No. of Recommendations: 31
It was late last Tuesday night when I heard footsteps coming up the hall... I'd been catching up on paperwork and should have been gone hours ago, my bad luck. My office door swung open and there she stood, a willowy silhouette in the moonlit hall. I could smell the smoky mink stole and see she'd had one too many.... and she said "I need help with Quadramed"

says I "why'd you come to me sweetheart?"

She'd been talking to Jim down at the bar... he told her I'd had "dealings" with a Quadramed thug a couple years ago and gave it to him pretty good. She was in up to her ears with Quadramed now.... and she needed to know where the bodies were buried, the she needed the scoop but didn't speak the lingo... medical informatics

I told her I didn't come cheap... it would cost a buck a day... PLUS expenses. She didn't bat an eye, threw a fin on the desk and said I'll talk to you next week. I pocketed that fiver and took a deep draw on my Pell Mell... rent for another week paid

I saw where QMDC won an award at KLAS. KLAS is a health care informatics company that evaluates all sorts of healthcare products... esp information technology stuff. Klas is real high on QSII, a MF favorite... it looks like I might have sold too soon on that one... but that's a story for another day. Here's the link though it's not really germane to this epistle....
this is just where I knew to start looking.

Morning breaks, I've got a headache but solve that with my Adkins breakfast.... two raw eggs in a glass with a shot of Wild Turkey... and I get to work

day one

1- So, I start with a google on QMDC and get a mismash of articles. It's immedently clear this company has had some big trouble... very interesting. It's either a dog going bankrupt or a phoenix about to fly... how do I figure this one out? Keep reading, get a good laugh. One thing comes up... QMDC was in hot water for accounting and they go out and hire this guy name "Something Aquino" to help them straighten out... then two months later they find out Mr Aquino has a criminal record..... whoooo hooooo lol this company will be fun to read about. Who hired this convict?? wonders me. Turns out it was, of course, Mr Larry English... the CEO. I do a google on Larry and find out he seems like a good guy, ran Cigna Health for a while, retired, casting around for something to do, starts a Physician Management startup (really bad idea... working with doctors is worse than hearding cats, it disappears from the world in '99) then he starts a consulting firm for health care co's in trouble and lands with the CEO of QMDC job. OK... he looks like a good guy who bit off a big job.

After speed reading a few more articles... I google quadramed... then I go to the <narrow search> area and type in "what happend"... no good info. So then I try "reason decline"... still not much. Some of the edgar stuff comes up....

2- So I go to Edgar and look at the last three years of 10-K's
here's where I go....
type in the company name and start looking for 10-K and 10-Q etc. Now this SEC stuff... it's not nearly as daunting as it might seem. I'm not at all good with numbers so I'm just speed reading through them trying to get a flavor for what happened. You just have to start reading the darn things and after about 50... things start making sense (alittle).

3- I go to the good old MF.... and search for QMDC. Not much. Then I go to yahoo boards... this is a great way to figure out what happened or is happeneng... only read msgs that have a bunch of recs... same with the MF boards

things are getting clearer... QMDC blew up under prior management with accounting problems and questionable revenue recognition.. (same old story, the Salvation Army Hall down the road is littered with old has-been CEO's who took this route) The CEO was canned. They brought in Mr English... but he kept getting blindsided with new info which prevented righting the ship quickly. GOOD FOR ME... there may well be some money to be made. BUT... bad too! Is it because he's no good? or... has he done a good job in a bad situation? keep reading!

Now I know the company. I know the management... I looked at the profiles of all the senior managers. This is a real company with real products that are being sold.

They're on the pinks! That's right, the pink sheets because NASDAQ de-listed them (it doesn't scare me, I've had to deal with "the pinks" before). Then I remember a phrase in the last 10-K.... the interest on their debt goes from 10% to 9% if they re-list on a major exchange.... interesting!

4- go to the company website and just poke around ... what do they make what do they do... are any of the senior managers good looking? just poke around... make my way to the "investor" section and see the last conference call archived...
all of this took 45 minutes and it's time for the BWA meeting...(bad writer's anonymous)
I call it a day, rent's paid anyway, no need to over work these things, a good gumshoe knows when to let things simmer

next AM

listen to the conference call. I am a very big fan of following impressions... I think our impressions are derived from long standing genetic infor when it was really important to our survival being able to size a stranger up QUICK... so I size up Mr English. He sounds OK to me... I've listened to plenty of CC's where the CEO was rude or defensive to questioners... I won't invest in those co's on a dare! I especially listen to the Q&A section of the CC... QMDC won't give guidance... OK, I can live with that, this company has been blasted with shareholder lawsuits,etc... but they are not defensive and they answer other questions reasonably. Then... low and behold they talk about "re-listing" and what the delay is... and it makes sense to me because I read the 10K and know what they're talking about

now I've spent about 1.5 hours on this company. That is about the amount of time I spent last year researching a new freezer purchase... not including the going to three different stores. I quit for the day, it's time to get ready for the poker game...

day three
there are no analyst reports available... but I think I can do this. I'm going to get a feel for the numbers the next time I sit down... now I'm not really good at that. I love the story of the company and the people that run it... but the numbers are vital, so I'll look at them.... the more co's I look at, the more I've got to compare to. If I run into a problem, I'll post a question here, or on the FC board, or somewhere where good people will take a crack at helping me (it will be a specific question... not a "how about QMDC" question)

I've got a free 1/2 hour or so each morning and this is kind of fun for me. I especially like hiring a crook to help them fix the accounting trouble.... lol

this is a real company and they've apparently got a pretty good product.

I'm going to keep poking and reading.

that is how I start investigating a company. But today is my day off, so maybe later.

I make my way to the bar... there's Jim, full of questions. I've got some answers now.

so I start talking to Jim...
"you and BK reminded me to focus on the debt. That is a vital issue. I'm going to address some of your concerns..."

The new CEO took over in late 2000 and it appears that some if not many of their reporting problems happened after this, meaning on his watch. Even if you get by the potential ethical problems, he has had three years to turn this thing around and its' financial performance hasn't improved much.
this is such a good observation and was/is a front and center concern of mine. I went back and read through several of the proxy's and the 10-K's, esp the amended 10-k's to try to figue out exactly when the crappy rev recognition occured. It looked liked it mostly occured on the proir CEO's watch (which is why Mr English is still there). But! it also looked like Mr English was slower to recognize all of that than I would have wished.
But! there is a silver lining here.... more in a minute.

Based on their Q4 performance, they do appear to be heading into the black but they have a bit to go. And most importantly over the last two years their FCF has trended down which is probably the truest measure of their turnaround success(or lack thereof).

alot of their cash seems to be eaten up with restructuring costs and legal fees. The revenue is up and the linence/service fee mix looks good. As I said their product seems well recived and they have one little golden egg... more about that in a minute.

They appear to be headed to having 40+M shares outstanding based on recently issued warrants and stock options. The warrants were issued along with the debt restructurring last year. Not only are they paying a high interest rate but they had to give away a large part of the farm to get those. This all represents almost 50% dilution.
I think it is entirely appropriate to use the 40mil share figure for calculations

I think to my self... what has QMDC got?

1- they have their product in 70% of the VA hospitals in the US... that deserves a raised eyebrow. They have instillations in a total of 1900 institutions.
2- their enterprise to sales ratio is less than half the average of their industry peers.
3- they have WILLIAM JURIKA ... who is he and why would this man buy 13% of the company in the last 3 years. Mr Jurika is a retired mutual fund boss who now runs a private hedge fund. He made his fame being a wiley small cap investor! hmmmmm He has purchased 13% of the equity in this company... (not the debt or the convertible debt) He now sits on the BOD... which has changed considerably over the past 4 years (how do I know all of this? the internet of course)
4- the interest on the debt drops by 10% when QMDC re-lists AND the executive managers get a big bonus payment when QMDC re-lists. Do you think they're working on this?? Re-listing will definitly be a catalyst for the equity price.
5- the BOD now has a merger and aquisition specialist on board and a turn around specialist...

would someone buy QMDC? the chance to buy into 70% of the VA hospitals in the US is a very tempting morsel.

healthcare IT spending is going up every year... QMDC is in a sweet spot of healthcare spending but they have alot of competition.

to me... the bottom line is "how competitive is the product and the service?"

I need answers... I'll be getting on the phone over the next several days and calling a couple of the institutions that either have or recently bought QMDC's product... there are 3 VA's near me. I'm going to check with them. Then I'm going to up and call the chief of IT/MIS at Baptist in Pensacola and ask the fellow why they picked QMDC's product! The worst that can happen is that he'll hang up on me.... it's worth a try and is something I do all the time when looking at a company!!

Those calls might take me a total of 1 hr and it's something anyone could do...

by next Friday I am going to know enough about this company to be able to make my own judgement on the equity....

Two days later...

I am now sure nuff interested in Quadramed. I know from reading STOCKS FOR THE LONG RUN that the class of equities that offer the highest returns are distressed companies. One of my favorite investment themes has been taking advantage of the "fear premium" in distressed stocks. I also know from reading stuff on the "Dimensional Fund Advisors" web site that spreading your bets across a group of risky investments drastically decreases the risk to your total portfolio. By the way, second best investment group is small cap value stocks... your basic hidden gems! Good reason to hang around here (and why I'm doing it).
Read about DFA here...

OK.... with that in mind...

1- I went back to to the KLAS website.... (remember them... they allow healthcare providers free access to their evaluations in hopes that the provider will give them info on whatever products he uses... )
and thoroughly investigated QMDC. I found that the Affinity software suite was well accepted and scored pretty high in a 40 point evaluation protocol... this is real good.

2- I made my phone calls. Not much luck with the recent buyers BUTTTTT lo and behold! in the process of nosing around and getting phone numbers I found that the president of the Mississippi Health Information Management Association is the librarian who does my lit searches... I called her and found out that Quadramed is having presentation in Tupelo Ms in June! Why that's right down the road!! Per invite from sweet Loralei (isn't that a nice name) I'll be talking with the Quadramed people in June... I'll have to miss my BWA meeting but it'll be worth it. As anyone can see... I've relapsed anyway.

3- now I went through the 10-K again and zeroed in on some interesting things...
A- here was one item... and I quote from the 10-K
In June 2000, we entered into a Separation Agreement with James Durham upon his resignation as our Chief Executive Officer. This agreement was amended in July 2001 when Mr. Durham resigned from our Board of Directors. Pursuant to the agreement, as amended, upon these resignations, Mr. Durham received <<ALOT OF MONEY>> all subject to the terms and conditions of the agreement, as amended. Among other terms, the Separation Agreement contained a provision for non-disparagement, requiring Mr. Durham to refrain from directly or indirectly disparaging us or our stockholders, directors, officers, employees... In a November 2002 article published in the Marin Independent Journal for which he was interviewed, Mr. Durham made repeated disparaging remarks about us and our management. The Company notified him that his published remarks were in breach of his Separation Agreement.

In light of Mr. Durham's breach of his Separation Agreement, we have notified Mr. Durham and his counsel that we are not obligated to fund additional SERP payments on behalf of Mr. Durham and that we will not pay him a lump sum for his SERP benefits.

What a jerk the Durham guy must be. He destroys the co with poor oversight and lousy management, gets them in a terrible place with the SEC, gets his ass fired, then goes out and bad mouths the company! I made arrangements.... with Loralei!!! to get this article lol

B- I looked at R&D expense. QMDC is increasing R&D spending by 18%... what a wonderful sign! It sure doesn't guarentee results but what a great vote of confidence by the company!

C- General and administrative expense included $7.5 million in payments to accountants, attorneys and consultants in both the last half of 2002 and the first half of 2003 related to the restatement of the financial statements. The total cumulative amount spent for both years was $15.0 million. That expense is not recurring and the amount spent is sufficient to cover QMDC's entire interest expense on it's indebtedness!!!

D- Revenue QMDC had it's first two pofitable quarters.

so.... I'm on hold until June. Here's what I do with an investment thesis in this situation. I've got enough flex in my investment account to buy couple hundred shares of QMDC just to make myself keep an eye on them. That makes me look at them every week or two. I'll get the Marin newspaper article... I'll talk with other people... and in June I'll talk with a company rep about the products and see them for myself. By then I'll see one more quarter of numbers....

what about the dame, the chick, the lady who hired me...

There is one great danger with this sort of gumshoe-ing. I'll loose my objectivity and fall in love with this lady and her company like a mangey stray dog that you "accidently" feed one night. I've fallen into that trap before, so now I"m poorer but wiser. I'll guard against that.

All of this has been fun so far, not much work at all... and if it doesn't pan out, I'll be taking much greater knowledge of an industry segment on to the next one. By and by, the effort pays out handsomely... and you can take that to the bank!!! literally

Now for a memory... my grandfather once took my grandmother on a 14 hour car trip (one way) back in the late 50's just so he could shop at a Safeway store.... he wasn't that hungry, he was interested in the equity of the company. He had just enough money to buy one stock per year... so he investigated the heck outta them. It was like most people buying a house... surveys, title searches, termite inspections, etc.... but, since my grandfather never sold a single stock... every purchase was a lifelong commitment to him... it was worth it. To this day, I still reap the financial rewards of his willingness to gumshoe a stock :-)

do not ask me why I wrote this, cause I don't know :-)

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