##### 



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

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 [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] 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 October 29, 2003Common Stock, $.01 par value
    
    45,855,900




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ECLIPSYS CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2003

INDEX

PART I
    
    Financial Information
    
    PageItem 1.
    
    Condensed Consolidated Balance Sheets (unaudited)  As of
September 30, 2003 and December 31, 2002
    
    3Condensed Consolidated Statements of Operations (unaudited) 
For the Three and Nine Months ended September 30, 2003 and 2002
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) 
For the Three and Nine Months ended September 30, 2003 and 2002
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    25Item 4.
    
    Controls and Procedures
    
    25PART II
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    26Item 6.
    
    Exhibits and Reports on Form 8-K
    
    26Signatures
    
    
    
    27


2



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##### 



PART I.

ITEM 1.

ECLIPSYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)

SEPTEMBER 30, 2003
      
      DECEMBER 31, 2002ASSETSCurrent
          assets:Cash
          and cash equivalents
      
      $
      117,361
      
      
      $
      183,500Marketable
          securities
      
      
      41,444
      
      
      
      Accounts
          receivable, net
      
      
      48,772
      
      
      
      46,822Other
          current assets
      
      
      13,499
      
      
      
      16,921Inventory
      
      
      659
      
      
      
      656Total
          current assets
      
      
      221,735
      
      
      
      247,899Property
          and equipment, net
      
      
      32,356
      
      
      
      26,800Capitalized
          software development costs, net
      
      
      24,882
      
      
      
      16,375Acquired
          technology, net
      
      
      19
      
      
      
      267Goodwill
      
      
      454
      
      
      
      454Other
          assets
      
      
      15,150
      
      
      
      9,402TOTAL
          ASSETS
      
      $
      294,596
      
      
      $
      301,197LIABILITIES
          AND STOCKHOLDERS EQUITYCurrent
          liabilities:Deferred
          revenue
      
      $
      86,055
      
      
      $
      79,235Accrued
          compensation costs
      
      
      11,957
      
      
      
      14,442Other
          current liabilities
      
      
      26,350
      
      
      
      13,854Total
          current liabilities
      
      
      124,362
      
      
      
      107,531Deferred
          revenue
      
      
      8,049
      
      
      
      843Other
          long-term liabilities
      
      
      675
      
      
      
      226Stockholders
          equity:Common
          stock
      
      
      457
      
      
      
      451Unearned
          stock compensation
      
      
      (852
      )
      
      
      (1,021
      )Additional
          paid-in capital
      
      
      409,327
      
      
      
      405,380Accumulated
          deficit
      
      
      (246,926
      )
      
      
      (211,814
      )Accumulated
          other comprehensive loss
      
      
      (496
      )
      
      
      (399
      )Total
          stockholders equity
      
      
      161,510
      
      
      
      192,597TOTAL
          LIABILITIES AND STOCKHOLDERS EQUITY
      
      $
      294,596
      
      
      $
      301,197


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

3



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##### 



ECLIPSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS
    
    NINE MONTHSENDED SEPTEMBER 30,
    
    ENDED SEPTEMBER 30,2003
    
    2002
    
    2003
    
    2002REVENUESSystems and services
    
    $
    61,559
    
    
    $
    44,521
    
    
    $
    173,637
    
    
    $
    153,383Hardware
    
    
    6,591
    
    
    
    3,028
    
    
    
    14,735
    
    
    
    11,237TOTAL REVENUES
    
    
    68,150
    
    
    
    47,549
    
    
    
    188,372
    
    
    
    164,620COSTS AND EXPENSESCost of systems and services revenues
    
    
    35,855
    
    
    
    30,924
    
    
    
    102,559
    
    
    
    87,047Cost of hardware revenues
    
    
    5,551
    
    
    
    2,479
    
    
    
    12,398
    
    
    
    9,292Sales and marketing
    
    
    17,766
    
    
    
    14,487
    
    
    
    52,040
    
    
    
    37,725Research and development
    
    
    14,633
    
    
    
    12,129
    
    
    
    41,152
    
    
    
    33,584General and administrative
    
    
    3,063
    
    
    
    3,218
    
    
    
    9,847
    
    
    
    8,476Depreciation and amortization
    
    
    2,761
    
    
    
    2,218
    
    
    
    7,630
    
    
    
    6,250TOTAL COSTS AND EXPENSES
    
    
    79,629
    
    
    
    65,455
    
    
    
    225,626
    
    
    
    182,374LOSS FROM OPERATIONS
    
    
    (11,479
    )
    
    
    (17,906
    )
    
    
    (37,254
    )
    
    
    (17,754
    )Interest income, net
    
    
    412
    
    
    
    732
    
    
    
    2,143
    
    
    
    3,007LOSS BEFORE INCOME TAXES
    
    
    (11,067
    )
    
    
    (17,174
    )
    
    
    (35,111
    )
    
    
    (14,747
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165NET LOSS
    
    $
    (11,067
    )
    
    $
    (17,174
    )
    
    $
    (35,111
    )
    
    $
    (14,912
    )BASIC NET LOSS PER COMMON SHARE
    
    $
    (0.24
    )
    
    $
    (0.38
    )
    
    $
    (0.78
    )
    
    $
    (0.33
    )DILUTED NET LOSS PER COMMON SHARE
    
    $
    (0.24
    )
    
    $
    (0.38
    )
    
    $
    (0.78
    )
    
    $
    (0.33
    )BASIC WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
    
    
    45,488
    
    
    
    44,774
    
    
    
    45,283
    
    
    
    44,631DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
    
    
    45,488
    
    
    
    44,774
    
    
    
    45,283
    
    
    
    44,631


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

4



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ECLIPSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

THREE MONTHS
    
    NINE MONTHSENDED SEPTEMBER 30,
    
    ENDED SEPTEMBER 30,2003
    
    2002
    
    2003
    
    2002OPERATING ACTIVITIESNet loss
    
    $
    (11,067
    )
    
    $
    (17,174
    )
    
    $
    (35,111
    )
    
    $
    (14,912
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    5,760
    
    
    
    4,469
    
    
    
    15,762
    
    
    
    14,624Provision for bad debts
    
    
    975
    
    
    
    1,305
    
    
    
    2,175
    
    
    
    1,805Write-down of capitalized software development costs
    
    
    1,200
    
    
    
    
    
    
    
    1,200
    
    
    
    Stock compensation expense
    
    
    56
    
    
    
    46
    
    
    
    169
    
    
    
    78Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,195
    )
    
    
    5,453
    
    
    
    (4,125
    )
    
    
    12,867Inventory
    
    
    32
    
    
    
    (965
    )
    
    
    (3
    )
    
    
    (879
    )Other current assets
    
    
    656
    
    
    
    (1,542
    )
    
    
    3,422
    
    
    
    2,734Other assets
    
    
    (3,917
    )
    
    
    (2,383
    )
    
    
    (7,765
    )
    
    
    (3,939
    )Deferred revenue
    
    
    6,787
    
    
    
    9,759
    
    
    
    14,026
    
    
    
    9,209Accrued compensation costs
    
    
    (2,716
    )
    
    
    64
    
    
    
    (2,484
    )
    
    
    (2,688
    )Other current liabilities
    
    
    5,275
    
    
    
    4,845
    
    
    
    12,495
    
    
    
    6,759Other liabilities
    
    
    (80
    )
    
    
    (47
    )
    
    
    449
    
    
    
    (426
    )Total adjustments to reconcile net loss to net cash
provided by operating activities
    
    
    11,833
    
    
    
    21,004
    
    
    
    35,321
    
    
    
    40,144NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    766
    
    
    
    3,830
    
    
    
    210
    
    
    
    25,232INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (6,534
    )
    
    
    (2,288
    )
    
    
    (13,186
    )
    
    
    (9,693
    )Sale (purchase)  of marketable securities, net
    
    
    11,332
    
    
    
    19,590
    
    
    
    (41,572
    )
    
    
    (41,588
    )Capitalized software development costs
    
    
    (8,011
    )
    
    
    (2,235
    )
    
    
    (15,574
    )
    
    
    (6,449
    )NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES
    
    
    (3,213
    )
    
    
    15,067
    
    
    
    (70,332
    )
    
    
    (57,730
    )FINANCING ACTIVITIESExercise of stock options
    
    
    1,092
    
    
    
    19
    
    
    
    2,043
    
    
    
    1,470Employee stock purchase plan
    
    
    631
    
    
    
    602
    
    
    
    1,910
    
    
    
    1,860NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,723
    
    
    
    621
    
    
    
    3,953
    
    
    
    3,330EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS
    
    
    (12
    )
    
    
    (10
    )
    
    
    30
    
    
    
    11NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    (736
    )
    
    
    19,508
    
    
    
    (66,139
    )
    
    
    (29,157
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    118,097
    
    
    
    120,277
    
    
    
    183,500
    
    
    
    168,942CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    117,361
    
    
    $
    139,785
    
    
    $
    117,361
    
    
    $
    139,785


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

5



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##### 



ECLIPSYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements include all adjustments
that, in the opinion of management, are necessary for a fair presentation of
the results for the periods presented. All such adjustments are considered of
a normal recurring nature. Quarterly results of operations are not necessarily
indicative of annual results. Eclipsys Corporation, or Eclipsys, or the
Company, manages its business as one reportable segment.

Certain financial information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These unaudited condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Companys Annual Report on Form 10-K/A filed May 23, 2003.

2. STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Under
this method, compensation cost for stock options is measured as the excess, if
any, of the estimated market price of the Companys stock at the date of the
grant over the amount an employee must pay to acquire the stock. Accordingly,
the Company provides the additional disclosures required under Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation as amended by SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure.

The Company has adopted the disclosure-only provisions of SFAS 123. Had
compensation cost for the Companys stock option grants described above been
determined based on the fair value at the grant date for awards in 2002 and
2003, consistent with the provisions of SFAS 123, the Companys net loss and
loss per share would have been the pro forma amounts indicated below (in
thousands, except per share data):

Three Months
      
      Nine MonthsEnded September 30,
      
      Ended September 30,2003
      
      2002
      
      2003
      
      2002Net
          loss:As reported
      
      $
      (11,067
      )
      
      $
      (17,174
      )
      
      $
      (35,111
      )
      
      $
      (14,912
      )Add:
          Stock-based employee compensation expense included in reported net (loss) income,
          net of related tax effects
      
      
      56
      
      
      
      46
      
      
      
      169
      
      
      
      78Deduct:
          Total stock-based compensation expense determined under fair value based
          method for all awards, net of related tax effects
      
      
      (3,702
      )
      
      
      (6,685
      )
      
      
      (13,067
      )
      
      
      (18,875
      )Pro
          forma
      
      $
      (14,713
      )
      
      $
      (23,813
      )
      
      $
      (48,009
      )
      
      $
      (33,709
      )Basic
          net loss per share:As reported
      
      $
      (0.24
      )
      
      $
      (0.38
      )
      
      $
      (0.78
      )
      
      $
      (0.33
      )Pro
          forma
      
      $
      (0.32
      )
      
      $
      (0.53
      )
      
      $
      (1.06
      )
      
      $
      (0.76
      )Diluted
          net loss per share:As reported
      
      $
      (0.24
      )
      
      $
      (0.38
      )
      
      $
      (0.78
      )
      
      $
      (0.33
      )Pro
          forma
      
      $
      (0.32
      )
      
      $
      (0.53
      )
      
      $
      (1.06
      )
      
      $
      (0.76
      )


6



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3. MARKETABLE SECURITIES

Marketable securities consist of funds that are highly liquid and are
classified as available-for-sale. Marketable securities are recorded at fair
value, and unrealized gains and losses are recorded as a component of other
comprehensive income.

4. ACCOUNTS RECEIVABLE

Accounts receivable was comprised of the following (in thousands):

September 30,
      
      December 31,2003
      
      2002Accounts
          Receivable:Billed
          accounts receivable, net
      
      $
      43,163
      
      
      $
      42,280Unbilled accounts receivable, net
      
      
      5,609
      
      
      
      4,542Total
          accounts receivable, net
      
      $
      48,772
      
      
      $
      46,822


The non-current portion of unbilled accounts receivable is included in
other assets and was $0.9 million and $1.5 million as of September 30, 2003 and
December 31, 2002, respectively.

5. WRITE-DOWN OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS

On October 20,
  2003, the Company announced that it had identified a response time issue with
  some components of SunriseXA, the newest version of the Companys Sunrise
  family of products. To address the issue, the Company developed a strategy designed
  to allow SunriseXA customers to continue their deployment of SunriseXA and to
  enable the Company to continue its development of planned advanced SunriseXA
  components. The Company's strategy is to replace the affected
  SunriseXA components with the workflow engine for the Companys Clinical
  Manager products. In connection with the strategy, the Company recorded a $1.2
  million write-down of capitalized software development costs for certain SunriseXA
  components to net realizable value. The write-down is included in the cost of
  systems and services revenues.

6. INTANGIBLE ASSETS

The Company had the following balances for acquired technology and
goodwill (in thousands):

As of September 30, 2003
    
    As of December 31, 2002Gross Carrying
    
    Accumulated
    
    
    
    
    
    Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net Balance
    
    Amount
    
    Amortization
    
    Net BalanceAmortized intangible assets:Acquired technology
    
    $
    95,795
    
    
    $
    95,776
    
    
    $
    19
    
    
    $
    95,795
    
    
    $
    95,528
    
    
    $
    267Unamortized intangible assets:Goodwill
    
    
    
    
    
    
    
    
    
    $
    454
    
    
    
    
    
    
    
    
    
    
    $
    454


7



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Amortization of acquired technology for the three and nine months ended
September 30, 2003 was $56,000 and $248,000, respectively. The estimated
amortization expense for the next five fiscal years is as follows (in
thousands):

For year ending 12/31/03
    
    $
    267Thereafter
    
    
    Total
    
    $
    267


7. OTHER COMPREHENSIVE INCOME

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

Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Net loss
    
    $
    (11,067
    )
    
    $
    (17,174
    )
    
    $
    (35,111
    )
    
    $
    (14,912
    )Reclassification adjustment for realized loss
included in net earnings
    
    
    167
    
    
    
    447
    
    
    
    167
    
    
    
    447Unrealized loss on available-for-sale marketable securities
arising during the period
    
    
    (130
    )
    
    
    (169
    )
    
    
    (295
    )
    
    
    (373
    )Foreign currency translation adjustment
    
    
    (12
    )
    
    
    (10
    )
    
    
    30
    
    
    
    11Total comprehensive loss
    
    $
    (11,042
    )
    
    $
    (16,906
    )
    
    $
    (35,209
    )
    
    $
    (14,827
    )


8. LEGAL ACTION

From July through September 2002, the Company and three of its then
current officers (Messrs. Colletti, Patton and Wilson) were named in seven
complaints filed by purported shareholders of the Company in the United States
District Court, Southern District of Florida, West Palm Beach Division (the
District Court). Each complaint sought certification as a class and monetary
damages, and alleged that the Company and the named officers violated federal
securities laws. The Company believes that the actions are without merit, and
intends to conduct a vigorous defense against these allegations.

On February 4, 2003, the District Court issued an order consolidating all
seven cases into one single case and appointing the City of Philadelphia Board
of Pensions and Retirement, Louis Giannakokas and Norman K. Mielziner to serve
as lead plaintiffs. On April 30, 2003, the plaintiffs filed with the District
Court an amended, consolidated complaint. On July 31, 2003, the Company filed
a motion to dismiss the amended, consolidated complaint. On September 16,
2003, the plaintiffs filed an opposition to the motion to dismiss, and the
Company filed a reply on October 16, 2003. At this time, the motion to dismiss
has been fully briefed. The Company does not know when the District Court will
decide the motion or what its ruling may be.

Recently, following our announcement of Sunrise XA response time issues
and our strategy to address those issues, we were contacted by the attorneys
representing the lead plaintiffs in this suit seeking our consent to their
filing of an amended complaint that would add new counts asserting new claims
and a new class period. We have not formally responded to this request, and
have not yet seen any motion to amend the complaint or any amended complaint.
We are unable to predict what effect this development will have on the course
of currently pending action nor can we predict the nature of the new claims, or
the damages claimed, in any additional new counts, if filed.

The Company is involved in other litigation incidental to its business
from time to time. In the opinion of management, after consultation with legal
counsel, the ultimate outcome of such litigation will not have a material
adverse effect on the Companys financial position, results of operations or
cash flows.

8



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##### 



9. RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board, (the FASB),
reached a consensus on Emerging Issues Task Force, (the EITF), Issue 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables, (the
Issue). The guidance in the Issue was effective for revenue arrangements
entered into by the Company beginning July 1, 2003. The Issue addresses
certain aspects of the accounting by a vendor for arrangements under which it
will perform multiple revenue-generating activities. Specifically, the Issue
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one earnings process and, if it does, how to
divide the arrangement into separate units of accounting consistent with the
identified earnings processes for revenue recognition purposes. The Issue also
addresses how arrangement consideration should be measured and allocated to the
separate units of accounting in the arrangement. The adoption of the Issue has
not had a material impact on the Companys financial position, results of
operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others. This interpretation clarifies the
requirements of SFAS No. 5, Accounting for Contingencies, relating to
guarantors accounting for, and disclosure of, the issuance of certain types of
guarantees. This interpretation is intended to improve the comparability of
financial reporting by requiring identical accounting for guarantees issued
with a separately identified premium and guarantees issued without a separately
identified premium. The interpretations provisions for initial recognition
and measurement are required on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective
for financial statements of both interim and annual periods that ended after
December 15, 2002. The Companys standard license agreements contain
indemnification clauses in the ordinary course of business. Pursuant to these
clauses, the Company indemnifies, holds harmless, and agrees to reimburse the
indemnified party for losses suffered or incurred by the indemnified party.
The Company believes the estimated fair value of these indemnification clauses
is minimal. Accordingly, there are no liabilities recorded for these
agreements as of September 30, 2003. The Company accounts for warranty
liabilities in accordance with the provisions of SFAS No. 5, Accounting for
Contingencies. To date, the warranty liabilities recorded by the Company have
been insignificant.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. This interpretation of Accounting Research
Bulletin 51, Consolidated Financial Statements, addresses consolidation by
business enterprises of variable interest entities that possess certain
characteristics. The interpretation requires that if a business enterprise has
a controlling financial interest in a variable interest entity, the assets,
liabilities, and results of the activities of the variable interest entity must
be included in the consolidated financial statements with those of the business
enterprise. This interpretation applies immediately to variable interest
entities created after January 31, 2003 and to variable interest entities in
which an enterprise obtains an interest after that date. The Company will adopt
the provisions of Interpretation No. 46  in the fourth quarter of 2003 and has not
consolidated any additional entities.

9



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##### 



ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words believes, anticipates, plans, expects, intends, and similar
expressions are intended to identify forward-looking statements. The important
factors discussed under the caption Certain Factors That May Affect Future
Operating Results, presented below, could cause actual results to differ
materially from those indicated by forward-looking statements made herein. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

OVERVIEW

Eclipsys is a healthcare information technology company that provides
advanced software solutions and services that assist healthcare organizations
in improving their outcomes by augmenting the quality of care and the level of
patient satisfaction, reducing costs and enhancing revenues.

Our Internet website address is www.eclipsys.com. Our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments thereto that have been filed with the U.S. Securities and Exchange
Commission are available to you free of charge through a hyperlink on our
website.

Our newest product offerings are known as SunriseXA. SunriseXAs extended
architecture is built on Microsoft Corporations Web-based infrastructure, .Net
and is focused on re-engineering and migrating our Sunrise suite of solutions
to the Microsoft .Net Framework. SunriseXA enables the knowledge-driven,
workflow-enhancing components of the Sunrise suite to operate as web-based
workflow components.

On October 20, 2003, we announced that we had identified a response time
issue with some components of SunriseXA. To address the issue, we developed a
strategy designed to allow SunriseXA customers to continue their deployment of
SunriseXA and to enable us to continue our development of planned advanced
SunriseXA functionality. The strategy is to replace the affected SunriseXA
components with the workflow engine from our Sunrise Clinical Manager
product.

We will continue to develop planned advanced SunriseXA functionality,
including Clinical Documentation, Ambulatory, Emergency Department, Secure Health Messaging,
Access and Medication Management. In addition, we intend to continue to pursue
the development of SunriseXA Objects Plus, designed to meet customer demand for
customization of SunriseXA, and SunriseXA Portal, designed to allow remote
web-based access to the SunriseXA database.

In connection with our strategy discussed above,
we recorded a $1.2 million write-down of capitalized software
development costs for certain SunriseXA components to net realizable
value. The write-down is included in the cost of systems and services revenues. While we have determined the
overall direction of our technical strategy for addressing these issues, the
details of that strategy are still being worked out. Our investigation into
the causes of the response time issues is ongoing, and it is possible that
further analysis may reveal additional problems with our software.
Furthermore, we cannot predict how prospects or customers who are currently
implementing SunriseXA will respond to our strategy. These and other factors
may negatively impact our future operating results, cash flows and financial
position.

10



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##### 



In addition, we provide a wide range of complementary services to our
customers, including implementation, integration, support, maintenance and
training. We also provide outsourcing, remote hosting, network services and
business solutions consulting to assist customers in meeting their healthcare
information technology requirements. Through our comprehensive services
offering and integrated software components, we provide our customers with
solutions for their clinical, financial and administrative information needs.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America. Our
significant accounting policies are discussed in detail in Note 2 to the
consolidated financial statements contained in our Form 10-K/A, filed on May
23, 2003. 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 revenue and other significant areas involving
managements judgments and estimates. These significant accounting policies
relate to revenue recognition, allowance for doubtful accounts and capitalized
software development costs.

Revenue Recognition

We recognize revenues in accordance with the provisions of Statement of
Position, or SOP, No. 97-2, Software Revenue Recognition, as amended by SOP
No. 98-9 and clarified by Staff Accounting Bulletin, or SAB 101, Revenue
Recognition in Financial Statements and the AICPA Software Revenue Recognition
Task Force Technical Practice Aid 5100.54. SOP No. 97-2, as amended, generally
requires revenue earned on software arrangements involving multiple elements to
be allocated to each element based on the relative fair values of those
elements.

Our contractual arrangements are evaluated on a contract-by-contract basis
and often require judgments and estimates that affect the timing of revenue
recognized in our statements of operations. Specifically, we may be required
to make judgments about:



| |  | 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.
|- |  | ------------------------------------------------------------------------------------------

We generally contract under multiple element arrangements, which include
software license fees, hardware and services, including implementation,
consulting, software maintenance and, where desired by the customer,
outsourcing and remote hosting services. We recognize revenue from these
multiple element arrangements based upon contract terms.

Under multiple element arrangements, where vendor-specific objective
evidence of fair value exists for all undelivered elements, we account for the
delivered elements in accordance with the residual method. Under the
residual method, we allocate revenue to each element in a multiple element
arrangement based on vendor-specific objective evidence of the elements
respective fair value, with the fair value determined by the price charged when
that element is sold separately. For arrangements in which vendor-specific
objective evidence of fair value does not exist for each element, including
specified upgrades, revenue is deferred and not recognized until delivery has
occurred of all of the elements that lack vendor-specific objective evidence.

Multiple element arrangements where we provide our customer with a
comprehensive technology solution over a 7 to 10 year period may include
multiple software products, including the right to future unspecified products
within the suites purchased. These contracts generally provide for monthly or
annual payments over the term of the contracts and may contain perpetual or
term licensing provisions. We generally recognize revenues under these
arrangements on a monthly basis evenly over the term of the contract.

11



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##### 



For multiple element arrangements bundled with services and maintenance
where such services are considered essential to the functionality of the
software and provide for payments upon the achievement of implementation
milestones, we recognize revenues using the percentage-of-completion method,
following the guidance in the AICPA Statement of Position No. 81-1, or SOP
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts. Under the percentage-of-completion method, revenues
are recognized based upon the proportion of labor hours incurred in relation to
the total labor hours estimated under the agreement. Determining factors for
percentage-of-completion include the nature of services required and the
provision for payments of software and services upon the achievement of
implementation milestones. Under the percentage-of-completion method, revenue
and profit are recognized throughout the term of the contract, based upon
estimates of the total labor hours to be incurred and revenues to be generated
throughout the term of the contract. Changes in estimates of total labor hours
and the related effect on the timing of revenues and profits are recognized in
the period in which they are determinable. Accordingly, changes in these
estimates could occur and could have a material effect on our operating results
in the period of change.

Remote hosting and outsourcing services are marketed under long-term
arrangements generally over periods of five to ten years. Revenues from these
arrangements are recognized evenly over the period during which the services
are performed.

Software support and maintenance fees are marketed under annual and
multi-year arrangements and are recognized as revenue ratably over the
contracted maintenance term. Hardware sales are generally recognized upon
delivery to the customer.

Since revenue recognition and contractual billing terms may not precisely
coincide, the differences between timing of revenue recognition and the
issuance of invoices results in either unbilled accounts receivable or deferred
revenue. Unbilled accounts receivable represent revenue recognized in
accordance with our revenue recognition policies for which customers have not
yet been invoiced. Conversely, deferred revenue consists of payments received
for which the revenue has not yet been recognized in accordance with our
revenue recognition policies.

Allowance for Doubtful Accounts

In evaluating the collectibility of our accounts receivable, we assess a
number of factors including a specific customers ability to meet its financial
obligations to us, as well as general factors, such as the length of time the
receivables are past due and historical collection experience. Based on these
assessments, we record both specific and general reserves for bad debt to
reduce the related receivables to the amount we ultimately expect to collect
from customers. If circumstances related to specific customers change or
economic conditions worsen such that our past collection experience is no
longer relevant, our estimate of the recoverability of our accounts receivable
could be further reduced from the levels provided for in the consolidated
financial statements.

Capitalized Software Development Costs

We capitalize software development costs in accordance with FASB Statement
No. 86 Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed. We capitalize computer software development costs
incurred subsequent to establishing technological feasibility of the software
being developed. These costs include salaries, benefits, consulting and other
directly related costs incurred in connection with coding and testing software
products. Capitalization ceases when the products are generally released for
sale to customers, at which time amortization of the capitalized costs begins.
At each balance sheet date, we perform a detailed assessment of our capitalized
software development costs which includes a review of, among other factors,
projected revenues, customer demand requirements, product lifecycle, changes in
software and hardware technologies and product development plans. Based on
this analysis, we record adjustments, when appropriate, to reflect the net
realizable value of our capitalized software development costs. The estimates
of expected future revenues generated by the software, the remaining economic
life of the software, or both, could change, materially affecting the carrying
value of capitalized software development costs as well as our consolidated
operating results in the period of change.

As discussed above, our results of operations for the quarter ended
September 30, 2003 reflect a $1.2 million
write-down of previously capitalized Sunrise XA software development costs.

12



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##### 



RESULTS OF OPERATIONS

Eclipsys Corporation
Statements of Operations Data- Unaudited
(in thousands)

Three Months Ended September 30,% of Total
    
    
    
    
    
    % of Total2002
    
    Revenues
    
    2003
    
    Revenues
    
    Change $
    
    Change %Revenues
Systems and services
    
    $
    44,521
    
    
    
    93.6
    %
    
    $
    61,559
    
    
    
    90.3
    %
    
    $
    17,038
    
    
    
    38.3
    %Hardware
    
    
    3,028
    
    
    
    6.4
    %
    
    
    6,591
    
    
    
    9.7
    %
    
    
    3,563
    
    
    
    117.7
    %Total revenues
    
    
    47,549
    
    
    
    100.0
    %
    
    
    68,150
    
    
    
    100.0
    %
    
    
    20,601
    
    
    
    43.3
    %Costs and expenses
Cost of systems and services revenues
    
    
    30,924
    
    
    
    65.0
    %
    
    
    35,855
    
    
    
    52.6
    %
    
    
    4,931
    
    
    
    15.9
    %Cost of hardware revenues
    
    
    2,479
    
    
    
    5.2
    %
    
    
    5,551
    
    
    
    8.1
    %
    
    
    3,072
    
    
    
    123.9
    %Sales and marketing
    
    
    14,487
    
    
    
    30.5
    %
    
    
    17,766
    
    
    
    26.1
    %
    
    
    3,279
    
    
    
    22.6
    %Research and development
    
    
    12,129
    
    
    
    25.5
    %
    
    
    14,633
    
    
    
    21.5
    %
    
    
    2,504
    
    
    
    20.6
    %General and administrative
    
    
    3,218
    
    
    
    6.8
    %
    
    
    3,063
    
    
    
    4.5
    %
    
    
    (155
    )
    
    
    -4.8
    %Depreciation and amortization
    
    
    2,218
    
    
    
    4.7
    %
    
    
    2,761
    
    
    
    4.1
    %
    
    
    543
    
    
    
    24.5
    %Total costs and expenses
    
    
    65,455
    
    
    
    137.7
    %
    
    
    79,629
    
    
    
    116.8
    %
    
    
    14,174
    
    
    
    21.7
    %Loss
          from operations
    
    
    (17,906
    )
    
    
    -37.7
    %
    
    
    (11,479
    )
    
    
    -16.8
    %
    
    
    6,427Interest income, net
    
    
    732
    
    
    
    1.5
    %
    
    
    412
    
    
    
    0.6
    %
    
    
    (320
    )
    
    
    -43.7
    %Loss
          before income taxes
    
    
    (17,174
    )
    
    
    -36.1
    %
    
    
    (11,067
    )
    
    
    -16.2
    %
    
    
    6,107Provision for income taxes
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Net
          loss
    
    $
    (17,174
    )
    
    
    -36.1
    %
    
    $
    (11,067
    )
    
    
    -16.2
    %
    
    $
    6,107Basic
          loss per share
    
    $
    (0.38
    )
    
    
    
    
    
    $
    (0.24
    )
    
    
    
    
    
    $
    0.14Diluted
          loss per share
    
    $
    (0.38
    )
    
    
    
    
    
    $
    (0.24
    )
    
    
    
    
    
    $
    0.14


Revenues

Total revenues increased $20.6 million for the quarter ended September 30,
2003 compared to the same period in 2002.

Systems and services
  revenues increased $17.0 million for the quarter ended September 30,
  2003, compared to the same period in 2002. The increase consisted primarily
  of increases in revenues generated from comprehensive technology solutions that
  generally provide for revenue recognition on a monthly basis. These revenues,
  which include license fees, remote hosting services, professional services,
  software maintenance fees, outsourcing services and third party revenues, increased
  approximately $14.0 million during the third quarter of 2003, compared
  to the same period in 2002. Other revenues, including revenues generated from
  network services, license fees and third party revenues, increased approximately
  $3.0 million during the three months ended September 30, 2003, compared
  to the same period in 2002. The increase in the revenue is a result of higher
  volumes of new contracts. The new contracts consisted of a significantly higher
  proportion of contracts executed for which revenue is recognized on a monthly
  basis, which, to a large extent, correspond with customer payment terms. We
  expect these contracts will continue to represent a significant proportion of
  our new contracts. However, because these contracts are characterized by payments
  being spread over a longer period of time compared to traditional licensing
  arrangements, we expect cash flows will continue to be negatively impacted in
  the near future.

Hardware revenues increased $3.6 million for the quarter ended September
30, 2003 compared to the quarter ended September 30, 2002. The increase in
hardware revenues is attributable to increased shipments during the quarter as
a result of new contracted business during the current and previous quarters.
We expect hardware revenues to continue to fluctuate in future periods.

13



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##### 



Costs and Expenses

Total costs and expenses increased $14.2 million for the quarter ended
September 30, 2003, compared to the same period in 2002.

Cost of systems and services revenues increased $4.9 million for the
quarter ended September 30, 2003 compared to the quarter ended September 30,
2002. Gross margins on systems and services revenues were 41.8% for the
quarter ended September 30, 2003, compared to 30.5% for the same period in
2002. The increase in cost of systems and services was related to several
factors, including an increase in third party costs, including royalties and
consulting costs, which were billable to our customers, higher costs associated
with providing networking, outsourcing and remote hosting services, higher payroll and related costs associated
with providing our implementation and integration services and higher
amortization of deferred costs related to long-term contracts. These higher
costs were reflective of higher revenues in each of these areas. Additionally,
as explained in the overview above, we recorded a $1.2
million write-down of capitalized software development costs related
to the discontinuation of development efforts on
certain SunriseXA components. Furthermore, amortization of capitalized
software development costs increased $0.6 million due to increased capitalized
software development costs related to the release of clinical products in the
SunriseXA product line. These increases were partially offset by lower
amortization of acquired technology, due to some assets becoming fully
amortized during the first quarter of 2003.

Cost of hardware revenues increased $3.1 million for the quarter ended
September 30, 2003, compared to the quarter ended September 30, 2002. The
increase was primarily attributable to the increase in hardware revenues.
Gross margins on hardware revenues decreased to 15.8% for the quarter ended
September 30, 2003, compared to 18.1% for the same period in 2002 due to
industry pricing pressures. We expect margins on hardware will continue to
fluctuate as a result of pricing pressures within the hardware sector.

Sales and marketing expenses increased $3.3 million for the quarter ended
September 30, 2003, compared to the quarter ended September 30, 2002. The
increase in sales and marketing expenses was related to increased payroll and
related costs due to our initiative to significantly expand the size of our
sales and marketing organization, including approximately $0.5 million higher
commissions, resulting from increased sales volume. We expect that sales and marketing will continue at these higher expense levels in the future.

Research and development expenses increased $2.5 million for the quarter
ended September 30, 2003, compared to the quarter ended September 30, 2002.
Gross spending on research and development increased $8.3 million primarily due
to our initiative to accelerate the migration of our products onto the
Microsoft .NET platform. Under this initiative, we have increased the number
of employees in our product delivery organization, which includes research and
development, and spent approximately $5.4 million for outside consultants while
we actively recruit qualified research and development personnel. The
percentage of research and development costs capitalized for the quarter ended
September 30, 2003 was 35.4%, or $8.0 million, compared to 15.6%, or $2.2
million, for the same period in 2002. The percentage of research and
development costs capitalized increased as a result of the incremental expenses
incurred for coding and testing of two releases of SunriseXA products that were
technologically feasible, one of which was generally released during the
current quarter. As discussed above, amortization of capitalized software
development costs, which is included in cost of systems and services revenues,
increased by approximately $0.6 million, to $2.1 million for the quarter ended
September 30, 2003, compared to $1.5 million for third quarter of 2002.

General and administrative expenses decreased approximately $0.2 million
for the quarter ended September 30, 2003, compared to the quarter ended
September 30, 2002, primarily related to lower personnel related costs
partially offset by higher director and officer insurance premiums.

Depreciation and amortization increased $0.5 million for the quarter ended
September 30, 2003, compared to the quarter ended September 30, 2002. The
increase was primarily a result of investments in computer hardware and
software to expand our research and development infrastructure and to enhance the infrastructure and increase
capacity at our Technology Solutions Center related to a higher volume of
remote hosting customers. As a result of continuing investments, we expect
depreciation and amortization to continue to increase in the future.

Interest Income

Interest income decreased $0.3 million for the quarter ended September 30,
2003, compared to the quarter ended September 30, 2002. This decrease in
interest income was primarily due to a decline in yields, related to changes in
general economic conditions and

14



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##### 



a lower average combined balance in cash and cash equivalents and marketable
securities. The Companys marketable securities continue to consist of funds
that are highly liquid.

Net Loss

As a result of these factors, we had a net loss of $11.1 million for the
quarter ended September 30, 2003, compared to a net loss of $17.2 million for
the quarter ended September 30, 2002.

Eclipsys Corporation
Statements of Operations Data- Unaudited
(in thousands)

Nine Months Ended
        September 30,% of Total
      
      
      
      
      
      % of Total2002
      
      Revenues
      
      2003
      
      Revenues
      
      Change $
      
      Change %Revenues
          Systems and services
      
      $
      153,383
      
      
      
      93.2
      %
      
      $
      173,637
      
      
      
      92.2
      %
      
      $
      20,254
      
      
      
      13.2
      %Hardware
      
      
      11,237
      
      
      
      6.8
      %
      
      
      14,735
      
      
      
      7.8
      %
      
      
      3,498
      
      
      
      31.1
      %Total
          revenues
      
      
      164,620
      
      
      
      100.0
      %
      
      
      188,372
      
      
      
      100.0
      %
      
      
      23,752
      
      
      
      14.4
      %Costs
          and expenses
          Cost of systems and services revenues
      
      
      87,047
      
      
      
      52.9
      %
      
      
      102,559
      
      
      
      54.4
      %
      
      
      15,512
      
      
      
      17.8
      %Cost
          of hardware revenues
      
      
      9,292
      
      
      
      5.6
      %
      
      
      12,398
      
      
      
      6.6
      %
      
      
      3,106
      
      
      
      33.4
      %Sales
          and marketing
      
      
      37,725
      
      
      
      22.9
      %
      
      
      52,040
      
      
      
      27.6
      %
      
      
      14,315
      
      
      
      37.9
      %Research
          and development
      
      
      33,584
      
      
      
      20.4
      %
      
      
      41,152
      
      
      
      21.8
      %
      
      
      7,568
      
      
      
      22.5
      %General
          and administrative
      
      
      8,476
      
      
      
      5.1
      %
      
      
      9,847
      
      
      
      5.2
      %
      
      
      1,371
      
      
      
      16.2
      %Depreciation
          and amortization
      
      
      6,250
      
      
      
      3.8
      %
      
      
      7,630
      
      
      
      4.1
      %
      
      
      1,380
      
      
      
      22.1
      %Total
          costs and expenses
      
      
      182,374
      
      
      
      110.8
      %
      
      
      225,626
      
      
      
      119.8
      %
      
      
      43,252
      
      
      
      23.7
      %Loss
          from operations
      
      
      (17,754
      )
      
      
      -10.8
      %
      
      
      (37,254
      )
      
      
      -19.8
      %
      
      
      (19,500
      )Interest
          income, net
      
      
      3,007
      
      
      
      1.8
      %
      
      
      2,143
      
      
      
      1.1
      %
      
      
      (864
      )
      
      
      -28.7
      %Loss
          before income taxes
      
      
      (14,747
      )
      
      
      -9.0
      %
      
      
      (35,111
      )
      
      
      -18.6
      %
      
      
      (20,364
      )Provision
          for income taxes
      
      
      165
      
      
      
      0.1
      %
      
      
      
      
      
      
      0.0
      %
      
      
      (165
      )
      
      
      -100.0
      %Net
          loss
      
      $
      (14,912
      )
      
      
      -9.1
      %
      
      $
      (35,111
      )
      
      
      -18.6
      %
      
      $
      (20,199
      )Basic
          loss  per share
      
      $
      (0.33
      )
      
      
      
      
      
      $
      (0.78
      )
      
      
      
      
      
      $
      (0.45
      )Diluted
          loss  per share
      
      $
      (0.33
      )
      
      
      
      
      
      $
      (0.78
      )
      
      
      
      
      
      $
      (0.45
      )


Revenues

Total revenues increased $23.8 million for the nine months ended September
30, 2003, compared to the same period in 2002.

Systems and services revenues increased $20.3 million for the nine months
ended September 30, 2003, compared to the same period in 2002. The increase
consisted primarily of increases in revenues generated from comprehensive
technology solutions that generally provide for revenue recognition on a
monthly basis. These revenues increased approximately $27.0 million during the
first nine months of 2003, compared to the same period in 2002. Additionally,
revenues from networking services and third party license fees were higher by
approximately $2.7 million. However these increases were offset by a decrease
in revenues from license fees recognized under traditional contracting methods
of approximately $9.4 million for the nine months ended September 30, 2003,
compared to the same period in 2002. The increase in the revenue is a result
of higher volumes of new contracts. The new contracts consisted of a
significantly higher proportion of contracts executed that generally provide
for revenue recognition on a monthly basis, which, to a large extent,
correspond with customer payment terms. As previously discussed, the new
contracting model is expected to negatively impact cash flows in the near
future as these contracts result in lower cash flows during the early periods
of the contracts compared to traditional licensing methods.

15



---



##### 



Hardware revenues increased $3.5 million for the nine months ended
September 30, 2003, compared to the same period in 2002. The increase in
hardware revenues was primarily attributable to increased shipments during the
third quarter of 2003 related to business contracted during the current and
previous quarters. We expect hardware revenues to continue to fluctuate in
future periods.

Costs and Expenses

Total costs and expenses increased $43.3 million for the nine months ended
September 30, 2003, compared to the same period in 2002.

Cost of systems and services revenues increased $15.5 million for the nine
months ended September 30, 2003, compared to the same period in 2002. Gross
margins on systems and services revenues were 40.9% for the nine months ended
September 30, 2003, compared to 43.2% for the same period in 2002. The
increase in cost of systems and services revenues was related to several
factors, including higher third party costs, including royalties and consulting
costs, which were billable to our customers, higher costs associated with
providing our outsourcing, remote hosting and networking services, higher
payroll and related costs associated with providing our implementation and
integration services and higher amortization of deferred costs related to
long-term contracts. These higher costs were reflective of higher revenues in
each of these areas. Additionally, amortization of capitalized software
development costs increased $1.5 million due to increased capitalized software
development costs relating to the release of clinical products in our new
SunriseXA product line. Furthermore, as explained in the overview above, we
recorded a $1.2 million write-down of capitalized software
development costs related to the discontinuation of
development efforts on certain SunriseXA components. These increases
were partially offset by lower amortization of acquired technology, due to some
assets becoming fully amortized during 2002 and the first quarter of 2003.

Cost of hardware revenues increased $3.1 million for the nine months ended
September 30, 2003, compared to the same period in 2002. The increase in the
cost of hardware revenues was primarily attributable to the increase in
hardware revenues. Gross margins on hardware revenues decreased to 15.9% for
the nine months ended September 30, 2003, compared to 17.3% for the same period
in 2002 due to industry pricing. We expect margins on hardware will continue
to fluctuate as a result of pricing pressures within the hardware sector.

Sales and marketing expenses increased $14.3 million for the nine months
ended September 30, 2003, compared to the same period in 2002. The increase in
sales and marketing expenses was related to increased payroll and related costs
due to our initiative to significantly expand the size of our sales and
marketing organization, including approximately $3.1 million higher
commissions, resulting from increased sales volume. We expect sales and marketing
expenses to continue at these higher levels in the future.

Research and development expenses increased $7.6 million for the nine
months ended September 30, 2003, compared to the same period in 2002. Gross
spending on research and development increased approximately $16.8 million primarily due to
our initiative to accelerate the migration of our products onto the Microsoft
..NET platform. Under this initiative, we have increased the number of
employees in our product delivery organization, which includes research and
development, and have spent approximately $8.8 million on outside consultants
while we actively recruit qualified research and development personnel. The
percentage of research and development costs capitalized for the nine months
ended September 30, 2003, was 27.5%, or $15.6 million, compared to 16.1%, or
$6.4 million, for the same period in 2002. The percentage of research and
development costs capitalized increased as a result of the incremental expenses
incurred during the second and third quarters of 2003 for coding and testing of
two releases of SunriseXA products that were technologically
feasible, one of which
was generally released during the current quarter. As discussed above,
amortization of capitalized software development costs, which is included in
cost of systems and services revenues, increased by approximately $1.5 million,
to $5.9 million for the nine months ended September 30, 2003, compared to $4.3
million for the same period in 2002.

General and administrative expenses increased $1.4 million compared to the
same period in 2002. The increase was primarily due to higher director and
officer insurance premiums, legal fees and recruitment costs related to our
workforce expansion.

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Depreciation and amortization increased $1.4 million for the nine months
ended September 30, 2003, compared to the same period in 2002. The increase
was primarily a result of investments in computer hardware and software to
expand our research and development infrastructure and to increase capacity at
our Technology Solutions Center to address the higher volume of remote hosting
services. As a result of continuing investments, we expect depreciation and
amortization to continue to increase in the future. We also had significant
purchases of personal computers for new and existing employees. This increase
was partially offset by a $0.2 million decrease in amortization of intangible
assets that became fully amortized during the first quarter of 2002.

Interest Income

Interest income decreased $0.9 million for the nine months ended September
30, 2003, compared to the same period in 2002. This decrease in interest
income was primarily due to a decline in yields, related to changes in general
economic conditions. A decline in the average combined balance in cash and
cash equivalents and marketable securities during the third quarter of 2003
also contributed to the decrease in interest income.

Net Loss

As a result of these factors, we had a net loss of $35.1 million for the
nine months ended September 30, 2003, compared to a net loss of $14.9 million
for the same period in 2002.

LIQUIDITY AND CAPITAL RESOURCES

During the quarter ended September 30, 2003, operations provided $0.8
million of cash; investing activities used $3.2 million of cash, consisting of
$8.0 million for the funding of capitalized software development costs and $6.5
million for the purchase of property and equipment, partially offset by $11.3
million of cash received from the sale of marketable securities; and financing
activities provided $1.7 million of cash from stock option exercises and the
issuance of common stock under our employee stock purchase plan. For the nine
months ended September 30, 2003, operations provided $0.2 million of cash;
investing activities used $70.3 million of cash, consisting of
approximately $41.5 million
for the purchase of marketable securities, $15.6 million for the funding of
capitalized software development costs and $13.2 million for the purchase of
property and equipment; and financing activities provided $4.0 million of cash
from stock option exercises and the issuance of common stock under our employee
stock purchase plan.

As of September 30, 2003, our principal source of liquidity is our
combined cash and marketable securities balance of $158.8 million. It is
likely that we will continue to have negative cash flows over the remainder of
2003 due to our sales and marketing and research and development initiatives,
as well as the continuing trend toward our new contract arrangements, which
provide for payments to be spread more evenly over the term of our customer
contracts. Additionally, the new contracting method may negatively impact cash flows in 2004 as these arrangements result in a proportionately smaller amount of
fees being collected during the early stages of the contracts compared to traditional licensing methods. Our future liquidity
requirements will depend upon a number of factors, including our sales volumes
and the timing and level of research and development activities. As of
September 30, 2003, we did not have material commitments for capital
expenditures. We believe that our current cash and marketable securities
balances combined with anticipated cash collections will be sufficient to meet
our operating requirements for at least the next 12 months.

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

There are a number of important factors that could affect our business and
future operating results, including without limitation, the factors set forth
below. The information contained in this report should be read in light of
such factors. Any of the following factors could harm our business and future
operating results.

We face a number of risks relating to our recently announced strategy to
address SunriseXA response time issues

We recently announced that we have identified response time issues with
some components of SunriseXA, the newest version of our Sunrise family of
products. We have concluded that the root cause of the issue lies in the
technical design of the underlying SunriseXA workflow engine, which does not
adequately support the throughput required in the highly interactive
patient

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care environment. At the same time, we also announced that we have developed a
strategy designed to address these issues. This strategy is to replace the
affected SunriseXA components with the workflow engine from our Sunrise
Clinical Manager, or SCM, product, which is our previous generation core
clinical product. We face a variety of risks and uncertainties in connection
with these developments, including the following:


      Our investigation into the
        causes of the response time issues is ongoing, and it is possible that
        further analysis will reveal additional problems with our software.
      While we have
determined the
        overall direction of our technical strategy for addressing these issues,
        the details of that strategy are still being worked out. Accordingly,
        we cannot assure you that the technical approach we are currently pursuing
        will provide a satisfactory solution to the issues we are addressing,
        and we could encounter technical obstacles in implementing this approach.
      At this time, we cannot
          predict how long it will take us, or how much it will cost us, to complete
          the work necessary to allow the SCM workflow engine to replace the affected
          SunriseXA components. In addition, because the primary focus of our
          recent research and development activities has been on our latest generation
          SunriseXA products, we may now need to commit additional resources to
          update the prior generation SCM workflow engine to accommodate the performance
          and functionality demanded by our customers
      It is likely that releases
        of anticipated additional features for our products will be delayed, which
        could result in delayed or lost sales.
      Customers who are currently
        implementing SunriseXA may face delays in that implementation. As a result,
        existing SunriseXA customers could attempt to cancel their contracts with
        us or could 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 these products less appealing, which could decrease demand for our
        products. In addition, these issues could harm our relationships with
        customers generally and our reputation in the marketplace.
      Operating results for the
        quarter ended September 30, 2003 reflect a $1.2 million write-down
        of capitalized software development costs related to certain SunriseXA
        components. Approximately $21.4 million of capitalized SunriseXA software
        development costs remain on our balance sheet at September 30, 2003.
        As we continue to study these issues and work on implementing our strategy
        for addressing them, it is possible that we will discover facts leading
        us to conclude that additional write-offs would be required.


Given the length of our sales and implementation cycles, if a significant
number of our customers delay implementation, our future operating results may
suffer

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 customer market. Furthermore, the solutions we
provide typically require significant capital expenditures by our customers.
The sales cycle for our systems has ranged from 6 to 18 months or more from
initial contact to contract execution. Historically, our implementation cycle
has 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 financial resources preparing contract proposals,
negotiating the contract and implementing the solution. 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, which
could harm our future operating results. Additionally, any decision by our
customers to delay a purchase or implementation may adversely affect our
revenues.

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

The healthcare industry has faced, and will likely continue to face,
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 solutions often involve a significant financial
commitment by our customers and, as a result, our ability to grow our business
is largely dependent on our customers information technology budgets. To the
extent healthcare information technology spending declines or increases more
slowly than we anticipate, demand for our products would be adversely affected.

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

We had a net loss of $35.1 million in the nine months ended September 30,
2003. We also had net losses of $29.8 million in 2002, $34.0 million in 2000,
$9.4 million in 1999, $35.3 million in 1998, and $126.3 million in 1997. In
2001, we had net income of $4.4 million, although we had a loss from operations
of $1.6 million. We may continue to incur net losses and cannot predict when
or if we will be profitable in the future.

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 risks detailed above relating
        to our recently announced strategy to address SunriseXA response time
        issues;
      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;
      product and price competition;
      the relative proportions of
        revenues we derive from systems and services and from hardware;
      changes in our operating expenses;
      the timing and size of future
        acquisitions;
      personnel changes;
      the performance of our products;
      significant estimates made
        by management in the application of generally accepted accounting principles;
        and
      fluctuations in general economic
        and financial market conditions, including interest rates.


It is difficult to predict the timing of revenues from product sales
because the sales cycle can vary depending upon several factors. These factors
include the size and terms of the transaction, the changing business plans of
the customer, the effectiveness of the customers management, general economic
conditions and the regulatory environment. In addition, depending upon the
extent to which our customers elect to license our products under comprehensive
bundled arrangements, including subscription pricing, the timing of revenue
recognition could vary considerably. Under comprehensive bundled arrangements,
revenues are recognized under the terms of the contract consistent with the
timing of performance of all services offered under the arrangement.
Generally, less revenue is recognized under these arrangements during the first
12 to 24 months compared to our more traditional licensing arrangements. We
will also continue to offer contracts using our more traditional licensing
arrangements. Because a significant percentage of our expenses will be
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. You should not rely on these
comparisons as indicators of future performance.

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

We operate in a market that is intensely competitive. Our principal
competitors include Cerner Corp., McKessonHBOC, Inc., GE Medical Systems, IDX
Systems Corp., Epic Systems Corporation and Siemens. We also face competition
from providers of practice management systems, general decision support and
database systems and other segment-specific applications, as well as from
healthcare technology consultants. A number of existing and potential
competitors are more established than we are and have greater name recognition
and financial, technical and marketing resources than we do. We expect that
competition will continue to increase. Increased competition could harm our
business.

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

Many healthcare providers have consolidated to create larger healthcare
delivery enterprises with greater market power. If this consolidation
continues, it could erode our customer base and could reduce the size of our
target market. In addition, the resulting enterprises could have greater
bargaining power, which may lead to erosion of the prices 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

The U.S. Food and Drug Administration, or the FDA, is likely to become
increasingly active in regulating computer software intended for use in the
healthcare setting. The FDA has increasingly focused on the regulation of
computer products and computer-assisted products as medical devices under the
federal Food, Drug, and Cosmetic Act, or the FDC Act. If the FDA chooses to
regulate any of our products as medical devices, it can impose extensive
requirements upon us, including the following:


      requiring us to seek FDA clearance
        of a pre-market notification submission demonstrating that the 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
      requiring us to comply with
        the FDC Acts 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 product
corrections, suspending production, refusing to grant pre-market clearance or
approval of products, withdrawing clearances and approvals, and initiating
criminal prosecution. Any final FDA policy governing computer products, once
issued, may increase the cost and time to market of new or existing products or
may prevent us from marketing our products.

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

The demand for health care information systems is affected by state and
federal laws and regulations that govern the collection, use, transmission and
other disclosures of electronic health information. These laws and regulations
may change rapidly and may be unclear or difficult to apply.

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Federal regulations issued in accordance with the Health Insurance
Portability and Accountability Act of 1996, or HIPAA, impose national health
data standards on health care providers that conduct electronic health
transactions, health care clearinghouses that convert health data between
HIPAA-compliant and non-compliant formats and health plans. Collectively,
these groups are known as covered entities. These 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.

There are several HIPAA compliance deadlines for covered entities. The
final compliance deadline for the transaction and code set standards was
October 16, 2003. The compliance deadline for the privacy standards was April
14, 2003 for most covered entities. The compliance deadline for the data
security standards is April 20, 2005 for most covered entities. Although we
are not a covered entity, many of our customers are. These customers may
demand products that are designed to help them to comply with their HIPAA
obligations, and they may, in the future, request us to agree contractually to
comply with specific HIPAA standards if it is necessary for us to handle
individually identifiable health records. Any failure or perception of failure
of our products or services to comply with HIPAA standards could adversely
affect demand for our products and services, and force us to expend significant
capital, research and development and other resources to modify our products or
services to address the privacy and security requirements of our customers.

States may adopt privacy standards that are more stringent than the
federal HIPAA privacy standards. This may lead to different restrictions for
handling individually identifiable health information. As a result, our
customers may demand information technology solutions and services that are
adaptable to reflect different and changing regulatory requirements. In the
future, federal or state governmental authorities may impose additional
restrictions on the collection, use, transmission and other disclosures of
health information. We cannot predict the potential impact that these future
rules, as finally approved, may have on our business. However, the demand for
our products and services may decrease if we are not able to develop and offer
products and services that can address the regulatory challenges and compliance
obligations facing our customers.

Our products are used to assist clinical decision-making and provide
information about patient medical histories and treatment plans, and if these
products fail to provide accurate and timely information, 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

We provide products that assist clinical decision-making and relate to
patient medical histories and treatment plans. If these products fail to
provide accurate and timely information, customers could assert liability
claims against us. Litigation with respect to liability claims, regardless of
its outcome, could result in substantial cost to us, divert managements
attention from operations and decrease market acceptance of our products. We
attempt to limit by contract our liability for damages arising from negligence,
errors or mistakes. In addition, we require that our customers approve all
system rules and protocols. Despite these precautions, the limitations of
liability set forth in our contracts may not be enforceable or may not
otherwise protect us from liability for damages. We maintain general liability
insurance coverage, including coverage for errors or omissions. However, 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.

Highly complex software products such as ours often contain undetected
errors or failures when first introduced or as updates and new versions are
released. It is particularly challenging for us to test our products because
it is difficult to simulate the wide variety of computing environments in which
our customers may deploy them. Despite testing, from time to time we
have discovered defects or errors in our products. Defects, errors or
difficulties could cause delays in product introductions and shipments, result
in increased costs and diversion of development resources, require design
modifications or decrease market acceptance or customer satisfaction with our
products. In addition, despite testing by us and by current and potential
customers, errors may be found after commencement of commercial shipments,
resulting in loss of or delay in market acceptance.

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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. Since 1997, we have completed eight 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 the attention
        of management 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

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. 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.

Changing customer requirements could decrease the demand for our products,
which could harm our business and decrease our revenues

The market for our products and services is characterized by rapidly
changing technologies, evolving industry standards and new product
introductions and enhancements that may render existing products obsolete or
less competitive. As a result, our position in the healthcare information
technology market could erode rapidly due to unforeseen changes in the features
and functions of competing products, as well as the pricing models for such
products. Our future success will depend in part upon our ability to enhance
our existing products and services, particularly our ability to continue to
release our products onto the .NET Framework under the SunriseXA initiative,
and to develop and introduce new products and services to meet changing
customer requirements. The process of developing products and services such as
those we offer is extremely complex and is expected to become increasingly
complex and expensive in the future as new technologies are introduced. If we
are unable to enhance our existing products or develop new products to meet
changing customer requirements, demand for our products could suffer.

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

We depend upon licenses for some of the technology used in our products
from a number of third-party vendors, including Computer Corporation of
America, Computer Associates, Oracle Corporation and Microsoft. 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 product 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 products.

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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

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 products, reverse
engineer our products or otherwise obtain and use information that we regard as
proprietary. In some limited instances, customers can access source-code
versions of our software, subject to contractual limitations on the permitted
use of the source code. Although our license agreements with these customers
attempt to prevent misuse of the source code, the possession of our source code
by third parties increases the ease and likelihood of potential
misappropriation of such software. Furthermore, others could independently
develop technologies similar or superior to our technology or design around our
proprietary rights. In addition, infringement or invalidity claims or claims
for indemnification resulting from infringement claims could be asserted or
prosecuted against us. Regardless of the validity of any claims, defending
against these claims could result in significant costs and diversion of our
resources. The assertion of infringement claims could also result in
injunctions preventing us from distributing products. If any claims or actions
are asserted against us, we might be required to obtain a license to the
disputed intellectual property rights, which might not be available on
reasonable terms or at all.

We face litigation that could force us to pay significant damages and could
distract our management team

Our company and three of our then current officers were named in seven
complaints filed in the United States District Court for the Southern District
of Florida, West Palm Beach Division, or the District Court, by purported
shareholders of the Company over the months of July through September 2002.
Each complaint individually sought class certification and monetary damages for
alleged violations of the federal securities laws. On February 4, 2003, the
District Court issued an order consolidating all seven cases into one single
case and appointing two persons and one entity to serve as lead plaintiffs. On
April 30, 2003, the plaintiffs filed with the District Court an amended,
consolidated complaint. On July 31, 2003, we filed a motion to dismiss the
amended, consolidated complaint. On September 16, 2003, the plaintiffs filed
an opposition to the motion to dismiss, and the Company filed a reply on
October 16, 2003. At this time, the motion to dismiss has been fully briefed.
The Company does not know when the District Court will decide the motion or
what its ruling may be.

Recently, following our announcement of SunriseXA response time issues
and our strategy to address those issues, we were contacted by the attorneys
representing the lead plaintiffs in this suit seeking our consent to their
filing of an amended complaint that would add new counts asserting new claims
and a new class period. We have not formally responded to this request, and
have not yet seen any motion to amend the complaint or any amended complaint.
We are unable to predict what effect this development will have on the course
of currently pending action nor can we predict the nature of the new claims, or
the damages claimed, in any additional new counts, if filed.

Although we believe that these actions are without merit, we cannot assure
you that they will not, if successful, require that we pay substantial damages
in excess of existing insurance coverage. Regardless of the outcome of these
matters, we might incur substantial defense costs, and defending the actions
may cause a diversion of management time and attention.

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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 shareholder 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 stockholder
        meetings;


Section 203 of the Delaware corporate statute may inhibit potential
acquisition bids for our company. We are subject to the anti-takeover
provisions of the Delaware corporate statute, which regulate corporate
acquisitions. Delaware law will prevent us from engaging, under specified
circumstances, in a business combination with any interested stockholder for
three years following the date that the interested stockholder became an
interested stockholder unless our board of directors or a supermajority of our
uninterested stockholders agree. For purposes of Delaware law, a business
combination includes a merger or consolidation involving us and the interested
stockholder and the sale of more than 10% of our assets. In general, Delaware
law defines an interested stockholder as any holder beneficially owning 15% or
more of the outstanding voting stock of a corporation and any entity or person
affiliated with or controlling or controlled by the holder.

These provisions could discourage potential acquisition proposals and
could delay or prevent a change in control transaction. They could also have
the effect of discouraging others from making tender offers for our common
stock. As a result, these provisions may prevent the market price of our common
stock from increasing substantially in response to actual or rumored takeover
attempts. These provisions may also prevent changes in our management.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not currently use derivative financial instruments. We generally
buy investments that are highly liquid. Based upon the nature of our
investments, we do not expect any material loss from our investments.

Investments in both fixed-rate and floating-rate interest-earning
instruments carry a degree of interest rate risk. Fixed-rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating-rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, our future investment
income may fall short of expectations due to changes in interest rates, or we
may suffer losses in principal if forced to sell securities that have seen a
decline in market value due to changes in interest rates. The following table
illustrates potential fluctuation in annualized interest income based upon
hypothetical values for blended interest rates and cash and marketable
securities account balances.

Annualized interest income based upon hypothetical values for cash and
marketable securities combined balances and interest rates:*

Combined cash and
        cash equivalents andmarketable securities
        balances (in thousands)HypotheticalInterest
          Rate
      
      $
      150,000
      
      
      $
      170,000
      
      
      $
      190,0001.0%
      
      $
      1,500
      
      
      $
      1,700
      
      
      $
      1,9001.5%
      
      
      2,250
      
      
      
      2,550
      
      
      
      2,8502.0%
      
      
      3,000
      
      
      
      3,400
      
      
      
      3,8002.5%
      
      
      3,750
      
      
      
      4,250
      
      
      
      4,7503.0%
      
      
      4,500
      
      
      
      5,100
      
      
      
      5,7003.5%
      
      
      5,250
      
      
      
      5,950
      
      
      
      6,650




|* |  | (This sensitivity analysis is not a forecast of future interest income.)
|- |  | ------------------------------------------------------------------------

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. Marketable securities consist
of funds that are highly liquid and are classified as available-for-sale.
Marketable securities are recorded at fair value, and unrealized gains and
losses are recorded as a component of other comprehensive income.

We do not currently enter into foreign currency hedge transactions.
Through September 30, 2003, foreign currency fluctuations have not had a
material impact on our financial position or results of operations.

ITEM 4. 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 Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of September 30, 2003. Based on this evaluation, the Companys chief
executive officer and chief financial officer concluded that, as of September
30, 2003, our disclosure controls and procedures were (1) designed to ensure
that material information relating to us, including our consolidated
subsidiaries, is made known to our chief executive officer and chief financial
officer by others within those entities, particularly during the period in
which this report was being prepared and (2) effective, in that they provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules
and forms.

No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
fiscal quarter ended September 30, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

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PART II.

ITEM 1. LEGAL PROCEEDINGS

From July through September 2002, our company and three of its then
current officers (Messrs. Colletti, Patton and Wilson) were named in seven
complaints filed by purported shareholders of the Company in the United States
District Court, Southern District of Florida, West Palm Beach Division, or the
District Court. Each complaint sought certification as a class and monetary
damages, and alleged that the Company and the named officers violated federal
securities laws. The Company believes that the actions are without merit, and
intends to conduct a vigorous defense against these allegations.

On February 4, 2003, the District Court issued an order consolidating all
seven cases into one single case and appointing the City of Philadelphia Board
of Pensions and Retirement, Louis Giannakokas and Norman K. Mielziner to serve
as lead plaintiffs. On April 30, 2003, the plaintiffs filed with the District
Court an amended, consolidated complaint. On July 31, 2003, the Company filed
a motion to dismiss the amended, consolidated complaint. On September 16,
2003, the plaintiffs filed an opposition to the motion to dismiss, and the
Company filed a reply on October 16, 2003. At this time, the motion to dismiss
has been fully briefed. The Company does not know when the District Court will
decide the motion or what its ruling may be.

Recently, following our announcement of SunriseXA response time issues
and our strategy to address those issues, we were contacted by the attorneys
representing the lead plaintiffs in this suit seeking our consent to their
filing of an amended complaint that would add new counts asserting new claims
and a new class period. We have not formally responded to this request, and
have not yet seen any motion to amend the complaint or any amended complaint.
We are unable to predict what effect this development will have on the course
of currently pending action nor can we predict the nature of the new claims, or
the damages claimed, in any additional new counts, if filed.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits: See Index to exhibits.

(b) Reports on Form 8-K:

(1) On July 21, 2003, Eclipsys filed a report on Form 8-K relating to its
financial results for the fiscal quarter ended June 30, 2003, as presented
in a press release on July 21, 2003.

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SIGNATURES

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

ECLIPSYS CORPORATIONDate:
      November 6, 2003
      
      /s/ Robert J. Colletti
        Robert J. Colletti
        Senior Vice President and Chief Financial Officer
        (Principal financial officer and duly authorized officer)


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ECLIPSYS CORPORATION
EXHIBIT INDEX

EXHIBITNO.
      
      DESCRIPTION31.1
      
      Certification of Paul L. Ruflin31.2
      
      Certification of Robert J.
        Colletti32
      
      Certification Pursuant to
        18 U.S.C. Section 1350




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