##### 



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
   ECLIPSYS CORPORATION
  DELAWARE
(State of Incorporation)
    
    65-0632092
(IRS Employer Identification Number)
 1750 Clint Moore Road
Boca Raton, Florida
33487
  561-322-4321
  þ  o
 þ  o
  Class
    
    Shares outstanding as of August 1, 2005Common Stock, $.01 par value
    
    48,736,198




---



##### 



PagePART I. Financial InformationItem 1. Condensed Consolidated Balance Sheets (unaudited)  As of June 30, 2005 and December 30, 2004
    
    
    3Condensed Consolidated Statements of Operations (unaudited)  For the Three and Six Months
ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited)  For the Three and Six Months
ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. Other InformationItem 1. Legal Proceedings
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 6. Exhibits
    
    
    29Signatures
    
    
    29
 2




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##### 



ECLIPSYS CORPORATION
Condensed Consolidated Balance Sheets  (Unaudited)
(In thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    71,265
    
    
    $
    122,031Marketable securities
    
    
    37,154
    
    
    
    Accounts receivable, net of allowance for
doubtful accounts of $4,544 and $4,952
at June 30, 2005 and December 31, 2004
    
    
    64,947
    
    
    
    64,862Prepaid and other current assets
    
    
    17,923
    
    
    
    15,586Inventory
    
    
    1,672
    
    
    
    1,644Total current assets
    
    
    192,961
    
    
    
    204,123Property and equipment, net
    
    
    34,498
    
    
    
    35,002Capitalized software development costs, net
    
    
    32,335
    
    
    
    29,819Goodwill
    
    
    2,883
    
    
    
    2,863Acquired technology and intangible assets, net
    
    
    4,102
    
    
    
    4,690Other assets
    
    
    23,264
    
    
    
    14,923Total assets
    
    $
    290,043
    
    
    $
    291,420Liabilities and Stockholders EquityCurrent liabilities:Deferred revenue
    
    $
    102,083
    
    
    $
    106,804Other current liabilities
    
    
    28,842
    
    
    
    32,587Accrued compensation costs
    
    
    16,501
    
    
    
    12,738Total current liabilities
    
    
    147,426
    
    
    
    152,129Deferred revenue
    
    
    18,858
    
    
    
    15,892Other long-term liabilities
    
    
    1,266
    
    
    
    122Stockholders Equity:
    
    
    122,493
    
    
    
    123,277$
    290,043
    
    
    $
    291,420
  3




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##### 



ECLIPSYS CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
 THREE MONTHS
    
    
    SIX MONTHSENDED JUNE 30,
    
    
    ENDED JUNE 30,2005
    
    
    2004
    
    
    2005
    
    
    2004REVENUESSystems and services
    
    $
    91,557
    
    
    $
    68,597
    
    
    $
    174,685
    
    
    $
    130,404Hardware
    
    
    4,308
    
    
    
    5,046
    
    
    
    5,615
    
    
    
    11,623TOTAL REVENUES
    
    
    95,865
    
    
    
    73,643
    
    
    
    180,300
    
    
    
    142,027COSTS AND EXPENSESCosts of systems and services revenues
    
    
    55,248
    
    
    
    41,795
    
    
    
    107,513
    
    
    
    81,133Costs of hardware revenues
    
    
    3,557
    
    
    
    4,337
    
    
    
    4,658
    
    
    
    9,971Sales and marketing
    
    
    16,196
    
    
    
    15,458
    
    
    
    34,372
    
    
    
    31,399Research and development
    
    
    13,974
    
    
    
    14,536
    
    
    
    26,550
    
    
    
    29,273General and administrative
    
    
    6,511
    
    
    
    4,407
    
    
    
    10,867
    
    
    
    7,576Depreciation and amortization
    
    
    3,583
    
    
    
    3,295
    
    
    
    7,266
    
    
    
    6,377TOTAL COSTS AND EXPENSES
    
    
    99,069
    
    
    
    83,828
    
    
    
    191,226
    
    
    
    165,729LOSS FROM OPERATIONS
    
    
    (3,204
    )
    
    
    (10,185
    )
    
    
    (10,926
    )
    
    
    (23,702
    )Interest income, net
    
    
    719
    
    
    
    225
    
    
    
    1,280
    
    
    
    679LOSS BEFORE INCOME TAXES
    
    
    (2,485
    )
    
    
    (9,960
    )
    
    
    (9,646
    )
    
    
    (23,023
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (2,485
    )
    
    $
    (9,960
    )
    
    $
    (9,646
    )
    
    $
    (23,023
    )BASIC NET LOSS PER COMMON SHARE
    
    $
    (0.05
    )
    
    $
    (0.21
    )
    
    $
    (0.20
    )
    
    $
    (0.50
    )DILUTED NET LOSS PER COMMON SHARE
    
    $
    (0.05
    )
    
    $
    (0.21
    )
    
    $
    (0.20
    )
    
    $
    (0.50
    )BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
    
    
    47,629
    
    
    
    46,573
    
    
    
    47,444
    
    
    
    46,228DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
    
    
    47,629
    
    
    
    46,573
    
    
    
    47,444
    
    
    
    46,228
  4




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##### 



ECLIPSYS CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 THREE MONTHS ENDED JUNE 30,
    
    
    SIX MONTHS ENDED JUNE 30,2005
    
    
    2004
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet loss
    
    $
    (2,485
    )
    
    $
    (9,960
    )
    
    $
    (9,646
    )
    
    $
    (23,023
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    8,300
    
    
    
    6,226
    
    
    
    16,106
    
    
    
    12,251Provision for bad debts
    
    
    600
    
    
    
    450
    
    
    
    1,050
    
    
    
    1,000Stock compensation expense
    
    
    734
    
    
    
    105
    
    
    
    1,150
    
    
    
    161Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,483
    )
    
    
    (4,986
    )
    
    
    (1,135
    )
    
    
    (106
    )Inventory
    
    
    (108
    )
    
    
    21
    
    
    
    (28
    )
    
    
    (1,148
    )Other current assets
    
    
    1,107
    
    
    
    966
    
    
    
    (2,337
    )
    
    
    3,139Other assets
    
    
    (1,095
    )
    
    
    (459
    )
    
    
    (9,920
    )
    
    
    (2,450
    )Deferred revenue
    
    
    (4,034
    )
    
    
    3,027
    
    
    
    (1,755
    )
    
    
    269Accrued compensation costs
    
    
    2,498
    
    
    
    2,525
    
    
    
    3,763
    
    
    
    (1,508
    )Other current liabilities
    
    
    1,938
    
    
    
    (1,334
    )
    
    
    (3,745
    )
    
    
    (1,001
    )Other long-term liabilities
    
    
    727
    
    
    
    (5
    )
    
    
    1,143
    
    
    
    (537
    )Total adjustments to reconcile net loss
to net cash provided by (used in) operating activities
    
    
    4,184
    
    
    
    6,536
    
    
    
    4,292
    
    
    
    10,070NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    1,699
    
    
    
    (3,424
    )
    
    
    (5,354
    )
    
    
    (12,953
    )INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (2,191
    )
    
    
    (2,777
    )
    
    
    (6,316
    )
    
    
    (6,795
    )Purchases of marketable securities
    
    
    (21,848
    )
    
    
    (81,115
    )
    
    
    (159,866
    )
    
    
    (165,130
    )Proceeds from sales of marketable securities
    
    
    21,554
    
    
    
    80,974
    
    
    
    122,712
    
    
    
    124,181Capitalized software development costs
    
    
    (3,207
    )
    
    
    (3,881
    )
    
    
    (9,634
    )
    
    
    (8,519
    )Cash paid for acquisitions
    
    
    (20
    )
    
    
    
    
    
    
    (20
    )
    
    
    (2,500
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (5,712
    )
    
    
    (6,799
    )
    
    
    (53,124
    )
    
    
    (58,763
    )FINANCING ACTIVITIESExercise of stock options
    
    
    5,926
    
    
    
    497
    
    
    
    7,623
    
    
    
    2,914Proceeds from employee stock purchase plan
    
    
    
    
    
    
    882
    
    
    
    
    
    
    
    1,664NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    5,926
    
    
    
    1,379
    
    
    
    7,623
    
    
    
    4,578EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
    
    
    8
    
    
    
    (9
    )
    
    
    89
    
    
    
    (20
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,921
    
    
    
    (8,853
    )
    
    
    (50,766
    )
    
    
    (67,158
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    69,344
    
    
    
    93,378
    
    
    
    122,031
    
    
    
    151,683CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    71,265
    
    
    $
    84,525
    
    
    $
    71,265
    
    
    $
    84,525SUPPLEMENTAL DISCLOSURENon-cash investing activities:Issuance of shares for acquisition
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,500
  5




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##### 



6




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##### 



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss:As reported
    
    $
    (2,485
    )
    
    $
    (9,960
    )
    
    $
    (9,646
    )
    
    $
    (23,023
    )Add: Stock-based employee compensation expense included
in reported net loss, net of related tax effects
    
    
    734
    
    
    
    105
    
    
    
    1,150
    
    
    
    161Deduct: Total stock-based compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    (3,395
    )
    
    
    (2,666
    )
    
    
    (5,811
    )
    
    
    (5,479
    )Pro forma
    
    
    (5,146
    )
    
    
    (12,521
    )
    
    
    (14,307
    )
    
    
    (28,341
    )Basic net loss per share:As reported
    
    
    (0.05
    )
    
    
    (0.21
    )
    
    
    (0.20
    )
    
    
    (0.50
    )Pro forma
    
    
    (0.11
    )
    
    
    (0.27
    )
    
    
    (0.38
    )
    
    
    (0.61
    )Diluted net loss per share:As reported
    
    
    (0.05
    )
    
    
    (0.21
    )
    
    
    (0.20
    )
    
    
    (0.50
    )Pro forma
    
    
    (0.11
    )
    
    
    (0.27
    )
    
    
    (0.38
    )
    
    
    (0.61
    )
  Security Type
    
    June 30,
    
    
    December 31,(in thousands)
    

2005
    
    

2004Auction Rate Securities:Debt securities issued by the U.S. Treasury and other
U.S. government corporations and
agencies
    
    $
    10,600
    
    
    $
    Debt securities issued by states of the United States
and political subdivisions of the states
    
    
    23,475
    
    
    
    34,075
    
    
    
    Other Securities:Other debt securities
    
    
    3,079Total
    
    $
    37,154
    
    
    $
    
   7




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##### 



Unbilled Accounts Receivable and Deferred Revenue
   June 30, 2005
    
    
    December 31, 2004Accounts Receivable:Billed accounts receivable, net
    
    $
    52,157
    
    
    $
    53,698Total unbilled accounts receivable, net
    
    
    12,790
    
    
    
    11,164Total accounts receivable, net
    
    $
    64,947
    
    
    $
    64,862
   Balance, December 31, 2004
    
    $
    2,057Warranty utilized
    
    
    (588
    )Balance, June 30, 2005
    
    $
    1,469
 8




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##### 



As of June 30, 2005
    
    
    As of December 31, 2004Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net Balance
    
    
    Amount
    
    
    Amortization
    
    
    Net BalanceAmortized intangible assets:Customer relationships
    
    $
    4,335
    
    
    $
    (970
    )
    
    
    3,365
    
    
    $
    4,335
    
    
    $
    (531
    )
    
    $
    3,804Acquired technology
    
    
    914
    
    
    
    (177
    )
    
    
    737
    
    
    
    914
    
    
    
    (28
    )
    
    
    886$
    5,249
    
    
    $
    (1,147
    )
    
    $
    4,102
    
    
    $
    5,249
    
    
    $
    (559
    )
    
    $
    4,690Unamortized intangible assets:Goodwill
    
    $
    2,883
    
    
    $
    
    
    
    $
    2,883
    
    
    $
    2,863
    
    
    $
    
    
    
    $
    2,863
  For the year ending December 31,2005
    
    $
    1,1662006
    
    
    1,1552007
    
    
    1,1302008
    
    
    8512009
    
    
    340Thereafter
    
    
    48$
    4,690
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Loss
    
    $
    (2,485
    )
    
    $
    (9,960
    )
    
    $
    (9,646
    )
    
    $
    (23,023
    )Foreign currency translation adjustment
    
    
    8
    
    
    
    (9
    )
    
    
    89
    
    
    
    (20
    )Total comprehensive loss
    
    $
    (2,477
    )
    
    $
    (9,969
    )
    
    $
    (9,557
    )
    
    $
    (23,043
    )
   9




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##### 



10




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##### 



Executive Overview
  www.eclipsys.com
 Background
    11




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##### 



Product Development
 tm
 tm
   Operational Initiatives
     Operational Environment and Other Challenges for 2005
  12




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##### 



Critical Accounting Policies
  Revenue Recognition
  
    
    whether the fees associated with our products and services are fixed or determinable;
    
    whether collection of our fees is reasonably assured;
    
    whether professional services are essential to the functionality of the related software product;
    
    whether we have the ability to make reasonably dependable estimates in the application of the
percentage-of-completion method; and
    
    whether we have verifiable objective evidence of fair value for our products and services.
   Subscription Contracts
  
    
    software license;
    
    maintenance;
    
    professional services; and
    
    third party hardware or remote hosting services.
  13




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##### 



Traditional Software Contracts
  
    
    software license;
    
    maintenance;
    
    professional services; and
    
    third party hardware or remote hosting services.
    Software Contracts Requiring Contract Accounting
  14




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##### 



Stand-Alone Products and Services
  
    
    software license;
    
    maintenance;
    
    professional services;
    
    hardware;
    
    network services;
    
    remote hosting services;
    
    outsourcing.
         Allowance for Doubtful Accounts
  Capitalized Software Development Costs
  15




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##### 



Warranty Reserve
   16




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##### 



THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004
 
 Three Months Ended June 30,% of Total
    
    
    
    
    
    
    % of Total2005
    
    
    Revenues
    
    
    2004
    
    
    Revenues
    
    
    Change $
    
    
    Change %RevenuesSystems and services
    
    $
    91,557
    
    
    
    95.5
    %
    
    $
    68,597
    
    
    
    93.1
    %
    
    $
    22,960
    
    
    
    33.5
    %Hardware
    
    
    4,308
    
    
    
    4.5
    %
    
    
    5,046
    
    
    
    6.9
    %
    
    
    (738
    )
    
    
    -14.6
    %Total revenues
    
    
    95,865
    
    
    
    100.0
    %
    
    
    73,643
    
    
    
    100.0
    %
    
    
    22,222
    
    
    
    30.2
    %Costs and expensesCosts of systems and services revenues
    
    
    55,248
    
    
    
    57.6
    %
    
    
    41,795
    
    
    
    56.8
    %
    
    
    13,453
    
    
    
    32.2
    %Costs of hardware revenues
    
    
    3,557
    
    
    
    3.7
    %
    
    
    4,337
    
    
    
    5.9
    %
    
    
    (780
    )
    
    
    -18.0
    %Sales and marketing
    
    
    16,196
    
    
    
    16.9
    %
    
    
    15,458
    
    
    
    21.0
    %
    
    
    738
    
    
    
    4.8
    %Research and development
    
    
    13,974
    
    
    
    14.6
    %
    
    
    14,536
    
    
    
    19.7
    %
    
    
    (562
    )
    
    
    -3.9
    %General and administrative
    
    
    6,511
    
    
    
    6.8
    %
    
    
    4,407
    
    
    
    6.0
    %
    
    
    2,104
    
    
    
    47.7
    %Depreciation and amortization
    
    
    3,583
    
    
    
    3.7
    %
    
    
    3,295
    
    
    
    4.5
    %
    
    
    288
    
    
    
    8.7
    %Total costs and expenses
    
    
    99,069
    
    
    
    103.3
    %
    
    
    83,828
    
    
    
    113.8
    %
    
    
    15,241
    
    
    
    18.2
    %Loss from operations
    
    
    (3,204
    )
    
    
    -3.3
    %
    
    
    (10,185
    )
    
    
    -13.8
    %
    
    
    6,981
    
    
    
    68.5
    %Interest income, net
    
    
    719
    
    
    
    0.8
    %
    
    
    225
    
    
    
    0.3
    %
    
    
    494
    
    
    
    219.6
    %Loss before income taxes
    
    
    (2,485
    )
    
    
    -2.6
    %
    
    
    (9,960
    )
    
    
    -13.5
    %
    
    
    7,475
    
    
    
    75.1
    %Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (2,485
    )
    
    
    -2.6
    %
    
    $
    (9,960
    )
    
    
    -13.5
    %
    
    $
    7,475
    
    
    
    75.1
    %Basic net loss per share
    
    $
    (0.05
    )
    
    
    
    
    
    $
    (0.21
    )
    
    
    
    
    
    $
    0.16Diluted net loss per share
    
    $
    (0.05
    )
    
    
    
    
    
    $
    (0.21
    )
    
    
    
    
    
    $
    0.16
 RESULTS OF OPERATIONS
     17




---



##### 



18




---



##### 



SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004
 
 Six Months Ended June 30,% of Total
    
    
    
    
    
    
    % of Total2005
    
    
    Revenues
    
    
    2004
    
    
    Revenues
    
    
    Change $
    
    
    Change %RevenuesSystems and services
    
    $
    174,685
    
    
    
    96.9
    %
    
    $
    130,404
    
    
    
    91.8
    %
    
    $
    44,281
    
    
    
    34.0
    %Hardware
    
    
    5,615
    
    
    
    3.1
    %
    
    
    11,623
    
    
    
    8.2
    %
    
    
    (6,008
    )
    
    
    -51.7
    %Total revenues
    
    
    180,300
    
    
    
    100.0
    %
    
    
    142,027
    
    
    
    100.0
    %
    
    
    38,273
    
    
    
    26.9
    %Costs and expensesCosts of systems and services revenues
    
    
    107,513
    
    
    
    59.6
    %
    
    
    81,133
    
    
    
    57.1
    %
    
    
    26,380
    
    
    
    32.5
    %Costs of hardware revenues
    
    
    4,658
    
    
    
    2.6
    %
    
    
    9,971
    
    
    
    7.0
    %
    
    
    (5,313
    )
    
    
    -53.3
    %Sales and marketing
    
    
    34,372
    
    
    
    19.1
    %
    
    
    31,399
    
    
    
    22.1
    %
    
    
    2,973
    
    
    
    9.5
    %Research and development
    
    
    26,550
    
    
    
    14.7
    %
    
    
    29,273
    
    
    
    20.6
    %
    
    
    (2,723
    )
    
    
    -9.3
    %General and administrative
    
    
    10,867
    
    
    
    6.0
    %
    
    
    7,576
    
    
    
    5.3
    %
    
    
    3,291
    
    
    
    43.4
    %Depreciation and amortization
    
    
    7,266
    
    
    
    4.0
    %
    
    
    6,377
    
    
    
    4.5
    %
    
    
    889
    
    
    
    13.9
    %Total costs and expenses
    
    
    191,226
    
    
    
    106.1
    %
    
    
    165,729
    
    
    
    116.7
    %
    
    
    25,497
    
    
    
    15.4
    %Loss from operations
    
    
    (10,926
    )
    
    
    -6.1
    %
    
    
    (23,702
    )
    
    
    -16.7
    %
    
    
    12,776
    
    
    
    53.9
    %Interest income, net
    
    
    1,280
    
    
    
    0.7
    %
    
    
    679
    
    
    
    0.5
    %
    
    
    601
    
    
    
    88.5
    %Loss before income taxes
    
    
    (9,646
    )
    
    
    -5.3
    %
    
    
    (23,023
    )
    
    
    -16.2
    %
    
    
    13,377
    
    
    
    58.1
    %Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (9,646
    )
    
    
    -5.3
    %
    
    $
    (23,023
    )
    
    
    -16.2
    %
    
    $
    13,377
    
    
    
    58.1
    %Basic net loss per share
    
    $
    (0.20
    )
    
    
    
    
    
    $
    (0.50
    )
    
    
    
    
    
    $
    0.30Diluted net loss per share
    
    $
    (0.20
    )
    
    
    
    
    
    $
    (0.50
    )
    
    
    
    
    
    $
    0.30
 RESULTS OF OPERATIONS
     19




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##### 



Risk Factors
  We face risks relating to our product strategy
  20




---



##### 




    
    We may encounter technical obstacles and delays in
implementing this approach. As we continue to
implement our strategy, it is possible that we
could discover additional problems with our
software.
    
    It is possible future releases of SunriseXA, with
anticipated additional features for our products,
may be delayed. This could result in delayed or
lost sales.
    
    Customers who are currently implementing SunriseXA
have faced delays in their implementations. As a
result, existing SunriseXA customers could attempt
to cancel their contracts with us or seek financial
or other concessions from us.
    
    As a result of the changes we will make to our
SunriseXA product offering, potential customers may
find such products less appealing, which could
decrease demand for our products.
    
    2003 operating results reflect a $1.2 million
write-down of capitalized software development
costs for certain SunriseXA components.
Additionally, to date we have recorded warranty
related costs of $4.6 million related to the
anticipated costs associated with the SunriseXA
response time issue.
  Recent changes in our executive team could distract management and cause uncertainty that could
result in delayed or lost sales
  Our product strategy is dependent on the continued development and support by Microsoft of its .Net
Framework and other technologies
  Our software development efforts may not meet the demands of the market or commitments to our
clients, which could adversely affect our results of operations
  21




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##### 



Given the length of our sales and implementation cycles, if a significant number of our customers
delay implementation, our future operating results may suffer
  Implementation costs may exceed expectations, which can negatively affect our margins
  The healthcare industry faces financial constraints that could adversely affect the demand for our
products and services
  We have a history of operating losses and we cannot predict future profitability
  Our operating results may fluctuate significantly and may cause our stock price to decline
  
    
    our progress in implementing our strategy to address our SunriseXA response time issues and
the level of costs associated with that effort;
 
    
    the timing, size and complexity of our product sales and implementations;
    
    overall demand for healthcare information technology;
    
    the financial condition of our customers and potential customers;
    
    market acceptance of new services, products and product enhancements by us and our competitors;
    
    customer decisions regarding renewal of their respective contracts;
    
    product and price competition;
    
    the relative proportions of revenues we derive from software, services and hardware;
    
    changes in our operating expenses;
    
    the timing and size of future acquisitions;
    
    personnel changes;
 22




---



##### 




    
    the performance of our products;
    
    significant judgments and estimates made by management in the application of generally
accepted accounting principles; and
    
    fluctuations in general economic and financial market conditions, including interest rates.
  Because in many cases we recognize revenues for our software monthly over the term of a customer
contract, downturns or upturns in sales will not be fully reflected in our operating results until
future periods
  We operate in an intensely competitive market that includes companies that have greater financial,
technical and marketing resources than we do
  If the healthcare industry continues to undergo consolidation, this could impose pressure on our
products prices, reduce our potential customer base and reduce demand for our products
  Potential regulation by the U.S. Food and Drug Administration of our products as medical devices
could impose increased costs, delay the introduction of new products and hurt our business
  
    
    requiring us to seek FDA clearance of a pre-market
notification submission demonstrating that a
product is substantially equivalent to a device
already legally marketed, or to obtain FDA approval
of a pre-market approval application establishing
the safety and effectiveness of the product;
    
    requiring us to comply with rigorous regulations
governing the pre-clinical and clinical testing,
manufacture, distribution, labeling and promotion
of medical devices; and
 23




---



##### 




    
    requiring us to 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.
  Changes in federal and state regulations relating to patient data could depress the demand for our
products and impose significant product redesign costs on us
    Our products and content are used to assist clinical decision-making and provide information about
patient medical histories and treatment plans; If our products fail to provide accurate and timely
information or the treatment methodologies suggested by our content are faulty, our customers could
assert claims against us that could result in substantial cost to us, harm our reputation in the
industry and cause demand for our products to decline
   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
  24




---



##### 




    
    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 capital stock, incur additional
indebtedness or pay consideration in excess of book
value, which could have a 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.
 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
  Changing customer requirements could decrease the demand for our products, which could harm our
business and decrease our revenues
  We depend on licenses from third parties for rights to the technology used in several of our
products, and if we are unable to continue these relationships and maintain our rights to this
technology, our business could suffer
  Our products rely on our intellectual property, and any failure by us to protect our intellectual
property, or any misappropriation of it, could enable our competitors to market products with
similar features, which could reduce demand for our products
  25




---



##### 



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
   
    
    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 stockholder meetings.
 
 26




---



##### 



Combined cash and cash equivalents andHypothetical
    
    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
 
 *
    
    (This sensitivity analysis is not a forecast of future interest income.)   
  Evaluation of Disclosure and Controls and Procedures in Internal Control Over Financial
Reporting
   27




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##### 



VotesAgainst or
    
    
    
    
    
    
    BrokerMatter
    
    Votes For
    
    
    Withheld
    
    
    Abstain
    
    
    Non-votes1. Election of DirectorsEugene V. Fife
    
    
    42,799,388
    
    
    
    1,467,398Braden R. Kelley
    
    
    43,801,702
    
    
    
    465,0842. Approval of the
Companys 2005 Stock
Incentive Plan and
authorization for
issuance of 2,000,000
new shares of the
Companys common stock
there under, plus up to
an additional 8,328,635
shares previously
approved and available
under predecessor
plans.
    
    
    27,689,823
    
    
    
    8,541,289
    
    
    
    87,979
    
    
    
    7,947,6953. Approval of the
Companys 2005 Employee
Stock Purchase Plan and
authorization for
issuance of 1,000,000
shares of the Companys
common stock there
under.
    
    
    35,852,908
    
    
    
    394,323
    
    
    
    71,860
    
    
    
    7,947,6954. Ratification of the
selection of
PricewaterhouseCoopers
LLP as the Companys
registered public
accounting firm for the
fiscal year ending
December 31, 2005.
    
    
    44,065,553
    
    
    
    165,735
    
    
    
    35,498
 28




---



##### 



ECLIPSYS CORPORATIONDate: August  XX, 2005
    /s/ Robert J. CollettiRobert J. CollettiSenior Vice President and Chief Financial Officer
(Principal financial officer and duly authorized officer) 29




---



##### 



ECLIPSYS CORPORATION
EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    (1)
    
    Third Amended and Restated Certificate of Incorporation of Eclipsys Corporation3.2
    (3)
    
    Certificate of Designation of Series A Junior Participating Preferred3.3
    (2)
    
    Amended and Restated Bylaws of Eclipsys Corporation4.1
    (3)
    
    Rights Agreement dated July 26, 2000 by and between Eclipsys Corporation and
Fleet National Bank, as Rights Agent, which includes as Exhibit A, the Form of
Certificate of Designation, as Exhibit B, the form of Rights Certificate, and
as Exhibit C, the Summary of Rights to Purchase Preferred Stock.10.1
    
    
    Form of Restricted Stock Agreement to be used in connection with issuance of
restricted stock to executive officers and members of the registrants board
of directors under the Eclipsys Corporation 2005 Stock Incentive Plan10.2
    
    
    Form of Notice of Grant of Restricted Stock Agreement to be used in connection
with issuance of restricted stock to executive officers under the Eclipsys
Corporation 2005 Stock Incentive Plan10.3
    
    
    Form of Notice of Grant of Restricted Stock Agreement to be used in connection
with issuance of restricted stock to members of the registrants board of
directors under the Eclipsys Corporation 2005 Stock Incentive Plan10.4
    
    
    Form of Notice of Grant of Stock Option to be used in connection with grants
of stock options to executive officers under the Eclipsys Corporation 2005
Stock Incentive Plan10.5
    
    
    Form of Notice of Grant of Stock Option to be used in connection with grants
of stock options to members of the registrants board of directors under the
Eclipsys Corporation 2005 Stock Incentive Plan31.1
    
    
    Rule 13a-14(a) Certification of Eugene V. Fife31.2
    
    
    Rule 13a-14(a) Certification of Robert J. Colletti32.1
    
    
    Rule 13a-14(b) Certification of Eugene V. Fife32.2
    
    
    Rule 13a-14(b) Certification of Robert J. Colletti
    30