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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-Q



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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

COMMISSION FILE NUMBER: 000-24539

ECLIPSYS CORPORATION

(Exact name of registrant as specified in its charter)


|                                  |  |                                                
|--------------------------------- |  | -----------------------------------------------
|DELAWARE
(State of Incorporation) |  | 65-0632092
(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 o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes x No o

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 July 30, 2003
|                             |  |                                       
|Common Stock, $.01 par value |  |                                        | 45,599,777 | 



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ECLIPSYS CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2003

INDEX

|           |  |                                                                                               |  |                                                                                                                         |    |      |   | 
|---------- |  | --------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|           |  |                                                                                               |  |                                                                                                                         |    | Page
|           |  |                                                                                               |  |                                                                                                                         |    |     
|PART I.    |  | Financial Information                                                                         |  |                                                                                                                         |    |     
|Item 1.    |  | Condensed Consolidated Balance Sheets (unaudited)  As of June
30, 2003 and December 31, 2002 |  |                                                                                                                         | 3  |     
|           |  |                                                                                               |  | Condensed Consolidated Statements of Operations (unaudited) 
For the Three and Six Months ended June 30, 2003 and 2002 |    |      | 4 | 
|           |  |                                                                                               |  | Condensed Consolidated Statements of Cash Flows (unaudited) 
For the Three and Six Months ended June 30, 2003 and 2002 |    |      | 5 | 
|           |  |                                                                                               |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                        |    |      | 6 | 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations         |  |                                                                                                                         | 10 |     
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                    |  |                                                                                                                         | 22 |     
|Item 4.    |  | Controls and Procedures                                                                       |  |                                                                                                                         | 22 |     
|PART II.   |  | Other Information                                                                             |  |                                                                                                                         |    |     
|Item 1.    |  | Legal Proceedings                                                                             |  |                                                                                                                         | 23 |     
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                           |  |                                                                                                                         | 23 |     
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                              |  |                                                                                                                         | 23 |     
|Signatures |  |                                                                                               |  |                                                                                                                         | 24 |     

2



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PART I.

ITEM 1.

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

|                                            |                                      |   |               |          |                   |   |         |          |  
|------------------------------------------- | ------------------------------------ | - | ------------- | -------- | ----------------- | - | ------- | -------- | -
|                                            |                                      |   | JUNE 30, 2003 |          | DECEMBER 31, 2002
|                                            |                                      |   |               |          |                  
|ASSETS                                      |                                      |   |               |          |                   |   |         |         
|Current assets:                             |                                      |   |               |          |                   |   |         |         
|                                            | Cash and cash equivalents            |   | $             | 118,097  |                   |   | $       | 183,500  |  
|                                            | Marketable securities                |   |               | 52,740   |                   |   |         |         |  
|                                            | Accounts receivable, net             |   |               | 47,552   |                   |   |         | 46,822   |  
|                                            | Inventory                            |   |               | 691      |                   |   |         | 656      |  
|                                            | Other current assets                 |   |               | 14,155   |                   |   |         | 16,921   |  
|                                            |                                      |   |               |          |                   |   |         |         
|Total current assets                        |                                      |   | 233,235       |          |                   |   | 247,899 |         
|Property and equipment, net                 |                                      |   | 28,583        |          |                   |   | 26,800  |         
|Capitalized software development costs, net |                                      |   | 20,218        |          |                   |   | 16,375  |         
|Acquired technology, net                    |                                      |   | 75            |          |                   |   | 267     |         
|Goodwill                                    |                                      |   | 454           |          |                   |   | 454     |         
|Other assets                                |                                      |   | 12,029        |          |                   |   | 9,402   |         
|                                            |                                      |   |               |          |                   |   |         |         
|TOTAL ASSETS                                |                                      | $ | 294,594       |          |                   | $ | 301,197 |         
|                                            |                                      |   |               |          |                   |   |         |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY        |                                      |   |               |          |                   |   |         |         
|Current liabilities:                        |                                      |   |               |          |                   |   |         |         
|                                            | Deferred revenue                     |   | $             | 84,009   |                   |   | $       | 79,235   |  
|                                            | Accrued compensation costs           |   |               | 14,673   |                   |   |         | 14,442   |  
|                                            | Other current liabilities            |   |               | 21,076   |                   |   |         | 13,854   |  
|                                            |                                      |   |               |          |                   |   |         |         
|Total current liabilities                   |                                      |   | 119,758       |          |                   |   | 107,531 |         
|Deferred revenue                            |                                      |   | 3,307         |          |                   |   | 843     |         
|Other long-term liabilities                 |                                      |   | 755           |          |                   |   | 226     |         
|Stockholders equity:                       |                                      |   |               |          |                   |   |         |         
|                                            | Common stock                         |   |               | 455      |                   |   |         | 451      |  
|                                            | Unearned stock compensation          |   |               | (908     | )                 |   |         | (1,021   | )
|                                            | Additional paid-in capital           |   |               | 407,606  |                   |   |         | 405,380  |  
|                                            | Accumulated deficit                  |   |               | (235,858 | )                 |   |         | (211,814 | )
|                                            | Accumulated other comprehensive loss |   |               | (521     | )                 |   |         | (399     | )
|                                            |                                      |   |               |          |                   |   |         |         
|Total stockholders equity                  |                                      |   | 170,774       |          |                   |   | 192,597 |         
|                                            |                                      |   |               |          |                   |   |         |         
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY  |                                      | $ | 294,594       |          |                   | $ | 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 ENDED |        | SIX MONTHS ENDED
|                                                   |                                       |   | JUNE 30,           |        | JUNE 30,        
|                                                   |                                       |   |                    |        |                 
|                                                   |                                       |   | 2003               |        | 2002             |   | 2003   |        | 2002
|                                                   |                                       |   |                    |        |                  |   |        |        |     
|REVENUES                                           |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|                                                   | Systems and services                  |   | $                  | 58,381 |                  |   | $      | 51,732 |      |   | $       | 112,078 |  |   | $       | 108,862 | 
|                                                   | Hardware                              |   |                    | 5,005  |                  |   |        | 2,520  |      |   |         | 8,144   |  |   |         | 8,209   | 
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|TOTAL REVENUES                                     |                                       |   | 63,386             |        |                  |   | 54,252 |        |      |   | 120,222 |         |  |   | 117,071 |        
|COSTS AND EXPENSES                                 |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|                                                   | Cost of systems and services revenues |   |                    | 33,900 |                  |   |        | 28,424 |      |   |         | 66,704  |  |   |         | 56,155  | 
|                                                   | Cost of hardware revenues             |   |                    | 4,163  |                  |   |        | 2,202  |      |   |         | 6,847   |  |   |         | 6,813   | 
|                                                   | Sales and marketing                   |   |                    | 17,719 |                  |   |        | 11,856 |      |   |         | 34,274  |  |   |         | 23,205  | 
|                                                   | Research and development              |   |                    | 13,535 |                  |   |        | 11,216 |      |   |         | 26,519  |  |   |         | 21,455  | 
|                                                   | General and administrative            |   |                    | 3,420  |                  |   |        | 2,724  |      |   |         | 6,784   |  |   |         | 5,258   | 
|                                                   | Depreciation and amortization         |   |                    | 2,500  |                  |   |        | 2,043  |      |   |         | 4,869   |  |   |         | 4,032   | 
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|TOTAL COSTS AND EXPENSES                           |                                       |   | 75,237             |        |                  |   | 58,465 |        |      |   | 145,997 |         |  |   | 116,918 |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|(LOSS) INCOME FROM OPERATIONS                      |                                       |   | (11,851            | )      |                  |   | (4,213 | )      |      |   | (25,775 | )       |  |   | 153     |        
|Interest income, net                               |                                       |   | 831                |        |                  |   | 1,166  |        |      |   | 1,731   |         |  |   | 2,275   |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|(LOSS) INCOME BEFORE INCOME TAXES                  |                                       |   | (11,020            | )      |                  |   | (3,047 | )      |      |   | (24,044 | )       |  |   | 2,428   |        
|Provision for income taxes                         |                                       |   |                   |        |                  |   |       |        |      |   |        |         |  |   | 165     |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|NET (LOSS) INCOME                                  |                                       | $ | (11,020            | )      |                  | $ | (3,047 | )      |      | $ | (24,044 | )       |  | $ | 2,263   |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|BASIC NET (LOSS) INCOME PER COMMON SHARE           |                                       | $ | (0.24              | )      |                  | $ | (0.07  | )      |      | $ | (0.53   | )       |  | $ | 0.05    |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|DILUTED NET (LOSS) INCOME PER COMMON SHARE         |                                       | $ | (0.24              | )      |                  | $ | (0.07  | )      |      | $ | (0.53   | )       |  | $ | 0.05    |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|BASIC WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING   |                                       |   | 45,289             |        |                  |   | 44,628 |        |      |   | 45,179  |         |  |   | 44,563  |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        
|DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING |                                       |   | 45,289             |        |                  |   | 44,628 |        |      |   | 45,179  |         |  |   | 46,853  |        
|                                                   |                                       |   |                    |        |                  |   |        |        |      |   |         |         |  |   |         |        

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   |         | SIX MONTHS    
|                                                                                         |                                        |                                              |                            |                                                                                                         |       | ENDED JUNE 30, |         | ENDED JUNE 30,
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |               
|                                                                                         |                                        |                                              |                            |                                                                                                         |       | 2003           |         | 2002           |       | 2003   |         | 2002   
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |        
|OPERATING ACTIVITIES                                                                     |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|Net (loss) income                                                                        |                                        | $                                            | (11,020                    | )                                                                                                       |       | $              | (3,047  | )              |       | $      | (24,044 | )       |        | $      | 2,263   |        
|Adjustments to reconcile net (loss) income to net cash
provided by operating activities: |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|                                                                                         |                                        | Depreciation and amortization                |                            |                                                                                                         | 5,211 |                |         |                | 4,349 |        |         |         | 10,002 |        |         |         | 10,154 |       
|                                                                                         |                                        | Provision for bad debts                      |                            |                                                                                                         | 650   |                |         |                | 350   |        |         |         | 1,200  |        |         |         | 500    |       
|                                                                                         |                                        | Stock compensation expense                   |                            |                                                                                                         | 56    |                |         |                |      |        |         |         | 112    |        |         |         | 32     |       
|                                                                                         |                                        | Changes in operating assets and liabilities: |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |         |        |       
|                                                                                         |                                        |                                              | Accounts receivable        |                                                                                                         |       | (3,510         | )       |                |       | 10,126 |         |         |        | (1,930 | )       |         |        | 7,414  |        
|                                                                                         |                                        |                                              | Inventory                  |                                                                                                         |       | 120            |         |                |       | (167   | )       |         |        | (35    | )       |         |        | 86     |        
|                                                                                         |                                        |                                              | Other current assets       |                                                                                                         |       | 841            |         |                |       | 1,194  |         |         |        | 2,766  |         |         |        | 4,276  |        
|                                                                                         |                                        |                                              | Other assets               |                                                                                                         |       | (3,436         | )       |                |       | (1,009 | )       |         |        | (3,848 | )       |         |        | (1,556 | )      
|                                                                                         |                                        |                                              | Deferred revenue           |                                                                                                         |       | 1,430          |         |                |       | (2,169 | )       |         |        | 7,238  |         |         |        | (550   | )      
|                                                                                         |                                        |                                              | Accrued compensation costs |                                                                                                         |       | 2,496          |         |                |       | 1,673  |         |         |        | 232    |         |         |        | (2,752 | )      
|                                                                                         |                                        |                                              | Other current liabilities  |                                                                                                         |       | 4,968          |         |                |       | 37     |         |         |        | 7,222  |         |         |        | 1,914  |        
|                                                                                         |                                        |                                              | Other liabilities          |                                                                                                         |       | 485            |         |                |       | (423   | )       |         |        | 529    |         |         |        | (379   | )      
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|                                                                                         |                                        |                                              |                            | Total adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities |       |                | 9,311   |                |       |        | 13,961  |         |        |        | 23,488  |         |        |        | 19,139  |  
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|                                                                                         |                                        |                                              |                            | NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES                                                     |       |                | (1,709  | )              |       |        | 10,914  |         |        |        | (556    | )       |        |        | 21,402  |  
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|INVESTING ACTIVITIES                                                                     |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|                                                                                         | Purchase of property and equipment     |                                              |                            | (4,019                                                                                                  | )     |                |         | (3,490         | )     |        |         | (6,652  | )      |        |         | (7,405  | )     
|                                                                                         | Purchase of marketable securities, net |                                              |                            | (455                                                                                                    | )     |                |         | (627           | )     |        |         | (52,904 | )      |        |         | (61,178 | )     
|                                                                                         | Capitalized software development costs |                                              |                            | (4,897                                                                                                  | )     |                |         | (2,225         | )     |        |         | (7,563  | )      |        |         | (4,214  | )     
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|                                                                                         |                                        |                                              |                            | NET CASH USED IN INVESTING ACTIVITIES                                                                   |       |                | (9,371  | )              |       |        | (6,342  | )       |        |        | (67,119 | )       |        |        | (72,797 | )
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|FINANCING ACTIVITIES                                                                     |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|                                                                                         | Exercise of stock options              |                                              |                            | 943                                                                                                     |       |                |         | 757            |       |        |         | 951     |        |        |         | 1,450   |       
|                                                                                         | Employee stock purchase plan           |                                              |                            | 688                                                                                                     |       |                |         | 674            |       |        |         | 1,279   |        |        |         | 1,259   |       
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|                                                                                         |                                        |                                              |                            | NET CASH PROVIDED BY FINANCING ACTIVITIES                                                               |       |                | 1,631   |                |       |        | 1,431   |         |        |        | 2,230   |         |        |        | 2,709   |  
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS                                    |                                        |                                              | 34                         |                                                                                                         |       |                | 21      |                |       |        | 42      |         |        |        | 21      |        
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     |                                        |                                              | (9,415                     | )                                                                                                       |       |                | 6,024   |                |       |        | (65,403 | )       |        |        | (48,665 | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           |                                        |                                              | 127,512                    |                                                                                                         |       |                | 114,253 |                |       |        | 183,500 |         |        |        | 168,942 |        
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |                                        | $                                            | 118,097                    |                                                                                                         |       | $              | 120,277 |                |       | $      | 118,097 |         |        | $      | 120,277 |        
|                                                                                         |                                        |                                              |                            |                                                                                                         |       |                |         |                |       |        |         |         |        |        |         |        

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 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)
income and (loss) income per share would have been the pro forma amounts
indicated below (in thousands, except per share data):

|                                     |                                                                                                                                    |  |                |         |                |  |      |        |      |  |   |         |   |  |   |         |  
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | -------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                     |                                                                                                                                    |  | Three Months   |         | Six Months    
|                                     |                                                                                                                                    |  | Ended June 30, |         | Ended June 30,
|                                     |                                                                                                                                    |  |                |         |               
|                                     |                                                                                                                                    |  | 2003           |         | 2002           |  | 2003 |        | 2002
|                                     |                                                                                                                                    |  |                |         |                |  |      |        |     
|Net (loss) income:                   |                                                                                                                                    |  |                |         |                |  |      |        |      |  |   |         |   |  |   |        
|                                     | As reported                                                                                                                        |  | $              | (11,020 | )              |  | $    | (3,047 | )    |  | $ | (24,044 | ) |  | $ | 2,263   |  
|                                     | Add: Stock-based employee compensation expense included in reported
net (loss) income, net of related tax effects                  |  |                | 56      |                |  |      |       |      |  |   | 112     |   |  |   | 32      |  
|                                     | Deduct: Total stock-based compensation expense determined under fair
value based method for all awards, net of related tax effects |  |                | (4,073  | )              |  |      | (5,867 | )    |  |   | (9,364  | ) |  |   | (12,190 | )
|                                     |                                                                                                                                    |  |                |         |                |  |      |        |      |  |   |         |   |  |   |        
|                                     | Pro forma                                                                                                                          |  | $              | (15,037 | )              |  | $    | (8,914 | )    |  | $ | (33,296 | ) |  | $ | (9,895  | )
|Basic net (loss) income per share:   |                                                                                                                                    |  |                |         |                |  |      |        |      |  |   |         |   |  |   |        
|                                     | As reported                                                                                                                        |  | $              | (0.24   | )              |  | $    | (0.07  | )    |  | $ | (0.53   | ) |  | $ | 0.05    |  
|                                     | Pro forma                                                                                                                          |  | $              | (0.33   | )              |  | $    | (0.20  | )    |  | $ | (0.74   | ) |  | $ | (0.22   | )
|Diluted net (loss) income per share: |                                                                                                                                    |  |                |         |                |  |      |        |      |  |   |         |   |  |   |        
|                                     | As reported                                                                                                                        |  | $              | (0.24   | )              |  | $    | (0.07  | )    |  | $ | (0.53   | ) |  | $ | 0.05    |  
|                                     | Pro forma                                                                                                                          |  | $              | (0.33   | )              |  | $    | (0.20  | )    |  | $ | (0.74   | ) |  | $ | (0.22   | )

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):

|                     |                                                                               |  |          |        |              |  |   |        | 
|-------------------- | ----------------------------------------------------------------------------- |  | -------- | ------ | ------------ |  | - | ------ | 
|                     |                                                                               |  | June 30, |        | December 31,
|                     |                                                                               |  | 2003     |        | 2002        
|                     |                                                                               |  |          |        |             
|Accounts Receivable: |                                                                               |  |          |        |              |  |   |       
|                     | Billed accounts receivable, net                                               |  | $        | 42,513 |              |  | $ | 42,280 | 
|                     | Unbilled accounts receivable related to long-term contracts (current portion) |  |          | 2,821  |              |  |   | 2,860  | 
|                     | Other unbilled accounts receivable, net                                       |  |          | 2,218  |              |  |   | 1,682  | 
|                     |                                                                               |  |          |        |              |  |   |       
|                     | Total unbilled accounts receivable, net                                       |  |          | 5,039  |              |  |   | 4,542  | 
|                     |                                                                               |  |          |        |              |  |   |       
|                     | Total accounts receivable, net                                                |  | $        | 47,552 |              |  | $ | 46,822 | 
|                     |                                                                               |  |          |        |              |  |   |       

The non-current portion of unbilled accounts receivable is included in
other assets and was $1.0 million and $1.5 million as of June 30, 2003 and
December 31, 2002, respectively.



|5. |  | INTANGIBLE ASSETS
|-- |  | -----------------

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

|                               |                     |  |                     |        |                         |  |             |        |        |  |                |     |             |  |   |        |  |  |   |        |  |  |   |     | 
|------------------------------ | ------------------- |  | ------------------- | ------ | ----------------------- |  | ----------- | ------ | ------ |  | -------------- | --- | ----------- |  | - | ------ |  |  | - | ------ |  |  | - | --- | 
|                               |                     |  | As of June 30, 2003 |        | As of December 31, 2002
|                               |                     |  |                     |        |                        
|                               |                     |  | Gross Carrying      |        | Accumulated             |  |             |        |        |  | Gross Carrying |     | Accumulated |  |   |        | 
|                               |                     |  | Amount              |        | Amortization            |  | Net Balance |        | Amount |  | Amortization   |     | Net Balance
|                               |                     |  |                     |        |                         |  |             |        |        |  |                |     |            
|Amortized intangible assets:   |                     |  |                     |        |                         |  |             |        |        |  |                |     |             |  |   |        |  |  |   |        |  |  |   |    
|                               | Acquired technology |  | $                   | 95,795 |                         |  | $           | 95,720 |        |  | $              | 75  |             |  | $ | 95,795 |  |  | $ | 95,528 |  |  | $ | 267 | 
|Unamortized intangible assets: |                     |  |                     |        |                         |  |             |        |        |  |                |     |             |  |   |        |  |  |   |        |  |  |   |    
|                               | Goodwill            |  |                     |        |                         |  |             |        |        |  | $              | 454 |             |  |   |        |  |  |   |        |  |  | $ | 454 | 

Amortization of acquired technology for the three and six months ended
June 30, 2003 was $56,000 and $192,000, respectively. The estimated
amortization expense for the next five fiscal years is as follows (in
thousands):

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

7



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##### 



6. OTHER COMPREHENSIVE INCOME

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

|                                                                                      |  |                |         |                |  |      |        |      |  |   |         |   |  |   |       |  
|------------------------------------------------------------------------------------- |  | -------------- | ------- | -------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ----- | -
|                                                                                      |  | Three Months   |         | Six Months    
|                                                                                      |  | Ended June 30, |         | Ended June 30,
|                                                                                      |  |                |         |               
|                                                                                      |  | 2003           |         | 2002           |  | 2003 |        | 2002
|                                                                                      |  |                |         |                |  |      |        |     
|Net (loss) income                                                                     |  | $              | (11,020 | )              |  | $    | (3,047 | )    |  | $ | (24,044 | ) |  | $ | 2,263 |  
|Unrealized loss on available-for-sale marketable securities
arising during the period |  |                | (164    | )              |  |      | 89     |      |  |   | (164    | ) |  |   | (205  | )
|Foreign currency translation adjustment                                               |  |                | 34      |                |  |      | 21     |      |  |   | 42      |   |  |   | 21    |  
|                                                                                      |  |                |         |                |  |      |        |      |  |   |         |   |  |   |       |  
|Total comprehensive (loss) income                                                     |  | $              | (11,150 | )              |  | $    | (2,937 | )    |  | $ | (24,166 | ) |  | $ | 2,079 |  
|                                                                                      |  |                |         |                |  |      |        |      |  |   |         |   |  |   |       |  



|7. |  | 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.

In September 2002, various parties filed motions to be appointed as lead
plaintiffs and to consolidate all of the shareholder suits described above. 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 (the Consolidation Order). The Consolidation Order, as
amended, sets certain timelines by which the lead plaintiffs and we must file
responsive pleadings in the consolidated case. On April 30, 2003, the lead
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.

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 or results of operations or
cash flows.



|8. |  | 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 Company anticipates that
the Issue will not have a material impact on the Companys financial position,
results of operations or cash flows.

8



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##### 



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 June 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 has
adopted the provisions of Interpretation No. 46 beginning July 1, 2003 and
anticipates that it will not be required to consolidate 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 SEC are available to you free
of charge through a hyperlink on our website.

Our
newest product offerings are known as Sunrise XATM. SunriseXAs
extended architecture is built on Microsoft Corporations Web-based
infrastructure, .NET. SunriseXA is our Web-based solution that builds upon the
knowledge-driven, workflow enhancing components of our Sunrise suites. During
2002 we began releasing certain software applications and related components of
SunriseXA, which address various workflows within healthcare organizations. We
are continuing our development of SunriseXATM applications and related
components.

As we continue our product transition from our legacy product offerings to
SunriseXA, a key component of our strategy is to invest heavily in the areas of
research and development, sales, sales support and marketing. Also, we have
begun to offer additional contracting alternatives to our prospects and
customers. We believe these new contracting alternatives will be attractive to
prospects and customers.

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.

10



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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
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 and 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 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.

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.

11



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##### 



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.

12



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##### 



RESULTS OF OPERATIONS

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

|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |      |      |  
|--------------------------------- | ------------------------------------- | ------------------------ | ------ | ------------------ | ------ | ---- | ------- | -------- | ------ | -------- | ------ | ----- | ------ | ---------------- | ------ | -------- | ---- | -------- | ----- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------ | ------ |  | -------- | ---- | ---- | -
|                                  |                                       |                          |        | Three Months Ended |        |      |         |          |        |          |        |       |        | Six Months Ended |        |          |      |          |       |         |         |  
|                                  |                                       |                          |        | June 30,           |        |      |         |          |        |          |        |       |        | June 30,         |        |          |      |          |       |         |         |  
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |  
|                                  |                                       |                          |        | 2002               |        | 2003 |         | Change $ |        | Change % |        | 2002  |        | 2003             |        | Change $ |      | Change %
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |         
|Revenues                          |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|                                  | Systems and services                  |                          | $      | 51,732             |        |      | $       | 58,381   |        |          | $      | 6,649 |        |                  |        | 12.9     | %    |          | $     | 108,862 |         |   | $       | 112,078 |         |   | $       | 3,216  |        |  |          | 3.0  | %   
|                                  | Hardware                              |                          |        | 2,520              |        |      |         | 5,005    |        |          |        | 2,485 |        |                  |        | 98.6     | %    |          |       | 8,209   |         |   |         | 8,144   |         |   |         | (65    | )      |  |          | -0.8 | %   
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|                                  |                                       | Total revenues           |        |                    | 54,252 |      |         |          | 63,386 |          |        |       | 9,134  |                  |        |          | 16.8 | %        |       |         | 117,071 |   |         |         | 120,222 |   |         |        | 3,151  |  |          |      | 2.7  | %
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|Costs and expenses                |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|                                  | Cost of systems and services revenues |                          |        | 28,424             |        |      |         | 33,900   |        |          |        | 5,476 |        |                  |        | 19.3     | %    |          |       | 56,155  |         |   |         | 66,704  |         |   |         | 10,549 |        |  |          | 18.8 | %   
|                                  | Cost of hardware revenues             |                          |        | 2,202              |        |      |         | 4,163    |        |          |        | 1,961 |        |                  |        | 89.1     | %    |          |       | 6,813   |         |   |         | 6,847   |         |   |         | 34     |        |  |          | 0.5  | %   
|                                  | Sales and marketing                   |                          |        | 11,856             |        |      |         | 17,719   |        |          |        | 5,863 |        |                  |        | 49.5     | %    |          |       | 23,205  |         |   |         | 34,274  |         |   |         | 11,069 |        |  |          | 47.7 | %   
|                                  | Research and development              |                          |        | 11,216             |        |      |         | 13,535   |        |          |        | 2,319 |        |                  |        | 20.7     | %    |          |       | 21,455  |         |   |         | 26,519  |         |   |         | 5,064  |        |  |          | 23.6 | %   
|                                  | General and administrative            |                          |        | 2,724              |        |      |         | 3,420    |        |          |        | 696   |        |                  |        | 25.6     | %    |          |       | 5,258   |         |   |         | 6,784   |         |   |         | 1,526  |        |  |          | 29.0 | %   
|                                  | Depreciation and amortization         |                          |        | 2,043              |        |      |         | 2,500    |        |          |        | 457   |        |                  |        | 22.4     | %    |          |       | 4,032   |         |   |         | 4,869   |         |   |         | 837    |        |  |          | 20.8 | %   
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|                                  |                                       | Total costs and expenses |        |                    | 58,465 |      |         |          | 75,237 |          |        |       | 16,772 |                  |        |          | 28.7 | %        |       |         | 116,918 |   |         |         | 145,997 |   |         |        | 29,079 |  |          |      | 24.9 | %
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|(Loss) income from operations     |                                       |                          | (4,213 | )                  |        |      | (11,851 | )        |        |          | (7,638 | )     |        |                  | -181.3 | %        |      |          | 153   |         |         |   | (25,775 | )       |         |   | (25,928 | )      |        |  | -16946.4 | %   
|Interest income, net              |                                       |                          | 1,166  |                    |        |      | 831     |          |        |          | (335   | )     |        |                  | -28.7  | %        |      |          | 2,275 |         |         |   | 1,731   |         |         |   | (544    | )      |        |  | -23.9    | %   
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|(Loss) income before income taxes |                                       |                          | (3,047 | )                  |        |      | (11,020 | )        |        |          | (7,973 | )     |        |                  | -261.7 | %        |      |          | 2,428 |         |         |   | (24,044 | )       |         |   | (26,472 | )      |        |  | -1090.3  | %   
|Provision for income taxes        |                                       |                          |       |                    |        |      |        |          |        |          |       |       |        |                  |        |          |      |          | 165   |         |         |   |        |         |         |   |         |        |        |  |          |     
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|Net (loss) income                 |                                       | $                        | (3,047 | )                  |        | $    | (11,020 | )        |        | $        | (7,973 | )     |        |                  | -261.7 | %        |      | $        | 2,263 |         |         | $ | (24,044 | )       |         | $ | (26,307 | )      |        |  | -1162.5  | %   
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|Basic (loss) earnings per share   |                                       | $                        | (0.07  | )                  |        | $    | (0.24   | )        |        | $        | (0.17  | )     |        |                  | -242.9 | %        |      | $        | 0.05  |         |         | $ | (0.53   | )       |         | $ | (0.58   | )      |        |  | -1160.0  | %   
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     
|Diluted (loss) earnings per share |                                       | $                        | (0.07  | )                  |        | $    | (0.24   | )        |        | $        | (0.17  | )     |        |                  | -242.9 | %        |      | $        | 0.05  |         |         | $ | (0.53   | )       |         | $ | (0.58   | )      |        |  | -1160.0  | %   
|                                  |                                       |                          |        |                    |        |      |         |          |        |          |        |       |        |                  |        |          |      |          |       |         |         |   |         |         |         |   |         |        |        |  |          |     

|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |       |  
|--------------------------------- | ------------------------------------- | ------------------------ | ------ | --------------------------- | ------ | ------------------------- | ---- | ---------- | ----- | -------- | ------- | ------ | ------ | ---------- | ----- | ---- | ----- | -------- | ----- | ---------- | ------- |  | --- | ---- | ----- | ---------- | ------- | ------- | ------- |  | ----- | ---- | ----- | -
|                                  |                                       |                          |        | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                  |                                       |                          |        |                             |        |                          
|                                  |                                       |                          |        |                             |        |                           |      | % of Total |       |          |         |        |        | % of Total |       |      |       |          |       | % of Total |         |  |     |      |       | % of Total
|                                  |                                       |                          |        | 2002                        |        | Revenues                  |      | 2003       |       | Revenues |         | 2002   |        | Revenues   |       | 2003 |       | Revenues
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |         
|Revenues                          |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |      
|                                  | Systems and services                  |                          | $      | 51,732                      |        |                           |      | 95.4       | %     |          | $       | 58,381 |        |            |       | 92.1 | %     |          | $     | 108,862    |         |  |     | 93.0 | %     |            | $       | 112,078 |         |  |       | 93.2 | %    
|                                  | Hardware                              |                          |        |                             | 2,520  |                           |      |            | 4.6   | %        |         |        | 5,005  |            |       |      | 7.9   | %        |       |            | 8,209   |  |     |      | 7.0   | %          |         |         | 8,144   |  |       |      | 6.8   | %
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |      
|                                  |                                       | Total revenues           |        |                             | 54,252 |                           |      |            | 100.0 | %        |         |        | 63,386 |            |       |      | 100.0 | %        |       |            | 117,071 |  |     |      | 100.0 | %          |         |         | 120,222 |  |       |      | 100.0 | %
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |       |  
|Costs and expenses                |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |     
|                                  | Cost of systems and services revenues |                          |        | 28,424                      |        |                           |      | 52.4       | %     |          |         | 33,900 |        |            |       | 53.5 | %     |          |       | 56,155     |         |  |     | 48.0 | %     |            |         | 66,704  |         |  |       | 55.5 | %    
|                                  | Cost of hardware revenues             |                          |        | 2,202                       |        |                           |      | 4.1        | %     |          |         | 4,163  |        |            |       | 6.6  | %     |          |       | 6,813      |         |  |     | 5.8  | %     |            |         | 6,847   |         |  |       | 5.7  | %    
|                                  | Sales and marketing                   |                          |        | 11,856                      |        |                           |      | 21.9       | %     |          |         | 17,719 |        |            |       | 28.0 | %     |          |       | 23,205     |         |  |     | 19.8 | %     |            |         | 34,274  |         |  |       | 28.5 | %    
|                                  | Research and development              |                          |        | 11,216                      |        |                           |      | 20.7       | %     |          |         | 13,535 |        |            |       | 21.4 | %     |          |       | 21,455     |         |  |     | 18.3 | %     |            |         | 26,519  |         |  |       | 22.1 | %    
|                                  | General and administrative            |                          |        | 2,724                       |        |                           |      | 5.0        | %     |          |         | 3,420  |        |            |       | 5.4  | %     |          |       | 5,258      |         |  |     | 4.5  | %     |            |         | 6,784   |         |  |       | 5.6  | %    
|                                  | Depreciation and amortization         |                          |        | 2,043                       |        |                           |      | 3.8        | %     |          |         | 2,500  |        |            |       | 3.9  | %     |          |       | 4,032      |         |  |     | 3.4  | %     |            |         | 4,869   |         |  |       | 4.1  | %    
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |       |  
|                                  |                                       | Total costs and expenses |        |                             | 58,465 |                           |      |            | 107.8 | %        |         |        | 75,237 |            |       |      | 118.7 | %        |       |            | 116,918 |  |     |      | 99.9  | %          |         |         | 145,997 |  |       |      | 121.4 | %
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |       |  
|(Loss) income from operations     |                                       |                          | (4,213 | )                           |        |                           | -7.8 | %          |       |          | (11,851 | )      |        |            | -18.7 | %    |       |          | 153   |            |         |  | 0.1 | %    |       |            | (25,775 | )       |         |  | -21.4 | %   
|Interest income, net              |                                       |                          | 1,166  |                             |        |                           | 2.1  | %          |       |          | 831     |        |        |            | 1.3   | %    |       |          | 2,275 |            |         |  | 1.9 | %    |       |            | 1,731   |         |         |  | 1.4   | %   
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |       |  
|(Loss) income before income taxes |                                       |                          | (3,047 | )                           |        |                           | -5.6 | %          |       |          | (11,020 | )      |        |            | -17.4 | %    |       |          | 2,428 |            |         |  | 2.1 | %    |       |            | (24,044 | )       |         |  | -20.0 | %   
|Provision for income taxes        |                                       |                          |       |                             |        |                           | 0.0  | %          |       |          |        |        |        |            | 0.0   | %    |       |          | 165   |            |         |  | 0.1 | %    |       |            |        |         |         |  | 0.0   | %   
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |       |  
|Net (loss) income                 |                                       | $                        | (3,047 | )                           |        |                           | -5.6 | %          |       | $        | (11,020 | )      |        |            | -17.4 | %    |       | $        | 2,263 |            |         |  | 1.9 | %    |       | $          | (24,044 | )       |         |  | -20.0 | %   
|                                  |                                       |                          |        |                             |        |                           |      |            |       |          |         |        |        |            |       |      |       |          |       |            |         |  |     |      |       |            |         |         |         |  |       |      |       |  

13



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Total revenues increased $9.1 million for the quarter ended June 30, 2003,
and $3.2 million for the six months ended June 30, 2003, compared to the same
periods in 2002. Systems and services revenues increased $6.6 million for the
quarter ended June 30, 2003, and $3.2 million for the six months ended June 30,
2003, compared to the same periods in 2002. The increase in systems and
services revenues during the quarter and six months ended June 30, 2003,
consisted primarily of increases in revenues generated from comprehensive
technology solutions that generally provide for revenue recognition on a
monthly basis. These revenues, which generally recur monthly include license
fees, remote hosting services, professional services, software maintenance
fees, outsourcing services and third party revenues. The increase in revenue
is a result of higher volumes of new contracts. The new contracts consisted of
a significantly higher proportion of contracts executed under this  method, which generally corresponds with the customer payment
terms. We expect these contracts  will continue to represent a significant proportion of our new contracts
and these recurring revenues will continue to grow as long as we continue to
enter into new contracts for our systems and services. However, because these
contracts are characterized by payments being spread over a longer period of
time than other types of contracts we have historically offered, we expect cash
flows will continue to be negatively impacted in the near future.

Hardware revenues increased $2.5 million for the quarter ended June 30,
2003, and decreased $0.1 million for the six months ended June 30, 2003,
compared to the same periods in 2002. The increase in hardware revenues during
the second quarter was primarily attributable to new business contracted during
the current and prior quarters. We expect hardware revenues to continue to
fluctuate in future periods.

Cost of systems and services revenues increased $5.5 million for the
quarter ended June 30, 2003, and $10.5 million for the six months ended June
30, 2003, compared to the same periods in 2002. Cost of systems and services
revenues represented 58.1% and 59.5% of the systems and services revenues for
the quarter and six months ended June 30, 2003, respectively, compared to 54.9%
and 51.6% of the systems and services revenues for the same period in 2002.
The increase was related to several factors, including higher costs associated
with providing remote hosting and outsourcing services in conjunction with
higher revenues in these areas. Also, we incurred higher third party costs,
including royalties and consulting costs, in conjunction with the increase in
third party revenues. Furthermore, amortization of capitalized software
development costs increased due to the release of clinical products in our new
SunriseXA product line over the past 13 months. 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. During the
second quarter, these increases were partially offset by lower costs of
providing networking services.

Cost of hardware revenues increased $2.0 million for the quarter ended
June 30, 2003, compared to the second quarter of 2002. Cost of hardware
revenues represented 83.2% of hardware revenues for the quarter ended June 30,
2003, compared to 87.4% of hardware revenues for the same period in 2002.
For the six months ended June 30, 2003, cost of hardware revenues was unchanged
at $6.8 million. This represented 84.1% of hardware revenues for the six
months ended June 30, 2003, compared to 83.0% of hardware revenues for the same
period in 2002. The increase in the cost of hardware revenues for the second
quarter was primarily attributable to the increase in hardware revenues,
partially offset by slightly improved gross margins. We expect margins on
hardware will continue to fluctuate as a result of pricing pressures within the
hardware sector.

Sales and marketing expenses increased $5.9 million for the quarter ended
June 30, 2003, and $11.1 million for the six months ended June 30, 2003,
compared to the same periods in 2002. The increase in sales and marketing
expenses was primarily related to increased payroll and related costs,
including commissions and travel, due to our initiative to significantly expand
the size of our sales and marketing organization. We expect this program will
continue to result in higher expenses in the future.

Research and development expenses increased $2.3 million for the quarter
ended June 30, 2003, and $5.1 million for the six months ended June 30, 2003,
compared to the same periods in 2003. The increase in research and development
expenses was due primarily 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 used outside consultants while we
actively recruit qualified research and development personnel. The percentage
of research and development costs capitalized for the three months ended June
30, 2003 was 26.6%, or $4.9 million, compared to 16.6%, or $2.2 million, for
the second quarter of 2002. For the six months ended June 30, 2003, the
percentage of research and development expenditures capitalized was 22.2%, or
$7.6 million, compared to 16.4%, or $4.2 million, for the same period in 2002.
The percentage

14



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of research and development costs capitalized increased primarily as a result
of the incremental expenses incurred during the second quarter of 2003 for
coding and testing of the next two releases of Sunrise XA products, which were
technologically feasible and are scheduled to be generally released in the
third and fourth quarters of 2003. We expect research and development costs
and the percentage of costs capitalized to continue at these heightened levels
during the course of this initiative. As discussed above, amortization of
capitalized software development costs, which is included as a component of
cost of systems and systems revenues, increased by approximately $0.4 million,
to $1.9 million for the quarter ended June 30, 2003, compared to $1.5 million
for second quarter of 2002. For the six months ended June 30, 2003, the
amortization of capitalized software development costs increased $0.9 million,
to $3.7 million, compared to $2.8 million, for the same period in 2002.

General and administrative expenses increased approximately $0.7 million
for the quarter ended June 30, 2003, and $1.5 million for the six months ended
June 30, 2003, compared to the same periods in 2002. The increase was
primarily due to higher director and officer insurance premiums, legal fees and
recruitment costs related to our workforce expansion.

Depreciation and amortization increased $0.5 million for the quarter ended
June 30, 2003, and $0.8 million for the six months ended June 30, 2003,
compared to the same periods in 2002. The increase was primarily the result of
higher depreciation related to fixed assets purchased, including networking
hardware and software to provide remote hosting services to customers, as well
as personal computers for new and existing employees. For the six months ended
June 30, 2003, this increase was partially offset by lower amortization of
intangibles, some of which became fully amortized during the first quarter of
2002.

Interest income decreased $0.3 million for the quarter ended June 30,
2003, and $0.5 million for the six months ended June 30, 2003, compared to the
same periods in 2002. This decrease in interest income was primarily due to a
decline in yields experienced over the past 18 months, related to changes in
general economic conditions. The Companys marketable securities continue to
consist of funds that are highly liquid.

As a result of these factors, we had a net loss of $11.0 million for the
quarter ended June 30, 2003, compared to a net loss of $3.0 million for the
second quarter of 2002. For the six months ended June 30, 2003, the net loss
was $24.0 million, compared to a net income of $2.3 million for the same period
in 2002.

LIQUIDITY AND CAPITAL RESOURCES

During the quarter ended June 30, 2003, operations used $1.7 million of
cash; investing activities used $9.4 million of cash, consisting of $4.9
million for the funding of capitalized software development costs, $4.0 million
for the purchase of property and equipment and $0.5 million for the purchase of
marketable securities; and financing activities provided $1.6 million of cash
from stock option exercises and the issuance of common stock under our employee
stock purchase plan. For the six months ended June 30, 2003, operations used
$0.6 million of cash; investing activities used $67.1 million of cash,
consisting of $52.9 million for the purchase of marketable securities, $7.6
million for the funding of capitalized software development costs and $6.6
million for the purchase of property and equipment; and financing activities
provided $2.2 million of cash from stock option exercises and the issuance of
common stock under our employee stock purchase plan.

As of June 30, 2003, our principal source of liquidity is our combined
cash and marketable securities balance of $170.8 million. It is likely that we
may continue to have negative cash flows from operations over the remainder of
2003 due to our sales and marketing and research and development initiatives,
as well as the growing popularity of our new contract arrangements, which
provide for payments to be spread more evenly over the term of the contract.
These arrangements result in a proportionately smaller amount of fees being
collected upon new contract signing. 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 June 30, 2003, we did not
have any material commitments for capital expenditures. We believe that our
current cash and marketable securities balances and anticipated cash
collections will be sufficient to meet our operating requirements for at least
the next 12 months.

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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.

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. Furthermore, the solutions we provide typically require
significant capital expenditures by the customer. 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.

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

We had a net loss of $24.0 million in the six months ended June 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 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;                                                                 

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| | - |  | 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 and general
economic conditions. 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.

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:

17



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| | - |  | 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.

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. All
covered entities must comply with the transaction and code set standards by
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 to comply with HIPAA standards could adversely affect demand
for our products and force us to expend significant capital, research and
development and other resources to modify our products 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 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 may
decrease if we are not able to develop and offer products that can address the
regulatory challenges and compliance obligations facing our customers.

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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 extensive 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.

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.

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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.

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.

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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 lead plaintiffs filed an amended, consolidated complaint.
On July 31, 2003, we filed a motion to dismiss the amended, consolidated
complaint. 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.

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.

21



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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 and       
|              |  | marketable securities balances (in thousands)
|Hypothetical  |  |                                              
|Interest Rate |  | $ 150,000                                     |       | $ 170,000 |  | $ 190,000
|              |  |                                               |       |           |  |          
|1.5%          |  | $                                             | 2,250 |           |  | $         | 2,550 |  |  | $ | 2,850 | 
|2.0%          |  |                                               | 3,000 |           |  |           | 3,400 |  |  |   | 3,800 | 
|2.5%          |  |                                               | 3,750 |           |  |           | 4,250 |  |  |   | 4,750 | 
|3.0%          |  |                                               | 4,500 |           |  |           | 5,100 |  |  |   | 5,700 | 
|3.5%          |  |                                               | 5,250 |           |  |           | 5,950 |  |  |   | 6,650 | 
|4.0%          |  |                                               | 6,000 |           |  |           | 6,800 |  |  |   | 7,600 | 



|* |  | (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 June 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 June 30, 2003. Based on this evaluation, the Companys chief
executive officer and chief financial officer concluded that, as of June 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 June 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.

In September 2002, various parties filed motions to be appointed as lead
plaintiffs and to consolidate all of the shareholder suits described above. 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, or the Consolidation Order. The Consolidation Order, as
amended, sets certain timelines by which the lead plaintiffs and we must file
responsive pleadings in the consolidated case. On April 30, 2003, the lead
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.

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

At the Annual Meeting of Stockholders held on May 16, 2003, the
stockholders voted upon two proposals: (i) the election of two Class II
directors for a three-year term, or Proposal One, and (ii) the ratification of
the selection of PricewaterhouseCoopers LLP by the board of directors as the
Companys independent auditors for the current fiscal year, or Proposal Two.

The outcome of the voting on Proposal One was as follows:

|                  |  |     |            |          |  |  |           | 
|----------------- |  | --- | ---------- | -------- |  |  | --------- | 
|Name              |  | For |            | Withheld
|                  |  |     |            |         
|Jay B. Pieper     |  |     | 41,256,772 |          |  |  | 1,038,878 | 
|Steven A. Denning |  |     | 41,431,822 |          |  |  | 863,828   | 

The outcome of the voting on Proposal Two was as follows:

|                    |  |  |                           | 
|------------------- |  |  | ------------------------- | 
|For
Against
Abstain |  |  | 41,668,704
600,771
26,175 | 

Our Proxy Statement filed pursuant to Section 14 of the Securities
Exchange Act contains a detailed discussion of the proposals that the
stockholders were asked to vote upon.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits: See Index to exhibits.
| | --- |  | --------------------------------
|
| | (b) |  | Reports on Form 8-K:            



| | (1) |  | On April 21, 2003, Eclipsys filed a report on Form 8-K relating to its
financial results for the fiscal quarter ended March 31, 2003, as presented
in a press release on April 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 CORPORATION                                                                                                          
|                     |  |                                                                                                                               
|Date: August 4, 2003 |  | /s/ Robert J. Colletti                                                                                                        
|                     |  |                                                                                                                               
|                     |  | Robert J. Colletti
Senior Vice President and Chief Financial Officer
(Principal financial officer and duly authorized officer)

24



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ECLIPSYS CORPORATION
EXHIBIT INDEX

|        |  |                                                 
|------- |  | ------------------------------------------------
|EXHIBIT |  |                                                 
|NO.     |  | DESCRIPTION                                     
|        |  |                                                 
|31.1    |  | Certification of Paul L. Ruflin                 
|31.2    |  | Certification of Robert J. Colletti             
|32      |  | Certification Pursuant to 18 U.S.C. Section 1350



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