##### Table of Contents





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 September 30, 2008

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)

Three Ravinia Drive

Atlanta, GA

30346

(Address of principal executive offices)

(404) 847-5000

(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 requirements for the past 90 days.

Yes  x    No   ̈

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.



| |  |                         |  |                                                  |  |  |  |                           |  |   |  |  |  |  |  | 
| |  | ----------------------- |  | ------------------------------------------------ |  |  |  | ------------------------- |  | - |  |  |  |  |  | 
| |  | Large accelerated filer |  | x                                                |  |  |  | Accelerated filer         |  |  ̈ |  |  |  |  |  | 
| |  |                         |  |                                                  |  |  |  |                          
| |  | Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  |  |  | Smaller reporting company |  |  ̈ |  |  |  |  |  | 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ̈    No  x

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 November 6, 2008
|Common Stock, $.01 par value |  | 54,654,799                               









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##### Table of Contents

ECLIPSYS CORPORATION AND SUBSIDIARIES

FORM 10-Q

For the period ended
September 30, 2008

Table of Contents



|           |  |                                                                                                                                              |  |   
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|Part I.    |  | Financial Information                                                                                                                        |  | 3 
|           |  |                                                                                                                                             
|Item 1.    |  | Financial Statements                                                                                                                         |  | 3 
|           |  |                                                                                                                                             
|           |  | Condensed Consolidated Balance Sheets - As of September 30, 2008 (unaudited) and December 31,
2007                                           |  | 3 
|           |  |                                                                                                                                             
|           |  | Condensed Consolidated Statements of Operations (unaudited) - For the Three and Nine Months Ended September 
30, 2008 and September 30, 2007 |  | 4 
|           |  |                                                                                                                                             
|           |  | Condensed Consolidated Statements of Cash Flows (unaudited) - For the Nine Months Ended September 
30, 2008 and September 30, 2007           |  | 5 
|           |  |                                                                                                                                             
|           |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                             |  | 6 
|           |  |                                                                                                                                             
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                        |  | 19
|           |  |                                                                                                                                             
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                   |  | 28
|           |  |                                                                                                                                             
|Item 4.    |  | Controls and Procedures                                                                                                                      |  | 30
|           |  |                                                                                                                                             
|Part II.   |  | Other Information                                                                                                                            |  | 30
|           |  |                                                                                                                                             
|Item 1.    |  | Legal Proceedings                                                                                                                            |  | 30
|           |  |                                                                                                                                             
|Item 1A.   |  | Risk Factors                                                                                                                                 |  | 30
|           |  |                                                                                                                                             
|Item 6.    |  | Exhibits                                                                                                                                     |  | 43
|           | 
|Signatures |  | 44                                                                                                                                          



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

ECLIPSYS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)



|                                                                                                                             |  |                   |          |   |                  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                             |  | September 30,2008 |          |   | December 31,2007 |  
|                                                                                                                             |  | (Unaudited)       |          |   |                  |  
|Assets                                                                                                                       |  |                   |          |   |                  |   |          |  
|Current assets:                                                                                                              |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                    |  | $                 | 89,376   |   |                  | $ | 22,510   |  
|Marketable securities                                                                                                        |  |                   | 149      |   |                  |   | 168,925  |  
|Accounts receivable, net of allowance for doubtful accounts of $5,061 and $4,240, respectively                               |  |                   | 118,888  |   |                  |   | 99,260   |  
|Prepaid expenses                                                                                                             |  |                   | 23,724   |   |                  |   | 27,289   |  
|Deferred tax asset                                                                                                           |  |                   | 25,629   |   |                  |   | 7,524    |  
|Other current assets                                                                                                         |  |                   | 7,051    |   |                  |   | 1,759    |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  
|Total current assets                                                                                                         |  |                   | 264,817  |   |                  |   | 327,267  |  
|                                                                                                                             |  |                  
|Long-term investments                                                                                                        |  |                   | 111,083  |   |                  |   |         |  
|Property and equipment, net                                                                                                  |  |                   | 52,666   |   |                  |   | 45,657   |  
|Capitalized software development costs, net                                                                                  |  |                   | 36,802   |   |                  |   | 38,206   |  
|Acquired technology, net                                                                                                     |  |                   | 11,620   |   |                  |   | 594      |  
|Intangible assets, net                                                                                                       |  |                   | 5,874    |   |                  |   | 1,376    |  
|Deferred tax asset                                                                                                           |  |                   | 116,783  |   |                  |   | 31,187   |  
|Goodwill                                                                                                                     |  |                   | 39,055   |   |                  |   | 7,772    |  
|Other assets                                                                                                                 |  |                   | 12,546   |   |                  |   | 13,374   |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  
|Total assets                                                                                                                 |  | $                 | 651,246  |   |                  | $ | 465,433  |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  
|                                                                                                                             |  |                  
|Liabilities and Stockholders Equity                                                                                         |  |                   |          |   |                  |   |          |  
|Current liabilities:                                                                                                         |  |                   |          |   |                  |   |          |  
|Deferred revenue                                                                                                             |  | $                 | 104,025  |   |                  | $ | 105,115  |  
|Accounts payable                                                                                                             |  |                   | 20,398   |   |                  |   | 11,679   |  
|Accrued compensation costs                                                                                                   |  |                   | 19,869   |   |                  |   | 24,473   |  
|Deferred tax liability                                                                                                       |  |                   | 2,196    |   |                  |   | 1,777    |  
|Other current liabilities                                                                                                    |  |                   | 18,975   |   |                  |   | 19,381   |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  
|Total current liabilities                                                                                                    |  |                   | 165,463  |   |                  |   | 162,425  |  
|                                                                                                                             |  |                  
|Deferred revenue                                                                                                             |  |                   | 5,959    |   |                  |   | 9,860    |  
|Deferred tax liability                                                                                                       |  |                   | 40,115   |   |                  |   | 31,235   |  
|Long-term debt                                                                                                               |  |                   | 51,000   |   |                  |   |         |  
|Other long-term liabilities                                                                                                  |  |                   | 20,210   |   |                  |   | 3,899    |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  
|Total liabilities                                                                                                            |  |                   | 282,747  |   |                  |   | 207,419  |  
|                                                                                                                             |  |                  
|Stockholders Equity:                                                                                                        |  |                   |          |   |                  |   |          |  
|Common stock, $0.01 par value, 200,000,000 shares authorized; 54,559,163 and 53,806,742 issued and outstanding, respectively |  |                   | 546      |   |                  |   | 538      |  
|Additional paid-in capital                                                                                                   |  |                   | 537,934  |   |                  |   | 519,112  |  
|Accumulated deficit                                                                                                          |  |                   | (168,025 | ) |                  |   | (264,218 | )
|Accumulated other comprehensive income                                                                                       |  |                   | (1,956   | ) |                  |   | 2,582    |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  
|Total stockholders equity                                                                                                   |  |                   | 368,499  |   |                  |   | 258,014  |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                                   |  | $                 | 651,246  |   |                  | $ | 465,433  |  
|                                                                                                                             |  |                   |          |   |                  |   |          |  

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



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##### Table of Contents

ECLIPSYS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)



|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------ | ---- | - | ------- |  | - | ------- | - |  | - | -------
|                                                                                      |  | Three Months EndedSeptember 30, |         | Nine Months EndedSeptember 30,
|                                                                                      |  | 2008                            |         |                                | 2007 |   | 2008    |  |   | 2007   
|Revenues:                                                                             |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Systems and services                                                                  |  | $                               | 127,575 |                                |      | $ | 117,530 |  | $ | 373,021 |   |  | $ | 340,979
|Hardware                                                                              |  |                                 | 4,849   |                                |      |   | 3,550   |  |   | 15,925  |   |  |   | 12,150 
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Total revenues                                                                        |  |                                 | 132,424 |                                |      |   | 121,080 |  |   | 388,946 |   |  |   | 353,129
|                                                                                      |  |                                 |         |                               
|Costs and expenses:                                                                   |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Cost of systems and services (exclusive of depreciation and amortization shown below) |  |                                 | 73,166  |                                |      |   | 65,454  |  |   | 210,042 |   |  |   | 197,502
|Cost of hardware                                                                      |  |                                 | 5,457   |                                |      |   | 2,685   |  |   | 13,408  |   |  |   | 9,336  
|Sales and marketing                                                                   |  |                                 | 19,498  |                                |      |   | 17,896  |  |   | 63,150  |   |  |   | 54,215 
|Research and development                                                              |  |                                 | 14,195  |                                |      |   | 14,079  |  |   | 47,102  |   |  |   | 42,136 
|General and administrative                                                            |  |                                 | 8,202   |                                |      |   | 8,743   |  |   | 26,877  |   |  |   | 23,951 
|In-process research and development charge                                            |  |                                 |        |                                |      |   |        |  |   | 850     |   |  |   |       
|Depreciation and amortization                                                         |  |                                 | 5,145   |                                |      |   | 4,710   |  |   | 15,651  |   |  |   | 13,445 
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Total costs and expenses                                                              |  |                                 | 125,663 |                                |      |   | 113,567 |  |   | 377,080 |   |  |   | 340,585
|                                                                                      |  |                                 |         |                               
|Income from operations                                                                |  |                                 | 6,761   |                                |      |   | 7,513   |  |   | 11,866  |   |  |   | 12,544 
|Gain on sale of assets                                                                |  |                                 | 685     |                                |      |   |        |  |   | 4,200   |   |  |   |       
|Interest income, net                                                                  |  |                                 | 634     |                                |      |   | 1,814   |  |   | 3,581   |   |  |   | 4,916  
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Income before taxes                                                                   |  |                                 | 8,080   |                                |      |   | 9,327   |  |   | 19,647  |   |  |   | 17,460 
|Provision for income taxes                                                            |  |                                 | (79,316 | )                              |      |   | 463     |  |   | (76,549 | ) |  |   | 501    
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Net income                                                                            |  | $                               | 87,396  |                                |      | $ | 8,864   |  | $ | 96,196  |   |  | $ | 16,959 
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|                                                                                      |  |                                 |         |                               
|Income per common share:                                                              |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Basic income per common share                                                         |  | $                               | 1.62    |                                |      | $ | 0.17    |  | $ | 1.79    |   |  | $ | 0.32   
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Diluted income per common share                                                       |  | $                               | 1.59    |                                |      | $ | 0.16    |  | $ | 1.76    |   |  | $ | 0.31   
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|                                                                                      |  |                                 |         |                               
|Weighted average shares outstanding:                                                  |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Basic                                                                                 |  |                                 | 53,860  |                                |      |   | 53,100  |  |   | 53,684  |   |  |   | 52,594 
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        
|Diluted                                                                               |  |                                 | 54,814  |                                |      |   | 54,380  |  |   | 54,677  |   |  |   | 53,843 
|                                                                                      |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |        

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



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ECLIPSYS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



|                                                                                  |  |                                 |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Nine Months Ended September 30, |         
|                                                                                  |  | 2008                            |          |   | 2007 |  
|Operating activities:                                                             |  |                                 |          |   |      |   |          |  
|Net income                                                                        |  | $                               | 96,196   |   |      | $ | 16,959   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |          |   |      |   |          |  
|Depreciation and amortization                                                     |  |                                 | 29,818   |   |      |   | 27,390   |  
|Provision for bad debt                                                            |  |                                 | 2,655    |   |      |   | 1,378    |  
|In-process research and development                                               |  |                                 | 850      |   |      |   |         |  
|Stock compensation expense                                                        |  |                                 | 13,093   |   |      |   | 8,261    |  
|Gain (loss) on sale of marketable securities                                      |  |                                 | (30      | ) |      |   | 16       |  
|Gain on sale of assets                                                            |  |                                 | (4,168   | ) |      |   |         |  
|Deferred provision for income taxes                                               |  |                                 | (78,184  | ) |      |   | 329      |  
|Changes in operating assets and liabilities:                                      |  |                                 |          |   |      |   |          |  
|Accounts receivable                                                               |  |                                 | (21,611  | ) |      |   | (5,008   | )
|Prepaid expenses and other current assets                                         |  |                                 | 755      |   |      |   | (6,197   | )
|Inventory                                                                         |  |                                 |         |   |      |   | 849      |  
|Other assets                                                                      |  |                                 | (289     | ) |      |   | 337      |  
|Deferred revenue                                                                  |  |                                 | (3,378   | ) |      |   | (6,287   | )
|Accrued compensation                                                              |  |                                 | (5,029   | ) |      |   | 9,663    |  
|Accounts payable and other current liabilities                                    |  |                                 | 5,936    |   |      |   | (9,658   | )
|Other long-term liabilities                                                       |  |                                 | 3,971    |   |      |   | 1,076    |  
|Other reconciling items                                                           |  |                                 | 963      |   |      |   |         |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Total adjustments                                                                 |  |                                 | (54,648  | ) |      |   | 22,149   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                 | 41,548   |   |      |   | 39,108   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Investing activities:                                                             |  |                                 |          |   |      |   |          |  
|Purchases of property and equipment                                               |  |                                 | (20,432  | ) |      |   | (13,065  | )
|Purchase of marketable securities                                                 |  |                                 | (102,000 | ) |      |   | (107,950 | )
|Proceeds from sales of marketable securities                                      |  |                                 | 153,641  |   |      |   | 72,519   |  
|Capitalized software development costs                                            |  |                                 | (12,417  | ) |      |   | (15,278  | )
|Proceeds from sale of assets                                                      |  |                                 | 698      |   |      |   |         |  
|Restricted cash                                                                   |  |                                 | 1,963    |   |      |   | (1,969   | )
|Earnout on disposition                                                            |  |                                 | 3,578    |   |      |   |         |  
|Cash paid for acquisitions, net of cash acquired                                  |  |                                 | (54,593  | ) |      |   | (1,153   | )
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |                                 | (29,562  | ) |      |   | (66,896  | )
|                                                                                  |  |                                 |          |   |      |   |          |  
|Financing activities:                                                             |  |                                 |          |   |      |   |          |  
|Proceeds from stock options exercised                                             |  |                                 | 5,283    |   |      |   | 10,333   |  
|Proceeds from employee stock purchase plan                                        |  |                                 | 615      |   |      |   |         |  
|Cash paid for debt issuance costs                                                 |  |                                 | (1,430   | ) |      |   |         |  
|Repayment of secured financings                                                   |  |                                 | (95,000  | ) |      |   |         |  
|Proceeds from secured financing                                                   |  |                                 | 146,000  |   |      |   |         |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                                 | 55,468   |   |      |   | 10,333   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Effect of exchange rates on cash and cash equivalents                             |  |                                 | (588     | ) |      |   | 703      |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                              |  |                                 | 66,866   |   |      |   | (16,752  | )
|Cash and cash equivalents  beginning of period                                   |  |                                 | 22,510   |   |      |   | 41,264   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Cash and cash equivalents  end of period                                         |  | $                               | 89,376   |   |      | $ | 24,512   |  
|                                                                                  |  |                                 |          |   |      |   |          |  

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



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A  PREPARATION OF INTERIM FINANCIAL STATEMENTS

In this report, Eclipsys Corporation and its subsidiaries are referred to as we, the Company, or Eclipsys.

The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (SEC) rules that
permit reduced disclosure for interim periods. In our opinion, these statements include all adjustments necessary for a fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature. The year-end
condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by United States generally accepted accounting principles (GAAP).

Revenues, expenses, assets, and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be
indicative of annual results. For a more complete discussion of our significant accounting policies and other information, you should read this report in conjunction with the consolidated financial statements included in our annual report on Form
10-K for the year ended December 31, 2007 that was filed with the SEC on February 29, 2008.

The Company manages its business as one reportable
segment. Prior period reclassifications were made to expense line items to conform to current period presentation.

NOTE B  RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS

Recently Issued Standards

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities  An
Amendment of SFAS No. 133 (SFAS 161). SFAS 161 seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding the impact on financial position, financial
performance, and cash flows. SFAS 161 requires: (1) the disclosure of the fair value of derivative instruments and gains and losses in a tabular format; (2) the disclosure of derivative features that are credit risk-related; and
(3) cross-referencing within the footnotes. SFAS 161 is effective for the Company on January 1, 2009. We currently do not believe this standard will have a material impact on our condensed consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS 141R). SFAS 141R continues to require the
purchase method of accounting to be applied to all business combinations, but it significantly changes the accounting for certain aspects of business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition
related costs as incurred; (2) valuing noncontrolling interests at fair value at the acquisition date; and (3) expensing restructuring costs associated with an acquired business. SFAS 141R also includes a substantial number of new
disclosure requirements. SFAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements and separate from the parent companys equity. This statement is effective for us on January 1, 2009. We currently do not believe this standard will have a material impact on our condensed consolidated
financial statements.



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the
factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent of
this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other United States generally
accepted accounting principles. This FSP shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We currently do not believe that this FSP will have a
material impact on our condensed consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share (EPS) under the two-class method. This FSP shall be effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within
those years. The share-based payment awards that are granted by the Company contain dividend rights that are forfeitable on unvested shares; therefore, we do not expect this FSP to have a material impact on our calculation of EPS.

Recently Adopted Standards

In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value
option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, SFAS 159 specifies that unrealized gains and
losses for that instrument be reported in earnings at each subsequent reporting date. SFAS 159 was effective for us on January 1, 2008. We did not apply the fair value option to any of our outstanding instruments and, therefore, SFAS 159 did
not have an impact on our condensed consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157), which defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods of those fiscal years. We adopted SFAS 157 on January 1, 2008. Our most significant asset that is adjusted to fair value
on a recurring basis is our long-term investments.

In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement
No. 157 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually) to fiscal years beginning after November 15, 2008. Therefore, in accordance with the aforementioned FSP, we have only partially applied FAS 157. Beginning January 1, 2009 we will also apply FAS 157 to all nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis as required by FAS 157. We currently do not believe this standard will have a material impact on our condensed consolidated
financial statements. See Note K  Fair Value Measurement.

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. Some of the key principles illustrated include:



| |  |  | determining fair value in a dislocated market depends on facts and circumstances, and may require the use of significant judgment about whether individual market
transactions are forced liquidations or distressed sales and therefore poor indicators of fair value;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | when relevant observable market data is not available, the use of assumptions about future cash flows and discount rates may be appropriate in determining fair
value; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the value of broker quotes in determining fair value depends on facts and circumstances, particularly when an active market does not exist.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

FSP 157-3 is effective immediately, including with respect to prior periods for which financial statements have not been issued. As of
January 2008, the Company has consistently used the methodology described in this FSP in calculating the fair value of its auction rate securities.



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE C  EARNINGS PER SHARE

For all periods presented, basic
and diluted earnings per common share is presented in accordance with SFAS 128, Earnings per Share, which provides for the accounting principles used in the calculation of earnings per share. Basic earnings per common share is calculated
by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Non-vested restricted stock carries dividend and voting rights and, in accordance with GAAP, is not
included in the weighted-average number of common shares outstanding used to compute basic earnings per share. Diluted earnings per common share reflect 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 equity securities is anti-dilutive, they are not included in the calculation of diluted earnings per common share. For the three months ended
September 30, 2008 and 2007, 2,947,706 and 2,526,094 anti-dilutive shares were excluded from the calculation of diluted earnings per common share, respectively. For the nine months ended September 30, 2008 and 2007, 3,510,089 and 2,485,859
anti-dilutive shares were excluded from the calculation of diluted earnings per common share, respectively. The earnings amounts used for per-share calculations are the same for both the basic and diluted methods.

The computation of basic and diluted income per common share is as follows (in thousands, except per share data):



|                                               |  |                                  |        |        |        |                 |   |           |  |        |       |                 |        |  |   |     
|---------------------------------------------- |  | -------------------------------- | ------ | ------ | ------ | --------------- | - | --------- |  | ------ | ----- | --------------- | ------ |  | - | ----
|                                               |  | Three Months Ended September 30,
|                                               |  | 2008                             |        | 2007  
|                                               |  | NetIncome                        |        | Shares |        | Per ShareAmount |   | NetIncome |  | Shares |       | Per ShareAmount
|Basic earnings per share                       |  | $                                | 87,396 |        | 53,860 |                 | $ | 1.62      |  | $      | 8,864 |                 | 53,100 |  | $ | 0.17
|Effect of dilutive securities:                 |  |                                  |        |        |        |                 |   |           |  |        |       |                 |        |  |   |     
|Incremental shares                             |  |                                  |        |        | 954    |                 |   |           |  |        |       |                 | 1,245  |  |   |     
|Shares issuable pursuant to earn-out agreement |  |                                  |        |        |        |                 |   |           |  |        |       |                 | 35     |  |   |     
|                                               |  |                                  |        |        |        |                 |   |           |  |        |       |                 |        |  |   |     
|Diluted earnings per share                     |  | $                                | 87,396 |        | 54,814 |                 | $ | 1.59      |  | $      | 8,864 |                 | 54,380 |  | $ | 0.16
|                                               |  |                                  |        |        |        |                 |   |           |  |        |       |                 |        |  |   |     



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|                                               |  |                                 |        |        |        |                 |   |           |  |        |        |                 |        |  |   |     
|---------------------------------------------- |  | ------------------------------- | ------ | ------ | ------ | --------------- | - | --------- |  | ------ | ------ | --------------- | ------ |  | - | ----
|                                               |  | Nine Months Ended September 30,
|                                               |  | 2008                            |        | 2007  
|                                               |  | NetIncome                       |        | Shares |        | Per ShareAmount |   | NetIncome |  | Shares |        | Per ShareAmount
|Basic earnings per share                       |  | $                               | 96,196 |        | 53,684 |                 | $ | 1.79      |  | $      | 16,959 |                 | 52,594 |  | $ | 0.32
|Effect of dilutive securities:                 |  |                                 |        |        |        |                 |   |           |  |        |        |                 |        |  |   |     
|Incremental shares                             |  |                                 |        |        | 993    |                 |   |           |  |        |        |                 | 1,214  |  |   |     
|Shares issuable pursuant to earn-out agreement |  |                                 |        |        |        |                 |   |           |  |        |        |                 | 35     |  |   |     
|                                               |  |                                 |        |        |        |                 |   |           |  |        |        |                 |        |  |   |     
|Diluted earnings per share                     |  | $                               | 96,196 |        | 54,677 |                 | $ | 1.76      |  | $      | 16,959 |                 | 53,843 |  | $ | 0.31
|                                               |  |                                 |        |        |        |                 |   |           |  |        |        |                 |        |  |   |     

NOTE D  ACCOUNTS RECEIVABLE

Accounts receivable, net of an allowance for doubtful accounts, is comprised of the following (in thousands):



|                                  |  |                   |         |                  |   |       
|--------------------------------- |  | ----------------- | ------- | ---------------- | - | ------
|                                  |  | Septebmer 30,2008 |         | December 31,2007
|Accounts Receivable:              |  |                   |         |                  |   |       
|Billed accounts receivable, net   |  | $                 | 91,810  |                  | $ | 75,164
|Unbilled accounts receivable, net |  |                   | 27,078  |                  |   | 24,096
|                                  |  |                   |         |                  |   |       
|Total accounts receivable, net    |  | $                 | 118,888 |                  | $ | 99,260
|                                  |  |                   |         |                  |   |       

NOTE E  INVESTMENTS

Investment balances consist of the following (in thousands):



|                                                                                         |  |                   |         |                  |   |        
|---------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                                                                         |  | September 30,2008 |         | December 31,2007
|Security Type:                                                                           |  |                   |         |                  |   |        
|                                                                                         |  |                  
|Auction rate securities                                                                  |  |                   | 111,083 |                  |   | 166,217
|Other securities(1)                                                                      |  |                   | 149     |                  |   | 2,708  
|                                                                                         |  |                   |         |                  |   |        
|Total                                                                                    |  | $                 | 111,232 |                  | $ | 168,925
|                                                                                         |  |                   |         |                  |   |        
|                                                                                         |  |                   |         |                  |   |        
|(1)As of September 30, 2008 the maturity date of other securities is less than one year.

As of September 30, 2008, the Company held approximately $116.6 million par value of investments in
auction-rate securities (ARS). Our ARS are comprised of AAA rated pools of student loans. These investments have long-term nominal maturities for which the interest rates are reset through a Dutch auction each month. The
monthly auctions historically have provided a liquid market for these securities. However, in February 2008, the broker-dealers managing the Companys ARS portfolio experienced failed auctions of certain of these securities where the amount of
securities submitted for sale exceeded the amount of purchase orders. Our ARS continued to fail to settle at auctions through the third quarter of 2008. This indicates the estimated fair value of these ARS may no longer approximate their par value.
As of September 30, 2008, the Company has recorded these investments at their estimated fair value of $111.1 million and recorded a temporary loss on these securities of $5.5 million in accumulated other comprehensive income,
reflecting the decline in the fair value of these securities. The Company has concluded that no other-than-temporary impairment losses occurred in the nine months ended September 30, 2008 because the Company believes that the declines in fair
value that have occurred during 2008 are due to recent market liquidity conditions.



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##### Table of Contents

ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We believe these investments continue to be of high credit quality, and we currently plan to hold the ARS until such time as successful auctions occur or the secondary
market allows for a sufficient price to recover substantially all of our par value. There can be no assurance this will occur. Accordingly, we have classified these securities as long-term investments in our condensed consolidated balance
sheet. The Company will continue to analyze its ARS each reporting period for impairment, and we may be required to record an impairment charge in the consolidated statement of operations if the decline in fair value is determined to be
other-than-temporary. The fair value of these securities has been estimated by management based on the assumptions that market participants would use in pricing the asset in a current transaction in accordance with SFAS 157 Fair Value
Measurements. The estimates of the fair value of the ARS we hold could change significantly based on market conditions.

The Company continues to
earn interest on these investments at the contractual rate, and the ARS the Company holds have not been downgraded or placed on credit watch by credit rating agencies. In April 2008, a partial call transaction was closed related to one of our ARS,
as a result of which we received proceeds of $4.6 million. In May 2008, a call transaction was closed related to another one of our ARS securities, as a result of which we received proceeds of $14.3 million. Each of these two transactions resulted
in a recovery of the full par value of the securities. As of September 30, 2008, no calls were outstanding on our ARS. On October 7, 2008 UBS Financial Services (UBS) issued a public statement outlining a program in which UBS
would enter into agreements with UBS clients, holding ARS purchased through UBS, to purchase the ARS held by such clients at par value at a prescribed future date. As of September 30, 2008, the Company holds $36.3 million par value of ARS that
we purchased through UBS. We are currently evaluating our options under this program; the offer expires on November 14, 2008.

NOTE F 
ACQUIRED TECHNOLOGY AND INTANGIBLE ASSETS, INCLUDING GOODWILL

On February 25, 2008, the Company acquired all of the outstanding capital stock of
Enterprise Performance Systems, Inc. (EPSi), a private company. The aggregate purchase price was $56.1 million ($53.0 million net of cash acquired and transaction costs) and is subject to certain holdback arrangements and working capital
adjustments.

The changes in the carrying amount of goodwill for the nine month period ended September 30, 2008 were as follows:



|                                    |  |   |        |  
|----------------------------------- |  | - | ------ | -
|Beginning Balance December 31, 2007 |  | $ | 7,772  |  
|EPSi acquistion                     |  |   | 31,263 |  
|Earnouts                            |  |   | 378    |  
|Other                               |  |   | (358   | )
|                                    |  |   |        |  
|Ending Balance September 30, 2008   |  | $ | 39,055 |  
|                                    |  |   |        |  



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##### Table of Contents

ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The gross and net amounts for acquired technology, ongoing customer relationships and goodwill consist of the following (in thousands):



|                                         |  |                     |        |                         |   |        |              |  |                     |        |                         |   |       |              |   |               |   |  |   |       |  |          
|---------------------------------------- |  | ------------------- | ------ | ----------------------- | - | ------ | ------------ |  | ------------------- | ------ | ----------------------- | - | ----- | ------------ | - | ------------- | - |  | - | ----- |  | ---------
|                                         |  | September 30, 2008  |        | December 31, 2007      
|                                         |  | GrossCarryingAmount |        | AccumulatedAmortization |   |        | NetBookValue |  | GrossCarryingAmount |        | AccumulatedAmortization |   |       | NetBookValue |   | EstimatedLife
|Intangibles subject to amortization      |  |                     |        |                         |   |        |              |  |                     |        |                         |   |       |              |   |               |   |  |   |       |  |          
|                                         |  |                     |        |                         |   |        |             
|Acquired technology                      |  | $                   | 15,227 |                         | $ | (3,607 | )            |  | $                   | 11,620 |                         | $ | 1,967 |              | $ | (1,373        | ) |  | $ | 594   |  | 3-4 years
|Ongoing customer relationships           |  |                     | 5,909  |                         |   | (1,005 | )            |  |                     | 4,904  |                         |   | 2,404 |              |   | (1,028        | ) |  |   | 1,376 |  | 5-6 years
|Other                                    |  |                     | 1,210  |                         |   | (240   | )            |  |                     | 970    |                         |   |      |              |   |              |   |  |   |      |  | 3 years  
|                                         |  |                     |        |                         |   |        |              |  |                     |        |                         |   |       |              |   |               |   |  |   |       |  |          
|                                         |  |                     |        |                         |   |        |             
|Total                                    |  | $                   | 22,346 |                         | $ | (4,852 | )            |  | $                   | 17,494 |                         | $ | 4,371 |              | $ | (2,401        | ) |  | $ | 1,970 |  |          
|                                         |  |                     |        |                         |   |        |              |  |                     |        |                         |   |       |              |   |               |   |  |   |       |  |          
|                                         |  |                     |        |                         |   |        |             
|Intangibles not subject to amortization: |  |                     |        |                         |   |        |              |  |                     |        |                         |   |       |              |   |               |   |  |   |       |  |          
|Goodwill                                 |  |                     |        |                         |   |        |              |  | $                   | 39,055 |                         |   |       |              |   |               |   |  | $ | 7,772 |  |          
|                                         |  |                     |        |                         |   |        |              |  |                     |        |                         |   |       |              |   |               |   |  |   |       |  |          

The estimated aggregate amortization expense for each of the five fiscal years is as follows (in thousands):



|                           |  |      |       |      |   |       |  |      |       |      |   |       |  |   |       |  |   |       
|-------------------------- |  | ---- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | ----- |  | - | ------
|                           |  | 2008 |       | 2009 |   | 2010  |  | 2011 |       | 2012 |   | Total
|Total amortization expense |  | $    | 4,400 |      | $ | 4,989 |  | $    | 4,747 |      | $ | 4,315 |  | $ | 1,282 |  | $ | 19,733

NOTE G  LONG-TERM FINANCING

On August 26, 2008, we entered into a credit agreement pursuant to which we received a senior secured revolving credit facility in the aggregate principal amount of $125.0 million. The credit facility includes a
letter of credit subfacility of up to $10.0 million and a swingline loan subfacility of up to $5.0 million. We borrowed $51.0 million under the credit facility at closing. The interest rate applicable to the borrowed amount is based on 1-month LIBOR
plus an applicable margin which is based on our leverage ratio, as defined in the credit agreement. As of September 30, 2008, the interest rate was calculated at 5.46%. We have also collateralized a letter of credit with $1.9 million of
available principal and are incurring interest expense on the outstanding letter of credit amount based on the applicable rate of 1.75% plus a 0.25% facing fee. We also incur interest on the unused principal balance based on an applicable rate of
0.30%.

Of the $51.0 million borrowed at closing, $50.3 million was used to repay all borrowings plus interest under our prior $50.0 million credit
facility dated as of May 9, 2008 and $0.7 million was used to pay transaction costs.

On October 1, 2008 we borrowed an additional $16.0 million
against our senior secured revolving credit facility for our acquisition of MediNotes. See Note N  Subsequent Events.

NOTE H  STOCK
COMPENSATION PLANS

2008 Omnibus Incentive Plan

At
our Annual Meeting of Stockholders held June 11, 2008, our stockholders approved the 2008 Omnibus Incentive Plan, or the 2008 Plan. The maximum number of shares of common stock that may be issued under the 2008 Plan (subject to adjustment in
the event of stock splits and other similar events) is 5,000,000 shares, less one share of common stock for every share that was subject to a stock option granted after December 31, 2007 under our 2005 Stock Incentive Plan (together with its
predecessor incentive plans, collectively, the Prior Plans) and 1.6 shares of common stock for every share that was subject to an award other than options granted after December 31, 2007 under the Prior Plans. Any shares of common stock that
are subject to options or stock appreciation rights (SARs) granted under the 2008 Plan shall be counted against this limit as one share of common stock for every share granted, and in the amount of 1.6 shares of common stock for
every share that is subject to awards other than options or SARs. Under the 2008 Plan, no further awards will be granted under the Prior Plans. However, if any shares of common stock subject to an award under the 2008 Plan, or after
December 31, 2007, any shares of



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

common stock subject to an award under the Prior Plans, are forfeited, expire or are settled for cash, the shares subject to the award may be used again for awards under
the 2008 Plan, in the amount of one share of common stock for every share that was subject to options or SARs and in the amount of 1.6 shares of common stock for every share that was subject to awards other than options or SARs.

We expect to satisfy option exercises by issuing the Companys common stock. As of September 30, 2008, there were approximately 4,358,212 shares available for
future awards under the 2008 Plan.

2005 Inducement Grant Stock Incentive Plan

In October 2005, our Board of Directors approved the 2005 Inducement Grant Stock Incentive Plan (the Inducement Grant Plan) for use in making inducement grants of stock options and restricted stock to new
employees pursuant to the NASDAQ Marketplace Rules. This Inducement Grant Plan is substantially similar to our 2008 Omnibus Incentive Plan as approved by stockholders, except that eligible recipients are limited to prospective and newly hired
employees of the Company, consistent with its purpose as an employment inducement tool.

During the nine months ended September 30, 2008, we issued
106,800 stock options and 200,270 shares of restricted stock as inducement grants under the Inducement Grant Plan to founders and employees of EPSi associated with their continued employment with the Company.

Awards granted under the 2008 Plan, the Prior Plans and the Inducement Grant Plan generally have a contractual life of 7 to 10 years and generally vest over a 4 to 5
year period.

Stock Option Awards

Stock option awards
granted by the Company entitle recipients to purchase shares of Eclipsys common stock within prescribed periods at a price equal to the fair market value on the date of grant. A summary of stock option transactions is as follows:



|                                                  |  |                 |   |  |                              |       |                                                     |      |                                        |   |       
|------------------------------------------------- |  | --------------- | - |  | ---------------------------- | ----- | --------------------------------------------------- | ---- | -------------------------------------- | - | ------
|                                                  |  | Number ofShares |   |  | WeightedAverageExercisePrice |       | Weighted AverageRemainingContractual Life(in years) |      | AggregateIntrinsic Value(in thousands)
|Outstanding at December 31, 2007                  |  | 5,254,121       |   |  | $                            | 16.58 |                                                     |      |                                        |   |       
|Options granted                                   |  | 830,800         |   |  | $                            | 22.17 |                                                     |      |                                        |   |       
|Options exercised                                 |  | (435,557        | ) |  | $                            | 13.52 |                                                     |      |                                        |   |       
|Options canceled                                  |  | (375,506        | ) |  | $                            | 21.86 |                                                     |      |                                        |   |       
|                                                  |  |                 |   |  |                              |       |                                                     |      |                                        |   |       
|                                                  |  |                 |   | 
|Outstanding at September 30, 2008                 |  | 5,273,858       |   |  | $                            | 17.37 |                                                     | 5.79 |                                        | $ | 21,528
|                                                  |  |                 |   |  |                              |       |                                                     |      |                                        |   |       
|Vested and expected to vest at September 30, 2008 |  | 4,949,533       |   |  | $                            | 17.13 |                                                     | 5.70 |                                        | $ | 21,251
|                                                  |  |                 |   |  |                              |       |                                                     |      |                                        |   |       
|Exercisable at September 30, 2008                 |  | 2,899,195       |   |  | $                            | 14.69 |                                                     | 4.69 |                                        | $ | 18,801
|                                                  |  |                 |   |  |                              |       |                                                     |      |                                        |   |       

As of September 30, 2008, $24.2 million of total unrecognized compensation costs related to stock options is
expected to be recognized over a weighted average period of 3.0 years.



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The weighted average fair value of outstanding stock options is estimated at the date of grant using a Black-Scholes option pricing model. The following are significant
weighted average assumptions used for estimating the fair value of the options granted in the following periods:



|                         |  |                                 |   |  |       |  
|------------------------ |  | ------------------------------- | - |  | ----- | -
|                         |  | Nine Months Ended September 30, |  
|                         |  | 2008                            |   |  | 2007  |  
|Expected term (in years) |  | 4.58                            |   |  | 6.50  |  
|Risk free interest rate  |  | 2.64                            | % |  | 4.38  | %
|Expected volatility      |  | 49.59                           | % |  | 62.42 | %
|Dividend yield           |  | 0                               | % |  | 0     | %

We 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 107, Share-Based Payment.

Staff Accounting Bulletin 110, Year-End Help for
Expensing Employee Stock Options, for options granted after December 31, 2007 requires the use of historical data to estimate an expected term unless the company significantly changes the terms of its share-option grants. The grants the
Company issued after December 31, 2007 have a contractual term of 7 years, which differs from the contractual term of the historical grants (generally 10 years). Therefore, we do not have sufficient historical data to estimate the expected term
for current option issuances. Accordingly, we continue to use the simplified method. Additionally, this reduction in contractual term has lowered our assumption of our expected term.

We currently estimate volatility by using the 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 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.
During the third quarter of 2008, the Company elected to change the application of the forfeiture rate used in the calculation of stock-based compensation expense which resulted in an incremental expense of $1.5 million. In previous quarters, the
Company applied a weighted average forfeiture rate which allocated or weighted the impact of vested shares over the vesting period of the entire grant. Beginning with the third quarter of 2008, the Company will apply the forfeiture rate calculated
for each respective vesting tranche which applies the impact of the vested shares to the respective vested tranche.

Non-Vested Restricted Stock

Non-vested restricted stock is sometimes granted by the Company. The restrictions lapse on a pro rata basis over a specified period of time, generally four
to five years. The grant date fair value per share of non-vested restricted stock, which is the stock price on the grant date, is expensed on a straight-line basis over the period during which the restrictions lapse. The shares represented by
restricted stock awards are considered outstanding at the grant date, as the recipients are entitled to dividends and voting rights. A summary of restricted stock award activity for the period is presented below:



|                                        |  |                           |   |  |                                       |      
|--------------------------------------- |  | ------------------------- | - |  | ------------------------------------- | -----
|                                        |  | Non-vestedNumber ofShares |   |  | WeightedAverage Grant-Date Fair Value
|Nonvested balance at December 31, 2007  |  | 382,230                   |   |  | $                                     | 18.28
|Awarded                                 |  | 400,840                   |   |  |                                       | 22.82
|Vested                                  |  | (102,100                  | ) |  |                                       | 18.67
|Forfeited                               |  | (72,468                   | ) |  |                                       | 20.94
|                                        |  |                           |   |  |                                       |      
|Nonvested balance at September 30, 2008 |  | 608,502                   |   |  | $                                     | 20.89
|                                        |  |                           |   |  |                                       |      

As of September 30, 2008, $9.6 million of total unrecognized compensation costs related to non-vested stock
awards is expected to be recognized over a weighted average period of 2.3 years.



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Stock-Based Compensation Expense

Our stock-based compensation
expense, as included in each respective expense category, was as follows (in thousands):



|                                       |  |                                  |       |      |   |      
|-------------------------------------- |  | -------------------------------- | ----- | ---- | - | -----
|                                       |  | Three Months Ended September 30,
|                                       |  | 2008                             |       | 2007
|Cost of systems & services             |  | $                                | 2,434 |      | $ | 1,158
|Sales and marketing                    |  |                                  | 1,897 |      |   | 698  
|Research and development               |  |                                  | 401   |      |   | 500  
|General and administrative             |  |                                  | 895   |      |   | 358  
|                                       |  |                                  |       |      |   |      
|Total stock-based compensation expense |  | $                                | 5,627 |      | $ | 2,714
|                                       |  |                                  |       |      |   |      



|                                       |  |                                 |        |      |   |      
|-------------------------------------- |  | ------------------------------- | ------ | ---- | - | -----
|                                       |  | Nine Months Ended September 30,
|                                       |  | 2008                            |        | 2007
|Cost of systems & services             |  | $                               | 5,818  |      | $ | 3,333
|Sales and marketing                    |  |                                 | 4,481  |      |   | 2,378
|Research and development               |  |                                 | 992    |      |   | 1,602
|General and administrative             |  |                                 | 1,802  |      |   | 948  
|                                       |  |                                 |        |      |   |      
|Total stock-based compensation expense |  | $                               | 13,093 |      | $ | 8,261
|                                       |  |                                 |        |      |   |      

NOTE I  TOTAL COMPREHENSIVE INCOME

The components of total comprehensive income were as follows (in thousands):



|                                                      |  |                                  |        |                                 |      |   |       |  |   |        |   |  |   |       
|----------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | ---- | - | ----- |  | - | ------ | - |  | - | ------
|                                                      |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                                      |  | 2008                             |        |                                 | 2007 |   | 2008  |  |   | 2007  
|Net income                                            |  | $                                | 87,396 |                                 |      | $ | 8,864 |  | $ | 96,196 |   |  | $ | 16,959
|Net change in foreign currency translation adjustment |  |                                  | (613   | )                               |      |   | 1,003 |  |   | (1,232 | ) |  |   | 2,080 
|Net change in unrealized gain on investments          |  |                                  | 1,922  |                                 |      |   | 26    |  |   | (3,306 | ) |  |   | 11    
|                                                      |  |                                  |        |                                 |      |   |       |  |   |        |   |  |   |       
|Total comprehensive income                            |  | $                                | 88,705 |                                 |      | $ | 9,893 |  | $ | 91,658 |   |  | $ | 19,050
|                                                      |  |                                  |        |                                 |      |   |       |  |   |        |   |  |   |       

NOTE J  RESTRUCTURING

In October 2007, the Company initiated a restructuring plan to relocate its corporate headquarters from Boca Raton, Florida to Atlanta, Georgia. The intent of the restructuring plan was to consolidate more of the
Companys operations in one location, reduce overhead costs, and provide a more accessible location for existing and potential clients as well as employees. The charges related to this plan primarily consist of severance-related expenses
associated with the termination of impacted employees and include one-time employee-related benefits.



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of the restructuring activity related to the relocation of our corporate headquarters is as follows (in thousands):



|                              |  |                                   |        |  
|----------------------------- |  | --------------------------------- | ------ | -
|                              |  | One-timeEmployee-Related Benefits |       
|Balance at December 31, 2007  |  | $                                 | 977    |  
|Payments                      |  | $                                 | (1,044 | )
|Other                         |  | $                                 | 161    |  
|                              |  |                                   |        |  
|Balance at September 30, 2008 |  | $                                 | 94     |  
|                              |  |                                   |        |  

In January 2006, we effected a restructuring of our operations which included a reduction in headcount of
approximately 100 individuals and the reorganization of our Company. In December 2006, we realigned certain management resources and consolidated some facilities to eliminate excess office space. A summary of the restructuring activity related to
our 2006 initiatives for the nine month period ended September 30, 2008 is as follows (in thousands):



|                              |  |                                   |      |   |                  |   |      |       |  |   |       |  
|----------------------------- |  | --------------------------------- | ---- | - | ---------------- | - | ---- | ----- |  | - | ----- | -
|                              |  | One-timeEmployee-Related Benefits |      |   | FacilityClosures |   |      | Total | 
|Balance at December 31, 2007  |  | $                                 | 278  |   |                  | $ | 899  |       |  | $ | 1,177 |  
|Payments                      |  |                                   | (261 | ) |                  |   | (475 | )     |  |   | (736  | )
|                              |  |                                   |      |   |                  |   |      |       |  |   |       |  
|Balance at September 30, 2008 |  | $                                 | 17   |   |                  | $ | 424  |       |  | $ | 441   |  
|                              |  |                                   |      |   |                  |   |      |       |  |   |       |  

The remaining liability as of September 30, 2008 is expected to be paid out through 2009.

NOTE K  FAIR VALUE MEASUREMENT

We measure our financial
assets at fair value in accordance with SFAS 157. The fair value framework prescribed in SFAS 157 requires the categorization of assets into three levels based upon the assumptions (inputs) used to determine the estimated fair value of the assets.
Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:



| |  |  | Level 1: Unadjusted quoted prices in active markets for identical assets.
| | - |  | -------------------------------------------------------------------------



| |  |  | Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets in active markets or quoted prices for identical
assets in inactive markets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Unobservable inputs reflecting managements own assumptions about the inputs used in estimating the value of the asset.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes our financial assets measured at fair value on a recurring basis in accordance with SFAS 157 as of September 30, 2008 (in thousands):



|                           |  |                                |         |                                                             |   |                                             |  |                             |   |  |   |        
|-------------------------- |  | ------------------------------ | ------- | ----------------------------------------------------------- | - | ------------------------------------------- |  | --------------------------- | - |  | - | -------
|                           |  | Balance as ofSeptember 30,2008 |         | Quoted Prices inActive Markets ForIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | UnobservableInputs(Level 3)
|Cash equivalents:          |  |                                |         |                                                             |   |                                             |  |                             |   |  |   |        
|Money market funds         |  | $                              | 79,180  |                                                             | $ | 79,180                                      |  |                             |   |  |   |        
|Marketable securities:     |  |                                |         |                                                             |   |                                             |  |                             |   |  |   |        
|Treasuries                 |  |                                | 149     |                                                             |   | 149                                         |  |                             |   |  |   |        
|Long-term investments:     |  |                                |         |                                                             |   |                                             |  |                             |   |  |   |        
|Auction rate securities(1) |  |                                | 111,083 |                                                             |   |                                             |  |                             |   |  |   | 111,083
|                           |  |                                |         |                                                             |   |                                             |  |                             |   |  |   |        
|                           |  | $                              | 190,412 |                                                             | $ | 79,329                                      |  | $                           |  |  | $ | 111,083
|                           |  |                                |         |                                                             |   |                                             |  |                             |   |  |   |        



|(1) | Our auction rate securities, categorized as level 3, were $111.4 million as of June 30, 2008. In the three months
ended September 30, 2008, we recorded additional temporary impairment on the investment of $0.3 million. This temporary impairment has been recorded on the balance sheet as a component of other comprehensive income.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of our ARS has been estimated by management based on its assumptions of what market participants would use in pricing the
asset in a current transaction, or level 3 - unobservable inputs in accordance with SFAS 157, and represents $111.1 million or 58.3% of total assets measured at fair value in accordance with SFAS 157. Management used a model to estimate the
fair value of these securities that included certain level 2 inputs as well as assumptions, including a liquidity discount, based on managements judgment, which are highly subjective and therefore considered level 3 inputs in the fair value
hierarchy. Accordingly, we categorized $111.1 million of our ARS in the level 3 category; the lowest level of significant valuation input. The estimate of the fair value of the ARS we hold could change significantly based on future market
conditions. For additional information on our investments, see Note E- Investments.

NOTE L  INCOME TAXES

The Company accounts for income taxes under SFAS 109, Accounting for Income Taxes (SFAS 109). Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

The Company regularly reviews its deferred tax assets for recoverability taking into consideration such factors as historical losses, projected future taxable income and
the expected timing of the reversals of existing temporary differences. SFAS 109 requires the Company to record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be
realized. It further states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Since inception, the Company has maintained a
100% valuation allowance equal to the deferred U.S. tax assets after considering the U.S. deferred tax assets that can be realized through offsets to existing taxable temporary differences.

Based upon the Companys results of operations in recent years, and its expected profitability in this and future years, the Company has concluded, effective
September 30, 2008, that it is more likely than not that substantially all of its net U.S. deferred tax assets will be realized. As a result, in accordance with SFAS 109, substantially all of the valuation allowance applied to such net deferred
tax assets has been reversed in the third quarter of 2008. Reversal of the valuation allowance resulted in a non-cash income tax benefit in the third quarter of 2008 totaling $85.2 million. This benefit represents the Companys estimated
realizable U.S. deferred tax assets.

In the third quarter of 2008, the Company completed its analysis of research and development expenditures for
eligibility to qualify for a research and development (R&D) tax credit. Accordingly, the Company recorded a deferred tax asset for this tax benefit, net of a reduction of a portion of its deferred tax asset for net operating loss
carryforwards, for $8.7 million.



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As a result of our quarterly review of uncertain tax positions under the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), we recorded an increase in the liability for unrecognized tax benefits of $12.9 million. Of the $12.9 million increase, $7.4 million was recorded to income tax expense, while the remainder of the amount relates to
deferred tax assets upon which valuation allowance was previously recorded. As of September 30, 2008, our FIN 48 income tax liability was $15.7 million.

For the quarter ended September 30, 2008, the Company recorded an income tax benefit of $79.3 million as compared to income tax expense of $0.5 million for the third quarter of 2007. The change in income taxes was primarily related to
the benefit of the release of valuation allowance. Beginning with the first quarter of 2009, the Company expects to begin providing for an income tax provision at a rate on income before taxes equal to the combined federal and state effective tax
rates, currently estimated to be 40 percent.

NOTE M  CONTINGENCIES

In July and August of 2007, four purported stockholder derivative complaints were filed in the United States District Court for the Southern District of Florida against certain current and former directors and
officers of Eclipsys and Eclipsys as a nominal defendant, alleging that during the period from at least 1999 until 2006 certain of Eclipsys option grants were backdated and that as a result of this alleged backdating the Companys
financial statements were misstated, and stock sales by the named defendants constituted improper insider selling. These complaints were consolidated in November 2007. On May 27, 2008, the parties to the derivative litigation entered into a
stipulation of settlement setting forth the terms of an agreement to settle and resolve all claims. The settlement would involve both payments to and recoveries by Eclipsys, with a net settlement cost to the Company of approximately $0.3
million. The settlement was preliminarily approved by the court on June 11, 2008.

On September 12, 2008, the court gave its final approval
to the previously disclosed settlement of the stockholder derivative litigation that followed the Companys announcement in May 2007 of the results of its voluntary review of its historical stock option practices. This effectively ends the
derivative litigation.

As previously disclosed, The McKenna System (TMS) has filed a complaint against the Company stemming from an agreement
between the Company and McKenna Health System (McKenna) pursuant to which McKenna agreed to acquire software and services from the Company. McKenna terminated that agreement on April 18, 2007. The complaint alleges various causes of
action essentially amounting to breach of contract for failing to meet contractual obligations related to the software sold and the timeliness of implementation, and intentionally or negligently misleading McKenna. TMS has asserted damages of
approximately $7.5 million, and seeks multiple damages under various theories. This case is in the early stages of discovery, and the outcome of this case and its impact on the Companys results of operations depend upon questions of fact and
law that are disputed or not clear and cannot be predicted with confidence at this time. The Company intends to contest this matter vigorously, including defending the allegations and pursuing McKennas unfulfilled obligations to Eclipsys.



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ECLIPSYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition to the foregoing, the Company and its subsidiaries are from time to time parties to other 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 other matters as of September 30, 2008. However, based on our knowledge as of September 30, 2008, management believes that the final resolution of
such other 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.

NOTE N  SUBSEQUENT EVENTS

On October 2, 2008, the Company
acquired MediNotes Corporation (MediNotes), a provider in physician practice information solutions. In connection with the transaction, the Company was obligated to pay a total of approximately $45 million (net of certain closing balance
sheet adjustments) in exchange for the acquisition of MediNotes and the cancellation of a previous MediNotes royalty arrangement. All of the consideration for the cancellation of the royalty arrangement and 61% of the consideration for the
acquisition of MediNotes was payable in the form of Eclipsys common stock, and the balance of the consideration for the acquisition of MediNotes was payable in cash.



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##### Table of Contents

|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; 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 or implied by the forward-looking statements due to a number of risks and uncertainties, including
those described in this report under the heading Risk Factors and in other filings we make from time to time with the U.S. Securities and Exchange Commission. Except as required by law, 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.

Throughout this report we refer to Eclipsys Corporation and its consolidated subsidiaries as Eclipsys, the Company, we,
us, and our.

This discussion and analysis should be read in conjunction with our condensed consolidated financial statements,
including the notes thereto, which are included elsewhere in this report.

EXECUTIVE OVERVIEW

About the Company

Eclipsys is a leading provider of advanced
integrated clinical, revenue cycle and access management software, and professional services that help healthcare organizations improve their clinical, financial, operational and client satisfaction outcomes. We develop and license proprietary
software and content that is designed for use in connection with many of the key clinical, financial and operational functions that healthcare organizations require. Among other things, our software:



| |  |  | enables physicians, nurses and other clinicians to coordinate care through shared electronic medical records, place orders and access and share information about
patients;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | helps our clients optimize the healthcare revenue cycle, including patient admissions, scheduling, invoicing, inventory control and cost accounting;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | supports records maintenance and provides assessment of the profitability of specific medical procedures and personnel; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | provides evidence-based practice guidelines for use by physicians, nurses and other clinicians through clinical content, which is integrated with our software.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

We also provide professional services related to our software. These services include software implementation and maintenance,
outsourcing, remote hosting of our software, as well as third-party healthcare information technology applications, technical and user training and consulting.

With the exception of hardware revenues, we classify our revenues in one caption (systems and services) in our statement of operations since the amount of license revenue related to traditional software contracts is less than 10% of total
revenues and the remaining revenue types included in this caption relate to bundled subscription arrangements and other services arrangements that have similar attribution patterns for revenue recognition. Our income statement items of revenue are
as follows:



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##### Table of Contents

| |  |  | Systems and services revenues include revenues derived from a variety of sources, including software licenses and contractual software maintenance
(under which fees are recognized ratably over the term of the contract), and professional services, which include implementation, training and consulting services. Our systems and services revenues include both subscription software
license revenues (which are recognized ratably over the contractual term) and license revenues related to traditional software contracts (which are generally recognized upon delivery of the software and represents less than 10% of our
total revenues). For some clients, we host the software applications licensed from us remotely on our own servers, which saves such clients the cost of procuring and maintaining hardware and related facilities. For other clients, we offer an
outsourced solution in which we assume partial to total responsibility for a healthcare organizations information technology operations using our employees. Margins on the license and maintenance revenues are generally significantly higher
than those on the professional services revenues.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Hardware revenues result from our sale of computer hardware to our clients in connection with their implementation of our software. We purchase this
hardware from suppliers and resell it to our clients. As clients elect more remote-hosted solutions, clients need for hardware is reduced and future hardware revenues may be negatively impacted. The amount of hardware revenues, and the
proportion of our total revenues that they represent, can vary significantly from period to period. Margins on hardware revenues are generally significantly lower than those on systems and services revenues.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We market our software to healthcare providers of many different sizes and specialties, including community hospitals, large multi-entity healthcare systems, academic
medical centers, outpatient clinics and physician practices. 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.

We expanded our operations to India in 2006 through an acquisition of a small producer of laboratory software. By September 2008, our India operations, now named
Eclipsys (India) Private Limited, have expanded to include two offices and approximately 550 employees. We believe that India provides access to educated professionals to work on software research, development and support, as well as other
functions, at an economically effective cost.

In 2007 we exited our networking services business as well as sold our Clinical Practice Model Resource
Center (CPMRC) business. These actions resulted in loss of revenue sources that generated an aggregate of approximately $20 million in 2007. We expect to more than offset this loss of revenue with growth in other areas of the business.

Business Environment

Our industry, healthcare information
technology, is highly competitive and subject to numerous government regulations and industry standards. Sales of Eclipsys solutions can be affected significantly by many competitive factors, including the features and cost of such solutions
as compared to the offerings of our competitors, our marketing effectiveness, and the success of our research and development of new solutions. We anticipate that the healthcare information technology industry will continue to grow and be seen as a
way to curb growing healthcare costs while also improving the quality of healthcare.

Economic Environment

The recent economic events that have occurred in September and October 2008, including the substantial decline in the global capital markets, as well as the lack of
liquidity in the credit markets, could impact our clients ability to obtain financing. In addition, many of our clients budgets rely in part on endowment earnings, which have suffered given recent declines in portfolio investment values.
Although market conditions have deteriorated, we believe healthcare institutions will continue to invest in technologies. However, we may see a deferral in large solutions sales as well as entities looking to negotiate longer payment terms. Thus,
while these matters may impact the timing of when bookings occur or revenue is recognized, we do not expect a decline in the overall market for healthcare information technology. In addition, these recent events, to date, have not materially
impacted the quality of our accounts receivable balances or our ability to access our credit facility as evidenced by our October 2008 borrowing of $16.0 million to fund the cash portion of the MediNotes Corporation acquisition price and related
transaction fees.



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##### Table of Contents

Consolidated Results of Operations

Key financial and operating data for Eclipsys Corporation and subsidiaries are as follows (in thousands, except per share amounts):



|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|------------------------------------------ |  | -------------------------------------- | ------- | --------- | ---- | - | --------- |  | ---- | ------------------------------------- | - | --------- | ----- | - | --------- | - | ------- | - |  | - | ------- |  | - | ------- | - |  | ----- | -
|                                           |  | For The ThreeMonths EndedSeptember 30, |         | Change($) |      |   | Change(%) |  |      | For The NineMonths EndedSeptember 30, |   | Change($) |       |   | Change(%) |  
|                                           |  | 2008                                   |         |           | 2007 |   |           |  | 2008 |                                       |   | 2007      |       |  
|Revenues:                                  |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Systems and services                       |  | $                                      | 127,575 |           |      | $ | 117,530   |  | $    | 10,045                                |   |           | 8.5   | % |           | $ | 373,021 |   |  | $ | 340,979 |  | $ | 32,042  |   |  | 9.4   | %
|Hardware                                   |  |                                        | 4,849   |           |      |   | 3,550     |  |      | 1,299                                 |   |           | 36.6  | % |           |   | 15,925  |   |  |   | 12,150  |  |   | 3,775   |   |  | 31.1  | %
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Total revenues                             |  |                                        | 132,424 |           |      |   | 121,080   |  |      | 11,344                                |   |           | 9.4   | % |           |   | 388,946 |   |  |   | 353,129 |  |   | 35,817  |   |  | 10.1  | %
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|                                           |  |                                        |         |           |      |   |           | 
|Costs and expenses:                        |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Cost of systems and services               |  |                                        | 73,166  |           |      |   | 65,454    |  |      | 7,712                                 |   |           | 11.8  | % |           |   | 210,042 |   |  |   | 197,502 |  |   | 12,540  |   |  | 6.3   | %
|Cost of hardware                           |  |                                        | 5,457   |           |      |   | 2,685     |  |      | 2,772                                 |   |           | 103.2 | % |           |   | 13,408  |   |  |   | 9,336   |  |   | 4,072   |   |  | 43.6  | %
|Sales and marketing                        |  |                                        | 19,498  |           |      |   | 17,896    |  |      | 1,602                                 |   |           | 9.0   | % |           |   | 63,150  |   |  |   | 54,215  |  |   | 8,935   |   |  | 16.5  | %
|Research and development                   |  |                                        | 14,195  |           |      |   | 14,079    |  |      | 116                                   |   |           | 0.8   | % |           |   | 47,102  |   |  |   | 42,136  |  |   | 4,966   |   |  | 11.8  | %
|General and administrative                 |  |                                        | 8,202   |           |      |   | 8,743     |  |      | (541                                  | ) |           | -6.2  | % |           |   | 26,877  |   |  |   | 23,951  |  |   | 2,926   |   |  | 12.2  | %
|In-process research and development charge |  |                                        |        |           |      |   |          |  |      |                                      |   |           |      |   |           |   | 850     |   |  |   |        |  |   | 850     |   |  | *     |  
|Depreciation and amortization              |  |                                        | 5,145   |           |      |   | 4,710     |  |      | 435                                   |   |           | 9.2   | % |           |   | 15,651  |   |  |   | 13,445  |  |   | 2,206   |   |  | 16.4  | %
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Total costs and expenses                   |  |                                        | 125,663 |           |      |   | 113,567   |  |      | 12,096                                |   |           | 10.7  | % |           |   | 377,080 |   |  |   | 340,585 |  |   | 36,495  |   |  | 10.7  | %
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|                                           |  |                                        |         |           |      |   |           | 
|Income from operations                     |  |                                        | 6,761   |           |      |   | 7,513     |  |      | (752                                  | ) |           | -10.0 | % |           |   | 11,866  |   |  |   | 12,544  |  |   | (678    | ) |  | -5.4  | %
|Gain on sale of assets                     |  |                                        | 685     |           |      |   |          |  |      | 685                                   |   |           | *     |   |           |   | 4,200   |   |  |   |        |  |   | 4,200   |   |  | *     |  
|Interest income, net                       |  |                                        | 634     |           |      |   | 1,814     |  |      | (1,180                                | ) |           | -65.0 | % |           |   | 3,581   |   |  |   | 4,916   |  |   | (1,335  | ) |  | -27.2 | %
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Income before taxes                        |  |                                        | 8,080   |           |      |   | 9,327     |  |      | (1,247                                | ) |           | -13.4 | % |           |   | 19,647  |   |  |   | 17,460  |  |   | 2,187   |   |  | 12.5  | %
|Provision for income taxes                 |  |                                        | (79,316 | )         |      |   | 463       |  |      | (79,779                               | ) |           | *     |   |           |   | (76,549 | ) |  |   | 501     |  |   | (77,050 | ) |  | *     |  
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Net income                                 |  | $                                      | 87,396  |           |      | $ | 8,864     |  | $    | 78,532                                |   |           | 886.0 | % |           | $ | 96,196  |   |  | $ | 16,959  |  | $ | 79,237  |   |  | 467.2 | %
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Basic net income per common share          |  | $                                      | 1.62    |           |      | $ | 0.17      |  | $    | 1.45                                  |   |           |       |   |           | $ | 1.79    |   |  | $ | 0.32    |  | $ | 1.47    |   |  |       |  
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  
|Diluted net income per common share        |  | $                                      | 1.59    |           |      | $ | 0.16      |  | $    | 1.43                                  |   |           |       |   |           | $ | 1.76    |   |  | $ | 0.31    |  | $ | 1.45    |   |  |       |  
|                                           |  |                                        |         |           |      |   |           |  |      |                                       |   |           |       |   |           |   |         |   |  |   |         |  |   |         |   |  |       |  



|* | Not meaningful
|- | --------------

Revenues

Total revenues increased by $11.3 million, or 9.4%, for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 and
$35.8 million, or 10.1%, for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. The acquisition of EPSi in February 2008 accounted for $3.5 million of the increase for the three months ended
September 30, 2008 and $7.5 million for the nine months ended September 30, 2008.

Systems and Services Revenues

Systems and services revenues increased by $10.0 million, or 8.5%, for the three months ended September 30, 2008, as compared to the three months ended
September 30, 2007 and $32.0 million, or 9.4%, for the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007. The overall increase for the three months ended September 30, 2008 resulted
from increases of $8.1 million in revenues recognized on a ratable basis, $1.8 million in professional services revenues, and $0.2 million in periodic revenues. The increase for the nine months ended September 30, 2008 resulted from an increase
of $24.7 million in revenues recognized on a ratable basis, $5.2 million in professional services revenues, and $2.3 million in periodic revenues.



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Revenues Recognized Ratably - Revenues recognized ratably from software, maintenance, outsourcing and remote
hosting were $84.8 million for the three months ended September 30, 2008, an increase of $8.1 million, or 10.5%, as compared to the three months ended September 30, 2007 and $249.0 million for the nine months ended September 30, 2008,
an increase of $24.7 million, or 10.99%, as compared to the nine months ended September 30, 2007. The increase was due to new sales bookings in previous periods for our solutions, remote hosting related services, and outsourcing, in
previous periods, resulting in growth in our recurring revenue base. Future growth in these revenues depends upon future bookings in excess of previous levels. In addition, the acquisition of EPSi in February 2008 added $0.5 million to our revenues
recognized ratably for the three months ended September 30, 2008 and $1.0 million for the nine months ended September 30, 2008.

Periodic
Revenues - Periodic revenues for software related fees, third party software related fees and networking services (only 2007) were $8.8 million for the three months ended September 30, 2008, as compared to $8.6 million for the three months
ended September 30, 2007 and $28.1 million for the nine months ended September 30, 2008, as compared to $25.8 million for the nine months ended September 30, 2007. The table below summarizes the components of periodic revenues (in
thousands):



|                                  |  |                                        |       |      |   |        |                                       |   |        |   |      |   |        |  |   |        |  |   |        |  
|--------------------------------- |  | -------------------------------------- | ----- | ---- | - | ------ | ------------------------------------- | - | ------ | - | ---- | - | ------ |  | - | ------ |  | - | ------ | -
|                                  |  | For The ThreeMonths EndedSeptember 30, |       |      |   |        | For The NineMonths EndedSeptember 30, |   |        |  
|                                  |  | 2008                                   |       | 2007 |   | Change |                                       |   | 2008   |   | 2007 |   | Change | 
|Eclipsys software related fees    |  | $                                      | 6,605 |      | $ | 4,292  |                                       | $ | 2,313  |   |      | $ | 22,452 |  | $ | 12,360 |  | $ | 10,092 |  
|Third party software related fees |  |                                        | 2,204 |      |   | 2,065  |                                       |   | 139    |   |      |   | 5,664  |  |   | 5,653  |  |   | 11     |  
|Networking services               |  |                                        |      |      |   | 2,230  |                                       |   | (2,230 | ) |      |   |       |  |   | 7,758  |  |   | (7,758 | )
|                                  |  |                                        |       |      |   |        |                                       |   |        |   |      |   |        |  |   |        |  |   |        |  
|Total periodic revenues           |  | $                                      | 8,809 |      | $ | 8,587  |                                       | $ | 222    |   |      | $ | 28,116 |  | $ | 25,771 |  | $ | 2,345  |  

In any period, some software revenues can be considered one time in nature for that period, and we do not
recognize these revenues on a ratable basis. These revenues include traditional license fees associated with new contracts signed in the period, including add-on licenses to existing clients and new client transactions, as well as revenues from
contract backlog that had not previously been recognized pending contract performance that occurred or was completed during the period, and certain other activities during the period associated with client relationships. In the aggregate, these
periodic revenues can contribute significantly to earnings in the period because relatively little in-period costs are associated with such revenues (other than those costs associated with networking services  only in 2007). We expect these
periodic revenues to continue to fluctuate on a quarterly and annual basis as a result of significant variations in the type and magnitude of sales and other contract and client activity in any period, and these variations make it difficult to
predict the nature and amount of these periodic revenues. The acquisition of EPSi in February 2008 increased software related fees revenues by $2.5 million for the three months ended September 30, 2008 and $5.5 million for the nine months ended
September 30, 2008.

During 2007, we exited our networking services business and shifted any residual client network hardware needs to third party
hardware providers. The related revenues are included in hardware revenues for the three and nine month periods ended September 30, 2008.

Professional Services Revenues - Professional services revenues, which include implementation, training and consulting related services, were $34.0 million for the three month period ended September 30, 2008, an increase of $1.8
million, or 5.5%, as compared to the three month period ended September 30, 2007 and $95.9 million, for the nine month period ended September 30, 2008, an increase of $5.2 million, or 5.7%, as compared to the nine month period ended
September 30, 2007. The increase in both periods resulted primarily from higher utilization of our professional services team and increased activity associated with implementation of our software following increases in previous period software
sales. In addition, the acquisition of EPSi in February 2008 added $0.4 million to our professional services revenues for the three months ended September 30, 2008 and $1.0 million for the nine months ended September 30, 2008. These
increases were offset by a decrease of $1.4 million and $3.8 million in revenues for the three and nine month periods ended September 30, 2008, respectively, as a result of the sale of our Clinical Practice Model Resource Center (CPMRC)
business in late 2007.



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Hardware Revenues

Hardware revenues increased $1.3 million, or 36.6%, for the three months ended September 30, 2008, as compared to the three month period ended September 30, 2007 and $3.8 million, or 31.1%, for the nine months ended
September 30, 2008, as compared to the nine months ended September 30, 2007. During 2007, we exited our networking services business and shifted any residual client network hardware needs to third party hardware providers resulting in a
shift from periodic revenues to hardware revenues. This shift increased hardware revenues by $1.1 million and $5.2 million for the three and nine month periods ended September 30, 2008, respectively.

Operating Expenses

Stock-based compensation - Stock-based
compensation expense is included in cost of systems and services, sales and marketing, general and administrative, and research and development expenses. During the third quarter 2008 total stock-based compensation was $5.6 million or $1.5 million
higher than reported in the previous quarter. This increase is primarily due to a change of the forfeiture rate application used in the calculation of stock-based compensation expense. Beginning with the third quarter of 2008, we elected to change
the application of the forfeiture rate used in the calculation of stock-based compensation expense which resulted in a non-recurring incremental expense of $1.5 million. We expect total stock-based compensation expense in the fourth quarter 2008 to
be approximately $4.2 to $4.7 million.

Cost of systems and services - Our cost of systems and services increased $7.7 million, or 11.8%, for the
three months ended September 30, 2008 as compared to the three months ended September 30, 2007 and $12.5 million, or 6.3%, for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. The
increase for the three months ended September 30, 2008 reflects:



| |  | Higher labor related costs of $0.8 million, which includes higher wages and benefits of $1.7 million, higher stock-based compensation of $1.3 million, higher
severance expenses of $1.1 million, partially offset by lower annual incentive compensation expense of $3.0 million caused primarily by a reduction in the expected payouts for the 2008 annual incentive plan reflecting third quarter and year-to-date
operating results. The increase in wages reflects higher headcount consistent with previous quarters. Higher stock-based compensation was primarily due to a change in the forfeiture rate application previously discussed. Our reorganization of the
services organization drove the increase in severance expense.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Higher third party software cost of services of $4.4 million primarily as a result of amounts recognized in the quarter related to nonrecurring adjustments from
prior periods and more contract activity requiring third party services as a result of exiting our network business.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Higher amortization of capitalized software of $1.8 million impacted by the release of SunriseXA 5.0 in December of 2007.
|- |  | -------------------------------------------------------------------------------------------------------------------------

The $12.5 million increase in cost of systems and services for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007
is due to higher labor related costs of $7.7 million, higher third party software costs of $2.6 million primarily related to amounts recognized in the third quarter related to nonrecurring adjustments from prior periods, higher capitalized software
amortization of $2.0 million, and higher travel related costs of $0.9 million. Higher labor related costs for the nine months ended September 30, 2008 included increased headcount, higher wage rates, and higher stock-based compensation,
partially offset by lower annual incentive compensation expense due to reasons described in the three month comparison above. The higher labor related costs also included abnormally high employee medical claim expenses in the first quarter of 2008.
The increase in the first nine months of 2008 also included a $0.5 million increase in bad debt expense related to a reserve for a specific customer in the first quarter of 2008 and $0.4 million increase in rent expense resulting from our
headquarter transition from Boca Raton, Florida to Atlanta, Georgia and leasing of additional space to support our growth.

Cost of hardware - Cost
of hardware increased $2.8 million or 103.2% for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 impacted by higher hardware sales and an incremental adjustment of $1.7 million to
correctly record certain third-party embedded software costs which were previously deferred. Hardware margins, excluding the incremental adjustment, in the third quarter 2008 were approximately 24%. Our cost of hardware increased $4.0 million, or
43.6%, for the first nine months of 2008 as compared to the first nine months of 2007 driven by the $1.7 million adjustment previously discussed and the result of exiting our networking services business during 2007, which shifted any residual
network hardware activity to third party hardware providers. This shift created additional hardware costs related to increased third party hardware activity. The first nine months of 2008 were also impacted by higher software costs for reasons
previously discussed for the three months ended September 30, 2008.



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##### Table of Contents

Sales and marketing - Our sales and marketing expenses increased $1.6 million, or 9.0%, in the three months ended
September 30, 2008 as compared to the three months ended September 30, 2007 and $8.9 million, or 16.5%, for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. The increase in sales
and marketing expenses for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 included higher labor related compensation and higher travel, sales trade shows, and other miscellaneous expenses
in efforts to continue to grow the business. Higher labor related costs included higher stock-based compensation of $1.2 million, higher basic wages and related benefits of $1.5 million, partially offset by lower annual incentive compensation
expense of $1.5 million reflecting third quarter and year-to-date operating results and lower sales commissions of $0.6 million. The increase in stock-based compensation was primarily due to a change in the application of our forfeiture rate as
previously discussed.

The increase in the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 includes
labor related increases of $5.9 million for similar reasons previously described for the quarter. The remaining increases in sales and marketing expenses for the nine month period include slightly higher travel, sales trade shows, higher incremental
rent expense in the first quarter of 2008, and other expenses reflecting continued growth in our business.

Research and Development -Our research
and development expenses increased $0.1 million, or 0.8%, in the three months ended September 30, 2008, as compared to the three months ended September 30, 2007 and $5.0 million, or 11.8%, for the nine months ended September 30, 2008
as compared to the nine months ended September 30, 2007. For the three months ended September 30, 2008, labor related costs increased $0.3 million impacted by higher wages and related benefits of $0.7 million due to higher headcount in
India, partially offset by a $0.5 million decrease in annual incentive compensation expense reflecting third quarter and year-to-date operating results. The three months ended September 30, 2008 compared to the three months ended
September 30, 2007 include increased expenses of $0.3 million due to a decrease in internal labor cost capitalization associated with development work related to SunriseXA 5.0, which we released in December of 2007, and the timing of project
work on release 5.5 scheduled for December 2009. These increases were partially offset by decreases in consulting and certain administrative support functions for research and development.

The $5.0 million increase for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 reflects lower software
capitalization of $2.8 million and higher labor related costs of $2.8 million for reasons similar to the three months ended September 30, 2008, as described above.

Our gross research and development spending, which consists of research and development expenses and capitalized software development costs of $19.5 million in the third quarter of 2008, decreased $0.2 million
compared to $19.7 million in the third quarter of 2007, while the gross spending for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 increased $2.1 million to $59.5 million. This increase
was due primarily to our continued expansion of research and development activities in India.



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##### Table of Contents

In summary, research and development expense for the three and nine months ended September 30 was as follows (in
thousands):



|                                            |  |                                        |        |           |   |        |                                       |      |           |  |   |        |  |   |        |  |       |  
|------------------------------------------- |  | -------------------------------------- | ------ | --------- | - | ------ | ------------------------------------- | ---- | --------- |  | - | ------ |  | - | ------ |  | ----- | -
|                                            |  | For The ThreeMonths EndedSeptember 30, |        | Change(%) |   |        | For The NineMonths EndedSeptember 30, |      | Change(%) | 
|                                            |  | 2008                                   |        | 2007      |   |        | 2008                                  |      | 2007      | 
|Research and development expenses           |  | $                                      | 14,195 |           | $ | 14,079 |                                       | 0.8  | %         |  | $ | 47,102 |  | $ | 42,136 |  | 11.8  | %
|Capitalized software and development costs  |  | $                                      | 5,281  |           | $ | 5,598  |                                       | -5.7 | %         |  | $ | 12,417 |  | $ | 15,278 |  | -18.7 | %
|                                            |  |                                        |        |           |   |        |                                       |      |           |  |   |        |  |   |        |  |       |  
|Gross research and development expenditures |  | $                                      | 19,476 |           | $ | 19,677 |                                       | -1.0 | %         |  | $ | 59,519 |  | $ | 57,414 |  | 3.7   | %

General and administrative -Our general and administrative expenses decreased $0.5 million, or 6.2%, in
the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 and increased $2.9 million, or 12.2%, for the nine months ended September 30, 2008 as compared to the nine months ended
September 30, 2007. Labor costs for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 decreased $0.4 million as higher stock-based compensation expense of $0.5 million was more than
offset by lower annual incentive compensation expense of $1.3 million reflecting third quarter and year-to-date operating results. The quarter was also impacted by lower legal expense of $1.0 million substantially offset by higher bad-debt
expense of $0.7 million. The reduction in legal and consulting fees reflects higher costs in the three months ended September 30, 2007 due to the voluntary stock-option review that was completed in 2007 and to a lesser extent insurance
recoveries associated with our derivative lawsuit recorded as a reduction in legal expense in the third quarter of 2008.

The $2.9 million increase in our
general and administrative expenses for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 was driven by increased labor related costs of $2.3 million impacted by higher wages and incremental
headquarter labor costs and $0.7 million higher bad debt expense. These increases were partially offset by $0.8 million of lower legal fees impacted by the voluntary stock-option review that was completed in 2007.

Depreciation and amortization -Depreciation and amortization expense increased $0.4 million, or 9.2%, in the three months ended September 30, 2008 as
compared to the three months ended September 30, 2007 and $2.2 million, or 16.4%, for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. The increase in depreciation and amortization is
attributable primarily to amortization related to intangible assets acquired in the EPSi acquisition and to a lesser extent an increased asset base to support our growing operations.

Gain on Sale of Assets

During 2008 we recorded additional gain on sale of assets of $0.7 million and $4.2 million
for the three and nine months ended September 30, 2008, respectively, resulting from the completion of post-closing milestones associated with the fourth quarter 2007 sale of our CPMRC business.

Interest Income, Net

Net interest income decreased by $1.2 million
for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 and $1.3 million for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

We incurred interest expense of $0.5 million and $1.2 million for the three and nine month periods ended September 30, 2008, respectively, on
borrowings under the $45.0 million short-term financing arrangement we entered into in February 2008 and repaid in May 2008, the $50.0 million short-term financing arrangement we entered into in May 2008 and repaid in August 2008, and the $51.0
million borrowed under the $125.0 million long-term financing arrangement we entered into in August 2008. The interest rate applicable to the borrowed amount is based on 1-month LIBOR plus an applicable margin which is based on our leverage ratio,
as defined in the long-term financing credit agreement. As of September 30, 2008, the interest rate was calculated at 5.46%.

Interest income
decreased $0.7 million, or 37.8%, for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 and decreased $0.1 million for the nine months ended September 30, 2008, or 2.8%, as compared to
the nine months ended September 30, 2007. Interest rates on ARS increased in the first quarter of 2008 after the Dutch auctions failed in February 2008, and penalty rates were applied. These penalty rates remained in effect for various time
periods from 28 days to three months depending on the indenture agreements resulting in increased interest income in the period after the failed auctions. As the penalty rates expired, the resulting interest rates were reset consistent with the
indenture agreements to maintain the annual interest limit. In some instances, the interest rates were reset at 0%. Interest income will continue to be negatively impacted by lower interest rates in 2008. Interest income in 2008 is expected to
continue to be offset in part by interest obligations on borrowings under our financing arrangements.



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Provision for Income Taxes

For the quarter ended September 30, 2008, the Company recorded an income tax benefit of $79.3 million as compared to income tax expense of $0.5 million for the third quarter of 2007. The change in income taxes was primarily related to
the benefit of the release of valuation allowance. Beginning with the first quarter of 2009, the Company expects to begin providing for an income tax provision at a rate on income before taxes equal to the combined federal and state effective tax
rates, currently estimated to be 40 percent.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The recent economic events that have occurred in September and October 2008, including the substantial
decline in the global capital markets, as well as the lack of liquidity in the credit markets, could impact our clients ability to obtain financing. In addition, many of our clients budgets rely in part on endowment earnings, which have
suffered given recent declines in portfolio investment values. These recent events, to date, have not materially impacted the quality of our accounts receivable balances or our ability to access our credit facility as evidenced by our October 2008
borrowing of $16.0 million to fund the cash portion of the MediNotes Corporation acquisition price and related transaction fees. However, if challenging economic conditions persist, our clients future ability to pay for our software and
services, for which they have contracted, may be impaired. As a result, reserves for doubtful accounts and write-offs of accounts receivable may increase.

Cash and marketable securities at September 30, 2008 were $89.5 million representing a $101.9 million decrease from December 31, 2007. This decrease primarily reflects the reclassification of $111.1 million of our ARS from
marketable securities to non-current assets. The decrease also includes $53.7 million of net cash used for the EPSi acquisition, substantially offset by net proceeds of $51 million from our secured financing described further below. Additional
decreases in cash also include payouts under the 2007 incentive plan, paid in March of 2008, and capital expenditures, which include investment in our facilities in Pune, India, investments related to the relocation of our corporate headquarters,
and investments in computer equipment to support our growing operations. Additionally, our temporary decline in value adjustment related to our ARS reduced the carrying amount of our marketable securities in the nine months ended September 30,
2008 by $5.5 million.

2008

During the nine month
period ended September 30, 2008, operating activities provided $41.5 million of cash. Cash flow from operating activities reflected income generated from operations of $59.2 million, after adjusting for non cash items of $37.0 million, which
included depreciation and amortization, in-process research and development charge, stock compensation, provision for bad debt, non cash deferred tax provision, gain on sale of assets and gain on sale of investments. This was offset in part by a
decrease in net working capital of $18.6 million due primarily to the negative impact of collection activity, changes in accrued compensation expenses driven by payouts under the 2007 incentive plan, paid in March 2008, and increases in prepaid
assets negatively impacted by the timing of annual maintenance payments.

Investing activities used $29.6 million of cash which included $53.7 million, net
of cash acquired, for our EPSi acquisition, $20.4 million of capital expenditures and $12.4 million for investment in software, partially offset by net sales of marketable securities of $51.6 million and $3.6 million received on the sale of our
CPMRC business. Capital expenditures included leasehold improvements for our new corporate headquarters facility in Atlanta, Georgia and our facility in British Columbia, Canada and investment in our facilities in Pune, India.

Financing activities provided cash inflow of $55.5 million, primarily consisting of net proceeds of $51.0 million from our secured financing described below. We also
received $5.3 million from stock option exercises. The amount of cash that will be provided by future stock option exercises is uncertain.

Future
Capital Requirements

As of September 30, 2008, our principal source of liquidity is our cash and cash equivalents balances and marketable
securities of $89.5 million. We believe that our current cash and cash equivalents and marketable securities combined with our anticipated cash flows from operations will be sufficient to fund our current operations for the next twelve months.



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The Company held approximately $116.6 million par value of ARS as of September 30, 2008. Our ARS are comprised of
certain AAA rated pools of student loans. These investments have historically have been be sold via Dutch auctions every 7, 14, 21, 28, or 35 days creating a short-term instrument. In February 2008, the broker-dealers managing the
Companys ARS portfolio experienced failed auctions of certain of these securities where the amount of securities submitted for sale exceeded the amount of purchase orders. Our ARS continued to fail to settle at auctions through the third
quarter of 2008. This indicates the estimated fair value of these ARS may no longer approximate their par value. As of September 30, 2008, the Company has recorded these securities as long-term investments at an estimated fair value of $111.1
million and recorded a temporary loss on these securities of $5.5 million in accumulated other comprehensive income, reflecting the decline in the fair value of these securities.

We currently plan to hold the ARS until such time as successful auctions occur or a secondary market develops that provides sufficient liquidity to recover substantially all of our par value. There can be no assurance
that this will occur. In April 2008, a partial call transaction was closed related to one of our ARS securities, as a result of which we received proceeds of $4.6 million. In May 2008, a call transaction was closed related to another one of our ARS
securities, as a result of which we received proceeds of $14.3 million. Each of these two transactions resulted in a recovery of the full par value of the securities. As of September 30, 2008, no calls were outstanding on our ARS. On
October 7, 2008 UBS Financial Services (UBS) issued a public statement outlining a program in which UBS would enter into agreements with UBS clients, holding ARS purchased through UBS, to purchase the ARS held by such clients at par
value at a prescribed future date. As of September 30, 2008, the Company holds $36.3 million par value of ARS that we purchased through UBS. We are currently evaluating our options under this program; the offer expires on November 14,
2008.

In February 2008 we entered into a secured financing agreement with an investment bank, pursuant to which we received $45.0 million in exchange for
a transfer to the bank (as a form of collateral) of ARS with a nominal value of $90.0 million in the aggregate. The Company entered into this arrangement to provide funds to close our February 2008 acquisition of EPSi. On May 9, 2008, we
entered into a credit agreement, pursuant to which the Company received a senior secured revolving credit facility in the aggregate principal amount of $50.0 million. We entered into this arrangement to obtain funds to repay the $45.0 million
short-term financing agreement. On August 26, 2008, Eclipsys entered into a credit agreement pursuant to which Eclipsys received a senior secured revolving credit facility in the aggregate principal amount of $125.0 million. The credit facility
includes a letter of credit subfacility of up to $10.0 million and a swingline loan subfacility of up to $5 million. Borrowings under the credit facility may be used to pay transaction expenses, to refinance debt, for potential acquisitions and
capital investments, and for working capital and other general corporate purposes. At the closing, Eclipsys borrowed $51.0 million under the credit facility of which $50.3 million was used to repay all borrowings plus interest under Eclipsys
prior $50.0 million credit facility and $0.7 million was used to pay transaction costs. As of September 30, 2008, Eclipsys has $51.0 million outstanding under the $125.0 million credit facility.

On October 2, 2008, the Company acquired MediNotes for approximately $45.0 million consisting of cash and Eclipsys common stock. The cash portion of the acquisition
price and related transaction fees were financed with $16.0 million of borrowed from our $125.0 million credit facility.

Our future cash 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. The Company
also periodically evaluates business expansion opportunities that fit its strategic plans, such as our February 2008 acquisition of EPSi and our October 2008 acquisition of MediNotes. If an opportunity requiring significant capital investment were
to arise, the Company may seek to finance the opportunity through available cash on hand, existing financings, issuance of additional shares of its stock or additional sources of financing, as circumstances warrant. However, there can be no
assurance that adequate liquidity would be available to finance extraordinary business opportunities. In addition, we may not be able to draw on the full available balance of our $125.0 million credit facility if one or more of the financial
institutions that have extended credit commitments to us become unwilling or unable to fund such borrowings. In the current economic environment, the chance of a syndicate bank failing to meet a funding commitment is less unlikely than under more
normal circumstances, and our ability to replace a non-funding bank in the syndicate is uncertain. There can also be no assurance that our credit facility will be renewed or replaced upon the expiration of our current credit facility on
August 26, 2011. Our ability to renew such credit facility or to enter into a new financing arrangement to replace the existing facility could be impaired if the current disruptions in U.S. and international financial markets continue or
worsen.

The recent disruptions in the financial markets can also reduce access to cash by our clients and potential clients. In addition, many of our
clients budgets rely in part on endowment earnings, which have suffered given recent declines in portfolio investment values. If healthcare information technology spending declines or increases more slowly than we anticipate, demand for our
software could be adversely affected and our revenue could decline. Challenging economic conditions also may impair the ability of our clients to pay for our software and services for which they have contacted. As a result, reserves for doubtful
accounts and write-offs of accounts receivable may increase.



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SFAS 157 Fair Value Measurements

The fair value of our ARS has been estimated by management based on its assumptions of what market participants would use in pricing the asset in a current transaction, or level 3unobservable inputs in
accordance with SFAS 157 Fair Value Measurements, and represents 58.3% of total assets measured at fair value in accordance with SFAS 157. Management used a model to estimate the fair value of these securities that included certain level
2 inputs as well as assumptions, including a liquidity discount, based on managements judgment, which are highly subjective and therefore considered level 3 inputs in the fair value hierarchy. Accordingly, we categorized $111.1 million of our
ARS in the level 3 category; the lowest level of significant valuation input. The estimate of the fair value of the ARS we hold could change significantly based on market conditions. For additional information on our investments, see Note E-
Investments.

CRITICAL ACCOUNTING POLICIES

There were no
material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on February 29, 2008.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We do
not currently use derivative financial instruments or enter into foreign currency hedge transactions. Foreign currency fluctuations through September 30, 2008 have not had a material impact on our financial position or results of operations. We
continually monitor our exposure to foreign currency fluctuations and may use derivative financial instruments and hedging transactions in the future if, in our judgment, the circumstances warrant their use. Generally, our expenses are denominated
in the same currency as our revenue and the exposure to rate changes is minimal. We believe most of our international operations are naturally hedged for foreign currency risk as our foreign subsidiaries invoice their customers and satisfy their
obligations primarily in their local currencies with the exception of our development center in India. Our development center in India is not naturally hedged for foreign currency risk since their obligations are paid in their local currency but are
funded in U.S. dollars. There can be no guarantee that foreign currency fluctuations in the future will not be significant.

We hold investments in
auction-rate securities (ARS). These ARS are debt instruments with long-term nominal maturities that previously could be sold via Dutch auctions every 7, 14, 21, 28, or 35 days creating a short-term instrument. In February 2008,
broker-dealers holding the Companys ARS portfolio experienced failed auctions of certain ARS where the amount of securities submitted for sale exceeded the amount of related purchase orders. Our ARS continued to fail to settle at auctions
through the third quarter of 2008. The Company continues to earn interest on these investments at the contractual rate, and the ARS that the Company holds have not been downgraded or placed on credit watch by credit rating agencies. During the nine
months ended September 30, 2008, we adjusted the carrying amount of our ARS to estimated fair market value. The adjustment was recorded in other comprehensive income. If uncertainties in the credit and capital markets continue and these markets
deteriorate further or the Company experiences any rating downgrades on any investments in its portfolio, the Company may incur further temporary impairments or other-than-temporary impairments, which could negatively affect the Companys
financial condition, cash flow and reported earnings.

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 hypothetical ARS
balances (we currently earn interest on $116.6 million par value of ARS):



|                           |  |                             |        |  |   |         |  |   |        
|-------------------------- |  | --------------------------- | ------ |  | - | ------- |  | - | -------
|Hypothetical Interest Rate |  | ARS balances (in thousands)
|                           |  | $                           | 95,000 |  | $ | 105,000 |  | $ | 115,000
|                           |  |                             |        |  |   |         |  |   |        
|3.0%                       |  |                             | 2,850  |  |   | 3,150   |  |   | 3,450  
|3.5%                       |  |                             | 3,325  |  |   | 3,675   |  |   | 4,025  
|4.0%                       |  |                             | 3,800  |  |   | 4,200   |  |   | 4,600  
|4.5%                       |  |                             | 4,275  |  |   | 4,725   |  |   | 5,175  
|5.0%                       |  |                             | 4,750  |  |   | 5,250   |  |   | 5,750  
|5.5%                       |  |                             | 5,225  |  |   | 5,775   |  |   | 6,325  



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We estimate that a one-percentage point decrease in interest rates for our investment securities portfolio as of
September 30, 2008 would have resulted in a decrease in interest income of $0.3 million for a three month period or $1.2 million for a 12 month period. This sensitivity analysis contains certain simplifying assumptions, including a constant
level and rate of debt securities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period, and 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.

On August 26, 2008, we entered into a credit agreement pursuant to which we received a senior secured revolving credit facility in the
aggregate principal amount of $125.0 million. We borrowed $51.0 million under the credit facility at closing. The interest rate applicable to the borrowed amount is based on 1-month LIBOR plus an applicable margin which is based on our leverage
ratio, as defined in the credit agreement. As of September 30, 2008, the interest rate was calculated at 5.46%. For each percentage point increase in the interest rate, annual interest expense would increase $0.5 million.



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|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 Exchange Act as of September 30, 2008. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring
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. There is no assurance that our disclosure controls and procedures will operate
effectively under all circumstances. Based upon the evaluation described above our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2008, our disclosure controls and procedures were effective at the
reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter-ended
September 
30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

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



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Many risks affect our business. These risks
include, but are not limited to, those described below, each of which may be relevant to decisions regarding an investment in or ownership of our stock. We have attempted to organize the description of these risks into logical groupings to
enhance readability, but many of the risks interrelate or could be grouped or ordered in other ways, so no special significance should be attributed to these groupings or order. Any of these risks could have a significant adverse effect on our
reputation, business, financial condition or results of operations.

We have added to the risk factors set forth in set forth in our annual report on Form
10-K for the year ended December 31, 2007 the following risk factors titled: (i) Our commercial credit facility subjects us to operating restrictions and risks of default, due to our entry into a new commercial borrowing
arrangement in August 2008, which replaced our previous credit facility; and (ii) The conditions of the U.S. and international capital markets may adversely affect our ability to draw on Eclipsys current credit
facility, due to the recent disruptions in U.S. and international capital markets.

In addition, we have added risks and uncertainties related to
recent disruptions in U.S. and international financial markets to the following previously disclosed risk factors: (i) The healthcare industry faces financial constraints that could adversely affect the demand for our software and
services; (ii) Our operating results may fluctuate significantly and may cause our stock price to decline; and (iii) Inability to obtain other financing could limit our ability to conduct necessary
development activities and make strategic investments.

The risk factors below also reflect the following previously disclosed updates to
the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2007: (i) the increasing importance of U.S, federal, state, and foreign government standards and industry trends applicable to our software,
including interoperability requirements, in our risk factor titled Changes in standards applicable to our software could require us to incur substantial additional development costs; (ii) the settlement of the derivative
litigation, in our risk factor titled Our past stock option practices and related accounting issues have caused costly derivative litigation and may result in additional litigation, regulatory proceedings and governmental enforcement
actions;(iii) the ongoing auction failures and temporary loss related to our auction rate securities, in our risk factor titled Funds associated with certain of our investments in auction rate securities may not be liquid or
accessible for in excess of 12 months, and our auction rate securities may experience further temporary or other-than-temporary decline in value, which would adversely affect our financial condition, cash flow and reported earnings; and
(iv) the termination of our stockholder rights agreement, or poison pill, as part of our ongoing review and improvement of Eclipsys corporate governance, and not in connection with any pending or anticipated transaction, in
our risk factor titled Provisions of our charter documents and Delaware law may inhibit potential acquisition bids that a stockholder may believe is desirable, and the market price of our common stock may be lower as a result.



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RISKS RELATING TO DEVELOPMENT AND OPERATION OF OUR SOFTWARE

Our software may not operate properly, which could damage our reputation and impair our sales.

Software development is time consuming, expensive and complex. Unforeseen difficulties can arise. We may encounter technical obstacles, and it is possible that we could discover additional problems that prevent
our software from operating properly. If our software contains errors or does not function consistent with software specifications or client expectations, clients could assert liability claims against us and/or attempt to cancel their contracts with
us. These risks are generally more significant for newer software, until it has been used for enough time in enough client locations for us to have addressed issues that are discovered through use in disparate circumstances and
environments. Due to our development efforts, we generally have significant software that could be considered relatively new and therefore more vulnerable to these risks, including at present our medication management and ambulatory software,
among others. It is also possible that future releases of our software, which would typically include additional features, may be delayed or may require additional work to address issues that may be discovered as the software comes into use in
our client base. If we fail to deliver software with the features and functionality promised to our clients, we could be subject to significant contractual damages and face serious harm to our reputation, and our results of operations could be
negatively impacted.

Our software development efforts may be inefficient or ineffective, which could adversely affect our results of operations.

We strive to develop new software, and improve our existing software to add new or enhanced features and functionality. We schedule and prioritize
these development efforts according to a variety of factors, including our perceptions of market trends, client requirements, and resource availability. Our software is complex and requires a significant investment of time and resources to develop,
test, and introduce into use. Sometimes this takes longer than we expect. Sometimes we encounter unanticipated difficulties that require us to re-direct or scale-back our efforts. Sometimes we change our plans in response to changes in client
requirements, market demands, resource availability, regulatory requirements, or other factors. All of this can result in acceleration of some initiatives and delay of others. These factors place significant demands upon our software development
organization and require complex planning and decision making. If we make the wrong choices or do not manage our development efforts well, we may fail to produce software that responds appropriately to our clients needs, or we may fail to
meet client expectations regarding new or enhanced features and functionality.

Market changes or mistaken development decisions could decrease
the demand for our software, which could harm our business and decrease our revenues.

The healthcare information technology market is characterized
by rapidly changing technologies, evolving industry standards and new software introductions and enhancements that may render existing software obsolete or less competitive. Our position in the market could erode rapidly due to the development of
regulatory or industry standards that our software may not fully meet, or due to changes in the features and functions of competing software, as well as the pricing models for such software. Our future success will depend in part upon our
ability to enhance our existing software and services, and to timely develop and introduce competing new software and services with features and pricing that meet changing client and market requirements. As we evolve our offering in an attempt to
anticipate and meet market demand, clients and potential clients may find our software and services less appealing. If software development for the healthcare information technology market becomes significantly more expensive due to changes in
regulatory requirements or healthcare industry practices, or other factors, we may find ourselves at a disadvantage to larger competitors with more financial resources to devote to development. If we are unable to enhance our existing software or
develop new software to meet changing client requirements in a timely manner, demand for our software could suffer.

Our software strategy is
dependent on the continued development and support by Microsoft of its .NET Framework and other technologies.

Our software strategy is
substantially dependent upon Microsofts .NET Framework and other Microsoft technologies. If Microsoft were to cease actively supporting .NET or other technologies, fail to update and enhance them to keep pace with changing industry standards,
encounter technical difficulties in the continuing development of these technologies or make them unavailable to us, we could be required to invest significant resources in re-engineering our software. This could lead to lost or delayed sales,
client costs associated with platform changes, unanticipated development expenses and harm to our reputation, and would cause our financial results and business to suffer.



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Any failure by us to protect our intellectual property, or any misappropriation of it, could enable our competitors
to market software with similar features, which could reduce demand for our software.

We are dependent upon our proprietary information and
technology. Our means of protecting our proprietary rights may not be adequate to prevent misappropriation. In addition, the laws of some foreign countries may not enable us to protect our proprietary rights in those jurisdictions. Also, despite the
steps we have taken to protect our proprietary rights, it may be possible for unauthorized third parties to copy aspects of our software, reverse engineer our software or otherwise obtain and use information that we regard as proprietary. In some
limited instances, clients can access source-code versions of our software, subject to contractual limitations on the permitted use of the source code. Furthermore, it may be possible for our competitors to copy or gain access to our content.
Although our license agreements with clients attempt to prevent misuse of the source code or trade secrets, the possession of our source code or trade secrets by third parties increases the ease and likelihood of potential misappropriation of our
software. Furthermore, others could independently develop technologies similar or superior to our technology or design around our proprietary rights.

Failure of security features of our software could expose us to significant expense and harm our reputation.

Clients use our systems
to store and transmit highly confidential patient health information. Because of the sensitivity of this information, security features of our software are very important. If, notwithstanding our efforts, our software security
features do not function properly, or client systems using our software are compromised, we could face claims for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and re-engineering to
prevent future occurrences, and serious harm to our reputation.

RISKS RELATED TO SALES AND IMPLEMENTATION OF OUR SOFTWARE

The length of our sales and implementation cycles may adversely affect our future operating results.

We have experienced long sales and implementation cycles. How and when to implement, replace, expand or substantially modify an information system, or modify or add
business processes, are major decisions for healthcare organizations, our target client market. Furthermore, our software generally requires significant capital expenditures by our clients. The sales cycle for our software ranges from 6 to
18 months or more from initial contact to contract execution. Our implementation cycle has generally ranged from 6 to 36 months from contract execution to completion of implementation. During the sales and implementation cycles, we
will expend substantial time, effort and resources preparing contract proposals, negotiating the contract and implementing the software. We may not realize any revenues to offset these expenditures and, if we do, accounting principles may not allow
us to recognize the revenues during corresponding periods. Additionally, any decision by our clients to delay purchasing or implementing our software would likely adversely affect our revenues.

We may experience implementation delays that could harm our reputation and violate contractual commitments.

Some of our software is complex and requires a lengthy and expensive implementation process. Each clients situation is different, and unanticipated
difficulties and delays may arise as a result of failures by us or the client to meet our respective implementation responsibilities or other factors. Because of the complexity of the implementation process, delays are sometimes difficult to
attribute solely to us or the client. Implementation delays could motivate clients to delay payments or attempt to cancel their contracts with us or seek other remedies from us. Any inability or perceived inability to implement our software
consistent with a clients schedule could harm our reputation and be a competitive disadvantage for us as we pursue new business. Our ability to improve sales depends upon many factors, including completion of implementation and successful use
of our new software releases in live environments for clients who achieve success and are willing to become reference sites for us. Implementation also requires our clients to make a substantial commitment of their own time and resources and to
make significant organizational and process changes, and if our clients are unable to fulfill their implementation responsibilities in a timely fashion, our projects may be delayed or become less profitable.

Implementation costs may exceed expectations, which can negatively affect our operating results.

Each clients circumstances may include unforeseen issues that make it more difficult or costly than anticipated to implement our software. We may fail to project,
price or manage our implementation services correctly. If we do not have sufficient qualified personnel to fulfill our implementation commitments in a timely fashion, related revenue may be delayed, and if we must supplement our capabilities
with third-party consultants, which are generally more expensive, our costs will increase.

Our earnings can vary significantly depending on periodic
software revenues.

Periodic software revenues includes traditional license fees associated with new contracts signed in the financial reporting
period, add-on licenses to existing clients and new client transactions, as well as revenues from contract backlog that had not previously been recognized pending contract performance that occurred or was completed during the period, and certain
other activities during the period associated with existing client relationships. These periodic revenues generally have high margins



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given that there are relatively little in-period costs associated with such revenues, and we therefore rely upon these revenues as an important element of
our earnings in any period. These periodic revenues can fluctuate as a result of significant variations in the type and magnitude of sales and other contract and client activity in any period, and these variations make it difficult to predict the
nature and amount of these periodic revenues. If periodic software revenues in any period decline from prior periods or fall short of our expectations, our earnings in that period will be adversely affected.

RISKS RELATED TO OUR INFORMATION TECHNOLOGY (IT) OR TECHNOLOGY SERVICES

Various risks could interrupt clients access to their data residing in our service center, exposing us to significant costs.

We provide remote hosting services that involve running our software and third-party vendors software for clients in our Technology Solutions Center. The ability to access the systems and the data that the
Technology Solution Center hosts and supports on demand is critical to our clients. Our operations and facilities are vulnerable to interruption and/or damage from a number of sources, many of which are beyond our control, including, without
limitation: (i) power loss and telecommunications failures; (ii) fire, flood, hurricane and other natural disasters; (iii) software and hardware errors, failures or crashes; and (iv) computer viruses, hacking and similar
disruptive problems. We attempt to mitigate these risks through various means including redundant infrastructure, disaster recovery plans, separate test systems and change control and system security measures, but our precautions may not
protect against all problems. If clients access is interrupted because of problems in the operation of our facilities, we could be exposed to significant claims by clients or their patients, particularly if the access interruption is
associated with problems in the timely delivery of medical care. We must maintain disaster recovery and business continuity plans that rely upon third-party providers of related services, and if those vendors fail us at a time that our center
is not operating correctly, we could incur a loss of revenue and liability for failure to fulfill our contractual service commitments. Any significant instances of system downtime could negatively affect our reputation and ability to sell our
remote hosting services.

Any breach of confidentiality of client or patient data in our possession could expose us to significant expense and harm
our reputation.

We must maintain facility and systems security measures to preserve the confidentiality of data belonging to our clients and their
patients that resides on computer equipment in our Technology Solution Center or that is otherwise in our possession. Notwithstanding the efforts we undertake to protect data, our measures can be vulnerable to infiltration as well as unintentional
lapse, and if confidential information is compromised, we could face claims for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and re-engineering to prevent future occurrences, and
serious harm to our reputation.

Recruiting challenges and higher than anticipated costs in outsourcing our clients IT operations may
adversely affect our profitability.

We provide outsourcing services that involve operating clients IT departments using our employees. At the
initiation of these relationships, clients often require us to hire, at substantially the same compensation, the entire IT staff that had been performing the services we take on. In these circumstances, our costs may be higher than we target unless
and until we are able to transition the workforce, methods and systems to a more scalable model. Various factors can make this difficult, including geographic dispersion of client facilities and variation in client needs, IT environments, and
system configurations. Also, under some circumstances, we may incur unanticipated costs as a successor employer by inheriting obligations of that client. Further, facilities management contracts require us to provide the IT services
specified by contract, and in some places it can be difficult to recruit qualified IT personnel. Changes in circumstances or failure to assess the clients environment and scope our services accurately can mean we must hire more staff than
we anticipated in order to meet our responsibilities. If we have to increase salaries or relocate personnel, or hire more people than we anticipated, our costs may increase under fixed fee contracts.

Inability to obtain consents needed from third parties could impair our ability to provide remote IT or technology services.

We and our clients need consent from some third-party software providers as a condition to running the providers software in our service center, or to allow our
employees who work in client locations under facilities management arrangements to have access to their software. Vendors refusal to give such consents, or insistence upon unreasonable conditions to such consents, could reduce our revenue
opportunities and make our IT or technology services less viable for some clients.



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RISKS RELATED TO THE HEALTHCARE IT INDUSTRY AND MARKET

We operate in an intensely competitive market that includes companies that have greater financial, technical and marketing resources than we do.

We face intense competition in the marketplace. We are confronted by rapidly changing technology, evolving user needs and the frequent introduction by our competitors
of new software. Our principal competitors in our software business include Cerner Corporation, Epic Systems Corporation, Medical Information Technology, Inc., GE Healthcare, McKesson Corporation, and Siemens AG. Other software competitors include
providers of practice management, general decision support and database systems, as well as segment-specific applications and healthcare technology consultants. Our services business competes with large consulting firms, as well as independent
providers of technology implementation and other services. Our outsourcing business competes with large national providers of technology solutions such as IBM Corporation, Computer Sciences Corp., Perot Systems Corporation, as well as smaller
firms. Several of our existing and potential competitors are better established, benefit from greater name recognition and have significantly more financial, technical and marketing resources than we do. Some competitors, particularly those
with a more diversified revenue base or that are privately held, may have greater flexibility than we do to compete aggressively on the basis of price. Vigorous and evolving competition could lead to a loss of our market share or pressure on
our prices and could make it more difficult to grow our business profitably.

The principal factors that affect competition within our market include
software functionality, performance, flexibility and features, use of open industry standards, speed and quality of implementation and client service and support, company reputation, price and total cost of ownership. We anticipate continued
consolidation in both the information technology and healthcare industries and large integrated technology companies may become more active in our markets, both through acquisition and internal investment. There is a finite number of hospitals
and other healthcare providers in our target market. As costs fall, technology improves, and market factors continue to compel investment by healthcare organizations in software and services like ours, market saturation may change the
competitive landscape in favor of larger competitors with greater scale.

Clients that use our legacy software are vulnerable to sales efforts of our
competitors.

A significant part of our revenue comes from relatively high-margin legacy software that was installed by our clients many years ago.
We attempt to convert these clients to our newer generation software, but such conversions may require significant investments of time and resources by clients. Our competitors also aggressively target these clients. If we are not successful in
retaining a large portion of these clients by continuing to support legacy softwarewhich is increasingly expensive to maintainor by converting them to our newer software, our results of operations will be negatively affected.

The healthcare industry faces financial constraints that could adversely affect the demand for our software and services.

The healthcare industry faces significant financial constraints. For example, managed healthcare puts pressure on healthcare organizations to reduce costs, and regulatory
changes have reduced Medicare reimbursement to healthcare organizations. In addition, the Fiscal Year 2008 Inpatient Prospective Payment System Final Rule, published by the Centers for Medicare & Medicaid in the U.S., identified several
hospital-acquired conditions the treatment for which will no longer be reimbursed by Medicare, starting in October 2008. Our software often involves a significant financial commitment by our clients. Our ability to grow our business is
largely dependent on our clients information technology budgets, which in part depends on the clients cash generation and access to other sources of liquidity. Recent disruptions in U.S. and international financial markets have adversely
affected the availability of external financing, and led to tighter lending standards and volatile interest rates. These factors can reduce access to cash by our clients and potential clients. In addition, many of our clients budgets rely in
part on endowment earnings, which may suffer reductions given recent declines in portfolio investment values. If healthcare information technology spending declines or increases more slowly than we anticipate, demand for our software could be
adversely affected and our revenue could decline. Challenging economic conditions also may impair the ability of our clients to pay for our software and services for which they have contacted. As a result, reserves for doubtful accounts and
write-offs of accounts receivable may increase.

Healthcare industry consolidation could put pressure on our software prices, reduce our potential
client base and reduce demand for our software.

Many healthcare organizations have consolidated to create larger healthcare enterprises with
greater market power. If this consolidation trend continues, it could reduce the size of our target market and give the resulting enterprises greater bargaining power, which may lead to erosion of the prices for our software. In addition, when
healthcare organizations combine they often consolidate infrastructure including IT systems, and acquisitions of our clients could erode our revenue base.



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Changes in standards applicable to our software could require us to incur substantial additional development
costs.

Integration and interoperability of the software and systems provided by various vendors are important issues in the healthcare
industry. Market forces, regulatory authorities and industry organizations are causing the emergence of standards for software features and performance that are applicable to us. Healthcare delivery and ultimately the functionality demands of
the electronic health record are now expanding to support community health, public health, public policy and population health initiatives. In addition, interoperability and health information exchange features that support emerging and enabling
technologies are becoming increasingly important to our clients and require large scale product enhancements and redesign.

For example, the Certification
Commission for Healthcare Information Technology, or CCHIT, is developing comprehensive sets of criteria for the functionality, interoperability, and security of healthcare software in the U.S. Achieving CCHIT certification is evolving as a de facto
competitive requirement, resulting in increased research and development and administrative expense to conform to these requirements. Similar dynamics are evolving in international markets. CCHIT requirements may diverge from our softwares
characteristics and our development direction. We may choose not to apply for CCHIT certification of certain modules of our software or to delay applying for certification. The CCHIT application process requires conformity with 100% of all
criteria applicable to each module in order to achieve certification and there is no assurance that we will receive or retain certification for any particular module notwithstanding application. Certification for a software module lasts for two
years and must then be re-secured, and certification requirements evolve, so even certifications we receive may be lost. If our software is not consistent with emerging standards our market position and sales could be impaired and we will have to
upgrade our software to remain competitive in the market.

U.S. government initiatives and related industry trends are resulting in comprehensive and
evolving standards related to interoperability, privacy, and other features that are becoming mandatory for systems purchased by governmental healthcare providers and other providers receiving governmental payments. Various state and foreign
governments are also developing similar standards which may be different and even more demanding than CCHIT and U.S. government standards.

Our software
does not conform to all of these standards, and conforming to these standards is expected to consume a substantial and increasing portion of our development resources. We expect compliance with these kinds of standards to become increasingly
important to clients and therefore to our ability to sell our software. If we make the wrong decisions about compliance with these standards, or are late in conforming our software to these standards, or if despite our efforts our software fails
standards compliance testing, our reputation, business, financial condition and results of operations could be adversely affected.



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RISKS RELATED TO OUR BUSINESS STRATEGY

Our business strategy includes expansion into markets outside North America, which will require increased expenditures and if our international operations are not successfully implemented, such expansion may
cause our operating results and reputation to suffer.

We are working to further expand operations in markets outside North America. There is no
assurance that these efforts will be successful. We have limited experience in marketing, selling, implementing and supporting our software abroad. Expansion of our international sales and operations will require a significant amount of attention
from our management, establishment of service delivery and support capabilities to handle that business and commensurate financial resources, and will subject us to risks and challenges that we would not face if we conducted our business only in the
United States. We may not generate sufficient revenues from international business to cover these expenses.

The risks and challenges associated with
operations outside the United States may include: the need to modify our software to satisfy local requirements, including associated expenses and time delays; laws and business practices favoring local competitors; compliance with multiple,
conflicting and changing governmental laws and regulations, including healthcare, employment, tax, privacy, healthcare information technology, and data and intellectual property protection laws and regulations; laws regulating exports of technology
products from the United States and foreign government restrictions on acquisitions of U.S.-origin products; fluctuations in foreign currency exchange rates; difficulties in setting up foreign operations, including recruiting staff and management;
and longer accounts receivable payment cycles and other collection difficulties. One or more of these requirements and risks may preclude us from operating in some markets and may cause our operating results and reputation to suffer.

Foreign sales subject us to numerous stringent U.S. and foreign laws, including the Foreign Corrupt Practices Act, or FCPA, and comparable foreign laws and
regulations which prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business. As we expand our
international operations, there is some risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors, which could constitute a violation by Eclipsys of various laws including the FCPA, even
though such parties are not always subject to our control. Safeguards we implement to discourage these practices may prove to be less than effective and violations of the FCPA and other laws may result in severe criminal or civil sanctions, or other
liabilities or proceedings against us, including class action law suits and enforcement actions from the SEC, Department of Justice and overseas regulators, which could adversely affect our reputation, business, financial condition or results of
operations.

RISKS RELATED TO OUR OPERATING RESULTS, ACCOUNTING CONTROLS AND FINANCES

Our past stock option practices and related accounting issues have caused costly derivative litigation and may result in additional litigation, regulatory proceedings and governmental enforcement actions.

As a result of the voluntary review of historical stock option practices we undertook from February to May 2007, we concluded that incorrect
measurement dates were used for accounting for certain prior stock option grants. As a result, we recorded additional non-cash stock-based compensation expense, and related tax effects, with regard to certain past stock option grants, and we
restated certain previously filed financial statements. We believe these restatements reflect appropriate judgments in determining the correct measurement dates for our stock option grants, and to date those judgments have not been challenged.
However, as with other aspects of our financial statements, the results of our stock option review are subject to regulatory review and there is a risk that we may have to further restate prior period results as a result of such a review.

In July and August of 2007, four purported stockholder derivative complaints were filed in the United States District Court for the Southern District of
Florida against certain current and former directors and officers of Eclipsys and Eclipsys as a nominal defendant, alleging that during the period from at least 1999 until 2006 certain of Eclipsys option grants were backdated and that as a
result of this alleged backdating our financial statements were misstated, and stock sales by the named defendants constituted improper insider selling. These complaints were consolidated in November 2007. These complaints sought monetary damages,
disgorgement, repricing of certain stock options, governance reforms, and other relief. On May 27, 2008, the parties to the derivative litigation entered into a stipulation of settlement setting forth the terms of an agreement to settle and
resolve all claims. On September 12, 2008, the court gave its final approval to the settlement. Dealing with this litigation has required us to incur substantial legal expenses, which affected our financial results for 2007 and the first half
of 2008. Derivative litigation also can result in management distraction and adverse publicity and resulting reputational harm, which could impair our sales and marketing efforts.

The option review and conclusions and related litigation may result in additional claims by stockholders or employees, regulatory proceedings, government enforcement actions and related investigations and litigation.
Any of these could result in significant expenses, management distraction and potential damages, penalties, other remedies, or adverse findings, which could harm our business, financial condition, results of operations and cash flows.



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We have a history of operating losses and we cannot predict future profitability.

We experienced operating losses in the years ended December 31, 2003 through 2006. Although we reported operating income for the year ended December 31, 2007,
we may incur losses in the future, and it is not certain that we will sustain or increase our recent profitability.

Our operating results may
fluctuate significantly and may cause our stock price to decline.

We have experienced significant variations in revenues and operating results from
quarter to quarter. Our operating results may continue to fluctuate due to a number of factors, including:



| |  |  | the performance of our software and our ability to promptly and efficiently address software performance shortcomings or warranty issues;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the cost, timeliness and outcomes of our software development and implementation efforts, including expansion of our presence in India;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing, size and complexity of our software sales and implementations;
| | - |  | --------------------------------------------------------------------------



| |  |  | healthcare industry conditions and the overall demand for healthcare information technology;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the financial condition of our clients and potential clients;
| | - |  | -------------------------------------------------------------



| |  |  | market acceptance of new services, software and software enhancements introduced by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | client decisions regarding renewal or termination of their contracts;
| | - |  | ---------------------------------------------------------------------



| |  |  | software and price competition;
| | - |  | -------------------------------



| |  |  | personnel changes and other organizational changes and related expenses;
| | - |  | ------------------------------------------------------------------------



| |  |  | significant judgments and estimates made by management in the application of generally accepted accounting principles;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | healthcare reform measures and healthcare regulation in general;
| | - |  | ----------------------------------------------------------------



| |  |  | lower investment returns due to recent disruptions in U.S. and international financial markets; and
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | fluctuations in general economic and financial market conditions, including interest rates.
| | - |  | -------------------------------------------------------------------------------------------

It is difficult to predict the timing of revenues that we receive from software sales, because the sales cycle can vary depending upon several factors. These include the
size and terms of the transaction, the changing business plans of the client, the effectiveness of the clients management, general economic conditions and the regulatory environment. In addition, the timing of our revenue recognition could
vary considerably depending upon whether our clients license our software under our subscription model or our traditional licensing arrangements. Because a significant percentage of our expenses are relatively fixed, a variation in the timing of
sales and implementations could cause significant variations in operating results from quarter to quarter. We believe that period-to-period comparisons of our historical results of operations are not necessarily meaningful. Investors should not rely
on these comparisons as indicators of future performance.



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Early termination of client contracts or contract penalties could adversely affect results of operations.

Client contracts can change or terminate early for a variety of reasons. Change of control, financial issues, or other changes in client circumstances
may cause us or the client to seek to modify or terminate a contract. Further, either we or the client may generally terminate a contract for material uncured breach by the other. If we breach a contract or fail to perform in accordance
with contractual service levels, we may be required to refund money previously paid to us by the client, or to pay penalties or other damages. Even if we have not breached, we may deal with various situations from time to time for the reasons
described above which may result in the amendment or termination of a contract. These steps can result in significant current period charges and/or reductions in current or future revenue.

Because in many cases we recognize revenues for our software monthly over the term of a client contract, downturns or upturns in sales will not be fully reflected
in our operating results until future periods.

We recognize a significant portion of our revenues from clients monthly over the terms of their
agreements, which are typically 5-7 years and can be up to 10 years. As a result, much of the revenue that we report each quarter is attributable to agreements executed during prior quarters. Consequently, a decline in sales, client
renewals, or market acceptance of our software in one quarter will not necessarily be reflected in lower revenues in that quarter, and may negatively affect our revenues and profitability in future quarters. In addition, we may be unable to adjust
our cost structure to compensate for these reduced revenues. This monthly revenue recognition also makes it more difficult for us to rapidly increase our revenues through additional sales in any period, as a significant portion of revenues from new
clients or new sales may be recognized over the applicable agreement term.

Loss of revenue from large clients could have significant negative impact
on our results of operations and overall financial condition.

During the fiscal year ended December 31, 2007, approximately 40% of our
revenues were attributable to our 20 largest clients. In addition, approximately 38% of our accounts receivable as of December 31, 2007 were attributable to 20 clients. One client represents 10% of our revenues. Loss of revenue from
significant clients or failure to collect accounts receivable, whether as a result of client payment default, contract termination, or other factors could have a significant negative impact on our results of operation and overall financial
condition.

Impairment of intangible assets could increase our expenses.

A significant portion of our assets consists of intangible assets, including capitalized development costs, goodwill and other intangibles acquired in connection with acquisitions. Current accounting standards
require us to evaluate goodwill on an annual basis and other intangibles if certain triggering events occur, and adjust the carrying value of these assets to net realizable value when such testing reveals impairment of the assets. Various
factors, including regulatory or competitive changes, could affect the value of our intangible assets. If we are required to write-down the value of our intangible assets due to impairment, our reported expenses will increase, resulting in a
corresponding decrease in our reported profit.

Failure to maintain effective internal controls could adversely affect our operating results and the
market price of our common stock.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we maintain internal control over financial
reporting that meets applicable standards. If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial information and
operating results, which could result in a negative market reaction.

Funds associated with certain of our investments in auction rate
securities may not be liquid or accessible for in excess of 12 months, and our auction rate securities may experience further temporary or other-than-temporary decline in value, which would adversely affect our financial condition, cash flow and
reported earnings.

A substantial portion of our short-term investment portfolio is invested in auction rate securities, or ARS. Beginning in
February 2008, negative conditions in the credit and capital markets resulted in failed auctions of our ARS because the amount of securities submitted for sale exceeded the amount of related purchase orders. Our ARS continued to fail to settle at
auctions through the date of this report. As of September 30, 2008 we recorded a temporary loss on these securities of $5.5 million in accumulated other comprehensive income, reflecting a decline in the estimated fair value of these
securities. See Note E  Investments for further information. If uncertainties in the credit and capital markets continue, these markets deteriorate further or we experience any rating downgrades on any investments in our portfolio (including
on ARS), funds associated with these securities may not be liquid or available to fund current operations for in excess of 12 months, causing us to classify our ARS as noncurrent assets and/or incur further temporary or other-than-temporary
impairments in the carrying value of our investments, which could negatively affect our financial condition, cash flow and reported earnings.



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Our commercial credit facility subjects us to operating restrictions and risks of default.

On August 26, 2008, we entered into a credit agreement with certain lenders and Wachovia Bank, as Administrative Agent, pursuant to which Eclipsys received a senior
secured revolving credit facility in the aggregate principal amount of $125 million, from which we repaid all amounts outstanding under our previous credit facility entered into in May 2008. This new credit facility is subject to certain financial
ratio and other covenants. These covenants could restrict our ability to conduct business as we might otherwise deem to be in the Companys best interests, and breach of these covenants could cause the debt to become immediately due. In such an
event, our liquid assets might not be sufficient to repay in full the debt outstanding under the credit facility. Such an acceleration also would expose us to the risk of liquidation of collateral assets at unfavorable prices.

The conditions of the U.S. and international financial markets may adversely affect our ability to draw on Eclipsys current credit facility.

The U.S. and international credit markets have contracted significantly during the second half of 2008. If one or more of the financial
institutions that have extended credit commitments to us under our current credit facility are adversely affected by the conditions of the U.S. and international capital markets, they may become unwilling or unable to fund borrowings under their
credit commitments to us. In such a case we might not be able to locate replacement lenders or other sources of financing, which could have a material and adverse impact on our ability to fund working capital, capital expenditures, acquisitions,
research and development and other corporate needs.

Inability to obtain other financing could limit our ability to conduct necessary development
activities and make strategic investments.

While we believe at this time that our available cash and cash equivalents and the cash we anticipate
generating from operations will be adequate to meet our foreseeable needs, we could incur significant expenses or shortfalls in anticipated cash generated as a result of unanticipated events in our business or competitive, regulatory, or other
changes in our market. As a result, we may in the future need to obtain other financing. The availability of such financing is limited by the tightening of the global credit markets. In addition, the commitment under our current credit facility
expires on August 26, 2011. Our ability to renew such credit facility or to enter into a new credit facility to replace the existing facility could be impaired if current market conditions continue or worsen. Lenders may seek more
restrictive lending provisions and higher interest rates that may reduce our borrowing capacity and increase our costs, which could have a material adverse effect on our business.

If other financing is not available on acceptable terms, or at all, we may not be able to respond adequately to these changes or maintain our business, which could adversely affect our operating results and the market
price of our common stock.

RISKS OF LIABILITY TO THIRD PARTIES

Our software and content are used to assist clinical decision-making and provide information about patient medical histories and treatment plans. If our software fails to provide accurate and timely information or is associated with
faulty clinical decisions or treatment, clients, clinicians or their patients could assert claims against us that could result in substantial cost to us, harm our reputation in the industry and cause demand for our software to decline.

We provide software and content that provides practice guidelines and potential treatment methodologies, and other information and tools for use in
clinical decision-making, provides access to patient medical histories and assists in creating patient treatment plans. If our software fails to provide accurate and timely information, or if our content or any other element of our software is
associated with faulty clinical decisions or treatment, we could have liability to clients, clinicians or their patients. The assertion of such claims, whether or not valid, and ensuing litigation, regardless of its outcome, could result in
substantial cost to us, divert managements attention from operations and decrease market acceptance of our software. We attempt to limit by contract our liability for damages and to require that our clients assume responsibility for medical
care and approve all system rules and protocols. Despite these precautions, the allocations of responsibility and limitations of liability set forth in our contracts may not be enforceable, may not be binding upon our clients patients, or may
not otherwise protect us from liability for damages. We maintain general liability and errors and omissions insurance coverage, but this coverage may not continue to be available on acceptable terms or may not be available in sufficient amounts to
cover one or more large claims against us. In addition, the insurer might disclaim coverage as to any future claim. One or more large claims could exceed our available insurance coverage.

Complex software such as ours may contain errors or failures that are not detected until after the software is introduced or updates and new versions are released. It is
challenging for us to envision and test our software for all potential problems because it is difficult to simulate the wide variety of computing environments, medical circumstances or treatment methodologies that our clients may deploy or rely
upon. Despite extensive testing by us and clients, from time to time we have discovered defects or errors in our software, and additional defects or errors can be expected to appear in the future.



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Defects and errors that are not timely detected and remedied could expose us to risk of liability to clients, clinicians and their patients and cause delays
in software introductions and shipments, result in increased costs and diversion of development resources, require design modifications or decrease market acceptance or client satisfaction with our software.

Our software and software provided by third parties that we include in our offering could infringe third-party intellectual property rights, exposing us to costs
that could be significant.

Infringement or invalidity claims or claims for indemnification resulting from infringement claims could be asserted or
prosecuted against us based upon design or use of software we provide to clients, including software we develop as well as software provided to us by third parties. Regardless of the validity of any claims, defending against these claims could
result in significant costs and diversion of our resources, and vendor indemnity might not be available. The assertion of infringement claims could result in injunctions preventing us from distributing our software, or require us to obtain a license
to the disputed intellectual property rights, which might not be available on reasonable terms or at all. We might also be required to indemnify our clients at significant expense.

RISKS RELATED TO OUR STRATEGIC RELATIONSHIPS AND INITIATIVES

We depend on licenses from third parties for
rights to some of the technology we use, and if we are unable to continue these relationships and maintain our rights to this technology, our business could suffer.

We depend upon licenses for some of the technology used in our software from a number of third-party vendors. Most of these licenses expire within one to five years, can be renewed only by mutual consent and may be
terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. We may not be able to continue using the technology made available to us under these licenses on commercially reasonable terms or at all.
As a result, we may have to discontinue, delay or reduce software sales until we obtain equivalent technology, which could hurt our business. Most of our third-party licenses are non-exclusive. Our competitors may obtain the right to use any of the
technology covered by these licenses and use the technology to compete directly with us. In addition, if our vendors choose to discontinue support of the licensed technology in the future or are unsuccessful in their continued research and
development efforts, particularly with regard to Microsoft, we may not be able to modify or adapt our own software.

Our software offering often
includes modules provided by third parties, and if these third parties do not meet their commitments, our relationships with our clients could be impaired.

Some of the software modules we offer to clients are provided by third parties. We often rely upon these third parties to produce software that meets our clients needs and to implement and maintain that software. If these
third parties fail to fulfill their responsibilities, our relationships with affected clients could be impaired, and we could be responsible to clients for the failures. We might not be able to recover from these third parties for all of the
costs we incur as a result of their failures.

Any acquisitions we undertake may be disruptive to our business and could have an adverse effect on
our future operations and the market price of our common stock.

An important element of our business strategy has been expansion through
acquisitions and while there is no assurance that we will complete any future acquisitions, any acquisitions would involve a number of risks, including the following:



| |  |  | The anticipated benefits from the acquisition may not be achieved. The identification, acquisition and integration of acquired businesses requires substantial
attention from management, and integration may require significant investment to harmonize product and service offerings, expand management capabilities and market presence, and improve or increase development efforts and software features and
functions. The diversion of managements attention and any difficulties encountered in the transition process could hurt our business.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In future acquisitions, we could issue additional shares of our common stock, incur additional indebtedness or pay consideration in excess of book value, which
could dilute future earnings.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisitions also expose us to the risk of assumed and unknown liabilities.
| | - |  | ---------------------------------------------------------------------------



| |  |  | New business acquisitions generate significant intangible assets that result in substantial related amortization charges to us and possible impairments.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

RISKS RELATED TO INDUSTRY REGULATION

Potential regulation by the U.S. Food and Drug Administration of our software and content as medical devices could impose increased costs, delay the introduction of new software and hurt our business.

The U.S. Food and Drug Administration, or FDA, may become increasingly active in regulating computer software or content intended for use in the healthcare setting. The
FDA has increasingly focused on the regulation of computer software



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and computer-assisted products as medical devices under the Food, Drug, and Cosmetic Act, or the FDC Act. If the FDA chooses to regulate any of our software,
or third party software that we resell, as medical devices, it could impose extensive requirements upon us, including requiring us to:



| |  |  | seek FDA clearance of pre-market notification submission demonstrating substantial equivalence to a device already legally marketed, or to obtain FDA approval of a
pre-market approval application establishing the safety and effectiveness of the software;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | comply with rigorous regulations governing the pre-clinical and clinical testing, manufacture, distribution, labeling and promotion of medical devices; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | comply with the FDC Act regarding general controls, including establishment registration, device listing, compliance with good manufacturing practices, reporting of
specified device malfunctions and adverse device events.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we fail to comply with applicable requirements, the FDA could respond by
imposing fines, injunctions or civil penalties, requiring recalls or software corrections, suspending production, refusing to grant pre-market clearance or approval of software, withdrawing clearances and approvals, and initiating criminal
prosecution. Any FDA policy governing computer products or content may increase the cost and time to market of new or existing software or may prevent us from marketing our software.

Changes in federal and state regulations relating to patient data could depress the demand for our software and impose significant software redesign costs on us.

Clients use our systems to store and transmit highly confidential patient health information and data. State and federal laws and regulations and their foreign
equivalents govern the collection, security, use, transmission and other disclosures of health information. These laws and regulations may change rapidly and may be unclear or difficult to apply.

Federal regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, impose national health data standards on healthcare providers that
conduct electronic health transactions, healthcare clearinghouses that convert health data between HIPAA-compliant and non-compliant formats and health plans. Collectively, these groups are known as covered entities. The HIPAA standards prescribe
transaction formats and code sets for electronic health transactions; protect individual privacy by limiting the uses and disclosures of individually identifiable health information; and require covered entities to implement administrative, physical
and technological safeguards to ensure the confidentiality, integrity, availability and security of individually identifiable health information in electronic form. Though we are not a covered entity, most of our clients are and require that our
software and services adhere to HIPAA standards. Any failure or perception of failure of our software or services to meet HIPAA standards could adversely affect demand for our software and services and force us to expend significant capital,
research and development and other resources to modify our software or services to address the privacy and security requirements of our clients.

States
and foreign jurisdictions in which we or our clients operate have adopted, or may adopt, privacy standards that are similar to or more stringent than the federal HIPAA privacy standards. This may lead to different restrictions for handling
individually identifiable health information. As a result, our clients may demand information technology solutions and services that are adaptable to reflect different and changing regulatory requirements which could increase our development costs.
In the future, federal, state or foreign governmental or regulatory authorities or industry bodies may impose new data security standards or additional restrictions on the collection, use, transmission and other disclosures of health information. We
cannot predict the potential impact that these future rules may have on our business. However, the demand for our software and services may decrease if we are not able to develop and offer software and services that can address the regulatory
challenges and compliance obligations facing our clients.

RISKS RELATED TO OUR PERSONNEL AND ORGANIZATION

Our growing operations in India expose us to risks that could have an adverse effect on our results of operations.

We now have a significant workforce employed in India engaged in a broad range of development, support and corporate infrastructure activities that are integral to our
business and critical to our profitability. This involves significant challenges that are increased by our lack of prior experience managing operations in India. Further, while there are certain cost advantages to operating in India, significant
growth in the technology sector in India has increased competition to attract and retain skilled employees with commensurate increases in compensation costs. We may not be able to hire and retain such personnel at compensation levels consistent with
our existing compensation and salary structure. Many of the companies with which we compete for hiring experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, our
operations in India require ongoing capital investments and expose us to foreign currency fluctuations, which may significantly reduce or negate any cost benefit anticipated from such expansion. As a result of these and other factors there can be no
assurance that we will successfully integrate our India operations, or that our expansion in India will advance our business strategy and provide a satisfactory return on this investment.



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In addition, our reliance on a workforce in India exposes us to disruptions in the business, political and economic
environment in that region. Maintenance of a stable political environment is important to our operations, and terrorist attacks and acts of violence or war may directly affect our physical facilities and workforce or contribute to general
instability. Our operations in India may also be affected by trade restrictions, such as tariffs or other trade controls, as well as other factors that may adversely affect our business and operating results.

If we fail to attract, motivate and retain highly qualified technical, marketing, sales and management personnel, our ability to execute our business strategy
could be impaired.

Our success depends, in significant part, upon the continued services of our key technical, marketing, sales and management
personnel, and on our ability to continue to attract, motivate and retain highly qualified employees. Competition for these employees is intense and we maintain at-will employment terms with our employees. In addition, the process of recruiting
personnel with the combination of skills and attributes required to execute our business strategy can be difficult, time-consuming and expensive. We believe that our ability to implement our strategic goals depends to a considerable degree on our
senior management team. The loss of any member of that team could hurt our business.



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RISKS RELATED TO OUR EQUITY STRUCTURE

Provisions of our charter documents and Delaware law may inhibit potential acquisition bids that stockholders may believe are desirable, and the market price of our common stock may be lower as a result.

Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock. Our board of directors can fix the price, rights,
preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may discourage, delay or prevent a merger or acquisition of our company. The issuance
of preferred stock may result in the loss of voting control to other stockholders. We have no current plans to issue any shares of preferred stock and we terminated, effective as of May 8, 2008, our stockholder rights agreement, or poison
pill, which used preferred stock purchase rights designed to enable our board of directors to better respond to any takeover efforts. However, we could implement a new poison pill in the future, or make other uses of preferred stock to inhibit
a potential acquisition of the company.

Our charter documents contain additional anti-takeover devices, including:



| |  |  | only one of the three classes of directors is elected each year;
| | - |  | ----------------------------------------------------------------



| |  |  | the ability of our stockholders to remove directors without cause is limited;
| | - |  | -----------------------------------------------------------------------------



| |  |  | the right of stockholders to act by written consent has been eliminated;
| | - |  | ------------------------------------------------------------------------



| |  |  | the right of stockholders to call a special meeting of stockholders has been eliminated; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | advance notice must be given to nominate directors or submit proposals for consideration at stockholders meetings.
| | - |  | ------------------------------------------------------------------------------------------------------------------



|ITEM 6. | EXHIBITS
|------- | --------

See Index to exhibits.



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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: November 10, 2008                          
|                                                 
|/s/    Robert J. Colletti                        
|Robert J. Colletti                               
|Senior Vice President and Chief Financial Officer



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|               |                     |                                                                                                                                                                                                                                              |      |                           |         |     |             |                   
|-------------- | ------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------- | ------- | --- | ----------- | ------------------
|Exhibit Number |                     |                                                                                                                                                                                                                                              |      | Incorporated by Reference
|               | Exhibit Description |                                                                                                                                                                                                                                              | Form |                           | Exhibit |     | Filing Date
|3.1            |                     | Third Amended and Restated Certificate of Incorporation of the Registrant                                                                                                                                                                    |      | 10-Q                      |         | 3.1 |             | September 21, 1998
|               |                     |                                                                                                                                                                                                                                              |      |                          
|3.2            |                     | Amended and Restated Bylaws of the Registrant                                                                                                                                                                                                |      | 8-K                       |         | 3.2 |             | November 19, 2007 
|               |                     |                                                                                                                                                                                                                                              |      |                          
|4.1            |                     | Specimen certificate for shares of Common Stock                                                                                                                                                                                              |      | S-1                       |         | 4.1 |             | April 23, 1998    
|               |                     |                                                                                                                                                                                                                                              |      |                          
|10.1           |                     | Credit Agreement, dated August 26, 2008, by and among the Registrant, certain lenders and Wachovia Bank, National Association, as Administrative Agent                                                                                       |      |                           |         |     |             | Filed herewith    
|               |                     |                                                                                                                                                                                                                                              |      |                          
|10.2           |                     | Agreement and Plan of Merger, dated September 19, 2008, by and among the Registrant, a subsidiary of the Registrant formed for purposes of the acquisition, MediNotes Corporation, and certain
shareholders of MediNotes                     |      |                           |         |     |             | Filed herewith    
|               |                     |                                                                                                                                                                                                                                              |      |                          
|10.3           |                     | First Amendment to the Agreement and Plan of Merger, dated October 2, 2008, by and among the Registrant, a subsidiary of the Registrant formed for purposes of the acquisition, MediNotes
Corporation, and certain shareholders of MediNotes |      |                           |         |     |             | Filed herewith    
|               |                     |                                                                                                                                                                                                                                              |      |                          
|31.1           |                     | Certification of R. Andrew Eckert                                                                                                                                                                                                            |      |                           |         |     |             | Filed herewith    
|               |                     |                                                                                                                                                                                                                                              |      |                          
|31.2           |                     | Certification of Robert J. Colletti                                                                                                                                                                                                          |      |                           |         |     |             | Filed herewith    
|               |                     |                                                                                                                                                                                                                                              |      |                          
|32.1           |                     | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                             |      |                           |         |     |             | Filed herewith    
|               |                     |                                                                                                                                                                                                                                              |      |                          
|32.2           |                     | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                             |      |                           |         |     |             | Filed herewith    



|* | Indicates a management contract or compensatory arrangement
|- | -----------------------------------------------------------



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