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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 000-29273

Quovadx, Inc.

6400 S. Fiddler’s Green Circle, Suite 1000, Englewood, Colorado 80111

(303) 488-2019

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 filing requirements for the past 90 days.     Yes þ          No o

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

      At July 31, 2004, 40,320,265 shares of common stock were outstanding.

QUOVADX, INC.

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EXPLANATORY NOTE

      This Quarterly Report on Form 10-Q for the period ending March 31, 2004, is being filed on the same date as the Form 10-Q for the period ending June 30, 2004 and Amendment No. 3 of our Form 10-K/A which restates our financial results for the years ended December 31, 2003 and 2002. These documents should be read in conjunction to fully understand the restatements contained in the Form 10-K/A and their impact on the information in this Form 10-Q.

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PART I: FINANCIAL INFORMATION

QUOVADX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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QUOVADX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

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QUOVADX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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QUOVADX, INC.

      The accompanying condensed consolidated financial statements of Quovadx, Inc. (“Quovadx,” the “Company,” the “Registrant,” “we” or “us”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. The unaudited financial statements have been prepared on the same basis as our annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for a fair presentation in accordance with United States generally accepted accounting principles. The results for the three months ended March 31, 2004 are not necessarily indicative of the results expected for the full year. These financial statements should be read in conjunction with the audited financial statements and accompanying notes included in our Annual Report on Amendment No. 3 on Form 10-K/ A for the year ended December 31, 2003.

      The financial results for the years ended December 31, 2003 and 2002 have been restated to properly account for transactions that were previously inaccurately reflected in the Company’s financial results. The cumulative effect of these restated financial statements increased the previously reported net loss by $1.8 million for the year ended December 31, 2003. These inaccuracies (a) overstated software license revenues due to the timing of delivery of software products and the accounting for certain reseller relationships (b) overstated professional services revenues due to the timing of adjustments to estimates used in determining the recognition of revenue under the percentage of completion method. The restatement also decreased current assets by $0.8 million and increased current liabilities by $1.0 million at December 31, 2003. A summary of the restatement impact on the three months ended March 31, 2003 is set forth below.

      Net loss per common share (“EPS”) is calculated in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share.” Under the provisions of SFAS No. 128, basic EPS is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if stock options were exercised, resulting in the issuance of common stock that would share in the earnings of the Company. Potential dilution of the stock options exercisable into common stock is computed using the treasury stock method based on the average fair market value of the stock. In periods where the Company has a net loss, the effect of all common stock equivalents is excluded from the computation of diluted EPS since their effect would decrease the loss per share. The diluted weighted average common shares calculation for the three months ended March 31, 2004 and 2003 excludes 834,701 and 457,895 options, respectively, to purchase common stock because their effect would have been anti-dilutive under the treasury stock method and excludes all options to purchase common stock because their effect would have been anti-dilutive to the net loss.

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      In the first quarter of 2004, the Company incurred impairment charges totaling $7.1 million. Impairment charges totaling $6.8 million were recorded as a component of cost of revenue and the remaining $0.3 million was recorded within amortization of intangible assets. The Company wrote down $4.4 million of its internally developed and acquired capitalized software related to certain discontinued products. The Company’s decision to discontinue or suspend the development of these products resulted from a review conducted by the new management to refocus the Company’s resources to products that will generate revenues in the near term and conserve cash flows. Based on this review, certain internally developed and acquired software assets were deemed impaired because projected cash flows did not exceed the net book value of the asset.

      In the fourth quarter of 2003, the Company prepaid $0.9 million to Infotech Network Group (“Infotech”) for professional services. In March 2004, the Company prepaid Infotech an additional $2.1 million for professional services. Payments totaling $1.7 million were written off in the first quarter of 2004 because the asset was deemed not recoverable due to Infotech’s inability to provide assurances that it can deliver those services in the future. The Company expensed $0.4 million of prepaid services to cost of sales and research and development related to services Infotech provided in the first quarter of 2004.

      The Company also wrote down $0.7 million of deferred costs related to its transaction business. The deferred costs were written down to their expected realizable value because the total balance of the asset was not recoverable due to the cancellation of certain contracts and lower than expected revenues on other contracts. As of March 31, 2004, the Company had remaining deferred costs relating to its transaction business totaling $0.6 million.

      On December 19, 2003, Quovadx purchased the outstanding stock of Rogue Wave Software, Inc. (“Rogue Wave”). Rogue Wave develops, markets and supports object-oriented and infrastructure software technology. The acquisition, structured as an exchange offer, provided that Quovadx acquire all of the outstanding stock of Rogue Wave for $4.09 in cash and 0.5292 of a share of Quovadx common stock for each share of Rogue Wave Common Stock. The total purchase price for this acquisition was $79.1 million, including 5,656,670 shares of Quovadx common stock, cash of $8.0 million, net of cash acquired, and $3.9 million in merger-related costs.

      The Company has retained an independent appraiser to assist with assigning the fair values to the identifiable intangibles acquired from Rogue Wave. The appraisal is expected to be completed by the third quarter of 2004. The preliminary estimate of goodwill, software and identifiable intangible assets acquired is $34.4 million, $10.6 million and $4.6 million, respectively. The Company has not completed its allocation of goodwill by reporting segment. The Company expects to complete the allocation in the third quarter of 2004. The amount of goodwill that will be assigned to a reporting unit will be determined by allocating the purchase price to the assets and liabilities of each reporting unit. The goodwill recognized in the Rogue Wave acquisition is not subject to amortization but will be tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. The identifiable intangible assets will be amortized over their estimated lives.

      On September 19, 2003, Quovadx consummated the acquisition of CareScience, Inc. CareScience stockholders received a fixed exchange rate of $1.40 cash and 0.1818 shares of Quovadx’s 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 issued in exchange for all outstanding shares of CareScience capital stock, cash of $4.7 million, net of cash acquired, and $2.3 million in merger-related costs, including transaction fees and stock option payout. The Company retained an independent appraiser to assist with the assigning of the fair values to the identifiable intangibles acquired from CareScience. The acquisition

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generated goodwill, software and customer base intangible assets acquired of $12.8 million, $0.8 million and $8.6 million, respectively.

      The unaudited pro forma results of operations as though the Rogue Wave and CareScience acquisitions had been completed as of January 1, 2003 are as follows (in thousands except for per share amounts):

      Segment information has been prepared in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The Company defines operating segments as components of an enterprise for which discrete financial information is available and is reviewed regularly by the chief operating decision-maker or decision-making group, to evaluate performance and make operating decisions. The chief operating decision-making group reviews the revenue and margin by the nature of the services provided and reviews the overall results of the Company. Accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K/A, Amendment 3 for the year ended December 31, 2003.

      The Company operates in three segments: software license, professional services, and recurring revenue. The software license segment includes revenue from software license sales and software subscriptions. The professional services segment includes revenue generated from software implementation, development, and integration. The recurring revenue segment includes revenue generated from outsourcing, hosting, software maintenance, transactions, and other recurring services. The segment information for the three months ended March 31, 2004 is reflected in the condensed consolidated statements of operations.

      Intangible assets recognized in the Company’s acquisitions are being amortized over their estimated lives ranging from three to eight years. The following table provides information relating to the Company’s intangible assets as of March 31, 2004):

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