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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the fiscal year ended December 31, 2004                                                 

Commission file number 000-29273


Quovadx, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                                                |  |                                         
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                                        |  | 85-0373486                              
|(State or other jurisdiction of
    incorporation or organization)                                              |  | (I.R.S. Employer
    Identification No.)
|                                                                                                               
|6400 S. Fiddlers Green Circle,
    Suite 1000,
    Englewood, Colorado(Address of principal executive offices) |  | 80111(Zip Code)                         

Registrants telephone number, including area code:


(303) 488-2019


Securities registered pursuant to Section 12(b) of the
Act:


None


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


|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of Each Class                     |  | Name of Each Exchange on Which Registered
|                                        |  |                                          
|Common Stock, par value $0.01 per share |  | NASDAQ                                   

þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS


|                                                         |  |                                                                                                    |     |  |      |  |  | 
|-------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | --- |  | ---- |  |  | 
|Item                                                     |  |                                                                                                    |     |  |     
|Number                                                   |  |                                                                                                    |     |  | Page | 
|                                                         |  |                                                                                                    |     |  |      | 
|PART I                                                  
|1.                                                       |  | Business                                                                                           |     |  | 1    | 
|2.                                                       |  | Properties                                                                                         |     |  | 11   | 
|3.                                                       |  | Legal Proceedings                                                                                  |     |  | 12   | 
|4.                                                       |  | Submission of Matter to a Vote of Security
    Holders                                             |     |  | 13   | 
|PART II                                                 
|5.                                                       |  | Market for Registrants Common Equity
    and Related Stockholder Matters                          |     |  | 14   | 
|6.                                                       |  | Selected Financial Data                                                                            |     |  | 15   | 
|7.                                                       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations          |     |  | 17   | 
|7A.                                                      |  | Qualitative and Quantitative Disclosures
    About Market Risk                                     |     |  | 34   | 
|8.                                                       |  | Consolidated Financial Statements and
    Supplementary Data                                       |     |  | 34   | 
|9.                                                       |  | Changes In and Disagreements With
    Accountants on Accounting and Financial Disclosure           |     |  | 34   | 
|9A.                                                      |  | Controls and Procedures                                                                            |     |  | 34   | 
|9B.                                                      |  | Other Information                                                                                  |     |  | 37   | 
|PART III                                                
|10.                                                      |  | Directors and Executive Officers of the
    Registrant                                             |     |  | 37   | 
|11.                                                      |  | Executive Compensation                                                                             |     |  | 37   | 
|12.                                                      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters |     |  | 37   | 
|13.                                                      |  | Certain Relationships and Related
    Transaction                                                  |     |  | 37   | 
|14.                                                      |  | Principal Accountant Fees and Services                                                             |     |  | 38   | 
|PART IV                                                 
|15.                                                      |  | Exhibits and Financial Statement
    Schedules                                                     |     |  | 38   | 
|Signatures                                               |  |                                                                                                    | 42  | 
|Consolidated Financial Statements                        |  |                                                                                                    | F-1 | 
|Schedule II  Valuation and
    Qualifying Accounts      |  |                                                                                                    | S-1 | 
|Amended/Restated 1997 Stock Plan and Related Agreement  
|Amendment to Office Lease Agreement                     
|Estoppel Agreement                                      
|Code of Business Conduct and Ethics                     
|Code of Ethics for Senior Financial Officers            
|Subsidiaries of the Registrant                          
|Consent of Independent Registered Public Accounting Firm
|Certification of CEO                                    
|Certification of CFO                                    
|Certification of CEO                                    
|Certification of CFO                                    



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FORWARD-LOOKING STATEMENTS




Trademarks




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PART I







|        |         
|------- | --------
|Item 1. | Business



Industry Background










| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | leverage existing investment in legacy systems, without
    disrupting operations;        
|
| |  | allow simultaneous access across multiple locations around the
    world;                 
|
| |  | improve the look and feel of applications and user interfaces to
    enhance productivity;
|
| |  | increase efficiency with new functionality and streamlined
    business processes; and    
|
| |  | provide an attractive return on investment.                                               

The QUOVADX Solution




Preserve investment in legacy systems.


Extend access to applications through Web service and
Web-based applications.


Expand efficiency and productivity via integration and
streamlined workflow.


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The Company in 2004










.




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The Company Today




Integration Solutions Division






| |                          
| | -------------------------
| | ISD Products and Services





Cloverleaf® Integration Suite. tm




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| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Data Integrator  an open database connectivity
    (ODBC) based component that enables data level
    integration with industry-leading database managements systems
    such as Oracle, Sybase, Microsoft SQL Server and DB2
|
| |  | Security Server  a user-based identification,
    authentication and authorization tool that secures access to
    specified modules within the integrated environment to protect
    your critical data and processes         
|
| |  | Secure Messenger  message encryption and user
    authentication technology to ensure the privacy and
    confidentially of sensitive data when shared among external
    partners                                             
|
| |  | Global Monitor  the ability to monitor message
    flow, with a single Web browser, through all Cloverleaf®
    engines in your integrated environment                                                                         

Screen Rejuvenator.


Business Process Management Services  Process
Level Integration.


Cash Accelerator Suite  INSURENET® Hub.


Cash Accelerator Suite  INSURENET®
Direct.


Identity Services. tm tm




| |                          
| | -------------------------
| | ISD Markets and Customers



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CareScience Division






| |                                  
| | ---------------------------------
| | CareScience Products and Services

Care Management System.




| |   |                                                       
| | - | ------------------------------------------------------
| |  | improving patient throughput,                         
|
| |  | reducing medical errors and complications,            
|
| |  | improving compliance with evidence-based medicine, and
|
| |  | improving documentation and information handling.     











Care Data Exchange® Solution.


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| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | A patient-centric view of clinical data across the
    community  essential for clinical safety and
    efficient care delivery,
|
| |  | an automated copy of key medical record components, authorized
    user only access and an audit trail for record viewing,       
|
| |  | a highly scalable model for internal and cross-enterprise data
    sharing with low marginal expansion costs, and                
|
| |  | full, local control of their respective data assets for each
    participating organization.                                     





| |                                  
| | ---------------------------------
| | CareScience Markets and Customers





Rogue Wave Software Division






| |                                 
| | --------------------------------
| | Rogue Wave Products and Services



Lightweight Enterprise Integration Framework.


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SourcePro® C++ Suite.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multiplatform Support. Cross-platform support allows
    technologists to develop applications and deploy software
    systems in a wide variety of environments with minimal
    development modification. SourcePro C++ tools incorporate basic
    and routine operations, allowing developers to focus on creating
    the business logic in an application, rather than the low-level
    details of their development environments. Currently SourcePro
    supports 48 separate hardware/operating system platforms and 13
    databases.
|
| |  | Support for Distributed Applications. Programmers who
    develop complicated, large and distributed applications can use
    the SourcePro C++ products to make their applications work in
    concert, across multiple systems, interfacing seamlessly.                                                                                                                                                                                                                                                                                       
|
| |  | Enterprise Scalability. SourcePro C++ tools help
    programmers develop flexible, modular applications that can be
    easily extended and enhanced.                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Highly Customizable. SourcePro C++ enables developers to
    customize the components for their own specialized applications.
    Developers can use the standard application programming
    interfaces and avoid granular programming details, or can drill
    down to the native code when required.                                                                                                                                                                                                                                        
|
| |  | Tailored Application. The SourcePro C++ Suite consists of
    four modules, each tailored for a specific area of C++
    application development:                                                                                                                                                                                                                                                                                                                                                                                               



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | Source® Pro Core handles the low-level intricacies of the
    C++ language, which enhances developer productivity.                 
|
| |  | Source® Pro DB provides a consistent, high-level C++
    interface to work with relational databases from 13 different
    vendors.
|
| |  | Source® Pro Net supplies components for building network
    and Internet-enabled applications.                                    
|
| |  | Source® Pro Analysis delivers components for solving
    mathematical problems in business and research.                           

Stingray®






| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | Stingray Studio is a comprehensive set of integrated components
    for developing GUIs with the latest Microsoft look and feel.

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| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Objective Grid is an advanced grid component that mimics many of
    the features of Microsoft® Excel®, including support
    for database connectivity.                                                                                                          
|
| |  | Objective Toolkit is a broad library of drop-in components that
    address areas not covered by Microsoft Foundation Classes
    (MFC) and ActiveX libraries, which contain a
    set of basic C++ building blocks for creating Windows based
    applications.



HostAccess®




| |                                 
| | --------------------------------
| | Rogue Wave Markets and Customers









Competition








| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Brand recognition and market awareness,                                           
|
| |  | product and features, functionality and quality,                                  
|
| |  | service offering levels and quality,                                              
|
| |  | internal development operations with the Companys customer
    and prospect base,
|
| |  | ease and timeliness of implementation,                                            
|
| |  | adequate infrastructure,                                                          
|
| |  | technical and industry-specific domain expertise, and                             

8



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| |   |                     
| | - | --------------------
| |  | financial resources.





Sales, Marketing and Strategic Alliances








Major Customers




Intellectual Property






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Government Regulation








| |                                    
| | -----------------------------------
| | HIPAA Administrative Simplification





| |        
| | -------
| | Privacy





| |                                   
| | ----------------------------------
| | Regulation of Transaction Services



10



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| |         
| | --------
| | Security





Employees













|        |           
|------- | ----------
|Item 2. | Properties



11



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Bartula v. XCare.net,
Inc., et al.


Smith v. Quovadx, Inc.
et al Heller v.
Quovadx, Inc., et al Heller inter
alia


Marcoux v. Brown et al


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Thornton v. Brown et al. Jaroslawicz v. Brown,
et al.


Henderson v. Quovadx, Inc.
et al sub
judice.













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



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PART II







|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters



|                                                 |  |      |      |  |     |   |      | 
|------------------------------------------------ |  | ---- | ---- |  | --- | - | ---- | 
|                                                 |  | High |      |  | Low |  
|                                                 |  |      |      |  |     |  
|2003                                             |  |      |      |  |     |   |      | 
|First Quarter                                    |  | $    | 2.68 |  |     | $ | 1.53 | 
|Second Quarter                                   |  |      | 3.40 |  |     |   | 1.88 | 
|Third Quarter                                    |  |      | 4.82 |  |     |   | 3.00 | 
|Fourth Quarter                                   |  |      | 5.36 |  |     |   | 3.79 | 
|2004                                             |  |      |      |  |     |   |      | 
|First Quarter                                    |  | $    | 6.70 |  |     | $ | 3.11 | 
|Second Quarter                                   |  |      | 3.88 |  |     |   | 1.00 | 
|Third Quarter                                    |  |      | 2.20 |  |     |   | 1.10 | 
|Fourth Quarter                                   |  |      | 2.39 |  |     |   | 1.69 | 
|2005                                             |  |      |      |  |     |   |      | 
|First Quarter (January 1, 2005 to March 4, 2005) |  | $    | 2.92 |  |     | $ | 2.05 | 





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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |        |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------------- | ------- | ---------- | ---- | - | ---------- | ---- |  | - | -------- | - |  | ---- | ------ | - |  | - | ------- | -
|                                                                   |  | Year Ended December 31,               |        
|                                                                   |  |                                       |        
|                                                                   |  | 2004                                  |         |            | 2003 |   |            | 2002 |  |   | 2001     |   |  | 2000 |       
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       
|                                                                   |  | (In thousands, except per share data) |        
|                                                                   |  |                                       |         | (Restated) |      |   | (Restated) |      |  |  
|Statement of Operations Data:                                      |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |        |   |  |   |         |  
|Total revenue                                                      |  | $                                     | 82,801  |            |      | $ | 64,928     |      |  | $ | 60,623   |   |  | $    | 46,808 |   |  | $ | 7,883   |  
|Total costs and expenses                                           |  |                                       | 109,824 |            |      |   | 82,505     |      |  |   | 74,190   |   |  |      | 54,711 |   |  |   | 30,184  |  
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       
|Loss from operations                                               |  |                                       | (27,023 | )          |      |   | (17,577    | )    |  |   | (13,567  | ) |  |      | (7,903 | ) |  |   | (22,301 | )
|Gain on sale of assets                                             |  |                                       | 1,535   |            |      |   |           |      |  |   | 87       |   |  |      |       |   |  |   |        |  
|Goodwill impairment                                                |  |                                       |        |            |      |   |           |      |  |   | (93,085  | ) |  |      |       |   |  |   |        |  
|Interest income, net                                               |  |                                       | 355     |            |      |   | 694        |      |  |   | 1,035    |   |  |      | 3,101  |   |  |   | 5,027   |  
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       
|Loss before income taxes                                           |  |                                       | (25,133 | )          |      |   | (16,883    | )    |  |   | (105,530 | ) |  |      | (4,802 | ) |  |   | (17,274 | )
|Income tax expense                                                 |  |                                       | 133     |            |      |   |           |      |  |   |         |   |  |      |       |   |  |   |        |  
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       
|Loss from continuing operations                                    |  |                                       | (25,266 | )          |      |   | (16,883    | )    |  |   | (105,530 | ) |  |      | (4,802 | ) |  |   | (17,274 | )
|Income from discontinued operations                                |  |                                       | 589     |            |      |   | 406        |      |  |   | 763      |   |  |      | 533    |   |  |   | (43     | )
|Gain on sale of discontinued operations                            |  |                                       | 446     |            |      |   |           |      |  |   |         |   |  |      |       |   |  |   |        |  
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       
|Net loss                                                           |  | $                                     | (24,231 | )          |      | $ | (16,477    | )    |  | $ | (104,767 | ) |  | $    | (4,269 | ) |  | $ | (17,317 | )
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       
|Net loss per common share  basic and diluted                      |  | $                                     | (0.61   | )          |      | $ | (0.52      | )    |  | $ | (3.49    | ) |  | $    | (0.20  | ) |  | $ | (1.20   | )
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       
|Weighted average common shares outstanding  basic and
    diluted |  |                                       | 39,892  |            |      |   | 31,407     |      |  |   | 29,987   |   |  |      | 21,308 |   |  |   | 14,399  |  
|                                                                   |  |                                       |         |            |      |   |            |      |  |   |          |   |  |      |       

|                                                  |  |                |         |            |      |   |            |      |  |   |         |  |  |      |         |  |  |   |        | 
|------------------------------------------------- |  | -------------- | ------- | ---------- | ---- | - | ---------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------ | 
|                                                  |  | December 31,   |        
|                                                  |  |                |        
|                                                  |  | 2004           |         |            | 2003 |   |            | 2002 |  |   | 2001    |  |  | 2000 |        
|                                                  |  |                |         |            |      |   |            |      |  |   |         |  |  |      |        
|                                                  |  | (In thousands) |        
|                                                  |  |                |         | (Restated) |      |   | (Restated) |      |  |  
|Balance Sheet Data:                               |  |                |         |            |      |   |            |      |  |   |         |  |  |      |         |  |  |   |        | 
|Cash, cash equivalents and short-term investments |  | $              | 24,847  |            |      | $ | 23,688     |      |  | $ | 47,621  |  |  | $    | 63,486  |  |  | $ | 78,319 | 
|Working capital                                   |  |                | 9,161   |            |      |   | 7,747      |      |  |   | 50,210  |  |  |      | 62,659  |  |  |   | 82,759 | 
|Total assets                                      |  |                | 123,945 |            |      |   | 155,190    |      |  |   | 104,384 |  |  |      | 214,704 |  |  |   | 96,908 | 
|Stockholders equity                              |  | $              | 90,398  |            |      | $ | 111,975    |      |  | $ | 86,293  |  |  | $    | 188,887 |  |  | $ | 92,839 | 





| |   |                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our registration statement on Form S-1 covering our initial
    public offering (the Offering) of
    5,750,000 shares of common stock (including the
    underwriters over-allotment option of 750,000 shares
    of common stock) at $18.00 per share was declared effective
    on February 9, 2000. The net proceeds to

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | us from the sale of shares of our common stock in the offering
    after deducting expenses of $2.1 million and underwriting
    discounts and commissions of $7.2 million, were
    $94.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | In October 2000, the Company entered into a Software License and
    Services Agreement (the Agreement) with MedUnite,
    Inc. (MedUnite) to provide software development
    services related to a pilot program. In connection with the
    Agreement, the Company issued to MedUnite warrants to
    purchase 1,350,000 shares of Quovadx common stock at
    an exercise price of $4.06. The warrants were immediately
    vested, exercisable and non-forfeitable for a period of eighteen
    months from the date of grant. The fair value of the warrants
    was calculated to be $3.1 million and was determined using
    the Black-Scholes option pricing model utilizing a volatility
    factor of 120%, risk-free interest rate of 6.0% and an expected
    life of 18 months. The amounts billed and billable to
    MedUnite up to the date that the first pilot was delivered
    (March 2001) were reduced by the fair value attributed to the
    warrants. For the year ended December 31, 2000, the Company
    allocated $2.2 million of the warrant charge to billings
    and amounts billable. The remaining value of the warrants of
    $0.9 million was allocated to billings in the first quarter
    of 2001. In 2001, MedUnite exercised all the warrants and
    purchased 1,012,167 million shares of the Companys
    common stock.
|
| |  | In 2000, the Company purchased all the outstanding stock of
    Advica Health Resources (Advica) for
    70,000 shares of common stock in a transaction accounted
    for as a purchase. The total purchase price of Advica was
    $2.2 million. We also acquired all of the outstanding stock
    of Integrated Media Inc. (Integrated Media) for
    $2.1 million in a transaction accounted for as a purchase.
    The 2000 acquisitions generated goodwill and intangible assets
    totaling $3.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | In June 2001, the Company acquired the outstanding common stock
    of Confer Software, Inc., (Confer) by merger of a
    wholly owned subsidiary of Quovadx with Confer. The purchase
    price, totaling $6.6 million, included 592,453 shares
    of Quovadx common stock in exchange for the outstanding shares
    of Confer capital stock, the assumption of a $461,250 employee
    bonus plan that was paid in cash and $1.8 million in
    merger-related fees. In August 2001, the Company consummated the
    acquisition of Healthcare.com Corporation
    (Healthcare.com). The purchase price, totaling
    $93.1 million, included 10,702,043 shares of Quovadx
    common stock issued in exchange for all outstanding shares of
    Healthcare.com capital stock and $4.5 million in
    merger-related fees. In December 2001, the Company consummated
    the acquisition of the Pixel Group (Pixel). The
    purchase price, totaling $7.3 million, included
    $5.0 million in cash and 201,794 shares of Quovadx
    common stock in exchange for the outstanding shares of Pixel
    capital stock. The aforementioned business acquisitions were
    accounted for under the purchase method of accounting. The 2001
    acquisitions generated goodwill and intangible assets totaling
    $118.8 million.                                  
|
| |  | In March 2002, the Company completed the sale of certain assets
    of its Advica subsidiary to Royal Health Care of Long Island,
    LLC, d/b/a Royal Health Care (Royal) for $475,000 in
    cash and 4.6% of the outstanding equity in Royal. In conjunction
    with the sale, Quovadx provided ASP services to Royal under a
    seven year contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | On March 27, 2002, the Company purchased all of the
    outstanding capital stock of Outlaw Technologies, Inc.
    (Outlaw). The purchase price, totaling
    $2.7 million, included 138,575 shares of Quovadx
    common stock and $1.8 million in cash and professional fees
    directly related to the acquisition. Assets acquired included
    $1.7 million in goodwill, $0.8 in software and
    $0.7 million in other intangible assets. The transaction
    was accounted for as a purchase. Outlaws balance sheet
    included $0.3 million in current assets and
    $0.6 million in liabilities upon acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In the third quarter of 2002, the Company performed an
    assessment of the carrying value of the Companys goodwill
    recorded in connection with its various acquisitions. The
    assessment was performed pursuant to SFAS 142 because of
    the significant negative Company, industry and economic trends
    affecting the market value of the Companys common stock.
    As a result, the Company recorded a charge of $93.1 million
    to reduce goodwill during the third quarter of 2002, based on
    the amount by which the carrying amount of these assets exceeded
    their estimated fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In the third quarter of 2003, Quovadx acquired the outstanding
    stock of CareScience, Inc. (CareScience) by merger
    of a wholly owned subsidiary of Quovadx with CareScience.
    CareScience, Inc. is primarily a provider of care management
    services to hospitals and health systems. CareScience
    stockholders received a fixed exchange rate of $1.40 cash and
    0.1818 shares of Quovadx common stock for each share of
    CareScience common stock they owned. The purchase price totaling
    $30.1 million, included 2,415,900 shares of Quovadx
    common stock and $4.7 million in cash, net of acquired
    cash, in exchange for all outstanding shares of CareScience and
    $2.3 million in merger-related fees.                                                                                                                                                                                                                         
|
| |  | In the fourth quarter of 2003, Quovadx acquired the outstanding
    stock of Rogue Wave Software, Inc. (Rogue Wave) by
    merger of a wholly owned subsidiary of Quovadx with Rogue Wave.
    Rogue Wave develops, markets and supports object-oriented and
    infrastructure software technology. Rogue Wave stockholders
    received a fixed exchange rate of $4.09 in cash and
    0.5292 shares of Quovadx common stock for each share of
    Rogue Wave Common Stock they owned. The purchase price totaling
    $79.1 million, included 5,656,670 million shares of
    Quovadx common stock and $8.0 million in cash, net of
    acquired cash, in exchange for all outstanding shares of Rogue
    Wave and $3.9 million in merger-related fees.                                                                                                                                                                                                               
|
| |  | In the second quarter of 2004, the Company sold its minority
    equity investment in Royal Health Care, LLC (Royal).
    Royal is a healthcare management services company in which
    Quovadx owned an equity position. The sale price of
    $3.1 million, paid in cash, was received on June 29,
    2004. The Company recorded a $1.2 million gain on the sale
    of this asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In the third quarter of 2004, we sold the Healthcare.com domain
    name for a gain of $360,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In 2004, we incurred impairment charges totaling
    $7.2 million. We impaired $4.8 million of our
    internally developed and acquired capitalized software. Our
    decision to discontinue products resulted from our new
    managements effort to refocus our resources to products
    that would generate revenues in the near term and to conserve
    cash. We wrote off $1.7 million of the prepayments to
    Infotech for professional services, as a portion of the assets
    was deemed not recoverable due to the deterioration of the
    Companys relationship with Infotech and Infotechs
    inability to provide assurances that it can deliver those
    services in the future. We also impaired $0.7 million of
    deferred costs related to our transaction business because the
    total balance of the assets was not recoverable due to the
    cancellation of certain contracts and lower than expected
    revenues on other contracts.
|
| |  | On December 31, 2004 the Company sold the assets of its
    Albuquerque, New Mexico Data Center and its Managed Care
    Transaction Manager (MCTM) system. This hosting
    service center and MCTM system no longer fit into the
    Companys new business strategy because they represent a
    niche area of the healthcare payer segment which is not an area
    of strategic growth. The assets were sold to Royal Health Care
    Data Center, LLC, a subsidiary of Royal, for $1.9 million
    in cash. A gain of $0.4 million was recognized on the sale.
    Royal is a management services organization serving New York
    healthcare organizations. The financial statements for the years
    ended December 31, 2003, 2002, 2001 and 2000 have been
    restated to reflect the presentation of the New Mexico Data
    Center as a discontinued operation.                                                                                             






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

FORWARD LOOKING STATEMENTS




17



---



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Significant Events in 2004




Internal Review.


SEC Proceedings.


NASDAQ Listing Compliance. .


Legal Proceedings.


Enhanced Financial Disclosure Controls.


18



---



##### Table of Contents





Impairment charge.


Business and Asset Dispositions






Significant Events in 2003








| |                                                          
| | ---------------------------------------------------------
| | Restatement of Financial Statements for 2002 and
    2003



19



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|                               |  |              |        |   |              |   |       |  
|------------------------------ |  | ------------ | ------ | - | ------------ | - | ----- | -
|                               |  | Year Ended   |        |   | Year Ended   |  
|                               |  | December 31, |        |   | December 31, |  
|                               |  | 2003         |        |   | 2002         |  
|                               |  |              |        |   |              |  
|                               |  | (Restated)   |        |   | (Restated)   |  
|Decrease in total revenue      |  | $            | (1,663 | ) |              | $ | (430  | )
|Increase in net loss           |  |              | (1,783 | ) |              |   | (655  | )
|Increase in net loss per share |  | $            | (0.05  | ) |              | $ | (0.02 | )

Critical Accounting Policies and Estimates






| |        
| | -------
| | Revenue

Software Revenue Recognition, Accounting for Performance of
Construction-Type and Certain Production-Type
Contracts.






20



---



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| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                    
| | -------------------
| | Purchase Accounting



21



---



##### Table of Contents







| |                           
| | --------------------------
| | Software Development Costs





| |                  
| | -----------------
| | Asset Impairments







22



---



##### Table of Contents



Results of Operations




|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |         |        |  |        |        |      |   |        |        |       | 
|------------------------------------------------------- | ------------------------------------------ | ------------------------ | ------- | ------------ | --------------- |  | ----- | --------- | ------------ | --------------- | ------- | ------ | ------ | --------- | ----- | ---- | ------------ | - | ------ | ------ | ------ | - | -------- | ------- | ------ |  | ------ | ------ | ---- | - | ------ | ------ | ----- | 
|                                                        |                                            | 2004                     |         |              | 2003 (Restated) |  |       |           |              | 2002 (Restated) |         |        |       
|                                                        |                                            |                          |         |              |                 |  |       | 2004-2003 |              |                 |         |        |        | 2003-2002 |      
|                                                        |                                            |                          |         | % of Revenue |                 |  |       |           | % of Revenue |                 |         | Change |        |           |       |      | % of Revenue |   |        | Change |       
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |       
|Revenue:                                                |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |         |        |  |        |        |      |   |        |       
|                                                        | Software license                           |                          | $       | 27,172       |                 |  |       | 32.8      | %            |                 | $       | 20,270 |        |           |       | 31.2 | %            |   | $      | 6,902  |        |   | $        | 11,424  |        |  |        | 18.8   | %    |   | $      | 8,846  |      
|                                                        | Professional services                      |                          |         | 14,540       |                 |  |       | 17.6      |              |                 |         | 17,512 |        |           |       | 27.0 |              |   |        | (2,972 | )      |   |          | 22,459  |        |  |        | 37.1   |      |   |        | (4,947 | )    
|                                                        | Recurring services(a)                      |                          |         | 41,089       |                 |  |       | 49.6      |              |                 |         | 27,146 |        |           |       | 41.8 |              |   |        | 13,943 |        |   |          | 26,740  |        |  |        | 44.1   |      |   |        | 406    |      
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|Total revenue                                           |                                            |                          | 82,801  |              |                 |  | 100.0 |           |              |                 | 64,928  |        |        |           | 100.0 |      |              |   | 17,873 |        |        |   | 60,623   |         |        |  | 100.0  |        |      |   | 4,305  |       
|Cost of revenue:                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |         |        |  |        |        |      |   |        |       
|                                                        | Software license                           |                          |         | 12,506       |                 |  |       | 15.1      |              |                 |         | 9,850  |        |           |       | 15.2 |              |   |        | 2,656  |        |   |          | 5,457   |        |  |        | 9.0    |      |   |        | 4,393  |      
|                                                        | Professional services                      |                          |         | 14,715       |                 |  |       | 17.8      |              |                 |         | 14,022 |        |           |       | 21.6 |              |   |        | 693    |        |   |          | 14,969  |        |  |        | 24.7   |      |   |        | (947   | )    
|                                                        | Recurring services(b)                      |                          |         | 18,878       |                 |  |       | 22.8      |              |                 |         | 16,391 |        |           |       | 25.2 |              |   |        | 2,487  |        |   |          | 17,245  |        |  |        | 28.4   |      |   |        | (854   | )    
|                                                        | Asset impairment                           |                          |         | 7,195        |                 |  |       | 8.7       |              |                 |         |       |        |           |       | 0.0  |              |   |        | 7,195  |        |   |          |        |        |  |        | 0.0    |      |   |        |       |      
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|Total cost of revenue                                   |                                            |                          | 53,294  |              |                 |  | 64.4  |           |              |                 | 40,263  |        |        |           | 62.0  |      |              |   | 13,031 |        |        |   | 37,671   |         |        |  | 62.1   |        |      |   | 2,592  |       
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|                                                        | Gross profit                               |                          |         | 29,507       |                 |  |       | 35.6      |              |                 |         | 24,665 |        |           |       | 38.0 |              |   |        | 4,842  |        |   |          | 22,952  |        |  |        | 37.9   |      |   |        | (1,713 | )    
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|Operating expenses:                                     |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |         |        |  |        |        |      |   |        |       
|                                                        | Sales and marketing                        |                          |         | 19,597       |                 |  |       | 23.7      |              |                 |         | 17,785 |        |           |       | 27.4 |              |   |        | 1,812  |        |   |          | 13,343  |        |  |        | 22.0   |      |   |        | 4,442  |      
|                                                        | General and administrative                 |                          |         | 19,832       |                 |  |       | 24.0      |              |                 |         | 12,742 |        |           |       | 19.6 |              |   |        | 7,090  |        |   |          | 13,660  |        |  |        | 22.5   |      |   |        | (918   | )    
|                                                        | Research and development                   |                          |         | 13,383       |                 |  |       | 16.2      |              |                 |         | 9,995  |        |           |       | 15.4 |              |   |        | 3,388  |        |   |          | 7,209   |        |  |        | 11.9   |      |   |        | 2,786  |      
|                                                        | Amortization of acquired intangible assets |                          |         | 3,718        |                 |  |       | 4.4       |              |                 |         | 1,720  |        |           |       | 2.7  |              |   |        | 1,998  |        |   |          | 2,307   |        |  |        | 3.8    |      |   |        | (587   | )    
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|                                                        |                                            | Total operating expenses |         |              | 56,530          |  |       |           | 68.3         |                 |         |        | 42,242 |           |       |      | 65.1         |   |        |        | 14,288 |   |          |         | 36,519 |  |        |        | 60.2 |   |        |        | 5,723 | 
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|Loss from operations                                    |                                            |                          | (27,023 | )            |                 |  | (32.7 | )         |              |                 | (17,577 | )      |        |           | (27.1 | )    |              |   | (9,446 | )      |        |   | (13,567  | )       |        |  | (22.3  | )      |      |   | (4,010 | )     
|                                                        | Gain on sale of assets                     |                          |         | 1,535        |                 |  |       | 1.9       |              |                 |         |       |        |           |       |     |              |   |        | 1,535  |        |   |          | 87      |        |  |        | 0.1    |      |   |        | (87    | )    
|                                                        | Goodwill impairment                        |                          |         |             |                 |  |       |          |              |                 |         |       |        |           |       |     |              |   |        |       |        |   |          | (93,085 | )      |  |        | (153.5 | )    |   |        | 93,085 |      
|                                                        | Interest income, net                       |                          |         | 355          |                 |  |       | 0.4       |              |                 |         | 694    |        |           |       | 1.1  |              |   |        | (339   | )      |   |          | 1,035   |        |  |        | 1.7    |      |   |        | (341   | )    
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|Loss before income taxes                                |                                            |                          | (25,133 | )            |                 |  | (30.4 | )         |              |                 | (16,883 | )      |        |           | (26.0 | )    |              |   | (8,250 | )      |        |   | (105,530 | )       |        |  | (174.0 | )      |      |   | 88,647 |       
|Income tax expenses                                     |                                            |                          | 133     |              |                 |  | 0.1   |           |              |                 |        |        |        |           |      |      |              |   | 133    |        |        |   |         |         |        |  |       |        |      |   |       |       
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|Net loss from continuing operations                     |                                            |                          | (25,266 | )            |                 |  | (30.5 | )         |              |                 | (16,883 | )      |        |           | (26.0 | )    |              |   | (8,383 | )      |        |   | (105,530 | )       |        |  | (174.0 | )      |      |   | 88,647 |       
|Income from and gain on sale of discontinued operations |                                            |                          | 1,035   |              |                 |  | 1.2   |           |              |                 | 406     |        |        |           | 0.6   |      |              |   | 629    |        |        |   | 763      |         |        |  | 1.2    |        |      |   | (357   | )     
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        
|Net loss                                                |                                            | $                        | (24,231 | )            |                 |  | (29.3 | )%        |              | $               | (16,477 | )      |        |           | (25.4 | )%   |              | $ | (7,754 | )      |        | $ | (104,767 | )       |        |  | (172.8 | )%     |      | $ | 88,290 |       
|                                                        |                                            |                          |         |              |                 |  |       |           |              |                 |         |        |        |           |       |      |              |   |        |        |        |   |          |        






|    |                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Revenues from discontinued operations of $5.2 million,
    $5.0 million, and $2.6 million, for the years ended
    December 31, 2004, 2003, and 2002, respectively, have been
    reclassified to income from discontinued operations.



|    |  |                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Cost of sales from discontinued operations of $4.6 million,
    $4.6 million, and $1.8 million, for the years ended
    December 31, 2004, 2003, and 2002, respectively, have been
    reclassified to income from discontinued operations.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003

Total Revenue.


23



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Cost of revenue.




Sales and marketing.


General and administrative.


Research and development.


24



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Amortization of acquired intangibles.


Gain on sale of assets.


Other income.


Income tax expenses.


Income from and gain on sale of discontinued operations.




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year Ended
    December 31, 2002

Total Revenue.


Cost of revenue.


25



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Sales and marketing.


General and administrative.


Research and development.


Amortization of acquired intangibles.


Other income.


Income from discontinued operations.


Income tax benefit.


Liquidity and Capital Resources






26



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| |            
| | -----------
| | Commitments





|                 |  |                        |        |  |      |        |       |      |        |   |       |        |  |            |       |  |  |   |       | 
|---------------- |  | ---------------------- | ------ |  | ---- | ------ | ----- | ---- | ------ | - | ----- | ------ |  | ---------- | ----- |  |  | - | ----- | 
|                 |  |                        |        |  |      | 2006 & |       |      | 2008 & |   |       | 2010 & | 
|                 |  | Total                  |        |  | 2005 |        |       | 2007 |        |   | 2009  |        |  | Thereafter |      
|                 |  |                        |        |  |      |        |       |      |        |   |       |        |  |            |      
|                 |  | (Dollars in thousands) |       
|Operating leases |  | $                      | 11,805 |  |      | $      | 4,589 |      |        | $ | 3,620 |        |  | $          | 1,887 |  |  | $ | 1,709 | 
|Royalty payments |  |                        | 166    |  |      |        | 166   |      |        |   |      |        |  |            |      |  |  |   |      | 
|                 |  |                        |        |  |      |        |       |      |        |   |       |        |  |            |      
|                 |  | $                      | 11,971 |  |      | $      | 4,755 |      |        | $ | 3,620 |        |  | $          | 1,887 |  |  | $ | 1,709 | 
|                 |  |                        |        |  |      |        |       |      |        |   |       |        |  |            |      



Recently Issued Accounting Pronouncements






27



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RISK FACTORS






| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | We have historically incurred losses and we may not be
    able to achieve or sustain profitability.





| |                                                                                
| | -------------------------------------------------------------------------------
| | We face risks related to a formal investigation being
    conducted by the SEC.





| |                                                                       
| | ----------------------------------------------------------------------
| | We face risks related to the class action and derivative
    lawsuits.







28



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| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have experienced and may encounter ongoing significant
    employee turnover that could reduce our ability to sell,
    deliver, and support future commitments.





| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | We may be immediately delisted from NASDAQ if we cannot
    meet the more stringent criteria NASDAQ established for our
    continued listing.





| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results are likely to fluctuate
    significantly and may fail to meet the expectations of
    securities analysts and investors, causing our share price to
    decline; we may lose coverage.





| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | delay in our introduction of new applications, services and
    products offerings and enhancements of our existing solutions;                    
|
| |  | the capital and expense budgeting decisions of our existing and
    prospective customers;                                                        
|
| |  | the amount and timing of operating costs and capital
    expenditures relating to the implementation of our business
    strategy;                
|
| |  | increased product development and engineering expenditures
    required to keep pace with technological changes;                                  
|
| |  | overall economic conditions of the U.S. and the rest of the
    world;                                                                            
|
| |  | overall economic conditions in the software and information
    systems, healthcare, telecommunications, financial services and
    public sector;
|
| |  | the loss of one or more major customers:                                                                                                          
|
| |  | the size, type and timing of individual license transactions;                                                                                     
|
| |  | the adoption of new technologies;                                                                                                                 
|
| |  | our success in expanding our direct sales force and indirect
    distribution channels;                                                           

29



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| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | our ability to position our products and solutions in the market
    to drive priority and action within our prospects;
|
| |  | obsolescence of our products or the programming languages that
    our products are designed to enhance; and           
|
| |  | levels of international sales.                                                                                         





| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We operate in an industry with rapidly changing technology
    and, if we do not successfully modify our products to
    incorporate new technologies or introduce new products, our
    sales will suffer.





| |                                                                           
| | --------------------------------------------------------------------------
| | We face saturated or diminishing markets for some of our
    key products.





| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are engaged in several large software development
    projects; failure to complete any one of these projects could
    have adverse consequences on our services revenues and business
    prospects.



30



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| |                                                                            
| | ---------------------------------------------------------------------------
| | We have risk in sustaining professional service revenue in
    our markets.





| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Our public stock price has fallen substantially negatively
    impacting its investment desirability.





| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Several segments of our business rely on the effectiveness
    of channel partners and third-party influencers to help achieve
    revenue goals. If we fail to increase and maintain our channel
    relationships, our business may suffer.





| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | We are subjected to many risks because our business is
    dependent on our intellectual property rights.

We are exposed to infringement risks.


We rely on third parties for technology in our products.


31



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Our products may be affected by unknown software defects.




| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | If security of our customer and patient information is
    compromised, we could be liable for damages and our reputation
    could decline.





| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | If compliance with government regulation of healthcare
    becomes costly and difficult for our customers, we may not be
    able to grow our business.





32



---



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| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | As we continue to build our international sales, we are
    subject to increased regulation and uncertainties in the
    international marketplace.





| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | We may face product-related liabilities that could force
    us to pay damages, which would hurt our reputation and financial
    condition.





| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | If we do not establish and maintain our brands, our
    reputation could be adversely affected.



33



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| |                                                                               
| | ------------------------------------------------------------------------------
| | Goodwill is a major asset and is subject to an annual test
    for impairment.





| |                                       
| | --------------------------------------
| | We are in a highly competitive market.








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Qualitative and Quantitative Disclosures About Market
    Risk








|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary
    Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of Controls and Procedures


Disclosure Controls.


Internal Control over Financial Reporting.


34



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue Recognition. We have concluded that the controls
    over the recording and analysis of revenue in multiple element
    transactions, are not effective, and are indicative of a
    material weakness in software revenue accounting control for one
    of the companys products. Many of our products are sold in
    bundled packages and we have established policies and pricing
    based on the fair value of each element. Our independent
    auditors identified revenue recognition issues on a relatively
    new bundled product that includes a term license; resulting in
    an audit adjustment that was material to the financial
    statements. This revenue will be deferred and recognized over
    the term of the agreement.                                                                                                                                                                                                                                                                                                                       
|
| |  | Accrued Liabilities. As a result of errors identified by
    our independent auditors in accrued compensation balances, we
    have concluded that controls over the recording of accrued
    liabilities are not effective and are indicative of a material
    weakness. We were significantly over-accrued in two areas,
    medical claims and vacation liability, and under-accrued in two
    areas, payroll taxes and 401(k) matching funds. Our accruals for
    health insurance benefits contain elements that must be
    estimated and the historical-trend information we used to
    estimate these elements of the accrual resulted in over-accrual
    of these accounts. The calculation of the accrual for vacations
    included a mathematical error resulting in an over-accrual. The
    underaccruals were caused by errors in estimating accruals in
    401(k) matching and employer-related payroll tax
    liabilities. The effect of these accrual errors required an
    audit adjustment to accruals that was material to the financial
    statements.
|
| |  | Asset Impairment. Our valuation analysis of capitalized
    software did not identify an asset impairment for software that
    will not generate future revenue, and was indicative of a
    material weakness in control over the accounting for asset
    impairment. This resulted in an audit adjustment to capitalized
    software that was material to the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



Changes in Controls




35



---



##### Table of Contents









| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We hired a new President and Chief Executive Officer and a new
    Chief Financial Officer who have expertise in financial controls
    and reporting, to improve the overall quality and level of
    experience in our finance and accounting organization.                                                                          
|
| |  | We enhanced our disclosure committee and increased the
    committees authority.                                                                                                                                                                                                                                                      
|
| |  | We implemented a Code of Business Conduct and Ethics.                                                                                                                                                                                                                                                                                  
|
| |  | We implemented, communicated and trained employees on a formal
    whistle blower reporting system through a third party provider
    to enable employees to identify potential concerns or ethical
    issues on an anonymous basis.                                                                                                  
|
| |  | We made improvements to our shipping procedures to provide more
    detailed information regarding product shipments and we have
    consolidated our shipping function to one location.                                                                                                                                               
|
| |  | We improved our procedures for verifying the creditworthiness of
    prospective customers.                                                                                                                                                                                                                                            
|
| |  | We made changes to procedures for estimating fees and have
    established revenue recognition on our services work.                                                                                                                                                                                                                   
|
| |  | We initiated additional training of our sales organizations
    regarding revenue recognition rules and improved communication.                                                                                                                                                                                                        
|
| |  | We formed a multidisciplinary price book committee that controls
    new product introductions and determines legal and accounting
    requirements for all products; implementation of processes to
    improve communication among our various functional groups during
    the transaction approval and contract negotiation phases.





| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have formalized and enhanced our revenue recognition
    guidelines and processes.                                                                                     
|
| |  | We have formalized the documentation of the financial review
    process.                                                                                                 
|
| |  | We have implemented additional internal controls surrounding the
    credit management function.                                                                          
|
| |  | We have separated duties in accounting, financial reporting and
    information technology functions to improve checks and balances.                                      
|
| |  | We have enhanced and clarified accounting, financial reporting
    and information technology policies and procedures.                                                    
|
| |  | We have implemented processes to monitor adherence to the
    accounting policies.                                                                                        
|
| |  | We have formalized and/or improved internal control surrounding
    access to accounting systems and eliminated certain automatic
    approvals in the accounting systems.



36



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##### Table of Contents














|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



Code of Ethics


http://www.quovadx.com







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                              
|-------- | ---------------------------------------------
|Item 13. | Certain Relationships and Related Transaction



37



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##### Table of Contents








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                     
| | ------------------------------------
| | 1. Consolidated Financial Statements



|                                                           |  |        |     | 
|---------------------------------------------------------- |  | ------ | --- | 
|                                                           |  | Page   |    
|                                                           |  | Number |    
|                                                           |  |        |    
|Index to Consolidated Financial Statements                 |  |        | F-1 | 
|Report of Independent Registered Public Accounting Firm    |  |        | F-2 | 
|Consolidated Balance Sheets                                |  |        | F-3 | 
|Consolidated Statements of Operations                      |  |        | F-4 | 
|Consolidated Statements of Changes in Stockholders Equity |  |        | F-5 | 
|Consolidated Statements of Cash Flows                      |  |        | F-6 | 
|Notes to the Consolidated Financial Statements             |  |        | F-7 | 



| |                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. Consolidated Financial Statement Schedules. The
    following consolidated financial statement schedule of the
    Company for each of the years ended December 31, 2004, 2003
    and 2002, is filed as part of this Annual Report on
    Form 10-K and should be read in conjunction with the
    Consolidated Financial Statements, and the related notes
    thereto, of the Company.

|                                              |  |        |     | 
|--------------------------------------------- |  | ------ | --- | 
|                                              |  | Page   |    
|                                              |  | Number |    
|                                              |  |        |    
|Schedule II Valuation and Qualifying Accounts |  |        | S-1 | 





| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | 3. Exhibits. The following exhibits are filed as
    part of, or incorporated by reference into, this Annual Report
    on Form 10-K:

|        |   |                         |  |                                                                                                                                                                                                                                                                                                 
|------- | - | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Document
|        |   |                        
|        | 2 | .1                      |  | Agreement and Plan of Merger, dated as of August 13, 2003,
    by and among CareScience, Inc., the Registrant and Carlton
    Acquisition Corporation (incorporated by reference to Annex A to
    the Prospectus filed by the Registrant under Rule 424(b)(3)
    on September 18, 2003).      
|        | 2 | .2                      |  | Agreement and Plan of Merger, dated as of November 3, 2003,
    by and among Rogue Wave Software, Inc., the Registrant and Chess
    Acquisition Corporation (incorporated by reference to Annex A to
    the Prospectus filed by the Registrant under Rule 424(b)(3)
    on December 16, 2003).
|        | 3 | .1                      |  | Restated Certificate of Incorporation of the Registrant
    (incorporated by reference to Exhibit 3.1 to the Quarterly
    Report on Form 10-Q of the Registrant for the quarter ended
    March 31, 2003, filed on May 13, 2003).                                                              
|        | 3 | .2                      |  | Bylaws of the Registrant (incorporated by reference to
    Exhibit 3.3 to the Registration Statement on Form S-1
    of the Registrant, filed on November 2, 1999, Registration
    No. 333-90165).                                                                                             
|        | 4 | .1                      |  | Specimen stock certificate representing shares of Common Stock
    of the Registrant (incorporated by reference to Exhibit 4.1
    to the Current Report on Form 8-K of the Registrant, filed
    on October 16, 2001).                                                                         

38



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##### Table of Contents



|        |    |      |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---- | ----------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |                        
|Number  |    |      | Description of Document
|        |    |      |                        
|        | 4  | .2   |                         | Preferred Stock Rights Agreement, dated as of July 24,
    2000, between the Registrant and ChaseMellon Shareholder
    Services, L.L.C., as Rights Agent, including the Certificate of
    Designation, the form of Rights Certificate and the Summary of
    Rights attached thereto as Exhibits A, B, and C,
    respectively (incorporated by reference to Exhibit 1 to the
    Registration Statement on Form 8-A of the Registrant, filed
    on July 28, 2000).                                                                 
|        | 10 | .1*  |                         | Amended and Restated 1997 Stock Plan and related agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .2*  |                         | Amended and Restated 1999 Employee Stock Purchase Plan and
    related agreements (incorporated by reference to
    Exhibit 10.2. the Quarterly Report on Form 10-Q of the
    Registrant for the quarter ended September 30, 2003, filed
    on November 3, 2003).                                                                                                                                                                                                                                                                    
|        | 10 | .3*  |                         | Amended and Restated 1999 Director Option Plan and related
    agreements (incorporated by reference to Exhibit 4.3 to the
    Registration Statement on Form S-8 of the Registrant, filed
    on May 16, 2002, Registration No. 333-88408).                                                                                                                                                                                                                                                                                           
|        | 10 | .4*  |                         | Amended and Restated 2000 Nonstatutory Stock Option Plan and
    related agreements (incorporated by reference to
    Exhibit 4.9 to the Registration Statement on Form S-8
    of the Registrant, filed on April 1, 2003, Registration
    No. 333-104184).                                                                                                                                                                                                                                                                           
|        | 10 | .5*  |                         | Quovadx, Inc. Executive Management 2005 Annual Bonus Incentive
    Plan (incorporated by reference to Exhibit 99.2 to the
    Current Report of the Registrant, filed on February 16,
    2005).                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .6*  |                         | Healthcare.com Corporation Stock Option Plan (incorporated by
    reference to Exhibit 4.1 to the Post-Effective Amendment
    No. 1 to Form S-4 on Form S-8 Registration
    Statement of the Registrant, filed on August 16, 2001,
    Registration No. 333-64282).                                                                                                                                                                                                                                                                  
|        | 10 | .7*  |                         | Healthcare.com Corporation Nonqualified Stock Option Plan
    (incorporated by reference to Exhibit 4.2 to the
    Post-Effective Amendment No. 1 to Form S-4 on
    Form S-8 Registration Statement of the Registrant, filed on
    August 16, 2001, Registration No. 333-64282).                                                                                                                                                                                                                                                     
|        | 10 | .8*  |                         | Healthcare.com Corporation Non-employee Director Stock Option
    Plan (incorporated by reference to Exhibit 4.3 to the
    Post-Effective Amendment No. 1 to Form S-4 on
    Form S-8 Registration Statement of the Registrant, filed on
    August 16, 2001, Registration No. 333-64282).                                                                                                                                                                                                                                            
|        | 10 | .9*  |                         | Rogue Wave Software, Inc. 1996 Equity Incentive Plan
    (incorporated by reference to Exhibit 4.1 to the
    Post-Effective Amendment No. 1 to Form S-4 on
    Form S-8 Registration Statement of the Registrant, filed on
    January 8, 2004, Registration No. 333-110388).                                                                                                                                                                                                                                                         
|        | 10 | .10* |                         | Rogue Wave Software, Inc. 1997 Equity Incentive Plan
    (incorporated by reference to Exhibit 4.2 to the
    Post-Effective Amendment No. 1 to Form S-4 on
    Form S-8 Registration Statement of the Registrant, filed on
    January 8, 2004, Registration No. 333-110388).                                                                                                                                                                                                                                                         
|        | 10 | .11* |                         | Amended and Restated Employment Agreement, dated as of
    April 11, 2003, by and between CareScience, Inc. and Ronald
    A. Paulus (filed on April 25, 2003, as Exhibit 10.2 to
    Amendment No. 1 to the Annual Report on Form 10-K/ A
    of CareScience, Inc. for the fiscal year ended December 31,
    2002, Commission File No. 0-30859, and incorporated by
    reference to Exhibit 10.11 to the Annual Report on
    Form 10-K of the Registrant for the year ended
    December 31, 2003, filed on March 18, 2004).       
|        | 10 | .12* |                         | Amended and Restated Employment Agreement, dated as of
    April 11, 2003, by and between CareScience, Inc. and Thomas
    Zajac (filed on April 25, 2003, as Exhibit 10.4 to
    Amendment No. 1 to the Annual Report on Form 10-K/ A
    of CareScience, Inc. for the fiscal year ended December 31,
    2002, Commission Filed No. 0-30859, and incorporated by
    reference to Exhibit 10.29 to the Quarterly Report on
    Form 10-Q of the Registrant for the quarter ended
    September 30, 2004, filed on November 17, 2004).
|        | 10 | .13* |                         | Consulting Agreement, dated as of April 1, 2003, between
    the Registrant and Compuflex International, Inc. (incorporated
    by reference to Exhibit 10.21 to the Quarterly Report on
    Form 10-Q of the Registrant for the quarter ended
    March 31, 2004, filed as of August 16, 2004).                                                                                                                                                                                                                                       
|        | 10 | .14* |                         | Employment Agreement, dated as of August 25, 2003, by and
    between the Registrant and Cory Isaacson (incorporated by
    reference to Exhibit 10.12 to the Quarterly Report on
    Form 10-Q of the Registrant for the quarter ended
    March 31, 2004, filed on August 16, 2004).                                                                                                                                                                                                                                                 

39



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##### Table of Contents



|        |    |      |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ---- | ----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |                        
|Number  |    |      | Description of Document
|        |    |      |                        
|        | 10 | .15* |                         | Amendment No. 1 to the Employment Agreement, dated as of
    August 25, 2003, by and between the Registrant and Cory
    Isaacson, which amendment was dated March 17, 2004
    (incorporated by reference to Exhibit 10.13 to the
    Quarterly Report on Form 10-Q of the Registrant for the
    quarter ended March 31, 2004, filed on August 16,
    2004).                                                                                                                                     
|        | 10 | .16* |                         | Asset Purchase Agreement, dated as of August 25, 2003, by
    and between CMI Corporate Marketing, Inc. (d/b/a Compuflex
    International) and the Registrant (incorporated by reference to
    Exhibit 10.14 to the Quarterly Report on Form 10-Q of
    the Registrant for the quarter ended March 31, 2004, filed
    on August 16, 2004).                                                                                                                                                      
|        | 10 | .17* |                         | Severance Agreement, dated as of April 11, 2004, by and
    between the Registrant and Lorine R. Sweeney (incorporated by
    reference to Exhibit 10.17 to the Quarterly Report on
    Form 10-Q of the Registrant for the quarter ended
    June 30, 2004, filed on August 16, 2004).                                                                                                                                                                                                             
|        | 10 | .18* |                         | Severance Agreement, dated as of April 11, 2004, by and
    between the Registrant and Gary T. Scherping (incorporated by
    reference to Exhibit 10.18 to the Quarterly Report on
    Form 10-Q of the Registrant for the quarter ended
    June 30, 2004, filed on August 16, 2004).                                                                                                                                                                                                             
|        | 10 | .19* |                         | Employment Agreement, dated as of April 7, 2004 by and
    between the Registrant and Melvin L. Keating (incorporated by
    reference to Exhibit 10.15 to the Quarterly Report on
    Form 10-Q of the Registrant for the quarter ended
    June 30, 2004, filed on August 16, 2004).                                                                                                                                                                                                              
|        | 10 | .20* |                         | Employment Agreement, dated as of February 10, 2005, by and
    between the Registrant and Melvin L. Keating (incorporated by
    reference to Exhibit 99.1 to the Current Report on
    Form 8-K of the Registrant, filed on February 11,
    2005).                                                                                                                                                                                                                                               
|        | 10 | .21* |                         | Employment Agreement, dated as of April 9, 2004 by and
    between the Registrant and Harvey A. Wagner (incorporated by
    reference to Exhibit 10.16 to the Quarterly Report on
    Form 10-Q of the Registrant for the quarter ended
    June 30, 2004, filed on August 16, 2004).                                                                                                                                                                                                               
|        | 10 | .22* |                         | Employment Agreement, dated as of October 8, 2004, by and
    between the Registrant and Harvey A. Wagner (incorporated by
    reference to Exhibit 99.1 to the Current Report on
    Form 8-K of the Registrant, filed on October 12, 2004).                                                                                                                                                                                                                                                       
|        | 10 | .23* |                         | Form of Executive Employment Agreement (incorporated by
    reference to Exhibit 99.1 to the Current Report on
    Form 8-K of the Registrant, filed on February 16,
    2005).                                                                                                                                                                                                                                                                                                                     
|        | 10 | .24  |                         | Office Lease Agreement, dated as of November 8, 1999, by
    and between Mountain States Mutual Casualty Company and the
    Registrant (incorporated by reference to Amendment 1 to the
    Registration Statement on Form S-1 of the Registrant, filed
    on December 17, 1999, Registration No. 333-90165).                                                                                                                                                                                     
|        | 10 | .25  |                         | Amendment to Office Lease Agreement, dated as of
    November 8, 1999, by and between Mountain States Casualty
    Company and the Registrant, which amendment was dated as of
    November 22, 2004.                                                                                                                                                                                                                                                                                               
|        | 10 | .26  |                         | Estoppel Agreement, dated as of December 31, 2004, by and
    among Mountain States Mutual Casualty Company, the Registrant,
    Royal Health Care Data Center LLC and Royal Health Care of Long
    Island LLC d/b/a Royal Health Care.                                                                                                                                                                                                                                                            
|        | 10 | .27  |                         | Sublease, dated as of August 24, 2001, by and between Echo
    Bay Management Corp. and the Registrant (incorporated by
    reference to Exhibit 12.1 to the Annual Report on
    Form 10-K of the Registrant for the year ended
    December 31, 2001, filed on March 26, 2002).                                                                                                                                                                                                                   
|        | 10 | .28  |                         | Form of Indemnification Agreement entered into by the Registrant
    with each of its directors and executive officers (incorporated
    by reference to Exhibit 11.1 to the Annual Report on
    Form 10-K of the Registrant for the year ended
    December 31, 2001, filed on March 26, 2002).                                                                                                                                                                                                   
|        | 10 | .29  |                         | Restated License Agreement, dated as of April 1, 1995, by
    and between the Trustees of the University of Pennsylvania and
    Care Management Science Corporation (filed on March 14,
    2000, as Exhibit 10.3 to the Registration Statement on
    Form S-1 of CareScience, Inc., Registration
    No. 333-32376 and incorporated by reference to
    Exhibit 10.15 to the Annual Report on Form 10-K of the
    Registrant for the year ended December 31, 2003, filed on
    March 18, 2004).

40



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|        |    |      |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---- | ----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |                        
|Number  |    |      | Description of Document
|        |    |      |                        
|        | 10 | .30  |                         | License Agreement, dated as of October 2, 2000, by and
    between California HealthCare Foundation and CareScience, Inc.
    (filed on March 26, 2002, as Exhibit 10.14 to the
    Annual Report on Form 10-K of CareScience, Inc. for the
    year ended December 31, 2001, Commission File
    No. 0-30859, and incorporated by reference to
    Exhibit 10.24 to the Quarterly Report on Form 10-Q of
    the Registrant for the quarter ended September 30, 2004).
|        | 10 | .31  |                         | License Agreement, dated as of July 30, 2001, by and
    between 3550 University City Science Center Associates as
    licensor and CareScience, Inc., as licensee, for the license to
    use a portion of a building for a data center (incorporated by
    reference to Exhibit 10.16 to the Annual Report on
    Form 10-K of the Registrant for the year ended
    December 31, 2003, filed on March 18, 2004).                                                   
|        | 10 | .32  |                         | Licensors Consent to Assignment of License between
    CareScience, Inc. and the Registrant, dated as of
    September 18, 2003, by 3550 University City Science Center
    Associates as licensor (incorporated by reference to
    Exhibit 10.17 to the Annual Report on Form 10-K of the
    Registrant for the year ended December 31, 2003, filed on
    March 18, 2004).                                                                                        
|        | 10 | .33  |                         | Equity Buy-Back Agreement, dated as of June 29, 2004, by
    and between the Registrant and Royal Health Care of Long Island
    LLC (d/b/a Royal Health Care, LLC) (incorporated by reference to
    Exhibit 10.25 to the Quarterly Report on Form 10-Q of
    the Registrant for the quarter ended June 30, 2004, filed
    on August 16, 2004).                                                                                                                     
|        | 10 | .34  |                         | Asset Purchase Agreement, dated as of December 31, 2004, by
    and between the Registrant and Royal Health Care Data Center LLC
    (incorporated by reference to Exhibit 99.1 to the Current
    Report on Form 8-K of the Registrant, filed on
    January 3, 2005).                                                                                                                                                                                                
|        | 14 | .1   |                         | Quovadx, Inc. Code of Business Conduct and Ethics.                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 14 | .2   |                         | Quovadx, Inc. Code of Ethics for Senior Financial Officers.                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 21 |      |                         | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 23 | .1   |                         | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 31 | .1   |                         | Certification of Chief Executive Officer of the Registrant
    pursuant to Rule 13a-14(a) and Rule 15d-14(a),
    promulgated under the Securities Exchange Act of 1934, as
    amended.                                                                                                                                                                                                                                                                               
|        | 31 | .2   |                         | Certification of Chief Financial Officer of the Registrant
    pursuant to Rule 13a-14(a) and Rule 15d-14(a),
    promulgated under the Securities Exchange Act of 1934, as
    amended.                                                                                                                                                                                                                                                                               
|        | 32 | .1** |                         | Certification of Chief Executive Officer of the Registrant
    pursuant to Rule 13a-14(b) and Rule 15d-14(b),
    promulgated under the Securities Exchange Act of 1934, as
    amended, and 18 U.S.C. §1350.                                                                                                                                                                                                                                                          
|        | 32 | .2** |                         | Certification of Chief Financial Officer of the Registrant
    pursuant to Rule 13a-14(b) and Rule 15d-14(b),
    promulgated under the Securities Exchange Act of 1934, as
    amended, and 18 U.S.C. §1350.                                                                                                                                                                                                                                                          






| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| | * | Identifies exhibit that consists of or includes a management
    contract or compensatory plan or arrangement.



|   |                                                                                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | This certification is furnished to, but not filed, with the
    Commission. This certification shall not be deemed to be
    incorporated by reference into any filing under the Securities
    Act of 1933 or the Securities Exchange Act of 1934, except to
    the extent that the Registrant specifically incorporates it by
    reference.

Index to Exhibits.


41



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##### Table of Contents






SIGNATURES






| |              
| | -------------
| | Quovadx, Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ Harvey A. Wagner

| |                                      
| | -------------------------------------
| |                                      
| | Harvey A. Wagner                     
| | President and Chief Executive Officer

POWER OF ATTORNEY






|                                           |  |                                                                                                       |  |               |  | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                  |  | Title                                                                                                 |  | Date         
|                                           |  |                                                                                                       |  |              
|                                          
|/s/ Harvey A. WagnerHarvey
    A. Wagner   |  | Director, and President and Chief Executive Officer
    (Principal Executive Officer)                 |  | March 9, 2005
|                                          
|/s/ Melvin L. KeatingMelvin
    L. Keating |  | Executive Vice President, Chief Financial Officer and
    Treasurer
    (Principal Financial Officer) |  | March 9, 2005
|                                          
|/s/ Juan C. PerezJuan
    C. Perez         |  | Vice President and Controller
    (Principal Accounting Officer)                                      |  | March 9, 2005
|                                          
|/s/ Jeffrey M. KraussJeffrey
    M. Krauss |  | Chairman of the Board                                                                                 |  | March 9, 2005
|                                          
|/s/ Fred L. BrownFred
    L. Brown         |  | Director                                                                                              |  | March 9, 2005
|                                          
|/s/ J. Andrew CowherdJ.
    Andrew Cowherd |  | Director                                                                                              |  | March 9, 2005

42



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##### Table of Contents



|                                                     |  |          |  |               |  | 
|---------------------------------------------------- |  | -------- |  | ------------- |  | 
|Signature                                            |  | Title    |  | Date         
|                                                     |  |          |  |              
|                                                    
|/s/ James B. HooverJames
    B. Hoover               |  | Director |  | March 9, 2005
|                                                    
|/s/ Charles J.
    RoessleinCharles
    J. Roesslein |  | Director |  | March 9, 2005
|                                                    
|/s/ James A. GilbertJames
    A. Gilbert             |  | Director |  | March 9, 2005

43



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##### Table of Contents



QUOVADX, INC.





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                               |  |      |     | 
|-------------------------------------------------------------- |  | ---- | --- | 
|                                                               |  | Page |    
|                                                               |  |      |    
|Report of Independent Registered Public
    Accounting Firm    |  |      | F-2 | 
|Consolidated Balance Sheets                                    |  |      | F-3 | 
|Consolidated Statements of Operations                          |  |      | F-4 | 
|Consolidated Statements of Changes in
    Stockholders Equity |  |      | F-5 | 
|Consolidated Statements of Cash Flows                          |  |      | F-6 | 
|Notes to the Consolidated Financial
    Statements             |  |      | F-7 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





F-2



---



##### Table of Contents



QUOVADX, INC.





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                            |                                                                                                     |                                            |          |            |         |  |          |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | ---------- | ------- |  | -------- | ------ | ------- | 
|                                                                                                                                            |                                                                                                     | December 31,                               |         
|                                                                                                                                            |                                                                                                     |                                            |         
|                                                                                                                                            |                                                                                                     | 2004                                       |          |            | 2003    | 
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                            |                                                                                                     | (In thousands, except share                |         
|                                                                                                                                            |                                                                                                     | and per share amounts)                     |         
|                                                                                                                                            |                                                                                                     |                                            |          | (Restated) |        
|ASSETS                                                                                                                                     
|Current assets:                                                                                                                             |                                                                                                     |                                            |          |            |         |  |          |       
|                                                                                                                                            | Cash and cash equivalents                                                                           |                                            | $        | 18,822     |         |  | $        | 23,688 |        
|                                                                                                                                            | Short-term investments                                                                              |                                            |          | 6,025      |         |  |          |       |        
|                                                                                                                                            | Accounts receivable, net of allowance of $1,067 and $2,765,
    respectively                        |                                            |          | 14,068     |         |  |          | 17,593 |        
|                                                                                                                                            | Unbilled accounts receivable                                                                        |                                            |          | 1,195      |         |  |          | 3,465  |        
|                                                                                                                                            | Other current assets                                                                                |                                            |          | 2,598      |         |  |          | 4,143  |        
|                                                                                                                                            | Assets of discontinued operations                                                                   |                                            |          |           |         |  |          | 1,758  |        
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                            |                                                                                                     | Total current assets                       |          |            | 42,708  |  |          |        | 50,647  | 
|Property and equipment, net                                                                                                                 |                                                                                                     |                                            | 4,182    |            |         |  | 5,661    |       
|Software, net                                                                                                                               |                                                                                                     |                                            | 11,333   |            |         |  | 28,876   |       
|Other intangible assets, net                                                                                                                |                                                                                                     |                                            | 17,713   |            |         |  | 17,735   |       
|Goodwill                                                                                                                                    |                                                                                                     |                                            | 46,724   |            |         |  | 48,015   |       
|Restricted cash                                                                                                                             |                                                                                                     |                                            | 578      |            |         |  |         |       
|Other assets                                                                                                                                |                                                                                                     |                                            | 707      |            |         |  | 4,256    |       
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                            |                                                                                                     | Total assets                               |          | $          | 123,945 |  |          | $      | 155,190 | 
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                       
|Current liabilities:                                                                                                                        |                                                                                                     |                                            |          |            |         |  |          |       
|                                                                                                                                            | Accounts payable                                                                                    |                                            | $        | 3,523      |         |  | $        | 7,953  |        
|                                                                                                                                            | Accrued liabilities                                                                                 |                                            |          | 10,097     |         |  |          | 15,881 |        
|                                                                                                                                            | Unearned revenue                                                                                    |                                            |          | 19,927     |         |  |          | 19,066 |        
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                            |                                                                                                     | Total current liabilities                  |          |            | 33,547  |  |          |        | 42,900  | 
|Deferred revenue                                                                                                                            |                                                                                                     |                                            |         |            |         |  | 315      |       
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                            |                                                                                                     | Total liabilities                          |          |            | 33,547  |  |          |        | 43,215  | 
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|Commitments and contingencies                                                                                                               |                                                                                                     |                                            |          |            |         |  |          |       
|Stockholders equity:                                                                                                                       |                                                                                                     |                                            |          |            |         |  |          |       
|                                                                                                                                            | Preferred stock, $0.01 par value; 5,000,000 shares
    authorized; no shares issued and outstanding |                                            | $        |           |         |  | $        |       |        
|Common stock, $0.01 par value; 100,000,000 shares
    authorized; 40,618,535 and 38,938,134 shares issued and
    outstanding, respectively |                                                                                                     |                                            | 406      |            |         |  | 389      |       
|Additional paid-in capital                                                                                                                  |                                                                                                     |                                            | 270,737  |            |         |  | 269,011  |       
|Unearned compensation                                                                                                                       |                                                                                                     |                                            | (214     | )          |         |  | (385     | )     
|Accumulated other comprehensive income                                                                                                      |                                                                                                     |                                            | 871      |            |         |  | 131      |       
|Accumulated deficit                                                                                                                         |                                                                                                     |                                            | (181,402 | )          |         |  | (157,171 | )     
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                            |                                                                                                     | Total stockholders equity                 |          |            | 90,398  |  |          |        | 111,975 | 
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 
|                                                                                                                                            |                                                                                                     | Total liabilities and stockholders equity |          | $          | 123,945 |  |          | $      | 155,190 | 
|                                                                                                                                            |                                                                                                     |                                            |          |            |         | 



F-3



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##### Table of Contents



QUOVADX, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                 |                                            |                                          |         |            |        |   |            |        |        |   |          |        |        | 
|------------------------------------------------------------------------------------------------ | ------------------------------------------ | ---------------------------------------- | ------- | ---------- | ------ | - | ---------- | ------ | ------ | - | -------- | ------ | ------ | 
|                                                                                                 |                                            | Year Ended December 31,                  |        
|                                                                                                 |                                            |                                          |        
|                                                                                                 |                                            | 2004                                     |         |            | 2003   |   |            | 2002   |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|                                                                                                 |                                            | (In thousands, except per share amounts) |        
|                                                                                                 |                                            |                                          |         | (Restated) |        |   | (Restated) |       
|Revenue:                                                                                         |                                            |                                          |         |            |        |   |            |        |        |   |          |       
|                                                                                                 | Software license                           |                                          | $       | 27,172     |        |   | $          | 20,270 |        |   | $        | 11,424 |       
|                                                                                                 | Professional services                      |                                          |         | 14,540     |        |   |            | 17,512 |        |   |          | 22,459 |       
|                                                                                                 | Recurring services                         |                                          |         | 41,089     |        |   |            | 27,146 |        |   |          | 26,740 |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Total revenue                                                                                    |                                            |                                          | 82,801  |            |        |   | 64,928     |        |        |   | 60,623   |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Cost of revenue:                                                                                 |                                            |                                          |         |            |        |   |            |        |        |   |          |       
|                                                                                                 | Software license                           |                                          |         | 12,506     |        |   |            | 9,850  |        |   |          | 5,457  |       
|                                                                                                 | Professional services                      |                                          |         | 14,715     |        |   |            | 14,022 |        |   |          | 14,969 |       
|                                                                                                 | Recurring services                         |                                          |         | 18,878     |        |   |            | 16,391 |        |   |          | 17,245 |       
|                                                                                                 | Asset impairment                           |                                          |         | 7,195      |        |   |            |       |        |   |          |       |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Total cost of revenue                                                                            |                                            |                                          | 53,294  |            |        |   | 40,263     |        |        |   | 37,671   |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|                                                                                                 | Gross profit                               |                                          |         | 29,507     |        |   |            | 24,665 |        |   |          | 22,952 |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Operating expenses:                                                                              |                                            |                                          |         |            |        |   |            |        |        |   |          |       
|                                                                                                 | Sales and marketing                        |                                          |         | 19,597     |        |   |            | 17,785 |        |   |          | 13,343 |       
|                                                                                                 | General and administrative                 |                                          |         | 19,832     |        |   |            | 12,742 |        |   |          | 13,660 |       
|                                                                                                 | Research and development                   |                                          |         | 13,383     |        |   |            | 9,995  |        |   |          | 7,209  |       
|                                                                                                 | Amortization of acquired intangible assets |                                          |         | 3,718      |        |   |            | 1,720  |        |   |          | 2,307  |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|                                                                                                 |                                            | Total operating expenses                 |         |            | 56,530 |   |            |        | 42,242 |   |          |        | 36,519 | 
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Loss from operations                                                                             |                                            |                                          | (27,023 | )          |        |   | (17,577    | )      |        |   | (13,567  | )     
|Gain on sale of assets                                                                           |                                            |                                          | 1,535   |            |        |   |           |        |        |   | 87       |       
|Goodwill impairment                                                                              |                                            |                                          |        |            |        |   |           |        |        |   | (93,085  | )     
|Interest income, net                                                                             |                                            |                                          | 355     |            |        |   | 694        |        |        |   | 1,035    |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Loss before income taxes                                                                         |                                            |                                          | (25,133 | )          |        |   | (16,883    | )      |        |   | (105,530 | )     
|Income tax expense                                                                               |                                            |                                          | 133     |            |        |   |           |        |        |   |         |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Loss from continuing operations                                                                  |                                            |                                          | (25,266 | )          |        |   | (16,883    | )      |        |   | (105,530 | )     
|Discontinued operation:                                                                          |                                            |                                          |         |            |        |   |            |        |        |   |          |       
|                                                                                                 | Income from discontinued operations        |                                          |         | 589        |        |   |            | 406    |        |   |          | 763    |       
|                                                                                                 | Gain on sale of discontinued operations    |                                          |         | 446        |        |   |            |       |        |   |          |       |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Net loss                                                                                         |                                            | $                                        | (24,231 | )          |        | $ | (16,477    | )      |        | $ | (104,767 | )     
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Net loss from continuing operations per common share 
    basic and diluted                     |                                            | $                                        | (0.63   | )          |        | $ | (0.54      | )      |        | $ | (3.52    | )     
|Income from and gain on sale of discontinued operations per
    common share  basic and diluted |                                            |                                          | 0.02    |            |        |   | 0.02       |        |        |   | 0.03     |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Net loss per common share  basic and diluted                                                    |                                            | $                                        | (0.61   | )          |        | $ | (0.52      | )      |        | $ | (3.49    | )     
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       
|Weighted average common shares outstanding  basic and
    diluted                               |                                            |                                          | 39,892  |            |        |   | 31,407     |        |        |   | 29,987   |       
|                                                                                                 |                                            |                                          |         |            |        |   |            |        |       



F-4



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##### Table of Contents



QUOVADX, INC.





CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       |  |   |          |   |  |   |          |  
|--------------------------------------------------------------------------- |  | -------------- | ------ |  | ---------- | - | --- | --------------- |  | - | ----------------- |  |  | -------------------- | ---- | - | ------- | - | --- | ----- |  | - | -------- | - |  | - | -------- | -
|                                                                            |  | Common Stock   |        |  |            |   |     |                 |  |   |                   |  | 
|                                                                            |  |                |        |  | Additional |   |     | Unearned        |  |   | Accumulated Other |  |  | Accumulated          |      |   |        
|                                                                            |  | Shares         |        |  | Amount     |   |     | Paid-in Capital |  |   | Compensation      |  |  | Comprehensive Income |      |   | Deficit |   |     | Total | 
|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       | 
|                                                                            |  | (In thousands) |       
|Balance at January 1, 2002                                                  |  |                | 29,688 |  |            | $ | 297 |                 |  | $ | 224,748           |  |  | $                    | (231 | ) |         | $ |    |       |  | $ | (35,927  | ) |  | $ | 188,887  |  
|Net loss and comprehensive loss (Restated)                                  |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      |     |   |         |   |    |       |  |   | (104,767 | ) |  |   | (104,767 | )
|Shares issued for acquisitions                                              |  |                | 139    |  |            |   | 1   |                 |  |   | 919               |  |  |                      |     |   |         |   |    |       |  |   |         |   |  |   | 920      |  
|Stock option exercises and issuances under employee stock
    purchase plan |  |                | 349    |  |            |   | 4   |                 |  |   | 1,018             |  |  |                      |     |   |         |   |    |       |  |   |         |   |  |   | 1,022    |  
|Stock compensation                                                          |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      | 231  |   |         |   |    |       |  |   |         |   |  |   | 231      |  
|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       | 
|Balance at December 31, 2002 (Restated)                                     |  |                | 30,176 |  |            |   | 302 |                 |  |   | 226,685           |  |  |                      |     |   |         |   |    |       |  |   | (140,694 | ) |  |   | 86,293   |  
|Net loss (Restated)                                                         |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      |     |   |         |   |    |       |  |   | (16,477  | ) |  |   | (16,477  | )
|Currency translation adjustment                                             |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      |     |   |         |   | 131 |       |  |   |         |   |  |   | 131      |  
|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       | 
|Comprehensive loss (Restated)                                               |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       |  |   |          |   |  |   | (16,346  | )
|Shares issued for acquisitions                                              |  |                | 8,072  |  |            |   | 81  |                 |  |   | 41,014            |  |  |                      |     |   |         |   |    |       |  |   |         |   |  |   | 41,095   |  
|Stock option exercises and issuances under employee stock
    purchase plan |  |                | 690    |  |            |   | 6   |                 |  |   | 1,312             |  |  |                      |     |   |         |   |    |       |  |   |         |   |  |   | 1,318    |  
|Deferred compensation from options exchanged in acquisition                 |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      | (385 | ) |         |   |    |       |  |   |         |   |  |   | (385     | )
|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       | 
|Balance at December 31, 2003 (Restated)                                     |  |                | 38,938 |  |            |   | 389 |                 |  |   | 269,011           |  |  |                      | (385 | ) |         |   | 131 |       |  |   | (157,171 | ) |  |   | 111,975  |  
|Net loss                                                                    |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      |     |   |         |   |    |       |  |   | (24,231  | ) |  |   | (24,231  | )
|Currency translation adjustment                                             |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      |     |   |         |   | 740 |       |  |   |         |   |  |   | 740      |  
|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       | 
|Comprehensive loss                                                          |  |                |       |  |            |   |    |                 |  |   |                  |  |  |                      |     |   |         |   |    |       |  |   |         |   |  |   | (23,491  | )
|Stock option exercises and issuances under employee stock
    purchase plan |  |                | 1,586  |  |            |   | 16  |                 |  |   | 1,428             |  |  |                      |     |   |         |   |    |       |  |   |         |   |  |   | 1,444    |  
|Deferred compensation from options exchanged in acquisition                 |  |                |       |  |            |   |    |                 |  |   | 105               |  |  |                      | 365  |   |         |   |    |       |  |   |         |   |  |   | 470      |  
|Deferred compensation from restricted stock awards                          |  |                | 95     |  |            |   | 1   |                 |  |   | 193               |  |  |                      | (194 | ) |         |   |    |       |  |   |         |   |  |   |         |  
|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       | 
|Balance at December 31, 2004                                                |  |                | 40,619 |  |            | $ | 406 |                 |  | $ | 270,737           |  |  | $                    | (214 | ) |         | $ | 871 |       |  | $ | (181,402 | ) |  | $ | 90,398   |  
|                                                                            |  |                |        |  |            |   |     |                 |  |   |                   |  |  |                      |      |   |         |   |     |       | 



F-5



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##### Table of Contents



QUOVADX, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                               |                                                                               |                                           |         |            |        |   |            |       |        |   |          |        |         |  
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------- | ----------------------------------------- | ------- | ---------- | ------ | - | ---------- | ----- | ------ | - | -------- | ------ | ------- | -
|                                                                               |                                                                               | Year Ended December 31,                   |        
|                                                                               |                                                                               |                                           |        
|                                                                               |                                                                               | 2004                                      |         |            | 2003   |   |            | 2002  |       
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|                                                                               |                                                                               | (In thousands)                            |        
|                                                                               |                                                                               |                                           |         | (Restated) |        |   | (Restated) |      
|CASH FLOWS FROM OPERATING ACTIVITIES                                           |                                                                               |                                           |         |            |        |   |            |       |        |   |          |       
|Net loss                                                                       |                                                                               | $                                         | (24,231 | )          |        | $ | (16,477    | )     |        | $ | (104,767 | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities |                                                                               |                                           |         |            |        |   |            |       |        |   |          |       
|                                                                               | Depreciation and amortization                                                 |                                           |         | 11,108     |        |   |            | 9,715 |        |   |          | 8,673  |        
|                                                                               | Amortization of acquired intangible assets                                    |                                           |         | 3,332      |        |   |            | 1,720 |        |   |          | 2,307  |        
|                                                                               | Amortization of deferred compensation                                         |                                           |         | 470        |        |   |            |      |        |   |          |       |        
|                                                                               | Goodwill impairment                                                           |                                           |         |           |        |   |            |      |        |   |          | 93,085 |        
|                                                                               | Asset impairments                                                             |                                           |         | 7,529      |        |   |            |      |        |   |          |       |        
|                                                                               | Gain on sale of assets                                                        |                                           |         | (1,981     | )      |   |            |      |        |   |          | (87    | )      
|                                                                               | Provision for losses on accounts receivable                                   |                                           |         | 162        |        |   |            | 82    |        |   |          | 474    |        
|                                                                               | Stock compensation expense                                                    |                                           |         |           |        |   |            |      |        |   |          | 231    |        
|                                                                               | Change in assets and liabilities (net of assets and liabilities
    acquired) |                                           |         |            |        |   |            |       |        |   |          |        |        
|                                                                               |                                                                               | Accounts receivable                       |         |            | 3,986  |   |            |       | (559   | ) |          |        | (4,456  | )
|                                                                               |                                                                               | Unbilled accounts receivable              |         |            | 2,270  |   |            |       | 1,128  |   |          |        | 2,245   |  
|                                                                               |                                                                               | Other assets                              |         |            | 2,063  |   |            |       | 618    |   |          |        | 204     |  
|                                                                               |                                                                               | Accounts payable                          |         |            | (4,430 | ) |            |       | 5,525  |   |          |        | (477    | )
|                                                                               |                                                                               | Accrued liabilities                       |         |            | (5,139 | ) |            |       | (6,046 | ) |          |        | (6,445  | )
|                                                                               |                                                                               | Deferred and unearned revenue             |         |            | 711    |   |            |       | (2,981 | ) |          |        | (1,285  | )
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|                                                                               |                                                                               | Net cash used in operating activities     |         |            | (4,150 | ) |            |       | (7,275 | ) |          |        | (10,298 | )
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|CASH FLOWS FROM INVESTING ACTIVITIES                                           |                                                                               |                                           |         |            |        |   |            |       |        |   |          |       
|Purchase of property and equipment                                             |                                                                               |                                           | (1,010  | )          |        |   | (1,971     | )     |        |   | (1,457   | )     
|Purchased and capitalized software                                             |                                                                               |                                           | (1,087  | )          |        |   | (3,557     | )     |        |   | (3,508   | )     
|Business acquisitions, net of cash acquired                                    |                                                                               |                                           |        |            |        |   | (12,585    | )     |        |   | (1,633   | )     
|Proceeds from sale of assets                                                   |                                                                               |                                           | 5,476   |            |        |   |           |       |        |   |         |       
|Purchase of short-term investments                                             |                                                                               |                                           | (6,025  | )          |        |   | (33,720    | )     |        |   | (63,805  | )     
|Sale of short-term investments                                                 |                                                                               |                                           |        |            |        |   | 50,097     |       |        |   | 55,884   |       
|Other investing activities                                                     |                                                                               |                                           |        |            |        |   |           |       |        |   | 9        |       
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|Net cash used in investing activities                                          |                                                                               |                                           | (2,646  | )          |        |   | (1,736     | )     |        |   | (14,510  | )     
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|CASH FLOW FROM FINANCING ACTIVITIES                                            |                                                                               |                                           |         |            |        |   |            |       |        |   |          |       
|Proceeds from issuance of common stock                                         |                                                                               |                                           | 1,444   |            |        |   | 1,318      |       |        |   | 1,022    |       
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|                                                                               |                                                                               | Net cash provided by financing activities |         |            | 1,444  |   |            |       | 1,318  |   |          |        | 1,022   |  
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH                                |                                                                               |                                           | 486     |            |        |   | 137        |       |        |   |         |       
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|Net decrease in cash and cash equivalents                                      |                                                                               |                                           | (4,866  | )          |        |   | (7,556     | )     |        |   | (23,786  | )     
|Cash and cash equivalents at beginning of period                               |                                                                               |                                           | 23,688  |            |        |   | 31,244     |       |        |   | 55,030   |       
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|Cash and cash equivalents at end of period                                     |                                                                               | $                                         | 18,822  |            |        | $ | 23,688     |       |        | $ | 31,244   |       
|                                                                               |                                                                               |                                           |         |            |        |   |            |       |       
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
    TRANSACTIONS   |                                                                               |                                           |         |            |        |   |            |       |        |   |          |       
|Issuance of common stock in business acquisitions                              |                                                                               | $                                         |        |            |        | $ | 41,095     |       |        | $ | 920      |       



F-6



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##### Table of Contents



QUOVADX, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the three years ended December 31, 2004, 2003, and
2002




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant Accounting
    Policies



| |         
| | --------
| | Overview





| |                      
| | ---------------------
| | Basis of Presentation





| |                                                          
| | ---------------------------------------------------------
| | Restatement of Financial Statements for 2003 and
    2002





| |                 
| | ----------------
| | Use of Estimates





| |                    
| | -------------------
| | Revenue Recognition

Software Revenue Recognition, Accounting for Performance of
Construction-Type and Certain Production-Type
Contracts.






F-7



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















| |                                                  
| | -------------------------------------------------
| | Cash, Cash Equivalents and Short-Term Investments





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                             
| | ----------------------------
| | Unbilled Accounts Receivable



F-8



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |           
| | ----------
| | Warranties





| |                
| | ---------------
| | Major Customers



|         |  |                         |    |            |      |  |            |      |  |  |    |  
|-------- |  | ----------------------- | -- | ---------- | ---- |  | ---------- | ---- |  |  | -- | -
|         |  | Year Ended December 31, |   
|         |  |                         |   
|Customer |  | 2004                    |    |            | 2003 |  |            | 2002 | 
|         |  |                         |    |            |      |  |            |      | 
|         |  |                         |    | (Restated) |      |  | (Restated) |     
|A        |  |                         | 16 | %          |      |  | 20         | %    |  |  | 22 | %
|B        |  |                         |   |            |      |  |           |      |  |  | 11 | %





| |                       
| | ----------------------
| | Property and Equipment



|                       |                                                |                |        |         |      |   |        |         |  
|---------------------- | ---------------------------------------------- | -------------- | ------ | ------- | ---- | - | ------ | ------- | -
|                       |                                                | December 31,   |       
|                       |                                                |                |       
|                       |                                                | 2004           |        |         | 2003 |  
|                       |                                                |                |        |         |      |  
|                       |                                                | (In thousands) |       
|Property and Equipment |                                                |                |        |         |      |   |        |        
|                       | Furniture, fixtures and equipment              |                | $      | 5,275   |      |   | $      | 6,377   |  
|                       | Computer hardware                              |                |        | 21,763  |      |   |        | 20,529  |  
|                       | Computer software                              |                |        | 10,370  |      |   |        | 10,446  |  
|                       |                                                |                |        |         |      |  
|                       |                                                |                | 37,408 |         |      |   | 37,352 |        
|                       | Less accumulated depreciation and amortization |                |        | (33,226 | )    |   |        | (31,691 | )
|                       |                                                |                |        |         |      |  
|                       |                                                | $              | 4,182  |         |      | $ | 5,661  |        
|                       |                                                |                |        |         |      |  

F-9



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                           
| | --------------------------
| | Capitalized Software Costs



|                     |                                        |                |        |            |      |   |        |         |  
|-------------------- | -------------------------------------- | -------------- | ------ | ---------- | ---- | - | ------ | ------- | -
|                     |                                        | December 31,   |       
|                     |                                        |                |       
|                     |                                        | 2004           |        |            | 2003 |  
|                     |                                        |                |        |            |      |  
|                     |                                        |                |        | (Restated) |     
|                     |                                        | (In thousands) |       
|Capitalized Software |                                        |                |        |            |      |   |        |        
|                     | Software acquired through acquisitions |                | $      | 25,130     |      |   | $      | 31,361  |  
|                     | Purchased software                     |                |        | 2,052      |      |   |        | 3,046   |  
|                     | Software development costs             |                |        | 8,590      |      |   |        | 8,752   |  
|                     |                                        |                |        |            |      |  
|                     |                                        |                | 35,772 |            |      |   | 43,159 |        
|                     | Accumulated Amortization               |                |        | (24,439    | )    |   |        | (14,283 | )
|                     |                                        |                |        |            |      |  
|                     |                                        | $              | 11,333 |            |      | $ | 28,876 |        
|                     |                                        |                |        |            |      |  



| |         
| | --------
| | Goodwill





F-10



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                           |  |             |         |   |       |   |        |             |  |   |        |  
|---------------------------------------------------------- |  | ----------- | ------- | - | ----- | - | ------ | ----------- |  | - | ------ | -
|                                                           |  | Integration |         |   | Rogue |   |        |            
|                                                           |  | Solutions   |         |   | Wave  |   |        | CareScience | 
|                                                           |  |             |         |   |       |   |        |             | 
|Balance at January 1, 2002                                 |  | $           | 92,202  |   |       |   |        |             |  |   |        |  
|Adjustment to Confer and Pixel goodwill based on valuation |  |             | 883     |   |       |   |        |             |  |   |        |  
|Goodwill impairment                                        |  |             | (93,085 | ) |       |   |        |             |  |   |        |  
|Balance at December 31, 2002                               |  | $           |        |   |       |   |        |             |  |   |        |  
|                                                           |  |             |         |   |       |   |        |             | 
|Acquisition of CareScience (Note 2)                        |  |             |         |   |       | $ |       |             |  | $ | 13,318 |  
|Acquisition of Rogue Wave (Note 2)                         |  |             |         |   |       |   | 34,697 |             |  |   |       |  
|                                                           |  |             |         |   |       |   |        |             | 
|Balance at December 31, 2003                               |  |             |         |   |       |   | 34,697 |             |  |   | 13,318 |  
|Reconciliation of opening balances                         |  |             |         |   |       |   | (2,926 | )           |  |   | (219   | )
|                                                           |  |             |         |   |       |   |        |             | 
|Valuation adjustment                                       |  |             |         |   |       |   | 1,603  |             |  |   |       |  
|                                                           |  |             |         |   |       |   |        |             | 
|Acquisition expenses                                       |  |             |         |   |       |   |       |             |  |   | (357   | )
|Leases restructuring                                       |  |             |         |   |       |   | 608    |             |  |   |       |  
|                                                           |  |             |         |   |       |   |        |             | 
|Balance at December 31, 2004                               |  |             |         |   |       | $ | 33,982 |             |  | $ | 12,742 |  
|                                                           |  |             |         |   |       |   |        |             | 





| |                           
| | --------------------------
| | Acquired Intangible Assets



|                  |                          |                |        |        |      |   |        |        |  
|----------------- | ------------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | -
|                  |                          | December 31,   |       
|                  |                          |                |       
|                  |                          | 2004           |        |        | 2003 |  
|                  |                          |                |        |        |      |  
|                  |                          | (In thousands) |       
|Intangible Assets |                          |                |        |        |      |   |        |       
|                  | Customer Base            |                | $      | 22,496 |      |   | $      | 19,367 |  
|                  | Trade name               |                |        | 559    |      |   |        | 1,041  |  
|                  | Other                    |                |        | 2,178  |      |   |        | 2,295  |  
|                  |                          |                |        |        |      |  
|                  |                          |                | 25,233 |        |      |   | 22,703 |       
|                  | Accumulated Amortization |                |        | (7,520 | )    |   |        | (4,968 | )
|                  |                          |                |        |        |      |  
|                  |                          | $              | 17,713 |        |      | $ | 17,735 |       
|                  |                          |                |        |        |      |  



| |                                  
| | ---------------------------------
| | Long-Lived Assets and Impairments



F-11



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |             
| | ------------
| | Other Assets







| |                         
| | ------------------------
| | Research and Development





| |            
| | -----------
| | Advertising



F-12



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |             
| | ------------
| | Income Taxes





| |                          
| | -------------------------
| | Stock Option Compensation



|                           |                                                                            |                                      |   |            |      |  |            |         |   |  |   |          |  
|-------------------------- | -------------------------------------------------------------------------- | ------------------------------------ | - | ---------- | ---- |  | ---------- | ------- | - |  | - | -------- | -
|                           |                                                                            | Year Ended December 31,              |  
|                           |                                                                            |                                      |  
|                           |                                                                            | 2004                                 |   |            | 2003 |  |            | 2002    |  
|                           |                                                                            |                                      |   |            |      |  |            |         |  
|                           |                                                                            | (In thousands except per share data) |  
|                           |                                                                            |                                      |   | (Restated) |      |  | (Restated) |        
|Net loss:                  |                                                                            |                                      |   |            |      |  |            |         |   |  |   |         
|                           | As reported                                                                |                                      | $ | (24,231    | )    |  | $          | (16,477 | ) |  | $ | (104,767 | )
|                           | Plus: stock based compensation recognized under intrinsic value
    method |                                      |   | 470        |      |  |            |        |   |  |   | 231      |  
|                           | Less: stock based compensation under fair value method                     |                                      |   | (1,664     | )    |  |            | (4,728  | ) |  |   | (8,760   | )
|                           |                                                                            |                                      |   |            |      |  |            |         |  
|                           | Pro forma net loss                                                         |                                      | $ | (25,425    | )    |  | $          | (21,205 | ) |  | $ | (113,296 | )
|                           |                                                                            |                                      |   |            |      |  |            |         |  
|Net loss per common share: |                                                                            |                                      |   |            |      |  |            |         |   |  |   |         
|                           | As reported                                                                |                                      | $ | (0.61      | )    |  | $          | (0.52   | ) |  | $ | (3.49    | )
|                           | Pro forma                                                                  |                                      |   | (0.64      | )    |  |            | (0.68   | ) |  |   | (3.78    | )





F-13



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                          
| | -------------------------
| | Net Loss Per Common Share





| |                   
| | ------------------
| | Comprehensive Loss





| |                              
| | -----------------------------
| | Foreign Currency Translations





| |                  
| | -----------------
| | Reclassifications





| |                         
| | ------------------------
| | New Accounting Standards





F-14



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                    
|-- | -----------------------------------
|2. | Restatement of Financial Statements



|                               |  |                      |        |   |              |   |       |  
|------------------------------ |  | -------------------- | ------ | - | ------------ | - | ----- | -
|                               |  | Year Ended           |        |   | Year Ended   |  
|                               |  | December 31,         |        |   | December 31, |  
|                               |  | 2003                 |        |   | 2002         |  
|                               |  |                      |        |   |              |  
|                               |  | (Restated)           |        |   | (Restated)   |  
|                               |  | (In thousands except |       
|                               |  | per share amounts)   |       
|Decrease in total revenue      |  | $                    | (1,663 | ) |              | $ | (430  | )
|Increase in net loss           |  |                      | (1,783 | ) |              |   | (655  | )
|Increase in net loss per share |  | $                    | (0.05  | ) |              | $ | (0.02 | )



|   |                      
|-- | ---------------------
|3. | Business Acquisitions





F-15



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                   |  |                         |         |   |            |   |          |  
|------------------ |  | ----------------------- | ------- | - | ---------- | - | -------- | -
|                   |  | Year Ended December 31, |        
|                   |  | 2003                    |         |   | 2002       |  
|                   |  |                         |         |   |            |  
|                   |  | (Restated)              |         |   | (Restated) |  
|Revenue            |  | $                       | 102,335 |   |            | $ | 113,073  |  
|Net loss           |  |                         | (27,122 | ) |            |   | (121,617 | )
|Net loss per share |  | $                       | (0.70   | ) |            | $ | (3.20    | )



Acquisition-Related Restructuring




|                        |  |                |       |   |         |            |      |              |  |   |            |   |  |              |      |   |  |   |       |  
|----------------------- |  | -------------- | ----- | - | ------- | ---------- | ---- | ------------ |  | - | ---------- | - |  | ------------ | ---- | - |  | - | ----- | -
|                        |  |                |       |   |         | Accrual at |      |              |  |   | Accrual at |  
|                        |  | Accrued at     |       |   | Paid in |            |      | December 31, |  |   | Paid in    |   |  | December 31, |     
|                        |  | Acquisition    |       |   | 2003    |            |      | 2003         |  |   | 2004       |   |  | 2004         |     
|                        |  |                |       |   |         |            |      |              |  |   |            |   |  |              |     
|                        |  | (In thousands) |      
|Employee Severance      |  | $              | 256   |   |         | $          | (256 | )            |  | $ |           |   |  | $            |     |   |  | $ |      |  
|Lease abandonment costs |  |                | 1,905 |   |         |            | (60  | )            |  |   | 1,845      |   |  |              | (263 | ) |  |   | 1,582 |  
|Less: Sublease income   |  |                | (301  | ) |         |            |     |              |  |   | (301       | ) |  |              |     |   |  |   | (301  | )
|                        |  |                |       |   |         |            |      |              |  |   |            |   |  |              |     
|                        |  | $              | 1,860 |   |         | $          | (316 | )            |  | $ | 1,544      |   |  | $            | (263 | ) |  | $ | 1,281 |  
|                        |  |                |       |   |         |            |      |              |  |   |            |   |  |              |     





|   |                             
|-- | ----------------------------
|4. | Business/ Asset Dispositions



F-16



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                               |                                                 |                |   |       |      |  |   |       | 
|------------------------------ | ----------------------------------------------- | -------------- | - | ----- | ---- |  | - | ----- | 
|                               |                                                 | December 31,   |  
|                               |                                                 |                |  
|                               |                                                 | 2004           |   |       | 2003 | 
|                               |                                                 |                |   |       |      | 
|                               |                                                 | (In thousands) |  
|Net book value of assets sold: |                                                 |                |   |       |      |  |   |      
|                               | Furniture, leasehold improvements and equipment |                | $ | 322   |      |  | $ | 630   | 
|                               | Deferred costs                                  |                |   | 993   |      |  |   | 1,128 | 
|                               |                                                 |                |   |       |      | 
|                               | Total                                           |                | $ | 1,315 |      |  | $ | 1,758 | 
|                               |                                                 |                |   |       |      | 



|                                    |  |                         |       |  |      |   |       |      |  |   |       | 
|----------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                    |  | Year Ended December 31, |      
|                                    |  |                         |      
|                                    |  | 2004                    |       |  | 2003 |   |       | 2002 | 
|                                    |  |                         |       |  |      |   |       |      | 
|                                    |  | (In thousands)          |      
|Recurring services revenues         |  | $                       | 5,164 |  |      | $ | 5,004 |      |  | $ | 2,605 | 
|Cost of recurring services revenue  |  |                         | 4,575 |  |      |   | 4,598 |      |  |   | 1,842 | 
|                                    |  |                         |       |  |      |   |       |      | 
|Income from discontinued operations |  | $                       | 589   |  |      | $ | 406   |      |  | $ | 763   | 
|                                    |  |                         |       |  |      |   |       |      | 

F-17



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##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                         
|-- | ------------------------
|5. | Balance Sheet Components



|                     |                                 |              |       |     |      |   |       |       | 
|-------------------- | ------------------------------- | ------------ | ----- | --- | ---- | - | ----- | ----- | 
|                     |                                 | December 31, |      
|                     |                                 |              |      
|                     |                                 | 2004         |       |     | 2003 |  
|                     |                                 |              |       |     |      |  
|Other Current Assets |                                 |              |       |     |      |   |       |      
|                     | Prepaid maintenance and support |              | $     | 999 |      |   | $     | 1,215 | 
|                     | Note receivable                 |              |       | 784 |      |   |       | 1,010 | 
|                     | Deferred costs                  |              |       | 316 |      |   |       | 669   | 
|                     | Other                           |              |       | 499 |      |   |       | 1,249 | 
|                     |                                 |              |       |     |      |  
|                     |                                 | $            | 2,598 |     |      | $ | 4,143 |      
|                     |                                 |              |       |     |      |  

|                    |                              |              |        |       |      |   |        |       | 
|------------------- | ---------------------------- | ------------ | ------ | ----- | ---- | - | ------ | ----- | 
|                    |                              | December 31, |       
|                    |                              |              |       
|                    |                              | 2003         |        |       | 2003 |  
|                    |                              |              |        |       |      |  
|Accrued Liabilities |                              |              |        |       |      |   |        |      
|                    | Accrued compensation         |              | $      | 3,309 |      |   | $      | 3,402 | 
|                    | Accrued rent                 |              |        | 1,614 |      |   |        | 2,274 | 
|                    | Accrued audit fees           |              |        | 683   |      |   |        | 244   | 
|                    | Accrued legal fees           |              |        | 497   |      |   |        | 168   | 
|                    | Option liability payout      |              |        | 345   |      |   |        | 1,399 | 
|                    | Accrued professional fees    |              |        | 100   |      |   |        | 450   | 
|                    | Accrued acquisition expenses |              |        |      |      |   |        | 3,121 | 
|                    | Other                        |              |        | 3,549 |      |   |        | 4,823 | 
|                    |                              |              |        |       |      |  
|                    |                              | $            | 10,097 |       |      | $ | 15,881 |      
|                    |                              |              |        |       |      |  



|   |                                       
|-- | --------------------------------------
|6. | Stockholders Equity and Benefit Plans



| |               
| | --------------
| | Stock Warrants





| |              
| | -------------
| | Stock Options



F-18



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












F-19



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |       |           |  |             |           |  |       |          |       |  |           |       |  |          |           |  |  |  |     |  |  |   |       |  |  |  |           |  |  |   |       | 
|------------------------ | ----- | --------- |  | ----------- | --------- |  | ----- | -------- | ----- |  | --------- | ----- |  | -------- | --------- |  |  |  | --- |  |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |       | Number    |  |             | Weighted) |  |       | Weighted |       |  | Number    |       |  | Weighted |          
|Range of Exercise Prices |       | of Shares |  |             | Average   |  |       | Average  |       |  | of Shares |       |  | Average  |          
|                         |       |           |  |             | Remaining |  |       | Exercise |       |  |           |       |  | Exercise |          
|                         |       |           |  | Contractual |           |  | Price |          |       |  |           | Price | 
|                         |       |           |  | Life (Years |           |  |       |          |       |  |           |       | 
|                         |       |           |  |             |           |  |       |          |       |  |          
|$                        | 0.25  |           |  |             |          |  |       | $        | 1.12  |  |           |       |  |          | 1,507,047 |  |  |  | 9.3 |  |  | $ | 1.03  |  |  |  | 356,331   |  |  | $ | 0.73  | 
|                         | 1.14  |           |  |             |          |  |       |          | 2.05  |  |           |       |  |          | 1,030,234 |  |  |  | 9.6 |  |  |   | 1.83  |  |  |  | 279,784   |  |  |   | 1.80  | 
|                         | 2.29  |           |  |             |          |  |       |          | 2.61  |  |           |       |  |          | 417,469   |  |  |  | 8.0 |  |  |   | 2.53  |  |  |  | 284,458   |  |  |   | 2.51  | 
|                         | 2.67  |           |  |             |          |  |       |          | 4.90  |  |           |       |  |          | 297,497   |  |  |  | 6.7 |  |  |   | 2.94  |  |  |  | 250,737   |  |  |   | 2.87  | 
|                         | 5.00  |           |  |             |          |  |       |          | 5.94  |  |           |       |  |          | 405,175   |  |  |  | 7.5 |  |  |   | 5.32  |  |  |  | 235,714   |  |  |   | 5.50  | 
|                         | 6.02  |           |  |             |          |  |       |          | 7.03  |  |           |       |  |          | 774,423   |  |  |  | 8.1 |  |  |   | 6.17  |  |  |  | 293,758   |  |  |   | 6.27  | 
|                         | 7.17  |           |  |             |          |  |       |          | 8.53  |  |           |       |  |          | 242,775   |  |  |  | 6.6 |  |  |   | 8.32  |  |  |  | 200,846   |  |  |   | 8.28  | 
|                         | 8.70  |           |  |             |          |  |       |          | 10.20 |  |           |       |  |          | 571,611   |  |  |  | 5.9 |  |  |   | 9.94  |  |  |  | 507,256   |  |  |   | 9.95  | 
|                         | 10.30 |           |  |             |          |  |       |          | 12.83 |  |           |       |  |          | 378,973   |  |  |  | 5.9 |  |  |   | 11.97 |  |  |  | 324,830   |  |  |   | 11.94 | 
|                         | 13.10 |           |  |             |          |  |       |          | 24.41 |  |           |       |  |          | 60,939    |  |  |  | 4.5 |  |  |   | 14.24 |  |  |  | 60,939    |  |  |   | 14.24 | 
|                         |       |           |  |             |           |  |       |          |       |  |           |       |  |          |           |  |  |  |     |  |  |   |       | 
|$                        | 0.25  |           |  |             |          |  |       | $        | 24.41 |  |           |       |  |          | 5,686,143 |  |  |  | 8.1 |  |  | $ | 4.47  |  |  |  | 2,794,653 |  |  | $ | 6.01  | 
|                         |       |           |  |             |           |  |       |          |       |  |           |       |  |          |           |  |  |  |     |  |  |   |       | 



|                                       |                              |           |           |            |                  |   |      |             |  |  |                  |  |  |   |      |  | 
|-------------------------------------- | ---------------------------- | --------- | --------- | ---------- | ---------------- | - | ---- | ----------- |  |  | ---------------- |  |  | - | ---- |  | 
|                                       |                              | Number of |           |            | Weighted Average |   |      | Options     |  |  | Weighted Average | 
|                                       |                              | Shares    |           |            | Exercise Price   |   |      | Exercisable |  |  | Exercise Price   | 
|                                       |                              |           |           |            |                  |   |      |             |  |  |                  | 
|Options outstanding, January 1, 2002   |                              |           | 5,907,808 |            |                  | $ | 7.55 |             |  |  | 4,896,516        |  |  | $ | 7.24 | 
|                                       | Options granted              |           |           | 1,718,096  |                  |   |      | 4.60        |  |  |                  |  |  |   |      |  | 
|                                       | Less: options exercised      |           |           | (151,622   | )                |   |      | 1.98        |  |  |                  |  |  |   |      |  | 
|                                       | Less: options forfeited      |           |           | (1,007,171 | )                |   |      | 8.70        |  |  |                  |  |  |   |      |  | 
|                                       |                              |           |           |            |                  |   |      |             |  |  |                  | 
|Options outstanding, December 31, 2002 |                              |           | 6,467,111 |            |                  |   | 6.72 |             |  |  | 2,928,651        |  |  |   | 6.36 | 
|                                       | Converted Rogue Wave options |           |           | 620,658    |                  |   |      | 7.38        |  |  |                  |  |  |   |      |  | 
|                                       | Options granted              |           |           | 786,033    |                  |   |      | 2.63        |  |  |                  |  |  |   |      |  | 
|                                       | Less: options exercised      |           |           | (140,404   | )                |   |      | 2.54        |  |  |                  |  |  |   |      |  | 
|                                       | Less: options forfeited      |           |           | (649,935   | )                |   |      | 7.14        |  |  |                  |  |  |   |      |  | 
|                                       |                              |           |           |            |                  |   |      |             |  |  |                  | 
|Options outstanding, December 31, 2003 |                              |           | 7,083,463 |            |                  |   | 6.95 |             |  |  | 4,650,309        |  |  |   | 7.15 | 
|                                       | Options granted              |           |           | 3,653,625  |                  |   |      | 2.65        |  |  |                  |  |  |   |      |  | 
|                                       | Less: options exercised      |           |           | (1,082,429 | )                |   |      | 0.58        |  |  |                  |  |  |   |      |  | 
|                                       | Less: options forfeited      |           |           | (3,968,516 | )                |   |      | 6.94        |  |  |                  |  |  |   |      |  | 
|                                       |                              |           |           |            |                  |   |      |             |  |  |                  | 
|Options outstanding, December 31, 2004 |                              |           | 5,686,143 |            |                  | $ | 4.47 |             |  |  | 2,794,653        |  |  | $ | 6.01 | 
|                                       |                              |           |           |            |                  |   |      |             |  |  |                  | 



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan



F-20



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |            
| | -----------
| | 401(k) Plan





| |                         
| | ------------------------
| | Stockholders Rights Plan





|   |               
|-- | --------------
|7. | Line of Credit





|   |             
|-- | ------------
|8. | Income Taxes



|         |  |      |         |   |      |   |         |      |  |   |          |  
|-------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|         |  | 2004 |         |   | 2003 |   |         | 2002 | 
|         |  |      |         |   |      |   |         |      | 
|Domestic |  | $    | (25,175 | ) |      | $ | (16,590 | )    |  | $ | (105,347 | )
|Foreign  |  |      | 42      |   |      |   | (293    | )    |  |   | (183     | )
|         |  |      |         |   |      |   |         |      | 
|Total    |  | $    | (25,133 | ) |      | $ | (16,883 | )    |  | $ | (105,530 | )
|         |  |      |         |   |      |   |         |      | 



F-21



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                           |  |                         |        |   |      |   |        |      |  |   |         |  
|---------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                           |  | Years Ended December 31 |       
|                                                           |  |                         |       
|                                                           |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|                                                           |  |                         |        |   |      |   |        |      | 
|                                                           |  | (In thousands)          |       
|Expected federal income tax benefit at blended rate of 35% |  | $                       | (8,799 | ) |      | $ | (5,426 | )    |  | $ | (35,440 | )
|Effect of state taxes (net of federal benefit)             |  |                         | (665   | ) |      |   | (436   | )    |  |   | (285    | )
|Change in valuation allowance                              |  |                         | 9,249  |   |      |   | 5,811  |      |  |   | 4,029   |  
|Unearned compensation                                      |  |                         |        |   |      |   |       |      |  |   | 81      |  
|Goodwill expense                                           |  |                         |        |   |      |   |       |      |  |   | 31,565  |  
|Foreign tax rate differential                              |  |                         | 111    |   |      |   |        |      |  |   |         |  
|Other permanent items                                      |  |                         | 237    |   |      |   | 51     |      |  |   | 50      |  
|                                                           |  |                         |        |   |      |   |        |      | 
|Income tax expense/(benefit)                               |  | $                       | 133    |   |      | $ |       |      |  | $ |        |  
|                                                           |  |                         |        |   |      |   |        |      | 



|                          |                                          |                |        |         |      |  |         |         |  
|------------------------- | ---------------------------------------- | -------------- | ------ | ------- | ---- |  | ------- | ------- | -
|                          |                                          | 2004           |        |         | 2003 | 
|                          |                                          |                |        |         |      | 
|                          |                                          | (In thousands) |       
|Deferred tax assets:      |                                          |                |        |         |      |  |         |        
|                          | Deferred revenue                         |                | $      |        |      |  | $       | 4,873   |  
|                          | Allowance for doubtful accounts          |                |        | 536     |      |  |         | 884     |  
|                          | Investment impairment                    |                |        | 195     |      |  |         | 195     |  
|                          | Employee benefits                        |                |        | 525     |      |  |         | 533     |  
|                          | Accrued liabilities                      |                |        | 632     |      |  |         | 239     |  
|                          | Tax credits                              |                |        | 2,795   |      |  |         | 2,371   |  
|                          | Other temporary items                    |                |        | 3       |      |  |         | 459     |  
|                          | Foreign net operating loss carryforwards |                |        | 1,388   |      |  |         | 1,447   |  
|                          | Federal net operating loss carryforwards |                |        | 59,486  |      |  |         | 47,427  |  
|                          |                                          |                |        |         |      | 
|                          |                                          |                | 65,560 |         |      |  | 58,428  |        
|Deferred tax liabilities: |                                          |                |        |         |      |  |         |        
|                          | Fixed asset sale, depreciation & other   |                |        | (297    | )    |  |         | 416     |  
|                          | Amortization & other                     |                |        | (6,094  | )    |  |         | (10,440 | )
|                          |                                          |                |        |         |      | 
|                          |                                          |                | (6,391 | )       |      |  | (10,024 | )      
|Less:                     |                                          |                |        |         |      |  |         |        
|                          | Valuation allowance                      |                |        | (59,169 | )    |  |         | (48,404 | )
|                          | Net deferred tax assets/(liabilities)    |                | $      |        |      |  | $       |        |  
|                          |                                          |                |        |         |      | 



F-22



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














F-23



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies



| |            
| | -----------
| | Commitments



|           |  |   |        | 
|---------- |  | - | ------ | 
|2005       |  | $ | 4,589  | 
|2006       |  |   | 2,211  | 
|2007       |  |   | 1,409  | 
|2008       |  |   | 1,041  | 
|2009       |  |   | 846    | 
|Thereafter |  |   | 1,709  | 
|           |  |   |       
|           |  | $ | 11,805 | 
|           |  |   |       





| |              
| | -------------
| | Contingencies

Bartula v. XCare.net,
Inc., et al.


Smith v. Quovadx, Inc.
et al


F-24



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Heller v. Quovadx, Inc.,
et al Heller inter alia,


Marcoux v. Brown et al Thornton v.
Brown et al. Jaroslawicz v. Brown, et al.


Henderson v. Quovadx, Inc.
et al sub
judice.


F-25



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|    |                           
|--- | --------------------------
|10. | Related Party Transactions











|    |                    
|--- | -------------------
|11. | Segment Information

Disclosures about Segments of
an Enterprise and Related Information.




F-26



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |          |   |  |   |          |  
|----------------------------------- |  | ----------- | ------- | - | ----------- | ----- | ------ | -------- |  | - | ---------------- | --- |  | ----- | -------- | - |  | - | -------- | -
|                                    |  |             |         |   |             | Rogue |        |          |  |   |                 
|                                    |  | Integration |         |   |             |       | Wave   |          |  |   |                  |    
|                                    |  | Solutions   |         |   | CareScience |       |        | Software |  |   |                  |     | 
|                                    |  | Division    |         |   | Division    |       |        | Division |  |   | Other Operations |     |  | Total |         
|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |         
|Year Ended December 31,             |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |          |   |  |   |          |  
|2004                                |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |          |   |  |   |          |  
|Revenue                             |  | $           | 40,736  |   |             | $     | 13,910 |          |  | $ | 28,155           |     |  | $     |         |   |  | $ | 82,801   |  
|Operating expenses                  |  |             | 51,818  |   |             |       | 15,159 |          |  |   | 20,581           |     |  |       | 20,509   |   |  |   | 108,067  |  
|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |         
|Net loss from continuing operations |  | $           | (11,082 | ) |             | $     | (1,249 | )        |  | $ | 7,574            |     |  | $     | (20,509  | ) |  | $ | (25,266  | )
|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |         
|2003                                |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |          |   |  |   |          |  
|Revenue                             |  | $           | 58,340  |   |             | $     | 4,213  | (a)      |  | $ | 2,375            | (a) |  | $     |         |   |  | $ | 64,928   |  
|Operating expenses                  |  |             | 63,725  |   |             |       | 4,291  |          |  |   | 1,053            |     |  |       | 12,742   |   |  |   | 81,811   |  
|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |         
|Net loss from continuing operations |  | $           | (5,385  | ) |             | $     | (78    | )        |  | $ | 1,322            |     |  | $     | (12,742  | ) |  | $ | (16,883  | )
|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |         
|2002                                |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |          |   |  |   |          |  
|Revenue                             |  | $           | 60,623  |   |             | $     |       |          |  | $ |                 |     |  | $     |         |   |  | $ | 60,623   |  
|Operating expenses                  |  |             | 60,617  |   |             |       |       |          |  |   |                 |     |  |       | 105,536  |   |  |   | 166,153  |  
|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |         
|Net loss from continuing operations |  | $           | 6       |   |             | $     |       |          |  | $ |                 |     |  | $     | (105,536 | ) |  | $ | (105,530 | )
|                                    |  |             |         |   |             |       |        |          |  |   |                  |     |  |       |         






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(a) | CareScience and Rogue Wave Software were acquired in September
    2003 and December 2003, respectively.





|    |                              
|--- | -----------------------------
|12. | Quarterly Results (Unaudited)



F-27



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |        |  |   |        |       | 
|------------------------------------------------------------------------------------------------ | --------------------------------------- | ------------------------------------------- | ------- | ------ | -------- | - | ------ | ------------- |  | - | ------------ | ------ |  | - | ------ | ----- | 
|                                                                                                 |                                         | Three Months Ended                          |        
|                                                                                                 |                                         |                                             |        
|                                                                                                 |                                         | March 31,                                   |         |        | June 30, |   |        | September 30, |  |   | December 31, |       
|                                                                                                 |                                         | 2004                                        |         |        | 2004     |   |        | 2004          |  |   | 2004         |       
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|                                                                                                 |                                         | (In thousands except for per share amounts) |        
|STATEMENT OF OPERATIONS                                                                          |                                         |                                             |         |        |          |   |        |               |  |   |              |        |  |   |        |      
|Total revenue(a)                                                                                 |                                         | $                                           | 22,294  |        |          | $ | 20,276 |               |  | $ | 19,749       |        |  | $ | 20,482 |      
|Cost and expenses:                                                                               |                                         |                                             |         |        |          |   |        |               |  |   |              |        |  |   |        |      
|                                                                                                 | Cost of revenue(b)                      |                                             |         | 13,498 |          |   |        | 11,685        |  |   |              | 11,387 |  |   |        | 9,529 | 
|                                                                                                 | Asset impairment                        |                                             |         | 6,765  |          |   |        |              |  |   |              |       |  |   |        | 430   | 
|                                                                                                 | Sales and marketing                     |                                             |         | 6,534  |          |   |        | 4,830         |  |   |              | 4,177  |  |   |        | 4,056 | 
|                                                                                                 | General and administrative              |                                             |         | 3,693  |          |   |        | 6,738         |  |   |              | 4,456  |  |   |        | 4,945 | 
|                                                                                                 | Research and development                |                                             |         | 3,683  |          |   |        | 3,657         |  |   |              | 3,096  |  |   |        | 2,947 | 
|                                                                                                 | Amortization of acquired intangibles    |                                             |         | 1,182  |          |   |        | 755           |  |   |              | 770    |  |   |        | 1,011 | 
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|Total costs and expenses                                                                         |                                         |                                             | 35,355  |        |          |   | 27,665 |               |  |   | 23,886       |        |  |   | 22,918 |      
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|Loss from operations                                                                             |                                         |                                             | (13,061 | )      |          |   | (7,389 | )             |  |   | (4,137       | )      |  |   | (2,436 | )    
|Gain on sales of assets                                                                          |                                         |                                             |        |        |          |   | 1,175  |               |  |   | 360          |        |  |   |       |      
|Interest Income, net                                                                             |                                         |                                             | 118     |        |          |   | 127    |               |  |   | 50           |        |  |   | 60     |      
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|Net loss before income taxes                                                                     |                                         |                                             | (12,943 | )      |          |   | (6,087 | )             |  |   | (3,727       | )      |  |   | (2,376 | )    
|Income tax expense                                                                               |                                         |                                             |        |        |          |   |       |               |  |   |             |        |  |   | 133    |      
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|Loss from continuing operations                                                                  |                                         |                                             | (12,943 | )      |          |   | (6,087 | )             |  |   | (3,727       | )      |  |   | (2,509 | )    
|                                                                                                 | Income from discontinued operations     |                                             |         | 161    |          |   |        | 197           |  |   |              | 113    |  |   |        | 118   | 
|                                                                                                 | Gain on sale of discontinued operations |                                             |         |       |          |   |        |              |  |   |              |       |  |   |        | 446   | 
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|Net loss                                                                                         |                                         | $                                           | (12,782 | )      |          | $ | (5,890 | )             |  | $ | (3,614       | )      |  | $ | (1,945 | )    
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|Net loss before discontinued operations per common
    share  basic and diluted                 |                                         | $                                           | (0.33   | )      |          | $ | (0.15  | )             |  | $ | (0.09        | )      |  | $ | (0.06  | )    
|Income from and gain on sale of discontinued operations per
    common share  basic and diluted |                                         |                                             | 0.00    |        |          |   | 0.00   |               |  |   | 0.00         |        |  |   | 0.01   |      
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       
|Net loss per common share-basic and diluted                                                      |                                         | $                                           | (0.33   | )      |          | $ | (0.15  | )             |  | $ | (0.09        | )      |  | $ | (0.05  | )    
|                                                                                                 |                                         |                                             |         |        |          |   |        |               |  |   |              |       






|    |                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Revenues from discontinued operations of $1,372,000, $1,302,000,
    $1,238,000 and $1,252,000 for the three months ended
    March 31, 2004, June 30, 2004, September 30, 2004
    and December 31, 2004, respectively, have been reclassified
    to income from discontinued operations.



|    |  |                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Cost of revenue from discontinued operations of $1,211,000,
    $1,105,000, $1,125,000 and $1,134,000 for the three months ended
    March 31, 2004, June 30, 2004, September 30, 2004
    and December 31, 2004, respectively, have been reclassified
    to income from discontinued operations.



| |                                      
| | -------------------------------------
| | Restatement of 2003 Financial Results



F-28



---



##### Table of Contents



QUOVADX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |       |  |   |        |        | 
|------------------------------------------------------------------------------------------------ | ------------------------------------ | ------------------------------------------- | ------ | ----- | -------- | - | ------ | ------------- |  | - | ------------ | ----- |  | - | ------ | ------ | 
|                                                                                                 |                                      | Three Months Ended                          |       
|                                                                                                 |                                      |                                             |       
|                                                                                                 |                                      | March 31,                                   |        |       | June 30, |   |        | September 30, |  |   | December 31, |      
|                                                                                                 |                                      | 2003                                        |        |       | 2003     |   |        | 2003          |  |   | 2003         |      
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      
|                                                                                                 |                                      | (In thousands except for per share amounts) |       
|STATEMENT OF OPERATIONS-RESTATED                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |       |  |   |        |       
|Total revenue(c)                                                                                 |                                      | $                                           | 16,211 |       |          | $ | 17,328 |               |  | $ | 13,140       |       |  | $ | 18,249 |       
|Cost and expenses:                                                                               |                                      |                                             |        |       |          |   |        |               |  |   |              |       |  |   |        |       
|                                                                                                 | Cost of revenue(d)                   |                                             |        | 9,687 |          |   |        | 9,302         |  |   |              | 9,275 |  |   |        | 11,999 | 
|                                                                                                 | Sales and marketing                  |                                             |        | 3,842 |          |   |        | 4,052         |  |   |              | 4,260 |  |   |        | 5,631  | 
|                                                                                                 | General and administrative           |                                             |        | 3,030 |          |   |        | 3,146         |  |   |              | 3,001 |  |   |        | 3,565  | 
|                                                                                                 | Research and development             |                                             |        | 2,247 |          |   |        | 2,246         |  |   |              | 2,669 |  |   |        | 2,833  | 
|                                                                                                 | Amortization of acquired intangibles |                                             |        | 457   |          |   |        | 307           |  |   |              | 307   |  |   |        | 649    | 
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      
|Total costs and expenses                                                                         |                                      |                                             | 19,263 |       |          |   | 19,053 |               |  |   | 19,512       |       |  |   | 24,677 |       
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      
|Loss from operations                                                                             |                                      |                                             | (3,052 | )     |          |   | (1,725 | )             |  |   | (6,372       | )     |  |   | (6,428 | )     
|Interest Income, net                                                                             |                                      |                                             | 189    |       |          |   | 207    |               |  |   | 89           |       |  |   | 209    |       
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      
|Loss before discontinued operations                                                              |                                      |                                             | (2,863 | )     |          |   | (1,518 | )             |  |   | (6,283       | )     |  |   | (6,219 | )     
|                                                                                                 | Income from discontinued operations  |                                             |        | 137   |          |   |        | 88            |  |   |              | 85    |  |   |        | 96     | 
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      
|Net loss                                                                                         |                                      | $                                           | (2,726 | )     |          | $ | (1,430 | )             |  | $ | (6,198       | )     |  | $ | (6,123 | )     
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      
|Net loss before discontinued operations per common
    share  basic and diluted                 |                                      | $                                           | (0.09  | )     |          | $ | (0.05  | )             |  | $ | (0.20        | )     |  | $ | (0.18  | )     
|Income from and gain on sale of discontinued operations per
    common share  basic and diluted |                                      |                                             | 0.00   |       |          |   | 0.00   |               |  |   | 0.00         |       |  | $ | 0.00   |       
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      
|Net loss per common share-basic and diluted                                                      |                                      | $                                           | (0.09  | )     |          | $ | (0.05  | )             |  | $ | (0.20        | )     |  | $ | (0.18  | )     
|                                                                                                 |                                      |                                             |        |       |          |   |        |               |  |   |              |      






|    |                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Revenues from discontinued operations of $1,322,000, $1,257,000,
    $1,227,000 and $1,198,000 for the three months ended
    March 31, 2003, June 30, 2003, September 30, 2003
    and December 31, 2003, respectively, have been reclassified
    to income from discontinued operations.



|    |  |                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) |  | Cost of sales from discontinued operations of $1,185,000,
    $1,169,000, $1,142,000 and $1,102,000 for the three months ended
    March 31, 2003, June 30, 2003, September 30, 2003
    and December 31, 2003, respectively, have been reclassified
    to income from discontinued operations.

F-29



---



##### Table of Contents






SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                |  |                        |       |  |            |   |     |           |  |                    |                  |      |            |           |        |      |        |   |       |     |  |   |       | 
|------------------------------- |  | ---------------------- | ----- |  | ---------- | - | --- | --------- |  | ------------------ | ---------------- | ---- | ---------- | --------- | ------ | ---- | ------ | - | ----- | --- |  | - | ----- | 
|                                |  | Balance at             |       |  |            |   |     |           |  |                    |                  |      | Balance at |          
|Allowance for Doubtful Accounts |  | Beginning              |       |  | Charged to |   |     |           |  | Reduction in Sales |                  |      |            |           | End of |     
|and Sales Returns               |  | of Period              |       |  | Expense    |   |     | Deduction |  |                    | Return Allowance |      |            | Transfers |        |      | Period |  
|                                |  |                        |       |  |            |   |     |           |  |                    |                  |      |            |           |        |      |        |  
|                                |  | (Dollars in thousands) |      
|2004                            |  | $                      | 2,765 |  |            | $ | 162 |           |  | $                  | (1,555           | )(a) |            | $         | (305   | )(b) |        | $ |      |     |  | $ | 1,067 | 
|2003                            |  |                        | 2,370 |  |            |   | 82  |           |  |                    | (919             | )(a) |            |           |        |      |        |   | 1,232 | (c) |  |   | 2,765 | 
|2002                            |  |                        | 1,932 |  |            |   | 474 |           |  |                    | (36              | )(a) |            |           |        |      |        |   |      |     |  |   | 2,370 | 






|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(a) | Represents credit losses written off during the period, less
    collection of amounts previously written off.



|    |  |                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------
|(b) |  | Reduction in Rogue Wave sales allowance that is no longer needed
    as an adjustment to good will.
|   
|(c) |  | Transfer of allowance balances from business acquisitions.                                         

S-1



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##### Table of Contents



INDEX TO EXHIBITS


|        |    |                         |  |                                                                                                                                                                                                                                         
|------- | -- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .1*                     |  | Amended and Restated 1997 Stock Plan and related agreements.                                                                                                                                                                            
|        | 10 | .25                     |  | Amendment to Office Lease Agreement, dated as of
    November 8, 1999, by and between Mountain States Casualty
    Company and the Registrant, which amendment was dated as of
    November 22, 2004.                                   
|        | 10 | .26                     |  | Estoppel Agreement, dated as of December 31, 2004, by and
    among Mountain States Mutual Casualty Company, the Registrant,
    Royal Health Care Data Center LLC and Royal Health Care of Long
    Island LLC d/b/a Royal Health Care.
|        | 14 | .1                      |  | Quovadx, Inc. Code of Business Conduct and Ethics.                                                                                                                                                                                      
|        | 14 | .2                      |  | Quovadx, Inc. Code of Ethics for Senior Financial Officers.                                                                                                                                                                             
|        | 21 |                         |  | Subsidiaries of the Registrant.                                                                                                                                                                                                         
|        | 23 | .1                      |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                               
|        | 31 | .1                      |  | Certification of Chief Executive Officer of the Registrant
    pursuant to Rule 13a-14(a) and Rule 15d-14(a),
    promulgated under the Securities Exchange Act of 1934, as
    amended.                                                
|        | 31 | .2                      |  | Certification of Chief Financial Officer of the Registrant
    pursuant to Rule 13a-14(a) and Rule 15d-14(a),
    promulgated under the Securities Exchange Act of 1934, as
    amended.                                                
|        | 32 | .1**                    |  | Certification of Chief Executive Officer of the Registrant
    pursuant to Rule 13a-14(b) and Rule 15d-14(b),
    promulgated under the Securities Exchange Act of 1934, as
    amended, and 18 U.S.C. §1350.                           
|        | 32 | .2**                    |  | Certification of Chief Financial Officer of the Registrant
    pursuant to Rule 13a-14(b) and Rule 15d-14(b),
    promulgated under the Securities Exchange Act of 1934, as
    amended, and 18 U.S.C. §1350.                           






| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| | * | Identifies exhibit that consists of or includes a management
    contract or compensatory plan or arrangement.



|   |                                                                                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | This certification is furnished to, but not filed, with the
    Commission. This certification shall not be deemed to be
    incorporated by reference into any filing under the Securities
    Act of 1933 or the Securities Exchange Act of 1934, except to
    the extent that the Registrant specifically incorporates it by
    reference.