shares of its common stock, the gross proceeds of which aggregated approximately
$36 million. The Company is a diversified healthcare information systems supplier headquartered in Sacramento, California with regional offices in Sacramento, Los Angeles and San Francisco,
California; Honolulu, Hawaii; Seattle, Washington; Kansas City, Missouri; Pompton Plains, New Jersey; Milford, Michigan; Pittsburgh, Pennsylvania; Boston, Massachusetts; Boulder, Colorado; Houston,
Texas; Birmingham, Alabama; Greensboro, North Carolina; and Little Rock, Arkansas. The Company develops, sells, installs and supports software products and services that assist physicians and
physician organizations and other healthcare providers in the operation of their practices and organizations. The Company has built a national distribution network by acquiring established regional
healthcare practice management systems companies to sell and support its new generation software and services.

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

Risks and Uncertainties

The Company has suffered recurring losses from operations since its inception. These losses have resulted in negative operating cash flows. The Company may never
be able to achieve positive operating cash flow or profitability.

The
Company is also subject to a number of additional risks, including, but not limited to, risks associated with acquisitions (successful integration and operation of new products,
technologies and businesses), uncertainties in the healthcare industry, and dependence on the medical market. Management believes that the Company has cash, short-term and long-term investments
sufficient to meet its cash flow needs for the foreseeable future.

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actually results could differ from those estimates.

43

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Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Short-term and Long-term Investments

The Company classifies its existing marketable securities as available-for-sale in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." These securities are carried at fair market value, with unrealized gains and losses
reported as a separate component of stockholders' equity. Gains or losses on securities sold are based on the specific identification method.

Financial Instruments

The fair values of financial instruments are the amounts at which the instruments could be exchanged in a current transaction between willing parties. Management
estimates that the carrying amounts of the Company's financial instruments included in the accompanying consolidated balance sheets are not materially different from their fair values. The carrying
amounts reported for cash and cash equivalents, accounts receivable and accounts payable are considered to approximate fair values based upon the short maturities of these financial instruments. The
carrying amount of short-term and long-term debt are also considered to approximate fair values.

Inventories

Inventories are stated at the lower of cost (specific identification method) or market and consist primarily of supplies and new computer equipment purchased to
fill customer orders.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective
assets, generally three to seven years. Leasehold improvements are amortized over the remaining lease term. Maintenance and repairs are expensed as incurred.

Intangibles

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

44

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amortized on a straight-line basis over a period of one to ten years depending upon the average length of employment for the employees of the acquired companies.

Asset Impairment

Long-lived assets, such as property and equipment and intangibles are periodically evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. When any such impairment exists, the
related assets will be written down to fair value. A write-down of assets due to impairment in the amount of $12,685,000 and $5,770,000 was recorded for the years ended December 31,
2000 and 2001, respectively (see Notes 4 and 8).

Software Development Costs

To date, all of the Company's costs for research and development of software products have been expensed as incurred since the amount of software development
costs incurred subsequent to the establishment of technological feasibility has been immaterial.

Revenue Recognition

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

The
Company enters into license agreements with customers, which allow for the use of the Company's products, usually restricted by the number of employees, the number of users, or the
license term. Fees from licenses are recognized as revenue in accordance with AICPA Statement of Position 97-2, (SOP 97-2) "Software Revenue Recognition," when all shipment
obligations have been met, fees are fixed and determinable, collection of the sale proceeds is deemed probable and persuasive evidence of an arrangement exists. Other customer support and electronic
services are also provided to licensees of the Company's software products. These services consist primarily of software maintenance and customer service, network and computer hardware support and
installation of software at customer sites. The revenue from the installations is recognized upon completion of installation. The revenue from software maintenance, customer service and support is
recognized ratably over the term of the support period. For arrangements that include multiple elements, the fee is allocated to the various elements based on vendor-specific objective evidence of
fair market value established by independent sale of the elements sold separately or, if the element is not yet being sold separately, the price established by management of sufficient authority.
Revenues from other services, which include training, data conversion, electronic claims processing, electronic statement printing, mailing and electronic remittance advices are recognized as the
services are provided.

Deferred
revenue consists of revenue deferred under annual maintenance and annual support agreements for which amounts have been received from customers and for which the earnings
process has not been completed. Customer deposits consist of cash collections for undelivered product and

45

---

related services as of the reporting period. The Company will recognize these deferred revenues in accordance with its revenue recognition policy, typically over a period of one year or less.

Accounts Receivable

The majority of the Company's accounts receivable are derived primarily from the sale of software and systems, and recurring customer support and electronic
service revenues. Customers are required to pay the balance due on their sales contracts within 30 days of installation. The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make the required payments. Management regularly evaluates the allowance for doubtful accounts. The estimated losses are based on the aging of our
accounts receivable balances, a review of significant past due accounts, and our historical write-off experience, net of recoveries. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances would be required.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which taxes become payable. A valuation allowance is provided against the future benefits of deferred tax assets if it is determined that it is more likely than not
that the future tax benefits associated with the deferred tax asset will not be realized.

Restructuring Costs

The Company records the costs of consolidating acquired operations into existing Company facilities, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs relating to the Company's employees in accordance with Emerging Issues Task Force Issue (EITF) No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in Restructuring)."

Basic Net Loss Per Common Share

Basic net loss per share is computed using the weighted average number of shares of common stock outstanding. Potentially dilutive securities related to stock
options, warrants, convertible notes and the conversion of Series A-1 and Series B convertible preferred stock are excluded from the computation of basic net loss per share
for the year ended December 31, 1999 and potentially dilutive securities related to stock options and warrants have been excluded for the year ended December 31, 2000 and 2001, because
their effect is antidilutive for all periods, thereby decreasing net loss per common share. Such securities, had they been dilutive, would have been included in the computation of diluted net loss per
share. There were 1,795,300, 0, and 0 shares of Series A-1 convertible preferred stock outstanding at December 31, 1999, 2000, and 2001, respectively. There were 120,000, 0
and 0 shares of Series B convertible preferred stock outstanding at December 31, 1999, 2000 and 2001, respectively. Both Series A-1 and Series B preferred stock
were converted into common stock on February 14, 2000. In addition, there were 781,000 outstanding options, warrants and convertible notes as of December 31, 1999, and 956,000 and
1,270,000 outstanding options and warrants as of December 31, 2000 and 2001, respectively.

46

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Comprehensive Loss

The Company reports comprehensive loss and its components in accordance with Statement of Financial Accounting Standards No. 130
(SFAS 130),"Reporting Comprehensive Income." Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. During 1999, the
Company had no comprehensive income components; therefore, comprehensive loss was the same as net loss for that year. During 2000 and 2001, other comprehensive income consisted of unrealized holding
gains and losses on available-for-sale investment securities.

Stock-Based Compensation

The Company has adopted the disclosure only requirements of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-based Compensation" and continues to account for its stock-based compensation plans under the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees" SFAS 123 requires that companies which elect not to account for stock-based compensation as prescribed by that statement shall disclose, among other things, the pro forma
effects on net loss and basic net loss per share as if SFAS 123 had been adopted. The Company amortizes pro-forma deferred compensation on a straight-line basis. For the years ended
December 31, 1999, 2000 and 2001, the Company recognized $33,000, $46,000 and $32,000 in compensation expense related to stock options.

Recent Pronouncements

In July 2001, the Financial Accounting Standards (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." These Statements will change the accounting for business combinations and goodwill in two ways. First, SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Second, SFAS No. 142 changes the accounting for goodwill, including goodwill
recorded in past business combinations. The previous accounting principles governing goodwill generated from a business combination will cease upon adoption of SFAS No. 142. SFAS No. 141
became effective on July 1, 2001. The adoption of SFAS No. 141 did not materially effect the Company's statements of financial condition and results of operations. SFAS No. 142
will become effective on January 1, 2002. Absent SFAS No. 142, the Company would record goodwill amortization expense of approximately $250,000 in 2002. Such amortization expense will no
longer be recorded upon adoption of this statement. Rather, goodwill will be tested periodically for impairment.

In
October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets ("Statement 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Statement 144 is effective for
fiscal years beginning after January 1, 2002. The Company does not expect that the adoption of the Statement will have a significant impact on the Company's financial position and results of
operations.

3. BUSINESS COMBINATIONS:

Each of the following acquisitions was accounted for under the purchase method of accounting, applying the provisions of Accounting Principles Board Opinion
No. 16, "Business Combinations." As a

47

---

result, the Company recorded the identifiable assets and liabilities of the acquired companies at their estimated fair values with the excess of the purchase price over these amounts being recorded
as goodwill. Intangibles including acquired software, customer lists, covenants not to compete and assembled workforce are valued based upon discounted future cash flows associated with the related
intangible asset and its economic life. The acquired deferred revenues were recorded at values, which approximate the present value of cost that will be incurred to full maintenance and support
obligations plus a normal profit. The financial statements reflect the operations of the acquired businesses for the periods after their respective dates of acquisition. The consideration for the
purchases was cash, notes and company stock. The value of the Company's stock given in consideration was determined through a combination of negotiation between the buyer and the seller and by
comparing the value used to other shares issued for cash.

Purchases During the Year Ended December 31, 1999

The Company acquired Civitec Healthcare Computers, Inc. (Civitec) in April 1999. The purchase price of $1,386,000 comprised $127,000 in cash,
$408,000 in notes payable and 88,667 shares of common stock issued at $9.60 per share for a total of $851,000 in common stock. Goodwill and customer lists are being amortized over ten years, acquired
software over two years, covenants not to compete over three years, and assembled workforce over eight years.

The
Company acquired Medical Software Solutions, Inc. (MSS) in May 1999. The purchase price of $1,278,000 comprised $460,000 in notes payable and 85,156 shares of common
stock issued at $9.60 per share for a total of $818,000 in common stock. Goodwill and customer lists are being amortized over ten years, acquired software over two years, covenants not to compete over
three years, and assembled workforce over seven years.

The
Company acquired Brand Software, Inc. (Brand) in July 1999. The purchase price of $2,207,000 comprised 160,804 shares of common stock issued at $9.60 per share for a
total of $1,544,000 in common stock, 20,000 shares of Series B preferred stock issued at $12.00 per share for a total of $240,000 in preferred stock and 25,837 stock options were assumed and
41,669 stock options were granted in connection with the acquisition with exercise prices ranging from $1.89 to $9.60 per share for a total of $423,000 in stock options. The fair value of the options
granted and assumed was determined using the Black-Scholes option pricing model. Goodwill is being amortized over ten years, acquired software over four years, customer lists and covenants not to
compete over three years and assembled workforce over two years.

The
Company acquired Mariner Systems, Inc. (Mariner) in August 1999. The purchase price of $10,397,000 comprised $190,000 in notes payable, 857,554 shares of common stock
issued at $11.10 per share for a total of $9,519,000 in common stock, 80,611 stock options with exercise prices ranging from $.06 to $62.81 per share and 30,000 warrants issued for services rendered
in connection with the acquisition for a total of $688,000 in stock options and warrants. The fair value of the options granted and assumed was determined using the Black-Scholes option pricing model.
Goodwill and customer lists are being amortized over ten years, acquired software over four years, and covenants not to compete and assembled workforce over three years.

The
Company acquired CSS, Inc. (CSS) in October 1999. The purchase price of $1,350,000 comprised $230,000 in cash and 71,089 shares of common stock issued at $15.75 per
share for a total of $1,120,000 in common stock. Goodwill and customer lists are being amortized over ten years, acquired

48

---

software over two years, covenants not to compete over three years and assembled workforce over eight years.

The
Company acquired Computerized Doctors Systems, Inc. (CDS) in October 1999. The purchase price of $2,412,000 comprised $500,000 in cash, 113,413 shares of common stock
issued at $15.75 per share for a total of $1,786,000 in common stock and 17,756 stock options with an exercise price of $15.75 for a total of $126,000 in stock options. The fair value of the options
granted and assumed was determined using the Black-Scholes option pricing model. Goodwill and customer lists are being amortized over ten years, acquired software over two years, covenants not to
compete over two years and assembled workforce over six years.

The
Company acquired Medical Digital Technologies, Inc. (MDT) in October 1999. The aggregate purchase price of $2,620,000 comprised $600,000 in cash, $500,000 in notes
payable and 96,491 shares of common stock issued at $15.75 per share for a total of $1,520,000 in common stock. Goodwill and customer lists are being amortized over ten years, acquired software over
two years, covenants not to compete over three years and assembled workforce over four years.

The
Company acquired Data Decisions, Inc. (Data Decisions) in October 1999. The purchase price of $2,488,000 comprised $78,000 in cash, $222,000 in notes payable and
138,958 shares of common stock issued at $15.75 per share for a total of $2,188,000 in common stock. Goodwill and customer lists are being amortized over ten years, acquired software over two years,
covenants not to compete over three years and assembled workforce over four years.

The
Company also acquired Acrotrex Corporation, Metropolitan Information Systems, Inc., Care Information Systems, Inc., Logos Systems, Inc., Health Information
Network and Pepware Software, Inc. (Other 1999 Acquisitions) in 1999. The aggregate purchase price of $2,986,000 comprised $25,000 in cash, $598,000 in notes payable and 233,376 shares of
common stock issued at prices ranging from
$9.60 to $15.75 per share for a total of $2,363,000 in common stock. Goodwill is being amortized over two to ten years, acquired software over two to four years, customer lists over four to ten years,
covenants not to compete over three years and assembled workforce over one to ten years.

49

---

The
following table summarizes the fair values of the assets acquired and liabilities assumed in connection with the foregoing acquisitions accounted for as purchases in the year ended
December 31, 1999 (in thousands):

|                                       |  | Civitec |       | MSS |   | Brand |   | Mariner |       | CSS |   | CDS    |   | MDT |       | Data
Decisions |   | Other 1999
Acquisitions |   | Total |      
|-------------------------------------- |  | ------- | ----- | --- | - | ----- | - | ------- | ----- | --- | - | ------ | - | --- | ----- | -------------- | - | ----------------------- | - | ----- | -----
|Cash                                   |  | $       | 234   |     | $ | 18    |   | $       | 56    |     | $ | 3,962  |   | $   | 13    |                | $ | 277                     |   | $     | 321  
|Accounts receivable                    |  |         | 18    |     |   | 92    |   |         |      |     |   | 177    |   |     | 57    |                |   | 171                     |   |       | 132  
|Inventories                            |  |         | 3     |     |   |      |   |         |      |     |   | 3      |   |     | 102   |                |   | 6                       |   |       | 28   
|Prepaid expenses and other             |  |         | 7     |     |   | 225   |   |         |      |     |   | 390    |   |     | 4     |                |   | 14                      |   |       | 89   
|Property and equipment                 |  |         | 24    |     |   |      |   |         | 115   |     |   | 324    |   |     | 11    |                |   | 20                      |   |       | 37   
|Goodwill                               |  |         | 735   |     |   | 493   |   |         | 2,214 |     |   | 6,607  |   |     | 850   |                |   | 1,661                   |   |       | 1,788
|Other intangibles                      |  |         | 1,246 |     |   | 1,114 |   |         | 1,096 |     |   | 1,302  |   |     | 713   |                |   | 1,001                   |   |       | 1,265
|Account payable                        |  |         | (56   | )   |   | (34   | ) |         | (130  | )   |   | (68    | ) |     | (41   | )              |   | (28                     | ) |       | (139 
|Accrued liabilities                    |  |         | (38   | )   |   | (81   | ) |         | (110  | )   |   | (799   | ) |     | (12   | )              |   | (89                     | ) |       | (178 
|Customer deposits and deferred revenue |  |         | (289  | )   |   | (64   | ) |         | (546  | )   |   | (379   | ) |     | (62   | )              |   | (202                    | ) |       | (217 
|Long-term debt                         |  |         |      |     |   | (13   | ) |         | (50   | )   |   | (166   | ) |     |      |                |   | (19                     | ) |       |     
|Deferred tax liability                 |  |         | (498  | )   |   | (472  | ) |         | (438  | )   |   | (956   | ) |     | (285  | )              |   | (400                    | ) |       | (506 
|                                       |  |         |       |     |   |       |   |         |       |     |   |        |   |     |       |                |   |                         |   |       |      
|Net assets acquired                    |  | $       | 1,386 |     | $ | 1,278 |   | $       | 2,207 |     | $ | 10,397 |   | $   | 1,350 |                | $ | 2,412                   |   | $     | 2,620
|                                       |  |         |       |     |   |       |   |         |       |     |   |        |   |     |       |                |   |                         |   |       |      

Pro Forma Consolidated Results of Operations (Unaudited)

The following unaudited pro forma information presents the consolidated results of operations of the Company as if all of the acquisitions had occurred as of the
beginning of 1999. The unaudited pro forma results of operations are presented after giving effect to certain adjustments for depreciation, amortization, and interest expense on the acquisition
financing. The Company believes the assumptions used in the unaudited pro forma results of operations were reasonable. The unaudited pro forma information is not necessarily indicative of what would
have occurred had the acquisitions been made as of January 1, 1999, nor is it indicative of future results of operations (in thousands, except per share amounts):

Pro Forma
Year Ended
December 31,
1999Revenue

$
27,463Depreciation and amortization


6,369Loss available to common stockholders


(13,059
)Basic and diluted loss per share

$
(3.04
)


50

---

4. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:

The components of restructuring, impairment and other charges include the following (in thousands):

2000

2001Impairment of intangibles

$
11,935

$
5,770Write-off of acquired software rights


750


0Restructuring charges


214


22Total restructuring, impairment and other charges

$
12,899

$
5,792


Impairment of Intangibles

During 2000 and 2001, the Company determined that the carrying value of certain intangible assets acquired in connection with business combinations accounted for
as purchases exceeded their fair value and were written down accordingly. This occurred due to changes in business conditions and products, in addition to current period operating and cash flow losses
combined with financial projections and forecasts that indicate continuing poor performance of certain acquired companies. The determination of the fair value of the separately identifiable intangible
assets arising from the purchase business combinations was determined using the present value of expected future cash flows from the acquired companies using a discount rate commensurate with the
risks involved. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company recorded an impairment charge of $11,935,000 for the impairment of these intangibles in 2000 and an additional impairment charge of $5,770,000 in 2001.

Write-Off of Acquired Software Rights

During 2000, the Company recorded a $750,000 net write-off of software purchased for internal use that will no longer be used by the Company.

51

---

Restructuring Charges

During 2000, the Company recorded restructuring charges of $214,000, consisting of $82,000 for facility closure and consolidation, $121,000 for severance and
other termination benefits and $11,000 for other restructuring costs. These restructuring actions occurred and were substantially completed in the Company's second quarter of 2000. The remaining
accrual for restructuring as of December 31, 2000 was $8,200 for facility closure and consolidation. The Company reversed an accrual for $39,000 during the fourth quarter of 2000 due to
overestimating the legal and accounting costs associated with the restructuring.

In
May of 2001, the Company incurred other charges of $22,000 in connection with the closure of the Salt Lake City regional office.

5. SHORT-TERM AND LONG-TERM INVESTMENTS:

Short and long-term investments were classified as available-for-sale securities and are reported at fair value as follows (in
thousands):

December 31, 2001Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Fair
ValueCash equivalents

$
1,325

$


$


$
1,325U.S. Government Agency


1,011


9





1,020Commercial Paper


5,663


33


2


5,694Total available-for-sale investment securities

$
7,999

$
42

$
2

$
8,039


December 31, 2000Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Fair
ValueCash equivalents

$
2,946

$
1

$
3

$
2,944U.S. Government Agency


1,000


1





1,001Commercial Paper


12,509


10


12


12,507Total available-for-sale investment securities

$
16,455

$
12

$
15

$
16,452


52

---

The
amortized cost and fair value of available-for-sale investment securities by contractual maturity, were as follows (in thousands):

December 31, 2001Amortized Cost

Fair ValueDue within one year

$
5,443

$
5,456Due after one, but within 5 years


2,556


2,583Total available-for-sale investment securities

$
7,999

$
8,039


December 31, 2000Amortized Cost

Fair ValueDue within one year

$
15,455

$
15,451Due after one, but within 5 years


1,000


1,001Total available-for-sale investment securities

$
16,455

$
16,452


6. NOTES RECEIVABLE:

The Company has five notes receivable at December 31, 2001. Two notes totaling $78,000, bear interest at 6 percent per annum, and are secured by
irrevocable letters of credit due March 31, 2003. One note totaling $30,000 is with an employee of the Company. It bears interest at 8 percent per annum and is unsecured. Additionally,
the Company has one note totaling $200,000 with a former officer and director of the Company, bearing interest at the prime rate and is secured by 300,000 shares of the Company's common stock. Monthly
interest payments are due beginning December 2001, after payment of interest for the previous full year has been made. Total principal and any remaining interest due are payable on
November 3, 2002. Also, there is one note totaling $23,000 with a former employee of the Company, which bears interest at the prime rate plus 2 percent, and is secured by 20,000 shares
of the Company's common stock. As of December 31, 2001, these two notes are in default and the Company has reserved $100,000 and $10,000 on each note, respectively, representing its estimate of
the uncollectable portion of the notes.

The
Company had four notes receivable at December 31, 2000. Two notes totaling $127,000, with interest at 6 percent per annum, each secured by an irrevocable letter of credit due
March 31, 2003. One note totaling $200,000 was with a former officer and director of the Company, with interest at the prime rate and was secured by shares of the Company's common stock, due
November 3, 2002. One note totaling $50,000 was with an employee of the Company. It had interest at 8 percent per annum and was unsecured.

53

---

7. PROPERTY AND EQUIPMENT:

Property and equipment net, consisted of the following (in thousands):

December 31,2000

2001Office and computer equipment

$
2,389

$
2,654Furniture and fixtures


413


406Vehicles


64


47Leasehold improvements


119


1822,985


3,289Less: accumulated amortization and depreciation


(1,249
)

(2,021
)$
1,736

$
1,268


Depreciation
expense was approximately $851,000, $907,000 and $843,000, for the years ended December 31, 1999, 2000 and 2001, respectively. In connection with the restructuring
plans described in Note 4, the Company wrote off certain software rights with a book value of $750,000 in the year ended December 31, 2000.

8. INTANGIBLES:

Intangibles, net of impairment charges and amortization, consisted of the following (in thousands):

December 31,2000

2001Goodwill

$
7,839

$
5,645Acquired software


4,794


4,276Customer lists


8,226


5,068Covenants not to compete


169


147Assembled workforce


227


15021,255


15,286Less: accumulated amortization


(9,341
)

(11,585
)$
11,914

$
3,701


Amortization
expense related to intangibles was approximately $3,022,000, $4,749,000, and $2,443,000 for the years ended December 31, 1999, 2000, and 2001, respectively.
Additionally in 2000, the Company wrote down certain intangibles due to impairment by $11,935,000. In 2001, we recorded an additional write down due to impairment of $5,609,000 and in connection with
the closure of the Salt Lake City region, the Company wrote off certain intangibles with a cost of $360,000 and accumulated depreciation of $199,000.

54

---

9. SHORT-TERM AND LONG-TERM DEBT:

The Company's long-term debt consisted of (in thousands):

December 31,2000

2001Promissory note, owner of acquired company, interest at prime plus 1.5%, not to exceed 10.5% per annum (6.25% at December 31, 2001), monthly principal payments plus accrued interest commencing August 1999, due in full by
August 2005, unsecured

$
1,031

$
822Promissory notes, former stockholders of acquired company


120


67Promissory notes, financial institution, bearing interest at 9.5%, monthly principal and interest payments through February 2003, secured by Company vehicles


7


4Promissory note, stockholder, non-interest bearing, monthly payments, due on demand


4


Promissory note, finance company, bearing interest at 3.9%, principal payments through March 2003, secured by assets of the Company


12


7Promissory note, finance company, bearing interest at 10.3%, monthly principal and interest payments through July 2004, secured by assets of the Company





67Promissory note, finance company, bearing interest at 10.66%, monthly principal and interest payments through April 2004, secured by assets of the Company





21Promissory note, finance company, bearing interest at 11.98%, monthly principal and interest payments through February 2004, secured by assets of the Company





7Promissory note, finance institution, bearing interest at 8.13%, monthly principal and interest payments through March 2003, secured by assets of the Company





22Capital lease obligations


506


4601,680


1,477Less: current portion


(525
)

(553
)$
1,155

$
924


All
future minimum principal payments under all debt obligations excluding capital lease obligations subsequent to December 31, 2001 are as follows (in thousands):

Year Ending December 31,2002

$
3602003


2742004


2492005


134$
1,017


55

---

10. CAPITAL AND OPERATING LEASE OBLIGATIONS:

The Company leases its headquarters and certain other facilities under operating leases and a portion of its equipment under capital lease arrangements. The
minimum future lease payments required under the Company's capital and operating leases at December 31, 2001 are as follows (in thousands):

Year Ending December 31,

Capital
Leases

Operating
Leases2002

$
238

$
1,2762003


154


1,0112004


95


7122005


54


4472006





182Thereafter





49Total minimum payments

$
541

$
3,677Less: interest on capital lease obligations at rates of 4.45% to 25.05%


(81
)Net minimum principal payments


460Less: current maturities


(193
)Long-term portion

$
267


Assets
recorded under capitalized lease agreements included in property and equipment consist of $676,000 of cost with $277,000 in accumulated depreciation. Rent expense was
approximately $866,000, $1,323,000 and $1,337,000, for the years ended December 31, 1999, 2000 and 2001, respectively.

11. STOCKHOLDERS' EQUITY:

Stock Splits

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

Preferred Stock

Upon completion of the Company's initial public offering of common stock, all outstanding shares of Series A-1 preferred stock was converted at
the option of the holder into 599,425 shares of common stock, and all outstanding shares of Series B preferred stock was automatically converted into 120,000 shares of common stock.

56

---

Initial Public Offering

In February 2000, the Company completed an IPO of 3 million shares of its common stock. The shares of common stock sold in the IPO were registered
under the Securities Act of 1933, as amended, on a registration statement on Form S-1 (Registration No. 333-91657) that was declared effective by the Securities
and Exchange Commission on February 14, 2000. The IPO commenced on February 15, 2000. All 3 million shares of common stock registered were sold at a price of $12 per share. The
aggregate-offering price of the shares of common stock registered and sold was $36 million. The Company paid an aggregate amount of approximately $2,520,000 in underwriting discounts and
commissions. In addition, expenses incurred in connection with the offering totaled approximately $2,440,000.

Upon
closing of the IPO, all outstanding shares of Series A-1 preferred stock were converted at the option of the holder into 599,425 shares of common stock, and all
outstanding shares of Series B preferred stock were automatically converted into 120,000 shares of common stock. Additionally, a secured convertible promissory note with principal and interest
totaling $3,062,000 converted into 510,685 common shares upon closing of the IPO. The beneficial conversion feature of this note was $3 million and was recognized as non-cash
interest expense on the date of the conversion.

Deferred Compensation

As of December 31, 1999, the Company recorded deferred compensation related to options granted to employees in the total amount of $111,000, representing
the difference between the deemed fair value of the Company's common stock and the exercise price of the options at the grant date. The amortization of the deferred compensation is charged to
operations over the vesting period of the options. Total amortization expense recognized was $33,000, $46,000 and $32,000 for the years ended December 31, 1999, 2000, and 2001, respectively. As
of December 31, 2001, the total amount of $111,000 has been fully amortized.

Stock Repurchase Program

On May 13, 2001, the Company announced a stock repurchase program. Under this program, the Company can repurchase from time to time at management's
discretion, up to 250,000 shares of the
Company's common stock in the open market or in private transactions. At December 31, 2001, the Company had repurchased 107,507 shares at an average price of $0.99 per share in the open market.

Warrants

During 1999, in connection with the issuance of a convertible promissory note, the Company issued warrants to purchase up to 66,666 shares of the Company's common
stock at a price of $7.50 per share, the fair value on the date of issuance, and the right to purchase another 50,000 shares of the Company's common stock at the price of $10.50 per share. The
warrants became immediately exercisable upon the conversion of the note to common stock and all unexercised warrants were to expire on August 31, 1999. The fair value of the warrants of
approximately $50,000 was calculated using the Black-Scholes option pricing model and was amortized to interest expense over the two-month term of the note. Subsequently the note was
converted to 13,333 shares of common stock at $7.50 per share,

57

---

and 6,666 warrants were exercised at $7.50 per share. The remaining warrants expired on August 31, 1999.

In
August 1999, the Company issued 30,000 warrants at an exercise price of $11.10 per share in connection with an acquisition. The fair value of these warrants was recorded as
additional purchase price. In October 1999, in connection with the issuance of a convertible promissory note, the Company issued warrants for 13,333 shares exercisable at a price equal to
$7.20, this being 60% of the $12.00 initial price of shares of the Company's common stock sold in the IPO. These warrants may be exercised at any time before October 6, 2002. The fair value of
the warrants of approximately $80,000 was calculated using the Black-Sholes option pricing model and is being amortized to interest expense over the term of the note.

12. STOCK OPTION PLANS:

The Company has two stock option plans, the Healthcare Information Systems Plan (HIS Plan) and the 1998 Stock Option/Stock Issuance Plan (1998 Plan). No further
options may be granted under the HIS Plan, and all 17,022 options previously granted and outstanding under the HIS Plan have been converted into options to purchase the Company's common stock. Each
HIS option was converted into 0.13055 of the Company's options at an exercise price of $1.89 per share. Under the 1998 Plan, the Board of Directors is authorized to grant options for up to 1,000,000
shares of common stock to employees, directors and consultants at prices not less than the fair market value at date of grant for incentive stock options and not less than 85% of fair market value for
non-statutory stock options. The 1998 Plan is divided into two separate equity programs: the Option Grant Program under which eligible persons may be granted options to purchase shares of
common stock and the Stock Issuance Program under which eligible persons may be issued shares of common stock directly, either through the immediate purchase of shares or as a bonus for services
rendered the Company. The stock options generally vest 25% in the first year and ratably over the following three-year period and expire ten years from the date of grant.

As
permitted by SFAS 123, the Company has elected to account for grants to employees using the intrinsic value method as outlined in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Had compensation cost for the Company's option plan been determined based on the fair value at the grant dates
for the awards, calculated in accordance with the method prescribed by SFAS 123, the Company's pro forma net loss would have been as follows (in thousands, except per share amounts):

Year Ended December 31,1999

2000

2001Net loss available to common stockholdersAs reported

$
(10,215
)
$
(31,037
)
$
(15,977
)Pro forma


(11,632
)

(31,320
)

(16,632
)Basic and diluted loss per shareAs reported

$
(3.13
)
$
(3.84
)
$
(1.86
)Pro forma


(3.57
)

(3.87
)

(1.93
)


58

---

For
purposes of the pro forma disclosure above, the fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

1999

2000

2001Dividend yield

0
%
0
%
0
%Risk-free interest rate

6.3
%
6.0
%
5.0
%Stock price volatility

70
%
150
%
130
%Expected life

6 years

6 years

6 years


Based
upon the above assumptions, the weighted average fair value of the employee stock options granted during 2001 was $0.87. The resulting pro forma compensation cost may not be
representative of that to be expected in future years.

A
summary of stock option activity and related information is as follows (in thousands, except per share amounts):

Year Ended December 31,1999

2000

2001Number
of
Shares

Wtd. Avg.
Exercise
Price Per
Share

Number
of
Shares

Wtd. Avg.
Exercise
Price Per
Share

Number
of
Shares

Wtd. Avg.
Exercise
Price Per
ShareBalance, beginning of period

186

$
7.14

537

$
8.00

913

$
4.97Granted

249


9.74

510


2.15

430


.96Assumed

124


7.10









Exercised

(1
)

6.18

(23
)

.06

(17
)

.06Forfeited or canceled

(21
)

16.07

(111
)

7.70

(98
)

4.63Balance, end of period

537


8.00

913


4.97

1,228


3.66Vested, end of period

198




282




567


During
1999, the Company assumed 124,204 stock options issued by acquired companies at exercise prices between $0.06 and $62.81 per share. All assumed stock options were rolled into the
Company's 1998 Plan with no change in option terms from the original grant.

59

---

The
following table summarizes information about the Company's outstanding stock options at December 31, 2001 (in thousands, except per share amounts):

Options Outstanding

Options ExercisableRange of Exercise Price

# of Shares
Outstanding

Wtd. Avg.
Contract Life
Remaining

Wtd. Avg.
Exercise Price

# of
Shares
Vested

Wtd. Avg.
Exercise
Price$.06 - $1.75

686

4.92

$
1.23

269

$
1.29$1.82 - $4.50

230

7.93


2.80

109


2.72$6.50 - $8.34

140

2.79


7.42

83


7.35$9.60 - $11.10

152

7.55


10.59

94


10.58$12.56 - $62.81

20

7.17


18.41

12


19.89$.06 - $62.81

1,228

5.99


3.66

567


4.40


13. SUPPLEMENTAL CASH FLOW INFORMATION:

Cash payments for interest amounted to approximately $922,000, $285,000 and $153,000 for the years ended December 31, 1999, 2000, and 2001, respectively.
The Company made cash payments for income taxes of approximately $0, $0 and $19,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

During
the year ended December 31, 1999, the Company acquired Civitec Healthcare Computers, Inc., Acrotrex Corporation, Medical Software Solutions, Inc. and
Metropolitan Information Services, Inc., Brand Software, Inc., Care Information Systems, Inc., Mariner Systems, Inc., Health Information Network, Logos
Systems, Inc., CSS, Inc., Pepware Software, Inc., Computerized Doctors Systems, Inc., Medical Digital Technologies, Inc., and Data Decisions, Inc. Aggregate
consideration for these acquisitions completed in 1999 was 1,845,508 common shares for a total of $21,709,000 in common stock, 20,000 shares of preferred stock for a total of $240,000 in preferred
stock, $1,560,000 in cash, $2,378,000 in notes payable, and $1,237,000 in stock options for an approximate aggregate value of $27,124,000. Additionally, the Company converted a $500,000 line of credit
to 197,628 shares of
Series A-1 preferred stock and financed the purchase of property and equipment under capital leases of approximately $82,000.

During
the year ended December 31, 2000, the Company converted one promissory note with principal and interest totaling $3,062,000 into 510,685 shares of common stock. The
beneficial conversion feature of this note was $3,000,000 and was recognized as interest expense on the date of the conversion. The Company also converted a promissory note with principal and interest
totaling $199,000 into 17,125 shares of common stock, converted both Series A-1 and Series B preferred stock into common stock and financed $354,000 in the purchase of
property and equipment under capital leases.

During
the year ended December 31, 2001, the Company financed $161,000 in the purchase of property and equipment under capital leases.

60

---

14. EMPLOYEE BENEFIT PLANS:

The Company maintains a 401(k) Savings Plan (the Plan). Under the terms of the Plan, employees may elect to contribute up to 15% of their pre-tax
compensation to the Plan. All employees are eligible to participate in the Plan upon performing 12 consecutive months of service. Employee contributions are 100% vested at all times. The Company may
make discretionary contributions to the Plan, which vest annually over a six-year period. Discretionary contributions made to the Plan were approximately $2,500, $0 and $0 for the years
ended December 31, 1999, 2000 and 2001, respectively.

15. INCOME TAXES:

The provision for income taxes consists of (in thousands):

Year Ended December 31,1999

2000

2001Current:Federal

$


$


$
State





18


15Total current





18


15Deferred:Federal


(2,895
)

(4,443
)

(4,767
)State


(642
)

(784
)

(726
)Total deferred


(3,537
)

(5,227
)

(5,492
)Change in valuation allowance


3,537


5,227


(5,492
)Net income tax provision

$


$
18

$
15


Deferred
taxes result from temporary differences between the bases of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. At
December 31, 2001, the Company had potential tax benefits from net operating loss carryforwards of approximately $12,224,000 and $1,429,000 available to offset future federal and state taxable
income, respectively. Such federal and state carryforwards expire on various dates from 2018 through 2022. The extent to which the loss carryforwards can be used to offset future taxable income may be
limited. The

61

---

sources of the temporary differences and their effect on deferred tax assets and liabilities are as follows (in thousands):

December 31,2000

2001Deferred tax assets:Net operating loss carryforwards

$
10,596

$
13,653Accruals and reserves


485


796Depreciation





Difference between book and tax basis of intangibles


114


10411,195


14,553Deferred tax liabilities:Difference between book and tax amortization related to acquired identifiable intangibles other than goodwill


(3,068
)

(934
)Net deferred tax asset before allowance


8,127


13,619Valuation allowance


(8,127
)

(13,619
)Net deferred tax asset

$


$



The
change in the valuation allowance above is attributed primarily to the results of operations and the effects of purchase accounting on the valuation allowance. Future realization of
the deferred tax asset may reduce goodwill rather than be reflected in earnings.

62

---



The following table accounts for the differences between the actual tax provision and amounts obtained by applying the Statutory U.S. Federal rate to the loss before income taxes (in
thousands):

Year Ended December 31,1999

2000

2001Expected tax benefit

$
(3,473
)
$
(10,552
)
$
(5,427
)Decrease in income taxes resulting from:State income benefit


(613
)

(1,862
)

(931
)Increase in deferred tax asset valuation allowance, resulting primarily from current year operations


3,537


5,227


5,492Nondeductible expenses, including nondeductible restructuring charges





6,734


954Other, net


549


471


(73
)Net income tax provision

$


$
18

$
15


16. CONTINGENCIES:

The Company and certain of its officers and directors have geen named as defendants in lawsuits alleging violations of the federal securities laws. The first of
these lawsuits was filed on March 13, 2000 in the United States District Court for the Eastern District of California. This action and several additional, similar actions were consolidated by
the court into a single action entitled Zinno V. VantageMed Corporation, et al., No. CIV.S-00-0523 MLS DAD. The lawsuite alleges claims under the Securities Act of 1933 in connection with the
Company's February 15, 2000 initial public offerings ("IPO").

Plaintiffs
purport to represent a class of all persons who purchased the Company's common stock pursuant to its February 15, 2000 IPO. The Plaintiffs allege that the prospectus
pursuant to which the IPO was effected contained materially false and misleading statements and it did not state that the Company would be delayed in introducing a new version of its RidgeMark
product, and did not state that sales of its eMCee product would be lower than expected. Plaintiffs have also named the Company's underwriters, J.C. Bradford and Advest, Inc., and the Company's
prior accountants, Arthur Andersen LLP, as defendants.

A
settlement in principle was reached on December 6, 2001, subject to approval by the court. A hearing to approve the settlement is scheduled for July 18, 2002. The Company
believes the lawsuit is completely without merit, but entered into the settlement agreement solely to avoid further costs, uncertainties and distractions caused by the litigation. Under the terms of
the proposed settlement, all claims against the Company and all other defendants will be dismissed without admission of liability or wrongdoing. The shareholder class will receive a cash payment of
$2,500,000, out of which the court will be asked to award attorneys' fees to class counsel. The Company recorded a $1,300,000 charge to operations in the fourth quarter of 2001 to reflect its portion
of the cost of settlement. The Company expects Court approval of the settlement to occur during the third quarter of 2002.

The
Company is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to the Company and which can be reasonably
estimated are accrued. Such accruals amounted to $158,000 at December 31, 2001, and are based on information

63

---

known about the matters, the Company's estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by
management to involve amounts that would be material to the Company's consolidated financial position, operations, or liquidity after consideration of recorded accruals. Costs incurred by the Company
to defend itself against litigation are expensed as incurred.

17. SEGMENT REPORTING:

The Company reports two operating segments, the software and systems sales and customer support and electronic services groups. 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 margin level before selling general and administrative and other
operating costs. The Company does not manage costs below gross margin by segment. The Company does not track long-lived assets by segment and therefore asset disclosures are not relevant
and are not presented. The software and systems sales group sells and licenses practice management software products to physicians, and other professionals with comprehensive office management
software designed to automate the administrative, financial, practice management and clinical requirements of a practice. The customer support and electronic services group provides software, network
and hardware support, training, electronic claims processing, electronic statement printing and mailing and electronic remittance advices. The Company's reportable segments offer different products
and services, which are sold and serviced by the same selling and support personnel.

For
the year ended December 31, 1999, 2000 and 2001, the following table reports selected segment information (in thousands):

Years Ended December 31,1999

2000

2001Software and Systems:Software:Revenue

$
4,713

$
4,475

$
4,292Cost of revenue


583


575


558Gross margin

$
4,130

$
3,900

$
3,734Gross margin percentage


87.6
%

87.2
%

87.0
%Systems:Revenue

$
4,716

$
3,261

$
2,666Cost of revenue


3,495


2,324


1,862Gross margin

$
1,221

$
937

$
804Gross margin percentage


25.9
%

28.7
%

30.2
%Total Software and Systems:Revenue

$
9,429

$
7,736

$
6,958Cost of revenue


4,078


2,899


2,420Gross margin

$
5,351

$
4,837

$
4,538Gross margin percentage


56.8
%

62.5
%

65.2
%


64

---

Customer Support and Electronic Services:Customer Support:Revenue

$
8,841

$
12,713

$
12,441Cost of revenue


5,801


8,007


7,289Gross margin

$
3,040

$
4,706

$
5,152Gross margin percentage


34.4
%

37.0
%

41.4
%Electronic Services:Revenue

$
1,142

$
3,458

$
4,536Cost of revenue


425


2,115


2,916Gross margin

$
717

$
1,343

$
1,620Gross margin percentage


62.8
%

38.8
%

35.7
%Customer Support and Electronic Services:Revenue

$
9,983

$
16,171

$
16,977Cost of revenue


6,226


10,122


10,205Gross margin

$
3,757

$
6,049

$
6,772Gross margin percentage


37.6
%

37.4
%

39.9
%TotalRevenue

$
19,412

$
23,907

$
23,935Cost of revenue


10,304


13,021


12,625Gross margin

$
9,108

$
10,886

$
11,310Gross margin percentage


46.9
%

45.5
%

47.3
%


18. RELATED PARTY TRANSACTIONS:

The Company has two related party note receivables, also described in Note 6. One full recourse note totaling $200,000 is with a former officer and
director of the Company, bears interest at the prime rate as reported in the Wall Street Journal on the first business day of each month and is secured by 300,000 shares of the company's stock. As of
December 31, 2001, this note is in default and the Company has reserved $100,000 representing its estimate of uncollectable portion of the note. The second note totaling $50,000 is with an
employee of the Company and bears interest at 8 percent per annum and is unsecured. Employee shall make annual payments on accrued interest beginning on May 18, 2001. As long as
employment continues, the loan shall be forgiven over a period of 48 months, with twenty-five percent forgiven one year from note date of May 18, 2000, and the remaining
principal amount and interest on such unforgiven portion forgiven 1/36th each month until fully forgiven. Such forgiveness is recorded as compensation expense as forgiveness is earned.
Any loan amount not yet forgiven will become due and payable in full from note holder 90 days after last day of employment.

65

---

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

19. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA:

QuarterFiscal
YearFirst

Second

Third

Fourth(In thousands, except per share amounts)2000:Total Revenues

$
6,082

$
5,437

$
6,004

$
6,384

$
23,907Gross margin


2,837


2,216


2,809


3,024


10,886Net loss


(7,623
)

(7,076
)

(3,261
)

(13,077
)

(31,037
)Basic and diluted net loss per share

$
(1.17
)
$
(0.82
)
$
(0.38
)
$
(1.52
)
$
(3.84
)2001:Total Revenues

$
6,422

$
5,917

$
6,033

$
5,563

$
23,935Gross margin


3,103


2,685


2,936


2,586


11,310Net loss


(2,330
)

(2,224
)

(2,095
)

(9,328
)

(15,977
)Basic and diluted net loss per share

$
(0.27
)
$
(0.26
)
$
(0.24
)
$
(1.09
)
$
(1.86
)


66

---

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On February 8, 2002, Arthur Andersen LLP ("Andersen") resigned as independent auditors for the Company. The decision to accept the resignation of Andersen
and to seek new accountants was approved by both the Audit Committee of the Company and its Board of Directors.

Andersen
stated that the reason for its resignation was that it was unable to continue to rely on management's representations on certain issues concerning the financial statements
because of a disagreement between Andersen and the Company as to whether certain information concerning the funding of the sale of the Company's dental care business had been timely provided to
Andersen. The Company sold its dental business to a third party in the quarter ended September 30, 2001. The Company had recognized $30,000 of revenue previously deferred and a $391,000 gain in
connection with the sale of the dental business, which was credited to selling, general and administrative expenses, in its third quarter Form 10-Q. The third party purchaser of the
Company's dental business subsequently defaulted under the terms of the sale and the Company has retaken possession of the dental business assets and operations. Andersen advised the Company's Audit
Committee that the third quarter financial statements for the period ending September 30, 2001 should be restated. In addition, Andersen stated that it believed the Company had a material
weakness in internal controls related to the Company's current lack of a chief financial officer with the appropriate knowledge, experience, and background at a publicly traded entity.

Our
Audit Committee, with the assistance of outside counsel, has conducted and completed an internal investigation related to the issues raised by Andersen in its resignation as our
independent auditors, including the accounting treatment of the sale of our dental business. The investigation found no evidence of manipulation on the part of VantageMed or its management, but
determined that the issues raised by Andersen were the result of inadequate internal controls. As a result of the investigation, we have instituted certain measures to improve internal controls, and
have determined to reverse the gain from the sale of our dental business and restate our financial statements for the third quarter period ending September 30, 2001.

On
April 3, 2002, VantageMed Corporation and Grant Thornton LLP entered into an engagement letter whereby Grant Thornton agreed to serve as our new independent auditors. Prior to
engaging Grant Thornton, neither we, nor anyone on our behalf, consulted Grant Thornton regarding the application of accounting principles to a specified transaction, either completed or proposed, or
the type of audit opinion that might be rendered by Grant Thornton on our financial statements. In addition, apart from the disclosure as to the mere fact of the resignation of Andersen, neither we,
nor anyone on our behalf, consulted Grant Thornton regarding our previous disagreement with Andersen or the resignation of Andersen.

67

---

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors and Executive Officers of the Company

The Board of Directors of the Company is divided into three Classes, with the term of office of each Class ending in successive years, after the initial
transition period. Class III, currently consisting of Joel M. Harris, will stand for election in 2002. In the event Mr. Harris is not elected a director at this Annual Meeting, the
Company may incur certain obligations to Mr. Harris, see "Employment and Change-in-Control Agreements."

Class I,
currently consisting of Peter Friedli and Richard M. Brooks, will stand for election in 2003 Annual Meeting. Class II currently consisting of James L. Seiler and
John R. Stevens stands for election in 2004 Annual Meeting.

The
executive officers and directors of the Company and their ages as of May 1, 2002 are as follows:

Name

Age

PositionRichard M. Brooks

48

Chief Executive Officer and DirectorJoel M. Harris

47

President and Director*James L. Seiler

55

Chairman of the Board*Peter Friedli

48

DirectorJohn R. Stevens

81

DirectorGregory B. Hill

34

Senior Vice President  Chief Financial OfficerGregory F. Vap

49

Senior Vice President  Operations


Richard M. Brookswas appointed to serve as Chief Executive Officer on April 19, 2002. Mr. Brooks has served as a director
of VantageMed Corporation since March 2001. He was elected unanimously by the Board of Directors to serve out the three-year term of former director Richard W. Pendleton who
resigned from the Board of Directors in November 2000. He was also elected to the Compensation and Audit Committee of the Board of Directors, but resigned from those positions upon being
appointed Chief Executive Officer. Since June 1998, Mr. Brooks has served on the Board of Directors of NetStream, Inc., a communications and IT managed services company which he
co-founded. In addition to serving on the board of NetStream, Mr. Brooks has been Treasurer since May 2000 and served as the Chief Financial Officer through May 2000.
Mr. Brooks served as CFO and Board Director of All Star Telecom, a telecommunications company, from March 1998 to May 1999. From September 1997 to February 1998,
Mr. Brooks provided financial consulting services to a software company and life insurance company. From January 1995 to August 1997, Mr. Brooks served as Senior Vice
President and Chief Financial Officer of Physicians Clinical Laboratory, a publicly traded medical reference laboratory. Mr. Brooks received a Bachelor of Science degree in Business
Administration from Oregon State University. He is a certified public accountant.

On
May 13, 2002, Mr. Brooks was appointed Chairman of the Company's Board of Directors.

Joel M. Harriswas a co-founder of VantageMed since May 1996 and has served as the President since May 1997.
Mr. Harris also served concurrently as the Chief Financial Officer from September 2001 through April 8, 2002 and as Chief Executive Officer from May 1997 through
August 1999. From October 1994 through April 1996, Mr. Harris served as Chief Operating Officer of Insurance Benefit Spot Check, Inc., a provider of electronic data
interchange services for healthcare

68

---

providers. Previously, Mr. Harris co-founded the Stratum Group, a software development and consulting firm. Mr. Harris received a Bachelor of Science degree in Business
Administration from California State University, Northridge.

On
May 13, 2002, Mr. Harris resigned as President and a member of the Company's Board of Directors.

James L. Seilerhas served as the Chairman of the Board of Directors since January 2000. Mr. Seiler also served as Chief
Executive Officer from the Company's acquisition of Mariner Systems, Inc. in August 1999 to April 19, 2002. Prior to joining the Company, Mr. Seiler served as President and
Chief Executive Officer of Mariner Systems Inc., a managed care software company, from September 1993 to August 1999, and also as Chairman of the Board from November 1997
to August 1999. Before joining Mariner, Mr. Seiler served first as Chief Financial Officer and then as President and Chief Executive Officer of Destron/IDI, Inc., a public radio
frequency technology company. Mr. Seiler is a Certified Public Accountant and received a Bachelor of Science degree in Accounting from the University of Akron.

On
May 6, 2002, Mr. Seiler resigned from the Company's Board of Directors.

Peter Friedlihas served as director of VantageMed since September 1999. Mr. Friedli has been the principal of Friedli
Corporate Finance, Inc., a venture capital firm, since its inception in 1986. Prior to joining Friedli Corporate Finance, Mr. Friedli worked as an international management consultant for
service and industrial companies in Europe and the U.S. Mr. Friedli has over a decade of experience as an independent investment manager for venture capital and has managed various venture
investment companies in the U.S.

John R. Stevenshas served as a director of VantageMed since May 1997. Since 1987, Mr. Stevens has served as the Chairman of
the Board of eStellarNet, Inc., a company he founded. eStellarNet, Inc. is an internet-hub connectivity company serving the property and casualty insurance industry.
Mr. Stevens received a Bachelor of Science degree in Military Science from the University of Maryland.

Gregory B. Hillbecame the Company's Senior Vice President and Chief Financial Officer on April 8, 2002. Prior to joining
VantageMed, Mr. Hill served as Chief Financial Officer and V.P. of Finance for International FiberCom, Inc. from October 1999 through October 2001. Prior to joining
International FiberCom, Inc., Mr. Hill served as the Chief Financial Officer for All Star Telecom, Inc. from May 1999 through September 1999 and previously as
Controller of All Star Telecom, Inc. from June 1998 through April 1999. From January 1992 through June 1998, Mr. Hill served in the Technology Industry Group
of Price Waterhouse LLP providing audit and business advisory services. Mr. Hill is a certified public accountant and received a Bachelor of Science degree in Business Administration from
California State University, Sacramento.

Gregory F. Vaphas served as the Company's Senior Vice PresidentOperations since December 1998 and served as Senior
Vice President from April 1998 through December 1998. Prior to joining the Company, Mr. Vap founded Healthcare Information Systems Inc., a provider of medical practice
management products, and served as President and Chief Executive Officer from 1984 until the Company's acquisition of Healthcare Information Systems in April 1998. Mr. Vap received a
Bachelor of Science degree in Electronic Engineering from the Missouri Institute of Technology.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission ("SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by such person.

69

---

Based
solely on the Company's review of such forms furnished to the Company and written representations from certain reporting persons, the Company believes that all filing requirements
applicable to the Company's executive officers, directors and more than 10% stockholders were complied with, except for Mr. Brooks and Ms. Long, who were delinquent in filing Forms 3
with the SEC which were due March 30, 2001 and October 22, 2001, respectively, and Mr. Legate who was delinquent in filing Form 4 with the SEC which was due May 10,
2001 related to the acquisition of beneficial ownership of shares through marriage.

Item 11. Executive Compensation

Executive Compensation

The following table sets forth the total compensation paid or accrued by the Company for the fiscal year ended December 31, 1999, 2000, and 2001 for each
of the Named Executive Officers:

Summary Compensation Table

|                                                                  |  |                |  |   |                         |        |   | Long-Term
Compensation |  |                         | 
|----------------------------------------------------------------- |  | -------------- |  | - | ----------------------- | ------ | - | ---------------------- |  | ----------------------- | 
|
|
|
|James L. Seiler
Chief Executive Officer and Chairman Of the Board |  | 1999
2000
2001 |  | $ | 50,000
120,000
130,471  | (1)(3) | $ | 2,000

              |  | 100,000
125,000
170,000 | 
|Joel M. Harris
President, Chief Financial Officer and Director    |  | 1999
2000
2001 |  |   | 120,000
120,000
126,667 | (4)(5) |   | 3,000

              |  | 
25,000
120,000        | 
|Anne Long
Chief Accounting Officer                                |  | 2001           |  |   | 102,500                 | (6)    |   |                       |  | 32,500                  | 
|Gregory F. Vap
Senior Vice President-Operations                   |  | 1999
2000
2001 |  |   | 125,000
125,000
125,000 | (7)    |   | 2,083

              |  | 
20,000
              | 

---

70

---

All
bonuses shown in the above table represent obligated amounts equal to 20% of the salary deferments. These deferred salary and bonus amounts were repaid from the proceeds of the
Company's IPO completed in February 2000.

Option Grants in Fiscal Years 1999, 2000 and 2001

The following table sets forth option grants for the years ended December 31, 1999, 2000 and 2001 to each of the Named Executive Officers who received
options:

|                |  |                          |  |                                       |  |               |       |       |                           |  |                                         | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term
|--------------- |  | ------------------------ |  | ------------------------------------- |  | ------------- | ----- | ----- | ------------------------- |  | --------------------------------------- | ----------------------------------------------------------------------------------------------
|
|
|
|James L. Seiler |  | 1999
2000
2000
2001
2001 |  | 100,000
25,000
100,000
70,000
100,000 |  | 40
5
20
16
23 | %%%%% | $$$$$ | 11.10
1.75
2.88
1.00
0.92 |  | 8/06/09
5/23/10
7/21/10
3/20/11
9/18/11 |                                                                                               
|Joel M. Harris  |  | 2000
2001
2001           |  | 25,000
20,000
100,000                 |  | 5
5
23        | %%%   | $$$   | 1.75
1.00
0.92            |  | 5/23/10
3/20/11
9/18/11                 |                                                                                               
|Anne Long       |  | 2001
2001                |  | 2,500
30,000                          |  | 1
7           | %%    | $$    | 1.00
0.92                 |  | 3/20/11
9/18/11                         |                                                                                               
|Gregory F. Vap  |  | 2000                     |  | 20,000                                |  | 4             | %     | $     | 1.75                      |  | 5/23/10                                 |                                                                                               

---

The percentages listed in the "Percent of Total Options Granted to Employees in Fiscal Year" column in the above table are based on an aggregate
of 249,000, 510,000 and 430,000 options granted to employees and directors during 1999, 2000 and 2001, respectively.

The
exercise price per share of each option shown in the above table for 1999 was equal to the fair market value of the common stock on the date of grant as determined by the Board of
Directors after consideration of a number of factors, including, but not limited to, the Company's financial performance, market conditions, and the price and preferred rights and privileges of shares
of equity securities sold to or purchased by outside investors. The fair market value exercise price per share of each option shown in the above table for 2000 and 2001 was based upon the closing
price of the Company's common stock on the grant date.

The
potential realizable values shown in the above table were calculated based on the term of each option at its time of grant, which is ten years. These values are calculated assuming
that the fair market value of the Company's common stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock price. These assumed annual compound rates of stock price appreciation do not represent our estimated or projection of future
common stock prices.

Aggregated Option Exercises in Fiscal Year 2001 and Fiscal Year End 2001 Option Values

The following table sets forth information concerning option exercises and option holdings for the year ended December 31, 2001 with respect to the Named
Executive Officers. No options or stock

71

---

appreciation rights were exercised by any Named Executive Officers during 2001, and no stock appreciation rights were outstanding on December 31, 2001

Number of Securities Underlying
Unexercised Options
At Fiscal Year End

Value of Unexercised
In-the-Money Options
At Fiscal Year End(1)NameExercisable

Unexercisable

Exercisable

UnexercisableJames L. Seiler

187,741

222,313

$
397

$
3,603Joel M. Harris

40,789

104,211

$
397

$
3,603Anne Long

2,598

35,235

$


$
1,200Gregory Vap

8,154

11,846

$


$



---

Employment and Change-In-Control Agreements

James L. Seiler.The Company entered into an employment agreement with James L. Seiler pursuant to which he was employed as
Chief Executive Officer. The initial term of this employment agreement expires on August 1, 2002. Under the terms of the employment agreement, Mr. Seiler was paid a
monthly base salary of $10,000, subject to increases as authorized by the Board of Directors and subject to any company-wide compensation cap then in place. On September 18, 2001,
the agreement was amended, increasing Mr. Seiler's base annual compensation to $160,000 effective November 1, 2001. Mr. Seiler voluntarily elected to defer the payment of the
salary increase until 2002. The employment agreement with Mr. Seiler could be terminated at any time by mutual agreement, upon 100 days written notice on the part of Mr. Seiler,
or immediately for cause. The term "for cause" is defined to mean: an uncured material violation of the terms of the employment agreement or proprietary information and inventions agreement; a
conviction or non-appealable judgment involving a claim of dishonesty, willful misfeasance or nonfeasance of duty by Mr. Seiler intending to injure or having the effect of injuring
in some material fashion the Company's reputation, business or relationships; Mr. Seiler's conviction upon a felony charge; or Mr. Seiler's willful or prolonged absence from work or his
failure, neglect or refusal to perform his duties. If, prior to the expiration of the agreement's initial three-year term, the Company terminates Mr. Seiler's employment without
good cause or due to his death, or if he terminates his employment for good cause, (including his failure to be elected by the shareholders at this years annual meeting), he will receive monthly
payments equal to his monthly base salary through the expiration of that initial three year term and all options then held by him shall become fully-vested and immediately exercisable.
Mr. Seiler has agreed not to compete with the Company for a period of one year following the cessation of his employment. In connection with the signing of this employment agreement,
Mr. Seiler was granted an option to purchase 100,000 shares of our common stock.

Effective
April 19, 2002, Mr. Seiler resigned as Chief Executive Officer. Under the terms of his separation agreement, Mr. Seiler was paid a total of $161,037, which
included deferred compensation and accrued vacation. On May 6, 2002, Mr. Seiler resigned from the Board of Directors.

Joel M. Harris.The Company entered into an employment agreement with Joel M. Harris pursuant to which he was employed as
President. The initial term of this employment agreement expires on August 1, 2002. Under the terms of the employment agreement, Mr. Harris is paid a monthly base salary of $10,000,
subject to increases as authorized by the Board of Directors and subject to any company-wide compensation cap then in place. On September 18, 2001, the agreement was amended,
increasing Mr. Harris's base annual compensation to $160,000 effective November 1, 2001. Mr. Harris voluntarily elected to defer the payment of the salary increase until 2002. The
employment

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agreement with Mr. Harris could be terminated at any time by mutual agreement, upon 100 days written notice on the part of Mr. Harris, or immediately for cause. The term "for
cause" is defined to mean: an uncured material violation of the terms of the employment agreement or proprietary information and inventions agreement; a conviction or non-appealable
judgment involving a claim of dishonesty, willful misfeasance or nonfeasance of duty by Mr. Harris intending to injure or having the effect of injuring in some material fashion the Company's
reputation, business or relationships; Mr. Harris's conviction upon a felony charge; or Mr. Harris's willful or prolonged absence from work or his failure, neglect or refusal to perform
his duties. If, prior to the expiration of the agreement's initial two-year term, the Company terminates Mr. Harris's employment without good cause or due to his death, or if he
terminates his employment for good cause, he will receive monthly payments equal to his monthly base salary through the expiration of that initial two year term and all options then held by him shall
become fully-vested and immediately exercisable. Mr. Harris has agreed not to compete with the Company for a period of one year following the cessation of his employment.

Effective
May 13, 2002, Mr. Harris resigned as President and Director. Under the terms of his separation agreement, Mr. Harris will be paid a total of $152,325,
which includes deferred compensation and accrued vacation, and will be provided continuing health coverage, up to a maximum of $24,000 in total premium costs. Mr. Harris may continue to provide
consulting services to the Company through June 30, 2002 to assist us in transition at a rate of $80 per hour, up to $10,000 per month.

Board Compensation Committee Report on Executive Compensation

General Compensation Philosophy

The role of the Compensation Committee is to set the salaries and other compensation of the executive officers and certain other key employees of VantageMed, and
to make grants under, and to administer, the stock option and other executive officer equity and bonus plans. VantageMed's compensation philosophy for executive officers is to relate compensation to
corporate performance and increases in stockholder value, while providing a total compensation package that is competitive and enables VantageMed to attract, motivate, reward and retain key executives
and employees. Each executive officer's compensation package may, in one or more years, be comprised of the following three elements:base salary that is designed primarily to be
competitive with base salary levels in effect at market area that are of comparable size to VantageMed and with which VantageMed competes for executive personnel;annual variable
performance awards, such as bonuses, payable in cash and tied to the achievement of performance goals, financial or otherwise, established by the Compensation Committee;
andlong-term stock-based incentive awards which strengthen the mutuality of interests between the executive officers and VantageMed stockholders. The Board Compensation
Committee formally met on September 18, 2001. In applying the compensation philosophy, the committee approved the increase of both James Seiler and Joel Harris from their current salary to
$160,000 per year. Additionally, Greg Vap's salary was increased from his current salary to $140,000 per year, subject to the Company generating positive quarterly net earnings after adding back
depreciation and amortization. Additionally, stock options were awarded to the executive officers in the amounts set forth under "Director and Executive Officer Compensation."

Executive Compensation

Base salary for all executive officers and all other forms of compensation will be administered in accordance with the general compensation philosophy.

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Chief Executive Officer Compensation

Our chief executive officer's base salary and all other forms of compensation will be administered in accordance with the general compensation philosophy subject
only to provisions in applicable employment contracts. See "Employment and Change-In-Control Agreements."

Director Compensation

The members of the Board of Directors currently do not receive cash compensation for their services as Directors. During 2001, members of the Board of Directors
were each granted option to purchase 20,000 shares of Company stock under the Company's 1998 Stock Option Plan. The options were granted on March 20, 2001 with an exercise price of $1.00 per
share, which equaled the fair value on the date of grant. The options vest over periods ranging from one to two years, depending on the Director's length of service on the Board, with 50% of each
option grant vesting on the grant date.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The number of shares of common stock beneficially owned and the percentage of shares beneficially owned are based on 8,535,831 shares of common stock outstanding
as of May 1, 2002.

Name and Address(1)

Number
of Shares

Percent
Beneficially
Owned(2)Peter Friedli(3)

1,147,761

13.4
%QuadraMed Corporation
1003 W. Cutting Blvd., Ste. 2
Richmond, CA 94804

599,425

7.0
%Venturetec, Inc.(4)
c/o Friedli Corporate Finance
Freigustrasse #5
8002 Zurich, Switzerland

835,690

9.8
%James L. Seiler (5)

276,727

3.2
%Gregory F. Vap(6)

225,135

2.6
%Joel M. Harris(7)

210,008

2.5
%John R. Stevens(8)

36,666

*Richard M. Brooks(9)

12,775

*Anne Long(10)

3,926

*Executive officers and directors as a group (7 persons)

1,912,998

22.4
%


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Item 13. Certain Relationships and Related Transactions

Certain Relationships and Related Transactions

In
October 1999, the Company borrowed $3.0 million through Friedli Corporate Finance at an interest rate of 6%. Peter Friedli assisted the Company in securing this loan. In
connection with the borrowing of these funds the Company issued a secured convertible promissory note which requires the repayment of the principal sum of $3.0 million, plus interest at an
annual rate of 6%, by July 1, 2000. The outstanding principal and any accrued interest on this note automatically converted into 510,685 shares of our common stock at a conversion ratio equal
to 50% of the initial price of shares of common stock sold in the IPO. A $240,000 cash fee was paid in connection with this loan. In addition, the Company issued a convertible promissory note in the
principal amount of $180,000, due and payable on October 6, 2002. No interest accrues or is due on this note. The $180,000 was converted into 16,214 shares of common stock in
December 1999. In connection with the $3.0 million loan, the Company issued a warrant to purchase 13,333 shares of its common stock at an exercise price equal to 60% of the initial price
of shares of the common stock as sold in the IPO. This warrant became exercisable at the completion of the IPO and terminates on October 6, 2002.

The
Company has entered into a consulting agreement with Friedli Corporate Finance pursuant to which the Company agreed to pay Friedli Corporate Finance a $2,000 per month consulting fee
and to take action to support the election of Peter Friedli, the principal of Friedli Corporate Finance, to the Board of Directors. In exchange, Friedli Corporate Finance provides the Company with
financial consulting services. The Company charges the cost of the consulting arrangement to expense as the

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services are used. This consulting agreement terminates on July 31, 2002 or upon 30 days written notice by either party. If the Company terminates the consulting agreement without
cause, the Company must immediately pay Friedli Corporate Finance the full balance, through July 31, 2002, owed under the consulting agreement.

On
May 13, 2002, the Company entered into a consulting agreement with Joel M. Harris in connection with his resignation as President and Director of the Company. Under the terms
of the consulting agreement, the Company will pay Mr. Harris $80 per hour for consulting services, up to $10,000 per month. The agreement terminates on June 30, 2002.

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PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K



|(1)    Financial Statements:                                                                                                             |  |   
|---------------------------------------------------------------------------------------------------------------------------------------- |  | --
|
|Report of Independent Public Accountants for 2001                                                                                        |  | 34
|Report of Independent Public Accountants for 2000 and 1999                                                                               |  | 35
|Consolidated Balance Sheets as of December 31, 2000 and 2001                                                                             |  | 36
|Consolidated Statements of Operations for each of the three years in the period ended December 31, 2001                                  |  | 37
|Consolidated Statements of Stockholders' Equity and Comprehensive Loss for each of the three years in the period ended December 31, 2001 |  | 38
|Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2001                                  |  | 39
|Notes to Consolidated Financial Statements                                                                                               |  | 40
|(2)    Financial Statement Schedule:                                                                                                     |  |   
|Schedule IIValuation and Qualifying Accounts for each of the three years in the period ended December 31, 2001                          |  | 60

(3)    ExhibitsSee
listing as follows:

|Exhibit
Number |   | Exhibit Title                                                                                                                                                      
|-------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1*           |  | Form of Registrant's Amended and Restated Form of Certificate of Incorporation.                                                                                    
|3.2*           |  | Form of Registrant's Amended and Restated Bylaws.                                                                                                                  
|4.1*           |  | Form of Registrant's Specimen Stock Certificate.                                                                                                                   
|10.1*          |  | Lease Agreement, dated November 1, 1996 between Registrant and Dr. Jun Hasegawa and Noriko Hasegawa, as Trustees for the Hasegawa Family Trust, dated June 8, 1999.
|10.2*          |  | Lease Agreement between Registrant and Jun and Noriko Hasegawa, as Trustees for the Hasegawa Family Trust dated January 18, 1999.                                  
|10.3*          |  | Lease Agreement between Registrant and Jun and Noriko Hasegawa, as Trustees for the Hasegawa Family Trust dated August 20, 1999.                                   
|10.4*          |  | Employment Agreement dated August 6, 1999 entered into between Registrant and James Seiler.                                                                        
|10.5*          |  | Secured Convertible Promissory Note, dated October 7, 1999, issued to Friedli Corporate Finance.                                                                   
|10.7*          |  | Secured Promissory Note, dated January 3, 2000 issued to Friedli Corporate Finance.                                                                                
|10.8*          |  | Warrant dated August 6, 1999, issued to Pine, Inc.                                                                                                                 
|10.9*          |  | Warrant dated August 6, 1999, issued to Pine, Inc.                                                                                                                 
|10.10*         |  | Warrant dated October 7, 1999, issued to Peter Friedli.                                                                                                            
|10.12*         |  | Consulting Agreement dated July 27, 1998, entered into between Registrant and Peter Friedli.                                                                       
|10.13*         |  | VantageMed's Amended and Restated 1998 Stock Option/Stock Issuance Plan.                                                                                           
|10.14*         |  | Form of Indemnity Agreement entered into by Registrant with each of its officers and directors.                                                                    
|10.15*         |  | Non-Exclusive Software License Agreement, dated December 31, 1998 between Registrant and QuadraMed                                                                 

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|10.17* |  | Employment Agreement dated April 30, 1998, between Registrant and with Gregory Vap.                                     
|------ | - | ------------------------------------------------------------------------------------------------------------------------
|10.18* |  | Management Employment Agreement dated July 31, 2000, between Registrant and with Joel Harris.                           
|10.19* |  | Secured Promissory Note, dated November 3, 2000 and Stock Pledge Agreement issued by Richard W. Pendleton to Registrant.
|10.20  |  | Amendment 1 to the Management Employment Agreement with Joel Harris dated September 18, 2001.                           
|10.21  |  | Amendment 1 to the Management Employment Agreement with James Seiler dated September 18, 2001.                          
|21.1*  |  | Subsidiaries.                                                                                                           
|23.1   |  | Consent of Independent Public Accountants                                                                               
|23.2   |  | Consent of Independent Public Accountants                                                                               
|24.4*  |  | Power of Attorney (included on signature page).                                                                         

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rancho Cordova, State of California, on the 14th day of May, 2002.

| |  | VANTAGEMED CORPORATION
| |  | ----------------------
| |  | By:                   

Pursuant
to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.

|Signature                       |  | Title                                |  | Date        
|------------------------------- |  | ------------------------------------ |  | ------------
|                                |  |                                      |  |             
|/s/RICHARD BROOKSRichard Brooks |  | Chief Executive Officer and Director |  | May 14, 2002
|/s/PETER FRIEDLIPeter Friedli   |  | Director                             |  | May 14, 2002
|John Stevens                    |  | Director                             |  |             

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Schedule II    Valuation and Qualifying Accounts    Allowance for Doubtful Accounts  (Dollars in thousands)

|Year |  | Balance at
Beginning of Year |     | Additions
Charged to Income |   | Deductions |  | Balance at
End of Year
|---- |  | ---------------------------- | --- | ---------------------------- | - | ---------- |  | ----------------------
|1999 |  | $                            | 311 |                              | $ | 86         |  | $                     
|2000 |  | $                            | 287 |                              | $ | 164        |  | $                     
|2001 |  | $                            | 240 |                              | $ | 44         |  | $                     

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