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 JUNE 30, 2007





COMMISSION
      FILE NUMBER: 000-24539





**ECLIPSYS
      CORPORATION**


(Exact
      name of registrant as specified in its charter)








**DELAWARE**
            **65-0632092**(State
                of Incorporation)
            (IRS
                Employer Identification Number)





**1750
      Clint Moore Road**


**Boca
      Raton, Florida**


**33487**


(Address
      of principal executive offices)





**561-322-4321**


(Telephone
      number of registrant)





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.


Large
      accelerated filer [ × ] Accelerated filer [ ]  Non-accelerated filer [
      ]





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


Yes
      [
      ] No [×]





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock
      as of the latest practicable date.





**Class**
            **Shares
                outstanding as of August 6, 2007**Common
                Stock, $.01 par value
            53,435,994













ECLIPSYS
                CORPORATION AND SUBSIDIARIESFORM
                10-QFor
                the period ended June 30, 2007Table
                of ContentsPart
                I.
            
            Financial
                InformationItem
                1.
            
            Financial
                Statements - UnauditedCondensed
                Consolidated Balance Sheets (unaudited) - As of June 30,
                2007and
                December 31, 2006
            3Condensed
                Consolidated Statements of Operations (unaudited) - For the
                Threeand
                Six Months Ended June 30, 2007 and June 30, 2006
            4Condensed
                Consolidated Statements of Cash Flows (unaudited) - For the
                SixMonths
                Ended June 30, 2007 and June 30, 2006 (restated)
            5Notes
                to Condensed Consolidated Financial Statements (unaudited)
            6Item
                2.
            
            Management's
                Discussion and Analysis of Financial Condition and Resultsof
                Operations
            13Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            18Item
                4.
            
            Controls
                and Procedures
            19Part
                II.
            
            Other
                Information
            20Item
                1.
            
            Legal
                Proceedings
            20Item
                1A.
            
            Risk
                Factors
            20Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            29Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            30Item
                6.
            
            Exhibits
            30SignaturesCertifications









**ECLIPSYS
                  CORPORATION AND SUBSIDIARIES****Condensed
                  Consolidated Balance Sheets (Unaudited)****(in
                  thousands)****June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              29,904
              
              
              $
              41,264Marketable
                  securities
              
              
              104,645
              
              
              
              89,549Accounts
                  receivable, net of allowance for doubtful accounts of $3,739 and
                  $3,907,
                  respectively
              
              
              95,882
              
              
              
              93,821Inventory
              
              
              129
              
              
              
              1,076Prepaid
                  expenses
              
              
              32,486
              
              
              
              22,947Other
                  current assets
              
              
              1,387
              
              
              
              1,026Total
                  current assets
              
              
              264,433
              
              
              
              249,683Property
                  and equipment, net
              
              
              46,248
              
              
              
              45,806Capitalized
                  software development costs, net
              
              
              33,114
              
              
              
              32,302Acquired
                  technology, net
              
              
              896
              
              
              
              1,224Intangible
                  assets, net
              
              
              2,751
              
              
              
              3,307Deferred
                  tax asset
              
              
              3,751
              
              
              
              3,661Goodwill
              
              
              14,250
              
              
              
              12,281Other
                  assets
              
              
              15,605
              
              
              
              15,014Total
                  assets
              
              $
              381,048
              
              
              $
              363,278**Liabilities
                  and Stockholders’ Equity**Current
                  liabilities:Deferred
                  revenue
              
              $
              97,697
              
              
              $
              103,298Accounts
                  payable
              
              
              23,776
              
              
              
              19,879Accrued
                  compensation costs
              
              
              14,942
              
              
              
              12,997Deferred
                  tax liability
              
              
              3,827
              
              
              
              3,699Other
                  current liabilities
              
              
              16,579
              
              
              
              20,213Total
                  current liabilities
              
              
              156,821
              
              
              
              160,086Deferred
                  revenue
              
              
              9,458
              
              
              
              11,289Other
                  long-term liabilities
              
              
              1,418
              
              
              
              1,247Total
                  liabilities
              
              
              167,697
              
              
              
              172,622Stockholders’
                  equity:Total
                  stockholders’ equity
              
              
              213,351
              
              
              
              190,656Total
                  liabilities and stockholders’ equity
              
              $
              381,048
              
              
              $
              363,278
  The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
 3


**ECLIPSYS
                  CORPORATION AND SUBSIDIARIES****Condensed
                  Consolidated Statements of Operations (Unaudited)****(In
                  thousands, except per share amounts)****Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Revenues:Systems
                  and services
              
              $
              114,266
              
              
              $
              97,821
              
              
              $
              223,449
              
              
              $
              194,151Hardware
              
              
              4,753
              
              
              
              4,576
              
              
              
              8,600
              
              
              
              9,137Total
                  revenues
              
              
              119,019
              
              
              
              102,397
              
              
              
              232,049
              
              
              
              203,288Costs
                  and expenses:Cost
                  of systems and services
              
              
              67,414
              
              
              
              58,120
              
              
              
              131,701
              
              
              
              114,594Cost
                  of hardware
              
              
              3,737
              
              
              
              3,851
              
              
              
              6,764
              
              
              
              7,502Sales
                  and marketing
              
              
              18,034
              
              
              
              14,531
              
              
              
              36,172
              
              
              
              30,741Research
                  and development
              
              
              13,799
              
              
              
              14,020
              
              
              
              28,207
              
              
              
              30,982General
                  and administrative
              
              
              7,614
              
              
              
              6,184
              
              
              
              15,603
              
              
              
              11,840Depreciation
                  and amortization
              
              
              4,296
              
              
              
              3,894
              
              
              
              8,571
              
              
              
              7,696Restructuring
                  charge
              
              
              -
              
              
              
              1,349
              
              
              
              -
              
              
              
              8,547Total
                  costs and expenses
              
              
              114,894
              
              
              
              101,949
              
              
              
              227,018
              
              
              
              211,902Income
                  (loss) from operations before interest
                and
                  taxes
              
              
              4,125
              
              
              
              448
              
              
              
              5,031
              
              
              
              (8,614
              )Interest
                  income, net
              
              
              1,588
              
              
              
              1,313
              
              
              
              3,102
              
              
              
              2,462Income
                  (loss) before taxes
              
              
              5,713
              
              
              
              1,761
              
              
              
              8,133
              
              
              
              (6,152
              )Provision
                  for income taxes
              
              
              19
              
              
              
              -
              
              
              
              38
              
              
              
              -Net
                  income (loss)
              
              $
              5,694
              
              
              $
              1,761
              
              
              $
              8,095
              
              
              $
              (6,152
              )Net
                  income (loss) per common share:Basic
                  net income (loss) per common share
              
              $
              0.11
              
              
              $
              0.03
              
              
              $
              0.15
              
              
              $
              (0.12
              )Diluted
                  net income (loss) per common share
              
              $
              0.11
              
              
              $
              0.03
              
              
              $
              0.15
              
              
              $
              (0.12
              )Weighted
                  average common shares outstandingBasic
              
              
              52,596
              
              
              
              51,598
              
              
              
              52,471
              
              
              
              51,109Diluted
              
              
              53,737
              
              
              
              52,993
              
              
              
              53,629
              
              
              
              51,109
  The
      accompanying notes are an integral part of these unaudited condensed
      consolidated financial statements.




4




**ECLIPSYS
                  CORPORATION AND SUBSIDIARIES****Condensed
                  Consolidated Statements of Cash Flows (Unaudited)****(in
                  thousands)****Six
                  Months Ended June 30,****2007**
              
              
              **2006**As
                  restatedOperating
                  activities:Net
                  income (loss)
              
              $
              8,095
              
              
              $
              (6,152
              )Adjustments
                  to reconcile net income (loss) to net cashprovided
                  by (used in) operating activities:Depreciation
                  and amortization
              
              
              19,263
              
              
              
              18,401Provision
                  for bad debt
              
              
              900
              
              
              
              818Stock
                  compensation expense
              
              
              5,547
              
              
              
              6,669Gain
                  on sale of investments
              
              
              (10
              )
              
              
              -Deferred
                  provision for income taxes
              
              
              38
              
              
              
              -Changes
                  in operating assets and liabilities:(Increase)
                  decrease in accounts receivable
              
              
              (2,126
              )
              
              
              4,418Increase
                  in prepaid expenses and other current assets
              
              
              (9,724
              )
              
              
              (3,242
              )Decrease
                  in inventory
              
              
              946
              
              
              
              676Decrease
                  in other assets
              
              
              26
              
              
              
              1,449Decrease
                  in deferred revenue
              
              
              (7,809
              )
              
              
              (13,055
              )Increase
                  (decrease) in accrued compensation
              
              
              2,394
              
              
              
              (5,907
              )Decrease
                  in accounts payable and other current liabilities
              
              
              (859
              )
              
              
              (4,417
              )Increase
                  (decrease) in other long-term liabilities
              
              
              65
              
              
              
              (1,095
              )Total
                  adjustments
              
              
              8,651
              
              
              
              4,715Net
                  cash provided by (used in) operating activities
              
              
              16,746
              
              
              
              (1,437
              )Investing
                  activities:Purchases
                  of property and equipment
              
              
              (8,425
              )
              
              
              (9,167
              )Purchase
                  of marketable securities
              
              
              (33,999
              )
              
              
              (60,621
              )Proceeds
                  from sales of marketable securities
              
              
              18,898
              
              
              
              5,700Capitalized
                  software development costs
              
              
              (9,825
              )
              
              
              (4,626
              )Restricted
                  cash
              
              
              (1,969
              )
              
              
              -Cash
                  paid for acquisitions
              
              
              (686
              )
              
              
              (800
              )Net
                  cash used in investing activities
              
              
              (36,006
              )
              
              
              (69,514
              )Financing
                  activities:Proceeds
                  from stock options exercised
              
              
              7,497
              
              
              
              22,449Proceeds
                  from issuance of common stock in employeestock
                  purchase plan
              
              
              -
              
              
              
              223Net
                  cash provided by financing activities
              
              
              7,497
              
              
              
              22,672Effect
                  of exchange rates on cash and cash equivalents
              
              
              403
              
              
              
              174Net
                  decrease in cash and cash equivalents
              
              
              (11,360
              )
              
              
              (48,105
              )Cash
                  and cash equivalents — beginning of period
              
              
              41,264
              
              
              
              76,693Cash
                  and cash equivalents — end of period
              
              $
              29,904
              
              
              $
              28,588


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




5


**ECLIPSYS
      CORPORATION AND SUBSIDIARIES**


**Notes
      to condensed consolidated financial statements**


**(Unaudited)**





1.
      BASIS
      OF PRESENTATION




The
      accompanying unaudited condensed consolidated financial statements of Eclipsys
      Corporation (“Eclipsys” or the “Company”), and the notes thereto have been
      prepared in accordance with the instructions for Form 10-Q of the Securities
      and
      Exchange Commission (“SEC”). The December 31, 2006 condensed consolidated
      balance sheet data was derived from audited financial statements. These
      condensed statements do not include all of the information and disclosures
      required by accounting principles generally accepted in the United States of
      America but do reflect all adjustments (consisting of normal recurring
      adjustments) that are, in the opinion of management, necessary for a fair
      statement of results for the interim periods presented.




The
      results of operations for the three and six months ended June 30, 2007 are
      not
      necessarily indicative of annual results. The Company manages its business
      as
      one reportable segment.





The
      unaudited condensed consolidated financial statements included herein should
      be
      read in conjunction with the audited consolidated financial statements and
      the
      notes thereto that are included in the Company's Annual Report on Form 10-K
      for
      the year ended December 31, 2006 that was filed with the SEC on May 23,
      2007.





The
      Condensed Consolidated Statements of Operations for the three and six months
      ended June 30, 2006 include a reclassification related to medical benefit costs
      to conform to 2007 presentation.  Specifically, for both periods, $0.6
      million of cost was reclassified to general and administrative expenses
      resulting in corresponding reductions of $0.3 million in cost of systems and
      services, $0.2 million in research and development and $0.1 million in sales
      and
      marketing.





The
        Condensed Consolidated Statement of Cash Flows for the six months ended June
        30,
        2006 has been revised to reflect auction rate securities that are held "at
        market" or held "at rate" on a net basis. Previously, these securities were
        reported by the Company on a gross basis within "Net cash used in investing
        activities" section of the statement of cash flows. The impact of this revised
        presentation was to decrease both the purchases of marketable securities
        and
        proceeds from sales of marketable securities during the six months ended
        June
        30, 2006 by an equal amount of $451.7 million. These changes had no impact
        on
        net cash used in investing activities.
 
 2.
RESTATEMENT
      OF CONDENSED
      CONSOLIDATED STATEMENT OF CASH FLOWS




The
      Condensed Consolidated Statement of
      Cash Flows for the six months ended June 30, 2006 included in this Form 10-Q
      has
      been restated in connection with the Company’s restatement of its prior
      financial statements. For additional information, please refer to Note 3,
“Review of Stock Option Practices and Restatements of Consolidated Financial
      Statements,” in Notes to the Consolidated Financial Statements and Exhibit 99.1
      in our Annual Report on Form 10-K for the year ended December 31,
      2006, filed with the SEC on May 23, 2007.





3.
      EMPLOYEE BENEFIT PLANS





*2005
      Stock Incentive Plan*





At
      our
      Annual Meeting of Stockholders held June 29, 2005, our stockholders approved
      the
      Company's 2005 Stock Incentive Plan ("2005 Plan").  Under the 2005 Plan, no
      further awards will be granted under our prior Stock Incentive Plans which
      include our 1996, 1998, 1999 and 2000 plans.  Awards may be made under the
      2005 Plan for a number of shares (subject to adjustment in the event of stock
      splits and other similar events) equal to the sum of
      (1) 2,000,000 shares of the Company’s common stock, (2) any
      shares reserved for issuance under the Amended and Restated 2000 Stock Incentive
      Plan that remain available for issuance as of the date the 2005 Plan was
      approved by our stockholders and (3) any shares subject to outstanding
      awards under our 1996 Stock Plan, the Amended and Restated 1998 Stock Incentive
      Plan, the Amended and Restated 1999 Stock Incentive Plan and the Amended and
      Restated 2000 Stock Incentive Plan that expire or are terminated, surrendered
      or
      canceled without having been fully exercised, are repurchased or forfeited
      in
      whole or part or result in any shares subject to such award not being issued.





In
      the
      second quarter of 2006, we implemented a deferred stock unit plan to provide
      for
      equity compensation for our non-employee directors in the form of deferred
      stock
      units ("DSUs") granted under the 2005 Plan. As of the date of each annual
      meeting of the Company's stockholders, each continuing non-employee director
      receives a number of DSUs determined by dividing $75,000 by the fair market
      value of a share of the Company's common stock on the grant date. These DSUs
      vest quarterly over the course of the ensuing year. After cessation of board
      service, the Company will settle the DSUs by issuing to the former director
      a
      number of shares of the Company's
      common stock equal to the number of accumulated vested DSUs. In addition, a
      non-employee director may elect to receive DSUs in lieu of all or a portion
      of
      his or her cash fees. All DSUs received for cash fees are fully vested upon
      issuance. 
 As
        of
        June 30, 2007, there were 1,621,997 shares available for future issuance
        under
        the 2005 Plan.




6


**ECLIPSYS
      CORPORATION AND SUBSIDIARIES**


**Notes
      to condensed consolidated financial statements**


**(Unaudited)**


Stock
      Options


A
      summary
      of stock option transactions is as follows:


Number
                  of Shares
              
              
              Weighted
                  Average Exercise Price
              
              
              Weighted
                  Average
                Remaining
                Contractual
                  Life
                (in
                  years)
              
              
              Aggregate
                  Intrinsic Value
                (in
                  thousands)Outstanding
                  at January 1, 2007
              
              
              5,631,584
              
              
              $
              15.40
              
              
              
              6.32
              
              
              $
              32,480Options
                  granted
              
              
              320,000
              
              
              $
              20.12Options
                  exercised
              
              
              (564,209
              )
              
              $
              13.28Options
                  canceled
              
              
              (158,902
              )
              
              $
              19.51Outstanding
                  at June 30, 2007
              
              
              5,228,473
              
              
              $
              15.78
              
              
              
              6.19
              
              
              $
              25,028Vested
                  and expected to vest at June 30, 2007
              
              
              5,064,161
              
              
              $
              15.68
              
              
              
              0.66
              
              
              $
              24,741Exercisable
                  at June 30, 2007
              
              
              3,014,932
              
              
              $
              14.10
              
              
              
              4.52
              
              
              $
              19,567


As
      of
      June 30, 2007, $31.7 million of total unrecognized compensation costs related
      to
      stock options is expected to be recognized over a weighted average period of
      3.6
      years.





The
      weighted average fair value of outstanding stock options is estimated at the
      date of grant using a Black-Scholes option pricing model. We issued 320,000
      stock options during the six months ended June 30, 2007. The following are
      significant weighted average assumptions used for estimating the fair value
      of
      the activity under our stock option plans:





Six
                  Months Ended June 30,2007
              
              
              2006Expected
                  term (in years)
              
              
              6.50
              
              
              
              6.46Risk
                  free interest rate
              
              
              4.96
              %
              
              
              5.08
              %Expected
                  volatility
              
              
              64.54
              %
              
              
              77.54
              %Dividend
                  yield
              
              
              0
              %
              
              
              0
              %
  We
      have
      elected to use the simplified method for estimating our expected term equal
      to
      the midpoint between the vesting period and the contractual term as allowed
      by
      Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment.





We
      currently estimate volatility by using the 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.


Non-vested
        Stock Awards
 Non-vested
        stock award activity for the six months ended June 30, 2007 is summarized
        as
        follows:
  Non-vested
                    Number of Shares
                
                
                Weighted
                    Average Grant-Date Fair ValueNonvested
                    balance at January 1, 2007
                
                
                366,128
                
                
                $
                17.29Awarded
                
                
                150,000
                
                
                
                19.62Vested
                
                
                (79,433
                )
                
                
                17.23Forfeited
                
                
                (3,616
                )
                
                
                15.11Nonvested
                    balance at June 30, 2007
                
                
                433,079
                
                
                $
                18.12
  7
  **ECLIPSYS
        CORPORATION AND SUBSIDIARIES**


**Notes
      to condensed consolidated financial statements**


**(Unaudited)**





As
      of
      June 30, 2007, $7.2 million of total unrecognized compensation costs related
      to
      non-vested stock awards is expected to be recognized over a weighted average
      period of 3.6 years.  All non-vested stock awards vest semiannually,
      in June and December of each year.  The total fair value of shares
      vested during the six months ended June 30, 2007 was $1.6 million.





Deferred
      Stock Units


We
      granted 2,893 DSUs during the six months ended June 30, 2007 at an average
      market value of $20.07. As of June 30, 2007, 29,352 DSUs were outstanding at
      the
      weighted average grant-date fair value of $19.03. The value of these DSUs is
      amortized to compensation expense and director fees ratably over the vesting
      period. During the three and six months ended June 30, 2007, we recorded expense
      related to DSUs of $0.2 million and $0.3 million, respectively.





4.
      MARKETABLE SECURITIES




At
      June
      30, 2007 and December 31, 2006, all of our marketable securities were
      classified as available-for-sale and were carried at fair market value with
      unrealized gains and losses, reported in accumulated other comprehensive loss.
      The unrealized gain (loss) associated with the marketable securities was
      not significant for the periods presented. We do not recognize changes in the
      fair value of investments in income unless a decline in value is considered
      other-than-temporary.  Marketable securities consisted of the
      following (in thousands):


June
                  30,
              
              
              December
                  31,Security
                  Type
              
              2007
              
              
              2006Auction
                  Rate Securities:Debt
                  securities issued by the U.S. Treasury and other U.S. government
                  corporations and agencies
              
              $
              46,399
              
              
              $
              45,139Debt
                  securities issued by states of the United States and political
                  subdivisions of the states
              
              
              42,441
              
              
              
              21,18788,840
              
              
              
              66,326Other
                  Securities:Government
                  Bonds/Agencies
              
              
              9,229
              
              
              
              11,259Other
                  debt securities
              
              
              6,576
              
              
              
              11,964Total
              
              $
              104,645
              
              
              $
              89,549
  All
      of
      the marketable securities held as of June 30, 2007 and December 31, 2006 were
      classified as short-term as they had remaining maturities of less than one
      year
      from the balance sheet date or related to auction rate securities and were
      available to meet our current operating needs. Auction rate securities typically
      have an interest rate reset feature every 30 days pursuant to which we can
      sell
      or reset the interest rate on the security.




5.
      ACCOUNTS RECEIVABLE




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




June
                  30,
              
              
              December
                  31,2007
              
              
              2006Accounts
                  Receivable:Billed
                  accounts receivable, net
              
              $
              79,823
              
              
              $
              77,570Unbilled
                  accounts receivable, net
              
              
              16,059
              
              
              
              16,251Total
                  accounts receivable, net
              
              $
              95,882
              
              
              $
              93,821
  8




**ECLIPSYS
      CORPORATION AND SUBSIDIARIES**


**Notes
      to condensed consolidated financial statements**


**(Unaudited)**





6.
      WARRANTY RESERVE





The
      agreements that we use to license software to our customers generally include
      limited warranties including a warranty that the product, in its unaltered
      form,
      will perform substantially in accordance with the related documentation.
      Warranty costs are charged to the cost of systems and services when they are
      probable and reasonably estimable.





7.
      GOODWILL AND OTHER INTANGIBLE ASSETS




Acquired
      technology and other intangible assets are amortized over their estimated useful
      lives on a straight-line basis. The carrying values of acquired technology
      and
      other intangible assets are reviewed if the facts and circumstances suggest
      that
      they may be impaired, and goodwill is reviewed annually in accordance with
      Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and
      Other Intangible Assets.” Testing is performed on a more frequent basis if
      impairment triggering events arise. The impairment test is based upon a number
      of factors, including operating results, business plans and projected future
      cash flows. No impairment charge has been recorded in the six months ended
      June
      30, 2007 or the year ended December 31, 2006.The change in the carrying amount
      of goodwill for the six months ended June 30, 2007, is as follows (in
      thousands):


Balance
                  at January 1, 2007
              
              $
              12,281Earnouts
                  related to past acquisitions
              
              
              1,969Balance
                  at June 30, 2007
              
              $
              14,250
  The
      gross
      and net amounts for acquired technology, ongoing customer relationships and
      goodwill consist of the following (in thousands):


June
                  30, 2007
              
              
              December
                  31, 2006Gross
              
              
              
              
              
              Net
              
              
              Gross
              
              
              
              
              
              NetCarrying
              
              
              Accumulated
              
              
              Book
              
              
              Carrying
              
              
              Accumulated
              
              
              Book
              
              EstimatedAmount
              
              
              Amortization
              
              
              Value
              
              
              Amount
              
              
              Amortization
              
              
              Value
              
              LifeIntangibles
                  subject to amortizationAcquired
                  Technology
              
              $
              1,967
              
              
              $
              (1,071
              )
              
              $
              896
              
              
              $
              1,967
              
              
              $
              (743
              )
              
              $
              1,224
              
              3-5
                  yearsOngoing
                  customer relationships
              
              
              5,644
              
              
              
              (2,893
              )
              
              
              2,751
              
              
              
              5,644
              
              
              
              (2,337
              )
              
              
              3,307
              
              5-7
                  yearsTotal
              
              $
              7,611
              
              
              $
              (3,964
              )
              
              $
              3,647
              
              
              $
              7,611
              
              
              $
              (3,080
              )
              
              $
              4,531Intangibles
                  not subject to amortization:Goodwill
              
              
              
              
              
              
              
              
              
              $
              14,250
              
              
              
              
              
              
              
              
              
              
              $
              12,281
  Estimated
                  aggregate amortization expense (in thousands):For
                  the
                remainder
                  of2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              Thereafter
              
              TotalTotal
                  amortization expense
              
              $
              859
              
              $
              1,463
              
              $
              845
              
              $
              303
              
              $
              177
              
              $
              -
              
              $
              3,647
  9
  **ECLIPSYS
      CORPORATION AND SUBSIDIARIES**


**Notes
      to condensed consolidated financial statements**


**(Unaudited)**





8.
      OTHER
      COMPREHENSIVE INCOME (LOSS)





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




Three
                  Months Ended June 30,
              
              
              Six
                  Months Ended June 30,2007
              
              
              2006
              
              
              2007
              
              
              2006Net
                  income (loss)
              
              $
              5,694
              
              
              $
              1,761
              
              
              $
              8,095
              
              
              $
              (6,152
              )Net
                  change in foreign currency translation adjustment
              
              
              1,018
              
              
              
              193
              
              
              
              1,077
              
              
              
              528Net
                  change in unrealized gain (loss) on investments
              
              
              8
              
              
              
              -
              
              
              
              (15
              )
              
              
              -Total
                  comprehensive income (loss)
              
              $
              6,720
              
              
              $
              1,954
              
              
              $
              9,157
              
              
              $
              (5,624
              )
  9.
      BASIC
      AND DILUTED INCOME (LOSS) PER COMMON SHARE





For
      all
      periods presented, basic and diluted income (loss) per common share is presented
      in accordance with SFAS 128, “Earnings per Share,” which provides for the
      accounting principles used in the calculation of income (loss) per share. Basic
      income (loss) per common share excludes dilution and is calculated by dividing
      net income (loss) available to common stockholders by the weighted average
      number of shares of common stock outstanding during the period. Diluted income
      (loss) per common share reflects the potential dilution from assumed conversion
      of all dilutive equity securities 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 income (loss) per common
      share.




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




Three
                Months Ended June 30,2007
            
            
            2006Net
              Income
            
            
            Shares
            
            
            Per
                Share Amount
            
            
            Net
              Income
            
            
            Shares
            
            
            Per
                Share AmountBasic
                EPS
            
            $
            5,694
            
            
            
            52,596
            
            
            $
            0.11
            
            
            $
            1,761
            
            
            
            51,598
            
            
            $
            0.03Effect
                of dilutive securities:Stock
                options and other dilutive securities
            
            
            -
            
            
            
            1,116
            
            
            
            
            
            
            
            -
            
            
            
            1,395Shares
                issuable pursuant to earn-out agreement
            
            
            -
            
            
            
            25
            
            
            
            
            
            
            
            -
            
            
            
            -Diluted
                EPS
            
            $
            5,694
            
            
            
            53,737
            
            
            $
            0.11
            
            
            $
            1,761
            
            
            
            52,993
            
            
            $
            0.03Six
                Months Ended June 30,2007
            
            
            2006Net
              Income
            
            
            Shares
            
            
            Per
                Share Amount
            
            
            Net
              Loss
            
            
            Shares
            
            
            Per
                Share AmountBasic
                EPS
            
            $
            8,095
            
            
            
            52,471
            
            
            $
            0.15
            
            
            $
            (6,152
            )
            
            
            51,109
            
            
            $
            (0.12
            )Effect
                of dilutive securities:Stock
                options and other dilutive securities
            
            
            -
            
            
            
            1,133
            
            
            
            
            
            
            
            -
            
            
            
            -Shares
                issuable pursuant to earn-out agreement
            
            
            -
            
            
            
            25
            
            
            
            
            
            
            
            -
            
            
            
            -Diluted
                EPS
            
            $
            8,095
            
            
            
            53,629
            
            
            $
            0.15
            
            
            $
            (6,152
            )
            
            
            51,109
            
            
            $
            (0.12
            )




10


**ECLIPSYS
      CORPORATION AND SUBSIDIARIES**


**Notes
      to condensed consolidated financial statements**


**(Unaudited)**





10.
      RESTRUCTURING





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. This was undertaken to better align our organization, reduce
      costs, and re-invest some of the cost savings into client-related activities
      including client support and professional services.  We completed the
      restructuring during the second quarter of 2006. This resulted in restructuring
      charges of approximately $1.3 million and $8.5 million in the three and six
      months ended June 30, 2006, respectively, of which $0.3 million and $1.2 million
      related to non-cash stock-based compensation expense.  In addition, in
      December 2006, we realigned certain management resources and closed three of
      our
      facilities to eliminate excess office space.





We
      did
      not incur any restructuring charges during the three and six months ended June
      30, 2007. As of June 30, 2007, the remaining unpaid restructuring liability
      of
      $2.5 million relates to severance and future lease payments which we expect
      to
      pay out through 2009.





A
      summary
      of the restructuring charges, along with the activity for the six months ended
      June 30, 2007 are as follows (in thousands):




Restructuring
              
              
              
              
              
              
              
              
              
              
              
              RestructuringLiability
                  at
              
              
              2007
                  Activity
              
              
              Liability
                  atJanuary
                  1,
              
              
              Restructuring
              
              
              Reductions
              
              
              June
                  30,2007
              
              
              Charge
              
              
              Cash
              
              
              Non-Cash
              
              
              2007Severance
              
              $
              3,174
              
              
              $
              -
              
              
              $
              2,418
              
              
              $
              -
              
              
              $
              756Facility
                  closures
              
              
              2,486
              
              
              
              -
              
              
              
              788
              
              
              
              -
              
              
              
              1,698$
              5,660
              
              
              $
              -
              
              
              $
              3,206
              
              
              $
              -
              
              
              $
              2,454
  11.
      CONTINGENCIES





On
      July
      10 and July 30, 2007, 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 the Company and the Company
      as a nominal defendant.  The derivative complaints, which followed the
      Company’s announcement in May 2007 of the results of the Company’s voluntary
      review of its historical stock option practices, are similar to derivative
      complaints regarding stock option dating filed against more than 150 other
      companies during the last two years.  The complaints allege that
      during the period from at least 1999 until 2006 certain of the Company's 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.  The complaints seek
      to assert claims under the Securities Exchange Act of 1934 and under state
      law,
      and request as relief that the individual defendants be ordered to pay damages
      and disgorgement in unspecified amounts to the Company, that unspecified
      equitable relief be ordered, that the Company be required to make certain
      corporate governance changes, that plaintiffs be awarded attorneys’ fees, and
      that other relief as defined by the court be ordered.  The Company
      understands that the complaint has not yet been served, and to date no response
      has been filed to the complaint.  The Company is currently unable to
      predict the outcome of the litigation or to reasonably estimate the range of
      potential loss, if any.





In
      addition to the foregoing, the Company and its subsidiaries are from time to
      time parties to legal proceedings, lawsuits and other claims incident to their
      business activities.  Such matters may include, among other things,
      assertions of contract breach or intellectual property infringement, claims
      for
      indemnity arising in the course of our business and claims by persons whose
      employment with us has been terminated.  Such matters are subject to
      many uncertainties and outcomes are not predictable with
      assurance.  Consequently, management is unable to ascertain the
      ultimate aggregate amount of monetary liability, amounts which may be covered
      by
      insurance or recoverable from third parties, or the financial impact with
      respect to these matters as of June 30, 2007.  However, based on our
      knowledge, management believes that the final resolution of such matters pending
      at the time of this report, individually and in the aggregate, will not have
      a
      material adverse effect upon our consolidated financial position, results of
      operations or cash flows.




11


**ECLIPSYS
      CORPORATION AND SUBSIDIARIES**


**Notes
      to condensed consolidated financial statements**


**(Unaudited)**





12.
      RECENT ACCOUNTING PRONOUNCEMENTS





In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value
      Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159
      allows us an option to report selected financial assets and liabilities at
      fair
      value and establishes presentation and disclosure requirements. SFAS 159 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Eclipsys
      has
      not yet determined the impact of adopting SFAS 159 on its financial
      statements.





In
      September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 enhances existing guidance for measuring assets and liabilities
      using fair value. Prior to the issuance of SFAS 157, guidance for applying
      fair
      value was incorporated in several accounting pronouncements. SFAS 157 provides
      a
      single definition of fair value, together with a framework for measuring it,
      and
      requires additional disclosure about the use of fair value to measure assets
      and
      liabilities. SFAS 157 also emphasizes that fair value is a market-based
      measurement, not an entity-specific measurement, and sets out a fair value
      hierarchy with the highest priority being quoted prices in active markets.
      Under
      SFAS 157, fair value measurements are disclosed by level within that hierarchy.
      SFAS 157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years, the
      same
      effective date as SFAS 159. Eclipsys has not yet determined the impact of
      adopting SFAS 157 on its financial statements.





In
      June
      2006, the FASB issued Financial Interpretation 48, "Accounting for Uncertainty
      in Income Taxes" (FIN 48) which clarifies the accounting for uncertainty in
      income taxes recognized in financial statements in accordance with SFAS 109,
      "Accounting for Income Taxes." This Interpretation prescribes a recognition
      threshold and measurement attribute of tax positions taken or expected to be
      taken on a tax return. We adopted this Interpretation effective January 1,
      2007.




We
      did
      not have any material unrecognized tax benefits and there was no effect on
      our
      financial condition or results of operations as a result of implementing FIN
      48.





The
      Company records income tax penalties, if any, in general and administrative
      expense.  Interest on penalties, if any, is recorded as interest
      expense, which is included in interest income, net, on the income statement.
      The
      Company has not recorded any interest or penalties related to FIN 48, in the
      current quarter or on a cumulative basis.





We
      file
      income tax returns in the U.S. federal jurisdiction, numerous states, Canada
      and
      India. All federal, state and international jurisdictions are open to
      examination due to net operating loss carryforwards. The Company has not been
      audited by the Internal Revenue Service. We do not believe there will be any
      material change in our unrecognized tax benefits over the next twelve
      months.





In
      June
      2006, EITF 06-3, “How Sales Taxes Collected from Clients and Remitted to
      Governmental Authorities Should Be Presented in the Income Statement (That
      is,
      Gross Versus Net Presentation)” (“EITF 06-3”) was issued. EITF 06-3 requires
      disclosure of the presentation of taxes on either a gross (included in revenues
      and costs) or a net (excluded from revenue) basis as an accounting policy
      decision. The Company adopted the provisions of this standard effective January
      1, 2007 and records taxes on a net basis. The adoption of EITF 06-3 did not
      have
      a material impact on our consolidated financial statements.





13. 
      LETTER OF CREDIT





In
      April
      2007, we entered into a letter of credit agreement in the amount of $1.9 million
      to secure our obligation under a lease agreement for our new Atlanta location.
      The letter of credit is collateralized by the Company’s cash of $2.0 million.
      The letter of credit expires in October 2008, but is automatically extended
      for
      one year periods, not beyond December 2017.  The cash collateral is
      restricted by the terms of the credit agreement and is included in “Other
      assets” on our Balance Sheet as of June 30, 2007.




12


ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS





This
      report contains forward-looking statements that are based on our current
      expectations, assumptions, estimates and projections about our company and
      our
      industry. These statements are not guarantees of future performance and actual
      outcomes may differ materially from what is expressed or forecasted. When used
      in this report, the words “may,” “will,” “should,” “predict,” “continue,”
“plans,” “expects,” “anticipates,” “estimates,” “intends,” “believe,” “could,”
and similar expressions are intended to identify forward-looking statements.
      These statements may include, but are not limited to, statements concerning
      our
      anticipated performance, including revenue, margin, cash flow, balance sheet
      and
      profit expectations; development and implementation of our software; duration,
      size, scope and revenue expectations associated with client contracts; benefits
      provided by Eclipsys software, outsourcing and consulting services; business
      mix; sales and growth in our client base; market opportunities; industry
      conditions; and our accounting, including its effects and potential changes
      in
      accounting.





Actual
      results might differ materially from the results projected due to a number
      of
      risks and uncertainties. Software development may take longer and cost more
      than
      expected, and incorporation of anticipated features and functionality may be
      delayed, due to various factors including programming and integration challenges
      and resource constraints. We may change our product strategy in response to
      client requirements, market factors, resource availability, and other factors.
      Implementation of some of our software is complex and time consuming. Clients'
      circumstances vary and may include unforeseen issues that make it more difficult
      or costly than anticipated to implement or derive benefit from software,
      outsourcing or consulting services. The success and timeliness of our services
      often depend at least in part upon client involvement, which can be difficult
      to
      control. We are required to meet standard performance specifications, and
      contracts can be terminated or their scope reduced under certain circumstances.
      Competition is vigorous, and competitors may develop more compelling offerings
      or offer more aggressive pricing. New business is not assured and existing
      clients may migrate to competing offerings. Financial performance targets might
      not be achieved due to various risks, including slower-than-expected business
      development or new account implementation, or higher-than-expected costs to
      develop products, meet service commitments or sign new contracts. Our cash
      consumption may exceed expected levels if profitability does not meet
      expectations or strategic opportunities require cash investments. These and
      other risks and uncertainties that could cause our actual results to differ
      materially from our forward-looking statements are described in this report
      under the headings “Risk Factors” and “Management's Discussion and Analysis of
      Financial Condition and Results in Operations” and in our other filings made
      from time to time with the Securities and Exchange Commission. The cautionary
      statements made in this report should be read as being applicable to all related
      forward-looking statements wherever they appear. These statements are only
      predictions. We cannot guarantee future results, levels of activity, performance
      or achievements. All forward-looking statements attributable to us or any
      persons acting on our behalf are expressly qualified in their entirety by the
      risk factors referenced above and other risks set forth in this report or other
      reports we have filed or may file with the Securities and Exchange Commission.
      We assume no obligation to publicly update or revise these forward-looking
      statements for any reason, or to update the reasons actual results could differ
      materially from those anticipated in these forward-looking statements, even
      if
      new information becomes available in the future. We nonetheless reserve the
      right to make such updates from time to time without the need for specific
      reference to this report. No such update shall be deemed to indicate that other
      statements not addressed by such updates remain correct or create an obligation
      to provide any other updates.




**Executive
      Overview**




*The
      following should be read in conjunction with our condensed consolidated
      financial statements, including the notes thereto, which are included elsewhere
      in this document.*





Eclipsys
      is a healthcare information technology company and a leading provider of
      advanced integrated information software clinical content and professional
      services that help healthcare organizations improve clinical, financial and
      operational processes. We develop and license proprietary software and content
      that is designed for use in connection with many of the key clinical,
      administrative and financial functions that healthcare organizations require.
      Among other things, our software enables physicians, nurses and other clinicians
      to order tests, treatments and medications, and to record, access and share
      information about patients. The software also facilitates hospitals’ patient
      admissions, scheduling, records maintenance, invoicing, inventory control,
      cost
      accounting, and assessment of profitability of specific medical procedures
      and
      personnel. Our content, which is integrated with our software, provides practice
      guidelines for use by physicians, nurses and other clinicians.




We
      believe that one of the key differentiators of our software is its open,
      flexible and modular architecture.  This allows our software to be
      installed one application at a time or all at once, and to generally integrate
      easily with software developed by other vendors or our clients. This enables
      our
      clients to install our software without the disruption and expense of replacing
      their existing software systems to gain additional
      functionality.





We
      market
      our software to small, stand-alone hospitals, large multi-entity healthcare
      systems, academic medical centers, community hospitals and other healthcare
      organizations. We have one or more of our software applications installed in,
      or
      licensed to be installed at approximately 1,500 facilities. Most of the
      top-ranked U.S. hospitals named in *U.S. News & World Report*’s Honor
      Roll use one or more of our solutions.


13


**THREE
        MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30,
        2006**
 **(in
        thousands, except per share amounts)**
  **2007**
              
              **%
                  of Total Revenues**
              
              
              **2006**
              
              **%
                  of Total Revenues**
              
              
              **Change
                  ($)**
              
              
              **Change
                  (%)**RevenuesSystems
                  and  services
              
              $
              114,266
              
              
              96.0
              %
              
              $
              97,821
              
              
              95.5
              %
              
              $
              16,445
              
              
              
              16.8
              %Hardware
              
              
              4,753
              
              
              4.0
              %
              
              
              4,576
              
              
              4.5
              %
              
              
              177
              
              
              
              3.9
              %Total
                  revenues
              
              
              119,019
              
              
              100.0
              %
              
              
              102,397
              
              
              100.0
              %
              
              
              16,622
              
              
              
              16.2
              %Costs
                  and expensesCost
                  of systems and services
              
              
              67,414
              
              
              56.6
              %
              
              
              58,120
              
              
              56.8
              %
              
              
              9,294
              
              
              
              16.0
              %Cost
                  of hardware
              
              
              3,737
              
              
              3.1
              %
              
              
              3,851
              
              
              3.8
              %
              
              
              (114
              )
              
              
              -3.0
              %Sales
                  and marketing
              
              
              18,034
              
              
              15.2
              %
              
              
              14,531
              
              
              14.2
              %
              
              
              3,503
              
              
              
              24.1
              %Research
                  and development
              
              
              13,799
              
              
              11.6
              %
              
              
              14,020
              
              
              13.7
              %
              
              
              (221
              )
              
              
              -1.6
              %General
                  and administrative
              
              
              7,614
              
              
              6.4
              %
              
              
              6,184
              
              
              6.0
              %
              
              
              1,430
              
              
              
              23.1
              %Depreciation
                  and amortization
              
              
              4,296
              
              
              3.6
              %
              
              
              3,894
              
              
              3.8
              %
              
              
              402
              
              
              
              10.3
              %Restructuring
                  charge
              
              
              -
              
              
              0.0
              %
              
              
              1,349
              
              
              1.3
              %
              
              
              (1,349
              )
              
              
              -100.0
              %Total
                  costs and expenses
              
              
              114,894
              
              
              96.5
              %
              
              
              101,949
              
              
              99.6
              %
              
              
              12,945
              
              
              
              12.7
              %Income
                  from operations
              
              
              4,125
              
              
              3.5
              %
              
              
              448
              
              
              0.4
              %
              
              
              3,677
              
              
              
              820.8
              %Interest
                  income, net
              
              
              1,588
              
              
              1.3
              %
              
              
              1,313
              
              
              1.3
              %
              
              
              275
              
              
              
              20.9
              %Income
                  before taxes
              
              
              5,713
              
              
              4.8
              %
              
              
              1,761
              
              
              1.7
              %
              
              
              3,952
              
              
              
              224.4
              %Provision
                  for income taxes
              
              
              19
              
              
              0.0
              %
              
              
              -
              
              
              0.0
              %
              
              
              19
              
              
              
              0.0
              %Net
                  income
              
              $
              5,694
              
              
              4.8
              %
              
              $
              1,761
              
              
              1.7
              %
              
              $
              3,933
              
              
              
              223.3
              %Basic
                  net income per common share
              
              $
              0.11
              
              
              
              
              
              $
              0.03
              
              
              
              
              
              $
              0.08Diluted
                  net income per common share
              
              $
              0.11
              
              
              
              
              
              $
              0.03
              
              
              
              
              
              $
              0.08
  **RESULTS
      OF OPERATIONS**





*Revenues*


Total
      revenues increased $16.6 million, or 16.2%, to $119.0 million for the quarter
      ended June 30, 2007, compared with $102.4 million for the second quarter of
      2006.





Systems
      and services


Systems
      and services revenues increased $16.5 million, or 16.8%, to $114.3 million
      for
      the quarter ended June 30, 2007, compared with $97.8 million for the same period
      of 2006. This increase is primarily attributable to revenue recognized on a
      ratable basis from contracts signed since the second quarter of
      2006.





Revenues
      recognized ratably from software, maintenance, outsourcing and remote
      hosting  were $74.4 million, an increase of $6.3 million or 9.3%, when
      compared to the same period in 2006. The increase was due to higher sales
      bookings of our software as well as higher revenues from our outsourcing and
      remote hosting related services.





The
      increase in professional services revenues, which include implementation and
      consulting related services, also contributed to the increase in systems and
      services revenues.  Professional services revenues were $29.1 million,
      which represented an increase of $5.6 million or 23.8% over the prior year.
      The
      increase is related to additional customer implementation activity and an
      improvement in utilization.  Professional service implementations and
      activations are expected to continue at higher levels in 2007 when compared
      to
      2006.





Additionally,
      periodic revenues related to software licenses were $5.4 million, revenues
      related to third party software licenses were $2.4 million and revenues related
      to networking services were $3.0 million for the quarter ended June 30, 2007.
      This compared to revenues of $1.4 million for software licenses, $1.3 million
      for third party software licenses and $3.5 million for network services for
      the
      quarter ended June 30, 2006. In
      any
      quarter the Company recognizes software revenue that can be considered
      non-recurring in nature and results from new traditional client contracts signed
      during the period, achievement during the period of contract milestones from
      traditional client contracts signed in previous periods, and certain other
      activities during the period associated with clients.  There is generally
      relatively little in-period cost associated with these revenues so they can
      contribute significantly to margin in the period.  We expect these periodic
      revenues to continue to fluctuate on a quarterly basis as a result of
      significant variations in the type and magnitude of sales and other contract
      activity in any period, and these variations make it difficult to predict the
      nature and amount of these periodic revenues.


14


Hardware


Hardware
      revenues increased slightly during the quarter to $4.8 million, compared with
      $4.6 million in the second quarter of 2006.


*Expenses*


Included
      in costs and expenses for the quarters are the following non-cash stock-based
      compensation charges (in thousands):




Three
                  Months Ended June 30,2007
              
              
              2006Cost
                  of systems & services
              
              $
              1,099
              
              
              $
              744Sales
                  and marketing
              
              
              710
              
              
              
              890Research
                  and development
              
              
              573
              
              
              
              494General
                  and administrative
              
              
              405
              
              
              
              579Restructuring
                  charge
              
              
              -
              
              
              
              267Total
                  stock-based compensation expense
              
              $
              2,787
              
              
              $
              2,974
  Cost
      of
      systems and services increased by $9.3 million, or 16.0%, to $67.4 million
      in
      the quarter ended June 30, 2007, compared to $58.1 million in the second quarter
      of 2006. The increase in costs of systems and services was primarily driven
      by
      additional sales of our products as described above, with associated increases
      in compensation costs and travel to support the increased level of sales
      activity.




Cost
      of
      hardware was $3.7 million during the second quarter of 2007 and was relatively
      consistent with the second quarter of 2006. Due to a more favorable hardware
      costs, gross margins on hardware revenue increased to 21.4% in the second
      quarter of 2007 compared with 15.8% in second quarter 2006.





Sales
      and
      marketing expenses increased by $3.5 million, or 24.1%, to $18.0 million for
      the
      quarter ended June 30, 2007, compared to $14.5 million for the second quarter
      of
      2006. The increase in sales and marketing expenses was primarily related to
      increased commissions on higher sales bookings during the quarter and additional
      expenses for trade shows and other marketing events, targeted to increase market
      awareness of our software and services.





Research
      and development expenses during the current quarter were $13.8 million, compared
      to $14.0 million in the second quarter of 2006. Gross research and development
      costs, including capitalized software, were $19.2 million in the second quarter
      of 2007, compared to $17.1 million in the same quarter of 2006. The increase
      in
      gross research and development costs was due to additional compensation-related
      expenses on a higher employee base as we expand our development
      activities.  Capitalized software development costs increased by $2.3
      million to $5.4 million in the quarter ended June 30, 2007 from $3.1 million
      in
      the quarter ended June 30, 2006. Software development costs capitalized during
      the second quarter of 2007 reflect increased activity related to the upcoming
      release of Sunrise XA 5.0, while a large portion of development costs in the
      second quarter of 2006 were non-capitalizable, as they related
      to  maintenance following the release of Sunrise XA 4.5 in early
      2006.





General
      and administrative expenses increased by $1.4 million, or 23.1%, to $7.6
      million, in the quarter ended June 30, 2007, compared to $6.2 million in the
      second quarter of 2006. The increase in expenses was primarily related to $1.2
      million in additional expenses, mostly related to legal and audit fees, in
      connection with our voluntary stock option review completed in May of
      2007.





Depreciation
      and amortization increased by $0.4 million, or 10.3%, to $4.3 million for the
      quarter ended June 30, 2007, compared to $3.9 million, in the second quarter
      of
      2006. The increase in depreciation and amortization is attributable to the
      increased asset base,  including our enterprise resource planning
      (“ERP”) system implemented in the second quarter of 2006, intangible assets
      acquired in July of 2006 related to the acquisition of Sysware Health Care
      Systems, Inc, as well as on-going purchases of fixed assets needed to support
      our operations.





During
      the second quarter of 2006, we recorded additional restructuring charges of
      $1.3
      million. This was undertaken to better align our organization, reduce costs
      and
      to re-invest some of the cost savings into client-related activities including
      client support and professional services. We did not incur any restructuring
      charges during the second quarter of 2007. At June 30, 2007, the remaining
      unpaid liability in connection with our 2006 restructuring activities was $2.5
      million, which we expect to pay out through 2009.





Interest
      income increased $0.3 million, or 20.9%, to $1.6 million for the quarter ended
      June 30, 2007, compared to $1.3 million for the second quarter of 2006. The
      increase was due to higher interest income earned in the quarter on higher
      balances of marketable securities investments.





As
      a
      result of these factors, our net income was $5.7 million for the quarter ended
      June 30, 2007, compared to $1.8 million for the second quarter in
      2006.




15


**SIX
      MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JUNE 30,
      2006**


**(in
      thousands, except per share amounts)**


**2007**
              
              **%
                  of Total Revenues**
              
              
              **2006**
              
              **%
                  of Total Revenues**
              
              
              **Change
                  ($)**
              
              
              **Change
                  (%)**RevenuesSystems
                  and  services
              
              $
              223,449
              
              
              96.3
              %
              
              $
              194,151
              
              
              95.5
              %
              
              $
              29,298
              
              
              
              15.1
              %Hardware
              
              
              8,600
              
              
              3.7
              %
              
              
              9,137
              
              
              4.5
              %
              
              
              (537
              )
              
              
              -5.9
              %Total
                  revenues
              
              
              232,049
              
              
              100.0
              %
              
              
              203,288
              
              
              100.0
              %
              
              
              28,761
              
              
              
              14.1
              %Costs
                  and expensesCost
                  of systems and services
              
              
              131,701
              
              
              56.8
              %
              
              
              114,594
              
              
              56.4
              %
              
              
              17,107
              
              
              
              14.9
              %Cost
                  of hardware
              
              
              6,764
              
              
              2.9
              %
              
              
              7,502
              
              
              3.7
              %
              
              
              (738
              )
              
              
              -9.8
              %Sales
                  and marketing
              
              
              36,172
              
              
              15.6
              %
              
              
              30,741
              
              
              15.1
              %
              
              
              5,431
              
              
              
              17.7
              %Research
                  and development
              
              
              28,207
              
              
              12.2
              %
              
              
              30,982
              
              
              15.2
              %
              
              
              (2,775
              )
              
              
              -9.0
              %General
                  and administrative
              
              
              15,603
              
              
              6.7
              %
              
              
              11,840
              
              
              5.8
              %
              
              
              3,763
              
              
              
              31.8
              %Depreciation
                  and amortization
              
              
              8,571
              
              
              3.7
              %
              
              
              7,696
              
              
              3.8
              %
              
              
              875
              
              
              
              11.4
              %Restructuring
                  charge
              
              
              -
              
              
              0.0
              %
              
              
              8,547
              
              
              4.2
              %
              
              
              (8,547
              )
              
              
              -100.0
              %Total
                  costs and expenses
              
              
              227,018
              
              
              97.8
              %
              
              
              211,902
              
              
              104.2
              %
              
              
              15,116
              
              
              
              7.1
              %Income
                  from operations
              
              
              5,031
              
              
              2.2
              %
              
              
              (8,614
              )
              
              -4.2
              %
              
              
              13,645
              
              
              
              158.4
              %Interest
                  income, net
              
              
              3,102
              
              
              1.3
              %
              
              
              2,462
              
              
              1.2
              %
              
              
              640
              
              
              
              26.0
              %Income
                  before taxes
              
              
              8,133
              
              
              3.5
              %
              
              
              (6,152
              )
              
              -3.0
              %
              
              
              14,285
              
              
              
              232.2
              %Provision
                  for income taxes
              
              
              38
              
              
              0.0
              %
              
              
              -
              
              
              0.0
              %
              
              
              38
              
              
              
              0.0
              %Net
                  income (loss)
              
              $
              8,095
              
              
              3.5
              %
              
              $
              (6,152
              )
              
              -3.0
              %
              
              $
              14,247
              
              
              
              231.6
              %Basic
                  net income (loss) per common share
              
              $
              0.15
              
              
              
              
              
              $
              (0.12
              )
              
              
              
              
              $
              0.27Diluted
                  net income (loss) per common share
              
              $
              0.15
              
              
              
              
              
              $
              (0.12
              )
              
              
              
              
              $
              0.27


**RESULTS
      OF OPERATIONS**





*Revenues*


Total
      revenues increased by $28.7 million, or 14.1%, to $232.0 million in the six
      months ended June 30, 2007, compared with $203.3 million in the first six months
      of 2006.





Systems
      and services


Systems
      and services revenues increased by $29.3 million, or 15.1%, to $223.4 million
      in
      the six months ended June 30, 2007, compared with $194.2 million in the first
      six months of 2006. This increase is primarily attributable to revenue
      recognized on a ratable basis from contracts signed since the second quarter
      of
      2006.





Specifically,
      revenues recognized ratably from software, maintenance, outsourcing and remote
      hosting were $147.6 million, an increase of $12.2 million or 9.1%, when compared
      to the prior year. The increase was due to higher sales bookings of our
      software as well as higher revenues from our outsourcing and remote hosting
      related services, primarily related to contracts signed during
      2006.





The
      increase in professional services revenues also contributed to the increase
      in
      systems and services revenues.  Professional services revenues, which
      include implementation and consulting related services, were $58.8 million,
      an
      increase of $11.6 million or 24.6% over the prior year.  The increase was
      related to additional customer implementation activity and an improvement in
      utilization.  Professional service implementations and activations are
      expected to continue at higher levels in 2007 when compared to
      2006.





Additionally,
      periodic revenues related to software licenses were $8.1 million, revenues
      related to third party software licenses were $3.6 million and revenues related
      to networking services were $5.5 million for the six months ended June 30,
      2007.
      This compared to revenues of $5.5 million for software licenses, $3.6 million
      for third party software licenses and $2.9 million for network services for
      the
      six months ended June 30, 2006. In any quarter the Company recognizes software
      revenue that can be considered non-recurring in nature and results from new
      traditional client contracts signed during the period, achievement during the
      period of contract milestones from traditional client contracts signed in
      previous periods, and certain other activities during the period associated
      with
      clients.  There is generally relatively little in-period cost associated
      with these revenues so they can contribute significantly to margin in the
      period.  We expect these periodic revenues to continue to fluctuate on a
      quarterly basis as a result of significant variations in the type and magnitude
      of sales and other contract activity in any period, and these variations make
      it
      difficult to predict the nature and amount of these periodic
      revenues.


Hardware


Hardware
      revenues decreased by $0.5 million, or 5.9%, to $8.6 million for the six months
      ended June 30, 2007, compared with $9.1 million for the first six months of
      2006, mainly due to a lower level of sales activity in the first quarter of
      2007.




16


*Expenses*


Included
      in costs and expenses for the six months are the following non-cash stock-based
      compensation charges (in thousands):





Six
                  Months Ended June 30,2007
              
              
              2006Cost
                  of systems & services
              
              $
              2,175
              
              
              $
              1,669Sales
                  and marketing
              
              
              1,680
              
              
              
              1,688Research
                  and development
              
              
              1,102
              
              
              
              851General
                  and administrative
              
              
              590
              
              
              
              1,299Restructuring
                  charge
              
              
              -
              
              
              
              1,162Total
                  stock-based compensation expense
              
              $
              5,547
              
              
              $
              6,669
  Cost
      of
      systems and services increased by $17.1 million, or 14.9%, to $131.7 million,
      for the six months ended June 30, 2007, compared to $114.6 million for the
      first
      six months of 2006. The increase in costs of systems and services was primarily
      driven by additional sales of our products as described above, with associated
      increases in compensation expense and travel to support increased activity
      during the period. Gross margins on systems and services revenue increased
      slightly to 41.1% in the first six months of 2007 compared to 41.0% for the
      first six months of 2006.




Cost
      of
      hardware decreased by $0.7 million, or 9.8%, to $6.8 million for the six months
      ended June 30, 2007, compared to $7.5 million in the same period of 2006. The
      decrease in the cost of hardware was attributable to the decrease in hardware
      revenues discussed above. Gross margins on hardware revenue increased to 21.3%
      in the first six months of 2007 compared to 17.9% in first six months 2006,
      due
      to more favorable hardware costs during the period.





Sales
      and
      marketing expenses increased by $5.5 million, or 17.7%, to $36.2 million during
      the six months ended June 30, 2007, compared to $30.7 million during the first
      six months of 2006. The increase in sales and marketing expenses was primarily
      related to increased commissions on higher sales bookings during the second
      quarter and additional expenses for trade shows and other marketing events,
      targeted to increase market awareness of our software and services.





Research
      and development expenses, net of capitalized software, decreased by $2.8
      million, or 9.0%, to $28.2 million, in the six months ended June 30, 2007,
      compared to $31.0 million in the first six months of 2006.  The
      decrease in research and development expense was related to higher research
      and
      development activity in connection with capitalizable project costs, in
      particular,  the upcoming release of version 5.0 of Sunrise XA. A
      large portion of development costs in the second quarter of 2006 were
      non-capitalizable as they related to maintenance following the release of
      Sunrise XA 4.5 in early 2006. Capitalized software development costs increased
      by $5.2 million to $9.8 million for the six months ended June 30, 2007 from
      $4.6
      million for the six months ended June 30, 2006. The increase in capitalizable
      software development costs was somewhat offset by additional
      compensation-related expenses on higher employee base as we expand our
      development activities.  Gross research and development costs were
      $38.0 million in the six months, compared to $35.6 million in the first six
      months of 2006.





General
      and administrative expenses increased by $3.8 million, or 31.8%, to $15.6
      million, in the six months ended June 30, 2007, compared to $11.8 million in
      the
      first six months of 2006. The increase in expenses was primarily related to
      $2.2
      million in additional expenses, mostly related to legal and audit fees, in
      connection with the voluntary stock option review completed in May of
      2007.  The 2007 results also include increased compensation-related
      expenses for additional headcount added to support current and future
      growth.  Additionally, the results for the first six months of 2006
      included capitalization of internal labor costs of $0.4 million in connection
      with implementation of our ERP system, thus reducing the expense incurred in
      the
      period.





Depreciation
      and amortization increased by $0.9 million, or 11.4%, to $8.6 million for the
      six months ended June 30, 2007, compared to $7.7 million in the same period
      of
      2006. The increase in depreciation and amortization is attributable to the
      increased asset base,  including our ERP system implemented in the
      second quarter of 2006, intangible assets acquired in July of 2006 related
      to
      the acquisition of Sysware Health Care Systems, Inc, as well as on-going
      purchases of fixed assets needed to support our operations.





In
      the
      six months ended June 30, 2006, we recorded a charge of $8.5 million in
      connection with the restructuring. The restructuring was implemented to
      re-invest some of the cost savings into client-related activities, including
      client support and professional services. We did not incur any restructuring
      charges during the first six months of 2007. At June 30, 2007, the remaining
      unpaid liability in connection with our 2006 restructuring activities was $2.5
      million, which we expect to pay out through 2009.





Interest
      income increased $0.6 million, or 26.0%, to $3.1 million for the six months
      ended June 30, 2007, compared to $2.5 million for the first six months of 2006.
      The increase was due to higher interest income earned in the first six months
      of
      2007 on higher balances of marketable securities investments.





As
      a
      result of these factors, our net income was $8.1 million for the six months
      ended June 30, 2007, compared to a net loss of $6.2 million for the first six
      months in 2006.


17
  LIQUIDITY
      AND CAPITAL RESOURCES





During
      the six months ended June 30, 2007, operating activities provided $16.7 million
      of cash. Operating activities were favorably impacted by income generated from
      operations of $33.8 million (adjusted for non cash charges of $25.7 million),
      offset by uses of cash of $17.1 million from the fluctuations in operating
      assets and liabilities due to timing of payments and cash receipts.
      Additionally, included in the operating activities are payments of $3.2 million
      in connection with our 2006 restructuring activities. Investing activities
      used
      $36.0 million of cash, primarily consisting of net purchases of marketable
      securities of $15.1 million to invest excess cash not needed in daily
      operations, routine business purchases of property and equipment of $8.4
      million, capitalized software development costs of $9.8 million for new product
      development as well as $2.0 million in funds used to collateralize a letter
      of
      credit on a new building lease.  Financing activities provided cash
      inflow of $7.5 million from exercises of stock options. The timing and
      amount of cash provided by future stock option exercises is
      uncertain.





As
      of
      June 30, 2007, our principal source of liquidity was our cash and cash
      equivalents and marketable securities balances of $134.5 million. Our
      future liquidity requirements will depend on a number of factors including,
      among other things, the timing and level of our new sales volumes, the cost
      of
      our development efforts, the success and market acceptance of our future product
      releases, and other related items. We believe that our current cash and cash
      equivalents and marketable securities balances, combined with our anticipated
      cash collections from customers will be adequate to meet our currently
      anticipated liquidity requirements for the next twelve months. These
      requirements are expected to be funded with cash generated from operations,
      as
      well as our current cash and cash equivalent balances.




OFF-BALANCE
      SHEET ARRANGEMENTS




At
      June
      30, 2007, we did not have any material off-balance sheet
      arrangements.




CRITICAL
      ACCOUNTING POLICIES




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




ITEM
      3.QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT MARKET
      RISK





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





We
      do not
      currently use derivative financial instruments. We do not currently enter into
      foreign currency hedge transactions. Foreign currency fluctuations have not
      had
      a material impact on our financial position or results of
      operations.





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


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


18




We
      estimate that a one-percentage
      point decrease in interest rates for our marketable securities portfolio as
      of
      June 30, 2007 would have resulted in a decrease in interest income of $1.0
      million for a twelve month period. This sensitivity analysis contains certain
      simplifying assumptions (for example, it does not consider the impact of changes
      in the portfolio as a result of our business needs or as a response to changes
      in the market). Therefore, although it gives an indication of our exposure
      to
      changes in interest rates, it is not intended to predict future results and
      our
      actual results will likely vary.





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






ITEM
      4.CONTROLS AND PROCEDURES





*Evaluation
      of Disclosure Controls and Procedures*




Our
      management, with the participation of our Chief Executive Officer and Chief
      Financial Officer, evaluated the effectiveness of our disclosure controls and
      procedures as defined in Rule 13a-15(e) under the Exchange Act as of June 30,
      2007.  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 June 30, 2007, our disclosure controls
      and procedures were effective at the reasonable assurance level.





*Changes
      in Internal Control over Financial Reporting*





There
      were changes in our internal control over financial reporting during the
      quarter ended June 30, 2007 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.  As previously disclosed in our 2006 Annual Report on Form
      10-K and in our Quarterly Report on Form 10-Q for the quarter ended March 31,
      2007, the following changes were implemented to improve our non-cash stock-based
      compensation expense internal controls, and such controls were implemented
      and
      were operating effectively during the quarter ended June 30, 2007:





·
            A
                review of the method of amortization for all grants on a quarterly
                basis
                to detect  changes to previously input information;
                and





·
            A
                quarterly review of a system report that includes all grants, as
                opposed
                to only reviewing new grants in the quarter to detect changes to
                previously input information.





19


PART
      II.


ITEM
      1.LEGAL PROCEEDINGS





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





ITEM
      1A.RISK FACTORS





Many
      risks affect our business.  We believe the following risk
      has materially changed from the risk factor disclosed on our 2006 Annual Report
      on Form 10-K, including principally the addition of the fourth paragraph, and
      should be considered together with the risk factors we have previously
      disclosed, which are set forth below.





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





As
      a
      result of our voluntary review of historical stock option practices, 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 included in our Form 10-K for the year ended December
      31,
      2006.  In addition, the review and related activities resulted in
      substantial expenses for legal, accounting, tax and other professional
      services.




We
      believe we made 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 a commensurate risk that we may have to further restate prior period
      results.





Our
      past
      stock option granting practices and the restatement of prior financial
      statements have exposed us to risks associated with claims by stockholders
      or
      employees, regulatory proceedings, government enforcement actions and related
      investigations and litigation. These risks include 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.





On
      July
      10 and July 30, 2007, 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 the Company and the Company
      as a nominal defendant.  The derivative complaints are similar to
      derivative complaints regarding stock option dating filed against more than
      150
      other companies during the last two years.  The complaints allege that
      as a result of this alleged backdating of option grants our financial statements
      were misstated, and stock sales by the named defendants constituted improper
      insider selling.  We are currently unable to predict the outcome of
      the litigations or to reasonably estimate the range of potential loss, if
      any.  However, dealing with such litigations will result in
      incremental legal expenses and could divert management’s attention from other
      business concerns.  See Note 11 to our Condensed Consolidated
      Financial Statements for further details.


_______________





Many
      other risks affect our business.  These risks include, but are not limited
      to, those described below, each of which may be relevant to decisions regarding
      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 in other ways, so no special significance should
      be attributed to these groupings.  Any of these risks could have a
      significant adverse effect on our reputation, business, financial condition
      or
      results of operations.




**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 other things.  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 as described in our
      software specifications, we could be subject to significant contractual
      damages.




20




***Our
      software development efforts may not meet the needs of our clients, which could
      adversely affect our results of operations.***




We
      continuously strive to develop new software, and improve our existing software
      to add new 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.  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 develop and introduce
      competing new software and services that are appropriately priced to meet
      changing client and market requirements. The process of developing software
      and
      services such as those we offer is extremely complex and is expected to become
      more complex and expensive in the future as new technologies are
      introduced.  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,
      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. The .NET Framework, in particular, is a relatively
      new and evolving technology. 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.




***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. The laws of some foreign countries may not protect our
      proprietary rights as fully as do the laws of the United States. 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.




21
  **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 may 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.  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
      consistent with a client's schedule may be a competitive disadvantage for us
      as
      we pursue new business.  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 expensive third-party consultants, our costs will
      increase.




***Our
      performance depends upon software sales.***




We
      must
      achieve higher levels of software sales, consistent with our projections, in
      order to achieve our expectations for annual revenue and earnings and to provide
      a solid foundation for future growth. Our ability to improve sales depends
      upon
      many factors, including completion of implementation and successful use of
      our
      new software releases, particularly our pharmacy and ambulatory solutions,
      in
      live environments for clients who achieve success and are willing to become
      reference sites for us.





**RISKS
      RELATED TO OUR 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 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.




22




**Any
      breach of confidentiality of client or patient data in our service center 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.  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 unforeseen liabilities
      that the client had to these employees.  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 their software in our data center, or to allowing 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.




**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 of new software
      to
      meet the needs of our current and future clients. 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 such as Deloitte & Touche and Cap
      Gemini, 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 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
      competition.*




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 require
      significant investments of time and resources by clients. This reduces our
      advantage as the incumbent vendor and has allowed our competitors to target
      these clients, with some success.  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.


23
  ***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, the
      shift to managed healthcare in the 1990's put pressure on healthcare
      organizations to reduce costs, and the Balanced Budget Act of 1997 dramatically
      reduced Medicare reimbursement to healthcare organizations. 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.  If healthcare information technology spending declines or
      increases more slowly than we anticipate, demand for our software could be
      adversely affected.




***Healthcare
      industry consolidation could impose 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 acquisition of our clients
      could erode our revenue base.




***Potential
      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 or regulatory
      authorities could cause emergence of software standards applicable to us, and
      if
      our software is not consistent with those standards we could be forced to incur
      substantial additional development costs to conform. For example, the CCHIT
      is
      developing comprehensive sets of criteria for the functionality,
      interoperability, and security of various software modules in our industry.
      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.  If our software is not
      consistent with emerging standards, our market position and sales could be
      impaired and we may have to change our software.




**RISKS
      RELATED TO OUR OPERATING RESULTS, ACCOUNTING CONTROLS AND
      FINANCES**




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




During
      each of the five preceding years, we had an operating loss. We may incur losses
      in the future, and it is not certain that we will achieve sustained or
      increasing 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;




·
            overall
                demand for healthcare information
                technology;




·
            the
                financial condition of our clients and potential
                clients;




·
            market
                acceptance or our new services, software and software enhancements
                by us
                or our competitors;




·
            client
                decisions regarding renewal or termination of their
                contracts;




·
            software
                and price competition;




24




·
            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;
                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.




***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 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 difficult
      for
      us to rapidly increase our revenues through additional sales in any period,
      as a
      significant portion of revenues from new clients must generally 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, 2006, approximately 40% of our revenues
      were
      attributable to our 20 largest clients.  In addition, approximately 36% of
      our accounts receivable as of December 31, 2006 were attributable to 20 clients.
      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 stoc*k.**




Section
      404 of the Sarbanes-Oxley Act of 2002 requires that we maintain internal control
      over financial reporting that meets applicable standards. We had a material
      weakness in maintaining effective internal control over financial reporting
      in
      accordance with the requirements of Section 404 (see Item 9A. “Controls and
      Procedures”), and it is possible that we might in the future have another
      material weakness in maintaining such effective internal control over financial
      reporting.  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 our operating
      results which could result in a negative market reaction.




25
  **Inability
      to obtain additional financing could limit our ability to conduct necessary
      development activities and make strategic
      investments.**




While
      our
      available cash and cash equivalents and the cash we anticipate generating from
      operations appear at this time to be adequate to meet our foreseeable needs,
      we
      could incur significant expenses 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 additional financing.  If
      additional financing is not available on acceptable terms, we may not be able
      to
      respond adequately to these changes, which could adversely affect our operating
      results and the market price of our common stock.




RISK
      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 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 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
      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 such defects or errors can be expected
      to
      appear in the future.  Defects and errors that are not timely detected and
      remedied could expose us to risk of liability to clients, clinicians and
      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 our vendors' software 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 vendors. 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 shipments 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.




26




*Our
      offering often includes software 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 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.


***If
      we undertake additional acquisitions, they 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 future acquisitions would involve a number of risks, including
      the following:





·
            the
                anticipated benefits from any acquisition may not be achieved. The
                integration of acquired businesses requires substantial attention
                from
                management. 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 have dilutive effect on future net income, if
                any, per
                share.




·
            new
                business acquisitions must be accounted for under the purchase method
                of
                accounting. These acquisitions may generate significant intangible
                assets
                and result in substantial related amortization charges to
                us.





***Additional
      investment will be required to realize the potential of our Sysware and Mosum
      acquisition.***




We
      must
      make significant investments of money and management time in software
      development and infrastructure in order to realize the potential of our
      acquisition of the business of Sysware and Mosum to (i) have a fully integrated
      and leverageable laboratory information system to sell to our diversified client
      base, and (ii) build Mosum's India operations into an integrated development
      and
      support organization that can cost-effectively augment our onshore resources.
      If
      the additional investment turns out to be more than what we anticipated, this
      may negatively affect our results of operations.





**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
      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 the following 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.




27




**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, 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 or state governmental authorities
      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 specific to international
      operations that could have an adverse effect on our results of
      operations.***




As
      a
      result of our 2006 acquisition of Mosum, we have a significant workforce
      employed in India. To date our operations in India have focused primarily upon
      our laboratory software, but we intend to increase the size and scope of our
      operations in India to include additional research and development and
      administrative functions, with the expectation that our India operations will
      be
      integral to the Company. 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 increases
      in the numbers of foreign businesses that have established operations in India
      and commensurate competition to attract and retain skilled employees has
      increased, and will likely continue to increase, compensation costs. As a result
      of these and other factors there can be no assurance that we will successfully
      integrate our India operations, or that our India operations will advance our
      business strategy and provide a satisfactory return on this
      investment.




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.




More
      generally, foreign operations subject us to additional risks including
      fluctuations in foreign currency exchange rates, varying legislative or
      regulatory requirements and protections, particularly for intellectual property
      rights, and cultural differences. Furthermore, remote operations require
      significant management attention and financial resources.





***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.




28




RISKS
      RELATED TO OUR EQUITY STRUCTURE




***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.***




Our
      board
      of directors has the authority to issue up to 4,900,000 shares of preferred
      stock. The 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. In
      August 2000, our board of directors adopted a stockholder rights plan under
      which we issued preferred stock purchase rights that would adversely affect
      the
      economic and voting interests of a person or group that seeks to acquire us
      or a
      15% or more interest in our common stock without negotiations with our board
      of
      directors.




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 2.
      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





*Issuer
      Purchases of Equity Securities*





The
      following table sets forth information with respect to purchases by Eclipsys
      of
      its equity securities registered pursuant to Section 12 of the Exchange Act
      during the quarter ended June 30, 2007:




(a)
              (b)
              (c)
              (d)Period
              Total Number
                of
                  Shares
                of Common
                Stock
                  Purchased
              Average Price
                Paid Per
                Share of
                Common Stock
              Total Number of
                  Shares of Common Stock Purchased as Part of Publicly Announced
                  Plans or Programs
              Maximum Number (or
                  Approximate Dollar Value) of Shares of Common Stock that May Yet
                  Be
                  Purchased Under the Plans or ProgramsApril
                  1-30, 2007
              -
              -
              -
              -May
                  1-31, 2007
              -
              -
              -
              -June
                  1-30, 2007
              21,230
                  1
              $20.65
              -
              -Total
              21,230
              $20.65
              -
              -


1
            These
                shares were tendered to the Company by employees holding common stock
                initially issued to them in the form of restricted stock awards in
                order
                to reimburse the Company for income tax deposits paid by the Company
                on
                their behalf in respect of taxable income resulting from scheduled
                vesting
                of restricted shares.




29




ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





Pursuant
      to SEC rules, the Company plans on disclosing the voting results on each matter
      considered at the 2007 Annual Meeting of Stockholders held on July 11, 2007
      in
      the Company’s Form 10-Q for the period ending September 30, 2007.  The
      summary outcome of the Annual Meeting is as follows:





1.
            Dan
                L. Crippen and Edward A. Kangas were elected Class III
                Directors;




2.
            Eclipsys'
                Incentive Compensation Plan For Specified Officers was approved;
                and




3.
            The
                selection of PricewaterhouseCoopers, LLP as Eclipsys' independent
                registered certified public accounting firm for the fiscal year ending
                December 31, 2007 was ratified.








ITEM
      6.
      EXHIBITS





See
      Index
      to exhibits.


30


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:
      August 8, 2007





/s/
      Robert J. Colletti


Robert
      J.
      Colletti


Senior
      Vice President and Chief Financial Officer










31


**ECLIPSYS
      CORPORATION**


**EXHIBIT
      INDEX**




Exhibit
              Number
            Description





3.1
                (1)
            Third
                Amended and Restated Certificate of Incorporation of the
                Registrant3.2
                (1)
            Certificate
                of Designation of Series A Junior Participating
                Preferred3.3
                (2)
            Third
                Amended and Restated Bylaws of the Registrant4.1
                (2)
            Specimen
                certificate for shares of Common Stock4.2
                (3)
            Rights
                Agreement, dated July 26, 2000, by and between the Registrant and
                Fleet
                National Bank, as Rights Agent10.1
                *
            Employment
                Offer Letter with Joseph C. Petro, dated February 8, 2007 (Mr. Petro
                became a Section 16 executive officer in the second quarter of
                2007)31.1
            Rule
                13a-14(a) Certification of R. Andrew Eckert31.2
            Rule
                13a-14(a) Certification of Robert J. Colletti32.1
            Rule
                13a-14(b) Certification of R. Andrew Eckert (pursuant to 18 U.S.C.
                Section
                1350)32.2
            Rule
                13a-14(b) Certification of Robert J. Colletti (pursuant to 18 U.S.C.
                Section 1350)




(1)
            Incorporated
                by reference to the Registrant's Quarterly Report on Form 10-Q for
                the
                quarter ended June 30, 1998 (File No. 000-24539)(2)
            Incorporated
                by reference to the Registrant's Registration Statement on Form
                S-1,  as amended (File No. 333-50781)(3)
            Incorporated
                by reference to the Registrant's Current Report on Form 8-K dated
                August
                8, 2000 (File No. 000-24539)*
            Indicates
                a management contract or compensatory plan or
                arrangement





32