##### Table of Contents





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q



(Mark One)

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

For the quarterly period ended
June 30, 2001 or

|                   |  |                                                                                         
|------------------ |  | ----------------------------------------------------------------------------------------
|(empty ballot box) |  | 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)




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 (box with an x)
   NO (empty ballot box)

Number of shares of Common stock, par value of $0.001, outstanding as of
June 30, 2001: 15,666,305



1



---

TABLE OF CONTENTS



|                                                                                              |                                                      |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                                               
|ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)                                                     
|                                                                                              | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                                                              | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                                                              | CONDENSED CONSOLIDATED STATEMENTS 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                                                                                   



---



##### Table of Contents



(LANDACORP LOGO)

Landacorp, Inc.
TABLE OF CONTENTS

|                                                                                              |                                                                                                           |  |          |   | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- |  | -------- | - | 
|                                                                                              |                                                                                                           |  | Page No.
|                                                                                              |                                                                                                           |  |         
|PART I. Financial Information                                                                 |                                                                                                           |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements (unaudited):                                                     |                                                                                                           |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets
as of June 30, 2001 and December 31, 2000                           |  |          | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 2001 and 2000 |  |          | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2001 and 2000           |  |          | 5 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                      |  |          | 6 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                           |  | 8        |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                           |  | 18       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II. Other Information                                                                    |                                                                                                           |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                                           |  | 18       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2: Changes in Securities and Use of Proceeds                                             |                                                                                                           |  | 18       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3: Defaults Upon Senior Securities                                                       |                                                                                                           |  | 18       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4: Submission of Matters to a Vote of Security Holders                                   |                                                                                                           |  | 18       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 5: Other Information                                                                     |                                                                                                           |  | 19       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                           |  | 19       |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signatures                                                                                    |                                                                                                           |  | 19       |  

2



---



##### Table of Contents












PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

LANDACORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)

|                                       |                                                                                                                       |                            |        |         |             |   |              |         |        |  | 
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------- | ----------- | - | ------------ | ------- | ------ |  | 
|                                       |                                                                                                                       |                            |        |         | June 30,    |   | December 31,
|                                       |                                                                                                                       |                            |        |         | 2001        |   | 2000        
|                                       |                                                                                                                       |                            |        |         |             |   |             
|                                       |                                                                                                                       |                            |        |         | (unaudited) |   |              |         |       
|ASSETS                                 |                                                                                                                       |                            |        |         |             |   |              |        
|                                      
|                                      
|                                      
|                                      
|CURRENT ASSETS:                        |                                                                                                                       |                            |        |         |             |   |              |        
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and cash equivalents                                                                                             |                            | $      | 15,816  |             |   | $            | 21,752  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts receivable and costs
and estimated earnings in excess
of billings on uncompleted
contracts, net              |                            |        | 2,487   |             |   |              | 5,316   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Other current assets                                                                                                  |                            |        | 1,212   |             |   |              | 781     |       
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|                                       |                                                                                                                       | Total current assets       |        |         | 19,515      |   |              |         | 27,849 | 
|                                      
|                                      
|                                      
|                                      
|PROPERTY AND EQUIPMENT, NET            |                                                                                                                       |                            | 2,481  |         |             |   | 2,626        |        
|                                      
|                                      
|                                      
|                                      
|INTANGIBLE ASSETS, NET                 |                                                                                                                       |                            | 12,834 |         |             |   | 15,210       |        
|                                      
|                                      
|                                      
|                                      
|CAPITALIZED SOFTWARE, NET              |                                                                                                                       |                            | 131    |         |             |   | 136          |        
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|                                       |                                                                                                                       | $                          | 34,961 |         |             | $ | 45,821       |        
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|LIABILITIES AND STOCKHOLDERS EQUITY  
|                                      
|                                      
|                                      
|                                      
|CURRENT LIABILITIES:                   |                                                                                                                       |                            |        |         |             |   |              |        
|                                       | Accounts payable                                                                                                      |                            | $      | 1,638   |             |   | $            | 1,413   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Accrued expenses                                                                                                      |                            |        | 3,692   |             |   |              | 4,273   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred revenue and billings in
excess of costs and estimated
earnings on uncompleted
contracts                      |                            |        | 4,098   |             |   |              | 4,168   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Current portion of long-term debt                                                                                     |                            |        | 78      |             |   |              | 77      |       
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|                                       |                                                                                                                       | Total current liabilities  |        |         | 9,506       |   |              |         | 9,931  | 
|                                      
|                                      
|                                      
|                                      
|LONG-TERM DEBT, NET OF CURRENT PORTION |                                                                                                                       |                            | 195    |         |             |   | 229          |        
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|                                       |                                                                                                                       | Total liabilities          |        |         | 9,701       |   |              |         | 10,160 | 
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|STOCKHOLDERS EQUITY:                  |                                                                                                                       |                            |        |         |             |   |              |        
|                                      
|                                      
|                                      
|                                      
|                                       | Common stock, $0.001 par value,
50,000,000 shares authorized;
15,666,305 and 14,916,000 shares
issued and outstanding |                            |        | 16      |             |   |              | 15      |       
|                                      
|                                      
|                                      
|                                      
|                                       | Additional paid-in capital                                                                                            |                            |        | 58,315  |             |   |              | 57,815  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Common stock to be issued                                                                                             |                            |        |        |             |   |              | 516     |       
|                                      
|                                      
|                                      
|                                      
|                                       | Notes receivable from officers                                                                                        |                            |        | (160    | )           |   |              | (187    | )     
|                                      
|                                      
|                                      
|                                      
|                                       | Unearned stock-based compensation                                                                                     |                            |        | (1,321  | )           |   |              | (2,324  | )     
|                                      
|                                      
|                                      
|                                      
|                                       | Accumulated deficit                                                                                                   |                            |        | (31,590 | )           |   |              | (20,174 | )     
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|                                       |                                                                                                                       | Total stockholders equity |        |         | 25,260      |   |              |         | 35,661 | 
|                                       |                                                                                                                       |                            |        |         |             |   |              |        
|                                       |                                                                                                                       | $                          | 34,961 |         |             | $ | 45,821       |        
|                                       |                                                                                                                       |                            |        |         |             |   |              |        

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

3



---



##### Table of Contents






LANDACORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share data)

|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |       |       | 
|----------------------------------------------------------------------------------- | ------------------------------------ | ------------------------ | ------ | ------------------------ | ----- | ---------------- | ------ | ----- | ----- | ---- | ------- | ----- | ------ | - | ------ | ----- | ----- | 
|                                                                                    |                                      |                          |        | Three month period ended |       | Six month period
|                                                                                    |                                      |                          |        | June 30,                 |       | ended June 30,  
|                                                                                    |                                      |                          |        |                          |       |                 
|                                                                                    |                                      |                          |        | 2001                     |       | 2000             |        | 2001  |       | 2000
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |     
|REVENUE:                                                                            |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Program revenue and maintenance fees |                          | $      | 2,960                    |       |                  | $      | 611   |       |      | $       | 5,409 |        |   | $      | 1,305 |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | System sales and consulting fees     |                          |        | 770                      |       |                  |        | 2,652 |       |      |         | 2,533 |        |   |        | 4,370 |      
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                    |                                      | Total revenues           |        |                          | 3,730 |                  |        |       | 3,263 |      |         |       | 7,942  |   |        |       | 5,675 | 
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|COST OF REVENUE:                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Program revenue and maintenance fees |                          |        | 1,796                    |       |                  |        | 191   |       |      |         | 3,352 |        |   |        | 376   |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | System sales and consulting fees     |                          |        | 917                      |       |                  |        | 1,020 |       |      |         | 2,071 |        |   |        | 2,057 |      
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                    |                                      | Total cost of revenue    |        |                          | 2,713 |                  |        |       | 1,211 |      |         |       | 5,423  |   |        |       | 2,433 | 
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|GROSS PROFIT                                                                        |                                      |                          | 1,017  |                          |       |                  | 2,052  |       |       |      | 2,519   |       |        |   | 3,242  |      
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|OPERATING EXPENSES:                                                                 |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Sales and marketing                  |                          |        | 1,950                    |       |                  |        | 1,625 |       |      |         | 3,506 |        |   |        | 3,301 |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Research and development             |                          |        | 1,977                    |       |                  |        | 795   |       |      |         | 3,920 |        |   |        | 1,456 |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | General and administrative           |                          |        | 1,778                    |       |                  |        | 1,166 |       |      |         | 4,474 |        |   |        | 2,287 |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Amortization of intangible assets    |                          |        | 480                      |       |                  |        | 87    |       |      |         | 1,066 |        |   |        | 138   |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Restructuring charge                 |                          |        | 729                      |       |                  |        |      |       |      |         | 729   |        |   |        |      |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Impairment of intangible assets      |                          |        |                         |       |                  |        |      |       |      |         | 704   |        |   |        |      |      
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                    |                                      | Total operating expenses |        |                          | 6,914 |                  |        |       | 3,673 |      |         |       | 14,399 |   |        |       | 7,182 | 
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|LOSS FROM OPERATIONS                                                                |                                      |                          | (5,897 | )                        |       |                  | (1,621 | )     |       |      | (11,880 | )     |        |   | (3,940 | )    
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|INTEREST AND OTHER INCOME                                                           |                                      |                          | 181    |                          |       |                  | 512    |       |       |      | 477     |       |        |   | 783    |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|INTEREST EXPENSE                                                                    |                                      |                          | (8     | )                        |       |                  | (17    | )     |       |      | (13     | )     |        |   | (25    | )    
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|NET LOSS                                                                            |                                      | $                        | (5,724 | )                        |       | $                | (1,126 | )     |       | $    | (11,416 | )     |        | $ | (3,182 | )    
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|NET LOSS PER SHARE  BASIC AND DILUTED                                              |                                      | $                        | (0.38  | )                        |       | $                | (0.09  | )     |       | $    | (0.77   | )     |        | $ | (0.30  | )    
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Weighted average common and common
equivalent shares outstanding; basic and
diluted |                                      |                          | 14,985 |                          |       |                  | 12,867 |       |       |      | 14,880  |       |        |   | 10,432 |      
|                                                                                    |                                      |                          |        |                          |       |                  |        |       |       |      |         |       |        |   |        |      

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

4



---



##### Table of Contents






LANDACORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |        |       |      |        |  
|---------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ----- | ---------------------- | ------ | ------ | ----- | ---- | ------ | -
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       | Six month period ended
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       | June 30,              
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                       
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       | 2001                   |        | 2000  
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Net loss                                                                         |                                                   | $                                                                                                        | (11,416                                   | )     |                        | $      | (3,182 | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Adjustments to reconcile net loss to
net cash used in operating activities:      |                                                   |                                                                                                          |                                           |       |                        |        |        |      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  | Depreciation and amortization                     |                                                                                                          |                                           | 1,673 |                        |        |        | 474   |     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  | Provision of doubtful accounts                    |                                                                                                          |                                           | 707   |                        |        |        | 56    |     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  | Amortization of unearned stock-based compensation |                                                                                                          |                                           | 820   |                        |        |        | 1,029 |     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  | Impairment of intangible assets                   |                                                                                                          |                                           | 704   |                        |        |        |      |     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  | Changes in operating assets and liabilities:      |                                                                                                          |                                           |       |                        |        |        |       |     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  |                                                   | Accounts receivable and costs and estimated
billings in excess of billings on uncompleted
contracts, net |                                           |       | 2,122                  |        |        |       | (901 | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  |                                                   | Other assets                                                                                             |                                           |       | (432                   | )      |        |       | (210 | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  |                                                   | Accounts payable                                                                                         |                                           |       | 226                    |        |        |       | (52  | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  |                                                   | Accrued expenses                                                                                         |                                           |       | 107                    |        |        |       | (110 | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  |                                                   | Deferred revenue and billings in excess of
costs and estimated earnings on uncompleted
contracts         |                                           |       | (70                    | )      |        |       | (74  | )     
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  |                                                   |                                                                                                          | Net cash used in operating activities     |       |                        | (5,559 | )      |       |      | (2,970 | )
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Capitalized software development costs                                           |                                                   |                                                                                                          | (83                                       | )     |                        |        | (51    | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Purchases of property and equipment                                              |                                                   |                                                                                                          | (456                                      | )     |                        |        | (585   | )    
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|                                               |                                                                                  |                                                   |                                                                                                          | Net cash used in investing activities     |       |                        | (539   | )      |       |      | (636   | )
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from borrowing on line of credit                                        |                                                   |                                                                                                          |                                          |       |                        |        | 217    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from borrowing on long-term debt                                        |                                                   |                                                                                                          |                                          |       |                        |        | 15     |      
|                                              
|                                              
|                                              
|                                              
|                                               | Payments on long-term debt                                                       |                                                   |                                                                                                          | (33                                       | )     |                        |        | (1,508 | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Collection on note receivable from officers                                      |                                                   |                                                                                                          | 27                                        |       |                        |        | 2      |      
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from issuance of common stock
and exercise of common stock options, net |                                                   |                                                                                                          | 168                                       |       |                        |        | 35,772 |      
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                  |                                                   |                                                                                                          | Net cash provided by financing activities |       |                        | 162    |        |       |      | 34,498 |  
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|INCREASE IN CASH AND CASH EQUIVALENTS          |                                                                                  |                                                   | (5,936                                                                                                   | )                                         |       |                        | 30,892 |       
|                                              
|                                              
|                                              
|                                              
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                                  |                                                   | 21,752                                                                                                   |                                           |       |                        | 1,884  |       
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       
|CASH AND CASH EQUIVALENTS, end of period       |                                                                                  | $                                                 | 15,816                                                                                                   |                                           |       | $                      | 32,776 |       
|                                               |                                                                                  |                                                   |                                                                                                          |                                           |       |                        |        |       

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

5



---



##### Table of Contents






LANDACORP, INC. AND SUBSIDIARIES
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), offers strategic
healthcare management solutions to healthcare payer and delivery
organizations that help manage and prevent healthcare cost, while improving
quality in the continuum of care. Our predictive and preventive population
health and disease management products and services, which include unique member-driven disease management programs, are marketed along with
comprehensive Internet- and Windows®-based medical management software. The
Companys corporate headquarters and sales and marketing offices are located
in Atlanta, GA, with operations located in Raleigh, NC, Chico, CA 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,
2000, as amended. The balance sheet at December 31, 2000 is derived from
the audited financial statements included in the Form 10-K for the year
ended December 31, 2000. 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 and six-month
periods ended June 30, 2001 are not necessarily indicative of the results to
be expected for any other interim period or any future fiscal 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 2000
have been re-categorized into these groups for comparison purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

6



---



##### Table of Contents



|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|  
|  
|  
|   |  | 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 4,049,000 and 1,783,000 at June 30, 2001 and 2000,
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. |  | Restructuring and Impairment of Asset Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|   |  | In May 2001, the Company announced a reduction in work force representing
approximately 16%, or 40 employees of the Companys total work force. During
May 2001, the Company also announced its plan to discontinue operations of
its Portland, Oregon-based Interactive Media Group (IMG). In July 2001, the
Company discontinued operations of IMG. The Company recorded a
restructuring charge of $729,000 in the three-month period ended June 30,
2001 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. During the three-month period ended March 31,
2001, the Company recorded an impairment charge of $704,000 on the
intangible assets related to IMG in operating expenses.                                                                         
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|6. |  | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|   |  | In June 2001, the Financial Accounting Standards Board FASB issued
Financial Accounting Standard No. 141 - Business Combinations (SFAS 141).
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Additionally, the use
of the pooling-of-interests method will be prohibited. The Companys
adoption of SFAS 141 is not expected to have a material effect on the
Companys results of operations or financial condition.                                                                                                                                                                                                                                                                                                                                                                              
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|   |  | In June 2001, the Financial Accounting Standards Board FASB issued
Financial Accounting Standard No. 142 - Goodwill and Other Intangible Assets
(SFAS 142).SFAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of SFAS 142. SFAS 142 will be effective for the
Companys fiscal year beginning January 1, 2002. Upon the effective date of
this statement, amortization of goodwill recorded in conjunction with the
Companys acquisition of ProMedex and PatientCentrix will cease. We expect
the adoption of this accounting standard will have the impact of reducing
amortization of intangible assets commencing January 1, 2002; however,
impairment reviews may result in future periodic write-downs.
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|7. |  | Subsequent events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|  
|   |  | In August 2001, the Company announced a reduction in work force representing
approximately 18%, or 36 employees of the Companys total work force. The
Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

7



---



##### Table of Contents



expects to incur a severance charge of approximately $150,000
related to employee termination benefits.




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 the purpose of the safe harbor provisions under the
Private Securities Litigation Reform Act of 1995. Examples of such forward
looking statements include, without limitation statements regarding Landacorps
anticipated expenses, revenues and financial results and business performance
for 2001, the expected impact of our adoption of SFAS 142 on future
amortization on intangible assets, severance charges related to work force
reductions, support for our Maxsys I product, future strategic acquisitions and
relationships, the potential operating cost savings resulting from our work
force reductions, and the sufficiency of cash and cash equivalents and stock
offering proceeds for our working capital and operating expense requirements.
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 a slowdown in the economy generally or
the market for our products and services will adversely affect our business,
our dependence on a limited number of products with limited market acceptance,
the risk that the market for our strategic healthcare management solutions 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 our
business, investors should consult our filings with the Securities and Exchange
Commission, including its Form 10-K for the year ended December 31, 2000, as
amended.

OVERVIEW

Landacorp provides strategic healthcare management
solutions to healthcare payer and delivery organizations
that help manage and prevent healthcare cost, while improving quality in the
continuum of care. Our predictive and preventive population health and disease
management products and services, which include unique member-driven
disease management programs, are marketed along with comprehensive Internet-
and Windows®-based medical management software. Our population health and
disease management solutions help our clients identify health plan members with
chronic illnesses or potentially high-predicted expenditure outcomes associated
with their condition, and deliver consistent and appropriate educational,
motivational and monitoring information. As of June 30, 2001, approximately 30
payers who claim to have a combined membership of approximately 30 million
participants were using our payer solutions, and approximately 140 healthcare
delivery organizations were using our provider solutions.

We have historically derived revenues from the installation and licensing of
our maxMC and Maxsys medical management software 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 focusing our primary development, sales and marketing efforts
on our DSBuilder, DSManager, Managing for Tomorrow population health and
disease management products and services, and our maxMC, e-maxMC and Maxsys II
medical

8



---



##### Table of Contents



management software products. 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.

Traditionally, we have recognized system sales revenues and associated costs
using the percentage-of-completion method, with labor hours incurred relative
to total estimated contract hours as the measure of progress towards
completion. 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.

We introduced a new subscription-based fee structure for our e-maxMC and maxMC
solutions during 2000 that provides for implementation services at a fixed
hourly rate and the licensing of installed systems and post customer contract
support through a monthly subscription fee based upon the number of members
covered by the payer organization. Subscription-based contracts allow us to
recognize the fair value of the implementation services as such services are
delivered and recognize subscription fees on a monthly basis. With the
acquisition of DSBuilder, DSManager and Managing for Tomorrow population health
and disease management products in November 2000, we now have additional
products for which revenue is recognized on a subscription fee based
methodology. The majority of DSBuilder and DSManager revenue is recorded on a
per member per month basis. Revenue received from our Managing for Tomorrow
member-driven disease management program is invoiced on a participant per year
basis.

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 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.

On May 9, 2001 we announced an impairment charge in the first quarter 2001 for
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. The IMG
operations were discontinued on July 9, 2001. The employees of IMG are included
in the description of the reduction in workforce below.

We also announced on May 9, 2001 a reduction in our work force of approximately
16%, or 40 employees. This included the closing of our IMG operation, as well
as the elimination of a number of positions in our medical management
operations. On August 8, 2001, we announced an additional reduction in our work
force of approximately 18%, or 36 employees.

RECENT ACQUISITIONS

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

9



---



##### Table of Contents



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. We paid the
remaining balance in April 2000. The acquired assets included equipment, know
how, trademarks and other intangible rights used by High Technology Solutions,
Inc. in the operation of its business of providing Web site services to
healthcare payers, as well as contracts, none of which were material to our
business. In connection with the acquisition we hired a number of former
employees of High Technology Solutions, Inc.

The purchase price was allocated to the various tangible and intangible
assets acquired. The acquired intangible assets were amortized over their
estimated useful lives of twenty-four to thirty-six months. On May 9, 2001 we
announced an impairment charge or $704,000 in the first quarter 2001 on
intangible assets acquired in connection with the acquisition of IMG. In May
2001, management determined that the operations of IMG should be discontinued
due to the slowdown in the web design and consulting industry. The IMG
operations were discontinued on July 9, 2001.

On October 27, 2000 we completed the acquisition of assets and liabilities of
the ProMedex business from PMX Holdings, Inc., or ProMedex, a leading provider
of population and disease management programs and services. The total purchase
price of $4,632,000 consisted of $585,000 cash, $516,000 in our common stock
(250,000 shares), other acquisition related expenses of approximately $319,000,
consisting primarily of payment for legal and financial advisory services and
the assumption of liabilities of $3,212,000. The purchase price was allocated
to intangible assets, including existing technology ($1,600,000), customer base
($510,000), assembled work force ($430,000), and goodwill ($2,092,000).

On November 2, 2000 we completed the acquisition of PatientCentrix, Inc., 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 issued 1,157,000 shares to the
stockholders of PatientCentrix. The price of the shares issued was $1.777
based on the average price during the 20 trading days prior to the date of the
definitive agreement, which was October 31, 2000. We also assumed all of the
incentive stock options issued by PatientCentrix prior to the acquisition.
These are now options to purchase up to 1,582,532 shares of our Common Stock
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 in our 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). Additionally, based
on the total contract value of sales for PatientCentrix software and services,
capped at $50 million in orders for the twelve months from the closing of the
acquisition; up to $6 million in

10



---



##### Table of Contents



additional cash will be paid to the
shareholders and option holders of PatientCentrix, based on their pro rata
ownership of PatientCentrix stock. As of June 30, 2001, no additional amounts
had been paid to the shareholders or option holders of PatientCentrix.

RESULTS OF OPERATIONS

The following tables present the statement of operations data as a percentage
of total revenues:

|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |      |       | 
|------------------------- | ------------------------------------ | ------------------------ | ------ | ------------------ | ----- | ---------- | ------ | ----- | ----- | ---- | ------ | ---- | ----- |  | ----- | ---- | ----- | 
|                          |                                      |                          |        | Three month period |       | Percent of
|                          |                                      |                          |        | ended June 30,     |       | Revenues  
|                          |                                      |                          |        |                    |       |           
|                          |                                      |                          |        | 2001               |       | 2000       |        | 2001  |       | 2000
|                          |                                      |                          |        |                    |       |            |        |       |       |     
|REVENUE:                  |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|                          | Program revenue and maintenance fees |                          | $      | 2,960              |       |            | $      | 611   |       |      |        | 79.4 | %     |  |       | 18.7 | %    
|                         
|                         
|                         
|                         
|                          | System sales and consulting fees     |                          |        | 770                |       |            |        | 2,652 |       |      |        | 20.6 |       |  |       | 81.3 |      
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|                          |                                      | Total revenues           |        |                    | 3,730 |            |        |       | 3,263 |      |        |      | 100.0 |  |       |      | 100.0 | 
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|COST OF REVENUE:          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|                          | Program revenue and maintenance fees |                          |        | 1,796              |       |            |        | 191   |       |      |        | 48.1 |       |  |       | 5.9  |      
|                         
|                         
|                         
|                         
|                          | System sales and consulting fees     |                          |        | 917                |       |            |        | 1,020 |       |      |        | 24.6 |       |  |       | 31.3 |      
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|                          |                                      | Total cost of revenue    |        |                    | 2,713 |            |        |       | 1,211 |      |        |      | 72.7  |  |       |      | 37.1  | 
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|GROSS PROFIT              |                                      |                          | 1,017  |                    |       |            | 2,052  |       |       |      | 27.3   |      |       |  | 62.9  |     
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|OPERATING EXPENSES:       |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|                          | Sales and marketing                  |                          |        | 1,950              |       |            |        | 1,625 |       |      |        | 52.3 |       |  |       | 49.8 |      
|                         
|                         
|                         
|                         
|                          | Research and development             |                          |        | 1,977              |       |            |        | 795   |       |      |        | 53.0 |       |  |       | 24.4 |      
|                         
|                         
|                         
|                         
|                          | General and administrative           |                          |        | 1,778              |       |            |        | 1,166 |       |      |        | 47.7 |       |  |       | 35.7 |      
|                         
|                         
|                         
|                         
|                          | Amortization of intangible assets    |                          |        | 480                |       |            |        | 87    |       |      |        | 12.9 |       |  |       | 2.7  |      
|                         
|                         
|                         
|                         
|                          | Restructuring charge                 |                          |        | 729                |       |            |        |      |       |      |        | 19.5 |       |  |       | 0.0  |      
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|                          |                                      | Total operating expenses |        |                    | 6,914 |            |        |       | 3,673 |      |        |      | 185.4 |  |       |      | 112.6 | 
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|LOSS FROM OPERATIONS      |                                      |                          | (5,897 | )                  |       |            | (1,621 | )     |       |      | (158.1 | )    |       |  | (49.7 | )   
|                         
|                         
|                         
|                         
|INTEREST AND OTHER INCOME |                                      |                          | 181    |                    |       |            | 512    |       |       |      | 4.8    |      |       |  | 15.7  |     
|                         
|                         
|                         
|                         
|INTEREST EXPENSE          |                                      |                          | (8     | )                  |       |            | (17    | )     |       |      | (0.2   | )    |       |  | (0.5  | )   
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     
|NET LOSS                  |                                      | $                        | (5,724 | )                  |       | $          | (1,126 | )     |       |      | (153.5 | )%   |       |  | (34.5 | )%  
|                          |                                      |                          |        |                    |       |            |        |       |       |      |        |      |       |  |       |     

11



---



##### Table of Contents



|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |      |       | 
|------------------------- | ------------------------------------ | ------------------------ | ------- | ---------------- | ------ | ---------- | ------ | ----- | ----- | ---- | ------ | ---- | ----- |  | ----- | ---- | ----- | 
|                          |                                      |                          |         | Six month period |        | Percent of
|                          |                                      |                          |         | ended June 30,   |        | Revenues  
|                          |                                      |                          |         |                  |        |           
|                          |                                      |                          |         | 2001             |        | 2000       |        | 2001  |       | 2000
|                          |                                      |                          |         |                  |        |            |        |       |       |     
|REVENUE:                  |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|                          | Program revenue and maintenance fees |                          | $       | 5,409            |        |            | $      | 1,305 |       |      |        | 68.1 | %     |  |       | 23.0 | %    
|                         
|                         
|                         
|                         
|                          | System sales and consulting fees     |                          |         | 2,533            |        |            |        | 4,370 |       |      |        | 31.9 |       |  |       | 77.0 |      
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|                          |                                      | Total revenues           |         |                  | 7,942  |            |        |       | 5,675 |      |        |      | 100.0 |  |       |      | 100.0 | 
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|COST OF REVENUE:          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|                          | Program revenue and maintenance fees |                          |         | 3,352            |        |            |        | 376   |       |      |        | 42.2 |       |  |       | 6.6  |      
|                         
|                         
|                         
|                         
|                          | System sales and consulting fees     |                          |         | 2,071            |        |            |        | 2,057 |       |      |        | 26.1 |       |  |       | 36.2 |      
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|                          |                                      | Total cost of revenue    |         |                  | 5,423  |            |        |       | 2,433 |      |        |      | 68.3  |  |       |      | 42.9  | 
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|GROSS PROFIT              |                                      |                          | 2,519   |                  |        |            | 3,242  |       |       |      | 31.7   |      |       |  | 57.1  |     
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|OPERATING EXPENSES:       |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|                         
|                         
|                         
|                         
|                          | Sales and marketing                  |                          |         | 3,506            |        |            |        | 3,301 |       |      |        | 44.2 |       |  |       | 58.2 |      
|                         
|                         
|                         
|                         
|                          | Research and development             |                          |         | 3,920            |        |            |        | 1,456 |       |      |        | 49.4 |       |  |       | 25.7 |      
|                         
|                         
|                         
|                         
|                          | General and administrative           |                          |         | 4,474            |        |            |        | 2,287 |       |      |        | 56.3 |       |  |       | 40.3 |      
|                         
|                         
|                         
|                         
|                          | Amortization of intangible assets    |                          |         | 1,066            |        |            |        | 138   |       |      |        | 13.4 |       |  |       | 2.4  |      
|                         
|                         
|                         
|                         
|                          | Restructuring charge                 |                          |         | 729              |        |            |        |      |       |      |        | 9.2  |       |  |       | 0.0  |      
|                         
|                         
|                         
|                         
|                          | Asset impairment                     |                          |         | 704              |        |            |        |      |       |      |        | 8.9  |       |  |       | 0.0  |      
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|                          |                                      | Total operating expenses |         |                  | 14,399 |            |        |       | 7,182 |      |        |      | 181.3 |  |       |      | 126.6 | 
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|LOSS FROM OPERATIONS      |                                      |                          | (11,880 | )                |        |            | (3,940 | )     |       |      | (149.6 | )    |       |  | (69.4 | )   
|                         
|                         
|                         
|                         
|INTEREST AND OTHER INCOME |                                      |                          | 477     |                  |        |            | 783    |       |       |      | 6.0    |      |       |  | 13.8  |     
|                         
|                         
|                         
|                         
|INTEREST EXPENSE          |                                      |                          | (13     | )                |        |            | (25    | )     |       |      | (0.2   | )    |       |  | (0.4  | )   
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     
|NET LOSS                  |                                      | $                        | (11,416 | )                |        | $          | (3,182 | )     |       |      | (143.7 | )%   |       |  | (56.1 | )%  
|                          |                                      |                          |         |                  |        |            |        |       |       |      |        |      |       |  |       |     

Comparison of the three and six-month periods ended June 30, 2001 to the three
and six-month periods ended June 30, 2000

We have reclassified our revenue into two distinct revenue streams starting
with the first quarter of 2001. 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 2000 have been re-categorized into these groups for
comparison purposes.

Total revenue for the three-month period ended June 30, 2001 and 2000 was
$3,730,000 and $3,263,000, respectively. Total revenue for the six-month
period ended June 30, 2001 and 2000 was $7,942,000 and $5,675,000,
respectively. The increases in revenue were primarily due to an increase in
program revenue and maintenance fees.

12



---



##### Table of Contents



Program revenue and maintenance fees increased by $2,349,000 or 385% from
$611,000 in the three-month period ended June 30, 2000 to $2,960,000 in the
three-month period ended June 30, 2001. Program revenue and maintenance fees
increased by $4,104,000 or 314% from $1,305,000 in the six-month period ended
June 30, 2000 to $5,409,000 in the six-month period ended June 30, 2001. The
increases were due to the addition of DSBuilder, DSManager and Managing from
Tomorrow to our product mix. These products were acquired as part of the
recent acquisition of the assets of ProMedex and the acquisition of
PatientCentrix, Inc. more fully discussed in the Overview section.

System sales and consulting fees decreased by $1,882,000 or 71.0% from
$2,652,000 in the three-month period ended June 30, 2000 to $770,000 in the
three-month period ended June 30, 2001. The decrease in system sales and
consulting fees resulted from reduced sales of our medical management software
products, partially offset by an increase in ad-hoc consulting fees and other
services rendered in connection with our DSBuilder and DSManager products.

During the three-month period ended June 30, 2001, two customers accounted for
27.9% and 12.0% of our total revenues. Three customers accounted for 34%, 14%
and 13% of the total revenues for the three-month period ended June 30, 2000.

Cost of program revenue and maintenance fees consist principally of personnel
related expenses, product costs, related department overhead, amortization of
unearned stock-based compensation and depreciation on equipment. Cost of
program revenue and maintenance fees increased $1,605,000 or 840% from $191,000
for the three-month period ended June 30, 2000 to $1,796,000 for the
three-month period ended June 30, 2001. Cost of program revenue and maintenance
fees increased by $2,976,000 or 791.5% from $376,000 for the six-month period
ended June 30, 2000 to $3,352,000 for the six-month period ended June 30, 2001.
The increase was primarily due to additional salaries, benefits, other
personnel-related expenses associated with the recent acquisitions discussed in
the Overview section and stock-based compensation expense further discussed
below. Additional expenses from the inclusion of the acquired companies
include the provision of certain specific direct costs associated with the
delivery of our Managing for Tomorrow programs that require educational and
other medical related supplies to be sent to participants. None of these
revenues or direct costs were part of our activities in the three or six-month
periods ended June 30, 2000 and directly effected the gross margins
accordingly. We expect the cost of program revenues and maintenance fees will
increase in line with the increase in associated revenues as we expand our
customer base. We cannot yet determine the impact that these anticipated
increased costs or increased revenues will have on our gross margin
percentages.

Cost of system sales and consulting fees consists 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 three-month period ended
June 30, 2001 these costs decreased $103,000 or 10.1% from $1,020,000 in the
three-month period ended June 30, 2000 to $917,000 for the three-month period
ended June 30, 2001. The decrease in the cost of system sales and consulting
fees was primarily due to reduced personnel related expenses due to the

13



---



##### Table of Contents



May
2001 reduction in force discussed above. During the six-month period ended
June 30, 2001 these costs increased $14,000 or 0.7% from $2,057,000 in the
six-month period ended June 30, 2000 to $2,071,000 for the six-month period
ended June 30, 2001. The increase was primarily due to additional costs
associated with the service delivery.

Gross profit decreased $1,035,000, or 50.4% from $2,052,000 or 62.9% of
revenues for the three-month period ended June 30, 2000 to $1,017,000 or 27.3%
of revenues during the corresponding period in 2001. Gross profit decreased
$723,000, or 22.3% from $3,242,000 to $2,519,000 or 57.1% for the six-month
period ended June 30, 2000 to 31.7% during the corresponding period in 2001.
The decreases in gross profit were primarily due to the addition of DSBuilder,
DSManager and Managing from Tomorrow to our product mix and reduced sales for
our medical management software products.

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 three-month period ended June 30, 2001
amounted to $1,950,000 representing 52.3% of total revenues, in comparison with
$1,625,000 representing 49.8% of total revenues during the corresponding
three-month period ended June 30, 2000. Sales and marketing expenses increased
$325,000 or 20.0% from the three-month period ended June 30, 2000. The
increase was primarily due to increased personnel-related expenses associated
with the recent acquisitions discussed in the Overview section. Sales and
marketing expenses during the six-month period ended June 30, 2001 were
$3,506,000, representing 44.2% of total revenue as compared with $3,301,000
representing 58.2% of total revenues during the corresponding six-month period
ended June 30, 2000. The increases were primarily due to increased
personnel-related expenses associated with the recent acquisitions discussed in
the Overview section. The increase for the six-month period ended June 30,
2001 was offset by a decrease in headcount of employees responsible for the
sale of the e-maxMC, maxMC and Maxsys II products for the comparable period of
2000.

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 increased $1,182,000, or 148.7%
from $795,000 in the three-month period ended June 30, 2000 to $1,977,000 in
the three-month period ended June 30, 2001. Research and development expenses
increased $2,464,000, or 169.2% from $1,456,000 in the six-month period ended
June 30, 2000 to $3,920,000 in the six-month period ended June 30, 2001. These
increases were primarily due to increases in salaries, benefits and other
personnel-related expenses and stock-based compensation expense arising from
both of our recent acquisitions, described in the Overview section. These costs
were not present in the corresponding three and six-month periods of 2000. We
expect these costs to decrease as a result of the reductions in force discussed
above.

General and administrative expenses consist of compensation for personnel, fees
for outside professional services, costs associated with maintaining the
company as a public corporation, amortization of unearned stock-based
compensation, and allocated occupancy and overhead costs. General and
administrative expenses increased $612,000 or 52.5% from $1,166,000 in the
three-month period ended June 30, 2000 to $1,778,000 in the three-month period
ended June 30,

14



---



##### Table of Contents



2001. General and administrative expenses increased $2,187,000,
or 95.6% from $2,287,000 in the six-month period ended June 30, 2000 to
$4,474,000 in the six-month period ended June 30, 2001. Approximately $707,000
of this increase in the six-month period ended June 30, 2001 related to a
specific increase in our bad debt reserve for a customers total outstanding
balance. This customer is having financial difficulty in meeting their payment
obligations. Additionally, the balance of the increase in both the three and
six-month periods ended June 30, 2001 was due to: additional employees arising
from the recent acquisitions as discussed in the Overview section; higher
professional service fees, stock-based compensation expenses, further discussed
below, together with other costs associated with operating as a public company
and additional office space assumed with our recent acquisitions associated
with our population health management product offerings.

Amortization of intangible assets increased $393,000, or 451.7% from $87,000 in
the three-month period June 30, 2000 to $480,000 in the three-month period
ended June 30, 2001. Amortization of intangible assets increased $928,000, or
672.5% from $138,000 in the six-month period ended June 30, 2000 to $1,066,000
in the six-month period ended June 30, 2001. The increase in the three and
six-month periods ended June 30, 2001 is due to additional amortization expense
as a result of additional goodwill related to our acquisitions made last year.
These acquisitions are all more fully described in the Overview section.

A restructuring charge of $729,000 was recorded in the three and six-month
periods ended June 30, 2001. The costs included in the restructuring charge
relate to severance costs and the closing of the IMG operations. In May 2001,
the Company announced a reduction in work force representing approximately 16%,
or 40 employees of the Companys total work force. During May 2001, the Company
also announced its plan to discontinue operations of IMG. In July 2001, the
Company discontinued operations of IMG.

On May 9, 2001 we announced and recorded an asset impairment charge of $704,000
in the three-month period ended March 31, 2001 on intangible assets acquired in
connection with the acquisition of IMG. In May 2001, management determined
that the operations of IMG should be discontinued due to the slowdown in the
web design and consulting industry. The IMG operations were discontinued on
July 9, 2001. The employees of IMG are included in the description of our
reduction in workforce found in the Overview section.

In connection with certain stock option grants and common stock issuance during
the years ended December 31, 1998, 1999 and 2000, we recognized unearned
compensation totaling $4,166,000, $1,610,000 and $1,521,000 respectively. The
2000 figure of $1,521,000 is net of a credit of $112,000 relating to employees
who have left the Company. This unearned stock based compensation is being
amortized over the vesting periods or as the Companys repurchase rights lapse
(See Note 5 of Notes to Financial Statements for year ended December 31, 2000),
as applicable, using the multiple option approach prescribed by FIN No. 28.
Amortization expense of unearned stock based compensation recognized during the
three-month period ended June 30, 2000 and 2001 were $507,000 and $338,000,
respectively. Amortization expense of unearned stock based compensation
recognized during the six-month period ended June 30, 2000 and 2001 were
$1,029,000 and $820,000, respectively. Amortization expense of unearned stock
based compensation was allocated to cost of sales and operating expenses.

15



---



##### Table of Contents



Interest and other income consisted primarily of earnings on our invested cash
and cash equivalents. Interest and other income decreased $331,000, or 64.6%
from $512,000 in the three-month period ended June 30, 2000 to $181,000 in the
three-month period ended June 30, 2001. Interest and other income decreased
$306,000, or 39.1% from $783,000 in the six-month period ended June 30, 2000 to
$477,000 in the six-month period ended June 30, 2001 The decrease in interest
and other income is primarily due to lower balances of cash and cash
equivalents held during the three and six-month periods ended June 30, 2001.
Lower effective interest rates also contributed to the decrease in interest and
other income.

Interest expense decreased $9,000, or 52.9% from $17,000 in the three-month
period ended June 30, 2000 to $8,000 in the three-month period ended June 30,
2001. Interest expense decreased $12,000, or 48.0% from $25,000 in the
six-month period ended June 30, 2000 to $13,000 in the six-month period ended
June 30, 2001. The decrease in interest expense is due to lower debt balances.

Provision for Income Tax. We recorded no current provision or benefit for
federal or state income taxes for the three and six-month periods ended June
30, 2000 or 2001, as the Company had incurred net operating losses and had no
carry-back potential. As of June 30, 2001, we had approximately $17 million in
net operating loss carry-forwards for federal tax purposes and approximately $8
million for state tax purposes. These federal and state tax loss carry-forwards
are available to reduce future taxable income. Utilization of such
carry-forwards may be limited in certain circumstances including, but not
limited to, cumulative stock ownership changes of more than 50 percent over a
three-year period and will expire at varying amounts during the period from
December 31, 2000 to 2014. We believe that there were cumulative changes of
ownership of greater than 50 percent in February 1998. Accordingly, the amount
of loss carry-forwards that may be utilized to reduce future taxable income for
federal and state income tax purposes may be limited. The amount of the
limitation has not yet been calculated. We have not recognized a deferred tax
asset on our balance sheet.

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. In
addition, during February 2000, we completed our initial public offering in
which we raised net proceeds of approximately $35 million. As of June 30, 2001,
we had $15.8 million in cash and cash equivalents and $10.0 million in working
capital with outstanding debt totaling $0.3 million.

Net cash used in operating activities increased by $2.6 million to $5.6 million
for the six-month period ended June 30, 2001, from $3.0 million for the
comparable period in 2000. The primary contributions to cash from operating
activities during the six-month period ended June 30, 2001 were depreciation
and amortization of intangible assets, provision for bad and doubtful accounts,
charges for amortization of unearned stock-based compensation and impairment of
intangible assets, a decrease in net accounts receivable and an increase in
accounts payable and accrued liabilities, offset by an increase in other
current assets and deferred revenue. The Company implemented new collections
procedures during the six-month period ended June 30, 2001, which contributed
to the decrease in outstanding accounts receivable.

16



---



##### Table of Contents



Net cash used in investing activities decreased $97,000 from $636,000 in the
six-month period ended June 30, 2000 to $539,000 in the six-month period ended
June 30, 2001. Investing activities consist primarily of purchases of computer
equipment, office furniture and leasehold improvements, and additions to
capitalized software development costs.

Net cash provided by financing activities was $162,000 for the six-month period
ended June 30, 2001 and $34.5 million for the comparable period in 2000. Net
cash provided by financing activities in 2001 resulted from the proceeds from
the exercise of common stock options less certain finance lease payments. Net
cash provided by financing activities in 2000 resulted from the issuance of
common stock in connection with the Companys initial public offering that was
completed during February 2000 less the initial payment for the acquisition of
Interactive Media Group, as described more fully below, and additional finance
lease payments.

We purchased our Interactive Media Group assets from High Technology Solutions,
Inc. on January 31, 2000. In connection with that acquisition, we paid High
Technology Solutions, Inc. $250,000 and delivered a promissory note in the
principal amount of $1,000,000. We paid off the balance of the promissory note
in April 2000.

On October 27, 2000 we acquired the business assets and liabilities of ProMedex
from PMX Holdings, Inc. for $4,632,000, consisting of $585,000 cash, $516,000
of the Companys common stock (250,000 shares), other acquisition related
expenses of approximately $319,000, consisting primarily of payment for legal
and financial advisory services and the assumption of liabilities of
$3,212,000. It is anticipated that there will be additional net cash
expenditures required to fund this unit before it will become cash flow neutral
or cash flow positive.

On November 2, 2000 we acquired all of the shares of PatientCentrix, Inc. for
$5,850,000 in cash, the issuance of 1,157,000 shares of the Companys common
stock and assumption of all the issued and outstanding options of
PatientCentrix, Inc.

On May 9, 2001 and August 8, 2001 we announced a reduction in our work force of
approximately 16%, or 40 employees and 18%, or 36 employees, respectively.
This included the closing of our IMG operation on July 9, 2001, as well as the
elimination of a number of positions in our medical management operations. We
have taken these actions as a result of industry-wide slowdowns in the web
design and consulting industry and medical management software industry. We
expect these actions to save us approximately $7.1 million in annual operating
cost.

We may utilize cash resources to fund additional 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 February 2000 offering will be sufficient to meet our working capital and
operating expense requirements for at least 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 financing. There can
be no assurance that additional financing, if required, will be available to
the Company in amounts or on terms acceptable to the Company.

17



---



##### Table of Contents






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

| |  |                                                                                                                                                                                                                                                                                                                                    
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company held its 2001 Annual Meeting of Stockholders on June 27, 2001.
There were 15,568,183 shares of Common Stock entitled to vote at the meeting
and a total of 13,447,437 shares were represented at the meeting in person
or by proxy. Following are descriptions of the matters voted on and the
results of such meeting:
|
|
|
|
|
|
|
|
|
|
|
|
| |  | Proposal 1. Election of Directors                                                                                                                                                                                                                                                                                                  

|                       |  |           |            |                |  |  |         | 
|---------------------- |  | --------- | ---------- | -------------- |  |  | ------- | 
|                       |  | Votes For |            | Votes Withheld
|                       |  |           |            |               
|Eugene Santa Cattarina |  |           | 13,205,160 |                |  |  | 242,277 | 
|                      
|                      
|                      
|                      
|Howard Cox             |  |           | 13,402,273 |                |  |  | 45,164  | 
|                      
|                      
|                      
|                      
|Jerome Grossman, MD    |  |           | 13,402,273 |                |  |  | 45,164  | 
|                      
|                      
|                      
|                      
|Bryan Lang             |  |           | 13,222,771 |                |  |  | 224,666 | 
|                      
|                      
|                      
|                      
|Jason Rosenbluth, MD   |  |           | 13,402,273 |                |  |  | 45,164  | 
|                      
|                      
|                      
|                      
|Thomas Stephenson      |  |           | 13,402,273 |                |  |  | 45,164  | 

18



---



##### Table of Contents



| |  |                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Proposal 2. The appointment of PricewaterhouseCoopers LLP as the Companys
independent public accountants for the fiscal year ending December 31,
2001

|           |  |               |        |         |  |  |        | 
|---------- |  | ------------- | ------ | ------- |  |  | ------ | 
|Votes For  |  | Votes Against |        | Abstain
|           |  |               |        |        
|13,416,964 |  |               | 10,762 |         |  |  | 19,711 | 




Item 5. Other Information

None




Item 6. Exhibits and Reports on Form 8-K

None




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: August 14, 2001 |  |                                                                                                                        
|                      
|                       |  | By:  /s/ Eugene Santa CattarinaEugene Santa CattarinaPresident and Chief Executive Office
(principal executive officer)
|                      
|Dated: August 14, 2001 |  |                                                                                                                        
|                      
|                       |  | By:   /s/ Mark RapoportMark RapoportChief Financial Officer                                                            

19