##### 









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION







FORM 10-K


FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934




|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|x | Annual report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002 or



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | Transition report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934

Commission File Number: 000-24539




ECLIPSYS CORPORATION


(Exact name of registrant as specified in its
charter)


|                                 |  |                                                      
|-------------------------------- |  | -----------------------------------------------------
|                                
|                                
|                                
|                                
|Delaware(State of Incorporation) |  | 65-0632092(I.R.S. Employer Identification
    Number)

1750 Clint Moore Road

Boca Raton, Florida


33487


(Address of principal executive
offices)


(561)-322-4321

(Registrants telephone number, including
area code)


Securities registered pursuant to Section 12(b) of the
Act: None

Securities registered pursuant to Section 12(g) of the
Act:



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

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o

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

The aggregate market value of the common stock held by
non-affiliates of the registrant as of June 28, 2002 based
upon the closing price of the Common Stock on the Nasdaq
National Market for such date, was $234,313,808.

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

|                             |  |                   |            | 
|---------------------------- |  | ----------------- | ---------- | 
|                             |  | Shares           
|                             |  | Outstanding as of
|Class                        |  | March 19, 2003   
|                             |  |                  
|Common Stock, $.01 par value |  |                   | 45,218,965 | 

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Companys definitive Proxy
Statement to be used in connection with the annual meeting of
stockholders for the year 2003 will be incorporated by reference
into Part III of this Form 10-K.



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Part I

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

Item 1.     Business

Overview

Eclipsys is a healthcare information technology company that
provides advanced software solutions and services to 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.

We believe our mission of better healthcare through
knowledge aligns with our customers objectives, and
our advanced software solutions and services facilitate their
workflow processes and implement best practices in their
organizations. To these ends, we design and offer a
comprehensive package of software applications and services that
together enable providers in a variety of healthcare settings to
transform the delivery of healthcare by improving patient safety
and operational effectiveness as measured by financial and
clinical outcomes.

Our products perform core information technology functions
required by healthcare organizations throughout the enterprise.
Our software applications are available to our customers for
implementation on site or through our remote hosting service,
and are designed to work in a variety of healthcare settings. In
addition, our products are designed to work through wireless
devices to provide access throughout the healthcare facility.
Our software and services provide comprehensive functionality to
help healthcare organizations solve clinical and business
problems to achieve balanced outcomes of clinical quality,
resource utilization and financial metrics as well as clinician
and patient satisfaction.

We believe the open, modular nature of our software architecture
reduces the overall cost of ownership and reduces the time to
productive use because our solutions do not require the initial
investment and disruption associated with a complete replacement
of a customers existing systems. To facilitate rapid
adoption by our customers, we have engineered our solutions to
take advantage of Web-based technologies.

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 this comprehensive
services offering and our integrated software components, we
provide our customers with solutions for their clinical,
financial and administrative information needs.

We maintain decentralized sales and customer support teams in
each of our six North American regions to provide direct,
sustained customer contact. We market our solutions to the full
spectrum of healthcare organizations ranging from small,
stand-alone hospitals to large multi-entity healthcare systems
and academic medical centers. We have one or more of our
products installed or licensed to be installed in over 1,500
facilities worldwide. Of the 17 top-ranked hospitals in the
July 22, 2002 issue of U.S. News & World Report,
all 17 use one or more of our solutions.

2



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Challenges and Compliance Pressures in the Healthcare
Industry

Institute of Medicine.In the Institute of
Medicines, or IOM, 1999 report To Err Is Human:
Building a Safer Health System and subsequent 2001 report,
the IOM calls for expanded use of information technology and the
implementation of other methods to cut the incidence of
avoidable medical errors by 50 percent in the U.S. over
five years. According to the 1999 report, between 44,000 and
98,000 people die each year as a result of medical errors and
many more are injured from preventable mistakes made in
hospitals. Even when using the lower estimate, more people die
in a given year as a result of medical errors than from motor
vehicle accidents, breast cancer or AIDS. The IOM identifies
medication and pharmacy errors as significant causes of deaths
and adverse events.

The Leapfrog Group. The 1999 IOM Report resulted in the
formation of The Leapfrog Group, a consortium of more than 130
Fortune 500 companies and other large private and public
healthcare purchasers representing more than 33 million lives
and $56 billion in annual healthcare purchasing power. The
Leapfrog project is steering its members and their employees to
base their purchase of healthcare on principles encouraging more
stringent patient-safety measures including the use of
computerized physician order entry systems, or CPOE. Adoption of
CPOE is a leading Leapfrog recommendation for reducing medical
errors.

The IOM and The Leapfrog Group are leveraging their respective
influence to encourage the deployment of advanced clinical
solutions that will help reduce adverse drug events and medical
errors. Coupled with demands from consumers, this influence is
also spurring new government legislation. Twenty states have
legislated mandatory reporting rules and statutes regarding
quality and patient safety including California, which has
passed legislation mandating the eventual adoption of
information technology aimed at avoiding medical errors.

Health Insurance Portability and Accountability Act.
Federal regulations recently 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 is April 14, 2003 for
most covered entities. The compliance deadline for the data
security standards is April 20, 2005 for most covered
entities.

As covered entities begin to require HIPAA-compliant products,
software and services, the costs and impact of the HIPAA rules
are expected to affect companies throughout the health care
industry, whether or not they are covered entities. The need for
HIPAA-compliant products, software and services may increase the
demand for scalable and adaptable health care information
technology such as our products.

Joint Commission on Accreditation of Healthcare
Organizations, or The Joint Commission. The Joint
Commission, an independent non-profit organization that provides
voluntary evaluation and accreditation for nearly 18,000
healthcare organizations and programs in the United States,
periodically introduces new process improvement initiatives,
standards and performance measurements. The Joint Commission
recently introduced new patient safety standards that require
hospitals to initiate specific efforts to prevent medical errors
and inform patients when they have been harmed during their
treatment.

The Internet.We believe growth in the use of the
Internet will enable consumers to be more involved in their
healthcare choices and to demand greater quality and will give
them access to information about healthcare alternatives.
Additionally, the Internet will provide increased availability
of medical information to physicians, clinicians and other
healthcare workers.

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The Eclipsys Solution

Eclipsys software and services are designed based upon the
philosophy that physicians, nurses or clinicians, in their
interaction with a patient, initiate most healthcare activities.
For example, a physicians single order begins a sequence
of actions in the care process, the customer relationship
management process, the revenue process, the access process, the
supply process and decision support process. Our products
perform core information technology functions required by
healthcare organizations throughout the enterprise. Our software
and services provide comprehensive functionality to help
healthcare organizations solve clinical and business problems to
achieve balanced outcomes of clinical quality, resource
utilization and financial metrics as well as clinician and
patient satisfaction.

Our solutions are designed to:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | provide healthcare organizations the knowledge they need to
    negotiate with payers, such as insurance companies, Medicare and
    Medicaid, and help maximize collections and minimize denial of
    payments;                 
|
| |  | provide clinicians real-time knowledge about the cost and
    effectiveness of tests and treatments as they order them;                                                                                                           
|
| |  | provide automated processes that improve clinical workflow and
    support clinical decision-making;                                                                                                                              
|
| |  | give clinicians access to patient information and supporting
    references, such as medical journals, through a variety of
    technologies, including wireless devices within the healthcare
    facility and over the Internet;
|
| |  | integrate clinical, financial and patient satisfaction
    information to support balanced clinical and financial outcomes;                                                                                                       
|
| |  | help our customers improve workflow processes and implement best
    practices within their organizations;                                                                                                                        
|
| |  | provide tools enabling healthcare organizations to analyze past
    performance, make plans based on that analysis, and, as those
    plans are implemented, monitor their effectiveness;                                         
|
| |  | leverage our products modular architecture to let
    customers meet current and future needs while preserving their
    investment in existing systems; and                                                                     
|
| |  | encourage rapid, cost-effective implementations of on site
    systems or remote-hosted services.                                                                                                                                 

The Eclipsys Strategy

Our objective is to become the leading provider of healthcare
information technology solutions to the healthcare industry. Key
elements of our strategy include:

Provide Comprehensive, Integrated Healthcare Information
Technology Solutions. Our goal is to continue to offer
software and services that provide our customers with
comprehensive, integrated healthcare information technology
solutions. We intend to continue to enhance our existing
products and develop new solutions to meet the evolving
healthcare information needs of our customers. Under our
SunriseXA initiative, we have been enhancing our products,
for instance, to take advantage of Web-based architecture, a
browser-enabled, database-neutral software architecture that can
support multiple operating system platforms and can be used
across a broad range of computing environments, including the
Internet, client-server systems and older mainframe computer
systems. Our team of research, development and technical support
professionals develops, enhances, supports and commercializes a
complete line of healthcare information products.

Continue to Leverage Relationship with Microsoft.We are
one of twenty companies worldwide which were named to the first
tier of the Microsoft .NET early adopter program. Additionally,
we have a strategic alliance with Microsoft, which we believe
provides us significant advantages. Through this relationship,
Microsoft provides us with proven infrastructure and an
integrated platform that reduces the total cost of ownership for
our customers. Also, we believe the relationship has enabled us
to lead the industry in releasing solutions based on Microsoft
..NET. Furthermore, as part of the relationship, we provide
Microsoft with input on the critical needs of healthcare
organizations with respect to computing requirements, including
reliability and response time requirements.

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Continue Expansion of Sales and Marketing Function.In
addition to pursuing business opportunities within our existing
customer base, we have grown our sales, sales support and
marketing areas to expand our ability to sell to new customers.
These initiatives have included adding significant clinical and
financial marketing expertise and undertaking new hiring,
training and communications programs to better support our field
organization and increase our visibility in the healthcare
industry. This expanded sales and marketing effort is aimed at
widening our target market to include the full spectrum of
healthcare organizations ranging from small, stand-alone
hospitals to large multi-entity healthcare systems and academic
medical centers.

Provide Flexible Product Options. We intend to continue
to offer our customers flexible product and product-delivery
options, either on site or remote hosted, which meet a wide
variety of information and technology requirements. Customers
can purchase our software components individually or in any
combination and can integrate them into their existing systems,
thereby minimizing cost and disruption. When combined, our
software components provide an integrated solution to the major
clinical, financial and administrative needs of a healthcare
organization.

Further Penetrate Our Existing Customer Base. We believe
there is a significant opportunity to sell our integrated
healthcare technology solutions to our existing customers, which
include large healthcare organizations, particularly academic
medical centers. Of these customers, few have enterprise-wide
healthcare information systems. One or more of our products are
installed or licensed to be installed in over 1,500 facilities
worldwide. We intend to continue to market our solutions
aggressively to our customers in order to capitalize on the
growth opportunity within our existing customer base.

Offer Subscription Pricing.We have recently introduced a
subscription pricing model which may feature a time-based or
perpetual license. Contracts under this model may also include
hardware and services such as implementation, consulting and
software maintenance. Our subscription pricing model is designed
to spread out the cost of the solution over the life of the
contract to more closely align cost and value with our
customers objectives. We believe this is particularly
critical in todays fiscal environment with constrained
capital and operating dollars.

SunriseXATM Initiative

During 2002, we continued our SunriseXATM initiative
that we began approximately 18 months ago. The
SunriseXA initiative is focused on re-engineering and
migrating our SunriseTM suite of solutions to the
Microsoft .Net Framework. SunriseXA is a flexible
combination of software, services and architecture.
SunriseXA is our Web-based solution, which enables the
knowledge-driven, workflow-enhancing components of our
Sunrise suite to operate as Web services-based workflow
components. SunriseXAs extended architecture is
built on Microsoft Corporations Web-based infrastructure,
the .NET Framework, and other industry standards, which make it
open and flexible so that it can work with legacy and ancillary
systems. This Web-based approach empowers healthcare providers
to leverage their existing information technology investments,
adding integrated workflow components as functional needs and
resources dictate. SunriseXA capabilities build upon a
single health data repository and computer-based patient record,
or CPR, which can be used by all components regardless of the
venue of care. By facilitating the sharing of common components
between workflow solutions, SunriseXA prevents the
isolation of information and duplication of functionality that
occurs with application-based systems, and enables rapid,
cost-effective implementations and ease of maintenance.

We released three SunriseXA products in 2002. The first
SunriseXA release provided initial components of the
Web-based clinical information system that served as the
foundation for advanced functionality for subsequent releases.
The second SunriseXA release included support for core
physician and nursing workflows in the inpatient, ambulatory and
emergency department venues. It also included expanded clinical
decision support, enhanced application security and advanced
user-friendly configuration tools. The third SunriseXA
release provided important features such as order entry and
structured clinical documentation.

In 2003 and beyond, we are planning to continue the
SunriseXA initiative, with new releases relating to other
components of our existing Sunrise suite of products as well as
the enhancement of existing SunriseXA components with
significant new functionality.

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Products

Our products perform core information technology functions
required by healthcare organizations and other healthcare
providers throughout the healthcare enterprise. Our software
applications are available to our customers for implementation
on site or through our remote hosting service, and are designed
to work in a variety of healthcare settings. In addition, our
products are designed to work through wireless devices to
provide access throughout the healthcare facility. The following
table summarizes our product offerings:

|                                  |  |                                                                                                                                                                                                                                                                                            
|--------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                 
|                                 
|Product                           |  | Primary Functions                                                                                                                                                                                                                                                                          
|                                 
|                                 
|Sunrise Clinical Manager          |  | - Computer-based Patient Record providing
    clinical rules and information to facilitate clinical
    decision-making
    - Access to patient records
    - On-line ordering of clinical services and prescriptions
    (computerized physician order entry)
    - Clinical documentation
|                                 
|Sunrise Access Manager            |  | - Access to patient information and
    coordination of gathering of additional information at each
    stage of patient care
    - Coordinate scheduling of appointments
    - Patient identification                                                                                     
|                                 
|Sunrise Patient Financial Manager |  | - Coordinate compliance with managed-care
    contract reimbursement terms, patient billing, and third-party
    reimbursement                                                                                                                                                             
|                                 
|Sunrise Decision Support Manager  |  | - Clinical and financial data repository to
    analyze past clinical, operational and financial performance
    - Model future plans and alternatives
    - Measure and monitor performance                                                                                               
|                                 
|Sunrise Record Manager            |  | - Automate medical record management
    system
    - Manage documents and images throughout the enterprise                                                                                                                                                                                
|                                 
|eWebIT                            |  | - Tools to enable integration of data from
    existing systems                                                                                                                                                                                                                            
|                                 

Sunrise Clinical Manager. Sunrise Clinical Manager is a
computerized patient record system that provides patient
information to physicians, nurses and other clinicians at the
point-of-care. Sunrise Clinical Manager also allows a physician
to enter orders quickly and efficiently into the system and
provides clinical decision support at the time of order entry.
Sunrise Clinical Manager is designed for use in ambulatory,
acute care and other healthcare settings, and includes the
following features:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Order entry, communication and management, which enables
    physicians to order online prescriptions and laboratory or
    diagnostic tests or procedures and routes the order to the
    appropriate department or party within the organization for
    fulfillment.                                                                                                                                                                                                                                         
|
| |  | Knowledge-based orders, which is a clinical decision support
    system that automatically provides real-time guidance to
    physicians by alerting them to possible problems with or
    conflicts between newly entered orders and existing patient
    information using the systems rules database. A
    comprehensive set of clinical rules developed by physicians is
    available with knowledge-based orders. Customers can modify
    these existing rules or can develop their own clinical rules.
|
| |  | Clinical decision support, which triggers alerts, including by
    email or pager, upon the occurrence of a specified change in a
    patients condition or any other physician-designated
    event, such as the delivery of unfavorable laboratory results,
    while relating the new information to information already in the
    system for that patient.                                                                                                                                                
|
| |  | Clinical pathways and scheduled activities lists, which provide
    access to standardized patient-care profiles and assist in the
    scheduling of clinical treatment procedures.                                                                                                                                                                                                                                                                                                                             
|
| |  | Clinical documentation, which gathers and presents organized,
    accurate and timely patient information by accepting and
    arranging input from caregivers, laboratories or monitoring
    equipment.                                                                                                                                                                                                                                                                                                       

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| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sunrise Universal Viewer, which provides physicians with
    Web-based access to patient information from within the
    healthcare facility or at a remote location.
|
| |  | Clinical data repository, which permanently stores clinical and
    financial information in easily accessible patient care records.                                 

Sunrise Access Manager. Sunrise Access Manager enables
the healthcare provider to identify the patient at any point in
the healthcare delivery system and to collect and maintain
patient information throughout the entire process of patient
care on an enterprise-wide basis. The single database structure
of Sunrise Access Manager permits simultaneous access to the
entire patient record by authorized personnel from any access
point on the system. The elements of Sunrise Access Manager
include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Functions for comprehensive admission, discharge and transfer,
    or ADT, management. Patient registration captures demographic,
    insurance, referral and primary-care provider information and
    automates visit management by collecting and recording visit
    information in compliance with third-party billing regulations
    and managed care contractual requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Patient scheduling and resource management, which allows
    personnel to schedule patient appointments throughout an
    organization based on patient preferences and resource
    availability. An integrated application, it uses a single
    database with registration/ ADT and patient accounting functions
    and provides complex scheduling capabilities such as multiple
    and linked conditional appointments. Patient details
    automatically populate both the Sunrise Access and Scheduler
    products, virtually eliminating errors while streamlining the
    scheduling process. The Scheduler returns optimal time
    management for the staff and the patient, thereby preserving the
    enterprises greatest asset  time. The power of
    integration between billing, approvals, eligibility and access
    elevates patient management to new levels of efficiency.
|
| |  | Work Quality Monitor, which is a supervisory task that runs in
    the background to constantly match transactions against quality
    protocols to detect transaction errors, mismatches and
    omissions. When it identifies such exceptions, Work Quality
    Monitor sends a real-time alert to the party charged with the
    responsibility for remedying the situation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Enterprise person identifier, which is a single index of all
    patients and healthcare plan members within a healthcare
    providers system that supports searches on the basis of a
    variety of characteristics, such as name, Social Security number
    or other demographic data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Managed-care support features, such as verifying insurance
    eligibility online and compliance with managed-care plan rules
    and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Centralized capabilities for bed management: bed reservations,
    transfers and discharges and tracking in-house patient
    information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Sunrise Patient Financial Manager. Sunrise Patient
Financial Manager uses a single, integrated database for
patient-accounting processes, including the automatic generation
of patient billing and accounts receivable functions, a system
of reimbursement management to monitor receivables, the
automation of collection activities and contract compliance
analysis, as well as follow-up processing and reporting
functions. This product suite supports the growing trend toward
the centralized business office for multiple entities, which
improves compliance with managed care contracts. Sunrise Patient
Financial Manager includes the following functions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Patient accounting, which automates the patient-billing and
    accounts receivable functions, including bill generation,
    reimbursement calculation, account follow-up and account
    write-offs. Paperless processing is achieved through real-time
    inquiry, editing, sorting, reporting, commenting and updating
    from other applications, including modules in Sunrise Access
    Manager and Sunrise Clinical Manager.
|
| |  | Contract management, which includes a repository for the payment
    terms, restrictions, approval requirements and other rules and
    regulations of each insurance plan and managed care contract                                                                                                                                                                                                                                  

7



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| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | accepted by an organization. Contract management is used in
    conjunction with other Sunrise products to ensure that patient
    care complies with these rules and regulations.                               
|
| |  | Reimbursement management, which facilitates the monitoring of
    receivables, performance of collection activity, reconciliation
    with third parties and analysis of contract compliance and
    performance.



| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | calculates expected payments and contractual allowances for all
    accounts and reports net receivables by contract, carrier, or
    individual account;                                                 
|
| |  | automatically creates third-party logs as a by-product of
    billing;                                                                                                                                    
|
| |  | breaks down and ages each accounts receivables according
    to the responsible payer. Aging reports accurately reflect each
    payers receivables to facilitate collection activity and
    reporting.



| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multiple entity billing allows multiple entities to use
    single-statement billing and registration across the entire
    enterprise. Patient financial records may be maintained
    indefinitely by the entity and the enterprise, which allows
    enterprise-wide access and outcomes analysis.

Sunrise Decision Support Manager. Sunrise Decision
Support Manager creates a clinical and financial data repository
by integrating data from throughout the enterprise. Sunrise
Decision Support Manager gathers information from the many
different departmental information systems through connections
that enable concurrent updating of distributed data. The data
can then be analyzed to determine the patient-level costs of
care and identify areas for improvement. This information allows
the organization to evaluate its cost structure, make changes in
clinical processes to reduce costs and accurately price
reimbursement contracts on a profitable basis. Sunrise Decision
Support Manager also analyzes and measures clinical process and
outcomes data, helping to identify the practice patterns that
most consistently result in the highest quality care at the
lowest cost. Sunrise Decision Support Manager is an important
component of our customers ability to measure and document
improved clinical outcomes and return on investment. Sunrise
Decision Support Manager includes support for:



| |   |                                                    
| | - | ---------------------------------------------------
| |  | case mix, reimbursement and utilization management;
|
| |  | cost and profitability analysis; and               
|
| |  | strategic planning, modeling and forecasting.      

Sunrise Record Manager. Sunrise Record Manager is
designed to meet the healthcare information management needs of
organizations of virtually any size. It includes comprehensive
applications for clinical data management and enterprise-wide
document and image-management functions designed to improve
productivity, efficiency and accountability. Sunrise Record
Manager provides multiple users with convenient and concurrent
access to information, wherever they may be throughout the
organization. Sunrise Record Manager includes:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | registration scanning to capture patient identification and
    consent forms and other documents;                                                                                                 
|
| |  | document imaging and document scanning; interfaces with other
    electronic document systems;                                                                                                     
|
| |  | tools for managing patient medical records, including tracking
    record locations, chart requests, and secured release of
    information;                                                       
|
| |  | workflow tools for managing record movement between workgroups
    and areas in the operational team;                                                                                              
|
| |  | Joint Commission on Accreditation of Healthcare
    Organizations-compliant deficiency and chart completion
    management functions, including HIPAA-compliant electronic
    signature functions;
|
| |  | medical records abstracting, working with industry standard
    encoders;                                                                                                                          
|
| |  | patient account management functionality, including workflow,
    interfaces, remit processing, forms overlay and document image
    management; and                                               
|
| |  | tools to manage enterprise documents for human resources,
    materials management and other applications not involving
    patient care.                                                          

8



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eWebIT.eWebIT provides tools to enable the integration
of data from a customers existing systems. As integrated
health networks emerge, the individual entities within the
network will often have their own different information systems.
The clinical and financial data in these disparate systems must
be integrated to provide an enterprise-wide view. eWebITs
product suite includes tools to achieve this integration,
primarily through the use of Web-based integration technologies.
eWebIT achieves a comprehensive integration solution which,
provides:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | a Web-based composite view of data from different information
    systems;
|
| |  | data sharing among disparate information systems; and                     
|
| |  | enterprise security and single system sign-on capabilities.               

Hardware and Related Offerings. Finally, as part of our
commitment to being a comprehensive healthcare information
solutions provider, we also sell a variety of desktop, network
and platform solutions including hardware, middleware and
related services.

Services

Drawing on the functionality and flexibility of our software
products, we offer a range of professional services as part of
our healthcare information technology solutions. These services
consist of the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Implementation, Integration, Product Support, Training and
    Maintenance  To facilitate successful
    product implementation, our consultants assist our customers
    with initial installation of a system, conversion and
    integration of their historical data and ongoing training and
    support. We offer 24-hour support and electronic distribution to
    provide our customers with the latest information regarding our
    products. We also provide regular maintenance releases to our
    customers. Our service and support activities are supplemented
    by comprehensive training programs, including introductory
    training courses for new customers and seminars for existing
    customers, to allow them to take full advantage of the
    capabilities of our products.
|
| |  | Outsourcing Services  We assume the
    management of the customers entire information-technology
    function onsite using our employees. Outsourcing services
    include facilities management, network outsourcing and
    transition management.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Facilities management enables our customers to improve their
    information-technology operations by having us assume
    responsibility for all aspects of the customers onsite
    information-technology operations, from equipment to human
    resources.
|
| |  | Network outsourcing provides our customers with total healthcare
    information network support, relieving them of the need to
    secure and maintain expensive resources in a rapidly changing
    technological environment.                                
|
| |  | Transition management offers our customers a solution for
    migrating their information technology to new processes,
    technologies or platforms without interfering with the existing
    rules and initiatives critical to the delivery of healthcare.    



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Remote Hosting Services  We assume the
    complete processing of our customers applications from our
    Technology Solutions Center using our equipment and personnel.
    This service frees an organization from the need to maintain the
    environment, equipment and technical staff required for systems
    processing and offers support for an organizations
    fault-management, configuration-management and
    utilization-management processes.                                                                                                                                                                         
|
| |  | Network Services  We offer a
    comprehensive package of services that enable our customers to
    receive critical data quickly and accurately without incurring a
    substantial increase in cost. We assess changes in network
    utilization and function, forecast any necessary upgrades to
    accommodate the customers growth and design any changes
    necessary to provide the customer with the required performance
    and functionality. We offer our services in various forms,
    ranging from onsite assistance on a time-and-expense basis to
    complete turnkey project deliveries with guaranteed fixed prices.

9



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Business Solutions Consulting  Our
    business solutions consulting services aid our customers in
    re-engineering workflows during the implementation cycle to help
    improve their operations. The members of our business solutions
    group have wide and varied experience in healthcare delivery and
    healthcare information management, enabling them to help
    customers effectively manage change that will ensure maximum
    return on investment and improved outcomes.

Customers, Marketing and Sales

Our marketing and sales efforts focus on the full spectrum of
healthcare organizations ranging from small, stand-alone
hospitals to large multi-entity healthcare systems and academic
medical centers. We sell our products and services in North
America exclusively through our direct sales force. Management
of the sales force is decentralized, with six regional
presidents having primary responsibility for sales and marketing
within their regions. National account representatives manage
some multi-region accounts. Within each region, the direct sales
force is generally organized into two groups, one focused
principally on generating sales to new customers and the other
focused on additional sales to existing customers. The direct
sales force works closely with our implementation and product
line specialists. Supporting the field staff is a team of domain
experts who have extensive experience and expertise in their
specific field. A significant component of compensation for all
direct sales personnel is performance based, although we base
incentive compensation on a number of factors in addition to
actual sales, including customer satisfaction and accounts
receivable performance.

Research and Development

Eclipsys believes that future success depends on our ability to
maintain and enhance our current product lines, develop new
products, maintain technological competitiveness and respond to
an expanding range of customer requirements. Currently, we are
developing Web-based components based on the Microsoft .NET
framework and other industry standards and are creating
incremental functionality and new applications for existing
software applications.

Competition

Intense competition, rapidly changing technology, evolving user
needs and frequent introduction of new products characterize the
market for our products and services. Our principal competitors
include Cerner Corporation, McKesson/ HBOC Inc., GE Medical
Systems, IDX Systems Corp., Epic Systems Corporation and Siemens
Medical Services Health Services Corporation, formerly Shared
Medical Systems, or SMS. Other competitors include providers of
practice management, general decision support and database
systems as well as segment-specific applications and healthcare
technology consultants.

Several of our competitors are better established, benefit from
greater name recognition and have significantly more financial,
technical and marketing resources than we do. We also anticipate
that competition will further increase in the healthcare
information technology sector as a result of continued
consolidation in both the information technology and healthcare
industries. Principal factors impacting competition in this
market include product functionality, performance, flexibility
and features, use of open industry standards, quality of
customer service and support, company reputation, price and
total cost of ownership.

Employees

As of December 31, 2002, we employed 1,511 people,
including:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | 395 in field operations;                                                      
|
| |  | 266 in sales, marketing and account management;                               
|
| |  | 731 in research, development and product delivery; and                        
|
| |  | 119 in finance, human resources, legal and other administrative
    functions.

10



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Our success depends on our continued ability to attract and
retain highly skilled and qualified personnel. Competition for
such personnel is intense in the information-technology
industry, particularly for talented software developers, service
consultants and sales and marketing personnel. We cannot assure
you that we will be able to attract and retain qualified
personnel in the future. Our employees are not represented by
any labor unions. We consider our relations with our employees
to be good.

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 cycle and the
implementation cycle, 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 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 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;

11



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| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | product and price competition;                                                                 
|
| |  | the relative proportions of revenues we derive from systems and
    services and from hardware;
|
| |  | changes in our operating expenses;                                                             
|
| |  | the timing and size of future acquisitions;                                                    
|
| |  | personnel changes;                                                                             
|
| |  | the performance of our products; 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 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,

12



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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 is April 14, 2003 for
most covered entities. The compliance deadline for the data
security standards is April 20, 2005 for most covered entities.
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.

13



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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

14



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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,

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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 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. 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.

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As of March 19, 2003 our executive officers were as follows:

Executive Officers of the Registrant

|                        |  |     |    |       |  |                                                                 
|----------------------- |  | --- | -- | ----- |  | ----------------------------------------------------------------
|Name                    |  | Age |    | Title
|                        |  |     |    |      
|Paul L. Ruflin          |  |     | 49 |       |  | President and Chief Executive Officer                           
|                       
|                       
|                       
|                       
|James E. Hall           |  |     | 69 |       |  | Vice-chairman                                                   
|                       
|                       
|                       
|                       
|John T. Patton Jr.      |  |     | 53 |       |  | Executive Vice President and Chief Operating
    Officer        
|                       
|                       
|                       
|                       
|John S. Cooper          |  |     | 47 |       |  | Executive Vice President of Sales                               
|                       
|                       
|                       
|                       
|Robert J. Colletti      |  |     | 44 |       |  | Senior Vice President, Chief Financial Officer
    and Treasurer
|                       
|                       
|                       
|                       
|T. Jack Risenhoover, II |  |     | 37 |       |  | Senior Vice President                                           

Paul L. Ruflinhas served as our president and
chief executive officer since July 2002. Prior to joining us he
was chief operating officer of Cap Gemini Ernst & Young, or
CGE&Y, North America. During his more than 24 years at
CGE&Y, Mr. Ruflin also served in several other
leadership capacities, including director of the health managed
care consulting practice.

James E. Hallhas served as our vice chairman
since July 2002. Prior to that he served as our president from
February 1999 to July 2002. Mr. Hall also served as chief
operating officer from January 1997 to April 2001.

John T. Patton Jr.has served as executive vice
president and chief operating officer since April 2001. From
July 2000 to April 2001, Mr. Patton was senior vice
president of product delivery. Mr. Patton was area senior
vice president from January 1999 to July 2000 and prior to that
served as regional president since joining us in April 1997.

John S. Cooperhas served as our executive vice
president of sales since March 2002. From October 2000 until
March 2002, Mr. Cooper was chairman and chief executive officer
of iMedium Inc., a marketing and sales-effectiveness solutions
firm. Prior to iMedium Inc., Mr. Cooper was with SMS for
12 years, where he held a number of sales-management
positions, including vice president of eSolutions.

Robert J. Collettihas served as our senior vice
president and chief financial officer since August 2001. From
June to August 2001, he served as senior vice president of
finance and chief accounting officer and, from January 1997 to
June 2001, as our senior vice president of finance.

T. Jack Risenhoover, IIhas served as a
senior vice president since March 2000. He was a vice president
from February 1997 through March 2000. Mr. Risenhoover also
served as secretary from February 1997 through January 2003 and
general counsel from February 1997 through March 2002.

Item 2.     Properties

Our corporate offices are located in Boca Raton, Florida under a
lease that expires in February 2008. In addition, we maintain
leased office space in Phoenix, Arizona; Tucson, Arizona;
Newport Beach, California; San Jose, California; Santa Rosa,
California; Alpharetta, Georgia; Atlanta, Georgia; Oak Brook,
Illinois; Overland Park, Kansas; Rockville, Maryland; Boston,
Massachusetts; Mountain Lakes, New Jersey; Albany, New York;
Uniondale, New York; Malvern, Pennsylvania and Richmond (a
suburb of Vancouver), British Columbia. These leases expire at
various times through June 2009.

Item 3.     Legal
Proceedings

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, or the District
Court. Each complaint seeks certification as a class and
monetary damages and alleges 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.

17



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##### 



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 also sets certain timelines by
which responsive pleadings must be filed by the Company and the
lead plaintiffs in the consolidated case. Under the
Consolidation Order, the lead plaintiffs have until
March 31, 2003 to file an amended, consolidated complaint;
however, it is our understanding that the plaintiffs are in the
process of requesting an extension to this deadline. Once the
amended, consolidated complaint is filed, the Company shall have
sixty (60) days from such date to answer or move to dismiss
the amended complaint.

Item 4.     Submission of
Matters to a Vote of Security Holders

No matters were submitted to a vote of our stockholders during
the fourth quarter of 2002.

18



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##### 



Part II

Item 5.  Market for Registrants
Common Equity and Related Stockholder Matters

Price Range of Common Stock

Our common stock has been publicly traded on the Nasdaq National
Market under the symbol ECLP since our initial
public offering on August 6, 1998. The following table
shows the high and low sales prices of our common stock as
reported by the Nasdaq National Market for the periods indicated.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|               |  | High |       | Low
|               |  |      |       |    
|2001           |  |      |       |     |  |   |       | 
|               |  |      |       |     |  |   |       | 
|First quarter  |  | $    | 28.81 |     |  | $ | 14.38 | 
|              
|              
|              
|              
|Second quarter |  | $    | 25.20 |     |  | $ | 17.19 | 
|              
|              
|              
|              
|Third quarter  |  | $    | 28.10 |     |  | $ | 11.34 | 
|              
|              
|              
|              
|Fourth quarter |  | $    | 17.45 |     |  | $ | 10.30 | 
|2002           |  |      |       |     |  |   |       | 
|               |  |      |       |     |  |   |       | 
|First quarter  |  | $    | 17.85 |     |  | $ | 14.29 | 
|              
|              
|              
|              
|Second quarter |  | $    | 19.17 |     |  | $ | 5.30  | 
|              
|              
|              
|              
|Third quarter  |  | $    | 9.20  |     |  | $ | 4.68  | 
|              
|              
|              
|              
|Fourth quarter |  | $    | 6.69  |     |  | $ | 3.92  | 

Holders of Record

On March 19, 2003, the last reported sale price of our
common stock on the Nasdaq National Market was $8.16 per share.
Also as of March 19, 2003, we had approximately 209
stockholders of record, and we believe our common stock was
owned beneficially by approximately 7,000 stockholders.

Dividends

We have never paid or declared any cash dividends on our common
stock or other securities and do not anticipate paying cash
dividends in the foreseeable future. We currently intend to
retain all future earnings, if any, for use in the operation of
our business.

Shares Available Under Equity Compensation Plans

Information regarding securities authorized for issuance under
equity compensation plans is provided under
Item 12  Security Ownership of Certain
Beneficial Owners and Management elsewhere in this document.

Item 6.  Selected Financial Data

You should read the following selected financial data in
conjunction with our consolidated financial statements and the
related notes thereto, and with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this document. The statement
of operations data for the years ended December 31, 2000,
2001 and 2002 and the balance sheet data at December 31,
2001 and 2002 are derived from, and are qualified by reference
to, our audited consolidated financial statements, which appear
elsewhere in this document. The statement of operations data for
the years ended December 31, 1998 and 1999 and the balance
sheet data at December 31, 1998, 1999 and 2000 set forth
below, are derived from, and are qualified by reference to, our
audited consolidated financial statements, which are not
included in this document and are retroactively restated to give
effect to the pooling of Transition Systems, Inc., MSI
Solutions, Inc. and PowerCenter Systems, Inc., acquisitions that
are discussed in more

19



---



##### 





|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |         | 
|--------------------------------------------------------------------- | ------------------------------------------------ | ----------------------------------------------- | ---------- | ------- |  | ---- | ---------- | ------- |  | ---- | ---------- | ------- |  | - | ---------- | ------- | - | - | ---------- | ------- | 
|                                                                      |                                                  |                                                
|                                                                      |                                                  | Year Ended December 31,                        
|                                                                      |                                                  | (In thousands, except share and per share data)
|                                                                      |                                                  |                                                
|                                                                      |                                                  | 1998                                            |            | 1999    |  | 2000 |            | 2001    |  | 2002
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |     
|Statement of Operations Data:                                         |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Total revenues                                                        |                                                  | $                                               | 185,306    |         |  | $    | 254,169    |         |  | $    | 221,318    |         |  | $ | 239,676    |         |   | $ | 218,068    |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Costs and expenses:                                                   |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Cost of revenues                                 |                                                 |            | 110,138 |  |      |            | 151,469 |  |      |            | 155,503 |  |   |            | 137,826 |   |   |            | 131,314 | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Sales and marketing                              |                                                 |            | 29,651  |  |      |            | 36,316  |  |      |            | 40,143  |  |   |            | 42,698  |   |   |            | 53,175  | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Research and development                         |                                                 |            | 37,139  |  |      |            | 44,151  |  |      |            | 37,382  |  |   |            | 37,034  |   |   |            | 46,228  | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | General and administrative                       |                                                 |            | 11,107  |  |      |            | 11,426  |  |      |            | 10,380  |  |   |            | 10,278  |   |   |            | 12,434  | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Depreciation and amortization                    |                                                 |            | 11,600  |  |      |            | 14,706  |  |      |            | 13,442  |  |   |            | 13,900  |   |   |            | 8,531   | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Write-down of investment                         |                                                 |            | 4,778   |  |      |            |        |  |      |            |        |  |   |            |        |   |   |            |        | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Write-off of in-process research and development |                                                 |            | 2,392   |  |      |            |        |  |      |            |        |  |   |            |        |   |   |            |        | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Write-off of MSA                                 |                                                 |            | 7,193   |  |      |            |        |  |      |            |        |  |   |            |        |   |   |            |        | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Pooling and transaction costs                    |                                                 |            | 5,033   |  |      |            | 1,648   |  |      |            | 1,900   |  |   |            | (472    | ) |   |            |        | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Restructuring charge                             |                                                 |            |        |  |      |            | 5,133   |  |      |            | 1,198   |  |   |            |        |   |   |            |        | 
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|                                                                      | Total costs and expenses                         |                                                 |            | 219,031 |  |      |            | 264,849 |  |      |            | 259,948 |  |   |            | 241,264 |   |   |            | 251,682 | 
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|Loss from operations                                                  |                                                  |                                                 | (33,725    | )       |  |      | (10,680    | )       |  |      | (38,630    | )       |  |   | (1,588     | )       |   |   | (33,614    | )      
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Interest income, net                             |                                                 |            | 2,701   |  |      |            | 1,235   |  |      |            | 1,075   |  |   |            | 5,996   |   |   |            | 4,016   | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Other income, net                                |                                                 |            |        |  |      |            |        |  |      |            | 3,596   |  |   |            |        |   |   |            |        | 
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|(Loss) income before income taxes                                     |                                                  |                                                 | (31,024    | )       |  |      | (9,445     | )       |  |      | (33,959    | )       |  |   | 4,408      |         |   |   | (29,598    | )      
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Provision for income taxes                                            |                                                  |                                                 | 4,252      |         |  |      |           |         |  |      |           |         |  |   |           |         |   |   | 165        |        
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|Net (loss) income                                                     |                                                  |                                                 | (35,276    | )       |  |      | (9,445     | )       |  |      | (33,959    | )       |  |   | 4,408      |         |   |   | (29,763    | )      
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Dividends and accretion on mandatorily redeemable
    preferred stock |                                                  |                                                 | (10,928    | )       |  |      |           |         |  |      |           |         |  |   |           |         |   |   |           |        
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|Net (loss) income available to common stockholders                    |                                                  | $                                               | (46,204    | )       |  | $    | (9,445     | )       |  | $    | (33,959    | )       |  | $ | 4,408      |         |   | $ | (29,763    | )      
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|Basic net (loss) income per common share                              |                                                  | $                                               | (1.95      | )       |  | $    | (0.27      | )       |  | $    | (0.92      | )       |  | $ | 0.10       |         |   | $ | (0.67      | )      
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|Diluted net (loss) income per
    common share                        |                                                  | $                                               | (1.95      | )       |  | $    | (0.27      | )       |  | $    | (0.92      | )       |  | $ | 0.09       |         |   | $ | (0.67      | )      
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|Basic weighted average common
    shares outstanding                  |                                                  |                                                 | 23,668,072 |         |  |      | 34,803,934 |         |  |      | 36,765,975 |         |  |   | 43,243,512 |         |   |   | 44,710,754 |        
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        
|Diluted weighted average common
    shares outstanding                |                                                  |                                                 | 23,668,072 |         |  |      | 34,803,934 |         |  |      | 36,765,975 |         |  |   | 46,795,361 |         |   |   | 44,710,754 |        
|                                                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |   |   |            |        

|                                |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | (in thousands)         
|                                |  |                        
|                                |  | 1998                    |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                                |  |                         |         |      |  |      |         |      |  |     
|Balance Sheet Data:             |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|                               
|                               
|                               
|                               
|Cash and cash equivalents       |  | $                       | 37,983  |      |  | $    | 33,956  |      |  | $    | 20,799  |  |  | $ | 168,942 |  |  | $ | 183,500 | 
|                               
|                               
|                               
|                               
|Working capital                 |  |                         | 25,724  |      |  |      | 33,103  |      |  |      | 17,985  |  |  |   | 174,951 |  |  |   | 140,368 | 
|                               
|                               
|                               
|                               
|Total assets                    |  |                         | 221,014 |      |  |      | 202,935 |      |  |      | 156,112 |  |  |   | 300,494 |  |  |   | 301,197 | 
|                               
|                               
|                               
|                               
|Debt, including current portion |  |                         | 1,890   |      |  |      |        |      |  |      | 1,491   |  |  |   |        |  |  |   |        | 
|                               
|                               
|                               
|                               
|Stockholders equity            |  |                         | 98,442  |      |  |      | 101,301 |      |  |      | 73,404  |  |  |   | 218,201 |  |  |   | 192,597 | 



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Overview

We were founded in December 1995 and initially grew through a
series of strategic acquisitions, which were completed by June
1999. For acquisitions accounted for as a purchase, our
consolidated financial

20



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##### 





|                                                                                                                                          |  |      |          |            |  |  |          | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---------- |  |  | -------- | 
|                                                                                                                                          |  |      |          | Method of 
|Transaction                                                                                                                               |  | Date |          | Accounting
|                                                                                                                                          |  |      |          |           
|ALLTEL Healthcare Information Services, Inc., or
    Alltel                                                                               |  |      | 1/24/97  |            |  |  | Purchase | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|SDK Medical Computer Services Corporation, or SDK                                                                                         |  |      | 6/26/97  |            |  |  | Purchase | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Emtek Healthcare Systems, or Emtek a division of
    Motorola, Inc., or Motorola                                                          |  |      | 1/30/98  |            |  |  | Purchase | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|HealthVISION, Inc. (acquired by Transition), or
    HealthVISION                                                                          |  |      | 12/3/98  |            |  |  | Purchase | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Transition Systems, Inc., or Transition                                                                                                   |  |      | 12/31/98 |            |  |  | Pooling  | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|PowerCenter Systems, Inc., or PCS                                                                                                         |  |      | 2/17/99  |            |  |  | Pooling  | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Intelus Corporation, or Intelus, and MedData
    Systems, Inc., or Med Data, wholly owned subsidiaries of Sun
    Gard Data Systems, Inc. |  |      | 3/31/99  |            |  |  | Purchase | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|MSI Solutions, Inc. and MSI Integrated Services,
    Inc., or collectively MSI                                                            |  |      | 6/17/99  |            |  |  | Pooling  | 

During July 1999, we invested in HEALTHvision, Inc., or
HEALTHvision, a Dallas-based, privately held internet healthcare
company, in conjunction with VHA, Inc. and investment entities
affiliated with General Atlantic Partners, LLC. HEALTHvision
provides Internet solutions to hospital organizations to assist
them in improving patient care in the local communities they
serve. We purchased 3,400,000 shares of common stock for
$34,000, which at the time represented 34% of the outstanding
common stock on an if-converted basis. As of December 31,
2002, our shares represented approximately 28% of the common
stock of HEALTHvision on an if-converted basis. We account for
our investment in HEALTHvision using the equity method of
accounting. Due to losses recognized under the equity method,
the recorded balance of the investment in HEALTHvision was $0 as
of December 31, 2002. In connection with our relationship
with HEALTHvision, we have entered into a joint marketing
arrangement under which both organizations agreed to jointly
market products and services to their customers. Under this
agreement, we paid HEALTHvision $2.2 million during 2002
for the sale of products and services and owed HEALTHvision
$432,000 as of December 31, 2002. Also, during 2002, we
earned revenues from HEALTHvision of $1.0 million for
hosting and other related services and had accounts receivable
due from HEALTHvision of $353,000 at December 31, 2002.
Additionally, we have a note receivable from HEALTHvision of
$293,000 as of December 31, 2002, bearing interest at the
prime rate, with repayments due quarterly beginning
March 31, 2004. Our Chairman Emeritus, Harvey J. Wilson,
serves as co-chairman of HEALTHvision. We are not required to
provide funding to HEALTHvision and have made no guarantees on
their behalf.

Critical Accounting Policies

We believe there are several accounting policies that are
critical to understanding our historical and future performance,
as these policies affect the reported amount of revenue and
other significant areas involving managements judgments
and estimates. These significant accounting policies relate to
revenue recognition, allowance for doubtful accounts and
software development. Please refer to Note 2 to the consolidated
financial statements for further discussion of our accounting
policies.

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. 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.

21



---



##### 



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



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether the fees associated with our products and services are
    fixed or determinable;                                                 
|
| |  | whether or not 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 and software maintenance. Under these
arrangements, where vendor specific objective evidence 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 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 does
not exist for each element, including specified upgrades,
revenue is deferred and not recognized until delivery of all of
the elements without vendor specific objective evidence has
occurred.

We enter into long-term multiple element arrangements in which
we provide our customers with comprehensive technology
solutions. These arrangements typically include multiple
software products (including the right to future products within
the suites purchased), implementation and consulting services,
maintenance, and, where desired by the customer, outsourcing and
remote hosting services. These contracts generally provide for
monthly or annual payments over the term of the contracts, which
typically range from seven to ten years. We generally recognize
revenues under these arrangements on a monthly basis evenly over
the term of the contract. During 2002, we began to enter into
arrangements that consist of fees for a multi-year, time-based
software license, hardware and services including
implementation, consulting and software maintenance. The Company
recognizes the revenue under these arrangements in accordance
with SOP No. 97-2, including the AICPA Software Revenue
Recognition Task Force Technical Practice Aid 5100.54. During
the transition to these new contracts, we expect our operating
results to reflect lower revenues and cash flows. However, we
believe that these new contracting options will provide for more
predictable revenues over the term of the arrangement.

For 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 as the
services are performed.

22



---



##### 



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.

Deferred revenue consists of payments received for which the
revenue has not yet been recognized in accordance with the above
revenue recognition policies. Long-term deferred revenue, at
December 31, 2002, represents amounts received from license
fees, maintenance and other services to be earned after
December 31, 2003.

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

At each balance sheet date, we perform a detailed assessment of
our capitalized software development costs to be marketed 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.

Revenues

Revenues are derived from the sale of systems and services,
which include the licensing of software, software and hardware
maintenance, implementation and training, remote hosting,
outsourcing, networking services and consulting, and from the
sale of computer hardware. Our products and services are
generally sold to customers pursuant to contracts that range in
duration from three to ten years.

Costs of Revenues

The principal costs of systems and services revenues are
salaries, benefits and related overhead costs for
implementation, remote hosting and outsourcing personnel. Other
significant costs of systems and services revenues are the
amortization of capitalized software development costs, acquired
technology and a network services intangible asset. Capitalized
software development costs are amortized generally over three
years on a straight-line basis commencing upon general release
of the related product or based on the ratio that current
revenues bear to total anticipated revenues for the applicable
product. Acquired technology is amortized over three to five
years based upon the estimated economic life of the underlying
asset, and the remaining balance will be fully amortized during
2003. The network services intangible asset, which was amortized
on a straight-line basis over three years, became fully
depreciated in March 2001. Cost of revenues related to hardware
sales includes only our cost to acquire the hardware from the
manufacturer.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries,
benefits, commissions and related overhead costs. Other costs
include expenditures for marketing programs and events, public
relations, trade shows, advertising and related communications.

23



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Research and Development

Research and development expenses consist primarily of salaries,
benefits and related overhead as well as consultants associated
with our design, development and testing of new products. We
capitalize certain software development costs subsequent to
attaining technological feasibility. These costs are amortized
as an element of cost of systems and services revenues.

General and Administrative

General and administrative expenses consist primarily of
salaries, benefits and related overhead costs for
administration, executive, finance, legal, human resources,
purchasing and internal systems personnel, as well as accounting
and legal fees and expenses.

Depreciation and Amortization

We depreciate the costs of our tangible capital assets on a
straight-line basis over the estimated economic lives of the
assets, which generally range from three to seven years.
Acquisition-related intangible assets, which primarily consisted
of the value of ongoing customer relationships and goodwill,
have been amortized based upon their estimated economic lives at
the time of the acquisition, and have therefore varied among
acquisitions. The acquired customer relationships became fully
amortized in January of 2002. In accordance with Statement of
Financial Accounting Standards, or SFAS, No. 142, our
amortization of goodwill ceased as of January 1, 2002,
leaving a recorded balance of $454,000 of goodwill as of
December 31, 2001. At least on an annual basis, we conduct
an impairment review of our remaining goodwill balance. As of
December 31, 2002, there was no impairment of the remaining
goodwill balance.

Restructuring Charge

During 2000, we initiated and completed a restructuring of our
operations. This restructuring rationalized employee headcount
after we completed the integration of our acquisitions.
Additionally, we consolidated our research and development and
implementation functions. Charges in connection with this
restructuring in 2000 totaled $1.2 million.

Taxes

As of December 31, 2002, we had net operating loss
carryforwards for federal income tax purposes of
$153.2 million. The carryforwards expire in varying amounts
through 2022 and are subject to certain restrictions. Based on
evidence then available, we did not record a benefit for the
resulting net deferred tax asset at December 31, 2000, 2001
and 2002, because we believed it was more likely than not that
we would not realize our net deferred tax asset. Accordingly, we
have recorded a valuation allowance against our total net
deferred tax asset.

Results of Operations

2002 Compared to 2001

Total revenues for the year ended December 31, 2002
decreased $21.6 million, or 9.0%, to $218.1 million, from
$239.7 million for 2001. Systems and services revenues
decreased $20.0 million, or 8.9%, to $203.2 million
for the year ended December 31, 2002, from
$223.2 million for 2001. The decrease in systems and
services revenues in 2002 was primarily a result of minimal
software license fees in the third and fourth quarters of 2002.
The decrease in license fees was the result of a shortfall in
new sales bookings during the third quarter of 2001 and the
second quarter of 2002, which negatively impacted revenues
during the last three quarters of 2002. Additionally, the
decrease was related to a change in contracting mix in the last
two quarters of 2002, in which we began to predominantly
contract under arrangements that provide for payments to be
spread more evenly over the term of the contract, as compared to
our historical contracting methods. Since the third quarter of
2002, the majority of our contracts have been executed under
these types of arrangements. As the

24



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TM


However, we believe that these new contracting options will
provide for more predictable revenues over the terms of the
arrangements. Furthermore, in the fourth quarter of 2001, the
Company began an initiative to expand the sales and marketing
functions. Under this initiative the companys sales and
marketing team has grown from approximately 190 at
December 31, 2001 to more than of 260 at December 31,
2002, including the addition of a new executive vice president
responsible for all sales activities and other key management
positions. This program was implemented to increase the market
presence of our sales organization and enhance the market
awareness of our company and its products and services. During
this expansion, the Companys sales and marketing
organization experienced considerable change and administrative
disruption, which negatively impacted the closing of new
contracts during the second quarter of 2002.

Hardware revenues decreased approximately $1.6 million, or
10.0%, to $14.9 million for the year ended December 31,
2002, from $16.5 million for 2001. The decrease in hardware
revenues in 2002 was primarily due to decreased shipments under
contracts entered into in 2001 and 2002. The lower shipments
were primarily attributable to a higher percentage of new
contracts being remote hosting and outsourcing as well as the
shortfall in bookings during the second quarter of 2002.

Total cost of revenues decreased approximately
$6.5 million, or 4.7%, to $131.3 million, for the year
ended December 31, 2002, from $137.8 million for 2001.
Cost of systems and services revenues decreased approximately
$5.3 million, or 4.2%, to $119.0 million, for the year
ended December 31, 2002, compared to $124.3 million
for 2001. However, as a percentage of total revenues, total cost
of revenues increased to 60.2% in 2002, compared to 57.5% for
2001. Likewise, cost of systems and services revenues increased
to 58.6% of systems and services revenues in 2002, compared to
55.7% for 2001. These costs decreased primarily due to lower
amortization of acquisition related acquired technology and
network services assets, which amounted to $16.6 million for
2001 compared to $2.9 million for 2002, as a result of
certain assets becoming fully amortized. These reductions were
partially offset by various other factors including higher
software royalties and payroll related costs, in particular
medical insurance. Additionally, amortization of capitalized
software development costs increased to $6.3 million in
2002, compared to $4.5 million for 2001, as a result of
certain new products, such as new releases of our Sunrise suite,
including SunriseXA, becoming available for general
release. Furthermore, during 2002 we incurred incremental costs
of $1.6 million related to additional obligations arising
from contracts assumed in prior acquisitions.

Cost of hardware revenues decreased $1.3 million, or 9.6%,
to $12.3 million, for the year ended December 31, 2002,
compared to $13.6 million for 2001. As a percentage of
hardware revenues, cost of hardware revenues increased slightly
to 82.6% in 2002, compared to 82.2% for 2001. The decrease in
cost of hardware revenues for 2002 was directly attributable to
the decreased shipments discussed above.

Sales and marketing expenses increased $10.5 million, or
24.5%, to $53.2 million, or 24.4% of total revenues, for the
year ended December 31, 2002, from $42.7 million, or
17.8% of total revenues, for 2001. The increase in sales and
marketing expenses was primarily due to the program we
initiated, during the fourth quarter of 2001, to significantly
expand the size of our sales and marketing organization. This
program is expected to continue to result in higher expenses.
Additionally, there was an increase in expenditures for
marketing events held in 2002, as compared to 2001.

Research and development expenses increased $9.2 million,
or 24.8% to $46.2 million, or 21.2% of total revenues, for
the year ended December 31, 2002, compared to
$37.0 million, or 15.5% of total revenues, for 2001. The
increase in research and development expenses was due primarily
to an initiative we implemented in the fourth quarter of 2001.
This program accelerates the migration onto the Microsoft .NET
platform for our SunriseXA products. This initiative,
which increased the number of employees in our product delivery
organization, which include research and development, from 645,
as of December 31, 2001, to 731 employees, as of
December 31, 2002, is expected to result in continued
heightened research and development expenses. The percentage of
research and development expenditures capitalized for the year
ended December 31, 2002

25



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General and administrative expenses increased approximately
$2.1 million, or 21.0% to $12.4 million, or 5.7% of
total revenues, for the year ended December 31, 2002,
compared to $10.3 million, or 4.3% of total revenues, for
2001. The increase in general and administrative expenses was
the result of higher legal expenses, primarily related to the
shareholder litigation, and higher insurance costs.

Depreciation and amortization decreased $5.4 million, or
38.6%, to $8.5 million, or 3.9% of total revenues, for the year
ended December 31, 2002, from $13.9 million, or 5.8%
of total revenues, for 2001. The decrease was primarily the
result of lower acquisition related amortization, which amounted
to $0.2 million in 2002, compared to $6.7 million in 2001.
This decline related to the completion of amortization of
certain intangibles, which became fully amortized during the
fourth quarter of 2001, as well as the adoption of SFAS 142,
which eliminated the amortization of goodwill. The decrease in
amortization was partially offset by higher depreciation of
fixed assets purchased during 2001 and 2002.

Pooling and transaction costs in 2001 related to the completion
of the integration of one of our acquisitions for approximately
$0.5 million less than previously estimated.

Interest income decreased $2.0 million to $4.0 million
for the year ended December 31, 2002, from
$6.0 million for 2001. This decrease was a result of
significantly lower yields, due to lower interest rates, on our
cash and cash equivalents in 2002, compared to 2001. The effect
of the lower interest rates was only partially offset by higher
average balances of cash and cash equivalents throughout 2002,
compared to 2001. Cash and cash equivalents increased during
2002 primarily from cash generated from operating activities.

As a result of these factors, we had net loss of
$29.8 million for the year ended December 31, 2002,
compared to a net income of $4.4 million for the year ended
December 31, 2001.

2001 Compared to 2000

Total revenues for the year ended December 31, 2001
increased $18.4 million, or 8.3%, to $239.7 million, from
$221.3 million for 2000. Systems and services revenues
increased approximately $15.0 million, or 7.2%, to $223.2
million for the year ended December 31, 2001, from
$208.2 million for 2000. The increase in systems and
services revenues in 2001 was primarily attributable to revenues
generated under our comprehensive solutions offerings, which we
began to offer during the second quarter of 2000, and other new
contracted business. The increase in 2001 revenues was also
contributed to by improvements we made in our product delivery
area, which includes research and development, implementation
and customer support. These functions were consolidated under
one management team in 2000 to help improve all aspects of the
product delivery cycle. Significant investments were made in
this area to standardize the development, implementation and
ongoing support of our products. These investments, among other
things, helped shorten the product development and
implementation cycles while improving quality in each area.

Hardware revenues increased $3.4 million, or 26.1%, to
$16.5 million for the year ended December 31, 2001,
from $13.1 million for 2000. The increase in hardware
revenues in 2001 was primarily due to increased shipments under
contracts entered into in 2000 and 2001.

Total cost of revenues decreased approximately
$17.7 million, or 11.4%, to $137.8 million, or 57.5%
of total revenues, for the year ended December 31, 2001,
from $155.5 million, or 70.3% of total revenues, for 2000.
Cost of systems and services revenues decreased
$20.9 million, or 14.4%, to $124.3 million, or 55.7% of
systems and services revenues, for the year ended December 31,
2001, compared to $145.2 million, or 69.7% of systems and
services revenues, for 2000. These costs decreased primarily as
a result of the realization of integration synergies and the
restructurings discussed above, which resulted in lower salaries
and payroll related expenses, including medical insurance and
travel. Additionally, as mentioned above, we reorganized the
implementation organization to improve operating processes and
procedures. In connection with the improvements related to the
reorganization, we reduced the usage of outside consultants
resulting in lower

26



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Cost of hardware revenues increased $3.2 million, or 31.1%,
to $13.6 million, or 82.2% of hardware revenues, for the year
ended December 31, 2001, compared to $10.4 million, or
79.0% of hardware revenues, for 2000. The increase in cost of
hardware revenues for 2001 was directly attributable to higher
hardware revenues and lower margins due to pricing pressure in
the hardware sector.

Sales and marketing expenses increased $2.6 million, or
6.4%, to $42.7 million, for the year ended December 31,
2001, from $40.1 million, for 2000. However, as a
percentage of total revenues, sales and marketing expenses
declined slightly from 18.1% to 17.8%. The increase in sales and
marketing expenses for 2001 was primarily due to an increase in
commissions resulting from an increase in new contracted
business as well as the program we initiated, during the fourth
quarter of 2001, to significantly expand the size of our sales
and marketing organization.

Research and development expenses were $37.0 million, or
15.5% of total revenues, for the year ended December 31,
2001, compared to $37.4 million, or 16.9% of total
revenues, for 2000. The decrease in research and development
expenses for 2001 was due primarily to the realization of
integration synergies and the restructuring. The percentage of
research and development expenditures capitalized for 2001 was
15.7%, compared to 14.6% for 2000. As a result of certain
products becoming available for general release, amortization of
capitalized software development costs, which is included in
cost of systems and services revenues, increased by
$1.6 million to $4.5 million for 2001, compared to
$2.9 million for 2000. Research and development expenses
that were capitalized were $6.4 million and
$6.9 million for 2000 and 2001, respectively.

General and administrative expenses were $10.3 million, or
4.3% of total revenues, for the year ended December 31,
2001 compared to $10.4 million, or 4.7% of total revenues,
for 2000.

Depreciation and amortization increased $0.5 million, or
3.4%, to $13.9 million, or 5.8% of total revenues, for the year
ended December 31, 2001, from $13.4 million, or 6.1%
of total revenues, for 2000. The increase was primarily the
result of depreciation of fixed assets purchased during 2001
partially offset by lower amortization of goodwill related to
the HealthVISION acquisition. The amortization of goodwill
related to the HealthVISION acquisition, which became fully
amortized in 2001, amounted to $4.0 million and
$3.7 million for 2000 and 2001, respectively.

Pooling and transaction costs decreased $2.4 million to
($0.5) million for the year ended December 31, 2001, from
$1.9 million for 2000. During 2001, we completed the
integration of one of our acquisitions for approximately $0.5
million less than previously estimated. The transaction costs
during 2000 were primarily the result of costs associated with
the abandoned transactions with Shared Medical Systems Corp., or
SMS, and Neoforma.com, Inc., or Neoforma.

During 2000, the Company initiated and completed a restructuring
of its operations. This restructuring rationalized employee
headcount following the Companys completion of the
integration of its prior acquisitions. Additionally, the Company
consolidated its research and development and implementation
functions. Charges in connection with this restructuring totaled
$1.2 million.

Other income recorded during the year ended December 31,
2000 related to a realized gain on the sale of our investment in
SMS of $4.5 million, which was offset in part by a loss on
sale of our investment in equity securities.

Interest income increased $4.9 million to $6.0 million
for the year ended December 31, 2001, from
$1.1 million for 2000. This increase was due to
significantly higher balances of cash and cash equivalents

27



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As a result of these factors, we had net income of
$4.4 million for the year ended December 31, 2001,
compared to a net loss of $34.0 million for the year ended
December 31, 2000.

Public Offering

During January 2001, we completed a follow-on public offering of
5,750,000 shares of our common stock. Net proceeds from the
offering were approximately $123.2 million.

Liquidity and Capital Resources

During 2002, operating activities provided $32.2 million of
cash, primarily as a result of cash collected from customers,
partially offset by increased sales and marketing and research
and development costs. Investing activities used
$21.7 million of cash, primarily for the purchase of fixed
assets and the funding of software development costs. Financing
activities provided $4.0 million of cash, as a result of
the exercise of stock options and the purchase of common stock
under our employee stock purchase plan.

As of December 31, 2002, our principal source of liquidity
is our balance of $183.5 million in cash and cash
equivalents.

Our future capital requirements will depend upon a number of
factors, including the rate of growth of our sales and the
timing and level of research and development activities. As of
December 31, 2002, we did not have any material commitments
for capital expenditures. We believe that our available cash and
cash equivalents and anticipated cash generated from our future
operations will be sufficient to meet our operating requirements
at least through 2003.

Contracts and Commitments

The following table provides information related to our
contractual cash obligations under various financial and
commercial agreements as of December 31, 2002 (in thousands):

|                                   |  |                        |        |           |  |       |        |       |  |         |        |  |  |   |       |  |  |   |       | 
|---------------------------------- |  | ---------------------- | ------ | --------- |  | ----- | ------ | ----- |  | ------- | ------ |  |  | - | ----- |  |  | - | ----- | 
|                                   |  |                       
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |        | Less than |  | 1 - 3 |        | 4 - 5 |  | After 5
|Contractual Obligations            |  | Total                  |        | 1 year    |  | years |        | years |  | years  
|                                   |  |                        |        |           |  |       |        |       |  |        
|Operating Leases                   |  | $                      | 37,059 |           |  | $     | 10,185 |       |  | $       | 14,241 |  |  | $ | 9,363 |  |  | $ | 3,270 | 
|                                  
|                                  
|                                  
|                                  
|Unconditional Purchase Obligations |  |                        | 6,022  |           |  |       | 2,219  |       |  |         | 3,803  |  |  |   |      |  |  |   |      | 
|                                   |  |                        |        |           |  |       |        |       |  |         |        |  |  |   |       |  |  |   |       | 
|Total Contractual Cash Obligations |  | $                      | 43,081 |           |  | $     | 12,404 |       |  | $       | 18,044 |  |  | $ | 9,363 |  |  | $ | 3,270 | 
|                                   |  |                        |        |           |  |       |        |       |  |         |        |  |  |   |       |  |  |   |       | 

The unconditional purchase obligations consist of minimum
purchase commitments for telecommunications services and
airplane charters. The contract for airplane charters is
discussed in further detail in note 9 to the consolidated
financial statements Related Party Transactions
included herein.

New Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 requires that a liability for a cost
that is associated with an exit or disposal activity be
recognized when the liability is incurred. It nullifies the
guidance in EITF Issue 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). Under EITF 94-3, an entity recognized a
liability for an exit cost on the date that the entity committed
itself to an exit plan. In SFAS 146, the Board acknowledges that
an entitys commitment to a plan does not, by itself,
create a present obligation to other parties that meets the
definition of a liability. SFAS 146 also establishes that fair
value is the objective for the initial measurement of the
liability. SFAS 146 became effective for exit or disposal
activities that were initiated after December 31, 2002.

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In November 2002, the FASB reached a consensus on EITF Issue
00-21, Accounting for Revenue Arrangements with Multiple
Deliverables, or the Issue. The guidance in this Issue is
effective for revenue arrangements entered into fiscal years
beginning after June 15, 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. We currently follow the
appropriate accounting pronouncement as discussed in our Revenue
Recognition policy note and anticipate that the Issue will have
no impact on the results of operations, financial position or
cash flows.

In November 2002, the FASB issued FASB Interpretation 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, including Indirect Guarantees of Indebtedness of
Others. This interpretation clarifies the requirements of
SFAS 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. We have adopted
the disclosure provisions of this interpretation and it did not
have a material impact on our financial position, results of
operations, or cash flows. We will adopt the remaining
provisions on January 1, 2003 and believe that this
Interpretation will not have a material impact on our financial
position, results or operations, or cash flows.

In December 2002, the FASB issued SFAS 148,
Accounting for Stock Based Compensation 
Transition and Disclosure  an Amendment to
SFAS 123. SFAS 148 provides two additional
transition methods for entities that adopt the preferable method
of accounting for stock based compensation. Further, the
statement requires disclosure of comparable information for all
companies regardless of whether, when, or how an entity adopts
the preferable, fair value based method of accounting. These
disclosures are now required for interim periods in addition to
the traditional annual disclosure. The amendments to
SFAS 123, which provides for additional methods, are
effective for periods beginning after December 15, 2002,
although earlier application is permitted. The amendments to the
disclosure requirements are required for financial reports
containing condensed financial statements for interim periods
beginning after December 15, 2002. We anticipate that we
will adopt the additional disclosure requirements in our interim
and annual filings of SFAS 148 and will continue to account
for stock based compensation under APB No. 25.

In January 2003, the FASB issued FASB Interpretation 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. We do not have any ownership in any variable interest
entities as of December 31, 2002. We will apply the
consolidation requirement of the interpretation in future
periods if we should own any interest in any variable interest
entity.

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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

We do not currently use derivative financial instruments. We
generally buy investments with maturities of 90 days or
less. 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. A hypothetical 10% increase or
decrease in interest rates, however, would not have a material
adverse effect on our financial condition.

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.

We do not currently enter into foreign currency hedge
transactions. Through December 31, 2002, foreign currency
fluctuations have not had a material impact on our financial
position or results of operations.

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Item 8.  Financial Statements and
Supplementary Data

Index to Consolidated Financial Statements:

Financial Statements:

|                                                                                                            |  |      |    | 
|----------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                            |  | Page
|                                                                                                            |  |     
|Report of Independent Accountants                                                                           |  |      | 32 | 
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Consolidated Balance Sheets as of
    December 31, 2001 and 2002                                            |  |      | 33 | 
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Consolidated Statements of Operations for the
    years ended December 31, 2000, 2001 and 2002              |  |      | 34 | 
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2000, 2001 and 2002              |  |      | 35 | 
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Consolidated Statement of Stockholders
    Equity for the years ended December 31, 2000, 2001
    and 2002 |  |      | 36 | 
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Notes to the Consolidated Financial Statements                                                              |  |      | 37 | 

Financial Statement
Schedules:

|                                                                                                                         |  |  |    | 
|------------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Schedule II  Valuation of
    Qualifying Accounts for each of the three years in the period
    ended December 31, 2002 |  |  | 54 | 

All other schedules are omitted as they are not applicable or
the required information is shown in the financial statements or
notes thereto.

|               |  |  |    | 
|-------------- |  |  | -- | 
|              
|              
|              
|              
|Signatures     |  |  | 59 | 
|              
|              
|              
|              
|Certifications |  |  | 60 | 

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors 
 and the Stockholders of Eclipsys Corporation:

In our opinion, the consolidated financial statements listed in
the accompanying index on page 31 present fairly, in all
material respects, the financial position of Eclipsys
Corporation and its subsidiaries at December 31, 2001 and
December 31, 2002, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index on page 31 presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

As discussed in note 2, the Company adopted statement of
Financial Accounting Standards No. 142 Goodwill and
Other Intangible Assets as of January 1, 2002.

PricewaterhouseCoopers LLP

Atlanta, Georgia 
 January 24, 2003

32



---



##### 



ECLIPSYS CORPORATION

Consolidated Balance Sheets

(in thousands, except share and per share data)


|                                            |                                                                                                                                      |                                            |        |          |         |  |        |          |         | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | -------- | ------- |  | ------ | -------- | ------- | 
|                                            |                                                                                                                                      |                                           
|                                            |                                                                                                                                      | December 31,                              
|                                            |                                                                                                                                      |                                           
|                                            |                                                                                                                                      | 2001                                       |        | 2002    
|                                            |                                                                                                                                      |                                            |        |         
|                                           
|                                           
|                                           
|                                           
|Assets                                     
|                                           
|                                           
|                                           
|                                           
|Current assets:                             |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                            | Cash and cash equivalents                                                                                                            |                                            | $      | 168,942  |         |  | $      | 183,500  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts receivable, net of allowance for
    doubtful accounts of $5,572 and $3,412 at December 31, 2001
    and 2002, respectively |                                            |        | 66,094   |         |  |        | 46,822   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Inventory                                                                                                                            |                                            |        | 667      |         |  |        | 656      |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other current assets                                                                                                                 |                                            |        | 18,424   |         |  |        | 16,921   |        
|                                            |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                            |                                                                                                                                      | Total current assets                       |        |          | 254,127 |  |        |          | 247,899 | 
|                                           
|                                           
|                                           
|                                           
|                                           
|Property and equipment, net                 |                                                                                                                                      |                                            | 21,675 |          |         |  | 26,800 |         
|                                           
|                                           
|                                           
|                                           
|Capitalized software development costs, net |                                                                                                                                      |                                            | 13,831 |          |         |  | 16,375 |         
|                                           
|                                           
|                                           
|                                           
|Acquired technology, net                    |                                                                                                                                      |                                            | 3,345  |          |         |  | 267    |         
|                                           
|                                           
|                                           
|                                           
|Goodwill, net                               |                                                                                                                                      |                                            | 454    |          |         |  | 454    |         
|                                           
|                                           
|                                           
|                                           
|Intangible assets, net                      |                                                                                                                                      |                                            | 174    |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|Other assets                                |                                                                                                                                      |                                            | 6,888  |          |         |  | 9,402  |         
|                                            |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                            |                                                                                                                                      | Total assets                               |        | $        | 300,494 |  |        | $        | 301,197 | 
|                                            |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|Liabilities and Stockholders
    Equity   
|                                           
|                                           
|                                           
|                                           
|Current liabilities:                        |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred revenue                                                                                                                     |                                            | $      | 56,428   |         |  | $      | 79,235   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued compensation costs                                                                                                           |                                            |        | 12,219   |         |  |        | 14,442   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other current liabilities                                                                                                            |                                            |        | 10,529   |         |  |        | 13,854   |        
|                                            |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                            |                                                                                                                                      | Total current liabilities                  |        |          | 79,176  |  |        |          | 107,531 | 
|                                           
|                                           
|                                           
|                                           
|                                           
|Deferred revenue                            |                                                                                                                                      |                                            | 2,418  |          |         |  | 843    |         
|                                           
|                                           
|                                           
|                                           
|Other long-term liabilities                 |                                                                                                                                      |                                            | 699    |          |         |  | 226    |         
|Commitments and contingencies (See note 8)  |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                           
|Stockholders Equity:                       |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                            | Common stock, $0.01 par value, 200,000,000 shares
    authorized; issued and outstanding, 44,382,413 and 45,088,872                  |                                            |        | 444      |         |  |        | 451      |        
|                                           
|                                           
|                                           
|                                           
|                                            | Additional paid-in capital                                                                                                           |                                            |        | 400,242  |         |  |        | 405,380  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Unearned stock compensation                                                                                                          |                                            |        | (32      | )       |  |        | (1,021   | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated deficit                                                                                                                  |                                            |        | (182,051 | )       |  |        | (211,814 | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated other comprehensive income                                                                                               |                                            |        | (402     | )       |  |        | (399     | )      
|                                            |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                            |                                                                                                                                      | Total stockholders equity                 |        |          | 218,201 |  |        |          | 192,597 | 
|                                            |                                                                                                                                      |                                            |        |          |         |  |        |         
|                                            |                                                                                                                                      | Total liabilities and stockholders equity |        | $        | 300,494 |  |        | $        | 301,197 | 
|                                            |                                                                                                                                      |                                            |        |          |         |  |        |         

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

33



---



##### 



ECLIPSYS CORPORATION

Consolidated Statements of Operations

(in thousands, except share and per share data)


|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |            |         | 
|--------------------------------- | -------------------------------------------------- | ------------------------ | ------- | ---------- | ------- | ---- | ------ | ---------- | ------- | - | ------- | ---------- | ------- | 
|                                  |                                                    |                         
|                                  |                                                    | Year Ended December 31, 
|                                  |                                                    |                         
|                                  |                                                    | 2000                     |         | 2001       |         | 2002
|                                  |                                                    |                          |         |            |         |     
|Revenues:                         |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                 
|                                 
|                                 
|                                 
|                                  | Systems and services                               |                          | $       | 208,224    |         |      | $      | 223,171    |         |   | $       | 203,218    |        
|                                 
|                                 
|                                 
|                                 
|                                  | Hardware                                           |                          |         | 13,094     |         |      |        | 16,505     |         |   |         | 14,850     |        
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                  |                                                    | Total revenues           |         |            | 221,318 |      |        |            | 239,676 |   |         |            | 218,068 | 
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|Costs and expenses:               |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                 
|                                 
|                                 
|                                 
|                                  | Cost of systems and services revenues              |                          |         | 145,153    |         |      |        | 124,255    |         |   |         | 119,044    |        
|                                 
|                                 
|                                 
|                                 
|                                  | Cost of hardware revenues                          |                          |         | 10,350     |         |      |        | 13,571     |         |   |         | 12,270     |        
|                                 
|                                 
|                                 
|                                 
|                                  | Sales and marketing                                |                          |         | 40,143     |         |      |        | 42,698     |         |   |         | 53,175     |        
|                                 
|                                 
|                                 
|                                 
|                                  | Research and development                           |                          |         | 37,382     |         |      |        | 37,034     |         |   |         | 46,228     |        
|                                 
|                                 
|                                 
|                                 
|                                  | General and administrative                         |                          |         | 10,380     |         |      |        | 10,278     |         |   |         | 12,434     |        
|                                 
|                                 
|                                 
|                                 
|                                  | Depreciation and amortization                      |                          |         | 13,442     |         |      |        | 13,900     |         |   |         | 8,531      |        
|                                 
|                                 
|                                 
|                                 
|                                  | Pooling and transaction costs                      |                          |         | 1,900      |         |      |        | (472       | )       |   |         |           |        
|                                 
|                                 
|                                 
|                                 
|                                  | Restructuring charge                               |                          |         | 1,198      |         |      |        |           |         |   |         |           |        
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                  |                                                    | Total costs and expenses |         |            | 259,948 |      |        |            | 241,264 |   |         |            | 251,682 | 
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|Loss from operations              |                                                    |                          | (38,630 | )          |         |      | (1,588 | )          |         |   | (33,614 | )         
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|Interest income, net              |                                                    |                          | 1,075   |            |         |      | 5,996  |            |         |   | 4,016   |           
|                                 
|                                 
|                                 
|                                 
|Other income, net                 |                                                    |                          | 3,596   |            |         |      |       |            |         |   |        |           
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|(Loss) income before income taxes |                                                    |                          | (33,959 | )          |         |      | 4,408  |            |         |   | (29,598 | )         
|                                 
|                                 
|                                 
|                                 
|Provision for income taxes        |                                                    |                          |        |            |         |      |       |            |         |   | 165     |           
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|Net (loss) income                 |                                                    | $                        | (33,959 | )          |         | $    | 4,408  |            |         | $ | (29,763 | )         
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|Net (loss) income per share:      |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                 
|                                 
|                                 
|                                 
|                                  | Basic net (loss) income per common share           |                          | $       | (0.92      | )       |      | $      | 0.10       |         |   | $       | (0.67      | )      
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                  | Diluted net (loss) income per common share         |                          | $       | (0.92      | )       |      | $      | 0.09       |         |   | $       | (0.67      | )      
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                  | Basic weighted average common shares outstanding   |                          |         | 36,765,975 |         |      |        | 43,243,512 |         |   |         | 44,710,754 |        
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           
|                                  | Diluted weighted average common shares outstanding |                          |         | 36,765,975 |         |      |        | 46,795,361 |         |   |         | 44,710,754 |        
|                                  |                                                    |                          |         |            |         |      |        |            |         |   |         |           

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

34



---



##### 



ECLIPSYS CORPORATION

Consolidated Statements of Cash Flows

(in thousands)


|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |         |         |        |        | 
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | -------------------------------------------- | --------------------------- | ------------------------------------------------------- | ------ | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ------ | 
|                                                          |                                                                                                        |                                             
|                                                          |                                                                                                        | Year Ended December 31,                     
|                                                          |                                                                                                        |                                             
|                                                          |                                                                                                        | 2000                                         |                             | 2001                                                    |        | 2002   
|                                                          |                                                                                                        |                                              |                             |                                                         |        |        
|Operating activities:                                     |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Net (loss) income                                                                                      |                                              | $                           | (33,959                                                 | )      |         | $       | 4,408   |         |         | $       | (29,763 | )      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Adjustments to reconcile net (loss) income
    to net cash (used in) provided by operating activities: |                                              |                             |                                                         |        |         |         |         |         |         |         |         |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        | Depreciation and amortization                |                             |                                                         | 36,418 |         |         |         | 36,472  |         |         |         | 19,576  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        | Provision for bad debts                      |                             |                                                         | 3,855  |         |         |         | 4,305   |         |         |         | 2,205   |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        | Write-down of accounts receivable            |                             |                                                         | 9,400  |         |         |         |        |         |         |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        | Write-down of investment                     |                             |                                                         | 836    |         |         |         |        |         |         |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        | Gain on sale of investment                   |                             |                                                         | (4,462 | )       |         |         |        |         |         |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        | Stock compensation expense                   |                             |                                                         | 144    |         |         |         | 144     |         |         |         | 134     |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        | Changes in operating assets and liabilities: |                             |                                                         |        |         |         |         |         |         |         |         |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        |                                              | Accounts receivable         |                                                         |        | (1,061  | )       |         |         | (6,487  | )       |         |         | 16,443 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        |                                              | Inventory                   |                                                         |        | (880    | )       |         |         | 202     |         |         |         | 11     |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        |                                              | Other current assets        |                                                         |        | 6,349   |         |         |         | (11,570 | )       |         |         | 1,503  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        |                                              | Other assets                |                                                         |        | (1,825  | )       |         |         | (684    | )       |         |         | (4,203 | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        |                                              | Deferred revenue            |                                                         |        | (7,911  | )       |         |         | 7,617   |         |         |         | 21,233 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        |                                              | Other current liabilities   |                                                         |        | (16,184 | )       |         |         | (5,613  | )       |         |         | 5,547  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                        |                                              | Other long-term liabilities |                                                         |        | (1,387  | )       |         |         | (928    | )       |         |         | (473   | )     
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|                                                          |                                                                                                        |                                              |                             | Total adjustments                                       |        |         | 23,292  |         |         |         | 23,458  |         |         |        | 61,976 | 
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|                                                          |                                                                                                        |                                              |                             | Net cash (used in) provided by operating
    activities |        |         | (10,667 | )       |         |         | 27,866  |         |         |        | 32,213 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Investing activities:                                     |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Purchase of investments                                                                                |                                              |                             | (7,905                                                  | )      |         |         |        |         |         |         |        |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Sale of investments                                                                                    |                                              |                             | 12,432                                                  |        |         |         |        |         |         |         |        |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Purchases of property and equipment                                                                    |                                              |                             | (8,019                                                  | )      |         |         | (11,601 | )       |         |         | (12,857 | )      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Capitalized software development costs                                                                 |                                              |                             | (6,407                                                  | )      |         |         | (6,876  | )       |         |         | (8,823  | )      
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|                                                          |                                                                                                        | Net cash used in investing activities        |                             |                                                         | (9,899 | )       |         |         | (18,477 | )       |         |         | (21,680 | )     
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|Financing activities:                                     |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Borrowings                                                                                             |                                              |                             | 2,012                                                   |        |         |         |        |         |         |         |        |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Payments on borrowings                                                                                 |                                              |                             | (521                                                    | )      |         |         | (1,491  | )       |         |         |        |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Exercise of warrants                                                                                   |                                              |                             | 4                                                       |        |         |         |        |         |         |         |        |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Sale of common stock                                                                                   |                                              |                             |                                                        |        |         |         | 123,231 |         |         |         |        |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Exercises of stock options                                                                             |                                              |                             | 4,330                                                   |        |         |         | 14,683  |         |         |         | 1,470   |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Employee stock purchase plan                                                                           |                                              |                             | 1,492                                                   |        |         |         | 2,498   |         |         |         | 2,552   |        
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|                                                          |                                                                                                        | Net cash provided by financing activities    |                             |                                                         | 7,317  |         |         |         | 138,921 |         |         |         | 4,022   |       
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|Effect of exchange rates on cash and cash
    equivalents |                                                                                                        |                                              | 92                          |                                                         |        |         | (167    | )       |         |         | 3       |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|Net (decrease) increase in cash and cash
    equivalents  |                                                                                                        |                                              | (13,157                     | )                                                       |        |         | 148,143 |         |         |         | 14,558  |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|Cash and cash equivalents  beginning
    of year         |                                                                                                        |                                              | 33,956                      |                                                         |        |         | 20,799  |         |         |         | 168,942 |        
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|Cash and cash equivalents  end of year                   |                                                                                                        | $                                            | 20,799                      |                                                         |        | $       | 168,942 |         |         | $       | 183,500 |        
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|Cash paid for interest                                    |                                                                                                        | $                                            | 388                         |                                                         |        | $       | 51      |         |         | $       |        |        
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        
|Cash paid for income taxes                                |                                                                                                        | $                                            | 62                          |                                                         |        | $       | 69      |         |         | $       | 110     |        
|                                                          |                                                                                                        |                                              |                             |                                                         |        |         |         |         |         |         |         |        

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

35



---



##### 



ECLIPSYS CORPORATION

Consolidated Statement of Changes in Stockholders
Equity

(in thousands)


|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |         |  
|--------------------------------------- | --------------------------------------- | ------------ | ---------- | ---------- |  | -------- | --- | ------------ |  | ------------- | ------- | ------------- |  | ------ | ------ | ----- |  | - | -------- | ------- | - | - | ------- | ------- | - | - | ---- | ---- | - | - | ------- | ------- | -
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |       
|                                        |                                         | Voting and   |            |            |  |          |     |              |  |               |         | Accumulated   |  |       
|                                        |                                         | Non-Voting   |            |            |  |          |     |              |  |               |         | Other         |  |       
|                                        |                                         | Common Stock |            | Additional |  | Unearned |     |              |  | Comprehensive |         | Comprehensive |  |       
|                                        |                                         |              |            | Paid-in    |  | Stock    |     | Accumulated  |  | Income        |         | Income        |  |       
|                                        |                                         | Shares       |            | Amount     |  | Capital  |     | Compensation |  | Deficit       |         | (Loss)        |  | (Loss) |        | Total
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |      
|Balance at December 31, 1999            |                                         |              | 36,303,825 |            |  | $        | 363 |              |  | $             | 254,085 |               |  | $      | (320   | )     |  | $ | (152,500 | )       |   |   |         |         |   | $ | (327 | )    |   | $ | 101,301 |        
|                                       
|                                       
|                                       
|                                       
|Exercise of stock options               |                                         |              | 495,328    |            |  |          | 5   |              |  |               | 2,988   |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 2,993   |        
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase plan            |                                         |              | 296,203    |            |  |          | 3   |              |  |               | 2,704   |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 2,707   |        
|                                       
|                                       
|                                       
|                                       
|Exercise of warrants                    |                                         |              | 40,765     |            |  |          |    |              |  |               | 4       |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 4       |        
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |                                         |              |            |            |  |          |     |              |  |               | 122     |               |  |        | 144    |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 266     |        
|                                       
|                                       
|                                       
|                                       
|Net loss                                |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   | (33,959  | )       |   | $ | (33,959 | )       |   |   |      |      |   |   | (33,959 | )      
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   | 92      |         |   |   | 92   |      |   |   | 92      |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Other comprehensive income              |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   | 92      |         |   |   |      |      |   |   |         |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Comprehensive income                    |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   | (33,867 | )       |   |   |      |      |   |   |         |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Balance at December 31, 2000            |                                         |              | 37,136,121 |            |  |          | 371 |              |  |               | 259,903 |               |  |        | (176   | )     |  |   | (186,459 | )       |   |   |         |         |   |   | (235 | )    |   |   | 73,404  |        
|                                       
|                                       
|                                       
|                                       
|Exercise of stock options               |                                         |              | 1,317,632  |            |  |          | 15  |              |  |               | 14,668  |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 14,683  |        
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase plan            |                                         |              | 178,660    |            |  |          |     |              |  |               | 2,498   |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 2,498   |        
|                                       
|                                       
|                                       
|                                       
|Public offering                         |                                         |              | 5,750,000  |            |  |          | 58  |              |  |               | 123,173 |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 123,231 |        
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        | 144    |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 144     |        
|                                       
|                                       
|                                       
|                                       
|Comprehensive income:                   |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|                                       
|                                       
|                                       
|                                       
|                                        | Net income                              |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          | 4,408   |   |   |         | 4,408   |   |   |      |      |   |   |         | 4,408   |  
|                                       
|                                       
|                                       
|                                       
|                                        | Foreign currency translation adjustment |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         | (167    | ) |   |      | (167 | ) |   |         | (167    | )
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Other comprehensive income              |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   | (167    | )       |   |   |      |      |   |   |         |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Comprehensive income                    |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   | 4,241   |         |   |   |      |      |   |   |         |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Balance at December 31, 2001            |                                         |              | 44,382,413 |            |  |          | 444 |              |  |               | 400,242 |               |  |        | (32    | )     |  |   | (182,051 | )       |   |   |         |         |   |   | (402 | )    |   |   | 218,201 |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Exercise of stock options               |                                         |              | 190,917    |            |  |          | 2   |              |  |               | 1,468   |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 1,470   |        
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase plan            |                                         |              | 365,542    |            |  |          | 4   |              |  |               | 2,548   |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 2,552   |        
|                                       
|                                       
|                                       
|                                       
|Issuance of restricted stock            |                                         |              | 150,000    |            |  |          | 1   |              |  |               | 1,122   |               |  |        | (1,123 | )     |  |   |          |         |   |   |         |         |   |   |      |      |   |   |        |        
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        | 134    |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   | 134     |        
|                                       
|                                       
|                                       
|                                       
|Comprehensive income:                   |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|                                       
|                                       
|                                       
|                                       
|                                        | Net loss                                |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          | (29,763 | ) |   |         | (29,763 | ) |   |      |      |   |   |         | (29,763 | )
|                                       
|                                       
|                                       
|                                       
|                                        | Foreign currency translation adjustment |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         | 3       |   |   |      | 3    |   |   |         | 3       |  
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Other comprehensive income              |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   | 3       |         |   |   |      |      |   |   |         |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Comprehensive income                    |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   | (29,760 | )       |   |   |      |      |   |   |         |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        
|Balance at December 31, 2002            |                                         |              | 45,088,872 |            |  | $        | 451 |              |  | $             | 405,380 |               |  | $      | (1,021 | )     |  | $ | (211,814 | )       |   |   |         |         |   | $ | (399 | )    |   | $ | 192,597 |        
|                                        |                                         |              |            |            |  |          |     |              |  |               |         |               |  |        |        |       |  |   |          |         |   |   |         |         |   |   |      |      |   |   |         |        

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

36



---



##### 



ECLIPSYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     Organization and Description
of Business

Eclipsys Corporation (Eclipsys) and its subsidiaries
(collectively, the Company) is a healthcare
information technology company. Eclipsys designs and offers a
comprehensive package of software applications and services that
together enable providers in a variety of healthcare settings to
improve the effectiveness of their operations. Eclipsys
advanced software solutions and services assist healthcare
organizations (HCOs) in improving their outcomes by augmenting
the quality of care and the level of patient satisfaction,
reducing costs and enhancing revenues. Eclipsys products
perform the core information technology functions required by
healthcare organizations and other healthcare providers
throughout the healthcare enterprise. Eclipsys services
offerings include consulting, outsourcing, remote hosting,
networking technologies and other related services.

2.     Summary of Significant
Accounting Policies

Principles of Consolidation

The financial statements include the accounts of Eclipsys and
its wholly owned subsidiaries. All intercompany transactions
have been eliminated in consolidation. The Company manages its
business as one reporting segment.

Use of Estimates

The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosures of contingent
assets and liabilities. The estimates and assumptions used in
the accompanying consolidated financial statements are based
upon managements evaluation of the relevant facts and
circumstances as of the date of the financial statements. Actual
results could differ from those estimates. The most significant
potential differences relate to the allowance for doubtful
accounts, revenues recognized under the percentage-of-completion
method, the amounts recorded for capitalized software
development costs and the valuation allowance for deferred tax
assets.

Reclassifications

Certain prior period amounts have been reclassified to conform
to the 2002 presentation. See discussion of EITF Issue 01-14,
under New Accounting Pronouncements, herein.

Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash
equivalents are stated at cost plus accrued interest, which
approximates market value.

Revenue Recognition

Revenues are derived from licensing of computer software,
software and hardware maintenance, remote hosting and
outsourcing, training, implementation assistance, consulting and
the sale of computer hardware. The Company recognizes revenue in
accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2 Software Revenue
Recognition (SOP 97-2) which requires, among
other matters, that there be a signed contract evidencing an
arrangement exists, delivery of the software has occurred, the
fee is fixed or determinable and collectibility of the fee is
probable.

37



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


Systems and Services Revenue

Multiple Element Arrangements

The Company generally contracts under multiple element
arrangements, which include software license fees, hardware and
services including consulting, implementation and software
maintenance for periods of 3 to 7 years. Under these
arrangements, where vendor specific objective evidence
(VSOE) exists for all undelivered elements, the
Company accounts for the delivered elements in accordance with
the residual method prescribed by the AICPA
Statement of Position (SOP) 98-9, Modification
of SOP 97-2, Software Revenue Recognition, With Respect of
Certain Transactions. For arrangements in which VSOE does
not exist for each element, including specified upgrades,
revenue is deferred and not recognized until delivery of all of
the elements without VSOE has occurred. For software license
arrangements that are bundled with services and maintenance
where 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. Under these arrangements,
software license fees and implementation fees are recognized
over the implementation period, which has typically ranged from
12 to 24 months.

In 2000, the Company began entering into long-term multiple
element arrangements in which it provides its customers with
comprehensive technology solutions. These arrangements typically
include multiple software products (including the right to
future products within the suites purchased), implementation and
consulting services, maintenance, and, where desired by the
customer, outsourcing and remote hosting services. The customer
is entitled to these elements throughout the term of the
arrangements, which range from seven to ten years. Payments are
due yearly, quarterly or monthly over the arrangement term. The
Company bundles all fees due under these comprehensive multiple
element arrangements and recognizes the revenue ratably over the
contract term. Additionally, these contracts may contain
provisions by which the Company may earn additional fees based
on customer savings or other objectives, as defined in the
arrangements. These additional fees are recognized as revenues
upon receipt of payment from the customer. In addition, the
Company capitalizes related direct costs consisting of third
party software costs and direct software implementation costs.
These costs are amortized over the term of the arrangement.
During 2002, we began to enter into arrangements that consist of
fees for a multi-year, time-based software license, hardware and
services including implementation, consulting and software
maintenance. The Company recognizes the revenue under these
arrangements in accordance with SOP No. 97-2, including the
AICPA Software Revenue Recognition Task Force Technical Practice
Aid 5100.54.

Revenue from other software license fees, which are bundled with
long-term maintenance agreements (with terms from 3 to
7 years), is recognized on a straight-line basis over the
contracted maintenance period. Other software license fee
arrangements relate to certain add-on modules sold
to customers in the installed base. Because the Company does not
sell the add-on modules or the associated extended
term maintenance elements separately, the entire arrangement fee
is recognized as revenue over the contracted maintenance period
in accordance with paragraph 12 of SOP 97-2.

Services

Remote hosting and outsourcing services are marketed under
long-term arrangements generally over periods from 5 to
10 years. Revenues from these arrangements are recognized
as the services are performed.

Software maintenance fees are marketed under annual and
multi-year agreements and are recognized as revenue ratably over
the contracted maintenance term. The Companys software
maintenance arrangements include when and if available upgrades
and do not contain specific upgrade rights.

38



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


Implementation revenues and other services, including training
and consulting are recognized as services are performed for time
and material arrangements and using the percentage of completion
method based on labor input measures for fixed fee arrangements.
The Company sells these services separately and accordingly has
sufficient vendor specific objective evidence of the element to
recognize revenue.

Hardware Sales and Maintenance Revenue

Hardware sales are generally recognized upon delivery of the
equipment to the customer. Hardware maintenance revenues are
billed and recognized monthly over the contracted maintenance
term.

Unbilled Accounts Receivable and Deferred Revenue

The timing of revenue recognition and contractual billing terms
under certain multiple element arrangements may not precisely
coincide, resulting in the recording of unbilled accounts
receivable or deferred revenue. Customer payments are due under
these arrangements in varying amounts upon the achievement of
certain contractual milestones throughout the implementation
periods, which generally range from 12 to 24 months. The
current portion of unbilled accounts receivable is included in
accounts receivable in the accompanying financial statements.

In addition, the Company maintains certain long-term contracts
used to finance a portion of certain customer hardware and
software fees owed. These arrangements generally provide for
payment terms that range from three to five years and carry
interest rates that range from 7% to 10%. Such amounts are
recorded as non-current unbilled accounts receivables until the
customers are billed which is generally on a monthly basis. The
non-current portion of amounts due related to these arrangements
was $1.8 million and $1.5 million as of
December 31, 2001 and 2002, respectively, and is included
in other assets in the accompanying financial statements. The
current portion of amounts due related to these arrangements is
included in accounts receivable in the accompanying financial
statements. Accounts receivable was composed of the following as
of December 31, (in thousands):

|                     |                                                                                   |                                |   |        |        |  |   |        |        | 
|-------------------- | --------------------------------------------------------------------------------- | ------------------------------ | - | ------ | ------ |  | - | ------ | ------ | 
|                     |                                                                                   | 2001                           |   | 2002  
|                     |                                                                                   |                                |   |       
|Accounts Receivable: |                                                                                   |                                |   |        |        |  |   |       
|                    
|                    
|                    
|                    
|                     | Billed accounts receivable, net                                                   |                                | $ | 56,114 |        |  | $ | 42,280 |       
|                    
|                    
|                    
|                    
|                     | Unbilled accounts receivable related to long-term
    contracts (current portion) |                                |   | 3,212  |        |  |   | 2,860  |       
|                    
|                    
|                    
|                    
|                     | Other unbilled accounts receivable, net                                           |                                |   | 6,768  |        |  |   | 1,682  |       
|                     |                                                                                   |                                |   |        |        |  |   |       
|                     | Total unbilled accounts receivable, net                                           |                                |   | 9,980  |        |  |   | 4,542  |       
|                     |                                                                                   |                                |   |        |        |  |   |       
|                     |                                                                                   | Total accounts receivable, net |   | $      | 66,094 |  |   | $      | 46,822 | 
|                     |                                                                                   |                                |   |        |        |  |   |       

Inventory

Inventory consists of computer equipment, parts and peripherals
and is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

Capitalized Software Development Costs

The Company capitalizes a portion of its computer software
development costs incurred subsequent to establishing
technological feasibility. These costs include salaries,
benefits, consulting and other directly related costs incurred
in connection with programming and testing software products.
Capitalization ceases when the products are generally released
for sale to customers. Management monitors the net realizable
value

39



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


of all capitalized software development costs to ensure that the
investment will be recovered through margins from future sales.
Capitalized software development costs were approximately
$6.4 million, $6.9 million and $8.8 million for
the years ended December 31, 2000, 2001 and 2002,
respectively. These costs are amortized over the greater of the
ratio that current revenues bear to total and anticipated future
revenues for the applicable product or the straight-line method
over three years. Amortization of capitalized software
development costs, which is included in cost of systems and
services revenues, was approximately $2.9 million,
$4.5 million and $6.3 million for the years ended
December 31, 2000, 2001 and 2002, respectively. Accumulated
amortization of capitalized software development costs was
$14.1 million and $20.4 million as of
December 31, 2001 and 2002, respectively.

Acquired Technology and Intangible Assets

Acquired technology and intangible assets are amortized on a
straight-line basis over their estimated useful lives. The
carrying values of acquired technology and intangible assets are
reviewed if the facts and circumstances suggest that they may be
impaired and goodwill is reviewed at least annually. This review
indicates whether assets will be recoverable based on future
expected cash flows. The gross and net amounts for acquired
technology, goodwill and intangible assets consisted of the
following as of December 31, (in thousands):

|                                     |  |       |         |      |  |       |       |     |  |             |         |  |  |   |     |  |  |  |             | 
|------------------------------------ |  | ----- | ------- | ---- |  | ----- | ----- | --- |  | ----------- | ------- |  |  | - | --- |  |  |  | ----------- | 
|                                     |  |       |         |      |  |      
|                                     |  | 2001  |         | 2002 |  |      
|                                     |  |       |         |      |  |      
|                                     |  | Gross |         | Net  |  | Gross |       | Net |  | Useful Life
|                                     |  |       |         |      |  |       |       |     |  |            
|Amounts subject to amortization:     |  |       |         |      |  |       |       |     |  |             |         |  |  |   |     |  |  |  |             | 
|                                    
|                                    
|                                    
|                                    
|Acquired technology                  |  | $     | 95,795  |      |  | $     | 3,345 |     |  | $           | 95,795  |  |  | $ | 267 |  |  |  | 3  7 years | 
|                                    
|                                    
|                                    
|                                    
|Ongoing customer relationships       |  |       | 10,690  |      |  |       | 174   |     |  |             | 10,690  |  |  |   |    |  |  |  | 5 years     | 
|                                    
|                                    
|                                    
|                                    
|Network services                     |  |       | 5,764   |      |  |       |      |     |  |             | 5,764   |  |  |   |    |  |  |  | 3 years     | 
|                                     |  |       |         |      |  |       |       |     |  |             |         |  |  |   |     |  |  |  |             | 
|                                     |  |       | 112,249 |      |  |       | 3,519 |     |  |             | 112,249 |  |  |   | 267 |  |  |  |             | 
|                                    
|                                    
|                                    
|                                    
|Amounts not subject to amortization: |  |       |         |      |  |       |       |     |  |             |         |  |  |   |     |  |  |  |             | 
|                                    
|                                    
|                                    
|                                    
|Goodwill                             |  |       | 17,834  |      |  |       | 454   |     |  |             | 454     |  |  |   | 454 |  |  |  |             | 
|                                     |  |       |         |      |  |       |       |     |  |             |         |  |  |   |     |  |  |  |             | 
|                                     |  | $     | 130,083 |      |  | $     | 3,973 |     |  | $           | 112,703 |  |  | $ | 721 |  |  |  |             | 
|                                     |  |       |         |      |  |       |       |     |  |             |         |  |  |   |     |  |  |  |             | 

Amortization of acquired technology and ongoing customer
relationships for the year ended December 31, 2002 was
$3,078,000 and $174,000, respectively. The ongoing customer
relationships became fully amortized during the first quarter of
2002. 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 | 
|                         |       |  |     |    

Amortization of the acquired technology and network services
assets is included in the cost of systems and services revenues.

In June 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 142 Goodwill and
Other Intangible Assets. Under this new standard, the FASB
eliminated amortization of goodwill and created indefinite life
intangible assets and established new impairment measurement
procedures for goodwill. In accordance with SFAS 142,
goodwill is no longer amortized, but instead tested for
impairment at least once annually. There was no impairment of
goodwill upon adoption of SFAS 142, and amortization ceased
as of January 1, 2002, leaving a recorded balance of
$454,000 for goodwill as of December 31, 2001 and 2002. The

40



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


effect of adopting SFAS 142 was to reduce depreciation and
amortization expense by $454,000 for the year ended
December 31, 2002. Net income and earnings per share
adjusted to exclude amortization expense is as follows for the
years ended December 31, (in thousands, except earnings per
share):

|                                        |                                       |                                       |   |         |         |   |   |       |       | 
|--------------------------------------- | ------------------------------------- | ------------------------------------- | - | ------- | ------- | - | - | ----- | ----- | 
|                                        |                                       | 2000                                  |   | 2001   
|                                        |                                       |                                       |   |        
|Net income:                             |                                       |                                       |   |         |         |   |   |      
|                                       
|                                       
|                                       
|                                       
|                                        | Reported net income                   |                                       | $ | (33,959 | )       |   | $ | 4,408 |      
|                                       
|                                       
|                                       
|                                       
|                                        | Goodwill amortization                 |                                       |   | 5,061   |         |   |   | 4,636 |      
|                                        |                                       |                                       |   |         |         |   |   |      
|                                        |                                       | Adjusted net income                   |   | $       | (28,898 | ) |   | $     | 9,044 | 
|                                        |                                       |                                       |   |         |         |   |   |      
|Basic and diluted net income per share: |                                       |                                       |   |         |         |   |   |      
|                                       
|                                       
|                                       
|                                       
|                                        | Reported basic net income per share   |                                       | $ | (0.92   | )       |   | $ | 0.10  |      
|                                       
|                                       
|                                       
|                                       
|                                        | Goodwill amortization                 |                                       |   | 0.13    |         |   |   | 0.11  |      
|                                        |                                       |                                       |   |         |         |   |   |      
|                                        |                                       | Adjusted basic net income per share   |   | $       | (0.79   | ) |   | $     | 0.21  | 
|                                        |                                       |                                       |   |         |         |   |   |      
|                                        | Reported diluted net income per share |                                       | $ | (0.92   | )       |   | $ | 0.09  |      
|                                       
|                                       
|                                       
|                                       
|                                        | Goodwill amortization                 |                                       |   | 0.13    |         |   |   | 0.10  |      
|                                        |                                       |                                       |   |         |         |   |   |      
|                                        |                                       | Adjusted diluted net income per share |   | $       | (0.79   | ) |   | $     | 0.19  | 
|                                        |                                       |                                       |   |         |         |   |   |      

Fair Value of Financial Instruments

The carrying amounts of the Companys financial
instruments, including cash and cash equivalents, accounts
receivable, and other current liabilities, approximate fair
value.

Income Taxes

The Company accounts for income taxes utilizing the liability
method, and deferred income taxes are determined based on the
estimated future tax effects of differences between the
financial reporting and income tax basis of assets and
liabilities and tax carry-forwards given the provisions of the
enacted tax laws.

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 provision of FAS
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 2000, 2001 and 2002, consistent
with the provisions of FAS 123, the Companys net loss and
loss per

41



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


share would have been increased to the pro forma amounts
indicated below for the years ended December 31, (in
thousands, except per share data):

|                                     |                                                                                                                                            |      |   |         |   |      |   |        |   |  |   |         |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------ | ---- | - | ------- | - | ---- | - | ------ | - |  | - | ------- | -
|                                     |                                                                                                                                            | 2000 |   | 2001    |   | 2002
|                                     |                                                                                                                                            |      |   |         |   |     
|Net (loss) income:                   |                                                                                                                                            |      |   |         |   |      |   |        |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | As reported                                                                                                                                |      | $ | (33,959 | ) |      | $ | 4,408  |   |  | $ | (29,763 | )
|                                    
|                                    
|                                    
|                                    
|                                     | Deduct: Total stock-based compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |      |   | (11,073 | ) |      |   | (3,156 | ) |  |   | (3,656  | )
|                                     |                                                                                                                                            |      |   |         |   |      |   |        |   |  |   |        
|                                     | Pro forma                                                                                                                                  |      | $ | (45,032 | ) |      | $ | 1,252  |   |  | $ | (33,419 | )
|                                    
|                                    
|                                    
|                                    
|Basic net (loss) income per share:   |                                                                                                                                            |      |   |         |   |      |   |        |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | As reported                                                                                                                                |      | $ | (0.92   | ) |      | $ | 0.10   |   |  | $ | (0.67   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Pro forma                                                                                                                                  |      | $ | (1.22   | ) |      | $ | 0.03   |   |  | $ | (0.75   | )
|                                    
|                                    
|                                    
|                                    
|Diluted net (loss) income per share: |                                                                                                                                            |      |   |         |   |      |   |        |   |  |   |        
|                                    
|                                    
|                                    
|                                    
|                                     | As reported                                                                                                                                |      | $ | (0.92   | ) |      | $ | 0.09   |   |  | $ | (0.67   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Pro forma                                                                                                                                  |      | $ | (1.22   | ) |      | $ | 0.03   |   |  | $ | (0.75   | )

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 2000,
2001 and 2002: dividend yield of 0% for all years, risk-free
interest rate of 5.75% for 2000, 4.27% for 2001 and 3.11% for
2002, expected life of 9.88, 6.81 and 7.43 years based on
the plan and volatility of 113% for 2000, 78% for 2001 and 92%
for 2002, respectively.

Basic and Diluted Net (Loss) Income Per Share

For all periods presented, basic and diluted net
(loss) income per common share is presented in accordance
with SFAS 128, Earnings per Share, which provides
for the accounting principles used in the calculation of
earnings per share. Basic net (loss) income per common
share is based on the weighted average number of shares of
common stock outstanding during the period. Diluted net income
per share reflects the potential dilution from assumed
conversion of all dilutive securities such as stock options and
warrants. Stock options to acquire 9,148,878, 8,006,072 and
9,020,711 shares of common stock at December 31, 2000, 2001
and 2002, respectively, and warrants to acquire up to 5,160
shares of common stock at December 31, 2000, 2001 and 2002,
were the only securities issued which would be included in the
diluted earnings per share calculation, if dilutive. In 2000 and
2002 the inclusion of stock options and warrants would have been

42



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


antidilutive due to the net loss reported by the Company and
therefore excluded from the calculation. The computations of the
basic and diluted per share amounts were as follows for the
years ended December 31,:

|                                  |                                     |                                  |       |            |            |      |      |            |            |   |       |            |            | 
|--------------------------------- | ----------------------------------- | -------------------------------- | ----- | ---------- | ---------- | ---- | ---- | ---------- | ---------- | - | ----- | ---------- | ---------- | 
|                                  |                                     | 2000                             |       | 2001       |            | 2002
|                                  |                                     |                                  |       |            |            |     
|Basic Earnings Per Share:         |                                     |                                  |       |            |            |      |      |            |            |   |       |           
|                                 
|                                 
|                                 
|                                 
|                                  | Net (loss) income (in thousands)    |                                  | $     | (33,959    | )          |      | $    | 4,408      |            |   | $     | (29,763    | )         
|                                 
|                                 
|                                 
|                                 
|                                  | Weighted average shares outstanding |                                  |       | 36,765,975 |            |      |      | 43,243,512 |            |   |       | 44,710,754 |           
|                                  |                                     |                                  |       |            |            |      |      |            |            |   |       |           
|Basic (loss) earnings per share   |                                     | $                                | (0.92 | )          |            | $    | 0.10 |            |            | $ | (0.67 | )         
|                                  |                                     |                                  |       |            |            |      |      |            |            |   |       |           
|Diluted Earnings Per Share:       |                                     |                                  |       |            |            |      |      |            |            |   |       |           
|                                 
|                                 
|                                 
|                                 
|                                  | Net (loss) income (in thousands)    |                                  | $     | (33,959    | )          |      | $    | 4,408      |            |   | $     | (29,763    | )         
|                                 
|                                 
|                                 
|                                 
|                                  | Weighted average shares:            |                                  |       |            |            |      |      |            |            |   |       |            |           
|                                 
|                                 
|                                 
|                                 
|                                  |                                     | Outstanding                      |       |            | 36,765,975 |      |      |            | 43,243,512 |   |       |            | 44,710,754 | 
|                                 
|                                 
|                                 
|                                 
|                                  |                                     | Effect of dilutive stock options |       |            |           |      |      |            | 3,551,849  |   |       |            |           | 
|                                  |                                     |                                  |       |            |            |      |      |            |            |   |       |           
|                                  |                                     | Total shares                     |       |            | 36,765,975 |      |      |            | 46,795,361 |   |       |            | 44,710,754 | 
|                                  |                                     |                                  |       |            |            |      |      |            |            |   |       |           
|Diluted (loss) earnings per share |                                     | $                                | (0.92 | )          |            | $    | 0.09 |            |            | $ | (0.67 | )         
|                                  |                                     |                                  |       |            |            |      |      |            |            |   |       |           

Concentration of Credit Risk

The Companys customers operate primarily in the healthcare
industry. The Company sells its products and services under
contracts with varying terms. The accounts receivable amounts
are unsecured. Management believes the allowance for doubtful
accounts is sufficient to cover credit losses. The Company does
not believe that the loss of any one customer would have a
material effect on the financial position of the Company.

Foreign Currency

The financial position and results of operations of foreign
subsidiaries are measured using the currency of the respective
countries as the functional currency. Assets and liabilities are
translated at the foreign exchange rate in effect at the balance
sheet date, while revenue and expenses for the year are
translated at the average exchange rate in effect during the
year. Translation gains and losses are not included in
determining net income or loss but are accumulated and reported
as a separate component of stockholders equity. The
Company has not entered into any hedging contracts during the
three-year period ended December 31, 2002.

Comprehensive Income

Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income
requires that the total changes in equity resulting from
revenue, expenses, and gains and losses, including those that do
not affect the accumulated deficit, be reported. Accordingly,
those amounts, which are comprised solely of foreign currency
translation adjustments, are included in other comprehensive
income in the consolidated statement of changes in
stockholders equity.

New Accounting Pronouncements

In October 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, which is effective for fiscal years beginning
after December 15, 2001. This statement supercedes FASB
Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. However, it retains the fundamental provisions of
SFAS 121 for the

43



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


recognition and measurement of the impairment of long-lived
assets to be held and used and the measurement of long-lived
assets to be disposed of by sale. Impairment of goodwill is not
included in the scope of SFAS 144 and will be treated in
accordance with the accounting standards established in
SFAS 142. According to SFAS 144, long-lived assets are
measured at the lower of carrying amount or fair value less cost
to sell, whether reported in continuing or discontinued
operations. The statement applies to all long-lived assets,
including discontinued operations, and replaces the provisions
of APB Opinion No. 30, Reporting the Results of
Unusual and Infrequently Occurring Events and
Transactions, for the disposal of segments of a business.
The adoption of SFAS 144 has had no impact on the
Companys financial position or results of operations.

In November 2001, the FASBs Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue 01-09,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which is a codification of EITF 00-14, 00-22 and 00-25.
This issue presumes that consideration from a vendor to a
customer or reseller of the vendors products is a
reduction in the selling prices of the vendors product
and, therefore, should be characterized as a reduction of
revenue when recognized in the vendors income statement
and could lead to negative revenue under certain circumstances.
Revenue reduction is required unless the consideration related
to a separate identifiable benefit and the benefits fair
value can be established. The Company adopted EITF 01-09
effective January 1, 2002, and it had no material impact on
the Companys financial position or results of operations.

In January 2002, the EITF reached a consensus on EITF
Issue 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred. This consensus requires that reimbursements
received for out-of-pocket expenses incurred be characterized as
revenue in the income statement. The Company adopted EITF 01-14
effective January 1, 2002 and has made the appropriate
reclassifications as required by EITF 01-14. The effect of
adopting EITF 01-14 was to increase both revenues and
expenses by $4,780,000, $2,682,000 and $2,990,000 for 2000, 2001
and 2002, respectively.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 requires that a liability for a
cost that is associated with an exit or disposal activity be
recognized when the liability is incurred. It nullifies the
guidance in EITF Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a
Restructuring). Under EITF 94-3, an entity recognized
a liability for an exit cost on the date that the entity
committed itself to an exit plan. In SFAS 146, the Board
acknowledges that an entitys commitment to a plan does
not, by itself, create a present obligation to other parties
that meets the definition of a liability. SFAS 146 also
establishes that fair value is the objective for the initial
measurement of the liability. SFAS 146 became effective for
exit or disposal activities that were initiated after
December 31, 2002. The Company does not expect the adoption
of SFAS 146 to have a significant impact on the
Companys financial position or results of operations.

In November 2002, the FASB reached a consensus on EITF
Issue 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables (the Issue). The
guidance in this Issue is effective for revenue arrangements
entered into fiscal years beginning after June 15, 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. We
currently follow the appropriate accounting pronouncement as
discussed in our Revenue Recognition policy note and anticipate
that the Issue will have no impact on the results of operations,
financial position or cash flows.

44



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Summary of Significant
Accounting Policies  (Continued)


In November 2002, the FASB issued FASB Interpretation 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, including Indirect Guarantees of Indebtedness of
Others. This interpretation clarifies the requirements of
SFAS 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. We have adopted
the disclosure provisions of this interpretation and it did not
have a material impact on our financial position, results of
operations, or cash flows. We will adopt the remaining
provisions on January 1, 2003 and believe that this
Interpretation will not have a material impact on our financial
position, results or operations, or cash flows.

In December 2002, the FASB issued SFAS 148,
Accounting for Stock Based Compensation-Transition and
Disclosure  an Amendment to SFAS 123.
SFAS 148 provides two additional transition methods for
entities that adopt the preferable method of accounting for
stock based compensation. Further, the statement requires
disclosure of comparable information for all companies
regardless of whether, when, or how an entity adopts the
preferable, fair value based method of accounting. These
disclosures are now required for interim periods in addition to
the traditional annual disclosure. The amendments to
SFAS 123, which provides for additional methods, are
effective for periods beginning after December 15, 2002,
although earlier application is permitted. The amendments to the
disclosure requirements are required for financial reports
containing condensed financial statements for interim periods
beginning after December 15, 2002. We anticipate that we
will adopt the additional disclosure requirements in our interim
and annual filings of SFAS 148 and will continue to account
for stock based compensation under APB No. 25.

In January 2003, the FASB issued FASB Interpretation 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. We do not have any ownership in any variable interest
entities as of December 31, 2002. We will apply the
consolidation requirement of the interpretation in future
periods if we should own any interest in any variable interest
entity.

3.     Property and Equipment

Property and equipment are stated at cost. Depreciation and
amortization are provided for using the straight-line method
over the estimated useful lives, which generally range from two
to seven years. Computer equipment is depreciated over two to
five years. Office equipment is depreciated over two to seven
years. Purchased software for internal use is amortized over
three years. Leasehold improvements are amortized over the
shorter of the useful lives of the assets or the remaining term
of the lease. When assets are retired or otherwise disposed of,
the related costs and accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in
income. Expenditures for repairs and maintenance not considered
to

45



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




3.     Property and
Equipment  (Continued)


substantially lengthen the property and equipment lives are
charged to expense as incurred. The balances for property and
equipment were as follows as of December 31, (in thousands):

|                                                |  |      |         |      |  |   |         |  
|----------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                |  | 2001 |         | 2002
|                                                |  |      |         |     
|Computer equipment                              |  | $    | 18,204  |      |  | $ | 25,702  |  
|                                               
|                                               
|                                               
|                                               
|Office equipment and other                      |  |      | 5,824   |      |  |   | 6,561   |  
|                                               
|                                               
|                                               
|                                               
|Purchased software                              |  |      | 6,633   |      |  |   | 11,084  |  
|                                               
|                                               
|                                               
|                                               
|Leasehold improvements                          |  |      | 7,183   |      |  |   | 7,972   |  
|                                                |  |      |         |      |  |   |         |  
|                                                |  |      | 37,844  |      |  |   | 51,319  |  
|                                               
|                                               
|                                               
|                                               
|Less: Accumulated depreciation and amortization |  |      | (16,169 | )    |  |   | (24,519 | )
|                                                |  |      |         |      |  |   |         |  
|                                                |  | $    | 21,675  |      |  | $ | 26,800  |  
|                                                |  |      |         |      |  |   |         |  

Depreciation and amortization expense of property and equipment
totaled approximately $5.7 million, $6.7 million and
$8.4 million in 2000, 2001 and 2002, respectively.

4.     Stockholders Equity

Restricted Stock Grant

On July 15, 2002, Mr. Paul Ruflin joined the Company
as its Chief Executive Officer and President. Under his
employment arrangement with the Company, Mr. Ruflin
received a restricted stock grant effective July 15, 2002
of 150,000 shares of the Companys common stock subject to
a five-year vesting schedule, plus an option to purchase 850,000
shares of the Companys common stock at a price of $7.50,
with vesting over a five-year period. During 2002, stock
compensation related to this restricted stock grant amounted to
$103,000 and as of December 31, 2002, the Company had
unearned stock compensation of $1,021,000 recorded in
stockholders equity.

Undesignated Preferred Stock

The Company has available for issuance, 5,000,000 shares of
preferred stock. As discussed below under Shareholder
Rights Plan the Board has designated 100,000 of the
5,000,000 authorized shares of preferred stock as Series A
Junior Participating Preferred Stock. The Company has a balance
of 4,900,000 authorized shares of undesignated preferred stock
(the Undesignated Preferred). The liquidation,
voting, conversion and other related provisions of the
Undesignated Preferred will be determined by the Board of
Directors at the time of issuance. Currently, there are no
outstanding shares.

Shareholder Rights Plan

On July 26, 2000, the Board of Directors of the Company
declared a dividend of one Right for each outstanding share of
the Companys Common Stock to stockholders of record at the
close of business on August 9, 2000. Each Right entitles
the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating
Preferred Stock, $.01 par value per share, at a Purchase Price
of $65.00 in cash, subject to adjustment. The Rights will
initially trade together with the Eclipsys Common Stock and will
not be exercisable. If a person or group (other than an exempt
person) acquires 15% or more of the outstanding shares of
Eclipsys Common Stock, the Rights generally will become
exercisable and allow the holder (other than the 15% purchaser)
to purchase shares of Eclipsys Common Stock at a 50% discount to
the market price. The effect will be to discourage acquisitions
of 15% or more of Eclipsys Common Stock without negotiations
with the Board. The terms of the Rights are set forth in a
Rights Agreement dated as of July 26, 2000 (the
Rights Agreement) between the Company and Fleet
National Bank, as Rights Agent. The Board

46



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




4.     Stockholders
Equity  (Continued)


has designated 100,000 of the 5,000,000 authorized shares of
preferred stock as Series A Junior Participating Preferred
Stock.

Secondary Offering of Common Stock

On January 23, 2001, the Company completed a follow-on
public offering for 5,750,000 shares of its common stock. Net
proceeds from the offering were approximately
$123.2 million.

5.     Proposed Merger

During the quarter ended March 31, 2000, the Company
recorded a gain on its investment in Shared Medical Systems
Corp. (SMS) of approximately $4.5 million. The
investment was made in connection with a proposed merger with
SMS that was not consummated. In connection with the proposed
merger, the Company recorded transaction costs of approximately
$50,000.

On March 30, 2000, the Company entered into a definitive
merger agreement to merge with Neoforma.com, Inc.
(Neoforma) of Santa Clara, California. Neoforma is a
provider of business-to-business e-commerce services in the
medical products, supplies and equipment industry. During the
quarter ended June 30, 2000, the Company and Neoforma
agreed to terminate the Merger Agreement between them without
the payment of a termination fee. Transaction costs incurred in
connection with the proposed merger were approximately
$1.9 million.

6.     Income Taxes

The income tax provision/ (benefit) is calculated as
follows for the years ended December 31, (in thousands):

|                                 |                     |      |   |         |   |      |   |      |   |   |     |         |  
|-------------------------------- | ------------------- | ---- | - | ------- | - | ---- | - | ---- | - | - | --- | ------- | -
|                                 |                     | 2000 |   | 2001    |   | 2002
|                                 |                     |      |   |         |   |     
|Current Tax Provision/(Benefit): |                     |      |   |         |   |      |   |      |   |   |     |        
|                                
|                                
|                                
|                                
|                                 | Federal             |      | $ |        |   |      | $ |     |   |   | $   |        |  
|                                
|                                
|                                
|                                
|                                 | State               |      |   |        |   |      |   |     |   |   |     | 165     |  
|                                 |                     |      |   |         |   |      |   |      |   |   |     |        
|                                 |                     | $    |  |         |   | $    |  |      |   | $ | 165 |        
|                                 |                     |      |   |         |   |      |   |      |   |   |     |        
|Deferred Provision/(Benefit):    |                     |      |   |         |   |      |   |      |   |   |     |        
|                                
|                                
|                                
|                                
|                                 | Federal             |      | $ | (10,734 | ) |      | $ | (171 | ) |   | $   | (10,076 | )
|                                
|                                
|                                
|                                
|                                 | State               |      |   | (1,257  | ) |      |   | (20  | ) |   |     | (1,180  | )
|                                
|                                
|                                
|                                
|                                 | Valuation allowance |      |   | 11,991  |   |      |   | 191  |   |   |     | 11,256  |  
|                                 |                     |      |   |         |   |      |   |      |   |   |     |        
|                                 |                     | $    |  |         |   | $    |  |      |   | $ |    |        
|                                 |                     |      |   |         |   |      |   |      |   |   |     |        
|Total Provision/(Benefit)        |                     | $    |  |         |   | $    |  |      |   | $ | 165 |        
|                                 |                     |      |   |         |   |      |   |      |   |   |     |        

47



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




6.     Income Taxes 
(Continued)


A reconciliation of the effect of applying the federal statutory
rate and the effective income tax rate on the Companys
income tax provision is as follows for the years ended
December 31, (in thousands):

|                                                         |  |      |         |      |  |      |        |   |  |   |         |  
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                         |  | 2000 |         | 2001 |  | 2002
|                                                         |  |      |         |      |  |     
|Statutory federal income tax rate                        |  | $    | (11,546 | )    |  | $    | 1,499  |   |  | $ | (10,119 | )
|                                                        
|                                                        
|                                                        
|                                                        
|State income taxes                                       |  |      | (1,345  | )    |  |      | 175    |   |  |   | (1,013  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Non-deductible amortization                              |  |      | 2,640   |      |  |      | 1,943  |   |  |   |        |  
|                                                        
|                                                        
|                                                        
|                                                        
|Other                                                    |  |      | 301     |      |  |      | 344    |   |  |   | 479     |  
|                                                        
|                                                        
|                                                        
|                                                        
|Valuation allowance, includes effect of
    acquisitions |  |      | 9,950   |      |  |      | (3,961 | ) |  |   | 10,818  |  
|                                                         |  |      |         |      |  |      |        |   |  |   |         |  
|Income tax provision                                     |  | $    |        |      |  | $    |       |   |  | $ | 165     |  
|                                                         |  |      |         |      |  |      |        |   |  |   |         |  

The significant components of the Companys net deferred
tax assets/(liabilities) were as follows as of December 31,
(in thousands):

|                                             |  |      |         |      |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                             |  | 2001 |         | 2002
|                                             |  |      |         |     
|Deferred tax assets:                         |  |      |         |      |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Intangible assets                            |  | $    | 40,823  |      |  | $ | 37,804  |  
|                                            
|                                            
|                                            
|                                            
|Allowance for doubtful accounts              |  |      | 3,241   |      |  |   | 2,725   |  
|                                            
|                                            
|                                            
|                                            
|Accrued expenses                             |  |      | 203     |      |  |   | 2,442   |  
|                                            
|                                            
|                                            
|                                            
|Other                                        |  |      | 1,719   |      |  |   | 2,274   |  
|                                            
|                                            
|                                            
|                                            
|Net operating loss carryforwards             |  |      | 48,419  |      |  |   | 60,396  |  
|                                             |  |      |         |      |  |   |         |  
|                                             |  | $    | 94,405  |      |  | $ | 105,641 |  
|                                             |  |      |         |      |  |   |         |  
|Deferred tax liabilities:                    |  |      |         |      |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Unbilled accounts receivable                 |  | $    | (5,647  | )    |  | $ | (3,798  | )
|                                            
|                                            
|                                            
|                                            
|Depreciation                                 |  |      | (500    | )    |  |   | (1,362  | )
|                                            
|                                            
|                                            
|                                            
|Capitalization of software development costs |  |      | (5,250  | )    |  |   | (6,217  | )
|                                             |  |      |         |      |  |   |         |  
|Net deferred tax asset                       |  |      | 83,008  |      |  |   | 94,264  |  
|                                             |  |      |         |      |  |   |         |  
|Valuation allowance                          |  |      | (83,008 | )    |  |   | (94,264 | )
|                                             |  |      |         |      |  |   |         |  
|                                             |  | $    |        |      |  | $ |        |  
|                                             |  |      |         |      |  |   |         |  

At December 31, 2002, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$153.2 million. The carryforwards expire in varying amounts
through 2022. Of this amount, $40.4 million relate to stock
option tax deductions, which will be tax-effected and the
benefit credited as additional paid-in-capital when realized.
Additionally, the Company has Canadian net operating loss
carryovers of approximately $5.9 million that expire in varying
amounts through 2009.

Under the Tax Reform Act of 1986, the amounts of, and the
benefits from, net operating loss carryforwards may be impaired
or limited in certain circumstances. The Company experienced an
ownership change as defined under Section 382 of the
Internal Revenue Code in November 1998. As a result of the
ownership change, net operating loss carryforwards of
approximately $16 million at November 1998, which were
incurred prior to the date of the change, are subject to annual
limitations on their future use. As of December 31, 2002, a
valuation allowance has been established against the deferred
tax assets that management does not believe are more likely than
not to be realized.

48



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


7.     Employee Benefit Plans

1996 Stock Option Plan

In April 1996, the Board of Directors of the Company (the
Board) adopted the 1996 Stock Plan (the 1996
Stock Plan). The 1996 Stock Plan, as amended, provided for
grants of stock options, awards of Company stock free of any
restrictions and opportunities to make direct purchases of
restricted stock of the Company. The 1996 Stock Plan allowed for
the issuance of options or other awards to purchase up to
2,500,000 shares of Common Stock. Pursuant to the terms of the
1996 Stock Plan, a committee of the Board was authorized to
grant awards to employees and non-employees and establish
vesting terms. The options expire ten years from the date of
grant. No additional options or other awards may be granted
under the 1996 Stock Plan.

1998 Stock Incentive Plan

In January 1998, the Board adopted the 1998 Stock Incentive Plan
(the Incentive Plan). The Incentive Plan provided
for the granting of stock options, stock appreciation rights,
restricted stock awards or unrestricted stock awards. No
additional options or other awards may be granted under the
Incentive Plan.

1999 Stock Incentive Plan

In February 1999, the Board adopted the 1999 Stock Incentive
Plan (the 1999 Plan). The 1999 Plan provided for the
granting of stock options, restricted stock, or other
stock-based awards. No additional options or other awards may be
granted under the 1999 Plan.

2000 Stock Incentive Plan

At the Annual Meeting of Stockholders of the Company held on
May 8, 2002, the shareholders voted to approve the
amendment and restatement of the Companys 2000 Stock
Incentive Plan, 1999 Stock Incentive Plan, 1998 Stock Incentive
Plan and Amended and Restated 1998 Employee Stock Purchase Plan
to reflect an increase in the number of shares of common stock
authorized for issuance under all of the Companys stock
plans (the 2000 Stock Incentive Plan, the 1999 Stock Incentive
Plan, the Amended and Restated Employee Stock Purchase Plan, the
1998 Stock Incentive Plan and the 1996 Stock Plan) from
12,000,000 to 15,000,000. There were 2,194,120 shares available
for future issuance under all of the Companys stock plans
as of December 31, 2002. A summary of stock options
transactions were as follows during the years ended
December 31,:

|                                     |           |         |           |           |   |         |       |          |  |         |           |            |   |   |       |       |  |  |           |           |   |   |       |       | 
|------------------------------------ | --------- | ------- | --------- | --------- | - | ------- | ----- | -------- |  | ------- | --------- | ---------- | - | - | ----- | ----- |  |  | --------- | --------- | - | - | ----- | ----- | 
|                                     |           |         |           |           |   |        
|                                     |           | 2000    |           | 2001      |   | 2002   
|                                     |           |         |           |           |   |        
|                                     |           |         |           | Weighted  |   |         |       | Weighted |  |         |           | Weighted  
|                                     |           |         |           | Average   |   |         |       | Average  |  |         |           | Average   
|                                     |           |         |           | Exercise  |   |         |       | Exercise |  |         |           | Exercise  
|                                     |           | Options |           | Price     |   | Options |       | Price    |  | Options |           | Price     
|                                     |           |         |           |           |   |         |       |          |  |         |           |           
|Outstanding at beginning of the year |           |         | 5,494,673 |           |   | $       | 16.98 |          |  |         | 9,148,878 |            |   | $ | 12.87 |       |  |  | 8,006,072 |           |   | $ | 12.22 |      
|                                    
|                                    
|                                    
|                                    
|                                     | Granted   |         |           | 4,977,159 |   |         |       | 8.46     |  |         |           | 1,196,284  |   |   |       | 14.70 |  |  |           | 1,922,925 |   |   |       | 8.20  | 
|                                    
|                                    
|                                    
|                                    
|                                     | Exercised |         |           | (510,253  | ) |         |       | 6.62     |  |         |           | (1,342,619 | ) |   |       | 10.96 |  |  |           | (195,277  | ) |   |       | 7.53  | 
|                                    
|                                    
|                                    
|                                    
|                                     | Forfeited |         |           | (812,701  | ) |         |       | 17.71    |  |         |           | (996,471   | ) |   |       | 22.89 |  |  |           | (713,009  | ) |   |       | 15.14 | 
|                                     |           |         |           |           |   |         |       |          |  |         |           |            |   |   |       |       |  |  |           |           |   |   |       |      
|Outstanding at end of year           |           |         | 9,148,878 |           |   |         | 12.87 |          |  |         | 8,006,072 |            |   |   | 12.22 |       |  |  | 9,020,711 |           |   |   | 11.23 |      
|                                     |           |         |           |           |   |         |       |          |  |         |           |            |   |   |       |       |  |  |           |           |   |   |       |      
|Exercisable at end of the year       |           |         | 2,319,237 |           |   |         |       |          |  |         | 3,425,434 |            |   |   |       |       |  |  | 4,960,438 |           |   |   |       |      
|                                     |           |         |           |           |   |         |       |          |  |         |           |            |   |   |       |       |  |  |           |           |   |   |       |      

49



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




7.     Employee Benefit
Plans  (Continued)


|                                   |  |          |      |          |  |          |      |          |  |          |       |          |  |   |       |  |  |   |      |  |  |   |      | 
|---------------------------------- |  | -------- | ---- | -------- |  | -------- | ---- | -------- |  | -------- | ----- | -------- |  | - | ----- |  |  | - | ---- |  |  | - | ---- | 
|                                   |  |          |      |          |  |         
|                                   |  | 2000     |      | 2001     |  | 2002    
|                                   |  |          |      |          |  |         
|                                   |  | Weighted |      | Weighted |  | Weighted |      | Weighted |  | Weighted |       | Weighted
|                                   |  | Average  |      | Fair     |  | Average  |      | Fair     |  | Average  |       | Fair    
|                                   |  | Exercise |      | Market   |  | Exercise |      | Market   |  | Exercise |       | Market  
|Option Granted During the Year     |  | Price    |      | Value    |  | Price    |      | Value    |  | Price    |       | Value   
|                                   |  |          |      |          |  |          |      |          |  |          |       |         
|Option price> Fair market value    |  |          |     |          |  |          |      |          |  |          |      |          |  |   |       |  |  |   |     |  |  |   |      | 
|                                  
|                                  
|                                  
|                                  
|Option price = Fair market value   |  | $        | 8.46 |          |  |          |      |          |  | $        | 14.70 |          |  |   |       |  |  | $ | 8.20 |  |  |   |      | 
|                                  
|                                  
|                                  
|                                  
|Option price< Fair market value    |  |          |     |          |  |          |      |          |  |          |      |          |  |   |       |  |  |   |     |  |  |   |      | 
|                                  
|                                  
|                                  
|                                  
|Weighted Fair Market Value Options |  |          |      |          |  | $        | 7.98 |          |  |          |       |          |  | $ | 10.70 |  |  |   |      |  |  | $ | 6.59 | 

The following table summarizes information about stock options
outstanding at December 31, 2002:

|                        |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 
|----------------------- |  | ------------------- | --------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                        |  |                     |           |                    
|                        |  | Options Outstanding |           | Options Exercisable
|                        |  |                     |           |                    
|                        |  |                     |           | Weighted            |  |          |      |            
|                        |  |                     |           | Average             |  | Weighted |      |             |  | Weighted
|                        |  | Number              |           | Remaining           |  | Average  |      | Number      |  | Average 
|                        |  | Outstanding         |           | Contractual         |  | Exercise |      | Exercisable |  | Exercise
|Range of Exercise Price |  | at 12/31/02         |           | Life (in years)     |  | Price    |      | at 12/31/02 |  | Price   
|                        |  |                     |           |                     |  |          |      |             |  |         
|$  0.10-$  6.44         |  |                     | 1,316,169 |                     |  |          | 8.53 |             |  | $        | 5.88  |  |  |  | 394,594   |  |  | $ | 5.63  | 
|                       
|                       
|                       
|                       
|$  6.50-$  7.50         |  |                     | 1,326,440 |                     |  |          | 7.74 |             |  |          | 7.17  |  |  |  | 396,840   |  |  |   | 6.59  | 
|                       
|                       
|                       
|                       
|$  8.25-$  8.25         |  |                     | 2,572,894 |                     |  |          | 7.53 |             |  |          | 8.25  |  |  |  | 1,755,474 |  |  |   | 8.25  | 
|                       
|                       
|                       
|                       
|$  9.06-$13.20          |  |                     | 996,222   |                     |  |          | 7.83 |             |  |          | 11.60 |  |  |  | 468,247   |  |  |   | 10.74 | 
|                       
|                       
|                       
|                       
|$13.21-$15.13           |  |                     | 1,274,287 |                     |  |          | 7.35 |             |  |          | 14.63 |  |  |  | 808,971   |  |  |   | 14.69 | 
|                       
|                       
|                       
|                       
|$15.63-$22.00           |  |                     | 911,816   |                     |  |          | 7.44 |             |  |          | 18.42 |  |  |  | 540,798   |  |  |   | 18.71 | 
|                       
|                       
|                       
|                       
|$23.00-$23.38           |  |                     | 522,611   |                     |  |          | 6.23 |             |  |          | 23.35 |  |  |  | 495,242   |  |  |   | 23.35 | 
|                       
|                       
|                       
|                       
|$25.71-$25.71           |  |                     | 22,049    |                     |  |          | 4.11 |             |  |          | 25.71 |  |  |  | 22,049    |  |  |   | 25.71 | 
|                       
|                       
|                       
|                       
|$35.83-$35.83           |  |                     | 39,374    |                     |  |          | 4.58 |             |  |          | 35.83 |  |  |  | 39,374    |  |  |   | 35.83 | 
|                       
|                       
|                       
|                       
|$43.57-$43.57           |  |                     | 38,849    |                     |  |          | 4.88 |             |  |          | 43.57 |  |  |  | 38,849    |  |  |   | 43.57 | 
|                        |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 
|                        |  |                     | 9,020,711 |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 
|                        |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 

Employee Savings Plan

During 1997, the Company established a Savings Plan (the
Plan) pursuant to Section 401(k) of the
Internal Revenue Code (the Code), whereby employees
may contribute a percentage of their compensation, not to exceed
the maximum amount allowable under the Code. At the discretion
of the Board, the Company may elect to make matching
contributions, as defined in the Plan. For the years ended
December 31, 2000, 2001 and 2002, the Board authorized
matching contributions totaling $801,000, $532,000 and $750,000,
respectively.

1998 Employee Stock Purchase Plan

Under the Companys 1998 Employee Stock Purchase Plan (the
Purchase Plan) (implemented in April 1998),
employees of the Company, including directors of the Company who
are employees are eligible to participate in quarterly plan
offerings in which payroll deductions may be used to purchase
shares of Common Stock. The purchase price of such shares is the
lower of 85% of the fair market value of the Common Stock on the
day the offering commences and 85% of the fair market value of
the Common Stock on the day the offering terminates.

50



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


8.     Commitments and
Contingencies

Noncancelable Operating Leases

The Company leases its office space and certain equipment under
noncancelable operating leases. Rental expense under operating
leases was approximately $10.6 million, $11.4 million
and $11.8 million for the years ended December 31,
2000, 2001 and 2002, respectively. Future minimum rental
payments under noncancelable operating leases as of
December 31, 2002 are as follows (in thousands):

|                         |  |   |        | 
|------------------------ |  | - | ------ | 
|Year Ending December 31, |  |  
|                         |  |  
|2003                     |  | $ | 10,185 | 
|                        
|                        
|                        
|                        
|2004                     |  |   | 8,244  | 
|                        
|                        
|                        
|                        
|2005                     |  |   | 5,997  | 
|                        
|                        
|                        
|                        
|2006                     |  |   | 5,478  | 
|                        
|                        
|                        
|                        
|2007                     |  |   | 3,885  | 
|                        
|                        
|                        
|                        
|Thereafter               |  |   | 3,270  | 
|                         |  |   |        | 
|                         |  | $ | 37,059 | 
|                         |  |   |        | 

Subsequent to December 31, 2002 the Company contracted for
a minimum number of hours for airplane charters with a related
(note 9). The minimum commitment amounts to $761,000 per year
for 2003 through 2005.

Litigation

From July through September 2002, the Company and three of its
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 seeks certification as a class and
monetary damages and alleges 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 also sets certain
timelines by which responsive pleadings must be filed by the
Company and the lead plaintiffs in the consolidated case. Under
the Consolidation Order, the lead plaintiffs have until
March 31, 2003 to file an amended, consolidated complaint;
however, it is our understanding that the plaintiffs are in the
process of requesting an extension to this deadline. Once the
amended, consolidated complaint is filed, the Company shall have
sixty (60) days from such date to answer or move to dismiss
the amended 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.

9.     Related Party Transactions

Eclipsys has a policy that all transactions between it and its
executive officers, directors and affiliates must be on terms no
less favorable to the Company than could be obtained from
unaffiliated third parties. Additionally, these transactions
must be approved by a majority of the members of the Board of
Directors and by a majority of the disinterested members of the
Board of Directors.

51



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




9.     Related Party
Transactions  (Continued)


The Company leases office space in Boston, Massachusetts from a
former stockholder of SDK, who is a current employee. During the
years ended December 31, 2000, 2001 and 2002 the Company paid
$849,000, $692,000 and $579,000, respectively, under this lease.
The lease, which was amended to increase the space at the end of
1999, is noncancelable and expires in 2009.

The Companys Chairman Emeritus, Harvey J. Wilson, owns a
company, which leases an aircraft to a charter company. The
charter company provides aircraft charter services to Eclipsys
as well other outside parties. Mr. Wilson has no ownership
or other interest in the charter company. Eclipsys paid the
charter company $412,000, $775,000 and $885,000 in 2000, 2001
and 2002, respectively, for charters using the aircraft owned by
Mr. Wilsons company. Eclipsys also paid the charter
company $43,000 and $265,000, in 2001 and 2002, respectively,
for charters of other aircraft, not owned by
Mr. Wilsons company. Mr. Wilsons company
received $298,000, $481,000 and $533,000 during 2000, 2001, and
2002, respectively, from the charter company for these
transactions. Subsequent to December 31, 2002 Eclipsys
contracted for a minimum number of hours for airplane charters
to extend the current pricing terms. The minimum commitment
amounts to $761,000 per year for 2003 through 2005.

In July 1999, Eclipsys invested in HEALTHvision, Inc.
(HEALTHvision,) a Dallas-based, privately held
internet healthcare company, in conjunction with VHA, Inc. and
investment entities affiliated with General Atlantic Partners,
LLC. HEALTHvision provides Internet solutions to hospital
organizations to assist them in improving patient care in the
local communities they serve. Eclipsys purchased 3,400,000
shares of common stock for $34,000, which at the time
represented 34% of the outstanding common stock on an if
converted basis. As of December 31, 2002 the Companys
shares represented 28% of the common stock of HEALTHvision on an
if converted basis. The Company accounts for the investment in
HEALTHvision using the equity method of accounting. Due to
losses recognized under the equity method, the recorded balance
of the investment in HEALTHvision was $0 as of December 31,
2002. In connection with the Companys relationship with
HEALTHvision, Eclipsys entered into a joint marketing
arrangement under which both organizations agreed to jointly
market products and services to their customers. Under this
agreement, Eclipsys paid HEALTHvision $2,247,000 during 2002 and
owed HEALTHvision $432,000 as of December 31, 2002. Also
during 2002, the Company earned revenues from HEALTHvision of
$1,043,000 for hosting and other related services and had
accounts receivable due from HEALTHvision of $353,000 at
December 31, 2002. Additionally, the Company has a note
receivable from HEALTHvision for $293,000 as of
December 31, 2002, bearing interest at the prime rate, with
repayments due quarterly beginning March 31, 2004. For the
year ended December 31, 2002, HEALTHvision, Inc had total
revenues of approximately $21.9 million (unaudited) and a
net loss of approximately $4.6 million
(unaudited) with total assets of approximately
$12.2 million (unaudited) as of December 31,
2002. The Companys Chairman Emeritus, Harvey J. Wilson
also serves as co-chairman of HEALTHvision. Eclipsys is not
required to provide funding to HEALTHvision and has made no
guarantees on their behalf.

The Company has a license agreement with Partners HealthCare
System, Inc. (Partners). Under the terms of this
license, the Company may develop, commercialize, distribute and
support certain technology and license it, as well as sell
related services, to other healthcare providers and hospitals
throughout the world (with the exception of the Boston,
Massachusetts metropolitan area). Prior to the Companys
initial public offering, no sales of products incorporating the
licensed technology were made and, consequently, no royalties
were paid by the Company pursuant to the license with Partners.
The royalty arrangement under the license terminated upon the
Companys initial public offering. After the Companys
initial public offering, the Company sold products incorporating
the licensed technology. The Company is obligated to offer to
Partners and certain of its affiliates a license for internal
use, granted on most favored customer terms, to all new software
applications developed by the Company, whether or not derived
from the licensed technology, and major architectural changes to
the licensed technology. Partners and certain of its affiliates
are also entitled to

52



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




9.     Related Party
Transactions  (Continued)


receive internal use licenses, also granted on most favored
customer terms, for any changes to any module or application
included in the licensed technology requiring at least one
person-year of technical effort.

Additionally, as part of the agreement, the Company has provided
development services to Partners related to commercializing the
intellectual property. Fees paid to the Company for these
development services totaled $274,000 for the year ended
December 31, 2000 and were included as a reduction in
research and development expenses. No amounts were paid in 2001
and 2002.

In 2001, Partners entered into a contract with the Company for
the license of a new software application and related
professional services. This new software application consisted
of an upgrade to an existing software application that Partners
had licensed from Transition Systems, Inc, an entity that was
acquired by the Company in December 1998. Under this new
contract, Partners paid the Company $954,000 in 2001 and
$1,032,000 in 2002. As of December 31, 2002, Partners owed
the Company $98,000 related to this new contract. Jay Pieper, a
director of the Company, is Vice President of Corporate
Development and Treasury Affairs for Partners. Partners was not
affiliated with the Company at the time of the negotiation of
the Partners license from Transition Systems, Inc.

53



---



##### 



ECLIPSYS CORPORATION

SCHEDULE II  VALUATION OF QUALIFYING ACCOUNTS


For Each of the Three Years in the Period Ended
December 31, 2002





|                  |                                            |            |   |           |  |            |   |            |  |  |   |         |   |  |   |        | 
|----------------- | ------------------------------------------ | ---------- | - | --------- |  | ---------- | - | ---------- |  |  | - | ------- | - |  | - | ------ | 
|                  |                                            | Balance at |   |           |  |            |   | Balance at
|                  |                                            | Beginning  |   |           |  |            |   | End of    
|                  |                                            | of Period  |   | Additions |  | Write-offs |   | Period    
|                 
|                 
|December 31, 2000 |                                            |            |   |           |  |            |   |            |  |  |   |         |   |  |   |       
|                 
|                 
|                 
|                 
|                  | Allowance for doubtful accounts            |            | $ | 3,692     |  |            | $ | 13,255     |  |  | $ | (11,291 | ) |  | $ | 5,656  | 
|                 
|                 
|                 
|                 
|                  | Valuation allowance for deferred tax asset |            |   | 70,826    |  |            |   | 11,991     |  |  |   |         |   |  |   | 82,817 | 
|                 
|                 
|                 
|                 
|                 
|December 31, 2001 |                                            |            |   |           |  |            |   |            |  |  |   |         |   |  |   |       
|                 
|                 
|                 
|                 
|                  | Allowance for doubtful accounts            |            |   | 5,656     |  |            |   | 4,305      |  |  |   | (4,389  | ) |  |   | 5,572  | 
|                 
|                 
|                 
|                 
|                  | Valuation allowance for deferred tax asset |            |   | 82,817    |  |            |   | 191        |  |  |   |         |   |  |   | 83,008 | 
|                 
|                 
|                 
|                 
|                 
|December 31, 2002 |                                            |            |   |           |  |            |   |            |  |  |   |         |   |  |   |       
|                 
|                 
|                 
|                 
|                  | Allowance for doubtful accounts            |            |   | 5,572     |  |            |   | 3,533      |  |  |   | (5,693  | ) |  |   | 3,412  | 
|                 
|                 
|                 
|                 
|                  | Valuation allowance for deferred tax asset |            |   | 83,008    |  |            |   | 11,256     |  |  |   |         |   |  |   | 94,264 | 
|                 

54



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##### 



Quarterly Results (Unaudited)

The following table presents quarterly statement of operations
data for each of the eight quarters in the years ended
December 31, 2001 and 2002. The statement of operations
data for the quarters are unaudited, and in the opinion of
management, include all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial
data for such periods. Additionally, the statement of operations
data is derived from, and are qualified by reference to,
Eclipsys audited financial statements, which appear
elsewhere in this document.

ECLIPSYS CORPORATION

For the Year Ended December 31, 2001


(In thousands, except per share data)


|                                    |  |         |        |         |  |         |        |         |  |      |        |  |  |   |        |  |  |   |         | 
|----------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                    |  | First   |        | Second  |  | Third   |        | Fourth  |  |     
|                                    |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Year
|                                    |  |         |        |         |  |         |        |         |  |     
|Revenues                            |  | $       | 55,351 |         |  | $       | 59,995 |         |  | $    | 63,096 |  |  | $ | 61,235 |  |  | $ | 239,676 | 
|                                   
|                                   
|                                   
|                                   
|Gross profit margin                 |  |         | 21,290 |         |  |         | 25,639 |         |  |      | 28,496 |  |  |   | 26,426 |  |  |   | 101,850 | 
|                                   
|                                   
|                                   
|                                   
|Net (loss) income                   |  |         | (3,176 | )       |  |         | 1,491  |         |  |      | 3,965  |  |  |   | 2,128  |  |  |   | 4,408   | 
|                                   
|                                   
|                                   
|                                   
|Basic net (loss) income per share   |  | $       | (0.08  | )       |  | $       | 0.03   |         |  | $    | 0.09   |  |  | $ | 0.05   |  |  | $ | 0.10    | 
|                                   
|                                   
|                                   
|                                   
|Diluted net (loss) income per share |  | $       | (0.08  | )       |  | $       | 0.03   |         |  | $    | 0.08   |  |  | $ | 0.05   |  |  | $ | 0.09    | 

ECLIPSYS CORPORATION

For the Year Ended December 31, 2002


(In thousands, except per share data)


|                                    |  |         |        |         |  |         |        |         |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |  | First   |        | Second  |  | Third   |        | Fourth  |  |     
|                                    |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Year
|                                    |  |         |        |         |  |         |        |         |  |     
|Revenues                            |  | $       | 62,819 |         |  | $       | 54,252 |         |  | $    | 47,549  |   |  | $ | 53,448  |   |  | $ | 218,068 |  
|                                   
|                                   
|                                   
|                                   
|Gross profit margin                 |  |         | 30,507 |         |  |         | 23,626 |         |  |      | 14,146  |   |  |   | 18,474  |   |  |   | 86,754  |  
|                                   
|                                   
|                                   
|                                   
|Net income (loss)                   |  |         | 5,309  |         |  |         | (3,047 | )       |  |      | (17,174 | ) |  |   | (14,852 | ) |  |   | (29,763 | )
|                                   
|                                   
|                                   
|                                   
|Basic net (loss) income per share   |  | $       | 0.12   |         |  | $       | (0.07  | )       |  | $    | (0.38   | ) |  | $ | (0.33   | ) |  | $ | (0.67   | )
|                                   
|                                   
|                                   
|                                   
|Diluted net (loss) income per share |  | $       | 0.11   |         |  | $       | (0.07  | )       |  | $    | (0.38   | ) |  | $ | (0.33   | ) |  | $ | (0.67   | )



|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure

Not applicable.

55



---



##### 



Part III

Certain information required by Part III of Form 10-K
will be contained in the Companys definitive Proxy
Statement to be used in connection with the annual meeting of
stockholders for the year 2003, and is incorporated herein by
reference to this Form 10-K Annual Report:



|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

Information regarding directors will be set forth in the proxy
statement for the annual meeting of stockholders for the year
2003 and is incorporated herein by reference. Information
regarding our executive officers is set forth under the caption
Executive Officers of the Registrant appearing at
the end of Part I, above.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information regarding executive compensation will be set forth
in the proxy statement for the annual meeting of stockholders
for the year 2003 and is incorporated herein by reference.



|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management

Information regarding security ownership of certain beneficial
owners and management will be set forth in the proxy statement
for the annual meeting of stockholders for the year 2003 and is
incorporated herein by reference.

The following table gives information about the common stock
that may be issued under all the Companys existing equity
compensation plans as of December 31, 2002.

|                                                               |       |                            |           |                      |  |                           |       |  |  |  |           |           | 
|-------------------------------------------------------------- | ----- | -------------------------- | --------- | -------------------- |  | ------------------------- | ----- |  |  |  | --------- | --------- | 
|                                                               |       | Number of securities to be |           | Weighted-average     |  | Number of securities     
|                                                               |       | issued upon exercise of    |           | exercise price of    |  | remaining available for  
|                                                               |       | outstanding options,       |           | outstanding options, |  | future issuance under    
|Plan category                                                  |       | warrants and rights        |           | warrants and rights  |  | equity compensation plans
|                                                               |       |                            |           |                      |  |                          
|Equity compensation plans approved by
    security holders     |       |                            | 9,020,711 |                      |  | $                         | 11.23 |  |  |  | 2,194,120 |          
|                                                              
|                                                              
|                                                              
|                                                              
|Equity compensation plans not approved by
    security holders |       |                            |           |                      |  |                           |       |  |  |  |           |          
|                                                               |       |                            |           |                      |  |                           |       |  |  |  |           |          
|                                                               | Total |                            |           | 9,020,711            |  |                           |       |  |  |  |           | 2,194,120 | 
|                                                               |       |                            |           |                      |  |                           |       |  |  |  |           |          



|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions

Information regarding certain relationships and related
transactions will be set forth in the proxy statement for the
annual meeting of stockholders for the year 2003 and is
incorporated herein by reference.



|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based on their evaluation of the Companys disclosure
    controls and procedures (as defined in Rules 13a-14(c) and
    15d-14(c) under the Securities Exchange Act of 1934) as of a
    date within 90 days of the filing date of this Annual
    Report on Form 10-K, the Companys chief executive
    officer and chief financial officer have concluded that the
    Companys disclosure controls and procedures are designed
    to ensure that information required to be disclosed by the
    Company in the reports that it files or submits under the
    Exchange Act is recorded, processed, summarized and reported
    within the time periods specified in the SECs rules and
    forms and are operating in an effective manner.

(b) Changes in internal controls.



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There were no significant changes in the Companys internal
    controls or in other factors that could significantly affect
    these controls subsequent to the date of their most recent
    evaluation.

56



---



##### 



Part IV



|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules, and Reports on
    Form 8-K

(a) The following documents are filed as part of this
report:



| |    |                                                                                     
| | -- | ------------------------------------------------------------------------------------
| | 1. | Consolidated Financial Statements included in Item 8 of
    this report on Form 10-K
|
| | 2. | Financial Statement Schedules included in Item 8 of this
    report on Form 10-K    
|
| | 3. | The following exhibits are included in this report:                                 

| |      |          |  |                                                                                                                                                                                                                                                                         
| | ---- | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1  | *        |  | Agreement and Plan of Merger dated as of
    October 29, 1998 by and among the Registrant, Exercise
    Acquisition Corp. and Transition Systems, Inc.                                                                                                                  
| | 2.2  | **       |  | Agreement of Merger among Alltel Healthcare
    Information Services, Inc., Alltel Information Services, Inc.,
    Eclipsys Corporation and Eclipsys Solutions Corp. dated as of
    January 24, 1997                                                                   
| | 2.3  | **       |  | Amended and Restated Stock Purchase Agreement
    among Eclipsys Corporation, SDK Medical Computer Services
    Corporation and the Selling Stockholders listed therein dated
    June 26, 1997                                                                         
| | 2.4  | **       |  | Asset Purchase Agreement by and among Motorola,
    Inc. Eclipsys Corporation and Emtek Healthcare Corporation dated
    January 30, 1998                                                                                                                               
| | 2.5  | ****     |  | Agreement and Plan of Merger dated as of
    February 5, 1999, by and among Eclipsys PCS and Sub                                                                                                                                                                        
| | 2.6  | ****     |  | Escrow Agreement dated as of February 17,
    1999, by and among Eclipsys, Sub, PCS and the PCS Stockholders
    and Noteholders                                                                                                                                        
| | 2.7  | *****    |  | Stock Purchase and Sale Agreement dated as of
    March 6, 1999 by and among Sun Gard Data Systems Inc., Sun
    Gard Investment Ventures, Inc., Med Data Systems, Inc., Intelus
    Corporation, and Eclipsys Corporation and Eclipsys Solutions Corp                  
| | 2.8  | ******   |  | Agreement and Plan of Merger dated as of
    June 17, 1999, by and among Eclipsys Corporation, Eclipsys
    Merger Corp., MSI Solutions, Inc., MSI Integrated Services,
    Inc., Anna L. Bean, Michael R. Cote, Robert J. Feldman and the
    1997 Feldman Family Trust
| | 2.9  | *******  |  | Asset Purchase Agreement by and among Quadramed
    Corporation, Eclipsys Corporation and Med Data Systems, Inc.
    dated July 1, 1999                                                                                                                                 
| | 3.1  | ***      |  | Third Amended and Restated Certificate of
    Incorporation of the Registrant                                                                                                                                                                                           
| | 3.2  | **       |  | Third Amended and Restated Bylaws of the
    Registrant                                                                                                                                                                                                                 
| | 3.3  | ******** |  | Certificate of Designation of Series A
    Junior Participating Preferred                                                                                                                                                                                               
| | 4.1  | **       |  | Specimen certificate for shares of Common Stock                                                                                                                                                                                                                         
| | 4.2  | ******** |  | Rights Agreement, dated July 26, 2000, by
    and between Eclipsys Corporation and Fleet National Bank, as
    Rights Agent                                                                                                                                             
| | 10.1 | **       |  | Second Amended and Restated Registration Rights
    Agreement                                                                                                                                                                                                           
| | 10.2 | **       |  | Second Amended and Restated Stockholders Agreement                                                                                                                                                                                                                      
| | 10.5 | **      |  | Information Systems Technology License Agreement,
    dated as of May 3, 1996, by and among Partners Healthcare
    System, Inc. and Integrated Healthcare Solutions, Inc.                                                                                              
| | 10.6 | **       |  | Preferred Stock Purchase Agreement by and among
    Eclipsys Corporation, General Atlantic Partners 47, L.P. and GAP
    Coinvestment Partners, L.P. dated February 4, 1998                                                                                             
| | 10.7 | **       |  | 1996 Stock Plan                                                                                                                                                                                                                                                         

57



---



##### 



| |       |           |  |                                                                                                                                       
| | ----- | --------- |  | --------------------------------------------------------------------------------------------------------------------------------------
| | 10.8  | ********* |  | Amended and Restated 1998 Stock Incentive Plan                                                                                        
| | 10.9  | ********* |  | Second Amended and Restated 1998 Employee Stock
    Purchase Plan                                                                     
| | 10.13 | **        |  | Settlement of Claims Agreement, dated as of
    March 13, 1998, between ALLTEL Information Services, Inc.
    and Eclipsys Corporation
| | 10.14 | ********* |  | Amended and Restated 1999 Stock Incentive Plan,
    as amended                                                                        
| | 10.15 | ********* |  | Amended and Restated 2000 Stock Incentive Plan                                                                                        
| | 10.16 | ********* |  | Employment Agreement for Paul L. Ruflin                                                                                               
| | 10.17 |           |  | Resignation Letter from Harvey J. Wilson                                                                                              
| | 21    | ********* |  | Subsidiaries of the Registrant                                                                                                        
| | 23    |           |  | Consent of PricewaterhouseCoopers LLP                                                                                                 
| | 99.1  |           |  | Certification Pursuant to 18 U.S.C.
    Section 1350                                                                                  






|           |                                                                                                                                                                
|---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|          | Confidential treatment granted on August 6, 1998 in
    connection with the Registrants initial public offering                                               
|          
|*          | Incorporated by reference to the Joint Proxy Statement/
    Prospectus included in the Registrants Registration
    Statement on Form S-4 (File No. 333-68353)
|          
|**         | Incorporated by reference to the Registrants Registration
    Statement on Form S-1, as amended (File No. 333-50781)                                          
|          
|***        | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the quarter ended June 30, 1998
    (File No. 000-24539)                   
|          
|****       | Incorporated by reference to the Registrants Current
    Report on Form 8-K dated March 3, 1999 (File
    No. 000-24539)                                      
|          
|******     | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the quarter ended March 31, 1999
    (File No. 000-24539)                  
|          
|*******    | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the quarter ended June 30, 1999
    (File No. 000-24539)                   
|          
|********   | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the quarter ended September 30,
    1999 (File No. 000-24539)              
|          
|********   | Incorporated by reference to the Registrants Current
    Report on Form 8-K dated August 8, 2000 (File
    No. 000-24539)                                     
|          
|*********  | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2002 (File No. 000-24539)                   
|          
|********** | Incorporated by reference to Exhibit 21 of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2001 (File No. 000-24539)       

(b) Reports on Form 8-K.

None.

58



---



##### 



Signatures

Pursuant to the requirements of Section 13 or 15(d) 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.

|                                         |  |                                                                                                 |  |               
|---------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                                           |  | Date          
|                                         |  |                                                                                                 |  |               
|/s/ PAUL L. RUFLINPaul L. Ruflin         |  | President, Chief Executive Officer, (Principal
    Executive Officer)                           |  | March 28, 2003
|                                        
|/s/ ROBERT J. COLLETTIRobert J. Colletti |  | Senior Vice President, Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | March 28, 2003
|                                        
|/s/ STEVEN A. DENNINGSteven A. Denning   |  | Director                                                                                        |  | March 28, 2003
|                                        
|/s/ G. FRED DIBONAG. Fred Dibona         |  | Director                                                                                        |  | March 28, 2003
|                                        
|/s/ EUGENE V. FIFEEugene V. Fife         |  | Director                                                                                        |  | March 28, 2003
|                                        
|/s/ BRADEN KELLYBraden Kelly             |  | Director                                                                                        |  | March 28, 2003
|                                        
|/s/ JAY B. PIEPERJay B. Pieper           |  | Director                                                                                        |  | March 28, 2003
|                                        
|/s/ HARVEY J. WILSONHarvey J. Wilson     |  | Director                                                                                        |  | March 28, 2003

59



---



##### 



CERTIFICATIONS

I, Paul L. Ruflin, certify that:

1. I have reviewed this annual report on Form 10-K of
Eclipsys Corporation;

2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and
other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;

4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure
    that material information relating to the registrant, including
    its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which
    this annual report is being prepared;
|
| | b) evaluated the effectiveness of the registrants
    disclosure controls and procedures as of a date within
    90 days prior to the filing date of this annual report (the
    Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our conclusions about the
    effectiveness of the disclosure controls and procedures based on
    our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
    internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that involves management
    or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying officers and I
have indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Dated: March 28, 2003

| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | /s/ PAUL L. RUFLIN 
     _________________________________________ 
     Paul L. Ruflin
| | Chief Executive Officer                                                                

60



---



##### 



CERTIFICATIONS

I, Robert J. Colletti, certify that:

1. I have reviewed this annual report on Form 10-K of
Eclipsys Corporation;

2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and
other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;

4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure
    that material information relating to the registrant, including
    its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which
    this annual report is being prepared;
|
| | b) evaluated the effectiveness of the registrants
    disclosure controls and procedures as of a date within
    90 days prior to the filing date of this annual report (the
    Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our conclusions about the
    effectiveness of the disclosure controls and procedures based on
    our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
    internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that involves management
    or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying officers and I
have indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Dated: March 28, 2003

| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | /s/ ROBERT J. COLLETTI 
     _________________________________________ 
     Robert J. Colletti
| | Chief Financial Officer                                                                        

61