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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002 or

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number: 000-29377

Landacorp, Inc.




(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3346710                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)

4151 Ashford Dunwoody Road, Suite 505
Atlanta, Georgia 30319




(Address of principal executive offices including zip code)


(404) 531-9956




(Registrants telephone number, including area code)




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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 to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
   YES   x
   NO   o.

Number of shares of Common stock, par value of $0.001, outstanding as of
March 31, 2002: 15,679,000.



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TABLE OF CONTENTS



|                                                                   |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                    
|ITEM 1. FINANCIAL STATEMENTS                                      
|                                                                   | Condensed Consolidated Balance Sheets                                                        
|                                                                   | Condensed Consolidated Statements of Operations                                              
|                                                                   | Condensed Consolidated Statement of Cash Flows                                               
|                                                                   | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                         
|                                                                   | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|PART II  OTHER INFORMATION                                       
|Item 1. Legal Proceedings                                         
|Item 2. Changes in Securities                                     
|Item 3. Defaults in Senior Securities                             
|Item 4. Submission of Matters to a Vote of Security Holders       
|Item 5. Other Information                                         
|Item 6. Exhibits and Reports on Form 8-K                          
|SIGNATURES                                                        



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##### Table of Contents



Landacorp, Inc.
TABLE OF CONTENTS

|                                                                                              |                                                                                                    |  |          |   | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- |  | -------- | - | 
|                                                                                              |                                                                                                    |  | Page No.
|                                                                                              |                                                                                                    |  |         
|PART I. Financial Information                                                                 |                                                                                                    |  | 3        |  
|Item 1. Financial Statements (unaudited):                                                     |                                                                                                    |  | 3        |  
|                                                                                              | Condensed Consolidated Balance Sheets
as of March 31, 2002 and December 31, 2001                   |  |          | 3 | 
|                                                                                              | Condensed Consolidated Statements of Operations
for the three months ended March 31, 2002 and 2001 |  |          | 4 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2002 and 2001 |  |          | 5 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                               |  |          | 6 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                    |  | 11       |  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                    |  | 28       |  
|PART II. Other Information                                                                    |                                                                                                    |  | 28       |  
|Item 1. Legal Proceedings                                                                     |                                                                                                    |  | 28       |  
|Item 2: Changes in Securities and Use of Proceeds                                             |                                                                                                    |  | 28       |  
|Item 3: Defaults Upon Senior Securities                                                       |                                                                                                    |  | 28       |  
|Item 4: Submission of Matters to a Vote of Security Holders                                   |                                                                                                    |  | 28       |  
|Item 5: Other Information                                                                     |                                                                                                    |  | 28       |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                    |  | 28       |  
|Signatures                                                                                    |                                                                                                    |  | 29       |  

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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




Condensed Consolidated Balance Sheets(in thousands, except share data)

|                                          |                                                                                                                       |                                      |                           |        |  |             |         |              |  |        |  | 
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------- | ------ |  | ----------- | ------- | ------------ |  | ------ |  | 
|                                          |                                                                                                                       |                                      |                           |        |  | March 31,   |         | December 31,
|                                          |                                                                                                                       |                                      |                           |        |  | 2002        |         | 2001        
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          |                                                                                                                       |                                      |                           |        |  | (Unaudited) |         |             
|                                          |                                                                                                                       |                                      |                           | ASSETS |  |             |         |              |  |        |  | 
|Current Assets:                           |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          | Cash and cash equivalents                                                                                             |                                      | $                         | 10,491 |  |             | $       | 12,274       | 
|                                          | Accounts receivable and costs and estimated
earnings in excess of billings on
uncompleted contracts, net              |                                      |                           | 2,821  |  |             |         | 3,488        | 
|                                          | Other current assets                                                                                                  |                                      |                           | 886    |  |             |         | 731          | 
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          |                                                                                                                       |                                      | Total current assets      |        |  | 14,198      |         |              |  | 16,493 | 
|Property and equipment, net               |                                                                                                                       |                                      | 2,379                     |        |  |             | 2,309   |             
|Capitalized software, net                 |                                                                                                                       |                                      | 47                        |        |  |             | 48      |             
|Goodwill,
net                             |                                                                                                                       |                                      | 7,749                     |        |  |             | 7,287   |             
|Intangible assets, net                    |                                                                                                                       |                                      | 4,551                     |        |  |             | 5,413   |             
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|Total Assets                              |                                                                                                                       | $                                    | 28,924                    |        |  | $           | 31,550  |             
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          |                                                                                                                       | LIABILITIES AND STOCKHOLDERS EQUITY |                           |        |  |             |         |              |  |       
|Current liabilities:                      |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          | Accounts payable                                                                                                      |                                      | $                         | 814    |  |             | $       | 403          | 
|                                          | Accrued expenses                                                                                                      |                                      |                           | 3,332  |  |             |         | 3,692        | 
|                                          | Restructuring accrual                                                                                                 |                                      |                           | 288    |  |             |         | 368          | 
|                                          | Deferred revenue and billings in excess of costs
and estimated earnings on uncompleted contracts                      |                                      |                           | 5,708  |  |             |         | 6,169        | 
|                                          | Current portion of capital lease obligations                                                                          |                                      |                           | 78     |  |             |         | 78           | 
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          |                                                                                                                       |                                      | Total current liabilities |        |  | 10,220      |         |              |  | 10,710 | 
|                                          | Capital lease obligations, net of current portion                                                                     |                                      |                           | 263    |  |             |         | 152          | 
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          |                                                                                                                       |                                      | Total liabilities         |        |  | 10,483      |         |              |  | 10,862 | 
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|Commitments                               |                                                                                                                       |                                      |                          |        |  |             |        |             
|Stockholders equity:                     |                                                                                                                       |                                      |                           |        |  |             |         |             
|                                          | Common Stock, $0.001 par value, 50,000,000
shares authorized; 15,679,000 and 15,538,000
shares issued and outstanding |                                      |                           | 16     |  |             |         | 16           | 
|                                          | Additional paid-in capital                                                                                            |                                      |                           | 58,472 |  |             |         | 58,321       | 
|Notes receivable from officers            |                                                                                                                       |                                      | (170                      | )      |  |             | (169    | )           
|Unearned stock-based compensation         |                                                                                                                       |                                      | (356                      | )      |  |             | (460    | )           
|Accumulated deficit                       |                                                                                                                       |                                      | (39,521                   | )      |  |             | (37,020 | )           
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|Total stockholders equity                |                                                                                                                       |                                      | 18,441                    |        |  |             | 20,688  |             
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             
|Total liabilities and stockholders equity |                                                                                                                       | $                                    | 28,924                    |        |  | $           | 31,550  |             
|                                          |                                                                                                                       |                                      |                           |        |  |             |         |             

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

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LANDACORP, INC.
Condensed Consolidated Statements of Operations(unaudited, in thousands, except per share data)

|                                                                                    |                                      |                          |        |                          |       |      |        |       |       | 
|----------------------------------------------------------------------------------- | ------------------------------------ | ------------------------ | ------ | ------------------------ | ----- | ---- | ------ | ----- | ----- | 
|                                                                                    |                                      |                          |        | Three month period ended
|                                                                                    |                                      |                          |        | March 31,               
|                                                                                    |                                      |                          |        |                         
|                                                                                    |                                      |                          |        | 2002                     |       | 2001
|                                                                                    |                                      |                          |        |                          |       |     
|REVENUE:                                                                            |                                      |                          |        |                          |       |      |        |      
|                                                                                    | Program revenue and maintenance fees |                          | $      | 3,689                    |       |      | $      | 2,926 |      
|                                                                                    | System sales and consulting fees     |                          |        | 651                      |       |      |        | 1,286 |      
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|                                                                                    |                                      | Total revenues           |        |                          | 4,340 |      |        |       | 4,212 | 
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|COST OF REVENUE:                                                                    |                                      |                          |        |                          |       |      |        |      
|                                                                                    | Program revenue and maintenance fees |                          |        | 1,998                    |       |      |        | 1,463 |      
|                                                                                    | System sales and consulting fees     |                          |        | 526                      |       |      |        | 1,175 |      
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|                                                                                    |                                      | Total cost of revenue    |        |                          | 2,524 |      |        |       | 2,638 | 
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|GROSS PROFIT                                                                        |                                      |                          | 1,816  |                          |       |      | 1,574  |      
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|OPERATING EXPENSES:                                                                 |                                      |                          |        |                          |       |      |        |      
|                                                                                    | Sales and marketing                  |                          |        | 1,209                    |       |      |        | 1,607 |      
|                                                                                    | Research and development             |                          |        | 1,186                    |       |      |        | 1,475 |      
|                                                                                    | General and administrative           |                          |        | 1,649                    |       |      |        | 3,182 |      
|                                                                                    | Amortization of intangible assets    |                          |        | 318                      |       |      |        | 588   |      
|                                                                                    | Impairment of intangible assets      |                          |        |                         |       |      |        | 704   |      
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|                                                                                    |                                      | Total operating expenses |        |                          | 4,362 |      |        |       | 7,556 | 
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|LOSS FROM OPERATIONS                                                                |                                      |                          | (2,546 | )                        |       |      | (5,982 | )    
|INTEREST AND OTHER INCOME                                                           |                                      |                          | 52     |                          |       |      | 296    |      
|INTEREST EXPENSE                                                                    |                                      |                          | (7     | )                        |       |      | (6     | )    
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|NET LOSS BEFORE INCOME TAXES                                                        |                                      |                          | (2,501 | )                        |       |      | (5,692 | )    
|PROVISION FOR INCOME TAXES                                                          |                                      |                          |       |                          |       |      |       |      
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|NET LOSS                                                                            |                                      | $                        | (2,501 | )                        |       | $    | (5,692 | )    
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|NET LOSS PER SHARE  BASIC AND DILUTED                                              |                                      | $                        | (0.16  | )                        |       | $    | (0.39  | )    
|                                                                                    |                                      |                          |        |                          |       |      |        |      
|Weighted average common and common
equivalent shares outstanding; basic and
diluted |                                      |                          | 15,378 |                          |       |      | 14,635 |      
|                                                                                    |                                      |                          |        |                          |       |      |        |      

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

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LANDACORP, INC.
Condensed Consolidated Statement of Cash Flows(unaudited in thousands)

|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |        |       |   |        |  
|------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------ | --------------------------------------------------- | ---- | ---------------------------- | ------ | ------ | ----- | - | ------ | -
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      | Three Months Ended March 31,
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                             
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      | 2002                         |        | 2001  
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|Cash flows from operating activities:            |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|                                                 | Net loss                                                                                  |                                                                                                         | $                                    | (2,501                                              | )    |                              | $      | (5,692 | )    
|                                                 | Adjustments to reconcile net loss to net cash provided by (used
in) operating activities: |                                                                                                         |                                      |                                                     |      |                              |        |        |      
|                                                 |                                                                                           | Depreciation and amortization                                                                           |                                      |                                                     | 629  |                              |        |        | 804   |  
|                                                 |                                                                                           | Provision for doubtful accounts                                                                         |                                      |                                                     |     |                              |        |        | 668   |  
|                                                 |                                                                                           | Stock-based compensation expense                                                                        |                                      |                                                     | 167  |                              |        |        | 482   |  
|                                                 |                                                                                           | Impairment of intangible assets                                                                         |                                      |                                                     |     |                              |        |        | 704   |  
|                                                 | Changes in assets and liabilities, net of effects of acquisitions:                        |                                                                                                         |                                      |                                                     |      |                              |        |        |      
|                                                 |                                                                                           | Accounts receivable and costs and estimated earnings in
excess of billing on uncompleted contracts, net |                                      |                                                     | 667  |                              |        |        | 1,183 |  
|                                                 |                                                                                           | Other assets                                                                                            |                                      |                                                     | (155 | )                            |        |        | (165  | )
|                                                 |                                                                                           | Accounts payable                                                                                        |                                      |                                                     | 411  |                              |        |        | (230  | )
|                                                 |                                                                                           | Accrued expenses                                                                                        |                                      |                                                     | (273 | )                            |        |        | (775  | )
|                                                 |                                                                                           | Restructuring Accrual                                                                                   |                                      |                                                     | (80  | )                            |        |        | (9    | )
|                                                 |                                                                                           | Deferred revenue and billings in excess of costs and
estimated earnings on
uncompleted contracts        |                                      |                                                     | (461 | )                            |        |        | (551  | )
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|                                                 |                                                                                           |                                                                                                         |                                      | Net cash provided by (used in) operating activities |      |                              | (1,596 | )      |       |   | (3,581 | )
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|Cash flows from investing activities:            |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|                                                 | Purchases of property and equipment                                                       |                                                                                                         |                                      | (168                                                | )    |                              |        | (387   | )    
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|                                                 |                                                                                           |                                                                                                         |                                      | Net cash used in investing activities               |      |                              | (168   | )      |       |   | (387   | )
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|Cash flows from financing activities             |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|                                                 | Repayments of obligations under capital lease                                             |                                                                                                         |                                      | (19                                                 | )    |                              |        | (15    | )    
|                                                 | Proceeds from Common Stock issuances                                                      |                                                                                                         |                                      |                                                    |      |                              |        | 10     |      
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|                                                 |                                                                                           |                                                                                                         |                                      | Net cash used in financing activities               |      |                              | (19    | )      |       |   | (5     | )
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|Increase (decrease) in cash and cash equivalents |                                                                                           |                                                                                                         | (1,783                               | )                                                   |      |                              | (3,973 | )     
|Cash and cash equivalents, beginning of period   |                                                                                           |                                                                                                         | 12,274                               |                                                     |      |                              | 21,752 |       
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|Cash and cash equivalents, end of period         |                                                                                           | $                                                                                                       | 10,491                               |                                                     |      | $                            | 17,779 |       
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|Non-cash investing and financing activities:     |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       
|                                                 |                                                                                           |                                                                                                         | Assets acquired under capital leases |                                                     | $    | 162                          |        |        | $     |  |       
|                                                 |                                                                                           |                                                                                                         |                                      |                                                     |      |                              |        |       

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

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##### Table of Contents



LANDACORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Basis of Presentation

Landacorp, Inc. was established in 1982 and, along with its subsidiaries
(collectively referred to herein as the Company), provides population health
management solutions to healthcare payer and provider organizations. These
technology-driven solutions include integrated predictive and interventional
disease management programs and services, and comprehensive Internet- and
Windows®-based medical management software that can improve health outcomes
while helping manage and prevent cost. The Companys corporate headquarters and
sales and marketing offices are located in Atlanta, GA, with operations located
in Chico, CA, Raleigh, NC and Montclair, NJ.

The accompanying unaudited financial statements of the Company have been
prepared pursuant to the rules of the Securities and Exchange Commission (the
SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2001. The
balance sheet at December 31, 2001 is derived from the audited financial
statements included in the Form 10-K for the year ended December 31, 2001.
However, this Form 10-Q does not include all Form 10-K and other disclosures
required by generally accepted accounting principles in the United States for
the balance sheet as presented herein. In the opinion of management, the
accompanying unaudited financial statements reflect all adjustments, which are
of a normal recurring nature, necessary for a fair presentation of the results
for the periods presented.

The consolidated results of operations presented for the three month period
ended March 31, 2002 are not necessarily indicative of the results to be
expected for any other interim period or any future year. Certain prior period
balances have been reclassified in order to conform with current period
presentation.

2. Revenues

Program revenues and maintenance fees represent repeat and recurring revenue
streams, such as per member per month licensing and servicing revenues, per
participant per year fees and support charges for maintaining software. System
sales and consulting fees represent one-off or non-recurring and non-repeat
revenue, such as sales of perpetual licenses, implementation and ad-hoc
consulting or training services. The revenues and costs for 2001 have been
re-categorized into these groups for comparison purposes.

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LANDACORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)

3. Net loss per share

Loss per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and potential common shares outstanding during the period if their effect is
dilutive. Potential common shares include common stock subject to repurchase
and incremental common shares issuable upon the exercise of stock options. The
potential common shares, which are excluded from the determination of diluted
net loss per share as the effect of such shares is anti-dilutive were 3,722,000
and 4,365,000 at March 31, 2002 and 2001, respectively.

4. Common Stock

In March 2001, the Company increased the number of its authorized shares of
Common Stock from 15,000,000 to 50,000,000.

5. Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB or the Board)
issued Statement of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations,and No. 142 (SFAS 142), Goodwill and Other Intangible Assets,
collectively referred to as the Standards".SFAS 141 supersedes Accounting
Principles Board Opinion (APB) No. 16, Business Combination.The provisions of
SFAS 141 (1) require that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, (2) provide specific
criteria for the initial recognition and measurement of intangible assets apart
from goodwill, and (3) require that unamortized negative goodwill be written
off immediately as an extraordinary gain instead of being deferred and
amortized. SFAS 141 also requires that upon adoption of SFAS 142 the Company
reclassify the carrying amounts of certain intangible assets into or out of
goodwill, based on certain criteria. SFAS 142 supersedes APB 17, Intangible
Assets,and is effective for fiscal years beginning after December 15, 2001.
SFAS 142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. The provisions of SFAS 142 (1)
prohibit the amortization of goodwill and indefinite-lived intangible assets,
(2) require that goodwill and indefinite-lived intangible assets be tested
annually for impairment (and in interim periods if certain events occur
indicating that the carrying value of goodwill and/or indefinite-lived
intangible assets may be impaired), (3) require that reporting units be
identified for the purpose of assessing potential future impairments of
goodwill, and (4) remove the forty-year limitation on the amortization period
of intangible assets that have finite lives.

The Company adopted the provisions of SFAS 142 as of January 1, 2002. The
Company is in the process of making the determinations as to what its reporting
units are and what amounts of goodwill, intangible assets, other assets, and
liabilities should be allocated to those reporting units. In connection with
the adoption of SFAS 142, the Company reclassified $462,000 of its
intangible
assets to goodwill.

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LANDACORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)

The balance of goodwill was $7.7 million as of March 31, 2002. The Company
will no longer record approximately $650,000 of amortization
per year relating to its existing goodwill and indefinite-lived intangibles, as
adjusted for the reclassifications just mentioned.

SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
However, a company has six months from the date of adoption to complete the
first step. The Company expects to complete that first step of the goodwill
impairment test by June 30, 2002. The second step of the goodwill impairment
test measures the amount of the impairment loss (measured as of the beginning
of the year of adoption), if any, and must be completed by the end of the
Companys fiscal year. Intangible assets deemed to have an indefinite life will
be tested for impairment using a one-step process that compares the fair value
to the carrying amount of the asset as of the beginning of the fiscal year, and
pursuant to the requirements of SFAS 142 will be completed during the second
quarter of 2002. Any impairment loss resulting from the transitional impairment
tests will be reflected as the cumulative effect of a change in accounting
principle. The Company has not yet determined what
effect these impairment tests will have on the Companys earnings and financial
position.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. The liability is accreted to its present value
each period while the cost is depreciated over its useful life. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. We have not yet determined the effects that SFAS No. 143 will have on
our financial position, results of operations or cash flows but we do not
anticipate any material adverse impact.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144, which replaces SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, requires long-lived assets to be measured at the lower of
carrying amount or fair value less the cost to sell. SFAS No. 144 also broadens
disposal transactions reporting related to discontinued operations.

SFAS No. 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001. We have adopted SFAS No. 144 effective as of
January 1, 2002. The adoption had no material impact on our financial position
or results of operations.

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LANDACORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)

6. Goodwill and Other Intangible Assets

We adopted SFAS 142, Goodwill and Other Intangible Assets on January 1,
2002. Accordingly, we discontinued periodic amortization of goodwill. Goodwill
will be assessed annually for impairment by applying a fair-value-based test.
Additionally, the standard requires a transitional impairment test during the
period of adoption to be completed by June 30, 2002. As implementation guidance
continues to evolve, this transitional impairment test has not been finalized,
and we do not know the impact this transitional impairment test may have on our
financial position and results of operations.

During the three months ended March 31, 2001, we recorded $184,000 in
amortization of goodwill. The impact of amortization of goodwill on net loss
for the three months ended March 31, 2001 was as follows (in thousands, except
per share data):

|                                                                         |  |                    |        |  
|------------------------------------------------------------------------ |  | ------------------ | ------ | -
|                                                                         |  | Three Months ended
|                                                                         |  | March 31, 2001    
|                                                                         |  |                   
|Reported net loss                                                        |  | $                  | (5,692 | )
|Add back:                                                                |  |                    |        |  
|Goodwill amortization                                                    |  |                    | 184    |  
|                                                                         |  |                    |        |  
|Net loss excluding goodwill amortization                                 |  | $                  | (5,508 | )
|                                                                         |  |                    |        |  
|Net loss per share  basic and diluted                                   |  |                    |        |  
|Reported net loss                                                        |  | $                  | (0.39  | )
|Add back:                                                                |  |                    |        |  
|Goodwill amortization                                                    |  |                    | 0.01   |  
|                                                                         |  |                    |        |  
|Net loss, excluding goodwill amortization                                |  | $                  | (0.38  | )
|                                                                         |  |                    |        |  
|Weighted average number of common shares
outstanding (basic and diluted) |  |                    | 14,635 |  
|                                                                         |  |                    |        |  

Intangible assets that have finite useful lives will continue to be
amortized over their useful lives. Our intangible assets consist principally of
customer base and existing technology, and all are considered to have finite
lives. The gross carrying amount of intangible assets as of March 31, 2002 was
$6.4 million with a balance of $1.8 million in accumulated amortization. The
amortization of intangible assets for the three months ended March 31, 2002 was
$318,000.

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LANDACORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)

7. Restructuring and Acquisition Related Costs

During 2001, the Company announced its plan to cease operations of its
Portland, Oregon-based Interactive Media Group (IMG). Additionally, the company
had a reduction in work force of approximately 30%, or 76 employees.
Restructuring and acquisition related charges in 2001 were $1,301,000 relating
to severance costs, the closing of the IMG operations and additional lease
obligations related to unoccupied office space that the Company had committed
to, as well as a charge of $268,000 related to an agreement with
certain shareholders and option holders in connection with the acquisition of PatientCentrix. In 2001, the
Company recorded an impairment charge of $704,000 on the intangible assets
related to IMG.

The major components of the restructuring and
acquisition related costs in 2001 and the
remaining accrual at March 31, 2002 are as follows (in thousands):

|                                  |  |            |       |               |  |                     |       |                     |  |         |     | 
|--------------------------------- |  | ---------- | ----- | ------------- |  | ------------------- | ----- | ------------------- |  | ------- | --- | 
|                                  |  |            |       |               |  |                     |       |                     |  | Accrued
|                                  |  |            |       |               |  | Amounts Utilized in |       | Restructuring Costs
|                                  |  | 2001 Costs |       | 2001 and 2002 |  | March 31, 2002     
|                                  |  |            |       |               |  |                    
|Disposal of Fixed Assets          |  |            | 173   |               |  |                     | 173   |                     |  |         |    | 
|Facility/rental obligations       |  |            | 405   |               |  |                     | 125   |                     |  |         | 280 | 
|Severance and workforce reduction |  |            | 455   |               |  |                     | 447   |                     |  |         | 8   | 
|Acquisition related               |  |            | 268   |               |  |                     | 268   |                     |  |         |    | 
|                                  |  |            |       |               |  |                     |       |                     |  |         |     | 
|                                  |  |            | 1,301 |               |  |                     | 1,013 |                     |  |         | 288 | 

8. Agreement with Certain Shareholders and Option Holders

On March 13, 2002, the Company resolved a disagreement with former shareholders
and option holders of PatientCentrix regarding the amount of the Earn Out
payment due under the PatientCentrix merger agreement. During the first quarter
of 2002, as part of the resolution, we paid the former shareholders and option
holders of PatientCentrix an aggregate $400,000 in respect of the Earn Out
payment. This amount was recorded in the fourth quarter of 2001 as an
adjustment to goodwill. As further consideration for the release of all
disagreements related to the merger and Merger Agreement, we agreed to reduce
to $0.39 per share, the exercise price of stock options held by Michael Miele,
the major shareholder of PatientCentrix. This amount was recorded in the fourth
quarter of 2001 as an acquisition related charge in the amount of $268,000. We
also agreed to appoint Mr. Miele to our board of directors until March 2003.
Mr. Miele has been appointed to the board and will stand for re-election with
our other board members at our 2002 annual meeting of stockholders.

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

Note Regarding Forward-Looking Statements: This quarterly report contains
forward looking statements for purpose of the safe harbor provisions under the
Private Securities Litigation Reform Act of 1995. Examples of such forward
looking statements include statements regarding Landacorps anticipated
expenses, revenues and financial results and business performance for 2001,
anticipated growth in the market for population health management services and
increased penetration of our related product offerings; and our ability to
capitalize on synergies and growth opportunities and reduce costs as a result
of recent acquisitions. Actual results may differ materially from those
projected in such forward-looking statements due to various known and unknown
risks and uncertainties, including the risk that we may fail to close on
certain pending customer contracts during 2002, our dependence on a limited
number of products with limited market acceptance, the risk that the market for
population health management services does not develop as anticipated, and the
risk that we are unable to successfully integrate the products and service
offerings of our recent acquisitions and successfully capitalize on anticipated
synergies and growth opportunities. For further information regarding these
and the other risks related to Landacorps business, see Factors that may
Affect our Future Results set forth below, as well as Landacorps prior
filings with the Securities and Exchange Commission, including its Form 10-K
for the year ended December 31, 2001.

OVERVIEW

Landacorp provides technology-driven population health management solutions to
healthcare payer and delivery organizations. Our innovative predictive
modeling and interventional disease management programs are integrated with
Internet- and Windows®-based medical management software to deliver
comprehensive solutions that can help our clients manage their at-risk
populations in ways that prevent and reduce cost, while improving outcomes.
Combined, our products and services comprise a unique set of capabilities that
support the continuum of patient care, from medical management to predictive
modeling to disease intervention.

Landacorps disease management products and servicesour predictive modeling
and interventional capabilitieshelp our customers identify and intervene with
their members at risk for a chronic or potentially high predicted expenditure
outcomes associated with chronic health conditions like asthma, diabetes and
heart disease. These member-focused solutions assist our clients in managing
the health of these members through educational and self-management materials
or through referral to nurse case managers. Landacorps medical management
software solutions help health plans and hospitals manage the cost and care of
their patients by documenting treatment, ensuring that care guidelines and
government compliance requirements are met, and by automating the workflow and
processes surrounding care coordination activities. These applications
streamline administrative and business processes and enable real-time
interaction among various healthcare participants. As of March 31, 2002, 28
payers who claim to have a combined membership of approximately 57 million
participants were using our payer solutions, and approximately 142 hospital
providers were using our provider solutions. We have historically derived
revenues from the installation and licensing of our maxMC and Maxsys solutions,
sublicensing third-party software applications as part of system
implementations and delivery of post-contract customer support, training and
consulting services. We are currently

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focusing our primary development, sales and marketing efforts on our DSSeries,
Managing for Tomorrow, maxMC, e-maxMC, and Maxsys IIproducts. Although we do
not anticipate future system sales or enhancements of Maxsys I, we continue to
provide maintenance services to, and receive maintenance fees from, customers
who purchased this product in the past. We plan to continue to support Maxsys I
for the foreseeable future as a service to such customers and pursuant to
ongoing contractual obligations.

We recognize system sales revenues and associated costs using the
percentage-of-completion method for fixed-fee contracts, with labor hours
incurred relative to total estimated contract hours as the measure of progress
towards completion. Revenues on time and materials based contracts are
recognized as services are delivered. We recognize revenues from sublicensing
of third-party software upon installation of such software. We recognize
revenues from support services ratably over the support period. We recognize
revenues from training and consulting as such services are delivered.

The Company delivers care analytics services through a subscription-based fee
structure that provides for implementation services at a fixed hourly rate and
a subsequent monthly subscription fee based upon the number of members
maintained by the payer organization. The fair value of the implementation
service revenue is recognized as the services are performed and the
subscription fee is recognized on monthly basis at the subscription rate. The
Company delivers health management program services through a per participant
annual enrollment fee. Payment is generally received at the beginning of the
enrollment period. Revenue is recognized on an effort-based measure over the
enrollment period as the services are provided and the obligations to the
participants are fulfilled.

To accelerate the implementation of elements of our strategy, we intend to
target and pursue strategic acquisitions and relationships, such as marketing
alliances with vendors of complementary products and services and partnerships
with Internet providers of healthcare content, disease management and
health-related e-commerce services. Investigating or entering into any such
strategic relationships could lead to additional expenditures.

RECENT DEVELOPMENTS

On January 31, 2000, we purchased from High Technology Solutions, Inc. assets
related to its business of providing Web site services to healthcare payers
(this business is also referred to as Interactive Media Group or IMG). The
purchase price for the assets was $1,268,000 (including an estimated $18,000 in
assumed liabilities) of which we paid $250,000 at the closing.

On November 2, 2000 we completed the acquisition of PatientCentrix, Inc.
(PatientCentrix), a leading provider of population management targeting and
intervention programs and services. The Company acquired 100% of the shares
and assumed all outstanding options of PatientCentrix in return for cash of
$5,850,000 paid to the stockholders and option holders, and issuing 1,157,000
shares to the stockholders of PatientCentrix. The price of the shares issued
was $1.777 based on the average of the previous 20 trading days prior to the
date of the definitive agreement, which was October 31, 2000. We also assumed
all the incentive stock options issued by PatientCentrix prior to the
acquisition. These now represent options to purchase up to 1,582,532 of Common
Stock of Landacorp with an average exercise price of $1.525. The total purchase
price of $11,188,000 consisted of $5,850,000 cash, $2,056,000 of our

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Common Stock (1,157,000 shares), assumed stock options with a fair value of
$2,970,000, and other acquisition related expenses of approximately $312,000,
consisting primarily of payment for legal and financial advisory services. Of
the total purchase price, approximately $191,000 was allocated to the net
tangible assets, approximately $961,000 was allocated to unearned compensation
related to our right to repurchase 30% of the shares of the Companys Common
Stock and options to purchase our Common Stock issued to employees of
PatientCentrix pursuant to the purchase agreement in the event of such
employees termination under certain circumstances, and the remainder was
allocated to intangible assets, including existing technology ($3,600,000),
customer base ($640,000), assembled work force ($280,000), and
goodwill($5,516,000).

Subsequent to the acquisition of PatientCentrix, its majority shareholder,
Michael Miele, became an employee and Director of the Company. During 2001,
the Company and the majority shareholder entered into a Settlement Agreement
and Mutual Release (Agreement) whereby the Company and majority shareholder
mutually agreed to terminate the employment relationship and to release each
other from any claims arising from or related to the employment relationship.
The majority shareholder released the Company from any and all claims that the
termination of employment in and of itself violates the Merger Agreement or
interferes with or negatively impacts the payment of any Earn Out under the
Merger Agreement or achievement of any related milestone event. The agreement
requires the Company to make payments to the majority shareholder of
approximately $800,000 and to allow the vesting of the majority shareholders
options, allow the options to be immediately exercisable and release the
Companys repurchase rights with respect to certain shares of common stock. The
amount related to this accelerated vesting is approximately $277,000. The
Settlement and Mutual Release amount of $1,077,000 has been recorded as
goodwill.

On March 13, 2002, we resolved a disagreement with former shareholders and
option holders of PatientCentrix regarding the amount of the Earn Out payment
due under the PatientCentrix merger agreement. We agreed to pay the former
shareholders and option holders of PatientCentrix an aggregate $400,000 in
respect of the Earn Out payment. This amount was recorded in the fourth quarter
of 2001 as an adjustment to goodwill. As further consideration for the release
of all disagreements related to the merger and Merger Agreement, we agreed to
reduce to $0.39 per share, the exercise price of stock options held by Michael
Miele, the major shareholder of PatientCentrix. This amount was recorded in the
fourth quarter of 2001 as an acquisition related charge in the amount of
$268,000. We also agreed to appoint Mr. Miele to our board of directors until
March 2003. Mr. Miele has been appointed to the board and will stand for
re-election with our other board members at our 2002 annual meeting of
stockholders.

In May of 2001, the Company announced a reduction in our work force
representing approximately 16%, or 40 employees of the Companys total work
force. In August 2001, the Company announced an additional reduction in work
force of approximately 18%, or 36 employees.

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RESULTS OF OPERATIONS

The following table presents the statement of operations data as a percentage
of total revenues:

|                          |                                      |                          |       |                     |       |      |        |      |       | 
|------------------------- | ------------------------------------ | ------------------------ | ----- | ------------------- | ----- | ---- | ------ | ---- | ----- | 
|                          |                                      |                          |       | Percent of Revenues
|                          |                                      |                          |       |                    
|                          |                                      |                          |       | 2002                |       | 2001
|                          |                                      |                          |       |                     |       |     
|REVENUE:                  |                                      |                          |       |                     |       |      |        |     
|                          | Program revenue and maintenance fees |                          |       | 85.0                | %     |      |        | 69.5 | %    
|                          | System sales and consulting fees     |                          |       | 15.0                |       |      |        | 30.5 |      
|                          |                                      |                          |       |                     |       |      |        |     
|                          |                                      | Total revenues           |       |                     | 100.0 |      |        |      | 100.0 | 
|                          |                                      |                          |       |                     |       |      |        |     
|COST OF REVENUE:          |                                      |                          |       |                     |       |      |        |     
|                          | Program revenue and maintenance fees |                          |       | 46.0                |       |      |        | 34.7 |      
|                          | System sales and consulting fees     |                          |       | 12.1                |       |      |        | 27.9 |      
|                          |                                      |                          |       |                     |       |      |        |     
|                          |                                      | Total cost of revenue    |       |                     | 58.1  |      |        |      | 62.6  | 
|                          |                                      |                          |       |                     |       |      |        |     
|GROSS PROFIT              |                                      |                          | 41.9  |                     |       |      | 37.4   |     
|                          |                                      |                          |       |                     |       |      |        |     
|OPERATING EXPENSES:       |                                      |                          |       |                     |       |      |        |     
|                          | Sales and marketing                  |                          |       | 27.9                |       |      |        | 38.2 |      
|                          | Research and development             |                          |       | 27.3                |       |      |        | 35.0 |      
|                          | General and administrative           |                          |       | 38.0                |       |      |        | 75.5 |      
|                          | Amortization of intangible assets    |                          |       | 7.3                 |       |      |        | 14.0 |      
|                          | Impairment of intangible assets      |                          |       |                    |       |      |        | 16.7 |      
|                          |                                      |                          |       |                     |       |      |        |     
|                          |                                      | Total operating expenses |       |                     | 100.5 |      |        |      | 179.4 | 
|                          |                                      |                          |       |                     |       |      |        |     
|LOSS FROM OPERATIONS      |                                      |                          | (58.6 | )                   |       |      | (142.0 | )   
|INTEREST AND OTHER INCOME |                                      |                          | 1.2   |                     |       |      | 7.0    |     
|INTEREST EXPENSE          |                                      |                          | (0.2  | )                   |       |      | (0.1   | )   
|                          |                                      |                          |       |                     |       |      |        |     
|NET LOSS                  |                                      |                          | (57.6 | )                   |       |      | (135.1 | )   
|                          |                                      |                          |       |                     |       |      |        |     

Comparison of the first quarters ended March 31, 2001 and 2002.

Revenues. Program revenues and maintenance fees represent repeat and recurring
revenue streams, such as per member per month licensing and servicing revenues,
per participant per year fees and support charges for maintaining software.
System sales and consulting fees represent one-off or non-recurring and
non-repeat revenue, such as sales of perpetual licenses, implementation and
ad-hoc consulting or training services. During the three months ended March
31, 2002, two customers accounted for 12% and 23% of revenue. Two customers
accounted for 13% and 27% of revenue for the first quarter of 2001.

Program revenues and maintenance fees have increased by $763,000 or 26% from
$2,926,000 for the first quarter of 2001 to $3,689,000 in the first quarter of
2002. The increase in revenues relates mainly to the increased revenue from
our Managing for Tomorrow program.

System sales and consulting fees decreased by $635,000, or 49% from $1,286,000
in first quarter of 2001 to $651,000 in first quarter of 2002.

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The decrease in system sales and
consulting fees resulted from reduced sales in our medical management software
products and the elimination of our web consulting business in July 2001.

Cost of Program Revenue and Maintenance Fees. Cost of Program Revenue and
Maintenance Fees consists principally of personnel related costs, product
costs, amortization of unearned stock-based compensation, related department
overhead, costs of third party software products, and depreciation of
equipment. Cost of program revenues and maintenance fees increased by $535,000
or 37% from $1,463,000 for the quarter ended March 31, 2001 to $1,998,000 for
the quarter ended March 31, 2002, representing 50% of program revenues and
maintenance fees revenues for first quarter of 2001 and 54% for the first
quarter of 2002. This increase in costs is primarily due to additional direct
costs associated with increased revenue from our Managing for Tomorrow program.

Cost of System Sales and Consulting Fees. Cost of system sales and consulting
fees consist principally of costs incurred in the implementation of our
software products, and other consulting and training personnel costs. The cost
of system sales and consulting fees includes personnel costs, amortization of
unearned stock-based compensation, non-reimbursed travel expenditures, related
department overhead, amortization of capitalized software development costs,
costs of third party software products, and depreciation on equipment. During
the quarter ended March 31, 2002 these costs were $526,000 or 81% of system
sales and consulting fees, compared to costs of $1,175,000 representing 91% of
system sales and consulting fees during the quarter ended March 31, 2001. Cost
of system sales and consulting fees decreased by $649,000 or 55% from the
quarter ended March 31, 2001 to the same period for 2002. This cost decrease
was mostly due to the reduction in workforce during 2001, as discussed in the
Recent Developments section above, and the elimination of our web consulting
division during July of 2001.

Sales and Marketing. Sales and marketing expenses consist principally of
compensation for our sales and marketing personnel, amortization of unearned
stock-based compensation, advertising, trade show and other promotional costs,
and departmental overhead. Sales and marketing expenses during the quarter
ended March 31, 2002 amounted to $1,209,000 representing 28% of total revenues,
in comparison with $1,607,000 representing 38% of total revenues during the
corresponding quarter of 2001. Sales and marketing expenses decreased by
$398,000 or 25% from the first quarter of 2001. This is primarily due to the
2001 reductions in workforce, as discussed in the Recent Developments
section above.

Research and Development. Research and development expenses consist of
personnel costs, amortization of unearned stock-based compensation, related
department overhead and depreciation on equipment. Research and development
expenses totaled $1,186,000 or 27% of total revenues during the quarter ended
March 31, 2002, a decrease of $289,000 or 20% compared to expenses totaling
$1,475,000 representing 35% of total revenues during the quarter ended March
31, 2001. This is primarily due to the 2001 reductions in workforce discussed
in the Recent Developments section above.

General and Administrative. General and administrative expenses consist of
compensation for personnel, fees for outside professional services,
amortization of unearned stock-based compensation, allocated occupancy and
overhead costs and bad debt. General and administrative expenses decreased by $1,533,000 or
48% from $3,182,000, representing 76% of total revenues, in the first quarter of 2001 to

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$1,649,000, representing 38% of total revenues, in the
first quarter of 2002. Approximately $700,000 of this decrease is related to a
specific net increase in first quarter 2001 to our bad debt reserve for the
outstanding balance of a customer that was having difficulty in meeting their
payment obligations. The remaining decrease was due to general cost cutting measures throughout 2001.

Amortization of Intangible Assets. Amortization expense decreased by $270,000
or 46% from $588,000 or 14% of revenues in first quarter of 2001 to $318,000 or
7% of revenues in first quarter 2002. Included in the first quarter of 2001 is
$184,000 of goodwill amortization. Effective January 1, 2002, the Company no
longer amortizes goodwill and will test goodwill for impairment in accordance
with the provisions of SFAS No. 142.

Impairment of Intangible Assets. On May 9, 2001 we announced an impairment
charge in the first quarter 2001 on intangible assets acquired in connection
with the acquisition of the Portland, Oregon-based Interactive Media Group
(IMG). The charge was $704,000. In May 2001, management determined that the
operations of IMG should be discontinued due to the slowdown in the web design
and consulting industry. On May 8, 2001, the Board of Directors approved a
plan to immediately discontinue IMGs operations. The employees of IMG are
included in the reduction in workforce described in the Recent Developments
section.

Stock-Based Compensation. Amortization of unearned stock compensation during
the quarters ended March 31, 2002 and 2001 were $104,000 and $482,000,
respectively. These amounts have been allocated to cost of sales and operating
expenses. Additionally, the Company recorded stock compensation expense of
approximately $63,000 in the quarter ended March 31, 2002 for the modification
of a fixed stock option grant.

Interest and Other Income and Interest Expense. Interest and other income
consists primarily of earnings on our cash and cash equivalents. Interest and
other income amounted to $296,000 for the first quarter of 2001 and $52,000 for
the first quarter of 2002. The decrease in Interest and other income in 2001 of
$244,000 or 82% is due to the decrease in cash from March 31, 2001 to March 31,
2002. Interest expense of $7,000 during the first quarter of 2002 and $6,000
for first quarter of 2001 arises from financing certain fixed assets through
leases.

Provision for Income Tax. We recorded no current provision or benefit for
federal or state income taxes for the first quarters of 2001 or 2002, as the
Company has incurred net operating losses and has no carry-back potential.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations through net cash generated
from operating activities, and private sales of common and preferred stock.
During February 2000, we completed out initial public offering through which we
raised net proceeds of approximately $35 million. As of March 31, 2002, we had
$10.5 million in cash and cash equivalents and $4.0 million in working capital
with outstanding capital lease obligations totaling $263,000.

Net cash used in operating activities was $1,596,000 and $3,581,000 during the
three months ended March 31, 2002 and 2001, respectively. Net cash used to fund
operating activities in the first quarter of 2002 reflects net losses before
non-cash charges for depreciation and amortization, stock-based compensation,
a decrease in net accounts receivable, an increase in other assets, an increase

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in accounts payable, and
decreases in accrued expenses, restructuring accrual and deferred revenue. Net
cash used to fund operating activities in the first quarter of 2001 reflects
net losses before non-cash charges for depreciation and amortization of
intangible assets, provision for doubtful accounts, amortization of unearned
stock-based compensation and impairment of intangible assets, a decrease in net
accounts receivable, an increase in other assets, a decrease in accounts
payable, accrued expenses, restructuring accrual and deferred revenue.

During the three months ended March 31, 2002 and 2001, net cash used in
investing activities was $168,000 and $387,000, respectively. Investing
activities consist primarily of purchases of computer equipment, office
furniture and leasehold improvements.

Net cash used in financing activities was $19,000 for the quarter ended March
31, 2002. Net cash used in financing activities was $5,000 in the quarter
ended March 31, 2001. Net cash used in financing activities for the quarter
ended March 31, 2002 resulted from payments on capital lease obligations. Net
cash used in financing activities for the quarter ended March 31, 2001 resulted
from the payments on certain capital lease payments less the issuance of
common stock.

We expect to experience growth in our operating expenses for the foreseeable
future in order to execute our business plan, and to the extent that we are
successful in generating additional sales, we will need to hire additional
employees. As a result, we anticipate that operating expenses and planned
capital expenditures will constitute a material use of our cash resources. In
addition, we may utilize cash resources to fund acquisitions or investments in
other businesses, technologies or product lines. We believe that available cash
and cash equivalents and the net proceeds from the sale of the common stock in
our initial public offering will be sufficient to meet our working capital and
operating expense requirements for the next twelve months. Thereafter, we may
require additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise such additional funds
through public or private debt or equity financings if such funding is
available on terms acceptable to us.

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

We Have a Long History of Losses and May Never Become Profitable.

We have been in business since 1982 and we have incurred significant losses
since that time. We expect to continue to incur losses on an annual basis for
the foreseeable future. As of March 31, 2002, our accumulated deficit was $39.5
million. We expect to incur increased levels of product development, sales and
marketing and administrative expenses and, as a result, we will need to
increase our revenue significantly to achieve future profitability. Although
our revenue has grown in recent quarters, we may not be able to sustain this
growth and we may not realize sufficient revenue to achieve profitability.
Further, even if we achieve profitability, due to competition and the evolving
nature of the disease management, medical management, healthcare information
technology and Internet markets, we could fail to sustain or increase
profitability on a quarterly or annual basis.

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We Have a History of Quarterly and Annual Fluctuations in Our Revenue and
Operating Results, and Expect These Fluctuations to Continue, Which May Result
in Volatility in Our Stock Price.

Our quarterly and annual revenue and operating results have varied
significantly in the past and will likely vary significantly in the future due
to a number of factors, many of which we cannot control. The factors that may
cause our quarterly revenue and operating results to fluctuate include:



| |  |  | fluctuations in demand for our population health management products
and related services;                                                                                                                
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the ability of customers to provide us with the names of qualified
members to enroll in our Managing for Tomorrowmember-driven disease
management program;                                                
|
| |  |  | the timing of customer orders and product implementations,
particularly orders from large customers involving substantial software
implementation;                                                        
|
| |  |  | the length of our sales cycle, which varies and is unpredictable;                                                                                                                                         
|
| |  |  | the length of our software implementation process varies and often
depends on matters outside of our control such as the customers ability
to commit its resources to the implementation process;        
|
| |  |  | our ability to develop, introduce, implement and support new products
and product enhancements;                                                                                                           
|
| |  |  | the rate of adoption of our population health management solutions,
which often require our customers to change some aspects of the way in
which they have traditionally conducted business;              
|
| |  |  | announcements and new product introductions by our competitors and
deferrals of customer orders in anticipation of new products, services
or product enhancements introduced by us or our competitors; and
|
| |  |  | changes in the prices at which we can sell our population health
management solutions.                                                                                                                    

Accordingly, you should not rely on the results of any past periods as an
indication of our future performance. In some future periods, our operating
results may not meet expectations of public market analysts or investors. If
this occurs, our stock price may decline.

Our Business will Suffer if our Population Health Management Solutions Do Not
Achieve Widespread Market Acceptance Among Healthcare Payer Organizations.

Achieving our growth objectives depends on our population health management
solutions achieving widespread market acceptance among healthcare payer
organizations. This is difficult to determine at this time. We commercially
released our maxMC medical management software in 1997 and acquired the
DSSeriesand Managing for Tomorrowpredictive modeling and interventional
disease management products and services in the fourth quarter of 2000. Our
solutions currently have limited market acceptance with only 28 payer customers
currently using them. Our maxMC medical management software product has
achieved some degree of market acceptance as we have implemented or are in
the process of implementing it at 12 client sites. Realizing market acceptance
for our disease management solutions will require ongoing enhancement of their
features and functionalities, and improved sales and marketing efforts. If we
do not gain significant market share for all of our population health
management solutions

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before our competitors introduce alternative products with features similar to
ours, our operating results will suffer. Operating results will also suffer if
our pricing strategies are not economically viable or acceptable to our
customers.

The Healthcare Industry May Not Accept Our Population Health Management
Solutions.

To be successful, we must attract as customers a significant number of
healthcare payer organizations, and continue to attract hospitals and
healthcare delivery organizations. We cannot determine the extent to which the
payer market will accept either our disease management or medical management
solutions as substitutes for traditional methods of intervening with members
with chronic health conditions or processing healthcare information and
managing patient care. To date, many healthcare industry participants have been
slow to adopt new disease management methodologies and medical management
technology solutions. We believe that the complex nature of healthcare
processes and communications among healthcare industry participants, as well as
concerns about confidentiality of patient information, may hinder the
development and acceptance of our population health management solutions.

In addition, customers that are already engaged in disease management programs
or have implemented information systems in which they have made significant
commitments may refuse to adopt our solutions if they perceive that our
solutions will not complement their existing investments. As a result, the
conversion from traditional methods of disease management and communication to
electronic information exchange may not occur as rapidly as we expect it will.
Even if these conversions do occur as rapidly as expected, payers and providers
may use solutions, products and services offered by others.

Because We Offer a Limited Number of Products and Operate Exclusively in the
Population Health Management Solutions Market, We Are Particularly Susceptible
to Competition, Product Obsolescence and Market Downturns.

We depend on a limited number of products and we operate exclusively in the
disease management and medical management solutions markets. Prior to our
acquisitions of predictive modeling and interventional disease management
products, we derived substantially all of our revenue from the sale and
associated support of Maxsys II(and its predecessor Maxsys I), a medical
management software solution marketed to hospitals and healthcare delivery
organizations. We anticipate that we will continue to generate revenue from the
continued sales and support of that solution, in addition to our maxMC and
e-maxMC solutions, However, we believe that for the foreseeable future
increasingly more of our revenue will be attributable to the sales and support
of our DSSeriesand Managing for Tomorrowdisease management solutions marketed
to health plans, employer groups and other payers. Dependence on this limited
product line makes us particularly susceptible to the successful introduction
of, or changes in market preferences for, competing products. In addition,
operating exclusively in the market for population management solutions make us
particularly susceptible to downturns in that market that may be unrelated to
the quality or competitiveness of our solutions.

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If We Do Not Hire and Retain Additional Sales, Marketing and Implementation
Personnel We May Not Succeed in Implementing Our Growth Strategy and Achieving
Our Target Revenue Growth.

Our future growth depends to a significant extent on our ability to hire
additional sales,
marketing and implementation personnel. Competition for these people is
intense. We have experienced difficulty in hiring qualified sales and marketing
professionals, as well as database administrators, and we may not be successful
in attracting and retaining such individuals. If we do not hire additional
qualified sales and marketing personnel, we may not succeed in implementing our
growth strategy and our targeted revenue growth may not be achieved. In
addition, even if our sales increase, our market penetration and revenue growth
will be limited if we are unable to hire additional personnel to implement the
medical management solutions we sell.

We also believe that our success depends to a significant extent on the ability
of our key personnel to operate effectively, both individually and as a group.
Many of our employees have only recently joined us, and we may experience high
turnover rates in some categories of personnel. If we do not assimilate new
employees in a timely and cost-effective manner, the productivity of those
employees will be low, and as a result our operating results may decrease.

In addition, companies in our industry whose employees accept positions with
competitors frequently claim that their competitors have engaged in unfair
hiring practices. Competitors or other companies may make such claims against
us in the future as we seek to hire qualified personnel. Any claim of this
nature could result in material litigation. We could incur substantial costs in
defending ourselves against these claims, regardless of their merits.

Our Future Success Depends in Significant Part Upon the Continued Service of
Our Management Team.

We have recently experienced significant changes in our senior management,
which may be disruptive to our business and may result in the departure of
employees and/or customers. Our management team has a great deal of experience
in the software, medical management software and healthcare information
technology industries in general and in the market for population health
management solutions, in particular. While management is relatively
inexperienced in the disease management industry, which is a relatively new
market, they are uniquely qualified to manage our business and would be
difficult to replace. These employees may voluntarily terminate their
employment with us at any time. The search for a replacement for any of our key
personnel could be time consuming, and could distract our management team from
the day-to-day operations of our business. This could delay the implementation
of our growth strategy and negatively impact our ability to achieve targeted
revenue growth. In addition, we do not maintain key person life insurance on
our key personnel.

We do not believe that the departure of Eugene Cattarina, our President and
Chief Executive Officer, will have a material adverse effect on our business
and results of operations. Our current President and Chief Executive Officer,
Eugene Miller, assumed these positions on January 2, 2002.

The Length and Complexity of Our Sales Cycle and Product Implementation Period
May Cause Us to Expend Substantial Time, Effort and Funds Without Receiving
Related Revenue.

We do not control many of the factors that influence our customers buying
decisions and the implementation of our population health management solutions.
The sales and implementation

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process for our solutions is lengthy, particularly for our medical management
software products, and involves a significant technical evaluation and requires
our customers to commit considerable time and money. The sale and
implementation of our solutions are subject to delays due to healthcare payers
and providers internal budgets and procedures for approving large capital
expenditures and deploying new technologies and methodologies within their
organizations. The sales cycle for our solutions is unpredictable and has
generally ranged from six to twenty-four months from initial contact to
contract signing. The time it takes to implement our medical management
software solutions is also difficult to predict and has typically ranged from
six to fifteen months from contract execution to the commencement of live
operation. During the sales cycle and the implementation period, we may expend
substantial time, effort and money preparing contract proposals, negotiating
the contract and implementing the solution without receiving any related
revenue.

Our Disease Management Solutions Depend on Accurate Member Data Provided by the
Client, Which Must be Received on a Timely Basis in Order for Us to Fulfill Our
Obligations.

Landacorps disease management solutions rely on claims data such as medical
claims, prescription data, membership, UR data and lab data for the client to
identify and target for intervention members at risk. The inability of a
customer to provide this information on a timely basis or the delivery of
inaccurate or incorrect data could have an impact on our ability to fulfill
customer obligations and, therefore, achieve revenue expectations from
particular contracts.

Our Managing for Tomorrow Disease Management Programs Rely on Complex,
Proprietary Technology, the Malfunctioning of Which Could Delay or Impede the
Realization of Revenue.

Our Managing for Tomorrow programs rely on the engagement in the program of
members targeted by a health plan or other payer organization. In order to
fulfill our customer obligations, we rely on an automated system that uses
sophisticated technologies and data management processes to contact, profile,
stratify and intervene with these members with customized self-management
materials. Additionally, this system automates workflow, and monitors and
reports on results of the program. Our telecommunications hardware and a
significant portion of our data and systems reside at an offsite data center
owned by a co-location and managed hosting service. The co-location and
managed hosting industry is experiencing a severe economic downturn, which
could effect our co-location and managed hosting service provider. If our
service provider were to curtail or close its business our access to our
telecommunications hardware, systems and data could be interrupted until we can
make co-location arrangements with a new service provider. Any such
interruption or other malfunctions, system downtime or software errors could
impede our ability to realize anticipated revenue, lead to an increase in our
costs, adversely effect our relationship with our customers, and potentially
expose us to liability.

Our Medical Management Solutions are Complex and May Contain Undetected
Software Errors, Which Could Lead to an Increase in Our Costs or a Reduction in
Our Revenues.

Complex software products such as our medical management solutions frequently
contain undetected errors when first introduced or as new versions are
released. We have, from time to time, found errors in our software products,
and in the future we may find further errors. In addition, we combine our
solutions with software and hardware products from other vendors. As

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a result, we may experience difficulty in identifying the source of an error.
The occurrence of hardware and software errors, whether caused by our solutions
or another vendors products, could:



| |  |  | impair market acceptance of our products;                                                 
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | cause sales of our solutions to decrease and our revenues to decline;                     
|
| |  |  | cause us to incur significant warranty and repair costs;                                  
|
| |  |  | divert the attention of our technical personnel away from product
development efforts; and
|
| |  |  | cause significant customer relations problems.                                            

Because Our Population Health Management Solutions Rely on Technology That We
Own, Our Business Will Suffer if We Fail to Protect Our Intellectual Property
Rights to That Technology Against Infringement by Competitors.

To protect our intellectual property rights, we rely on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure. We
also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may copy or
otherwise obtain and use our products or technology. Monitoring unauthorized
use of our solutions is difficult and the steps we have taken may not prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
If we fail to protect our intellectual property from infringement, other
companies may use our intellectual property to offer competitive products at
lower prices. If we fail to compete effectively against these companies we
could lose customers and sales of our solutions and our revenue could decline.

Efforts to Protect Our Intellectual Property or Our Alleged Misuse of the
Intellectual Property of Others May Cause Us to Become Involved in Costly and
Lengthy Litigation.

Although we are not currently involved in any intellectual property litigation,
we may be a party to litigation in the future either to protect our
intellectual property or as a result of an alleged infringement by us of the
intellectual property of others. These claims and any resulting litigation
could subject us to significant liability or invalidate our ownership rights in
the technology used in our solutions. Litigation, regardless of the merits of
the claim or outcome, could consume a great deal of our time and money and
would divert management time and attention away from our core business. Any
potential intellectual property litigation could also force us to do one or
more of the following:



| |  |  | stop using the challenged intellectual property or selling our
products or services that incorporate it;                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | obtain a license to use the challenged intellectual property or to
sell products or services that incorporate it, which could be costly or
unavailable; and                                                                           
|
| |  |  | redesign those products or services that are based on or incorporate
the challenged intellectual property, which could be costly and time
consuming or could adversely affect
the functionality and market acceptance of our products.

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If we must take any of the foregoing actions, we may be unable to manufacture
and sell our solutions, which would substantially reduce our revenue.

We Face Significant Competition From, Among Others, Disease Management Vendors,
Medical Management Software Vendors, Internet Companies and Consulting Groups
Focused on the Healthcare Industry.

We face intense market competition for our population health management
solutions. Many of our competitors have greater financial, technical, product
development, marketing and other resources than we have. Because these
organizations may be better known and have more customers than us, we may not
compete successfully against them. The principal companies we compete against
in the disease management market include American Healthways, CorSolutions,
Lifemasters and Matria Healthcare. Our principal competitors in the medical
management software payer market include HPR (a subsidiary of McKesson HBOC),
MEDecision, and others. In the healthcare delivery segment of the medical
management software market, we compete against MIDS (a division of Affiliated
Computer Systems, Inc.), SoftMed Systems and others. We expect that competition
will continue to increase as a result of consolidation in the Internet,
information technology and healthcare industries.

Rapidly Changing Technology May Impair Our Ability to Develop and Market Our
Population Health Management Solutions.

Because our business relies on technology, it is susceptible to:



| |  |  | rapid technological change;            
| | - |  | ---------------------------------------
|
| |  |  | changing customer needs;               
|
| |  |  | frequent new product introductions; and
|
| |  |  | evolving industry standards.           

In particular, the Internet is evolving rapidly and the technology used in
Internet related products changes rapidly. As the Internet, computer and
software industries continue to experience rapid technological change, we must
quickly modify our solutions to adapt to such changes. The demands of operating
in such an environment may delay or prevent our development and introduction of
new solutions and additional functions for our existing solutions that must
continue to meet changing market demands and keep pace with evolving industry
standards. Moreover, competitors may develop products superior to our
solutions, which could make our products obsolete.

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Our Customers May Encounter System Delays, Failures or Loss of Data When Using
Our Internet-Based Medical Management Solution and Internet Capabilities of Our
Disease Management Products and Services as a Result of Disruptions or Other
Problems With Internet Services and Internet Access Provided by Third Parties.

System delays, failures or loss of data experienced by our customers could harm
our business. The success of our Internet-based medical management solutions
and disease management capabilities depend on the efficient operation of
Internet connections among our payer customers and their members and associated
providers, and with Landacorp. These connections, in turn, depend on the
efficient operation of Internet service providers, Internet connections and Web
browsers. In the past, Internet users have occasionally experienced
difficulties with Internet connections and services due to system failures. Any
disruption in Internet access provided by third parties could delay or disrupt
the performance of our Internet-based solutions, and consequently, make them
less acceptable to payers. Furthermore, we will depend on our customers
hardware suppliers for prompt delivery, installation and service of the
equipment that runs our applications.

Security Breaches and Security Concerns About Internet Transmissions May Cause
Customers to Refuse to Purchase or Discontinue the Use of Our Population Health
Management Solutions.

Our customers will retain confidential customer and patient information using
our solutions. An experienced computer user who is able to access our
customers computer systems could gain access to confidential patient and
company information. Therefore, our products must remain secure and the market
must perceive them as secure. The occurrence of security breaches could cause
customers to refuse to purchase or discontinue use of our solutions. Protecting
against such security breaches or alleviating problems caused by security
breaches may require us to expend significant capital and other resources. In
addition, upgrading our systems to incorporate more advanced encryption and
authentication technology as it becomes available may cause us to spend
significant resources and encounter costly delays. Concerns over the security
of the Internet and other online transactions and the privacy of users may also
inhibit the growth of the market for our Internet-based population health
management solutions.

We Operate in an Industry Subject to Changing Regulatory Influences, Which
Could Limit the Usefulness of Our Solutions or Require Us to Make Expensive and
Time-Consuming Modifications to Our Products.

During the past several years, federal, state and local governments have
increased their regulation of the U.S. healthcare industry and have proposed
numerous healthcare industry reforms. These reforms may increase governmental
involvement in healthcare, continue to reduce reimbursement rates and otherwise
change the operating environment for our customers.

Our customers may react to these proposals and the uncertainty surrounding the
proposals by curtailing or deferring investments, including those for our
medical management solutions.

Existing state and federal laws regulate the confidentiality of healthcare
information and the circumstances under which such records may be released.
Congress is considering further legislation and the Department of Health and
Human Services has proposed regulations that would further regulate the
confidentiality of healthcare information. In addition, the Department of
Health and Human Services has proposed regulations setting forth security
standards for all health plans, clearinghouses and providers to follow with
respect to healthcare information that is electronically transmitted, processed
or stored. While these laws and regulations may not apply to us directly, our
products must comply with existing and future laws and regulations in order to
achieve market acceptance. Such compliance may be difficult and expensive or
even impossible

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to achieve. These laws or regulations could restrict the ability of our
customers to obtain, use or disseminate patient information, which in turn
could limit the usefulness of our medical management solutions causing a
decrease in our sales.

Because of the Internets popularity and increasing use, new laws and
regulations with respect to the Internet are becoming prevalent. Such new laws
and regulations could limit the effectiveness and market acceptance of our
Internet-based solutions or could cause us to have to modify our solutions,
which could be expensive and time consuming.

Our Population Health Management Solutions Will Have to Contain HIPAA-Compliant
Features and Functionality to Remain Marketable.

These new regulations are proposed and may be modified prior to becoming final.
Our products may require modification in the future. Any such modification
could be expensive, could divert resources away from other product development
efforts or could delay future releases or product enhancements. If we fail to
offer solutions that permit our customers to comply with applicable laws and
regulations our business will suffer.

Consolidation in the Healthcare Industry Could Lead to Large Integrated
Healthcare Delivery Systems Who May Use Their Enhanced Market Power to Force
Price Reductions for Our Population Health Management Solutions and Related
Services.

Many healthcare industry participants are consolidating to create integrated
healthcare delivery systems with greater market power. As the healthcare
industry consolidates, competition to provide products and services to industry
participants will become more intense and the importance of establishing
relationships with large industry participants will become greater. These
industry participants may try to use their market power to negotiate price
reductions for our products and services. Our operating results may suffer if
we reduce our prices without achieving corresponding reductions in our
expenses.

We May Encounter Acquisition-Related Risks Such as Becoming Responsible for
Unexpected Liabilities of Acquired Businesses and Difficulties Integrating
Employees and Operations of Acquired Businesses.

We expect to review opportunities to acquire other businesses or technologies.
In connection with acquisitions, we could:



| |  |  | issue stock that would dilute our stockholders percentage ownership;
| | - |  | ---------------------------------------------------------------------
|
| |  |  | incur debt; or                                                       
|
| |  |  | assume liabilities.                                                  

Acquisitions could involve numerous risks, including:



| |  |  | problems integrating the purchased operations, technologies or products;
| | - |  | ------------------------------------------------------------------------
|
| |  |  | unanticipated costs or unexpected liabilities;                          
|
| |  |  | diversion of our managements attention from our core business;         

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| |  |  | interference with existing business relationships with suppliers and customers;            
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | risks associated with entering markets in which we have no or limited
prior experience; and
|
| |  |  | potential loss of key employees of purchased organizations.                                

We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might purchase in the future.

Our Principal Stockholders Have Significant Voting Power, Which May Limit Our
Stockholders Ability to Influence the Outcome of Director Elections and Other
Stockholder Matters.

Our executive officers and directors and their affiliates beneficially own, in
the aggregate, approximately 48% of our outstanding common stock. As a result,
these stockholders will be able to exercise significant control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which could delay or prevent an
outside party from acquiring or merging with us.

If We do Not Meet Our Future Capital Requirements, We May Be Unable to Develop
or Enhance Our Population Health Management Solutions, Take Advantage of Future
Opportunities or Respond to Competitive Pressures or Unanticipated Events.

We believe that the net proceeds of our initial public offering, together with
our existing cash and cash equivalents and expected cash flow from operations,
will be sufficient to meet our capital and operating expense requirements for
the next twelve months. Thereafter, we may require additional funds to support
our working capital and operating expense requirements or for other purposes
and may seek to raise such additional funds through public or private debt or
equity financings if such funding is available on terms acceptable to us. If
we cannot raise capital on acceptable terms, we may not have the resources to
develop new products or enhance existing products, take advantage of future
opportunities or respond to competitive pressures or unanticipated events.

Our Stock Price Has Been Highly Volatile, and Your Investment Could Suffer a
Decline in Value.

The trading price of our common stock has been highly volatile and could
continue to be subject to wide fluctuations in price in response to various
factors, many of which are beyond our control, including:



| |  |  | actual or anticipated variations in quarterly operating results;                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | failure to achieve, or changes in, financial estimates by securities analysts;                                 
|
| |  |  | announcements of new products or services or technological
innovations by us or our competitors;               
|
| |  |  | conditions or trends in the pharmaceutical, biotechnology and life science industries;                         
|
| |  |  | announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

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| |  |  | additions or departures of key personnel;                                                    
| | - |  | ---------------------------------------------------------------------------------------------
|
| |  |  | sales of our common stock; and                                                               
|
| |  |  | developments regarding our patents or other intellectual property or
that of our competitors.

In addition, the stock market in general, and the NASDAQ National Market and
the market for technology companies in particular, have experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further,
there has been particular volatility in the market prices of securities of
healthcare services and software companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, following periods of volatility in the
market price of a companys securities, securities class action litigation has
often been instituted. A securities class action suit against us could result
in substantial costs, potential liabilities and the diversion of managements
attention and resources.

There May Not be an Active, Liquid Trading Market For Our Common Stock.

There is no guarantee that an active trading market for our Common Stock will
be maintained on the NASDAQ National Market. You may not be able to sell your
shares quickly or at the market price if trading in our stock is not active. If
we fail to comply with the continued listing requirements of the NASDAQ
National Market, including the minimum bid price per share requirement, we may
be delisted from trading on such market, and thereafter trading in our common
stock, if any, would be conducted through the over-the-counter market or on the
Electronic Bulletin Board of the National Association of Securities Dealers,
Inc.

Sales of Large Numbers of Shares of Our Common Stock Could Cause Our Stock
Price to Decline.

The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. All
of the shares sold in our initial public offering are now freely transferable
without restriction or further registration under the Securities Act, except
for any shares purchased by our affiliates, as defined in Rule 144 of the
Securities Act. The remaining shares of common stock outstanding are restricted
securities as defined in Rule 144. These shares may be sold in the future
without registration under the Securities Act, to the extent permitted by Rule
144 or other exemptions under the Securities Act. In November 2000, we issued
an aggregate 2,740,000 additional restricted shares of common stock to former
shareholders of PatientCentrix. In addition, we assumed options to purchase
492,502 shares of our common stock to former shareholders and option holders of
PatientCentrix

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal
while, at the same
time, maximizing the yields without significantly increasing risk. To achieve
this objective, we invest in highly liquid and high-quality money market
accounts that invest in debt securities. Our investment in debt securities is
subject to interest rate risk. To minimize the exposure due to adverse shifts
in interest rates, we invest in money market accounts that invest only in
short-term securities that maintain an average maturity of less than one year
and debt securities that also have an average maturity of less than one year.
As a result, we do not believe we are subject to significant market risk.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

None.




Item 2. Changes in Securities

None.




Item 3. Defaults in Senior Securities

None.




Item 4. Submission of Matters to a Vote of Security Holders

None.




Item 5. Other Information

None.




Item 6. Exhibits and Reports on Form 8-K

(a)     Exhibits.

10.17(1)     Settlement Agreement and Mutual Release by and among Landacorp, Inc.,
Eugene Santa Cattarina and Michael S. Miele, Christopher C. Synn, James W.
Tiepel, Richard Sweeney, Stephen Brooks, Mary Dean, Ian Duncan, Percival
Herrero, John Burke, Arthur Robb, Anne Forbes, Virginia OShea, Lucia Egoavil,
Thomas Sweeney, and Bradley Green dated March 13, 2002.

(1)     Incorporated by reference from the Registrants Annual Report on Form 10-K
for the year Ended December 31, 2001 filed on March 29, 2002.

(b)     Form 8-K.

None.

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SIGNATURES

Pursuant to the requirements 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.

|                    |  |                                                    
|------------------- |  | ---------------------------------------------------
|                    |  | LANDACORP, INC.                                    
|                    |  | (Registrant)                                       
|                   
|Dated: May 13, 2002 |  |                                                    
|                   
|                    |  | By: /s/ Eugene Miller                              
|                    |  |                                                    
|                    |  | Eugene Miller                                      
|                    |  | President, Chief Executive Officer                 
|                   
|Dated: May 13, 2002 |  |                                                    
|                   
|                    |  | By: /s/ Mark Rapoport                              
|                    |  |                                                    
|                    |  | Mark Rapoport                                      
|                    |  | Chief Operating Officer and Chief Financial Officer

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EXHIBIT INDEX

10.17(1)     Settlement Agreement and Mutual Release by and among Landacorp, Inc.,
Eugene Santa Cattarina and Michael S. Miele, Christopher C. Synn, James W.
Tiepel, Richard Sweeney, Stephen Brooks, Mary Dean, Ian Duncan, Percival
Herrero, John Burke, Arthur Robb, Anne Forbes, Virginia OShea, Lucia Egoavil,
Thomas Sweeney, and Bradley Green dated March 13, 2002.

(1)     Incorporated by reference from the Registrants Annual Report on Form 10-K
for the year Ended December 31, 2001 filed on March 29, 2002.