<PAGE>
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                       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 DECEMBER 31, 1998
 
                                       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
       Incorporation or Organization)            Identification Number)
 
                    1330 BROADWAY, OAKLAND, CALIFORNIA 94612
 
              (Address of principal executive offices) (Zip code)
 
                                 (510) 763-2629
              (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 6,697,907 shares of common stock outstanding as of
January 31, 1999.
 
    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--December 31, 1998 and September 30, 1998...........................           2
          Consolidated Statements of Operations--Three months ended December 31, 1998 and 1997............           3
          Consolidated Statements of Cash Flows--Three months ended December 31, 1998 and 1997............           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 PER-SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                                    SEPTEMBER 30,
                                                                                                        1998
                                                                                      DECEMBER 31,  -------------
                                                                                          1998
                                                                                      ------------
                                                                                      (UNAUDITED)
<S>                                                                                   <C>           <C>
                                                     ASSETS
 
Current Assets:
  Cash and cash equivalents.........................................................   $    8,339     $   9,440
  Accounts receivable, net of allowance for doubtful accounts of $725 at December
    31, 1998, and $525 at September 30, 1998, respectively..........................        7,071         5,646
  Unbilled revenue..................................................................        3,205         2,405
  Prepaid expenses..................................................................          428           384
                                                                                      ------------  -------------
    Total current assets............................................................       19,043        17,875
                                                                                      ------------  -------------
Property and equipment:
  Computer equipment................................................................        3,754         3,740
  Office furniture and other........................................................        1,427         1,407
                                                                                      ------------  -------------
    Total property and equipment....................................................        5,181         5,147
    Less: Accumulated depreciation..................................................       (2,609)       (2,299)
                                                                                      ------------  -------------
    Net property and equipment......................................................        2,572         2,848
                                                                                      ------------  -------------
Deposits and other assets...........................................................          218           118
                                                                                      ------------  -------------
Software development costs, net of accumulated amortization of $272 at December 31,
  1998 and $99 at September 30, 1998, respectively..................................        3,298         2,787
                                                                                      ------------  -------------
    Total assets....................................................................   $   25,131     $  23,628
                                                                                      ------------  -------------
                                                                                      ------------  -------------
 
                                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
  Accounts payable..................................................................   $    1,021     $   1,137
  Accrued liabilities...............................................................        2,191         2,171
  Unearned revenue..................................................................        5,715         2,728
                                                                                      ------------  -------------
    Total current liabilities.......................................................        8,927         6,036
Stockholders' equity:
  Preferred stock, $.001 par value, 1,000,000 shares authorized, none outstanding...       --            --
  Common stock, $.001 par value, 20,000,000 shares authorized, 6,697,907 and
    6,673,307 shares issued and outstanding at December 31, 1998 and September 30,
    1998, respectively..............................................................            7             7
  Additional paid-in capital........................................................       24,020        23,986
  Treasury stock, 2,054 shares......................................................          (29)          (29)
  Deferred compensation.............................................................          (23)          (28)
  Retained deficit..................................................................       (7,771)       (6,344)
                                                                                      ------------  -------------
  Total stockholders' equity........................................................       16,204        17,592
                                                                                      ------------  -------------
    Total liabilities and stockholders' equity......................................   $   25,131     $  23,628
                                                                                      ------------  -------------
                                                                                      ------------  -------------
</TABLE>
 
                                       2
<PAGE>
                       HEALTH SYSTEMS DESIGN CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                    (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                                THREE MONTHS ENDED
                                                                                                   DECEMBER 31,
                                                                                               --------------------
<S>                                                                                            <C>        <C>
                                                                                                 1998       1997
                                                                                               ---------  ---------
Revenues:
  System sales...............................................................................  $   4,454  $   4,546
  Services and other.........................................................................        927        745
                                                                                               ---------  ---------
    Total revenues...........................................................................      5,381      5,291
Cost of revenues.............................................................................      2,203      1,724
                                                                                               ---------  ---------
    Gross margin.............................................................................      3,178      3,567
                                                                                               ---------  ---------
Operating expenses:
  General and administrative.................................................................      1,470      1,874
  Sales and marketing........................................................................      1,193        975
  Product development........................................................................      2,052      1,994
                                                                                               ---------  ---------
    Total operating expenses.................................................................      4,715      4,843
                                                                                               ---------  ---------
      Loss from operations...................................................................     (1,537)    (1,276)
Interest, net................................................................................        112        122
                                                                                               ---------  ---------
      Loss before provision for income taxes.................................................     (1,425)    (1,154)
Provision for income taxes...................................................................          1         --
                                                                                               ---------  ---------
Net loss.....................................................................................  $  (1,426) $  (1,154)
                                                                                               ---------  ---------
                                                                                               ---------  ---------
Net loss per share...........................................................................  $  (0. 21) $   (0.18)
                                                                                               ---------  ---------
                                                                                               ---------  ---------
Weighted average common shares outstanding:
  Basic......................................................................................      6,678      6,535
                                                                                               ---------  ---------
                                                                                               ---------  ---------
  Diluted....................................................................................      6,678      6,535
                                                                                               ---------  ---------
                                                                                               ---------  ---------
</TABLE>
 
                                       3
<PAGE>
                       HEALTH SYSTEMS DESIGN CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                                                                DECEMBER 31,
                                                                            --------------------
                                                                              1998       1997
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
Cash flows from operating activities:
  Net loss................................................................  $  (1,426) $  (1,154)
  Adjustments to reconcile net loss to net cash and cash equivalents
    Provided by (used in) operating activities:
      Allowance for doubtful accounts.....................................        200     --
      Depreciation and amortization.......................................        494        340
      Loss on sale of assets..............................................          7     --
      Changes in current assets and liabilities:
        Accounts receivable...............................................     (1,625)    (1,299)
        Unbilled revenue..................................................       (798)      (662)
        Prepaid expenses..................................................        (44)      (164)
        Accounts payable..................................................       (116)      (170)
        Accrued liabilities...............................................         20        243
        Unearned revenue..................................................      2,986      1,561
                                                                            ---------  ---------
          Net cash used in operating activities...........................       (302)    (1,305)
                                                                            ---------  ---------
Cash flows from investing activities:
  Purchases of property and equipment.....................................       (124)      (334)
  Proceeds from sale of property and equipment............................         75     --
  Capitalization of software development costs............................       (684)      (165)
  Deposits and other assets...............................................       (100)         1
                                                                            ---------  ---------
    Net cash used in investing activities.................................       (833)      (498)
                                                                            ---------  ---------
Cash flows from financing activities:
  Proceeds from exercise of warrants......................................         25     --
  Proceeds from exercise of common stock options..........................          9          4
                                                                            ---------  ---------
    Net cash provided by financing activities.............................         34          4
                                                                            ---------  ---------
    Net decrease in cash and cash equivalents.............................     (1,101)    (1,799)
Cash and cash equivalents at beginning of period..........................      9,440     11,195
                                                                            ---------  ---------
Cash and cash equivalents at end of period................................  $   8,339  $   9,396
                                                                            ---------  ---------
                                                                            ---------  ---------
Supplemental disclosure of cash flow information:
  Taxes paid..............................................................  $       1  $  --
</TABLE>
 
                                       4
<PAGE>
                       HEALTH SYSTEMS DESIGN CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1998
 
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. Accordingly, 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 considered
necessary for a fair presentation have been included. Operating results for the
three month period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1999. These
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto for the year ended September 30, 1998
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 to healthcare organizations under the terms of product license
contracts. Individual sales may include, among others, a combination of software
license, implementation, product enhancements, training, and post-contract
support. Contracts with customers could be terminated under certain
circumstances and revenues recognized could be refundable upon termination in
certain cases, including breach of contract. The termination of significant
customer contracts could have a material adverse effect on the Company's
business, financial condition, or results of operations.
 
    In October, 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition,"
which the Company was required to adopt as of October 1, 1999. SOP 97-2 provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions and supercedes the guidance contained in SOP
91-1. The Company elected to adopt the provisions of the statement effective
October 1, 1997.
 
    The Company generates revenues from licensing the rights to use its software
products directly to end-users and indirectly through remarketers. The Company
also generates revenues from sales of implementation services, fees for product
enhancement, post-contract support, consulting services and reselling hardware
and third party products, and training services performed for customers who
license the Company's products.
 
    If the contract does not require significant production or customization of
software, 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. Effective October 1, 1997, the Company
generally recognizes DIAMOND-TM- 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-TM- 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.
 
                                       5
<PAGE>
                       HEALTH SYSTEMS DESIGN CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
2. REVENUE RECOGNITION (CONTINUED)
    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. 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. Revenues from post-contract support services are recognized
ratably over the term of the support period. If post-contract support services
are included at no cost 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.
 
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 costs of revenues 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.
 
RECLASSIFICATIONS
 
    During the fourth quarter of fiscal year 1998, the Company's management
decided to revise its expense classifications to be more consistent with
industry standards. This decision resulted in certain product engineering costs
being included in product development instead of cost of revenues. All prior
periods presented have been reclassified accordingly.
 
                                       6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
OVERVIEW
 
    The Company provides managed care information systems software to payors and
providers of managed care products and services. The Company's principal product
line, DIAMOND-TM-, consists of DIAMOND-TM- 725 and DIAMOND-TM- 950C/S. The
DIAMOND-TM- products enable the Company's customers to manage information about
members, employer groups, providers, health plan and provider contracts,
referrals and authorizations and health care services for accurate provider
reimbursement, risk pool accounting and health care cost management.
 
    The Company's revenues are derived from licensing DIAMOND-TM-products,
providing the associated implementation, product enhancements, post-contract
support, consulting services, reselling hardware and third party products and
training services. If collection is probable, the Company generally recognizes
DIAMOND-TM- 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-TM- 950C/S), it has seen and expects to continue to see
variability in the recognition of system sales revenue. If collection is
probable and there are no uncertainties surrounding a contract, the Company
generally recognizes DIAMOND-TM- 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 software fees are typically
billed and recognized as revenues when delivered to the client.
 
RESULTS OF OPERATIONS
 
    REVENUES
 
    Total revenues were $5,381,000 and $5,291,000 for the three months ended
December 31, 1998 and 1997, respectively, representing an increase of 2%.
Approximately 39% of total revenues were from three customers for the quarter
ended December 31, 1998. Two customers, individually, exceeded 10% of the
Company's total revenues. Kaiser Permanente represented 21% of total revenues
while the Ohio Department of Mental Health represented 11% of total revenues.
 
    SYSTEM SALES.  System sales revenues were $4,454,000 and $4,546,000 for the
three months ended December 31, 1998 and 1997, respectively, representing a
decrease of 2%. A major contract was executed during the first quarter of fiscal
year 1999, however material revenue was not recognized from that contract in the
quarter. This revenue is expected to be recognized over the remaining
implementation period of the contract.
 
    SERVICES AND OTHER.  Services and other revenues were $927,000 and $745,000
for the three months ended December 31, 1998 and 1997, respectively,
representing an increase of 24%. The increase in services and other revenues was
due primarily to support fees resulting from the Company's larger installed
customer base.
 
    COST OF REVENUES.  Cost of revenues was $2,203,000 and $1,724,000 for the
three months ended December 31, 1998 and 1997, respectively, representing an
increase of 28%. Cost of revenues increased from 33% of total revenues in the
three months ended December 31, 1997 to 41% of total revenues in the three
months ended December 31, 1998, although no long-term trend should be implied
from this quarter to quarter comparison. Cost of revenues increased, as compared
to the growth in revenue, primarily as a result of the increased number of
personnel, both the Company's employees and independent contractors, required to
implement and support the larger client base. The cost of revenues as a
percentage of total revenues is dependent on the mix of license, service, and
third party software and hardware revenues, and
 
                                       7
<PAGE>
may fluctuate over time as these revenue sources fluctuate. During the fourth
quarter of fiscal 1998, the Company's management decided to revise its expense
classifications to be more consistent with industry standards. This decision
resulted in certain product engineering costs being included in product
development instead of costs of revenues. Costs associated with implementation,
customer support, consulting and training services, amortization of capitalized
software and third party hardware and software continue to be classified as cost
of revenues. Corresponding periods in this filing have been reclassified on the
same basis.
 
    OPERATING EXPENSES.
 
    GENERAL AND ADMINISTRATIVE.  General and administrative expenditures were
$1,470,000 and $1,874,000 for the three months ended December 31, 1998 and 1997,
respectively, representing a decrease of 22%. The decrease in general and
administrative expenses was due primarily to cost reduction policies instituted
by the Company. General and administrative expenses include the salaries and
benefits associated with general management, finance and administration and
allocated facilities costs. General and administrative expenditures as a
percentage of total revenues for the three months ended December 31, 1998 and
1997 were 27% and 35%, respectively, primarily due to the decrease in general
and administrative expenses in absolute dollars.
 
    SALES AND MARKETING.  Sales and marketing expenditures were $1,193,000 and
$975,000 for the three months ended December 31, 1998 and 1997, respectively,
representing an increase of 22%. The increase was primarily due to the Company's
continued emphasis on the expansion of its sales and marketing activities. Sales
and marketing expenditures as a percentage of revenues for the three months
ended December 31, 1998 and 1997 were 22% and 18%, respectively.
 
    PRODUCT DEVELOPMENT.  Product development expenditures, net of software
capitalization, were $2,052,000 and $1,994,000 for the three months ended
December 31, 1998 and 1997, respectively, representing a increase of 3%. Product
development expenditures as a percentage of revenues for the three months ended
December 31, 1998 and 1997 was 38% for each period. As mentioned above, during
the fourth quarter of fiscal 1998, the Company's management decided to revise
its expense classifications to be more consistent with industry standards. This
decision resulted in certain product engineering costs being included in product
development instead of cost of revenues. Costs associated with implementation,
customer support, amortization of capitalized software and third party hardware
and software continue to be classified as cost of revenues. All prior periods in
this filing have been reclassified on the same basis. 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 $684,000 and $165,000 of product development costs
in the three months ended December 30, 1998 and 1997, respectively. Capitalized
product development expenditures as a percentage of total product development
expenditures were 25% and 8% for the three months ended December 31, 1998 and
1997, respectively. The increase in the percentage of product development costs
capitalized is due primarily to the development of major releases of
DIAMOND-TM-.
 
    INTEREST INCOME AND EXPENSE.  Interest income, net of interest expense, was
$112,000 and $122,000 for the three months ended December 31, 1998 and 1997,
respectively. The decrease in interest income, net of expense, was primarily due
to a decrease in cash reserves invested. 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 $1,000 and
$0 for the three months ended December 31, 1998 and 1997 respectively.
 
                                       8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
 
    Net cash used in operating activities was $302,000 and $1,305,000 during the
three months ended December 31, 1998 and 1997, respectively. The decrease in
cash used by operating activities, as compared to the prior period, resulted
primarily from an increase in unearned revenue including cash received in
connection with the signing of a major contract in the first quarter of fiscal
year 1999.
 
    Net cash used in investing activities was $833,000 and $498,000 during the
three months ended December 31, 1998 and 1997, respectively, and consisted
primarily of capitalization of software development costs.
 
    Net cash provided by financing activities was $34,000 and $4,000 during the
three months ended December 31, 1998 and 1997, respectively, consisting
primarily of proceeds from the exercise of common stock warrants.
 
    As of December 31, 1998 and 1997, the Company had cash and cash equivalents
in the amounts of $8,338,000 and $9,396,000, respectively. The company believes
that available funds and its cash flow from operations will be adequate to fund
its presently anticipated working capital requirements for at least the next 12
months.
 
YEAR 2000 ISSUES
 
    STATE OF READINESS-Because many computer programs and embedded computer
chips are unable to distinguish between the year 1900 and the year 2000, the
Company has executed a plan to analyze, and if necessary, correct problems which
may occur as a result of the Year 2000 date change. The Year 2000 Project (The
Project) began by categorizing potential issues into four groups: the Company's
software developed for sale (DIAMOND-TM- 950C/S and DIAMOND-TM- 725); the
Company's internal systems and networks; third party software and hardware sold
by the Company; and customer systems and equipment, other than that sold and/or
licensed by the Company.
 
    The Project for DIAMOND-TM- 950C/S and DIAMOND-TM- 725 began early in fiscal
1997. As a result of the Company's analysis and testing, the Company believes
the most current releases of DIAMOND-TM- software products are Year 2000
Compliant. The Company defines the term "Year 2000 Compliant" to mean that the
software will not: (a) cease to perform due solely to a change in date to or
after January 1, 2000, nor (b) generate incorrect or ambiguous data or results
with respect to same-century and/or multi-century formulas, functions, date
values, and date data interfaces. The Company continues to further validate
current products, new releases for such products, as well as new products, and
releases through testing and code reviews. The Company offers new releases at no
charge to customers who are under current support agreements. Other customers
may request and pay a fee for new releases.
 
    The Company's internal systems and networks have been inventoried and
inquiries were made of each vendor. Substantially all systems, including
hardware, development tools, and software used in the company's information
systems are Year 2000 compliant. For the products that are not currently Year
2000 compliant the vendors have put plans into effect to correct their product
before the end of calendar year 1999.
 
    Third party software and hardware which is sold by the Company has been
inventoried and inquiries were made of each vendor. With a few exceptions, all
third party software and hardware are Year 2000 compliant. For the products that
are not currently Year 2000 compliant the vendors have put plans into effect to
correct their product before the end of calendar year 1999.
 
    During the last fiscal year, the Company communicated its state of readiness
to address Year 2000 issues to its clients. Clients were also notified of the
Company's ability to correct any issues associated with a Year 2000 problem in
the Company's software. Clients were also informed that their other hardware and
software systems may have unresolved issues relating to the Year 2000 problem
which may adversely affect
 
                                       9
<PAGE>
the operation of the Company's DIAMOND-TM- software, even though the Company has
resolved its own problems.
 
    COSTS TO ADDRESS THE ISSUES-As of December 31, 1998, the Company had not
separately tracked costs related to the Year 2000 problem, since the analysis
phase for the Company's DIAMOND-TM- software coincided with the testing and
quality assurance phase of the Company's general releases. However, based on an
estimate of the amount of time incurred by the Company's analysis team, costs
related to the Year 2000 problem have, to date, not been material and have not
been capitalized by the Company.
 
    Although the Company believes that its products are Year 2000 compliant, it
is continuing its testing and analysis program. Any remaining costs related to
the Year 2000 problem are not expected to be material for the DIAMOND-TM-
software. Projected costs for the Company's internal systems and networks; third
party software and hardware sold by the Company; and customer systems and
equipment, other than that sold and/or licensed by the Company are also not
expected to be material.
 
    RISKS OF THE COMPANY'S YEAR 2000 ISSUES-The Company's Year 2000 project is
ongoing. The Company's and its client's normal business activities and
operations could be adversely affected by the Year 2000 problem. However, due to
the general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of its clients, the Company is
unable to determine at this time whether the consequences of the potential Year
2000 failure(s) would have a material adverse impact on the Company's results of
operations, liquidity or financial condition. If the Company's DIAMOND-TM-
products, its internal systems or its clients systems fail or experience
significant difficulties related to the Year 2000 problem then the Company's
results of operations, liquidity or financial condition could be materially
adversely affected.
 
    CONTINGENCY PLAN-The Company does not currently have a contingency plan in
place. Should there be Year 2000 problems still remaining in the Company's
software developed for sale (DIAMOND-TM- 950C/S and DIAMOND-TM- 725); the
Company's internal systems and networks; third party software and hardware sold
by the Company; and customer systems and equipment, other than that sold and/or
licensed by the Company, the Company intends to prioritize requests, based on
severity, and correct the related problem.
 
    "Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The statements contained in this report which are not historical facts
are forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. Such risks and uncertainties include the
Company's dependence on a single product line; the dynamic nature of the market
in which the company's product line competes; variability of operating results
due to the long sales cycle and implementation period of the company's products;
continued market acceptance of the Company's products; development of new
products and enhancements of the current product; dependence of the Company's
results of operations on certain large customers; the Company's ability to
attract and retain qualified personnel; intense competition and other risks
described in the Company's other Securities and Exchange Commission filings.
 
                                       10
<PAGE>
                           PART II. OTHER INFORMATION
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
(a) Exhibits
 
<TABLE>
<S>        <C>
10.30      License, Implementation and Support agreements, dated December 31,
             1998 between Registrant and California Physicians' Service d.b.a.
             Blue Shield of California+
11.1       Statement re: computation of earnings per share
</TABLE>
 
(b) Reports on Form 8-K
 
        No reports on Form 8-K have been filed during the quarter for which this
    report is filed.
 
------------------------
 
+   Confidential treatment has been requested with respect to portions of this
    exhibit.
 
                                       11
<PAGE>
                                   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.
 
<TABLE>
<S>                             <C>  <C>
                                HEALTH SYSTEMS DESIGN CORPORATION
 
Date: February 12, 1999         By:           /s/ RUSSELL J. HARRISON
                                     -----------------------------------------
                                                Russell J. Harrison
                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER
 
                                By:             /s/ STEVEN L. MOORE
                                     -----------------------------------------
                                                  Steven L. Moore
                                              CHIEF FINANCIAL OFFICER
</TABLE>
 
                                       12
<PAGE>
                       HEALTH SYSTEMS DESIGN CORPORATION
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT                                                   DESCRIPTION
---------  ---------------------------------------------------------------------------------------------------------
<S>        <C>
10.30      License, Implementation and Support agreements, dated December 31, 1998 between Registrant and California
           Physicians' Services d.b.a. Blue Shield of California +
11.1       Computation of net loss per share
</TABLE>
 
------------------------
 
+  Confidential treatment has been requested with respect to portions of this
    exhibit.
 
                                       13