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


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   -----------

                                    FORM 10-Q

       /X/      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE
                SECURITIES EXCHANGE ACT OF 1934

                   FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                       OR

       / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE
                SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ___________ TO __________

                          COMMISSION FILE NUMBER 0-27502

                                   -----------

                        HEALTH SYSTEMS DESIGN CORPORATION
             (Exact name of registrant as specified in its charter)

             DELAWARE                                   94-3235734
 (State or other Jurisdiction of        (I.R.S. Employer Identification Number)
  Incorporation or Organization)

        1111 BROADWAY, OAKLAND, CALIFORNIA               94607
      (Address of principal executive offices)        (Zip code)

                                 (510) 251-1330
              (Registrant's telephone number, including area code)

                                   -----------

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

         The registrant had 6,756,729 shares of common stock outstanding as of
July 31, 2000.

         Exhibit index is located on page 11


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<PAGE>


                              HEALTH SYSTEMS DESIGN CORPORATION

                                          INDEX

<TABLE>
<CAPTION>
                                                                                                                           PAGE
                                                                                                                           ----
<S>                                                                                                                        <C>
PART I. FINANCIAL INFORMATION

                  Item 1. Consolidated Financial Statements

                          Consolidated Balance Sheets - June 30, 2000 and September 30, 1999.............................    2

                          Consolidated Statements of Operations - Three and Nine months ended June 30, 2000 and 1999.....    3

                          Consolidated Statements of Cash Flows - Nine months ended June 30, 2000 and 1999...............    4

                          Notes to Consolidated Financial Statements.....................................................    5

                  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........    7


PART II. OTHER INFORMATION

                  Item 6. Exhibits and Reports on Form 8-K...............................................................   11
</TABLE>


                                       1
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        HEALTH SYSTEMS DESIGN CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                            JUNE 30,     SEPTEMBER 30,
                                                                                             2000            1999
                                                                                         --------------  -------------
                                                                                           (UNAUDITED)
<S>                                                                                      <C>             <C>
                                         ASSETS
 Current Assets:
   Cash and cash equivalents............................................................   $  2,116       $  4,176
   Short-term marketable securities.....................................................      2,271          5,029
   Accounts receivable, net of allowance for doubtful accounts of $425 at June 30,
      2000, and $325 at September 30, 1999, respectively................................      7,704          4,440
   Unbilled revenue.....................................................................        301          6,007
   Prepaid expenses.....................................................................        247            272
                                                                                           --------       --------
      Total current assets..............................................................     12,639         19,924
                                                                                           --------       --------
 Property and equipment:
   Computer equipment...................................................................      4,331          4,148
   Office furniture and other...........................................................      2,449          2,320
                                                                                           --------       --------
      Total property and equipment......................................................      6,780          6,468
      Less: accumulated depreciation....................................................    (4,506)        (3,561)
                                                                                           --------       --------
      Net property and equipment........................................................      2,274          2,907
                                                                                           --------       --------
 Deposits and other assets..............................................................        433            623
                                                                                           --------       --------
 Software development costs, net of accumulated amortization of  $2,703 at June 30, 2000
   and $1,245 at September 30, 1999, respectively.......................................      2,990          3,330
                                                                                           --------       --------
      Total assets......................................................................   $ 18,336       $ 26,784
                                                                                           ========       ========

                                          LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Accounts payable.....................................................................   $    444       $    878
   Accrued liabilities..................................................................      2,302          3,481
   Current portion of capital lease obligations.........................................        315            294
   Unearned revenue.....................................................................      3,854          4,700
                                                                                           --------       --------
      Total current liabilities.........................................................      6,915          9,353
   Deferred rent........................................................................        133             21
   Capital lease obligations, net of current portion....................................         22            262
                                                                                           --------       --------
      Total liabilities.................................................................      7,070          9,636

 Stockholders' equity:
   Preferred stock, $.001 par value, 1,000,000 shares authorized, none outstanding......         --             --
   Common stock, $.001 par value, 20,000,000 shares authorized, 6,741,306 and
      6,730,858 shares issued and outstanding at June 30, 2000 and September 30, 1999,
      respectively......................................................................          7              7
   Additional paid-in capital...........................................................     24,163         24,122
   Treasury stock, 2,054 shares.........................................................       (29)           (29)
   Deferred compensation................................................................          0           (12)
   Retained deficit.....................................................................   (12,875)        (6,940)
                                                                                           --------       --------
   Total stockholders' equity...........................................................     11,266         17,148
                                                                                           --------       --------
      Total liabilities and stockholders' equity........................................   $ 18,336       $ 26,784
                                                                                           ========       ========
</TABLE>

                                       2
<PAGE>


                        HEALTH SYSTEMS DESIGN CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                 JUNE 30,                 JUNE 30,
                                                          ----------------------   ---------------------
                                                              2000        1999        2000        1999
                                                           --------    --------    --------    --------
<S>                                                       <C>         <C>         <C>         <C>
 Revenues:
   System sales.........................................   $  2,693    $  6,608    $ 11,346    $ 17,438
   Services and other...................................      1,258       1,220       3,895       3,556
                                                          ---------   ---------   ---------    --------
      Total revenues....................................      3,951       7,828      15,241      20,994
 Cost of revenues.......................................      2,917       2,965       8,509       7,637
                                                          ---------   ---------   ---------    --------

      Gross margin......................................      1,034       4,863       6,732      13,357
                                                          ---------   ---------   ---------    --------
 Operating expenses:
   General and administrative...........................      1,716       1,252       4,616       4,109
   Sales and marketing..................................        812       1,089       2,570       3,627
   Product development..................................      2,434       2,149       5,707       6,643
                                                          ---------   ---------   ---------    --------
      Total operating expenses..........................      4,962       4,490      12,893      14,379
                                                          ---------   ---------   ---------    --------
          Income (loss) from operations.................    (3,928)         373     (6,161)     (1,022)
 Interest, net..........................................         83          96         250         305
                                                          ---------   ---------   ---------    --------
      Income (loss) before provision for income taxes...    (3,845)         469     (5,911)       (717)
 Provision for income taxes.............................          7          22          24          35
                                                          ---------    --------   ---------    --------
 Net income (loss)......................................  $ (3,852)    $    447   $ (5,935)    $  (752)
                                                          =========    ========   =========    ========

 Net income (loss) per share:
   Basic................................................  $  (0.57)    $   0.07   $  (0.88)    $ (0.11)
                                                          =========    ========   =========    ========
   Diluted..............................................  $  (0.57)    $   0.07   $  (0.88)    $ (0.11)
                                                          =========    ========   =========    ========
 Weighted average common shares outstanding:
   Basic................................................      6,747       6,713       6,741       6,698
                                                          =========    ========   =========    ========
   Diluted..............................................      6,747       6,753       6,741       6,698
                                                          =========    ========   =========    ========
</TABLE>


                                       3
<PAGE>


                        HEALTH SYSTEMS DESIGN CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                          NINE MONTHS ENDED
                                                                                               JUNE 30,
                                                                                          -------------------
                                                                                           2000         1999
                                                                                         ---------    --------
<S>                                                                                      <C>         <C>
Cash flows from operating activities:
   Net loss...........................................................................   $ (5,935)   $  (752)
   Adjustments to reconcile net loss to net cash used in operating activities:
        Allowance for doubtful accounts...............................................         100         25
        Depreciation and amortization.................................................       2,414      1,796
        Loss on sale of assets........................................................          --          8
        Deferred rent.................................................................         112         --
        Changes in current assets and liabilities:
           Accounts receivable........................................................     (3,364)         64
           Unbilled revenue...........................................................       5,706        177
           Prepaid expenses...........................................................          25       (39)
           Accounts payable...........................................................       (434)        158
           Accrued liabilities........................................................     (1,179)        180
           Unearned revenue...........................................................       (846)      1,462
                                                                                         ---------   --------

              Net cash provided by (used in) operating activities.....................     (3,401)      3,079
                                                                                         ---------   --------
Cash flows from investing activities:
   Purchases of property and equipment................................................       (312)    (1,322)
   Proceeds from sale of property and equipment.......................................          --         75
   Sales of short-term marketable securities, net.....................................       2,758         --
   Capitalization of software development costs.......................................     (1,118)    (1,509)
   Deposits and other assets..........................................................         190      (388)
                                                                                         ---------   --------
        Net cash provided by (used in) investing activities...........................       1,518    (3,144)
                                                                                         ---------   --------
Cash flows from financing activities:
   Repayments of capital lease obligations............................................       (218)         --
   Proceeds from issuance of common stock to employees................................          27         53
   Proceeds from exercise of common stock options.....................................          14         28
   Proceeds from exercise of common stock warrants....................................          --         25
                                                                                         ---------   --------
      Net cash provided by (used in) financing activities.............................       (177)        106
                                                                                         ---------   --------
      Net increase (decrease) in cash ................................................     (2,060)         41
Cash and cash equivalents at beginning of period......................................       4,176      9,441
                                                                                         ---------   --------
Cash and cash equivalents at end of period............................................   $   2,116   $  9,482
                                                                                         =========   ========

Supplemental disclosure of cash flow information:
   Interest paid......................................................................   $      33   $     --
   Taxes paid.........................................................................   $      20   $     25
</TABLE>

                                       4
<PAGE>


                        HEALTH SYSTEMS DESIGN CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2000



1. BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information on substantially the same basis as the annual audited
financial statements. However, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation
have been included. Operating results for the three and nine month period ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending September 30, 2000. These consolidated financial statements
should be read in conjunction with the financial statements and footnotes
thereto for the year ended September 30, 1999 included in the Company's Form
10-K Annual Report.


2. REVENUE RECOGNITION

         The Company licenses its internally developed software products and
other software products directly to end-users and indirectly through
remarketers, under the terms of product license contracts. The Company also
generates revenues from sales of implementation services, fees for product
enhancement, post-contract support, consulting services and training services
performed for customers who license the Company's products and reselling
hardware and third party products.

          If the contract does not require significant production or
customization of software, license revenue is recognized when all the following
conditions are met: a signed contract is obtained, delivery has occurred, the
fee is fixed and determinable, and collection is probable. The Company generally
recognizes DIAMOND-Registered Trademark- 725 license revenue upon shipment of
the software to end users, as no significant production or customization of this
software is required, and the installation period is relatively short. The
Company generally recognizes DIAMOND-Registered Trademark- 950C/S license
revenue on a percentage-of-completion basis based on the labor hours required to
implement the system, as this software generally requires an extended
installation period and can require significant enhancements. If the software
license agreement provides for acceptance criteria that extend beyond the
published specifications of the applicable product, then revenues are recognized
upon the earlier of customer acceptance or the expiration of the acceptance
period.

         Implementation, consulting and training fees are billed either on an
hourly or a monthly basis and are recognized as services are rendered. Third
party software and hardware are typically billed and recognized as revenue when
delivered to the end user.

         The Company generally recognizes DIAMOND-Registered Trademark-
enhancement revenues on a percentage-of-completion basis based on the labor
hours required to complete the applicable release project.

         Post-contract support services are billed on a monthly basis. Customers
who purchase post-contract support services under maintenance agreements have
the right to receive unspecified product updates and upgrades. Revenues from
post-contract support services are recognized ratably over the term of the
support period. If post-contract support services are included free or at a
discount in a license agreement, such amounts are recorded at their fair market
value based on the value established by independent sale of such post-contract
support services to customers and license fee revenue is correspondingly
reduced. Customers that do not purchase post-contract support must purchase
product updates and upgrades under separate agreements that are subject to the
criteria of the Company's revenue recognition policy.


                                       5
<PAGE>


3. CAPITALIZED SOFTWARE DEVELOPMENT COSTS

         The Company accounts for capitalized software costs in accordance with
SFAS 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." The Company begins capitalizing software development costs
upon the establishment of technological feasibility, which is established upon
the completion of a working model or, in the case of major releases, detailed
program design. Costs incurred prior to technological feasibility are charged to
expense as incurred. Capitalization ceases when the product is considered
available for general release to customers. Capitalized software development
costs are amortized to direct costs over the estimated economic lives of the
software products based on actual sales experience and product life expectancy.
Generally, estimated economic lives of the software products do not exceed 3
years. The Company recorded amortization of $711,000 and $319,000 for the three
months ended June 30, 2000 and 1999, respectively and $1,534,000 and $810,000
for the nine months ended June 30, 2000 and 1999, respectively.


4. ADOPTION OF NEW ACCOUNTING STANDARDS

         In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted for fiscal
quarters beginning after June 15, 2000. Adoption of this pronouncement is not
expected to have a material impact on the Company's financial statements taken
as a whole.

         In June 1999, the FASB issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective date of SFAS No.
133" which extended the required adoption date for SFAS No. 133 to fiscal years
beginning after June 15, 2000.

         In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 provides guidance on applying generally
accepted accounting principles to revenue recognition issues in financial
statements. The Company adopted SAB 101 in the first quarter of 2000. The
adoption did not have a significant effect on the Company's results of
operations or financial position.

                                       6
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


OVERVIEW

         Health Systems Design Corporation (the Company) provides health
benefits information systems software to a broad range of organizations that
administer health benefits. The Company's principal product line,
DIAMOND-Registered Trademark- consists of DIAMOND-Registered Trademark- 725 and
DIAMOND-Registered Trademark- 950C/S. The Company's principal software products,
DIAMOND-Registered Trademark-, enable organizations to manage information about
members, employer groups, providers, benefit plans, referrals and authorizations
and health care services. DIAMOND-Registered Trademark- supports a wide range of
administrative and financial transactions related to provider reimbursement,
premium billing, customer service, patient care management and a variety of
other functions.

         The Company's revenues are derived from licensing DIAMOND-Registered
Trademark- products, providing the associated implementation, product
enhancements, post-contract support, consulting services and training services
and reselling hardware and third party products. If there are no uncertainties
surrounding a contract, as described by generally accepted accounting
principles, then the Company generally recognizes DIAMOND-Registered Trademark-
950C/S license revenue on a percentage of completion basis based on the labor
hours required to implement the system. The Company's ability to make individual
system sales in a particular period will significantly impact its financial
performance in future periods. As the Company has pursued larger system sales
(DIAMOND-Registered Trademark- 950C/S), it has seen and expects to continue to
see variability in the recognition of system sales revenue. If there are no
uncertainties surrounding a contract, as described by generally accepted
accounting principles, then the Company generally recognizes DIAMOND-Registered
Trademark- 725 license revenue upon shipment of the software to end users.
Implementation, post-contract support, consulting fees and training are billed
either on an hourly or monthly basis and are recognized as services are
rendered. Hardware and third party products are typically billed and recognized
as revenues when delivered to the client. Significant portions of system
revenues recognized in the nine months ended June 30, 2000 resulted from license
sales executed in prior periods.


RESULTS OF OPERATIONS


         REVENUES. Total revenues were $3,951,000 and $7,828,000 for the
three months ended June 30, 2000 and 1999, respectively, representing a
decrease of 50%. total revenues were $15,241,000 and $20,994,000 for the nine
months ended June 30, 2000 and 1999, respectively, representing a decrease of
27%. Two customers accounted for approximately 34% of total revenues for the
three months and three customers accounted for approximately 47% of total
revenues for the nine months ended June 30, 2000, respectively. Covation LLC
represented 17% of total revenues for the nine month ended June 30, 2000,
Blue Shield of California represented 18% and 15% and Kaiser Permanente
represented 15% and 15% of total revenues for the three and nine months ended
June 30, 2000, respectively. The decrease in total revenues is due to lower
new system sales in the three and nine months ended June 30, 2000 compared to
the same periods in the prior fiscal year. No other customers exceeded 10% of
total revenues in the periods presented. In addition, at June 30, 2000, a
total of 61% of Accounts Receivable and 46% of Unearned Revenue was related
to Covation LLC, Blue Shield of California and Kaiser Permanente. In the nine
months ended June 30, 2000, the company experienced a decrease in license and
implementation bookings relative to the nine months ended June 30, 1999. The
Company expects this slowdown in bookings to have a negative impact on
revenues in the future. During the three and nine months ended June 30, 2000,
the Company completed billing milestones under several contracts which
resulted in a decrease of Unearned Revenue and an increase in Accounts
Receivable.

         SYSTEM SALES. System sales revenues consist of license fees for the
Company's products, implementation and enhancement fees, and revenues associated
with reselling third-party software and hardware. System sales revenues were
$2,693,000 and $6,608,000 for the three months ended June 30, 2000 and 1999,
respectively, representing a decrease of 59%. System sales revenues were
$11,346,000 and $17,438,000 for the nine months ended June 30, 2000 and 1999,
respectively, representing a decrease of 35%. The decrease in system sales
revenue is due primarily to lower bookings in prior quarters.

         SERVICES AND OTHER. Services and other revenues are comprised of system
support, consulting and training revenues. Services and other revenues were
$1,258,000 and $1,220,000 for the three months ended June 30, 2000 and 1999,
respectively, representing an increase of 3%. Services and other revenues were
$3,895,000 and $3,556,000 for the nine months ended June 30, 2000 and 1999,
respectively, representing an increase of 10%. The increase in services and
other revenues was due primarily to an increase in support fees resulting from
the Company's larger installed DIAMOND-Registered Trademark- 950C/S customer
base partially offset by a decrease in consulting and training revenue.


                                       7
<PAGE>


         COST OF REVENUES. Cost of revenues was $2,917,000 and $2,965,000 for
the three months ended June 30, 2000 and 1999, respectively, representing a
decrease of 2%. Cost of revenues was $8,509,000 and $7,637,000 for the nine
months ended June 30, 2000 and 1999, respectively, representing an increase
of 11%. Cost of revenues increased from 38% of total revenues in the three
months ended June 30, 1999 to 74% of total revenues in the three months ended
June 30, 2000 and from 36% of total revenues in the nine months ended June
30, 1999 to 56% of total revenues in the nine months ended June 30, 2000.
Costs of revenues, as a percentage of total revenues, increased primarily due
to the decrease in total revenues and increases in amortization expense and
rent. No long-term trend should be implied from either of these periods to
period comparisons.

         OPERATING EXPENSES.

         GENERAL AND ADMINISTRATIVE. General and administrative expenditures
were $1,716,000 and $1,252,000 for the three months ended June 30, 2000 and
1999, respectively, representing an increase of 37%. General and administrative
expenditures were $4,616,000 and $4,109,000 for the nine months ended June 30,
2000 and 1999, respectively, representing an increase of 12%. General and
administrative expenditures as a percentage of total revenues for the three and
nine months ended June 30, 2000 were 43% and 30%, respectively, compared to 14%
and 20% for the three and nine months ended June 30, 1999, respectively. The
increase in general and administrative expenditures during the period is
primarily due to increase in personnel costs and other administrative costs.
General and administrative expenses include the salaries and benefits,
contractor and other expenses associated with general management, finance and
administrations.

         SALES AND MARKETING. Sales and marketing expenditures were $812,000 and
$1,089,000 for the three months ended June 30, 2000 and 1999, respectively,
representing a decrease of 25%. Sales and marketing expenditures were $2,570,000
and $3,627,000 for the nine months ended June 30, 2000 and 1999, respectively,
representing a decrease of 29%. Sales and marketing expenditures as a percentage
of revenues for the three and nine months ended June 30, 2000 were 21% and 17%,
respectively, compared to 14% and 17% respectively for the three and nine months
ended June 30, 1999. The decrease in sales and marketing expenditures during the
period were primarily due to a decrease in commissions, personnel and travel
related expenditures.

         PRODUCT DEVELOPMENT. Product development expenditures, net of software
capitalization, were $2,434,000 and $2,149,000 for the three months ended June
30, 2000 and 1999, respectively, representing an increase of 13%. Product
development expenditures, net of software capitalization, were $5,707,000 and
$6,643,000 for the nine months ended June 30, 2000 and 1999, respectively,
representing a decrease of 14%. Product development expenditures as a percentage
of revenues for the three and nine months ended June 30, 2000 were 62% and 37%,
respectively, compared to 27% and 32%, respectively for the three and nine
months ended June 30, 1999. The decrease in product development expenditures
during the nine month period ending June 30, 2000 was primarily due to decrease
in personnel partially offset by a decrease in capitalization. The increase in
product development expenditures during the three month period ended June 30,
2000 was primarily due to a decrease in personnel offset by a decrease in
capitalization. The Company believes that product development expenditures are
essential to maintaining its competitive position and expects these costs to
continue to constitute a significant percentage of total revenues in the near
future.

                The Company capitalized $78,000 and $869,000 of product
development costs in the three months ended June 30, 2000 and 1999,
respectively. The Company capitalized $1,195,000 and $1,739,000 of product
development costs in the nine months ended June 30, 2000 and 1999,
respectively. Capitalized product development expenditures as a percentage of
total product expenditures were 3% and 29% for the three months ended June
30, 2000 and 1999, respectively. Capitalized product development expenditures
as a percentage of total product expenditures were 17% and 21% for the nine
months ended June 30, 2000 and 1999, respectively. The increase in product
development costs capitalized, for the three and nine months ended June 30,
2000, was due primarily to the stage of development of major releases. The
Company begins capitalizing software development costs upon the establishment
of technological feasibility, which is established upon the completion of a
working model or, in the case of major releases, detailed program design.
Costs incurred prior to technological feasibility are charged to expense as
incurred. Capitalization ceases when the product is considered available for
general release to customers.

         INTEREST INCOME AND EXPENSE. Interest income, net of interest expense,
was $83,000 and $96,000 for the three months ended June 30, 2000 and 1999,
respectively. Interest income, net of interest expense, was $250,000 and
$305,000 for the nine months ended June 30, 2000 and 1999, respectively. The
decrease in interest income, net of expense, was primarily due to the amount of
cash invested and interest paid on capital lease obligations. Interest income
represents interest earned on the Company's excess cash balances, which are
generally placed in short term investments, money market funds, and government
securities.

         PROVISION FOR INCOME TAXES. The provision for income taxes was $7,000
and $22,000 for the three months ended June 30, 2000 and 1999 respectively. The
provision for income taxes was $24,000 and $35,000 for the nine months ended
June 30, 2000 and 1999 respectively. The decrease in the provision for income
taxes for the nine month period ended June 30, 2000 was due to recording higher
state taxes than in the prior comparable periods.


                                       8
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         Net cash provided by (used in) operating activities was ($3,401,000)
and $3,079,000 during the nine months ended June 30, 2000 and 1999,
respectively. The increase in cash used by operating activities, as compared to
the nine month ended June 30, 1999, resulted primarily from an increased loss,
an increase in accounts receivable and a decrease in accrued liabilities
partially offset by a decrease in unbilled revenue.

         Net cash provided by (used in) investing activities was $1,518,000 and
($3,144,000) during the nine months ended June 30, 2000 and 1999, respectively.
The increase in cash provided by investing activities, as compared to the nine
month ended June 30, 1999, consisted primarily of sales of short-term marketable
securities during the current period.

         Net cash provided by (used in) financing activities was ($177,000) and
$106,000 during the nine months ended June 30, 2000 and 1999, respectively. The
increase in cash used by financing activities, as compared to the nine month
ended June 30, 1999, was primarily due to repayments of capital lease
obligations.

         As of June 30, 2000 and 1999, the Company had cash and cash equivalents
in the amounts of $2,116,000 and $9,482,000 respectively.

         Based upon expense reductions incurred since June 30, 2000, anticipated
receivable collections, and various strategic alternatives, the
Company believes that available funds and cash flows from operations and
short-term marketable securities will be adequate to fund its presently
anticipated working capital requirements for at least the next 12 months.


"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:

         Statements in this report concerning the future results of operations,
financial condition and business of the Company are "forward-looking" statements
as defined in the Securities Act of 1933 and the Securities and Exchange Act of
1934. Investors are cautioned that information contained in these
forward-looking statements is inherently uncertain, and that actual performance
and results may differ materially due to numerous risk factors. Such risks and
uncertainties include Healthcare and Government Regulation; risks related to
acquisitions; variability of operating results due to the long sales cycle and
implementation period of the Company's products; dependence of the Company's
results of operations on certain large customers; the Company's dependence on a
single product line; the dynamic nature of the market in which the Company's
product line competes; development of new products and enhancements to the
current product; the Company's ability to attract and retain qualified personnel
and other risks described in the Company's other filings with the Securities and
Exchange Commission.


                                       9
<PAGE>


                           PART II. OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits
                  11.1    Statement re: computation of earnings per share
                  27      Financial Data Schedule

(b)      Reports on Form 8-K

                  No reports on Form 8-K have been filed during the quarter for
                  which this report is filed.

                                   SIGNATURES

         Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                             Health Systems Design Corporation
Date: August 14, 2000        By:    /s/ Arthur M. Southam
                                 ---------------------------
                                    Arthur M. Southam,
                                    President and Chief Executive Officer
                             By:    /s/ Christopher C. Ohman
                                 ----------------------------
                                    Christopher C. Ohman,
                                    Executive Vice President and Chief Financial
                                    Officer


                                       10
<PAGE>


                        HEALTH SYSTEMS DESIGN CORPORATION
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT                            DESCRIPTION
-------                            -----------
<S>                                <C>
   11.1   Computation of net loss per share
   27     Financial Data Schedule
</TABLE>

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                                       11