UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
 
 ________________
 
 FORM
        10-Q
 ________________
 
 
 QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF
        THE
        SECURITIES EXCHANGE ACT OF 1934
 
 FOR
        THE
        QUARTERLY PERIOD ENDED MARCH 31, 2007
 
 COMMISSION
        FILE NUMBER: 000-24539
 
 **ECLIPSYS
        CORPORATION**
 (Exact
        name of registrant as specified in its charter)
 
 
 **DELAWARE**
              **65-0632092**(State
                  of Incorporation)
              (IRS
                  Employer Identification Number)
 
 **1750
        Clint Moore Road**
 **Boca
        Raton, Florida**
 **33487**
 (Address
        of principal executive offices)
 
 **561-322-4321**
 (Telephone
        number of registrant)
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing for the past
        90
        days. Yes [ ] No [ x ]
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 Large
        accelerated filer [ × ] Accelerated filer [ ]  Non-accelerated filer [
        ]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
        [
        ] No [×]
 
 Indicate
        the number of shares outstanding of each of the issuer's classes of common
        stock
        as of the latest practicable date.
 
 **Class**
              **Shares
                  outstanding as of May 16, 2007**Common
                  Stock, $.01 par value
              53,055,049
 
 
 
 
 
  
  
 ECLIPSYS
                      CORPORATION AND SUBSIDIARIESFORM
                      10-QFor
                      the period ended March 31, 2007Table
                      of ContentsPart
                      I.
                  
                  Financial
                      InformationItem
                      1.
                  
                  Financial
                      Statements - UnauditedCondensed
                      Consolidated Balance Sheets (unaudited) - As of March 31,
                      2007and
                      December 31, 2006
                  3Condensed
                      Consolidated Statements of Operations (unaudited) - For the
                      ThreeMonths
                      Ended March 31, 2007 and March 31, 2006 (restated)
                  4Condensed
                      Consolidated Statements of Cash Flows (unaudited) - For the
                      ThreeMonths
                      Ended March 31, 2007 and March 31, 2006 (restated)
                  5Notes
                      to condensed consolidated financial statements (unaudited)
                  6Item
                      2.
                  
                  Management's
                      Discussion and Analysis of Financial Condition and Resultsof
                      Operations
                  12Item
                      3.
                  
                  Quantitative
                      and Qualitative Disclosures About Market Risk
                  15Item
                      4.
                  
                  Controls
                      and Procedures
                  15Part
                      II.
                  
                  Other
                      Information
                  16Item
                      1.
                  
                  Legal
                      Proceedings
                  16Item
                      1A.
                  
                  Risk
                      Factors
                  16Item
                      6.
                  
                  ExhibitsSignaturesCertifications
  
 
 **ECLIPSYS
                    CORPORATION AND SUBSIDIARIES****Condensed
                    Consolidated Balance Sheets (Unaudited)****(in
                    thousands)****March
                    31,**
                
                **December
                    31,****2007**
                
                **2006****Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                40,906
                
                $
                41,264Marketable
                    securities
                
                
                97,233
                
                
                89,549Accounts
                    receivable, net of allowance for doubtful accounts of $3,796
                    and $3,907,
                    respectively
                
                
                89,675
                
                
                93,821Inventory
                
                
                763
                
                
                1,076Prepaid
                    expenses
                
                
                27,802
                
                
                22,947Other
                    current assets
                
                
                1,276
                
                
                1,026Total
                    current assets
                
                
                257,655
                
                
                249,683Property
                    and equipment, net
                
                
                44,580
                
                
                45,806Capitalized
                    software development costs, net
                
                
                32,187
                
                
                32,302Acquired
                    technology, net
                
                
                1,060
                
                
                1,224Intangible
                    assets, net
                
                
                3,029
                
                
                3,307Deferred
                    tax asset
                
                
                3,094
                
                
                3,661Goodwill
                
                
                12,803
                
                
                12,281Other
                    assets
                
                
                13,618
                
                
                15,014Total
                    assets
                
                $
                368,026
                
                $
                363,278**Liabilities
                    and Stockholders’ Equity**Current
                    liabilities:Deferred
                    revenue
                
                $
                102,365
                
                $
                103,298Accounts
                    payable
                
                
                16,098
                
                
                19,879Accrued
                    compensation costs
                
                
                18,218
                
                
                12,997Deferred
                    tax liability
                
                
                3,152
                
                
                3,699Other
                    current liabilities
                
                
                16,447
                
                
                20,213Total
                    current liabilities
                
                
                156,280
                
                
                160,086Deferred
                    revenue
                
                
                9,999
                
                
                11,289Other
                    long-term liabilities
                
                
                1,266
                
                
                1,247Total
                    liabilities
                
                
                167,545
                
                
                172,622Stockholders’
                    equity:Total
                    stockholders’ equity
                
                
                200,481
                
                
                190,656Total
                    liabilities and stockholders’ equity
                
                $
                368,026
                
                $
                363,278
 
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  3
  **ECLIPSYS
                    CORPORATION AND SUBSIDIARIES****Condensed
                    Consolidated Statements of Operations (Unaudited)****(in
                    thousands, except per share amounts)****Three
                    Months Ended****March
                    31,****2007**
                
                **2006**As
                    restatedRevenues:Systems
                    and services
                
                $
                109,183
                
                $
                96,330Hardware
                
                
                3,847
                
                
                4,561Total
                    revenues
                
                
                113,030
                
                
                100,891Cost
                    and expenses:Cost
                    of systems and services
                
                
                64,707
                
                
                56,473Cost
                    of hardware
                
                
                3,027
                
                
                3,651Sales
                    and marketing
                
                
                18,138
                
                
                16,210Research
                    and development
                
                
                14,408
                
                
                16,962General
                    and administrative
                
                
                7,569
                
                
                5,656Depreciation
                    and amortization
                
                
                4,275
                
                
                3,802Restructuring
                    charge
                
                
                -
                
                
                7,198Total
                    costs and expenses
                
                
                112,124
                
                
                109,952Income
                    (loss) from operations
                
                
                906
                
                
                (9,061
                )Interest
                    income, net
                
                
                1,514
                
                
                1,149Income
                    (loss) before income taxes
                
                
                2,420
                
                
                (7,912
                )Provision
                    for income taxes
                
                
                19
                
                
                -Net
                    income (loss)
                
                $
                2,401
                
                $
                (7,912
                )Net
                    income loss per share:Basic
                    net income (loss) per common share
                
                $
                0.05
                
                $
                (0.16
                )Diluted
                    net income (loss) per common share
                
                $
                0.04
                
                $
                (0.16
                )Weighted
                    average common shares outstanding:Basic
                
                
                52,328
                
                
                50,581Diluted
                
                
                53,544
                
                
                50,581
  The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  4
   **ECLIPSYS
                    CORPORATION AND SUBSIDIARIES****Condensed
                    Consolidated Statements of Cash Flows (Unaudited)****(in
                    thousands)****Three
                    Months Ended March 31,****2007**
                
                **2006**As
                    restatedOperating
                    activities:Net
                    income (loss)
                
                $
                2,401
                
                $
                (7,912
                )Adjustments
                    to reconcile net income (loss) to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                9,671
                
                
                9,232Provision
                    for bad debt
                
                
                450
                
                
                518Stock
                    compensation expense
                
                
                2,760
                
                
                3,695Gain
                    on sale of investments
                
                
                (23
                )
                
                -Deferred
                    provision for income taxes
                
                
                19
                
                
                -Changes
                    in operating assets and liabilities:Decrease
                    (increase) in accounts receivable
                
                
                3,696
                
                
                (1,197
                )Increase
                    in prepaid expenses and other current assets
                
                
                (5,616
                )
                
                (2,634
                )Decrease
                    in inventory
                
                
                825
                
                
                132Increase
                    in other assets
                
                
                653
                
                
                647Decrease
                    in deferred revenue
                
                
                (2,223
                )
                
                (11,971
                )Increase
                    (decrease) in accrued compensation
                
                
                5,479
                
                
                (167
                )(Decrease)
                    increase in accounts payable and other current
                    liabilities
                
                
                (7,768
                )
                
                636Increase
                    (decrease) in other long-term liabilities
                
                
                19
                
                
                (1,083
                )Total
                    adjustments
                
                
                7,942
                
                
                (2,192
                )Net
                    cash provided by (used in) operating activities
                
                
                10,343
                
                
                (10,104
                )Investing
                    activities:Purchases
                    of property and equipment
                
                
                (2,771
                )
                
                (5,651
                )Purchase
                    of marketable securities
                
                
                (17,076
                )
                
                (45,375
                )Proceeds
                    from sales of marketable securities
                
                
                9,392
                
                
                850Capitalized
                    software development costs
                
                
                (4,379
                )
                
                (1,576
                )Net
                    cash used in investing activities
                
                
                (14,834
                )
                
                (51,752
                )Financing
                    activities:Proceeds
                    from stock options exercised
                
                
                4,131
                
                
                21,042Net
                    cash provided by financing activities
                
                
                4,131
                
                
                21,042Effect
                    of exchange rates on cash and cash equivalents
                
                
                2
                
                
                335Net
                    decrease in cash and cash equivalents
                
                
                (358
                )
                
                (40,479
                )Cash
                    and cash equivalents — beginning of period
                
                
                41,264
                
                
                76,693Cash
                    and cash equivalents — end of period
                
                $
                40,906
                
                $
                36,214
  The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  5
  **ECLIPSYS
        CORPORATION AND SUBSIDIARIES**
 **Notes
        to condensed consolidated financial statements**
 **(Unaudited)**
 
 1.
        BASIS
        OF PRESENTATION
  The
        accompanying unaudited condensed consolidated financial statements of Eclipsys
        Corporation, (“Eclipsys” or the “Company”), and the notes thereto have been
        prepared in accordance with the instructions for Form 10-Q of the Securities
        and
        Exchange Commission, or SEC. The December 31, 2006 condensed balance sheet
        data
        was derived from audited financial statements. These condensed statements
        do not
        include all of the information and disclosures required by accounting principles
        generally accepted in the United States of America but do reflect all
        adjustments (consisting of normal recurring adjustments) that are, in the
        opinion of management, necessary for a fair statement of results for the
        interim
        periods presented.
  The
        results of operations for the three months ended March 31, 2007 are not
        necessarily indicative of annual results. The Company manages its business
        as
        one reportable segment.
 
 The
        unaudited condensed consolidated financial statements included herein should
        be
        read in conjunction with the audited consolidated financial statements and
        the
        notes thereto that are included in the Company's Annual Report on Form 10-K
        for
        the year ended December 31, 2006 that was filed with the SEC on May 23,
        2007.
 
 2. RESTATEMENTS
        OF CONSOLIDATED FINANCIAL STATEMENTS
  The
        Condensed Consolidated Statement of Operations and the Condensed Consolidated
        Statement of Cash Flows for the three months ended March 31, 2006 included
        in
        this Form 10-Q have been restated. The restated financial results include
        adjustments to our previously filed financial statements as a result of our
        voluntary stock option review which was completed in May 2007, as well as
        additional adjustments not previously considered material. For additional
        information regarding these restatements, please refer to Note 3, “Review of
        Stock Option Practices and Restatements of Consolidated Financial Statements,”
in Notes to the Consolidated Financial Statements and Exhibit 99.1 in our
        Annual Report on Form 10-K for the year ended December 31, 2006.
 
 Additionally,
        the Condensed Consolidated Statement of Cash Flows for the three months ended
        March 31, 2006 has been revised to reflect auction rate securities that are
        held
        "at market" or held "at rate" on a net basis. Previously, these securities
        were
        reported by the Company on a gross basis within "Net cash used in investing
        activities" section of the statement of cash flows. The impact of this revised
        presentation was to decrease purchases of marketable securities and proceeds
        from sales of marketable securities during the three months ended March 31,
        2006
        by $200.2 million. These changes had no impact on net cash used in investing
        activities.
  3.
        EMPLOYEE BENEFIT PLANS
 
 *2005
        Stock Incentive Plan*
 
 At
        our
        Annual Meeting of Stockholders held June 29, 2005, our shareholders approved
        the
        Company's 2005 Stock Incentive Plan ("2005 Plan").  Under the 2005 Plan, no
        further awards will be granted under our prior Stock Incentive Plans which
        include our 1996, 1998, 1999 and 2000 plans.  Awards may be made under the
        2005 Plan for a number of shares (subject to adjustment in the event of stock
        splits and other similar events) equal to the sum of
        (1) 2,000,000 shares of the Company’s common stock, (2) any
        shares reserved for issuance under the Amended and Restated 2000 Stock Incentive
        Plan that remain available for issuance as of the date the 2005 Plan was
        approved by our stockholders and (3) any shares subject to outstanding
        awards under our 1996 Stock Plan, the Amended and Restated 1998 Stock Incentive
        Plan, the Amended and Restated 1999 Stock Incentive Plan and the Amended
        and
        Restated 2000 Stock Incentive Plan that expire or are terminated, surrendered
        or
        canceled without having been fully exercised, are repurchased or forfeited
        in
        whole or part or result in any shares subject to such award not being issued.
 
 In
        the
        second quarter of 2006, we implemented a deferred stock unit plan to provide
        for
        equity compensation for our non-employee directors in the form of deferred
        stock
        units ("DSUs") granted under the 2005 Plan. As of the date of each annual
        meeting of the Company's stockholders, each continuing non-employee director
        receives a number of DSUs determined by dividing $75,000 by the fair market
        value of a share of the Company's common stock on the grant date. These DSUs
        vest quarterly over the course of the ensuing year. After cessation of board
        service, the Company will settle the DSUs by issuing to the former director
        a
        number of shares of the Company's common stock equal to the number of
        accumulated vested deferred stock units. In addition, a non-employee director
        may elect to receive DSUs in lieu of all or a portion of his or her cash
        fees.
        All DSUs received for cash fees are fully vested upon issuance.
 
 As
        of
        March 31, 2007, there were 2,403,166 shares available for future issuance
        under
        the 2005 Plan.
 
 6
 **ECLIPSYS
          CORPORATION AND SUBSIDIARIES**
 **Notes
          to condensed consolidated financial statements**
 **(Unaudited)**
 Stock
          Options
 A
        summary
        of stock option transactions is as follows:
 Number
                  of Shares
              
              Weighted
                  Average Exercise Price
              
              Weighted
                  Average Remaining Contractual Life (in years)
              
              Aggregate
                  Intrinsic Value (in thousands)Outstanding
                  at January 1, 2007
              
              
              5,631,584
              
              $
              15.40
              
              
              6.32
              
              $
              32,480Options
                  exercised
              
              
              (242,538
              )
              $
              17.02Options
                  canceled
              
              
              (101,743
              )
              $
              19.79Outstanding
                  at March 31, 2007
              
              
              5,287,303
              
              $
              15.24
              
              
              6.08
              
              $
              26,091Vested
                  and expected to vest at March 31, 2007
              
              
              5,071,565
              
              $
              15.11
              
              
              0.58
              
              $
              25,652Exercisable
                  at March 31, 2007
              
              
              3,149,266
              
              $
              13.67
              
              
              4.50
              
              $
              20,391
  As
        of
        March 31, 2007, $29.5 million of total unrecognized compensation costs related
        to stock options is expected to be recognized over a weighted average period
        of
        3.6 years.
 
 The
        weighted average fair value of outstanding stock options is estimated at
        the
        date of grant using a Black-Scholes option pricing model. We did not issue
        any
        stock options during the three months ended March 31, 2007. The following
        are
        significant weighted average assumptions used for estimating the fair value
        of
        the activity for the quarter ended March 31, 2006 under our stock option
        plans:
 Quarter
                    EndedMarch
                    31,2006Expected
                    term (in years)
                
                
                6.5Risk
                    free interest rate
                
                
                5.1
                %Expected
                    volatility
                
                
                78
                %Dividend
                    yield
                
                
                0
                %
  We
        have
        elected to use the simplified method for estimating our expected term equal
        to
        the midpoint between the vesting period and the contractual term as allowed
        by
        Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment.
 
 We
        currently estimate volatility by using the weighted average historical
        volatility of our common stock.
 
 The
        risk-free interest rate is the implied yield currently available on U.S.
        Treasury zero-coupon issues with a remaining term equal to the expected term
        input to the Black-Scholes model.
 
 We
        estimate forfeitures using a weighted average historical forfeiture rate.
        Our
        estimate of forfeitures will be adjusted over the requisite service period
        based
        on the extent to which actual forfeitures differ, or are expected to differ,
        from our estimate.
  Non-vested
        Stock Awards
 Non-vested
        stock award activity for the three months ended March 31, 2007 is summarized
        as
        follows:
  Non-vested
                    Number of Shares
                
                Weighted
                    Average Grant-Date
                  Fair
                    ValueNonvested
                    balance at January 1, 2007
                
                
                366,128
                
                $
                17.29Awarded
                
                
                100,000
                
                
                19.88Vested
                
                
                (12,500
                )
                
                13.50Forfeited
                
                
                (3,616
                )
                
                15.11Nonvested
                    balance at March 31, 2007
                
                
                450,012
                
                $
                17.99
 
 As
        of
        March 31, 2007, $7.0 million of total unrecognized compensation costs related
        to
        non-vested stock awards is expected to be recognized over a weighted average
        period of 3.7 years.  All non-vested stock awards vest semiannually,
        in June and December of each year.
  Deferred
        Stock Units
 We
        did
        not grant any deferred stock units in the first quarter of 2007. As of March
        31,
        2007, 26,459 DSUs were outstanding at the weighted average grant-date fair
        value
        of $18.91. The value of these DSUs is amortized to compensation expense and
        director fees ratably over the vesting period. During the quarter ended March
        31, 2007 we recorded expense for DSUs of $0.1 million.
 
 7
 **ECLIPSYS
          CORPORATION AND SUBSIDIARIES**
 **Notes
          to condensed consolidated financial statements**
 **(Unaudited)**
 4.
          MARKETABLE SECURITIES
 Marketable
        securities consist of funds that are highly liquid and are classified as
        available-for-sale. Marketable securities are recorded at fair value, and
        unrealized gains and losses are recorded as a component of other comprehensive
        income.
  (in
                    thousands)March
                    31,
                
                December
                    31,2007
                
                2006Security
                    TypeAuction
                    Rate Securities:Debt
                    securities issued by the U.S. Treasury and other U.S. government
                    corporations and agencies
                
                $
                52,681
                
                $
                45,139Debt
                    securities issued by states of the United States and political
                    subdivisions of the states
                
                
                24,873
                
                
                21,18777,554
                
                
                66,326Other
                    Securities:Government
                    Bonds/Agencies
                
                
                10,248
                
                
                11,259Other
                    debt securities
                
                
                9,431
                
                
                11,964Total
                
                $
                97,233
                
                $
                89,549
 
 As
        of
        March 31, 2007, most of our marketable securities have a maturity of more
        than 1
        year. Auction rate securities of $24.9 million, held at March 31, 2007,
        typically have an interest rate reset feature every 30 days pursuant to which
        we
        can sell or reset the interest rate on the security. Eclipsys’ policy for all
        securities in the portfolio is to hold them less than one year, and therefore,
        we believe that these investments are part of our working capital and are
        appropriately classified as current assets.
  In
        an
        effort to maximize the yield of our excess cash, we periodically transfer
        excess
        cash not needed for operations from money market investments to marketable
        securities, which include auction rates securities and government bonds.
        These
        funds remain highly liquid.
 
 5.
        ACCOUNTS RECEIVABLE
  Accounts
        receivable, net of allowances for doubtful accounts, is comprised of the
        following (in thousands):
  March
                    31,
                
                December
                    31,2007
                
                2006Accounts
                    Receivable:Billed
                    accounts receivable, net
                
                $
                74,504
                
                $
                77,570Unbilled
                    accounts receivable, net
                
                
                15,171
                
                
                16,251Total
                    accounts receivable, net
                
                $
                89,675
                
                $
                93,821
  6.
        WARRANTY RESERVE
 
 The
        agreements that we use to license software to our customers generally include
        limited warranties including a warranty that the product, in its unaltered
        form,
        will perform substantially in accordance with the related documentation.
        Warranty costs are charged to the cost of systems and services when they
        are
        probable and reasonably estimable. A summary of the activity in our warranty
        reserve is as follows (in thousands):
  March
                    31,2007Beginning
                    Balance
                
                $
                438Provision
                    reduction
                
                
                -Warranty
                    utilized
                
                
                (108
                )Ending
                    Balance
                
                $
                330
 
 8
 **ECLIPSYS
          CORPORATION AND SUBSIDIARIES**
 **Notes
          to condensed consolidated financial statements**
 **(Unaudited)**
 7.
          GOODWILL AND OTHER INTANGIBLE ASSETS
 Acquired
        technology and other intangible assets are amortized over their estimated
        useful
        lives on a straight-line basis. The carrying values of acquired technology
        and
        other intangible assets are reviewed if the facts and circumstances suggest
        that
        they may be impaired, and goodwill is reviewed annually in accordance with
        Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and
        Other Intangible Assets.” Testing is performed on a more frequent basis if
        impairment triggering events arise. The impairment test is based upon a number
        of factors, including operating results, business plans and projected future
        cash flows. No impairment charge has been recorded in the quarter ended March
        31, 2007 and the year ended December 31, 2006.
 
 The
        changes in the carrying amount of goodwill for the three months ended March
        31,
        2007, is as follows (in thousands):
 March
                    31,2007Beginning
                    Balance
                
                $
                12,281Earnout
                    related to past acquisitions
                
                
                522Ending
                    Balance
                
                $
                12,803
  The
        gross
        and net amounts for acquired technology, ongoing customer relationships and
        goodwill consist of the following (in thousands):
  March
                    31, 2007
                
                December
                    31, 2006Gross
                
                
                
                Net
                
                Gross
                
                
                
                NetCarrying
                
                Accumulated
                
                Book
                
                Carrying
                
                Accumulated
                
                Book
                
                EstimatedAmount
                
                Amortization
                
                Value
                
                Amount
                
                Amortization
                
                Value
                
                LifeIntangibles
                    subject to amortizationAcquired
                    Technology
                
                $
                1,967
                
                $
                (907
                )
                $
                1,060
                
                $
                1,967
                
                $
                (743
                )
                $
                1,224
                
                
                3-5
                    yearsOngoing
                    customer relationships
                
                
                5,644
                
                
                (2,615
                )
                
                3,029
                
                
                5,644
                
                
                (2,337
                )
                
                3,307
                
                
                5-7
                    yearsTotal
                
                $
                7,611
                
                $
                (3,522
                )
                $
                4,089
                
                $
                7,611
                
                $
                (3,080
                )
                $
                4,531Intangibles
                    not subject to amortization:Goodwill
                
                
                
                
                
                
                
                $
                12,803
                
                
                
                
                
                
                
                $
                12,281
 Estimated
                    aggregate amortization expense (in thousands):For
                    the remainder of2007
                
                2008
                
                2009
                
                2010
                
                2011
                
                Thereafter
                
                TotalTotal
                    amortization expense
                
                $
                1,301
                
                $
                1,463
                
                $
                845
                
                $
                303
                
                $
                177
                
                $
                -
                
                $
                4,089
 
 8.
        OTHER
        COMPREHENSIVE INCOME (LOSS)
 
 The
        components of other comprehensive income (loss) were as follows (in
        thousands):
  Three
                    Months Ended March 31,2007
                
                2006As
                    restatedNet
                    income (loss)
                
                $
                2,401
                
                $
                (7,912
                )Foreign
                    currency translation adjustment
                
                
                59
                
                
                335Unrealized
                    loss on investments
                
                
                (23
                )
                
                -Total
                    comprehensive income (loss)
                
                $
                2,437
                
                $
                (7,577
                )
 
 9
 **ECLIPSYS
          CORPORATION AND SUBSIDIARIES**
 **Notes
          to condensed consolidated financial statements**
 **(Unaudited)**
 9.
          BASIC
          AND DILUTED INCOME (LOSS) PER COMMON SHARE
 For
          all
          periods presented, basic and diluted income (loss) per common share is
          presented
          in accordance with SFAS 128, “Earnings per Share,” which provides for the
          accounting principles used in the calculation of income (loss) per share.
          Basic
          income (loss) per common share excludes dilution and is calculated by dividing
          net income (loss) available to common shareholders by the weighted average
          number of shares of common stock outstanding during the period. Diluted
          income
          (loss) per common share reflects the potential dilution from assumed conversion
          of all dilutive securities such as stock options and unvested restricted
          stock
          using the treasury stock method. When the effect of the outstanding stock
          options is anti-dilutive, they are not included in the calculation of diluted
          income (loss) per common share.
  The
        computation of basic and diluted income (loss) per common share was as follows
        (in thousands, except per share data):
 Three
                    Months Ended March 31,2007
                
                2006Net
                    Income
                
                Shares
                
                Per
                    Share Amount
                
                Net
                    Loss
                
                Shares
                
                Per
                    Share AmountAs
                    restated
                
                
                
                As
                  restatedBasic
                    EPS
                
                $
                2,401
                
                
                52,328
                
                $
                0.05
                
                $
                (7,912
                )
                
                50,581
                
                $
                (0.16
                )Effect
                    of dilutive securities:Stock
                    options and other dilutive securities
                
                
                -
                
                
                1,149
                
                
                
                
                
                -
                
                
                -Shares
                    issuable pursuant to earn-out agreement
                
                
                -
                
                
                67
                
                
                
                
                
                -
                
                
                -Diluted
                    EPS
                
                $
                2,401
                
                
                53,544
                
                $
                0.04
                
                $
                (7,912
                )
                
                50,581
                
                $
                (0.16
                )
 
 10.
        RESTRUCTURING
 
 In
        January 2006, we affected a restructuring of our operations which included
        a
        reduction in headcount of approximately 100 individuals, and the reorganization
        of our Company. This was undertaken to better align our organization, reduce
        costs, and re-invest some of the cost savings into client-related activities
        including client support and professional services. During the quarter ended March 31, 2006, we recorded severance related charges
        of $7.2 million, of which $0.9 million related to non-cash stock-based
        compensation expense.
 In
        December 2006 we realigned certain management resources and closed three
        of our
        facilities to eliminate excess office space.
 
 We
        did
        not incur any restructuring charges during the quarter ended March 31, 2007.
        As
        of March 31, 2007, the remaining unpaid restructuring liability of $4.2 million
        relates to severance and future lease payments which we expect to pay out
        through 2009.
 
 A
        summary
        of the restructuring charges, along with the activity for the three months
        ended
        March 31, 2007 are as follows (in thousands):
 Restructuring
                
                
                
                
                
                
                
                RestructuringLiability
                    at
                
                2007
                    Activity
                
                Liability
                    atJanuary
                    1,
                
                Restructuring
                
                Reductions
                
                March
                    31,2007
                
                Charge
                
                Cash
                
                Non-Cash
                
                2007Severance
                
                $
                3,174
                
                $
                -
                
                $
                1,002
                
                $
                -
                
                $
                2,172Facility
                    closures
                
                
                2,486
                
                
                -
                
                
                441
                
                
                -
                
                
                2,045$
                5,660
                
                $
                -
                
                $
                1,443
                
                $
                -
                
                $
                4,217
 11.
        CONTINGENCIES
 
 The
        Company and its subsidiaries are from time to time parties to legal proceedings,
        lawsuits and other claims incident to their business activities. Such matters
        may include, among other things, assertions of contract breach or intellectual
        property infringement, claims for indemnity arising in the course of our
        business and claims by persons whose employment with us has been terminated.
        Such matters are subject to many uncertainties and outcomes are not predictable
        with assurance. Consequently, management is unable to ascertain the ultimate
        aggregate amount of monetary liability, amounts which may be covered by
        insurance or recoverable from third parties, or the financial impact with
        respect to these matters as of the date of this report. However, based on
        our
        knowledge at the time of this report, management believes that the final
        resolution of such matters pending at the time of this report, individually
        and
        in the aggregate, will not have a material adverse effect upon our consolidated
        financial position, results of operations or cash flows.
 
 10
 **ECLIPSYS
          CORPORATION AND SUBSIDIARIES**
 **Notes
          to condensed consolidated financial statements**
 **(Unaudited)**
 12.
          RECENT ACCOUNTING PRONOUNCEMENTS
 In
          September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
          157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 enhances existing guidance
          for measuring assets and liabilities using fair value. Prior to the issuance
          of
          SFAS 157, guidance for applying fair value was incorporated in several
          accounting pronouncements. SFAS 157 provides a single definition of fair
          value,
          together with a framework for measuring it, and requires additional disclosure
          about the use of fair value to measure assets and liabilities. SFAS 157
          also
          emphasizes that fair value is a market-based measurement, not an entity-specific
          measurement, and sets out a fair value hierarchy with the highest priority
          being
          quoted prices in active markets. Under SFAS 157, fair value measurements
          are
          disclosed by level within that hierarchy. SFAS 157 is effective for financial
          statements issued for fiscal years beginning after November 15, 2007, and
          interim periods within those fiscal years. Eclipsys has not yet determined
          the
          impact of adopting SFAS 157 on its financial statements.
 
 In
        June
        2006, the FASB issued Financial Interpretation 48, "Accounting for Uncertainty
        in Income Taxes" (FIN 48) which clarifies the accounting for uncertainty
        in
        income taxes recognized in financial statements in accordance with SFAS 109,
        "Accounting for Income Taxes." This Interpretation prescribes a recognition
        threshold and measurement attribute of tax positions taken or expected to
        be
        taken on a tax return. We adopted this Interpretation effective January 1,
        2007.
  We
        did
        not have any material unrecognized tax benefits and there was no effect on
        our
        financial condition or results of operations as a result of implementing
        FIN 48.
 
 The
        Company records income tax penalties, if any, in general and administrative
        expense. The Company has not recorded any interest or penalties related to
        FIN
        48, in the current quarter or on a cumulative basis.
 
 We
        file
        income tax returns in the U.S. federal jurisdiction, numerous states and
        Canada.
        All federal, state and international jurisdictions are open to examination
        due
        to net operating loss carryforwards. The Company has not been audited by
        the
        Internal Revenue Service. We do not believe there will be any material change
        in
        our unrecognized tax benefits over the next twelve months.
 
 In
        June
        2006, EITF 06-3, “How Sales Taxes Collected from Clients and Remitted to
        Governmental Authorities Should Be Presented in the Income Statement (That
        is,
        Gross Versus Net Presentation)” (“EITF 06-3”) was issued. EITF 06-3 requires
        disclosure of the presentation of taxes on either a gross (included in revenues
        and costs) or a net (excluded from revenue) basis as an accounting policy
        decision. The provisions of this standard are effective for interim and annual
        reporting periods beginning after December 15, 2006. The adoption of EITF
        06-3
        did not have a material impact on our consolidated financial
        statements.
 
 13. SUBSEQUENT EVENT
 
 In
        April
        2007, we entered into a letter of credit agreement in the amount of $1.9
        million
        with Wachovia Bank to secure our obligation under a new lease agreement for
        our
        Atlanta location. The letter of credit is collateralized by the Company’s cash
        of $2.0 million. The letter of credit expires in October 2008, but is
        automatically extended for one year periods, not beyond December
        2017.
  11
  ITEM
        2.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS
        OF OPERATIONS
 
 This
        report contains forward-looking statements that are based on our current
        expectations, assumptions, estimates and projections about our company and
        our
        industry. These statements are not guarantees of future performance and actual
        outcomes may differ materially from what is expressed or forecasted. When
        used
        in this report, the words “may”, “will”, “should”, “predict”, “continue”,
“plans”, “expects”, “anticipates”, “estimates”, “intends”, “believe”, “could”,
        and similar expressions are intended to identify forward-looking statements.
        These statements may include, but are not limited to, statements concerning
        our
        anticipated performance, including revenue, margin, cash flow, balance sheet
        and
        profit expectations; development and implementation of our software; duration,
        size, scope and revenue expectations associated with client contracts; benefits
        provided by Eclipsys software, outsourcing and consulting services; business
        mix; sales and growth in our client base; market opportunities; industry
        conditions; and our accounting, including its effects and potential changes
        in
        accounting.
 
 Actual
        results might differ materially from the results projected due to a number
        of
        risks and uncertainties. Software development may take longer and cost more
        than
        expected, and incorporation of anticipated features and functionality may
        be
        delayed, due to various factors including programming and integration challenges
        and resource constraints. We may change our product strategy in response
        to
        client requirements, market factors, resource availability, and other factors.
        Implementation of some of our software is complex and time consuming. Clients'
        circumstances vary and may include unforeseen issues that make it more difficult
        or costly than anticipated to implement or derive benefit from software,
        outsourcing or consulting services. The success and timeliness of our services
        often depend at least in part upon client involvement, which can be difficult
        to
        control. We are required to meet standard performance specifications, and
        contracts can be terminated or their scope reduced under certain circumstances.
        Competition is vigorous, and competitors may develop more compelling offerings
        or offer more aggressive pricing. New business is not assured and existing
        clients may migrate to competing offerings. Financial performance targets
        might
        not be achieved due to various risks, including slower-than-expected business
        development or new account implementation, or higher-than-expected costs
        to
        develop products, meet service commitments or sign new contracts. Our cash
        consumption may exceed expected levels if profitability does not meet
        expectations or strategic opportunities require cash investments. These and
        other risks and uncertainties that could cause our actual results to differ
        materially from our forward-looking statements are described in this report
        under the headings “Risk Factors” and “Management's Discussion and Analysis of
        Financial Condition and Results in Operations” and in our other filings made
        from time to time with the Securities and Exchange Commission. The cautionary
        statements made in this report should be read as being applicable to all
        related
        forward-looking statements wherever they appear. These statements are only
        predictions. We cannot guarantee future results, levels of activity, performance
        or achievements. All forward-looking statements attributable to us or any
        persons acting on our behalf are expressly qualified in their entirety by
        the
        risk factors referenced above and other risks set forth in this report or
        other
        reports we have filed or may file with the Securities and Exchange Commission.
        We assume no obligation to publicly update or revise these forward-looking
        statements for any reason, or to update the reasons actual results could
        differ
        materially from those anticipated in these forward-looking statements, even
        if
        new information becomes available in the future. We nonetheless reserve the
        right to make such updates from time to time without the need for specific
        reference to this report. No such update shall be deemed to indicate that
        other
        statements not addressed by such updates remain correct or create an obligation
        to provide any other updates.
  **Executive
        Overview**
  *The
        following should be read in conjunction with our condensed consolidated
        financial statements, including the notes thereto, which are included elsewhere
        in this document.*
 
 Eclipsys
        is a healthcare information technology company and a leading provider of
        advanced integrated information software clinical content and professional
        services that help healthcare organizations improve clinical, financial and
        operational processes. We develop and license proprietary software and content
        that is designed for use in connection with many of the key clinical,
        administrative and financial functions that healthcare organizations require.
        Among other things, software enables physicians, nurses and other clinicians
        to
        order tests, treatments and medications, and to record, access and share
        information about patients. The software also facilitates hospitals’ patient
        admissions, scheduling, records maintenance, invoicing, inventory control,
        cost
        accounting, and assessment of profitability of specific medical procedures
        and
        personnel. Our content, which is integrated with our software, provides practice
        guidelines for use by physicians, nurses and other clinicians.
  We
        believe that one of the key differentiators of our software is its open,
        flexible and modular architecture.  This allows our software to be
        installed one application at a time or all at once, and to generally integrate
        easily with software developed by other vendors or our clients. This enables
        our
        clients to install our software without the disruption and expense of replacing
        their existing software systems to gain additional
        functionality.
 
 We
        market
        our software to small, stand-alone hospitals, large multi-entity healthcare
        systems, academic medical centers, community hospitals and other healthcare
        organizations. We have one or more of our software applications installed
        in, or
        licensed to be installed at approximately 1,500 facilities. Most of the
        top-ranked U.S. hospitals named in *U.S.
        News & World Report* ’s
        Honor
        Roll use one or more of our solutions.
 
 
  12
 **THREE
        MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31,
        2006**
 **(in
        thousands, except per share amounts)**
  **2007**
                
                **%
                    of Total Revenues**
                
                
                **2006**
                
                **%
                    of Total Revenues**
                
                
                **Change
                    ($)**
                
                **Change
                    (%)****As
                    restated**RevenuesSystems
                    and services
                
                $
                109,183
                
                
                96.6
                %
                
                $
                96,330
                
                
                95.5
                %
                
                $
                12,853
                
                
                13.3
                %Hardware
                
                
                3,847
                
                
                3.4
                %
                
                
                4,561
                
                
                4.5
                %
                
                
                (714
                )
                
                -15.7
                %Total
                    revenues
                
                
                113,030
                
                
                100.0
                %
                
                
                100,891
                
                
                100.0
                %
                
                
                12,139
                
                
                12.0
                %Costs
                    and expensesCost
                    of systems and services
                
                
                64,707
                
                
                57.2
                %
                
                
                56,473
                
                
                56.0
                %
                
                
                8,234
                
                
                14.6
                %Cost
                    of hardware
                
                
                3,027
                
                
                2.7
                %
                
                
                3,651
                
                
                3.6
                %
                
                
                (624
                )
                
                -17.1
                %Sales
                    and marketing
                
                
                18,138
                
                
                16.0
                %
                
                
                16,210
                
                
                16.1
                %
                
                
                1,928
                
                
                11.9
                %Research
                    and development
                
                
                14,408
                
                
                12.7
                %
                
                
                16,962
                
                
                16.8
                %
                
                
                (2,554
                )
                
                -15.1
                %General
                    and administrative
                
                
                7,569
                
                
                6.7
                %
                
                
                5,656
                
                
                5.6
                %
                
                
                1,913
                
                
                33.8
                %Depreciation
                    and amortization
                
                
                4,275
                
                
                3.8
                %
                
                
                3,802
                
                
                3.8
                %
                
                
                473
                
                
                12.4
                %Restructuring
                    charge
                
                
                -
                
                
                0.0
                %
                
                
                7,198
                
                
                7.1
                %
                
                
                (7,198
                )
                
                -100.0
                %Total
                    costs and expenses
                
                
                112,124
                
                
                99.2
                %
                
                
                109,952
                
                
                109.0
                %
                
                
                2,172
                
                
                2.0
                %Income
                    (loss) from operations
                
                
                906
                
                
                0.8
                %
                
                
                (9,061
                )
                
                -9.0
                %
                
                
                9,967
                
                
                110.0
                %Interest
                    income, net
                
                
                1,514
                
                
                1.3
                %
                
                
                1,149
                
                
                1.1
                %
                
                
                365
                
                
                31.8
                %Income
                    (loss) before taxes
                
                
                2,420
                
                
                2.1
                %
                
                
                (7,912
                )
                
                -7.8
                %
                
                
                10,332
                
                
                130.3
                %Provision
                    for income taxes
                
                
                19
                
                
                0.0
                %
                
                
                -
                
                
                0.0
                %
                
                
                19
                
                
                0.0
                %Net
                    income (loss)
                
                $
                2,401
                
                
                2.1
                %
                
                $
                (7,912
                )
                
                -7.8
                %
                
                $
                10,313
                
                
                130.0
                %Basic
                    net income (loss) per common share
                
                $
                0.05
                
                
                
                
                
                $
                (0.16
                )
                
                
                
                
                $
                0.21Diluted
                    net income (loss) per common share
                
                $
                0.04
                
                
                
                
                
                $
                (0.16
                )
                
                
                
                
                $
                0.20
   **RESULTS
        OF OPERATIONS**
 
 *Revenues*
 Total
        revenues increased $12.1 million, or 12.0%, to $113.0 million for the quarter
        ended March 31, 2007, compared with $100.9 million for the first quarter
        of
        2006.
 
 Systems
        and services revenues increased $12.9 million, or 13.3%, to $109.2 million
        for
        the quarter ended March 31, 2007, compared with $96.3 million for the first
        quarter of 2006. This increase is attributable to revenue recognized on a
        ratable basis from 2006 contracts, due to a higher level of booking activity
        during the year.  Specifically, the increase in revenues recognized ratably
        from software, maintenance, outsourcing and remote hosting were $6.1 million
        or
        9.1% higher, when compared to the prior year. The increase in professional
        services revenues also contributed to the increase in system and services
        revenues.   Professional services revenues, which include
        implementation and consulting related services, as well as software license
        fees
        recognized on the percentage of completion method, were $29.7 million, an
        increase of $6.0 million or 25.4% over the prior year.  Revenues related to
        software and networking services were $6.4 million, an increase of $0.9 million
        or 15.9% over the prior year.  We expect software and networking services
        revenues to continue to fluctuate on a quarterly basis.
 
 The
        increase in revenues from software, maintenance, outsourcing and remote hosting
        during the first quarter of 2007 was due to higher sales bookings of our
        advanced clinical systems as well as higher revenues from our outsourcing
        and
        remote hosting related services, primarily related to contracts signed during
        2006.  The increase in professional services was related to an increase in
        customer implementation activity and an improvement in utilization. 
Professional service implementations and activations are expected to remain
        at
        higher levels in 2007 when compared to 2006.
 
 Hardware
        revenues decreased $0.7 million, or 15.7%, to $3.8 million for the quarter
        ended
        March 31, 2007, compared with $4.6 million for the first quarter of 2006.
        We
        expect hardware revenue to continue to fluctuate on a quarterly
        basis.
  *Expenses*
 Included
        in costs and expenses for the quarters are the following non-cash stock-based
        compensation charges (in thousands):
  Three
                    Months Ended March 31,2007
                
                2006As
                    restatedCost
                    of systems & services
                
                $
                1,076
                
                $
                925Sales
                    and marketing
                
                
                970
                
                
                798Research
                    and development
                
                
                529
                
                
                357General
                    and administrative
                
                
                185
                
                
                721Restructuring
                    charge
                
                
                -
                
                
                894Total
                    stock-based compensation expense
                
                $
                2,760
                
                $
                3,695
 
 13
 
 Cost
        of
        systems and services increased $8.2 million, or 14.6%, to $64.7 million,
        for the
        quarter ended March 31, 2007, compared to $56.5 million for the first quarter
        of
        2006. The increase in costs of systems and services was primarily driven
        by
        additional sales of our products as described above, with associated increases
        in payroll as well as travel during the period. Gross margins on systems
        and
        services revenue were 40.7% for the quarter ended March 31, 2007 compared
        to
        41.4% for the first quarter of 2006.




Cost
      of
      hardware decreased $0.6 million, or 17.1%, to $3.0 million for the quarter
      ended
      March 31, 2007, compared to $3.7 million for the first quarter of 2006. The
      decrease in the cost of hardware was attributable to the decrease in hardware
      revenues discussed above. Gross margins on hardware revenue increased to 21.3%
      in the first quarter of 2007 compared to 20.0% in first quarter 2006. The
      increase was due to a more favorable product mix during the period.





Sales
      and
      marketing expenses increased $1.9 million, or 11.9%, to $18.1 million for the
      quarter ended March 31, 2007, compared to $16.3 million for the first quarter
      of
      2006. The increase in sales and marketing expenses was primarily related to
      higher expenses for trade shows and other marketing events, targeted to increase
      market awareness of our software and services.





Research
      and development expenses decreased $2.6 million, or 15.1%, to $14.4 million,
      for
      the quarter ended March 31, 2007, compared to $17.0 million for the first
      quarter of 2006. The decrease in research and development expense was primarily
      related to a greater amount of research and development efforts placed on
      capitalizable project costs as the Company is working on its next release of
      Sunrise XA. Capitalized software development costs increased by $2.8 million
      to
      $4.4 million for the quarter ended March 31, 2007 from $1.6 million for the
      quarter ended March 31, 2006. The software development costs capitalized during
      the first quarter of 2006 were lower due to bug patches and maintenance related
      to the release of Sunrise XA 4.5 in early 2006, and these costs could not be
      capitalized.





Gross
      research and development costs were $18.8 million in the quarter, compared
      to
      $18.5 million in the first quarter of 2006.





General
      and administrative expenses increased by $1.9 million, or 33.8%, to $7.6
      million, for the quarter ended March 31, 2007, compared to $5.7 million for
      the
      first quarter of 2006. The increase in expenses was primarily related to $2.0
      million in audit, legal and other professional fees, of which $1.0 million
      was
      incurred in connection with the voluntary stock option review conducted during
      the first quarter of 2007. Additionally, the results for the first quarter
      of
      2006 included capitalization of internal labor costs of $0.3 million in
      connection with implementation of our enterprise software system (“ERP”), thus
      reducing the expense incurred in the period.





Depreciation
      and amortization increased by $0.5 million, or 12.4%, to $4.3 million for the
      quarter ended March 31, 2007, compared to $3.8 million, in the first quarter
      of
      2006. The increase in depreciation and amortization is attributable to our
      ERP
      implementation, amortization of leasehold improvements for our office in India
      and amortization of intangible assets related to the acquisition of the assets
      of Sysware Health Care Systems, Inc.





In
      the
      quarter ended March 31, 2006, we recorded a restructuring charge of $7.2 million
      as a result of our restructuring initiative, undertaken to better align our
      organization, reduce costs and to re-invest some of the cost savings into
      client-related activities including client support and professional services.
      This restructuring involved reduction in headcount and reorganization of our
      senior management team. Please refer to Note 10 of the Condensed Consolidated
      Financial Statements for further information regarding the restructuring
      action.





We
      did
      not incur any restructuring charges during the first quarter of 2007. At March
      31, 2007, the remaining unpaid liability in connection with our 2006
      restructuring activities was $4.2 million, which we expect to pay out through
      2009. We do not expect to incur any significant additional restructuring
      charges in the future in connection with this restructuring action.





Interest
      income increased $0.4 million, or 31.8%, to $1.5 million for the quarter ended
      March 31, 2007, compared to $1.1 million for the first quarter of 2006. The
      increase was due to higher interest income earned in the quarter on higher
      cash
      balances. However, yields on marketable securities were lower in the first
      quarter of 2007 compared to the first quarter of 2006.





As
      a
      result of these factors, our net income was $2.4 million for the quarter ended
      March 31, 2007, compared to a net loss of $8.0 million for the first quarter
      in
      2006.





LIQUIDITY
      AND CAPITAL RESOURCES





During
      the quarter ended March 31, 2007, operating activities provided
      $10.3 million of cash. Operating activities were favorably impacted by net
      income generated from operations of $15.3 million (adjusted for non cash charges
      of $12.9 million), offset by uses of cash of $4.9 million from the fluctuations
      in operating assets and liabilities due to timing of payments and cash receipts.
      Additionally, included in the operating activities are payments of $1.4 million
      in connection with our 2006 restructuring activities. Investing activities
      used
      $14.8 million of cash, consisting of net purchases of marketable securities
      of
      $7.7 million to invest excess cash not needed in daily operations, routine
      business purchases of property and equipment of $2.8 million, and
      capitalized software development costs of $4.4 million for new product
      development. Financing activities provided cash inflow of $4.1 million from
      exercises of stock options. The timing and amount of cash provided by
      future stock option exercises is uncertain.





As
      of
      March 31, 2007, our principal source of liquidity was our cash and cash
      equivalents and marketable-securities balances of $138.1 million. Our
      future liquidity requirements will depend on a number of factors including,
      among other things, the timing and level of our new sales volumes, the cost
      of
      our development efforts, the success and market acceptance of our future product
      releases, and other related items. We believe that our current cash and cash
      equivalents and marketable securities balances, combined with our anticipated
      cash collections from customers will be adequate to meet our currently
      anticipated liquidity requirements for the next twelve months. These
      requirements are expected to be funded with cash generated from operations,
      as
      well as our current cash and cash equivalent balances.




OFF-BALANCE
      SHEET ARRANGEMENTS




At
      March
      31, 2007, we did not have any material off-balance sheet
      arrangements.




CRITICAL
      ACCOUNTING POLICIES




We
      believe there are several accounting policies that are critical to understanding
      our historical and future performance as these policies affect the reported
      amount of revenues and expenses and other significant areas involving
      management's judgments and estimates. On an ongoing basis, management evaluates
      and adjusts its estimates and judgments, if necessary. The preparation of
      financial statements in conformity with accounting principles generally accepted
      in the United States of America requires management to make estimates and
      assumptions that affect the reported amounts of assets, liabilities, revenues
      and expenses and the disclosure of contingencies. Due to the inherent
      uncertainty involved in making estimates, actual results reported in future
      periods may be materially different from those estimates. There were no changes
      to our critical accounting policies as previously disclosed in our Annual Report
      on Form 10-K for the year ended December 31, 2006 filed with the SEC on May
      23,
      2007.





14


ITEM
      3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK


We
        generally invest in high quality debt instruments with relatively short
        maturities. Based upon the nature of our investments, we do not expect any
        material loss from our investments. Nevertheless, investments in both fixed
        rate
        and floating rate interest earning instruments carry a degree of interest
        rate
        risk. Fixed rate securities may have their fair market value adversely impacted
        due to a rise in interest rates, while floating rate securities may produce
        less
        income than expected if interest rates fall. Due in part to these factors,
        our
        future investment income may fall short of expectations due to changes in
        interest rates or we may suffer losses in principal if forced to sell securities
        that have seen a decline in market value due to changes in interest
        rates.





The
      following table illustrates potential fluctuation in annualized interest income
      based upon hypothetical values for blended interest rates for marketable
      securities balances.




Hypothetical
              
              Marketable
                  securities balances (in thousands)Interest
                  Rate
              
              $
                  100,000
              
              $
                  110,000
              
              $
                  120,0001.5%
              
              
              1,500
              
              
              1,650
              
              
              1,8002.0%
              
              
              2,000
              
              
              2,200
              
              
              2,4002.5%
              
              
              2,500
              
              
              2,750
              
              
              3,0003.0%
              
              
              3,000
              
              
              3,300
              
              
              3,6003.5%
              
              
              3,500
              
              
              3,850
              
              
              4,2004.0%
              
              
              4,000
              
              
              4,400
              
              
              4,800





We
      estimate that a one-percentage point decrease in interest rates for our
      marketable securities portfolio as of March 31, 2007 would have resulted in
      a
      decrease in interest income of $1.0 million for a twelve month period.
  This sensitivity analysis contains certain simplifying assumptions
      (for example, it does not consider the impact of changes in the portfolio as
      a
      result of our business needs or as a response to changes in the market).
      Therefore, although it gives an indication of our exposure to changes in
      interest rates, it is not intended to predict future results and our actual
      results will likely vary.





We
      account for cash equivalents and marketable securities in accordance with SFAS
      No. 115. “Accounting for Certain Investments in Debt and Equity Securities.”
Cash equivalents are short-term highly liquid investments with original maturity
      dates of three months or less. Cash equivalents are carried at cost, which
      approximates fair market value.




ITEM
      4. CONTROLS
      AND PROCEDURES





*Evaluation
      of Disclosure Controls and Procedures*




Our
      management, with the participation of our Chief Executive Officer and Chief
      Financial Officer, evaluated the effectiveness of our disclosure controls and
      procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of
      1934, as amended (the “Exchange Act”) as of March 31, 2007.  Our disclosure
      controls and procedures are designed to ensure that information we are required
      to disclose in the reports we file or submit under the Exchange Act is
      accumulated and communicated to our management, including our Chief Executive
      Officer and Chief Financial Officer, as appropriate to allow timely decisions
      regarding required disclosures, and is recorded, processed, summarized and
      reported, within the time periods specified in the SEC's rules and forms. 
Based upon the evaluation described above, our Chief Executive Officer and
      Chief
      Financial Officer concluded that, as of March 31, 2007, our disclosure controls
      and procedures were not effective because of the material weakness described
      below.





*Material
      Weakness in Internal Control over Financial Reporting*





Management
      identified the following material weakness in our internal control over
      financial reporting as of December 31, 2006:





We
      did
      not maintain effective controls over the accuracy of the accounting for and
      disclosure of our non-cash stock-based compensation expense. Specifically,
      effective quarterly controls, including monitoring to detect input errors,
      were
      not maintained to ensure the accuracy of the amortization of stock options
      and
      consequently we did not timely identify an input error that occurred in the
      second quarter of 2006 that changed amortization of costs for certain equity
      awards. This control deficiency resulted in the misstatement of our non-cash
      stock-based compensation expense, additional paid-in capital accounts and
      related financial disclosures, and in the restatement of the Company’s
      consolidated financial statements for the quarters ended June 30, 2006 and
      September 30, 2006 and in an adjustment to the consolidated financial statements
      for the quarter ended December 31, 2006. Additionally, this control deficiency
      could result in misstatements of the aforementioned accounts and disclosures
      that would result in a material misstatement of the consolidated financial
      statements that would not be prevented or detected. Accordingly, our management
      has determined that this control deficiency constitutes a material
      weakness.





*Plan
      for Remediation of the Material Weakness*





To
      remediate the material weakness described above, and to enhance our internal
      control over financial reporting, management has supplemented its existing
      non-cash stock-based compensation expense controls with the following additional
      controls:





A
      review
      of the method of amortization in Equity Edge (the Company’s non-cash stock-based
      compensation expense application) for all grants on a quarterly basis to detect
      changes to previously input information.





A
      review
      of an Equity Edge system report, “Valuation Data Check,” on a quarterly basis
      that includes all grants, as opposed to only reviewing new grants in the quarter
      to detect changes to previously input information.





Notwithstanding
      the material weakness, management believes that the financial statements
      included in this report fairly present in all material respects our financial
      position, results of operations and cash flows for the periods
      presented.





15


*Changes
      in Internal Control over Financial Reporting*





No change
      in our internal control over financial reporting occurred during the quarter
      ended March 31, 2007 that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.






PART
      II.


ITEM
      1. LEGAL
      PROCEEDINGS





The
      information set forth under Note 11 to the unaudited condensed consolidated
      financial statements of this quarterly report on Form 10-Q is incorporated
      herein by reference.





ITEM
      1A. RISK
      FACTORS





There
      were no changes to the risk factors as set forth in our Annual Report on
      Form 10-K for the year ended December 31, 2006 filed with the SEC on May 23,
      2007 contemporaneously with this Quarterly Report.




ITEM
      6. EXHIBITS





See
      Index
      to exhibits.





16














SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





Date:
      May
      23, 2007


/s/
      Robert J. Colletti


Robert
      J.
      Colletti


Senior
      Vice President, Chief Financial Officer and


Chief
      Accounting Officer






















17










**ECLIPSYS
      CORPORATION**


**EXHIBIT
      INDEX**








Exhibit
              Number
            Description


3.1
                  (1)
              Third
                  Amended and Restated Certificate of Incorporation of the
                  Registrant3.2
                  (2)
              Third
                  Amended and Restated Bylaws of the Registrant3.3
                  (3)
              Certificate
                  of Designation of Series A Junior Participating
                  Preferred4.1
                  (2)
              Specimen
                  certificate for shares of Common Stock4.2
                  (3)
              Rights
                  Agreement, dated July 26, 2000, by and between the Registrant and
                  Fleet
                  National Bank, as Rights Agent31.1
              Rule
                  13a-14(a) Certification of R. Andrew Eckert31.2
              Rule
                  13a-14(a) Certification of Robert J. Colletti32.1
              Rule
                  13a-14(b) Certification of R. Andrew Eckert (pursuant to 18 U.S.C.
                  Section
                  1350)32.2
              Rule
                  13a-14(b) Certification of Robert J. Colletti (pursuant to 18 U.S.C.
                  Section 1350)
  (1)
              Incorporated
                  by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 1998 (File No. 000-24539)(2)
              Incorporated
                  by reference to the Registrant’s Registration Statement on Form S-1,
                as
                  amended (File No. 333-50781)(3)
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K dated August
                  8, 2000 (File No.
                  000-24539)


18