UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 000-29273

Quovadx, Inc.

(Exact name of registrant as specified in its charter)

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:

      Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o

      The aggregate market value of the voting and non-voting equity held by non-affiliates of the registrant as of June 30, 2003 was $81.5 million, based on the last sale price reported for such date on the NASDAQ National Market. This determination is not necessarily conclusive for other purposes.

      As of March 4, 2005, there were 40,548,163 shares of Common Stock of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      “Part III of this Form 10-K incorporates certain information by reference from the registrant’s definitive proxy statement for its 2005 Annual Meeting of Stockholders, which proxy statement will be filed with the Securities and Exchange Commission on or before May 2, 2005.”

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

      All statements, trend analysis and other information contained in this Annual Report on Form 10-K (“Annual Report”) of Quovadx, Inc. (“Quovadx,” the “Company,” the “Registrant,” “we” or “us”) and the information incorporated by reference which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, discussion relative to markets for our products and trends in revenue, gross margins and anticipated expense levels, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect” and “intend” and other similar expressions. All statements regarding the Company’s expected financial position and operating results, business strategy, financing plans, and forecast trends relating to our industry are forward-looking statements. These forward-looking statements are subject to business and economic risks and uncertainties, and our actual results of operations may differ materially from those contained in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” below.

Trademarks

      CLOVERLEAF, HOSTACCESS, INSURENET, ROGUE WAVE, SOURCEPRO, STINGRAY, and WEBACCEL are registered trademarks of Quovadx, Inc. in the United States and/or select foreign countries; and QDX, QUOVADX, the CLOVERLEAF logo, the QUOVADX logo, and the phrase “connected by Cloverleaf” are trademarks or service marks of Quovadx, Inc. The absence of a trademark from this list does not constitute a waiver of Quovadx, Inc.’s intellectual property rights concerning that trademark. CARE DATA EXCHANGE is a registered trademark of the California Health Care Foundation in the United States. This document may contain references to other companies, brand and product names. These companies, brand and product names are used herein for identification purposes only and may be the trademarks of their respective owners.

PART I

      Quovadx is a global software and services firm that helps thousands of enterprise customers worldwide develop, extend and integrate applications based on open standards. Our software and services offerings include an integrated suite of application development tools and vertical enterprise applications for companies in healthcare, financial services, software, telecommunications, and the public sector.

Industry Background

      Since the 1970s, organizations have made investments in business-critical information technologies. In many cases they have deployed multiple generations of technologies from different vendors that successfully addressed fundamental business requirements but often resulted in complex computing environments characterized by incompatible systems that could not be accessed across the global enterprise. These legacy environments represented enormous investments of time and money, but frequently limited the ability of these organizations to grow and remain competitive.

      In the 1990s, some organizations attempted to solve this problem by replacing their heterogeneous environments with next generation integrated systems. Despite the promise of single-vendor solutions to offer an integrated, more accessible computing environment, these new systems often failed to replicate the functionality of the systems they replaced, or in other cases, deployment was never completed.

      Today, despite recognizing the limitations of legacy computing environments, we believe organizations remain reluctant to abandon their investments in existing systems due to the business risks inherent in change, coupled with the significant capital and resource expenditure required to undertake major project initiatives. Instead, we believe organizations are increasingly seeking technology that will:

The QUOVADX™ Solution

      Our product and service offerings allow our customers to:

      Preserve investment in legacy systems. By using our products, our customers can continue to use their legacy applications, preserving existing information and data, as well as the underlying business logic. By preserving the legacy system, our customers maintain the same functionality, speed and fault tolerance without exposure to the substantial risks of installing a replacement system.

      Extend access to applications through Web service and Web-based applications. Our products allow our customers to use their legacy applications in a standardized, consistent and reusable format through a standard Web browser interface and to integrate existing applications with XML data and Web services, providing support for a service-oriented architecture (SOA). This cost effective approach to product development facilitates worldwide deployment of applications.

      Expand efficiency and productivity via integration and streamlined workflow. Through the use of Quovadx tools, our customers can integrate multiple applications, automate time-consuming manual processes, eliminate manual data entry, reduce errors, enhance customer service, and improve the overall efficiency of their businesses.

The Company in 2004

      In 2004, we experienced many changes at Quovadx and it has been a year of transition for the Company. We ended 2003 making having made two major acquisitions. In September 2003 we completed the acquisition of CareScience Inc., a provider of care management services to hospitals and health systems. We acquired CareScience to extend our product and service offerings, accelerate our market penetration in healthcare, grow our recurring services revenue base and leverage our respective technology, applications and domain expertise for strategic product development. In December 2003, we completed the acquisition of Rogue Wave Software Inc., a provider of reusable software components and integrated software tools that facilitate application development. We purchased Rogue Wave to expand our presence into new markets, enhance our competitive position with the Rogue Wave brand, grow revenues and leverage our mutual technology assets to capitalize on opportunities in the growing market for service-oriented applications development.

      In December 2003, we were notified by the US Securities and Exchange Commission (SEC) that it was conducting an informal inquiry into selected transactions completed in the third quarter of 2002. In March 2004, we discovered problems with a major customer’s ability to pay amounts owed under their contract and notified the SEC that we needed to restate our financial results for the third quarter of 2003 and revise our previously announced unaudited financial results for the fourth quarter of 2003. Subsequently, the SEC informed us that its informal inquiry would be expanded to include our relationship with this customer, Infotech Network Group (Infotech). In April 2004, we received notice from the SEC of the formal order of investigation and subpoena.

      In April 2004, our former chief executive officer and chief financial officer were asked to resign their respective positions and our board of directors retained the law firm of Hogan & Hartson L.L.P. to conduct a special review of the company’s relationship with Infotech and of the company’s disclosures concerning Infotech. During this same timeframe, various shareholder class-action and derivative lawsuits were filed against the Company, certain former officers and, in the case of certain of the lawsuits, against our independent directors. An acting CEO and CFO were named in April and they began to reorganize the company and deal with financial issues.

      During the second quarter of 2004, under the direction of new management, we began an internal review of our historical accounting policies, practices and controls in preparation for our first quarter 2004 quarter-end closing and financial statement preparation. Our review included an evaluation of our policies and procedures for disclosure and internal controls, corporate governance and other processes, in order to ensure the quality, consistency and timeliness of our financial information and reporting.

      In May 2004, as a result of the internal review, we advised our independent auditors, Ernst & Young LLP (E&Y) that we had identified two distributor contracts totaling approximately $1 million entered into during 2003 that required further review. As a result of those discoveries and the possibility of further review, we were unable to timely file our Form 10-Q for the period ending March 31, 2004. We subsequently received notice from the NASDAQ Listing Qualifications Department that our failure to file the quarterly report on Form 10-Q for the period March 31, 2004 with the SEC had resulted in non-compliance under the NASDAQ rules. As a result, the NASDAQ Stock Market initiated delisting procedures. On May 14, 2004, based on our failure to file the March 31, 2004 Form 10-Q with the SEC and pending an appeal, the NASDAQ changed our trading symbol to “QVDXE.” We had previously announced that we would restate our 2003 financial statements. We amended and refiled our 2003 annual report on Form 10K-A simultaneously with our 2004 Forms 10-Q for the first and second quarters of 2004. On August 23, 2004, the Company announced that the NASDAQ Listing Qualifications Panel confirmed that the Company had regained compliance with its periodic reporting filing obligations and that it had satisfied all other requirements for continued listing on the NASDAQ National Market. NASDAQ will continue to monitor the Company to ensure its continued compliance with all listing requirements for the NASDAQ National Market. The Company’s trading symbol was then changed back to “QVDX” from “QVDXE” on August 25, 2004.

      As a result of the review and investigation, we made numerous changes to our accounting procedures. New management also focused on cost containment, streamlining the business and raising funds. As a result we sold the technology and services contracts of Outlaw Technologies, Inc. (“Outlaw”), our minority equity

investment in Royal Health Care, LLC (“Royal”) and the assets of our Albuquerque, New Mexico Data Center and its Managed Care Transaction Manager (MCTM) system. The divestiture of these assets raised cash and eliminated products that were either not generating sufficient profit or no longer fit our long-term strategic vision. These divestitures are consistent with the Company’s plans to refocus its sales effort to products that are more profitable.

      In mid-2004, management initiated a new strategic planning process for the Company, which resulted in the reorganization of our management team, organizational structure, processes and culture. The previous strategy which had focused on growth through acquisitions shifted to growth through investments in existing products and customer relationships. We challenged ourselves to develop and articulate our vision and mission, supported by specific goals and initiatives to achieve our respective strategic objectives. Sales and marketing was decentralized to be compatible with the new divisional structure. New integrated marketing strategies were adopted to focus on pipeline growth and enhancements of divisional brands. Similarly, our technology strategy and research and development (R&D) organization was realigned and streamlined as part of the reorganization. The R&D organization, which had been managed centrally as a shared corporate service, was realigned to fit within each of the Company’s three divisions. This realignment and refocus of resources was done in order to bring R&D closer to our markets and customers and improve the timeliness and responsiveness of our product delivery cycle.

The Company Today

      At the end of 2004 the strategic reorganization plans have been set in place. Our prior revenue recognition issues have been identified and addressed with enhanced policies and procedures. At the beginning of 2005, we had overcome many obstacles and reorganized the organization to move into the future and achieve our vision as a successful provider of customer driven integration, analytical and messaging solutions.

Integration Solutions Division

      The Integration Solutions division (“ISD”) is a global provider of application and data integration solutions with a proven track record of “connecting the dots” in the disparate world of enterprise application systems. ISD has strong technical capabilities and innovative business perspectives in applying the “power of integration” to the most complex customer situations.

      ISD solutions are based on the ability to tailor our award-winning integration technology to create customer specific solutions and to solve their integration needs. Our professionals have proven expertise in solving the integration challenges faced by healthcare, public health, and public safety organizations.

      Our offerings include the Cloverleaf Integration Suite (which includes Cloverleaf® Integration Services, Business Process Management Services (BPMS) and Screen Rejuvenator), the Cash Accelerator Suite (which includes INSURENET® Direct and INSURENET® Hub), and Identity Services, a solution set based on products from Initiate Systems, Inc.

      Cloverleaf® Integration Suite. Cloverleaf® Integration Suite is anchored by Cloverleaf® Integration Services (formerly QDX^tm Platform V Integration Services). Cloverleaf Integration Services delivers powerful application level integration using a vast library of application integration adapters. The intuitive development environment enables users to create interfaces on multiple platforms and provides testing tools to unit test development and dynamically promotes interfaces from a testing site to the production site. Cloverleaf Integration Services also allows users to monitor message flow through the engine in an environment in real time through a single Web browser with customized views of the enterprise’s business and technical activities.

      The Cloverleaf® environment is fully recoverable and can be configured to save a copy of a message in an internal work queue, database or file, so that no message is ever lost.

      Cloverleaf Integration Services can be extended to include:

      Screen Rejuvenator. A component of the Cloverleaf® Integration Suite, Screen Rejuvenator supports numerous emulations and enables developers to reengineer legacy applications in a non-invasive manner because no changes to the host code are required. With legacy data as the basis, Web developers can quickly create new composite Web applications using many interfaces including Web, WAP, Visual Basic, C++, and Java.

      Business Process Management Services — Process Level Integration. A component of the Cloverleaf® Integration Suite, BPMS enables process level integration that adapts technology to meet real-world business. The patented, built-in rules engine enables visual work flow, rules processing, process automation management and process monitoring, so you can dynamically modify processes to change routing instructions based on data or exceptions and automatically adapt to constantly changing business or regulatory processes.

      Cash Accelerator Suite — INSURENET® Hub. Cash Accelerator INSURENET® Hub, through a single, unified user interface, offers real-time access to more than 2,000 commercial and government payers for multiple transaction types, which is more than any other single solution on the market. Quovadx currently has relationships with premier payer clearinghouses including HDX, MediFax, ProxyMed and WebMD. As a group, these clearinghouses cover the vast majority of payers in the United States. Quovadx manages these relationships and has built a state-of-the-art technology infrastructure to support the INSURENET Hub.

      Cash Accelerator Suite — INSURENET® Direct. Cash Accelerator INSURENET® Direct is a complete electronic data interchange (“EDI”) solution platform that allows healthcare organizations to reduce dependence on traditional clearinghouses altogether with direct connections to payers. Many healthcare organizations that rely on one or a handful of traditional clearinghouses have experienced the lack of availability of one or more strategic payers. Cash Accelerator provides the tools you need to connect directly to the most strategic payer partners by exchanging Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) certified and validated transactions. INSURENET Direct links constituent systems and access points, automating all of the connections between payers and providers.

      Identity Services. Identity Services is a solution for elimination of duplicate patient or provider records within and across disparate databases. The Identity Services solution is based on the Initiate^tm Identity Hub from Initiate Systems^tm Inc. and is used by both payer and provider organizations to create a single enterprise view of an individual.

      The Integration Solutions division concentrates on providing software and services to the healthcare, public safety and public health markets to enable integration of disparate applications and business processes to achieve strategic advantage. Through direct customer contracts and distribution channels, ISD provides services to over 40% of the large Integrated Delivery Networks in the provider marketplace. Our public sector customers represent leading counties in the area of criminal justice, as well as leading departments of health at the state level.

      In addition, many Healthcare Information Technology (“HIT”) vendors rely on ISD to provide them with the integration solutions needed to connect their applications to those of their customers. In this way, HIT vendors are able to concentrate their development resources on core application functionality in lieu of the challenges of integration.

CareScience Division

      The CareScience division provides care management services and analytical solutions to hospitals and health systems, to access and analyze information about patient care practices, physician and facility performance, care processes, resources and outcomes. In addition, CareScience has provided services and a product implementation for community-wide clinical data exchange to support Regional Health Information Organizations (RHIOs).

      Care Management System. Care Management System (“CMS”) applies analytic methods to clinical data in order to help health care provider organizations improve their clinical performance by assisting users in:

      The Care Management System helps health care provider organizations take advantage of the vast data resources that often remain trapped or underused within organizations through an Internet-based interface which enables remote access by medical officers, clinical analysts, physicians and health care professionals to perform their jobs more effectively.

      CareScience clients use the Care Management System to analyze their clinical performance and, in turn, to help improve clinical outcomes and efficiency. The Care Management System leverages the copyrighted, statistical methodologies for risk adjustment, developed at the University of Pennsylvania’s School of Medicine and Wharton School of Business. This methodology allows for greater breadth, control and comprehensiveness of data analysis and outcome measurement.

      The Care Management System supports the Core Measures dataset requirements for the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”) and the Centers for Medicare & Medicaid Services (“CMS”). CMS Core Measures is integrated with the Care Management System and allows data abstraction for accreditation reporting. As an approved Core Measures vendor for all five of JCAHO core measure sets, this data abstraction, processing, validating and reporting solution enables hospitals to meet their JCAHO and CMS requirements.

      CareScience also provides consultants to assist customers in their application and realization of benefits. These services include varying ranges of support, mentorship and facilitation, from education and staffing to redesigning and/or outsourcing of system-wide care management functions. Staff provide support of evidence-based medicine, patient safety, process improvement, care coordination, data analysis and both clinical and financial accountability.

      The Care Management System is typically sold pursuant to three to five year contracts. Contract pricing is based on a per-encounter basis with services, staffing, or outsourcing priced on an as configured basis. Customers typically have unlimited access to data and are supported by ongoing support services including client management services, data validation and management, training classes and ad-hoc services.

      Care Data Exchange® Solution. The Care Data Exchange® Solution (“CDE”) from CareScience is a solution for RHIOs that can combine integration, indexing and access technology with governance and implementation facilitation and support services to enable clinical information sharing across a community.

The CDE infrastructure enables each participating healthcare organization to securely deliver information to community clinicians and partners to support safe, effective, and cost-effective care in the community. Capabilities include:

      CareScience provides consulting services to assist customers in initial assessment of technical, clinical and governance environments, design of the CDE architecture and solution, and implementation, education and ongoing support of the application.

      Our care management solutions focus on mid to large size hospitals and healthcare organizations, which strive to assess, manage and improve the patient care process. These organizations use our Care Management System, and its consulting solutions, to identify, prioritize and quantify clinical opportunities, and to implement strategies that have a real-world impact on patient care. From improving clinical performance and uncovering care process efficiencies, CareScience solutions support client efforts to deliver the “business case for quality,” a model that builds on the fact that both payers and consumers prefer quality and that health systems delivering quality will benefit from both higher revenue and lower costs.

      Our CDE solutions focus primarily on larger RHIOs regional “communities”, and integrated delivery networks with major regional market presence in their community. These organizations have an expanded view of healthcare which includes linking all participants in the care process through the integration of timely, accurate and complete clinical and key administrative data. This is a very nascent market that is prone to ebbs and flows in its organization, structure, process and outcomes. Within that market, we focus primarily on health system and community clinical and operational executives who see clinical process transformation and access to clinical data as a strategic imperative.

Rogue Wave Software Division

      The Rogue Wave Software division provides reusable software components and integrated software tools that facilitate application development, supporting professional developers using the C++ programming language. In addition, the division provides a service-oriented development framework, allowing existing C++ applications to communicate and interoperate with other types of software in the enterprise. Rogue Wave supports a wide variety of customers and platforms, with primary focus in financial services, telecommunications and independent software vendors.

      Our high-performance C++ development tools for technologists include the Lightweight Enterprise Integration Framework (LEIF), SourcePro® C++ Suite and the Stingray® product line. In addition, Rogue Wave provides the Host Access terminal emulation product, allowing end users operating Windows PCs to access legacy character-based applications.

      Lightweight Enterprise Integration Framework. The Rogue Wave® Lightweight Enterprise Integration Framework (“LEIF”) is our newest offering, designed to integrate C++ applications with XML data and Web services, providing support for a service-oriented architecture (“SOA”). The product enables C++ systems to communicate with applications created in other languages, both within and outside the enterprise. LEIF employs industry-standard networking, XML and Web services technologies to expose the functionality

of business-critical C++ applications to other disparate application and business processes. By easing the integration of XML with C++ applications, LEIF allows existing high-performance C++ applications to interoperate seamlessly with virtually any type of software system. Our LEIF product provides a powerful platform for developers with a need to interoperate in a service-oriented environment.

      SourcePro® C++ Suite. Rogue Wave’s SourcePro® C++ Suite increases the productivity of the professional developer, enabling projects to be delivered on schedule. The software supports technology environments that utilize multiple hardware platforms, operating systems and databases, through tested and standardized C++ libraries that work across various systems. SourcePro C++ handles the intricacies of complex software development tasks like threading, string handling and internationalization and helps development teams build high-performance, critical enterprise applications for a global market. Ultimately, SourcePro C++ helps reduce development and maintenance costs, accelerates project deployment, and enables applications to grow and evolve with changing business needs. SourcePro C++ allows developers to achieve development productivity normally associated with simpler, less sophisticated languages, yet enables all of the performance advantages that the C++ programming language is known for.

      The key benefits SourcePro C++ Suite delivers include:

      Stingray®. Rogue Wave® Stingray® products help companies create scalable, distributed graphical user interface (GUI) applications that can be easily integrated with enterprise systems. By providing the graphical components required to mimic the look and feel of Microsoft® applications, Stingray products help companies quickly create GUIs with functionality that is consistent with the Microsoft standard, thereby increasing end-user acceptance and use.

      The Stingray products include:

      Stingray products reduce the overall development cycle by leveraging existing application code, enabling developers to focus on creating and updating business logic rather than the low-level details of MFC and Active X GUI functionality. The flexible Stingray components are easy to use, shortening development time and making it easier to maintain and evolve GUI applications as needs change.

      HostAccess®. The HostAccess® product line allows end users to access character-based legacy applications through terminal emulation from a personal computer workstation, supporting over 35 types of legacy systems. The product is particularly strong in its emulation of character terminals used in Unix-based legacy systems.

      Rogue Wave concentrates on providing development tools and components for the professional developer across a variety of industries and vertical market segments. The largest segments are financial services, telecommunications and Independent Software Vendors (“ISV”). The division currently supports over 5,500 total customers across its product lines, including over 600 enterprise customers. In addition, Rogue Wave maintains partnerships with several large original equipment manufacturer (“OEM”) customers, including Intel, IBM, Sun, and Hewlett-Packard. These vendors rely on Rogue Wave to support its high-performance development tools on specific hardware platforms, enabling end customers to achieve optimum performance when using a particular OEM’s products.

      Financial services customers have relied on Rogue Wave to provide tools for mission critical systems, including numerous Wall Street firms. Rogue Wave tools are found in systems requiring the most demanding performance and reliability requirements, including real-time trading systems, risk analytics, and back-office applications.

      Major telecommunications customers include well known “Baby-Bells” and wireless providers, again with tremendous demand for reliable high-performance software systems.

      Many name brand ISVs rely on Rogue Wave products to provide high-performance, cross-platform support, enabling their products to run reliably in a wide variety of end-customer environments. As the Rogue Wave tools seamlessly support multiple platforms, ISVs can concentrate on valuable product features, without wasting valuable development resources on porting their wares to various environments.

Competition

      The marketplace for application development tools, systems integration and business process management software is highly competitive. Competition, when coupled with the rapid evolution of technology and business practices, presents us with a challenging environment.

      Competitive factors affecting us include:

      Any one of these factors may contribute to our loss of market share, reduced profit margins, increased operating expense or discounted offerings.

      Software tools sold by our Rogue Wave and Integration Solutions divisions compete with other integration software and tools companies such as SeeBeyond Technology Corporation, ILOG, Inc., Microsoft’s BizTalk, Orion, Sybase, Systinet, Vitria Technology, Inc. and webMethods, Inc. Applications sold by our CareScience division compete with products offered by vendors such as Premier, Inc., Solucient, and MedAl. Though competition in the application development market and the healthcare market is strong, our software and service offerings are competitive and our infrastructure is adequate to continue to enhance our products. However, many of these competitors have greater financial and organizational resources than we do.

Sales, Marketing and Strategic Alliances

      Our sales are conducted through direct sales representatives, strategic alliances, and distributors. Each division manages its sales and marketing force. In total there are 56 sales and marketing employees. Our sales force is divided into product-specific markets that include technical and professional resources and primarily cover the 48 contiguous United States, Hawaii, Canada, Middle East, France, Germany, Italy, and the United Kingdom. We also have distribution relationships covering Australia, New Zealand, and Asia. Our sales in the United Kingdom and Europe are performed by a combination of direct sales and distributors. The sales cycle varies depending on the size and scope of the engagement and can range from 90 to 360 days.

      We focus our marketing efforts on brand awareness, educational and collateral development supporting our product and service offerings, creative visualization of our offerings, management of joint marketing programs with alliance partnerships and outreach through public relations, investor relations, and industry-analyst relations. Our marketing activities include: advertising, direct mail campaigns, email campaigns, tradeshows, seminars, sponsorships, memberships, industry conferences, contributing industry opinions and articles, annual user group conference programs, continuing education and innovative solution award distribution.

      The Company has strategic alliances and partnerships with a number of leading hardware and software vendors, system integrators, software developers and distributors. These relationships include technology licensing agreements and cooperative marketing relationships, as well as exchange of development plans and strategic direction. Our partners include leading hardware and software vendors, system integrators, software developers and distributors such as Microsoft Corporation, Intel Corporation, Sun Microsystems, Inc., IBM Corporation, Hewlett-Packard Company, McKesson Corporation, Per-Se Technologies, Inc., Quadramed Corporation, and GE Healthcare. In addition, leading software vendors use our development tools to develop their own products. Our products are deployed as these vendors sell their own products.

Major Customers

      One customer accounted for 16% of revenue for the year ended December 31, 2004.

Intellectual Property

      We consider the core technology we own and license to be fundamental to the success of our operations. In addition to our proprietary technology, we license technology from various third party vendors. We have licensed intellectual property from the University of Pennsylvania. The University of Pennsylvania exclusively licenses the intellectual property underlying our online CareScience analytic processing software to us in a long term agreement. We have licensed intellectual property from the California Healthcare Foundation. The California Healthcare Foundation exclusively licenses the intellectual property underlying our online CareScience analytic processing software to us in a long-term agreement.

      Our success and ability to compete depend in part on our proprietary technology. We seek to protect our software, documentation and other written materials primarily through a combination of trade secrets, trademark and copyright laws, confidentiality procedures and contractual provisions. In addition, we seek to

avoid disclosure of our trade secrets, by, among other things, requiring those persons with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. We have been issued eight U.S. patents, and have seven additional patents pending.

      Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult. While we are unable to determine the extent to which piracy of our products exists, software piracy can be expected to be a persistent problem, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Furthermore, third parties might independently develop competing technologies that are substantially equivalent or superior to our technologies. Any of these developments could seriously harm our business.

Government Regulation

      The healthcare industry, where we currently do most of our business, is highly regulated and is subject to changing political, regulatory and other influences. These factors affect the purchasing practices and operation of healthcare organizations. Federal and state legislatures and agencies frequently consider programs to reform or revise the United States healthcare system. Such legislation may include proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our applications and services.

      We are unable to predict future proposals with any certainty or to predict the effect they would have on our business.

      Under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, Congress mandated a package of interlocking administrative simplification rules to establish standards and requirements for electronic transmission and other uses and disclosures of certain health information by healthcare providers, health plans and health care clearinghouses. As discussed below, the regulations published under HIPAA’s administrative simplification provisions apply to certain of our operations as well as the operations of many of our customers. Compliance with these rules could be costly and could require changes in our systems. In addition, the success of our compliance efforts may be dependent on the success of healthcare participants in dealing with the standards.

      The privacy of individually identifiable health information and the circumstances under which this information may be used or disclosed are subject to substantial regulation under the HIPAA Standards for Privacy of Individually Identifiable Health Information, as well as state health information laws and regulations. These laws and regulations govern both the disclosure and the use of patient health information. Although compliance is principally the responsibility of the hospital, physician or other healthcare provider, such laws and regulations apply to certain of our employee benefit plans as well as the portions of our business that process healthcare transactions and provide technical services to participants in the healthcare industry. Compliance with these laws and regulations is costly and could require complex changes in our systems and services. Additionally, the success of our compliance efforts may be dependent on the success of healthcare participants in dealing with the privacy laws, regulations and standards.

      The HIPAA Standards for Electronic Transactions Rule establishes electronic format standards for eight of the most common healthcare transactions using technical standards promulgated by recognized standards publishing organizations. These transactions include, among others, health claim payment, health plan enrollment, and health plan eligibility. Under these standards, any party transmitting or receiving information

electronically as part of a covered transaction must send and receive data in a single format, rather than the large number of different data formats previously used.

      The transaction standards apply to certain of our employee benefit plans and that portion of our business involving the processing of healthcare transactions among physicians, payers, patients, and other healthcare industry participants. The transaction standards also are applicable to many of our customers and to our relationships with those customers. Changes in the standards could require costly modifications to some of our systems, products, and services.

      Other state and federal statutes and regulations governing transmission of healthcare information may also affect our operations. These laws are complex and changing, and the courts and other governmental authorities may take positions that are inconsistent with our practices.

      Effective April 20, 2005, HIPAA’s Security Standards for the Protection of Electronic Protected Health Information will require healthcare providers, plans and clearinghouses to adopt measures to ensure the security of certain electronic health information. Among other things, adequate measures must be in place to protect against reasonably anticipated threats to the integrity of electronic health information and uses or disclosures of such information that are not permitted by HIPAA.

      The security standards will apply to certain of our employee benefit plans and the portions of our business that process healthcare transactions in electronic format and provide technical services to participants in the healthcare industry. The security standards also are applicable to many of our customers and to our relationships with those customers. Compliance with the standards could be costly or require modifications to some of our systems, products, and services. Other state and federal laws concerning health information security could also impact our business.

Employees

      As of December 31, 2004, we had a total of 472 employees, of whom 298 are engaged in professional services and customer support functions, 56 in sales and marketing, 45 in management, finance and administration and 73 in research and development. None of our employees are represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.

      During 2004 we experienced several reductions in our workforce. In January 2004 we eliminated 19 positions in the restructuring related to the acquisition of Rogue Wave. In April 2004 44 positions were eliminated as part of a cost containment effort. On December 31, 2004 eleven employees were transferred to Royal Health Care Data Center, LLC in conjunction with the asset sale of our Albuquerque, New Mexico Data Center and Managed Care Transaction Manager system.

      Our future success also depends on our continued ability to attract, integrate, retain and motivate highly qualified sales, technical and managerial personnel. Competition for such qualified personnel is intense. If our executive officers and key personnel do not remain with us in the future, we may experience difficulty in attracting and retaining qualified personnel.

      Our principal executive and corporate offices are located in Englewood, Colorado, where we lease approximately 25,538 square feet of office space. The lease on this facility expires in August 2005. We are currently searching for new corporate office space and did not renew our current lease. We also lease 171,447 square feet of office space, primarily for operations and research and development, in various locations in the United States and Europe under agreements that expire at dates ranging from March 2005 through October 2011. As of December 31, 2004, the Company occupied 65% of the office space it leased and is currently subleasing 60,010 square feet. We believe that our current facilities will be sufficient to meet our needs for at least the next twelve months.

      On November 14, 2001, a shareholder class action complaint was filed in the United States District Court, Southern District of New York. On April 19, 2002, plaintiffs filed an amended complaint. The amended complaint asserts that the prospectus from the Company’s February 10, 2000 initial public offering (“IPO”) failed to disclose certain alleged improper actions by various underwriters for the offering in the allocation of the IPO shares. The amended complaint alleges claims against certain underwriters, the Company and certain officers and directors under the Securities Act of 1933 and the Securities Exchange Act of 1934 (Bartula v. XCare.net, Inc., et al., Case No. 01-CV-10075). Similar complaints have been filed concerning more than 300 other IPO’s; all of these cases have been coordinated as In re Initial Public Offering Securities Litigation, 21 MC 92. In a negotiated agreement, individual defendants, including all of the individuals named in the complaint filed against the Company, were dismissed without prejudice, subject to a tolling agreement. Issuer and underwriter defendants in these cases filed motions to dismiss and, on February 19, 2003, the Court issued an opinion and order on those motions that dismissed selected claims against certain defendants, including the Rule 10b-5 fraud claims against the Company, leaving only the Section 11 strict liability claims under the Securities Act of 1933 against the Company. A committee of our Board of Directors has approved a settlement proposal made by the plaintiffs. On February 15, 2005, the Court issued an order granting conditional preliminary approval of the settlement. If the settlement is not achieved, the Company will continue to aggressively defend the claims. We do not believe that the outcome of this action will have a material adverse effect on our financial position, results of operations or liquidity; however, litigation is inherently uncertain and we can make no assurance as to the ultimate outcome or effect.

      On March 18, 2004, a purported class action complaint was filed in the United States District Court for District of Colorado, entitled Smith v. Quovadx, Inc. et al, Case No. 04-M-0509, against Quovadx, Inc., its now-former Chief Executive Officer and its now-former Chief Financial Officer. The complaint alleged violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, as amended, purportedly on behalf of all persons who purchased Quovadx common stock from October 22, 2003 through March  15, 2004. The claims are based upon allegations the Company (i) purportedly overstated its net income and earnings per share during the class period, (ii) purportedly recognized revenue from contracts between the Company and Infotech Networks Group prematurely, and (iii) purportedly lacked adequate internal controls and was therefore unable to ascertain the financial condition of the Company. Eight additional, nearly identical class action complaints were filed in the same Court based on the same facts and allegations. The actions seek damages against the defendants in an unspecified amount. On May 17 and 18, 2004, the Company filed motions to dismiss each of the complaints. Since then, all but one of the actions, entitled Heller v. Quovadx, Inc., et al., Case No. 04-M-0665 (OES) (D. Colo.), have been dismissed. Thereafter, the plaintiff in Heller filed a first amended complaint, which asserts the same claims as those asserted in the original complaint, and includes allegations regarding the Company’s accounting for certain additional transactions. On September 8, 2004, the Court approved the appointment of David Heller as lead plaintiff. On September 29, 2004, the Court denied defendants’ motions to dismiss the first amended complaint and approved the appointment of Mr. Heller’s counsel as lead plaintiff’s counsel. On October 14, 2004, the Company and the other defendants filed answers to the first amended complaint, denying allegations of wrongdoing and asserting various affirmative defenses. On January 13, 2005, the Court approved a scheduling order that, inter alia, requires plaintiffs to file a motion for class certification by January 31, 2005, which they did, and fact discovery, which has commenced, to conclude eight months after the Court issues an order, if any, certifying a class. The class action is still in the preliminary stages, and it is not possible for us to quantify the extent of potential liability, if any.

      On March 22, 2004, a shareholder derivative action was filed in the District Court of Colorado, County of Arapahoe, entitled Marcoux v. Brown et al, against the members of the Board of Directors and certain now-former officers of Quovadx alleging breach of fiduciary duty and other violations of state law. The Company is named solely as a nominal defendant against which no recovery is sought. This complaint generally is based on the same facts and circumstances as alleged in the class action complaints discussed above, alleging that the defendants misrepresented Quovadx financial projections and that one of the defendants violated state laws relating to insider trading. The action seeks damages in an unspecified amount against the individual

defendants, disgorgement of improper profits and attorney’s fees, among other forms of relief. On or about April 21, 2004, a second, nearly identical shareholder derivative complaint, seeking the same relief, was filed in the United States District Court for the District of Colorado, entitled Thornton v. Brown et al. The plaintiffs in both of the shareholder derivative actions are represented by the same local counsel. On or about May 20, 2004, a third, nearly identical shareholder derivative complaint, seeking the same relief, was filed in the District Court of Colorado, County of Arapahoe, entitled Jaroslawicz v. Brown, et al. The three shareholder derivative actions are now all pending in the Colorado state court. The Court has consolidated the three actions into a single consolidated action and set February 1, 2005 as the deadline for the filing of a consolidated amended complaint, subsequently extended to May 2, 2005. The shareholder derivative action is still in the preliminary stages, and it is not possible for us to quantify the extent of potential liability, if any.

      On May 17, 2004, a purported class action complaint was filed in the United States District Court for the District of Colorado, entitled Henderson v. Quovadx, Inc. et al, Case No. 04-M-1006 (OES), against Quovadx, Inc., its now-former Chief Executive Officer, its now-former Chief Financial Officer and its Board of Directors. The complaint alleged violations of Section 11 and Section 15 of the Securities Act of 1933, as amended, purportedly on behalf of all former shareholders of Rogue Wave Software, Inc. who acquired Quovadx common stock in connection with the Company’s exchange offer effective December  19, 2003. The claims are based upon the same theories and allegations as asserted in the Section 10(b) class actions described above. The Court denied plaintiff’s motion to consolidate this Section 11 action with the Section 10(b) cases and authorized the two competing lead plaintiff candidates to take discovery of each other in advance of a hearing on the appointment of lead plaintiff. On July 14, 2004, the Company and outside director defendants filed an answer to the complaint, denying allegations of wrongdoing and asserting various affirmative defenses. On September 8, 2004, the Court directed the plaintiff to publish new notice of pendency of this action inviting potential class members to submit motions for appointment as lead plaintiff. Two putative class members filed competing motions for appointment as lead plaintiff, and their motions are sub judice. The Court stayed all discovery related to the merits of the litigation pending the appointment of a lead plaintiff. On October 4, 2004, the Company’s former CEO and CFO filed an answer to the complaint, denying allegations of wrongdoing and asserting various affirmative defenses. This class action also is in the preliminary stages, and it is not possible for us to quantify the extent of potential liability, if any.

      On April 12, 2004, the Company announced that the Securities and Exchange Commission (“SEC”) had notified the Company that it’s previously announced informal inquiry has become a formal investigation pursuant to an “Order Directing Private Investigation and Designating Officers to Take Testimony.” The SEC is investigating transactions entered into during the third quarter of 2002 and transactions entered into during 2003 including two distributor contracts totaling approximately $1 million and transactions between Quovadx and Infotech Network Group. The investigation is continuing, and the Company continues to provide documents and information to the SEC.

      On July 28, 2004, Ronald Renjilian, a former employee, filed a Sarbanes-Oxley Whistle Blower Complaint against the Company with the US Department of Labor Occupational Safety and Health Administration (“OSHA”). The complaint alleges that the Company’s April 30, 2004 termination of Mr. Renjilian’s employment was an action taken against Mr. Renjilian as a result of his engaging in protected activity. The Company denied any wrongdoing. On December 17, 2004, OSHA dismissed the claims. On January 19, 2005, Mr. Renjilian objected to the Secretary’s findings, and requested a hearing on the record. On February 17, 2005, Mr. Renjilian withdrew his appeal.

      The Company is engaged from time to time in routine litigation that arises in the ordinary course of our business.

      During the fourth quarter of 2004, no matters were submitted to a vote of our security holders.

PART II

      Our common stock is listed for trading on the NASDAQ National Market under the symbol “QVDX.” On May 14, 2004, based on our failure to file the March 31, 2004 Form 10-Q with the SEC and pending an appeal, the NASDAQ changed our trading symbol to “QVDXE.” On August 25, 2004 our symbol was changed back based on our filing of all delinquent reports with the SEC. This change in listing symbol and the other issued discussed elsewhere, impacted the market price of our stock. The following table sets forth, for the period indicated, the range of high and low closing sales prices per share of our common stock, as reported on the NASDAQ National Market.

      On March 4, 2005, the last reported sale price of the common stock was $2.88 per share, and the number of registered holders of record of the common stock was approximately 614. Because many of the Company’s shares of common stock are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these non-record holders.

      We have not declared or paid any cash dividends on our common stock or other securities since January 1996 when we were an S corporation. We currently anticipate that we will retain all of our future earnings for use in the expansion and operation of our business and do not anticipate paying any cash dividends in the foreseeable future.

      The consolidated statements of operations data below for the years ended December 31, 2004, 2003 and 2002 and the consolidated balance sheet data as of December 31, 2004 and 2003, are derived from and are qualified by reference to the Company’s consolidated financial statements which are included elsewhere in this Annual Report. The consolidated statements of operations data for the years ended December 31, 2001 and 2000 and the consolidated balance sheet data as of December 31, 2002, 2001 and 2000 are derived from the Company’s consolidated financial statements, which are not included in this Annual Report, but can be derived from other filings with the Securities and Exchange Commission. The data below reflect the restatement of our consolidated financial statements for the years ended December 31, 2002 and 2003. You should read the following selected financial data with the consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Form 10-K. You should also read our quarterly reports on Form 10-Q for the first, second and third quarters of 2004 filed previously.