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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, 2001 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: Common Stock, $.01 par value



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

The aggregate market value of the voting stock (Common Stock)
held by non-affiliates of the registrant as of March 19,
2002 based upon the closing price of the Common Stock on the
Nasdaq National Market for such date, was $540,505,316.

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, 2002   
|                             |  |                  
|Common Stock, $.01 par value |  |                   | 44,521,403 | 

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 2002 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. For this
purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking
statements. Without limiting the 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/ Risk Factors, 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 software and services to help healthcare organizations
improve the quality of care and the level of patient
satisfaction, while reducing costs and enhancing revenues.

We believe our mission of better healthcare through
knowledge aligns with our customers objectives, and
our software solutions help them improve 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 improve the
effectiveness of their operations and the quality of care as
measured by clinical outcomes.

Our software and services provide comprehensive functionality to
help healthcare organizations solve the clinical problems and
business issues they face and achieve balanced outcomes through
an appropriate and sustainable combination of clinical quality,
resource utilization 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. Our software
applications are available to our customers for implementation
in-house or through our remote hosting service, and are designed
to work in a variety of healthcare settings.

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
service 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 primarily to
large healthcare organizations, particularly academic medical
centers. We have one or more of our products installed or being
installed in over 1,500 facilities worldwide. Of 2,800 U.S.
hospitals with over 200 beds, more than 50% are Eclipsys
customers. Of the 16 top-ranked hospitals in the July 23,
2001 issue of U.S. News & World Report, all 16 use
one or more of our products. Additionally, of the 50 largest
integrated delivery networks, 37, or 74%, use one or more
Eclipsys products.

Challenges and Compliance Pressures in the Healthcare
Industry

Institute of Medicine.In 1999 and 2001 reports, the
Institute of Medicine, or 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. The IOM identifies
medication and pharmacy errors as significant causes of deaths
and adverse events.

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The Leapfrog Group. The 1999 IOM Report resulted in the
formation of The Leapfrog Group, a consortium of more than 90
Fortune 500 companies and other large private and public
healthcare purchasers founded by the Business Roundtable. The
Leapfrog project is steering its members employees to base
their purchase of healthcare on principles encouraging more
stringent patient-safety measures including the use of
computerized physician order entry systems.

The IOM and The Leapfrog Group are leveraging their respective
influence to impact the deployment of advanced clinical
solutions that will help reduce adverse drug events and adverse
medical errors. Coupled with demands from consumers, this
influence is also spurring new government legislation. For
example, California has passed legislation mandating the
eventual adoption of information technology aimed at avoiding
adverse medical errors.

Health Insurance Portability and Accountability Act (HIPAA).Under this federal legislation, originally adopted in 1996,
the healthcare industry must implement standards for the
electronic transmission of administration and financial data. In
early 2002, President George W. Bush signed legislation
delaying implementation of HIPAA transaction standards until
October 2003. We believe HIPAAs privacy regulations are
extensive and designed to safeguard confidential patient
information by controlling access to it and requiring audit
trails of its use. We believe these requirements will
significantly impact the structure and nature of healthcare
information systems. HIPAAs establishment of standard
transaction sets may mean electronic data interface direct
connections will eliminate many of todays clearing
operations.

Joint Commission on Accreditation of Healthcare
Organizations.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.

Market Factor Changes

We believe the future of healthcare will be shaped by a variety
of changes, which may place burdens on healthcare organizations.
This would likely lead healthcare information technology vendors
to produce systems that analyze and process data more
effectively and produce the knowledge these healthcare providers
need to respond to these changes and challenges. Some of the
factors that may be starting to have an impact on the pace and
type of changes in healthcare include:

Changing population.Older, more computer-literate
consumers may become more actively involved in choosing their
providers and their care and treatment plans and 
with increased access to it, may be more concerned about how
their own medical data is used.

Healthcare at a distance.Remote monitoring, remote
compliance monitoring and telemedicine may generate masses of
data that must be analyzed and processed before it can be useful
to the clinician at the point-of-decision.

Workflow driven staffing changes.One possible example of
this type of change may be the proliferation of data-gathering
and processing tools that increase nursing productivity and
efficiency so they can spend more time with patients. Another
example could be that hospital beds will have monitors
constantly connected to computer-based sensors that collect and
record details of the patients status in the Computerized
Patient Record.

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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 solutions assist healthcare organizations in achieving
balanced clinical and financial outcomes through an appropriate
and sustainable combination of clinical quality, resource
utilization and patient satisfaction. They provide comprehensive
functionality to focus on solving the business issues healthcare
organizations face.

Our solutions are designed to:



| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                 
|
| |  | offer comprehensive services that help our customers improve
	workflow processes and implement best practices within their
	organizations;                                                                               
|
| |  | provide tools allowing 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 speedy, cost-effective implementations of in-house
	systems and 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 a
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. We have been
enhancing our products, for instance, to take advantage of its
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.

Provide Flexible Product Options. We intend to continue
to offer our customers flexible product and product-delivery
options either in-house or remote hosted, that 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. Our products are installed or
being installed in more than 1,500 facilities, with most of
these facilities having only one or two of our software
applications. We intend to continue to market our

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Employ a Targeted Marketing Approach. We intend to
continue to target healthcare organizations that recognize the
need to improve patient safety, particularly academic medical
centers and integrated delivery networks. We believe that these
entities are the first to adopt new technology. In addition, we
believe that physicians are becoming increasingly involved in
the process of selecting information technology. We believe that
our clinically oriented products and our inclusion of physicians
in the product design process provide us with an advantage as we
compete for business. We will also continue to leverage the
extensive industry experience of our senior management and sales
force in this effort.

Products

Our products perform the 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
in-house 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 both through wireless devices
within a healthcare facility and over the Internet. The
following table summarizes our product offerings:

|                                                    |  |                                                                                                                                                                                                                                                                        
|--------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                   
|                                                   
|Product                                             |  | Primary Functions                                                                                                                                                                                                                                                      
|                                                   
|                                                   
|Sunrise Clinical Manager                            |  | - Computerized 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                                                                                                                                                                  
|                                                   
|Sunrise Enterprise Application Integrator
	(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                                                  

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

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
	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 payor. Aging reports accurately reflect each
	payor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;    

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

Sunrise Enterprise Application Integrator (eWebIT).
Sunrise Enterprise Application Integrator 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. Sunrise Enterprise Application
Integrators product suite includes tools to achieve this
integration, primarily through the use of Web-based integration
technologies. Sunrise Enterprise Application Integrator 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.                             

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| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 price
	rates.
|
| |  | Business Solutions Consulting  Our
	business solutions services aid our customers in achieving
	improved return on investment through their use of information
	obtained from our products. 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.                                                                                                                                               

Technology

We have defined a single, unifying web-based architecture for
our products. We have continually enhanced and expanded our
architecture and it is engineered to achieve the following
objectives:



| |   |                                         
| | - | ----------------------------------------
| |  | to remain open and modular;             
|
| |  | to be scalable and flexible;            
|
| |  | to increase speed of implementation; and
|
| |  | to reduce the total cost of ownership.  

Our architecture also features a high-performance rules engine
to implement a sizable portion of the business logic for our
products. These rules guide clinical and business workflow,
clinical decision support for order entry, clinical and
financial event monitoring and screen logic, enabling structured
development of new applications while maintaining consistency
across applications. Because the rules are managed and stored as
data, customers are able to update the business logic without
modifying and distributing new code. This enables customers to
reduce programming expenses, while enhancing the flexibility of
our applications and facilitating their rapid adoption.

Our Web-based architecture uses advanced technology to maintain
security both across Internet connections and within an
organizations internal network. This ability to support
secure communications and incorporate reliable protocols for
authenticating users and services enhances the ability of an
organization to maintain the confidentiality of patient
information.

We are in the process of enhancing each software component to
take advantage of our Web-based architecture, which we believe
will facilitate integration, enhance automation, increase
reliability and improve security and workflow processes. Our
architecture draws on a Web-based architecture to integrate
business logic with an intuitive graphical user interface,
thereby enhancing automation and reducing the cost of ownership.
In October 2001, we announced SunriseXAtm, which is
our next generation product and service offering.
SunriseXAtm will be a Web-based solution that will
build upon the knowledge-driven, work-flow enhancing components
of our Sunrise suites. SunriseXAtms extended
architecture is built on Microsoft

9



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##### 



tm




| |   |                                          
| | - | -----------------------------------------
| |  | Modular and component-based architecture;
|
| |  | Standards-based;                         
|
| |  | Internet-based; and                      
|
| |  | Intrinsic integration.                   

Along with the change in architecture and platform,
SunriseXAtm is designed to address the core processes
in the healthcare organization. We believe core processes
include the care, patient-flow, revenue administration and
consumer relations processes.

We expect our products to be released on the .NET infrastructure
over the course of the next 18 months.

Customers, Marketing and Sales

Our marketing and sales efforts focus on large health care
organizations, primarily 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., Quadramed, IDX
Systems Corp. and Siemens Medical Services Health Services
Corporation, formerly Shared Medical Systems. 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.

10



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Employees

As of December 31, 2001, we employed 1,392 people,
including:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | 446 in field operations;                                                   
|
| |  | 188 in sales, marketing and account management;                            
|
| |  | 645 in research, development and product delivery; and                     
|
| |  | 113 in finance, human resources, legal and other administrative
	functions.

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.

Risk Factors

You should carefully consider the following risk factors and all
other information contained in this annual report before
investing in our common stock. Investing in our common stock
involves a high degree of risk. 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 1990s 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

Prior to 2001, we incurred net losses in each year since our
inception, including net losses of $126.3 million in 1997,
$35.3 million in 1998, $9.4 million in 1999 and
$34.0 million in 2000. Although we had net income in 2001,
we had a loss from operations of $1.6 million. We cannot
predict whether or not we will continue to be profitable in the
future.

11



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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 quarterly
operating results may continue to fluctuate due to a number of
factors, including:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | the timing, size and complexity of our product sales and
	implementations;                      
|
| |  | overall demand for healthcare information technology;                                           
|
| |  | the financial condition of our customers and potential customers;                               
|
| |  | market acceptance of new services, products and product
	enhancements by us and our competitors;
|
| |  | product and price competition;                                                                  
|
| |  | 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 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, 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, under which revenue is recognized on a
percentage-of-completion basis. For these contracts, the revenue
recognition will depend upon a variety of factors including the
availability of implementation personnel, the implementation
schedule and the complexity of the implementation process.
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.,
Quadramed, IDX Systems Corp. 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

12



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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, Drug, and Cosmetic, or FDC Act. If the FDA chooses to
regulate any of our products as medical devices, it can impose
extensive requirements upon us, including the following:



| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | requiring us to seek FDA clearance of a pre-market notification
	submission demonstrating that the product is substantially
	equivalent to a device already legally marketed, or to obtain
	FDA approval of a pre-market approval application establishing
	the safety and effectiveness of the product;
|
| |  | requiring us to comply with rigorous regulations governing the
	pre-clinical and clinical testing, manufacture, distribution,
	labeling and promotion of medical devices; and                                                                                                                           
|
| |  | requiring us to comply with the FDC Acts general controls,
	including establishment registration, device listing, compliance
	with good manufacturing practices, reporting of specified device
	malfunctions and adverse device events.                                                                

If we fail to comply with applicable requirements, the FDA could
respond by imposing fines, injunctions or civil penalties,
requiring recalls or product corrections, suspending production,
refusing to grant pre-market clearance or approval of products,
withdrawing clearances and approvals, and initiating criminal
prosecution. Any final FDA policy governing computer products,
once issued, may increase the cost and time to market of new or
existing products or may prevent us from marketing our products.

New and potential federal regulations relating to patient
confidentiality could depress the demand for our products and
impose significant product redesign costs on us

State and federal laws regulate the confidentiality of patient
records and the circumstances under which those records may be
released. These regulations govern both the disclosure and use
of confidential patient medical record information and may
require the users of such information to implement specified
security measures. Regulations governing electronic health data
transmissions may change rapidly and be unclear or difficult to
apply.

On August 22, 1996, former President Clinton signed the
Health Insurance Portability and Accountability Act of 1996, or
HIPAA. This legislation required the Secretary of Health and
Human Services, or HHS, to adopt national standards for some
types of electronic health information transactions and the data
elements used in those transactions, adopt standards to ensure
the integrity and confidentiality of health information, and
establish a schedule for implementing national health data
privacy legislation or regulations. In December 2000, HHS
published its final health data privacy regulations, which will
take effect in December 2002 and with which healthcare
organizations will have to comply by October 2003. These
regulations restrict the use and disclosure of personally
identifiable health information without the prior informed
consent of the patient. HHS has not yet issued final rules on
most of the other topics under HIPAA and has yet to issue
proposed rules on some topics. The final rules, if and when
issued, may differ from the proposed rules. We cannot predict
the potential impact of the rules that have not yet been
proposed or any other rules that might be finally adopted
instead of the proposed rules. In addition, other federal and/or
state privacy legislation may be enacted at any time.

These laws or regulations, when adopted, could restrict the
ability of our customers to obtain, use or disseminate patient
information. This could adversely affect demand for our products
and force us to re-design our products in order to meet the
requirements of any new regulations. We have included security
features in our products that are intended to protect the
privacy and integrity of patient data. Despite the existence of
these security features, these products may be vulnerable to
break-ins and similar disruptive problems that

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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. Despite
this precaution, 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

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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 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. We also have licenses from Premier,
Inc. for comparative database systems and other software
components and clinical benchmarking data. Most of these
licenses expire within one to four 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, 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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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.

Set forth below is certain information regarding the
Companys executive officers:

Executive Officers of the Registrant

|                        |  |     |    |       |  |                                                                
|----------------------- |  | --- | -- | ----- |  | ---------------------------------------------------------------
|Name                    |  | Age |    | Title
|                        |  |     |    |      
|Harvey J. Wilson        |  |     | 63 |       |  | Chief Executive Officer and Chairman of the Board
	of Directors
|                       
|                       
|                       
|                       
|James E. Hall           |  |     | 68 |       |  | President                                                      
|                       
|                       
|                       
|                       
|John T. Patton Jr.      |  |     | 52 |       |  | Executive Vice President and Chief Operating
	Officer          
|                       
|                       
|                       
|                       
|Robert J. Colletti      |  |     | 43 |       |  | Senior Vice President, Chief Financial Officer
	and Treasurer  
|                       
|                       
|                       
|                       
|T. Jack Risenhoover, II |  |     | 36 |       |  | Senior Vice President and Secretary                            

Harvey J. Wilson, our founder, served as our
president, chief executive officer and chairman of the board of
directors since we were formed in December 1995 until
February 1999, and continues to serve as chief

16



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James E. Hallhas served as our president since
February 1999. Mr. Hall also served as chief operating
officer from January 1997 to April 2001. From
August 1995 to January 1997, Mr. Hall was senior
vice president of sales and marketing for Multimedia Medical
Systems, Inc., a clinical information systems company.

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 development. 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. Prior to joining us, Mr. Patton worked at SMS
for 21 years.

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 our
senior vice president and secretary since March 2000. He was
vice president and secretary from February 1997 through
March 2000. Mr. Risenhoover also served as general counsel
from February 1997 through March 2002. From May 1994 to January
1997, Mr. Risenhoover was general counsel for The Right
Angle, Inc., a marketing firm.

Item 2.     Properties

In February of 2002, we consolidated our corporate offices into
a single building 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 Clara,
California; Santa Rosa, California; Alpharetta, Georgia;
Atlanta, Georgia; Oak Brook, Illinois; 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

We are involved, from time to time, in routine litigation that
arises in the ordinary course of business, but are not currently
involved in any litigation that we believe could reasonably be
expected to have a material adverse effect on our business or
financial condition.

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 2001.

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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
|                                 |  |      |       |    
|2000                             |  |      |       |     |  |   |       | 
|                                 |  |      |       |     |  |   |       | 
|First quarter                    |  | $    | 31.06 |     |  | $ | 16.50 | 
|                                
|                                
|                                
|                                
|Second quarter                   |  | $    | 20.50 |     |  | $ | 6.44  | 
|                                
|                                
|                                
|                                
|Third quarter                    |  | $    | 17.00 |     |  | $ | 7.08  | 
|                                
|                                
|                                
|                                
|Fourth quarter                   |  | $    | 28.00 |     |  | $ | 14.13 | 
|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 (through March 19) |  | $    | 17.85 |     |  | $ | 14.29 | 

Holders of Record

On March 19, 2002, the last reported sale price of our
common stock on the Nasdaq National Market was $15.87 per share.
Also as of March 19, 2002, we had approximately 161
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.

18



---



##### 



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 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, 1999, 2000 and 2001 and the balance sheet data
at December 31, 2000 and 2001 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, 1997 and 1998 and the balance sheet data at
December 31, 1997, 1998 and 1999 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 detail in Item 7  Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Historical results are not necessarily indicative of
results that you may expect for any future period.

|                                                                   |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |         |  
|------------------------------------------------------------------ | ------------------------------------------------ | ----------------------------------------------- | ---------- | ------- |  | ---- | ---------- | ------- |  | ---- | ---------- | ------- |  | - | ---------- | ------- |  | - | ---------- | ------- | -
|                                                                   |                                                  |                                                
|                                                                   |                                                  | Year Ended December 31,                        
|                                                                   |                                                  | (In thousands, except share and per share data)
|                                                                   |                                                  |                                                
|                                                                   |                                                  | 1997                                            |            | 1998    |  | 1999 |            | 2000    |  | 2001
|                                                                   |                                                  |                                                 |            |         |  |      |            |         |  |     
|Statement of Operations Data:                                      |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Total revenues                                                     |                                                  | $                                               | 147,328    |         |  | $    | 182,458    |         |  | $    | 249,327    |         |  | $ | 216,538    |         |  | $ | 236,994    |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Costs and expenses:                                                |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Cost of revenues                                 |                                                 |            | 95,626  |  |      |            | 106,909 |  |      |            | 145,918 |  |   |            | 149,259 |  |   |            | 133,936 |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Sales and marketing                              |                                                 |            | 22,902  |  |      |            | 29,651  |  |      |            | 36,316  |  |   |            | 40,143  |  |   |            | 42,698  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Research and development                         |                                                 |            | 21,369  |  |      |            | 37,139  |  |      |            | 44,151  |  |   |            | 37,382  |  |   |            | 37,034  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | General and administrative                       |                                                 |            | 10,179  |  |      |            | 11,107  |  |      |            | 11,426  |  |   |            | 10,380  |  |   |            | 10,278  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Depreciation and amortization                    |                                                 |            | 11,514  |  |      |            | 11,981  |  |      |            | 15,415  |  |   |            | 14,906  |  |   |            | 15,108  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Write-down of investment                         |                                                 |            |        |  |      |            | 4,778   |  |      |            |        |  |   |            |        |  |   |            |        |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Write-off of in-process research and development |                                                 |            | 105,481 |  |      |            | 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                         |                                                 |            | 267,071 |  |      |            | 216,183 |  |      |            | 260,007 |  |   |            | 255,168 |  |   |            | 238,582 |  
|                                                                   |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |        
|Loss from operations                                               |                                                  |                                                 | (119,743   | )       |  |      | (33,725    | )       |  |      | (10,680    | )       |  |   | (38,630    | )       |  |   | (1,588     | )      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Interest income, net                             |                                                 |            | 1,511   |  |      |            | 2,701   |  |      |            | 1,235   |  |   |            | 1,075   |  |   |            | 5,996   |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Other income, net                                |                                                 |            |        |  |      |            |        |  |      |            |        |  |   |            | 3,596   |  |   |            |        |  
|                                                                   |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |        
|(Loss) income before income taxes                                  |                                                  |                                                 | (118,232   | )       |  |      | (31,024    | )       |  |      | (9,445     | )       |  |   | (33,959    | )       |  |   | 4,408      |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Provision for income taxes                                         |                                                  |                                                 | 8,096      |         |  |      | 4,252      |         |  |      |           |         |  |   |           |         |  |   |           |        
|                                                                   |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |        
|Net (loss) income                                                  |                                                  |                                                 | (126,328   | )       |  |      | (35,276    | )       |  |      | (9,445     | )       |  |   | (33,959    | )       |  |   | 4,408      |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Dividends and accretion on mandatorily redeemable
	preferred stock |                                                  |                                                 | (5,850     | )       |  |      | (10,928    | )       |  |      |           |         |  |   |           |         |  |   |           |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Preferred stock conversion                                         |                                                  |                                                 | (3,105     | )       |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |        
|                                                                   |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |        
|Net (loss) income available to common
	stockholders                |                                                  | $                                               | (135,283   | )       |  | $    | (46,204    | )       |  | $    | (9,445     | )       |  | $ | (33,959    | )       |  | $ | 4,408      |        
|                                                                   |                                                  |                                                 |            |         |  |      |            |         |  |      |            |         |  |   |            |         |  |   |            |        
|Basic net (loss) income per common share                           |                                                  | $                                               | (8.60      | )       |  | $    | (1.95      | )       |  | $    | (0.27      | )       |  | $ | (0.92      | )       |  | $ | .10        |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Diluted net (loss) income per common share                         |                                                  | $                                               | (8.60      | )       |  | $    | (1.95      | )       |  | $    | (0.27      | )       |  | $ | (0.92      | )       |  | $ | .09        |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Basic weighted average common shares outstanding                   |                                                  |                                                 | 15,734,208 |         |  |      | 23,668,072 |         |  |      | 34,803,934 |         |  |   | 36,765,975 |         |  |   | 43,243,512 |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Diluted weighted average common shares outstanding                 |                                                  |                                                 | 15,734,208 |         |  |      | 23,668,072 |         |  |      | 34,803,934 |         |  |   | 36,765,975 |         |  |   | 46,795,361 |        

19



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##### 



|                                       |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                       |  |                        
|                                       |  | Year Ended December 31,
|                                       |  |                        
|                                       |  | (in thousands)         
|                                       |  |                        
|                                       |  | 1997                    |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                       |  |                         |         |      |  |      |         |      |  |     
|Balance Sheet Data:                    |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|                                      
|                                      
|                                      
|                                      
|Cash and cash equivalents              |  | $                       | 63,914  |      |  | $    | 37,983  |      |  | $    | 33,956  |  |  | $ | 20,799  |  |  | $ | 168,942 | 
|                                      
|                                      
|                                      
|                                      
|Working capital                        |  |                         | 34,870  |      |  |      | 25,724  |      |  |      | 33,103  |  |  |   | 17,985  |  |  |   | 174,951 | 
|                                      
|                                      
|                                      
|                                      
|Total assets                           |  |                         | 201,327 |      |  |      | 221,014 |      |  |      | 202,935 |  |  |   | 156,112 |  |  |   | 300,494 | 
|                                      
|                                      
|                                      
|                                      
|Debt, including current portion        |  |                         | 18,038  |      |  |      | 1,890   |      |  |      |        |  |  |   | 1,491   |  |  |   |        | 
|                                      
|                                      
|                                      
|                                      
|Mandatorily redeemable preferred stock |  |                         | 35,607  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|                                      
|                                      
|                                      
|                                      
|Stockholders equity                   |  |                         | 58,882  |      |  |      | 98,442  |      |  |      | 101,301 |  |  |   | 73,404  |  |  |   | 218,201 | 



|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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 statements reflect the financial results
of the purchased entities from the respective dates of the
purchase. For all transactions accounted for using the pooling
of interests method, our consolidated financial statements have
been retroactively restated as if the transactions had occurred
at the beginning of the earliest period presented. Our
acquisitions are summarized in the following table:

|                                                                                                                                   |  |      |          |            |  |  |          | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---------- |  |  | -------- | 
|                                                                                                                                   |  |      |          | 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,
2001, 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. 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 $1.1 million during 2001 for the sale of
products and services. During 2001, we earned revenues from
HEALTHvision of $2.6 million for hosting and other related
services and had accounts receivable due from HEALTHvision of
$1.0 million at December 31, 2001. Our Chairman and CEO
serves as co-chairman of HEALTHvision.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the United
States. Our significant accounting policies are discussed in
detail in Note 2 to the consolidated financial statements. Some
of these accounting policies as discussed below require
management

20



---



##### 





For contracts under which we recognize revenue 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. The
percentage-of-completion method is used when management
determines that services are essential to the functionality of
the software sold. 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 the
our operating results in the period of change.

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.

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.

We generally contract under multiple element arrangements which
include software license fees, hardware and services including
consulting, implementation 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
prescribed by the AICPA Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition,
With Respect of Certain Transactions. 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. 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.

Revenues from other software licenses, which are bundled with
long-term maintenance agreements, are recognized on a
straight-line basis over the contracted maintenance period.
Remote hosting and outsourcing services are marketed under
long-term agreements that are generally of five to ten years in
duration. Revenues under these arrangements are recognized
monthly as the work is performed. Revenues related to other
support

21



---



##### 





In 2000, in response to our customers desire for flexible
pricing and more comprehensive bundled information technology
solutions, we began to offer our customers the option of
purchasing our solutions under arrangements that bundled the
software license fees, including the right to future products
within the applicable suite, with the implementation,
maintenance, outsourcing, remote hosting, networking services
and other related services in one comprehensive contract that
provides for monthly or annual payments over the term of the
contract. We generally recognize revenues under these
arrangements on a monthly basis over the term of the contract,
which typically ranges from seven 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 acquired technology, capitalized software
development costs and a network services intangible asset.
Acquired technology is amortized over three to five years based
upon the estimated economic life of the underlying asset, and
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. 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, public relations,
trade shows, advertising and related communications.

Research and Development

Research and development expenses consist primarily of salaries,
benefits and related overhead associated with our design,
development and testing of new products. We capitalize internal
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 consist
of the value of ongoing customer relationships and goodwill, are
amortized based upon the estimated economic life of the asset at
the time of the acquisition, and will therefore vary among
acquisitions. 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. We
will conduct an impairment review of our remaining goodwill
balance on an annual basis.

22



---



##### 



Restructuring Charge

During 1999, we initiated and completed a restructuring of our
operations, which resulted in a charge totaling
$5.1 million related to the closing of duplicate facilities
and the termination of employees. During 2000, we initiated and
completed another 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, 2001, we had operating loss
carryforwards for federal income tax purposes of
$122.7 million. The carryforwards expire in varying amounts
through 2021 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, 1999, 2000
and 2001, because we believe it is more likely then not that we
will not realize our net deferred tax asset. Accordingly, we
have recorded a valuation allowance against our total net
deferred tax asset.

Results of Operations

2001 Compared to 2000

Total revenues for the year ended December 31, 2001
increased $20.5 million, or 9.5%, to $237.0 million, from
$216.5 million for 2000. Systems and services revenues
increased approximately $17.1 million, or 8.4%, to $220.5
million for the year ended December 31, 2001, from
$203.4 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 comprehensive offerings may bundle
software license fees (including the right to future products)
within the applicable suite, implementation, maintenance,
outsourcing, remote hosting, networking services and other
related services into comprehensive contracts that generally
provide for monthly or annual payments over the term of the
contracts. Revenues under these arrangements are recognized on a
monthly basis over the term of the contract, which typically
ranges from seven to ten years. 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 have helped shorten the
product development and implementation cycles while improving
quality in each area. Additionally, we continue to gain market
acceptance of our products. Our flagship product, Sunrise
Clinical Manager, which was generally released in 1999,
continues to gain market acceptance and has received strong
ratings by independent market research firms. We also have seen
increased activity in the revenue management area as hospitals
have begun to replace legacy systems. Finally, outside
organizations, including the Institute of Medicine, the Leapfrog
Group and various state and local governments have begun to
influence the industry with respect to patient safety
initiatives. Based on the above contributing factors we
experienced increased demand for our products and services in
2001.

Hardware revenues increased $3.4 million, or 26.0%, 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
$15.4 million, or 10.3%, to $133.9 million, or 56.5%
of total revenues, for the year ended December 31, 2001,
from $149.3 million, or 68.9% of total revenues, for 2000.
Cost of systems and services revenues decreased
$18.5 million, or 13.3%, to $120.4 million, or 54.6% of
systems and services revenues, for the year ended December 31,
2001, compared to $138.9 million, or 68.3% 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

23



---



##### 





Cost of hardware revenues increased $3.2 million, or 30.8%,
to $13.6 million, or 82.4% of hardware revenues, for the year
ended December 31, 2001, compared to $10.4 million, or
79.4% 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
6.5%, 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 18.5% to 18.0%. 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 costs associated with newly implemented
sales incentive programs. During the fourth quarter of 2001, we
initiated a program to significantly increase the size of our
sales and marketing organization. This program is expected to be
completed by the end of 2002 and will result in higher expenses.
The program was implemented to increase the sales presence of
our sales organization and enhance the market awareness of our
company and its products and services.

Research and development expenses were relatively flat at
$37.0 million, or 15.6% of total revenues, for the year
ended December 31, 2001, compared to $37.4 million, or
17.3% 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. In the fourth
quarter of 2001, we implemented a program to accelerate the
development of our products with respect to our
SunriseXAtm initiative, which among other things,
will migrate our products onto the Microsoft.NET platform. This
initiative is expected to be substantially completed within the
next 18 months and to result in higher expenses over this
period.

General and administrative expenses were relatively consistent
for the two years at $10.3 million, or 4.3% of total
revenues, for the year ended December 31, 2001 compared to
$10.4 million, or 4.8% of total revenues, for 2000.

Depreciation and amortization increased $0.2 million, or
1.3%, to $15.1 million, or 6.4% of total revenues, for the year
ended December 31, 2001, from $14.9 million, or 6.9%
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, which became fully amortized in
2001. For 2000 and 2001, respectively, we recorded acquisition
related amortization of $7.2 million and $6.7 million.

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.

Charges in connection with our 2000 restructuring totaled
$1.2 million.

24



---



##### 



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
throughout 2001, while interest rates declined. Cash and cash
equivalents increased primarily due to the public offering in
January 2001, as well as cash generated from operations.

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.

2000 Compared to 1999

Total revenues for the year ended December 31, 2000
decreased $32.8 million, or 13.2%, to $216.5 million, from
$249.3 million for 1999. Systems and services revenues
decreased $23.2 million, or 10.2%, to $203.4 million
for the year ended December 31, 2000, from
$226.6 million for 1999.

This decrease in total revenues was primarily attributable to
the shift toward providing comprehensive bundled solutions, the
completion of the implementations under arrangements which were
recognized under the percentage-of-completion method and less
favorable contracts we inherited as a result of recent
acquisitions. In addition, our proposed transactions with SMS
and Neoforma, which we have since abandoned, resulted in a
significant diversion of managements time and attention,
which also adversely affected revenues during early 2000.

Hardware revenues decreased $9.6 million, or 42.3%, to
$13.1 million for the year ended December 31, 2000
from $22.7 million for 1999. The decrease was primarily due
to decreased volume of hardware sales as a result of less
hardware-intensive transactions.

Total cost of revenues increased $3.4 million, or 2.3%, to
$149.3 million, or 68.9% of total revenues, for the year
ended December 31, 2000, from $145.9 million, or 58.5% of
total revenues, for 1999. Increased costs of system and services
revenues were partially offset by a decrease in costs of
hardware revenues. Costs of systems and services revenues
increased as a result of higher royalty related expenses
associated with revenue recognized during the period, an
increased level of outsourcing revenue and associated expenses,
and a charge of $8.7 million to write-down certain
receivables related to contracts assumed in acquisitions.
Furthermore, we recorded a charge of $0.7 million for other
costs related to finalizing our acquisition integrations. These
amounts were partially offset by decreased amortization of
acquired technology in connection with acquisitions completed in
prior years and by cost savings associated with the
consolidation of our research and development and implementation
functions. We also recorded acquisition-related amortization of
acquired technology and a network services asset of
$25.3 million and $18.4 million for 1999 and 2000,
respectively.

Sales and marketing expenses increased $3.8 million, or
10.5%, to $40.1 million, or 18.5% of total revenues, for the
year ended December 31, 2000, from $36.3 million, or
14.6% of total revenues, for 1999. The increase was primarily
due to an increase in commissions as the result of an increase
in new contracts in 2000.

Research and development expenses decreased $6.8 million,
or 15.4%, to $37.4 million, or 17.3% of total revenues, for
the year ended December 31, 2000, from $44.2 million,
or 17.7% of total revenues, for 1999. The decrease was due
primarily to a write-off of $2.8 million of capitalized
software development costs related to duplicate products with no
alternative future use due to the acquisition of MSI in 1999 and
the realization of integration synergies. Research and
development expenses that were capitalized were $6.7 million and
$6.4 million for 1999 and 2000, respectively.

General and administrative expenses decreased $1.0 million,
or 8.8%, to $10.4 million, for the year ended
December 31, 2000, from $11.4 million, for 1999. As a
percentage of total revenues, expenses general and
administrative increased from 4.6% to 4.8%. The decrease was
primarily due to our restructuring plans that were completed in
late 1999 and 2000. This was partially offset by a
$0.7 million write-down of receivables during 2000.

25



---



##### 



Depreciation and amortization decreased $0.5 million, or
3.2%, to $14.9 million, for the year ended December 31,
2000, from $15.4 million, for 1999. As a percentage of
total revenues, expenses depreciation and amortization increased
from 6.2% to 6.9%. The decrease was primarily the result of
certain fixed assets becoming fully depreciated, partially
offset by depreciation related to purchases of fixed assets
during the 2000. For 1999 and 2000, respectively, we recorded
acquisition related amortization of $7.5 million and
$7.2 million.

Our 1999 restructuring resulted in a charge totaling
$5.1 million related to the closing of duplicate facilities
and the termination of employees.

Pooling and transaction costs increased $0.3 million, or
18.8%, to $1.9 million for the year ended December 31,
2000, from $1.6 million for 1999. Pooling and transaction
costs incurred during 1999 were related to the poolings of
PowerCenter and MSI. The transaction costs during 2000 were
primarily the result of costs associated with the abandoned
transactions with SMS and Neoforma.

As a result of these factors, net loss increased 259.5% to
$34.0 million for the year ended December 31, 2000,
from $9.4 million for 1999.

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 2001, operations provided $27.9 million of cash.
Investing activities used $18.5 million of cash, primarily
for the purchase of fixed assets and the funding of development
costs. Financing activities provided $138.9 million of
cash, as a result of the public offering discussed above,
exercise of stock options and the purchase of common stock under
our employee stock purchase plan.

As of December 31, 2001, our principal source of liquidity
is our balance of $168.9 million in cash and cash
equivalents. In light of our increased balance in cash and cash
equivalents, in August 2001 we terminated our revolving credit
facility with a commercial bank, which had provided for maximum
borrowings of up to $30.0 million.

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, 2001, 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 2002.

Contracts and Commitments

The following table provides information related to our
contractual cash obligations under various financial and
commercial agreements:

|                        |  |                                       |        |           |  |       |        |       |  |         |        |  |  |   |       |  |  |   |       | 
|----------------------- |  | ------------------------------------- | ------ | --------- |  | ----- | ------ | ----- |  | ------- | ------ |  |  | - | ----- |  |  | - | ----- | 
|                        |  |                                      
|                        |  | Payments Due by Period (in thousands)
|                        |  |                                      
|                        |  |                                       |        | Less than |  | 1 - 3 |        | 3 - 5 |  | After 5
|Contractual Obligations |  | Total                                 |        | 1 year    |  | years |        | years |  | years  
|                        |  |                                       |        |           |  |       |        |       |  |        
|Operating leases        |  | $                                     | 40,161 |           |  | $     | 10,256 |       |  | $       | 17,885 |  |  | $ | 8,087 |  |  | $ | 3,933 | 

New Accounting Pronouncements

In September 2000, the Financial Accounting Standards Board, or
FASB issued SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS 140, which replaces SFAS 125,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, addresses issues not
previously addressed in SFAS 125. SFAS 140 is effective for
transfers and

26



---



##### 





In June 2001, the FASB issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets. These standards require that all
business combinations be accounted for using the purchase method
and that goodwill and intangible assets with indefinite useful
lives should not be amortized but should be tested for
impairment at least annually, and they provide guidelines for
new disclosure requirements. These standards outline the
criteria for initial recognition and measurement of intangibles,
assignment of assets and liabilities including goodwill to
reporting units and goodwill impairment testing. Additionally,
under the provisions of these standards, the unamortized balance
of negative goodwill will be written off and recognized as a
change in accounting principle. The provisions of SFAS 141 and
142 apply to all business combinations after June 30, 2001.
The provisions of SFAS 142 for existing goodwill and other
intangible assets are required to be implemented effective
January 1, 2002. We are currently evaluating the impact of
SFAS No. 142 on our consolidated financial statements. In
accordance with SFAS 142, amortization of goodwill ceased as of
January 1, 2002, leaving a recorded balance of $454,000 of
goodwill as of December 31, 2001.

In October of 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
No. 121 for the 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 on goodwill is not included in the scope of SFAS
No. 144 and will be treated in accordance with the
accounting standards established in SFAS No. 142,
Goodwill and Other Intangible Assets. According to
SFAS No. 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. We adopted this statement on
January 1, 2002, and do not expect the statement to have a
material effect on us because a significant portion of
identified intangible assets will be fully amortized by
December 31, 2002.

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, 2001, foreign currency
fluctuations have not had a material impact on our financial
position or results of operations.

27



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##### 



Item 8.  Financial Statements and
Supplementary Data

Index to Consolidated Financial Statements:

Financial Statements:

|                                                                                                     |  |      |    | 
|---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                     |  | Page
|                                                                                                     |  |     
|Report of Independent Accountants                                                                    |  |      | 29 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Balance Sheets as of
	December 31, 2000 and 2001                                        |  |      | 30 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statements of Operations for the
	years ended December 31, 1999, 2000 and 2001          |  |      | 31 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statements of Cash Flows for the
	years ended December 31, 1999, 2000 and 2001          |  |      | 32 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statement of Stockholders
	Equity for the years ended December 31, 1999, 2000 and 2001 |  |      | 33 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Notes to the Consolidated Financial Statements
	for the years ended December 31, 1999, 2000 and 2001 |  |      | 34 | 

Financial Statement
Schedules:

|                                                                                                                   |  |  |    | 
|------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Schedule II  Valuation of
	Qualifying Accounts for each of the three years in the period
	ended December 31, 2001 |  |  | 51 | 

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

28



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors



In our opinion, the consolidated financial statements listed in
the accompanying index on page 28 present fairly, in all
material respects, the financial position of Eclipsys
Corporation and its subsidiaries at December 31, 2000 and
December 31, 2001, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2001 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 28 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.

PricewaterhouseCoopers LLP

Atlanta, Georgia



29



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##### 



ECLIPSYS CORPORATION

Consolidated Balance Sheets

(in thousands, except share data)


|                                            |                                                                                                               |                           |        |          |         |  |        |          |         | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | -------- | ------- |  | ------ | -------- | ------- | 
|                                            |                                                                                                               |                          
|                                            |                                                                                                               | December 31,             
|                                            |                                                                                                               |                          
|                                            |                                                                                                               | 2000                      |        | 2001    
|                                            |                                                                                                               |                           |        |         
|                                           
|                                           
|                                           
|                                           
|Assets                                     
|                                           
|                                           
|                                           
|                                           
|Current Assets:                             |                                                                                                               |                           |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                            | Cash and cash equivalents                                                                                     |                           | $      | 20,799   |         |  | $      | 168,942  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts receivable, net of allowance for
	doubtful accounts of $5,656 and $5,572                             |                           |        | 63,912   |         |  |        | 66,094   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Inventory                                                                                                     |                           |        | 1,065    |         |  |        | 667      |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other current assets                                                                                          |                           |        | 6,854    |         |  |        | 18,424   |        
|                                            |                                                                                                               |                           |        |          |         |  |        |         
|                                            |                                                                                                               | Total current assets      |        |          | 92,630  |  |        |          | 254,127 | 
|                                           
|                                           
|                                           
|                                           
|                                           
|Property and equipment, net                 |                                                                                                               |                           | 16,801 |          |         |  | 21,675 |         
|                                           
|                                           
|                                           
|                                           
|Capitalized software development costs, net |                                                                                                               |                           | 11,469 |          |         |  | 13,831 |         
|                                           
|                                           
|                                           
|                                           
|Acquired technology, net                    |                                                                                                               |                           | 19,714 |          |         |  | 3,345  |         
|                                           
|                                           
|                                           
|                                           
|Intangible assets, net                      |                                                                                                               |                           | 7,831  |          |         |  | 628    |         
|                                           
|                                           
|                                           
|                                           
|Other assets                                |                                                                                                               |                           | 7,667  |          |         |  | 6,888  |         
|                                            |                                                                                                               |                           |        |          |         |  |        |         
|                                            |                                                                                                               | Total assets              |        | $        | 156,112 |  |        | $        | 300,494 | 
|                                            |                                                                                                               |                           |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|Liabilities and Stockholders
	Equity      
|                                           
|                                           
|                                           
|                                           
|Current Liabilities:                        |                                                                                                               |                           |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred revenue                                                                                              |                           | $      | 45,970   |         |  | $      | 56,428   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Current portion of long-term debt                                                                             |                           |        | 314      |         |  |        |         |        
|                                           
|                                           
|                                           
|                                           
|                                            | Other current liabilities                                                                                     |                           |        | 28,361   |         |  |        | 22,748   |        
|                                            |                                                                                                               |                           |        |          |         |  |        |         
|                                            |                                                                                                               | Total current liabilities |        |          | 74,645  |  |        |          | 79,176  | 
|                                           
|                                           
|                                           
|                                           
|                                           
|Deferred revenue                            |                                                                                                               |                           | 5,258  |          |         |  | 2,418  |         
|                                           
|                                           
|                                           
|                                           
|Long-term debt                              |                                                                                                               |                           | 1,177  |          |         |  |       |         
|                                           
|                                           
|                                           
|                                           
|Other long-term liabilities                 |                                                                                                               |                           | 1,628  |          |         |  | 699    |         
|Commitments and contingencies (See note 9)  |                                                                                                               |                           |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                           
|Stockholders equity:                       |                                                                                                               |                           |        |          |         |  |        |         
|                                           
|                                           
|                                           
|                                           
|                                            | Common stock $.01 par value, 200,000,000 shares
	authorized; issued and outstanding 37,136,121 and 44,382,413 |                           |        | 371      |         |  |        | 444      |        
|                                           
|                                           
|                                           
|                                           
|                                            | Unearned stock compensation                                                                                   |                           |        | (176     | )       |  |        | (32      | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Additional paid-in capital                                                                                    |                           |        | 259,903  |         |  |        | 400,242  |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated deficit                                                                                           |                           |        | (186,459 | )       |  |        | (182,051 | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated other comprehensive income                                                                        |                           |        | (235     | )       |  |        | (402     | )      
|                                            |                                                                                                               |                           |        |          |         |  |        |         
|                                            | Total stockholders equity                                                                                    |                           |        | 73,404   |         |  |        | 218,201  |        
|                                            |                                                                                                               |                           |        |          |         |  |        |         
|                                            | Total liabilities and stockholders equity                                                                    |                           | $      | 156,112  |         |  | $      | 300,494  |        
|                                            |                                                                                                               |                           |        |          |         |  |        |         

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

30



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##### 



ECLIPSYS CORPORATION

Consolidated Statements of Operations

(in thousands, except share and per share data)


|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |         |            | 
|------------------- | ------------------------------------- | -------------------------------------------------- | - | ------- | ---------- | ---- | - | ------- | ---------- | - | - | ------- | ---------- | 
|                    |                                       |                                                   
|                    |                                       | Year Ended December 31,                           
|                    |                                       |                                                   
|                    |                                       | 1999                                               |   | 2000    |            | 2001
|                    |                                       |                                                    |   |         |            |     
|Revenues:           |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                   
|                   
|                   
|                   
|                    | Systems and services                  |                                                    | $ | 226,610 |            |      | $ | 203,444 |            |   | $ | 220,489 |           
|                   
|                   
|                   
|                   
|                    | Hardware                              |                                                    |   | 22,717  |            |      |   | 13,094  |            |   |   | 16,505  |           
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    |                                       | Total Revenues                                     |   |         | 249,327    |      |   |         | 216,538    |   |   |         | 236,994    | 
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|Costs and expenses: |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                   
|                   
|                   
|                   
|                    | Cost of systems and services revenues |                                                    |   | 127,312 |            |      |   | 138,909 |            |   |   | 120,365 |           
|                   
|                   
|                   
|                   
|                    | Cost of hardware revenues             |                                                    |   | 18,606  |            |      |   | 10,350  |            |   |   | 13,571  |           
|                   
|                   
|                   
|                   
|                    | Sales and marketing                   |                                                    |   | 36,316  |            |      |   | 40,143  |            |   |   | 42,698  |           
|                   
|                   
|                   
|                   
|                    | Research and development              |                                                    |   | 44,151  |            |      |   | 37,382  |            |   |   | 37,034  |           
|                   
|                   
|                   
|                   
|                    | General and administrative            |                                                    |   | 11,426  |            |      |   | 10,380  |            |   |   | 10,278  |           
|                   
|                   
|                   
|                   
|                    | Depreciation and amortization         |                                                    |   | 15,415  |            |      |   | 14,906  |            |   |   | 15,108  |           
|                   
|                   
|                   
|                   
|                    | Pooling and transaction costs         |                                                    |   | 1,648   |            |      |   | 1,900   |            |   |   | (472    | )         
|                   
|                   
|                   
|                   
|                    | Restructuring charge                  |                                                    |   | 5,133   |            |      |   | 1,198   |            |   |   |        |           
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    |                                       | Total costs and expenses                           |   |         | 260,007    |      |   |         | 255,168    |   |   |         | 238,582    | 
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    | Loss from operations                  |                                                    |   | (10,680 | )          |      |   | (38,630 | )          |   |   | (1,588  | )         
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    | Interest income, net                  |                                                    |   | 1,235   |            |      |   | 1,075   |            |   |   | 5,996   |           
|                   
|                   
|                   
|                   
|                    | Other income, net                     |                                                    |   |        |            |      |   | 3,596   |            |   |   |        |           
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    | (Loss) income before income taxes     |                                                    |   | (9,445  | )          |      |   | (33,959 | )          |   |   | 4,408   |           
|                   
|                   
|                   
|                   
|                    | Provision for income taxes            |                                                    |   |        |            |      |   |        |            |   |   |        |           
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    | Net (loss) income                     |                                                    |   | (9,445  | )          |      |   | (33,959 | )          |   |   | 4,408   |           
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    | Net (loss) income per share:          |                                                    |   |         |            |      |   |         |            |   |   |         |           
|                   
|                   
|                   
|                   
|                    |                                       | Basic net (loss) income per common share           |   | $       | (0.27      | )    |   | $       | (0.92      | ) |   | $       | 0.10       | 
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    |                                       | Diluted net (loss) income per common share         |   | $       | (0.27      | )    |   | $       | (0.92      | ) |   | $       | 0.09       | 
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    |                                       | Basic weighted average common shares outstanding   |   |         | 34,803,934 |      |   |         | 36,765,975 |   |   |         | 43,243,512 | 
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        
|                    |                                       | Diluted weighted average common shares outstanding |   |         | 34,803,934 |      |   |         | 36,765,975 |   |   |         | 46,795,361 | 
|                    |                                       |                                                    |   |         |            |      |   |         |            |   |   |        

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

31



---



##### 



ECLIPSYS CORPORATION

Consolidated Statements of Cash Flows

(in thousands)


|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |       |         |         |         |  
|----------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------------------------- | ------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ----- | ------- | ------- | ------- | -
|                                                      |                                                                                                     |                                                     
|                                                      |                                                                                                     | Year Ended December 31,                             
|                                                      |                                                                                                     |                                                     
|                                                      |                                                                                                     | 1999                                                 |                                                          | 2000                                  |         | 2001   
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |        
|Operating activities:                                 |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net (loss) income                                                                                   |                                                      | $                                                        | (9,445                                | )       |         | $       | (33,959 | )       |         | $       | 4,408 |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Adjustments to reconcile net (loss) income
	to net cash provided by (used in) operating activities: |                                                      |                                                          |                                       |         |         |         |         |         |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Depreciation and amortization                        |                                                          |                                       | 42,134  |         |         |         | 36,418  |         |         |       | 36,472  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Provision for bad debts                              |                                                          |                                       | 2,304   |         |         |         | 3,855   |         |         |       | 4,305   |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Write-down of accounts receivable                    |                                                          |                                       |        |         |         |         | 9,400   |         |         |       |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Write-down of investment                             |                                                          |                                       |        |         |         |         | 836     |         |         |       |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Gain on sale of investment                           |                                                          |                                       |        |         |         |         | (4,462  | )       |         |       |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Write-off of capitalized software development
	costs |                                                          |                                       | 2,790   |         |         |         |        |         |         |       |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Stock compensation expense                           |                                                          |                                       | 2,285   |         |         |         | 144     |         |         |       | 144     |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Changes in operating assets and liabilities, net
	of acquisitions:                                  |                                                      |                                                          |                                       |         |         |         |         |         |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Accounts receivable                                  |                                                          |                                       | (9,967  | )       |         |         | (1,061  | )       |         |       | (6,487  | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Inventory                                            |                                                          |                                       | (143    | )       |         |         | (880    | )       |         |       | 202     |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Other current assets                                 |                                                          |                                       | (1,411  | )       |         |         | 6,349   |         |         |       | (11,570 | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Other assets                                         |                                                          |                                       | (1,521  | )       |         |         | (1,825  | )       |         |       | (684    | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Deferred revenue                                     |                                                          |                                       | (11,863 | )       |         |         | (7,911  | )       |         |       | 7,617   |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Other current liabilities                            |                                                          |                                       | (8,732  | )       |         |         | (16,184 | )       |         |       | (5,613  | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Other long-term liabilities                          |                                                          |                                       | (114    | )       |         |         | (1,387  | )       |         |       | (928    | )      
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|                                                      |                                                                                                     |                                                      | Total adjustments                                        |                                       |         | 15,762  |         |         |         | 23,292  |         |       |         | 23,458  |        
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|                                                      |                                                                                                     |                                                      | Net cash provided by (used in) operating
	activities     |                                       |         | 6,317   |         |         |         | (10,667 | )       |       |         | 27,866  |        
|                                                      |                                                                                                     | Investing activities                                 |                                                          |                                       |         |         |         |         |         |         |         |       |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Purchase of investments                                  |                                       |         |        |         |         |         | (7,905  | )       |       |         |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Maturities of investments                                |                                       |         | 17,003  |         |         |         |        |         |       |         |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Sale of investments                                      |                                       |         |        |         |         |         | 12,432  |         |       |         |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Purchase of property and equipment, net of
	acquisitions |                                       |         | (8,477  | )       |         |         | (8,019  | )       |       |         | (11,601 | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Capitalized software development costs                   |                                       |         | (6,747  | )       |         |         | (6,407  | )       |       |         | (6,876  | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Acquisitions                                             |                                       |         | (25,000 | )       |         |         |        |         |       |         |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Proceeds from sale of business                           |                                       |         | 5,000   |         |         |         |        |         |       |         |        |        
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|                                                      |                                                                                                     |                                                      |                                                          | Net cash used in investing activities |         |         | (18,221 | )       |         |         | (9,899  | )     |         |         | (18,477 | )
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|                                                      |                                                                                                     | Financing activities                                 |                                                          |                                       |         |         |         |         |         |         |         |       |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Borrowings                                               |                                       |         | 20,000  |         |         |         | 2,012   |         |       |         |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Payments on borrowings                                   |                                       |         | (20,000 | )       |         |         | (521    | )       |       |         | (1,491  | )      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Distributions  MSI                                      |                                       |         | (375    | )       |         |         |        |         |       |         |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Exercise of warrants                                     |                                       |         |        |         |         |         | 4       |         |       |         |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     |                                                      | Sale of common stock                                     |                                       |         |        |         |         |         |        |         |       |         | 123,231 |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Exercises of stock options                           |                                                          |                                       | 6,036   |         |         |         | 4,330   |         |         |       | 14,683  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                                     | Employee stock purchase plan                         |                                                          |                                       | 2,587   |         |         |         | 1,492   |         |         |       | 2,498   |        
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|                                                      |                                                                                                     |                                                      | Net cash provided by financing activities                |                                       |         | 8,248   |         |         |         | 7,317   |         |       |         | 138,921 |        
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|                                                      | Effect of exchange rates on cash and cash
	equivalents                                              |                                                      |                                                          | (371                                  | )       |         |         | 92      |         |         |         | (167  | )      
|                                                     
|                                                     
|                                                     
|                                                     
|Net (decrease) increase in cash and cash
	equivalents |                                                                                                     |                                                      | (4,027                                                   | )                                     |         |         | (13,157 | )       |         |         | 148,143 |      
|                                                     
|                                                     
|                                                     
|                                                     
|Cash and cash equivalents  beginning
	of year        |                                                                                                     |                                                      | 37,983                                                   |                                       |         |         | 33,956  |         |         |         | 20,799  |      
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|Cash and cash equivalents  end of year               |                                                                                                     | $                                                    | 33,956                                                   |                                       |         | $       | 20,799  |         |         | $       | 168,942 |      
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|Cash paid for interest                                |                                                                                                     | $                                                    | 124                                                      |                                       |         | $       | 388     |         |         | $       | 51      |      
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      
|Cash paid for income taxes                            |                                                                                                     | $                                                    | 758                                                      |                                       |         | $       | 62      |         |         | $       | 69      |      
|                                                      |                                                                                                     |                                                      |                                                          |                                       |         |         |         |         |         |         |         |      

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

32



---



##### 



ECLIPSYS CORPORATION

Consolidated Statement of Changes in Stockholders
Equity


(in thousands)


|                                        |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|--------------------------------------- |  | ------------ | ---------- | ------ |  | --------------- | --- | ---------- |  | -------- | ---- | ----------- |  | ------------ | ------- | ------- |  | - | -- | - |  | - | ------- | - |  | - | ------ | - |  | - | -------- | -
|                                        |  |              |            |        |  |                 |     |            |  |          |      |             |  |             
|                                        |  |              |            |        |  |                 |     |            |  |          |      |            
|                                        |  |              |            |        |  | Preferred Stock |     |            |  |          |      |            
|                                        |  | Voting and   |            |        |  |                 |     |            |  |          |      |            
|                                        |  | Non-Voting   |            |        |  |                 |     |            |  |          |      |            
|                                        |  | Common Stock |            | Common |  | Series A        |     | Additional |  |          |      |            
|                                        |  |              |            | Stock  |  |                 |     | Paid-in    |  | Unearned |      | Accumulated
|                                        |  | Shares       |            | Amount |  | Warrants        |     | Shares     |  | Amount   |      | Capital     |  | Compensation |         | Deficit
|                                        |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |        
|                                       
|                                       
|                                       
|                                       
|Balance at December 31, 1998            |  |              | 33,073,883 |        |  | $               | 330 |            |  |          | 395  |             |  |              | 20,000  |         |  | $ | 1  |   |  | $ | 241,975 |   |  | $ | (1,623 | ) |  | $ | (142,680 | )
|                                       
|                                       
|                                       
|                                       
|Stock option exercises                  |  |              | 1,610,556  |        |  |                 | 16  |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 6,020   |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase                 |  |              | 156,755    |        |  |                 | 2   |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 2,585   |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Stock warrant exercise  Transition     |  |              | 156,320    |        |  |                 | 2   |            |  |          | (395 | )           |  |              |         |         |  |   |    |   |  |   | 393     |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Stock warrant exercise                  |  |              | 962,513    |        |  |                 | 10  |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | (10     | ) |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Conversion of preferred stock  PCS     |  |              | 241,283    |        |  |                 | 2   |            |  |          |      |             |  |              | (20,000 | )       |  |   | (1 | ) |  |   | (1      | ) |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Conversion of convertible debt  PCS    |  |              | 102,515    |        |  |                 | 1   |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 2,141   |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 982     |   |  |   | 1,303  |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Distributions MSI                       |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   | (375     | )
|                                       
|                                       
|                                       
|                                       
|Comprehensive income:                   |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Net loss                                |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   | (9,445   | )
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Other comprehensive income              |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Comprehensive income                    |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                        |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|Balance at December 31, 1999            |  |              | 36,303,825 |        |  |                 | 363 |            |  |          |     |             |  |              |        |         |  |   |   |   |  |   | 254,085 |   |  |   | (320   | ) |  |   | (152,500 | )
|                                       
|                                       
|                                       
|                                       
|Stock option exercises                  |  |              | 495,328    |        |  |                 | 5   |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 2,988   |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase                 |  |              | 296,203    |        |  |                 | 3   |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 2,704   |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Exercise of warrants                    |  |              | 40,765     |        |  |                 |    |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 4       |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 122     |   |  |   | 144    |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Net loss                                |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   | (33,959  | )
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Other comprehensive income              |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Comprehensive income                    |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                        |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|Balance at December 31, 2000            |  |              | 37,136,121 |        |  |                 | 371 |            |  |          |     |             |  |              |        |         |  |   |   |   |  |   | 259,903 |   |  |   | (176   | ) |  |   | (186,459 | )
|                                       
|                                       
|                                       
|                                       
|Stock option exercises                  |  |              | 1,317,632  |        |  |                 | 15  |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 14,668  |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase                 |  |              | 178,660    |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 2,498   |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Public offering                         |  |              | 5,750,000  |        |  |                 | 58  |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   | 123,173 |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   | 144    |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Comprehensive income:                   |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Net income                              |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   | 4,408    |  
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Other comprehensive income              |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Comprehensive income                    |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|                                        |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  
|Balance at December 31, 2001            |  |              | 44,382,413 |        |  | $               | 444 |            |  |          |     |             |  |              |        |         |  | $ |   |   |  | $ | 400,242 |   |  | $ | (32    | ) |  | $ | (182,051 | )
|                                        |  |              |            |        |  |                 |     |            |  |          |      |             |  |              |         |         |  |   |    |   |  |   |         |   |  |   |        |   |  |   |          |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|--------------------------------------- |  | ------------- | ------- | ------------- |  | ----- | ---- | - |  | - | ------- | -
|                                        |  |               |         | Accumulated   |  |      
|                                        |  |               |         | Other         |  |      
|                                        |  | Comprehensive |         | Comprehensive |  |      
|                                        |  | Income        |         | Income        |  |      
|                                        |  | (Loss)        |         | (Loss)        |  | Total
|                                        |  |               |         |               |  |      
|                                       
|                                       
|                                       
|                                       
|Balance at December 31, 1998            |  |               |         |               |  | $     | 44   |   |  | $ | 98,442  |  
|                                       
|                                       
|                                       
|                                       
|Stock option exercises                  |  |               |         |               |  |       |      |   |  |   | 6,036   |  
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase                 |  |               |         |               |  |       |      |   |  |   | 2,587   |  
|                                       
|                                       
|                                       
|                                       
|Stock warrant exercise  Transition     |  |               |         |               |  |       |      |   |  |   |        |  
|                                       
|                                       
|                                       
|                                       
|Stock warrant exercise                  |  |               |         |               |  |       |      |   |  |   |        |  
|                                       
|                                       
|                                       
|                                       
|Conversion of preferred stock  PCS     |  |               |         |               |  |       |      |   |  |   |        |  
|                                       
|                                       
|                                       
|                                       
|Conversion of convertible debt  PCS    |  |               |         |               |  |       |      |   |  |   | 2,142   |  
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |  |               |         |               |  |       |      |   |  |   | 2,285   |  
|                                       
|                                       
|                                       
|                                       
|Distributions MSI                       |  |               |         |               |  |       |      |   |  |   | (375    | )
|                                       
|                                       
|                                       
|                                       
|Comprehensive income:                   |  |               |         |               |  |       |      |   |  |   |        |  
|                                       
|                                       
|                                       
|                                       
|Net loss                                |  |               | (9,445  | )             |  |       |      |   |  |   | (9,445  | )
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |               | (371    | )             |  |       | (371 | ) |  |   | (371    | )
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Other comprehensive income              |  |               | (371    | )             |  |       |      |   |  |   |         |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Comprehensive income                    |  |               | (9,816  | )             |  |       |      |   |  |   |         |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Balance at December 31, 1999            |  |               |         |               |  |       | (327 | ) |  |   | 101,301 |  
|                                       
|                                       
|                                       
|                                       
|Stock option exercises                  |  |               |         |               |  |       |      |   |  |   | 2,993   |  
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase                 |  |               |         |               |  |       |      |   |  |   | 2,707   |  
|                                       
|                                       
|                                       
|                                       
|Exercise of warrants                    |  |               |         |               |  |       |      |   |  |   | 4       |  
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |  |               |         |               |  |       |      |   |  |   | 266     |  
|                                       
|                                       
|                                       
|                                       
|Net loss                                |  |               | (33,959 | )             |  |       |      |   |  |   | (33,959 | )
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |               | 92      |               |  |       | 92   |   |  |   | 92      |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Other comprehensive income              |  |               | 92      |               |  |       |      |   |  |   |         |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Comprehensive income                    |  |               | (33,867 | )             |  |       |      |   |  |   |         |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Balance at December 31, 2000            |  |               |         |               |  |       | (235 | ) |  |   | 73,404  |  
|                                       
|                                       
|                                       
|                                       
|Stock option exercises                  |  |               |         |               |  |       |      |   |  |   | 14,683  |  
|                                       
|                                       
|                                       
|                                       
|Employee stock purchase                 |  |               |         |               |  |       |      |   |  |   | 2,498   |  
|                                       
|                                       
|                                       
|                                       
|Public offering                         |  |               |         |               |  |       |      |   |  |   | 123,231 |  
|                                       
|                                       
|                                       
|                                       
|Compensation expense recognized         |  |               |         |               |  |       |      |   |  |   | 144     |  
|                                       
|                                       
|                                       
|                                       
|Comprehensive income:                   |  |               |         |               |  |       |      |   |  |   |         |  
|                                       
|                                       
|                                       
|                                       
|Net income                              |  |               | 4,408   |               |  |       |      |   |  |   | 4,408   |  
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |               | (167    | )             |  |       | (167 | ) |  |   | (167    | )
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Other comprehensive income              |  |               | (167    | )             |  |       |      |   |  |   |         |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Comprehensive income                    |  |               | 4,241   |               |  |       |      |   |  |   |         |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  
|Balance at December 31, 2001            |  |               |         |               |  | $     | (402 | ) |  | $ | 218,201 |  
|                                        |  |               |         |               |  |       |      |   |  |   |         |  

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

33



---



##### 



ECLIPSYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Three Years Ended December 31, 2001


1.  Organization and Description of Business

Eclipsys Corporation (Eclipsys) and its subsidiaries
(collectively, the Company) is a healthcare
information technology company. Eclipsys provides software and
services that focus on enabling healthcare organizations (HCOs)
to improve and balance their clinical, financial and
satisfaction outcomes. Eclipsys solutions assist customers in
improving workflow processes and implementing best practices
within their organizations. The combination of comprehensive
software applications and services offerings enable healthcare
providers to improve operating effectiveness, reduce costs and
improve the quality of care as measured by clinical outcomes.
Eclipsys services offerings include 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.

Financial Statement Presentation

The Company completed mergers with PowerCenter Systems, Inc.
(PCS) effective February 17, 1999 and MSI
Solutions, Inc. and MSI Integrated Services, Inc. (collectively
MSI) effective June 17, 1999. Each of these
mergers were accounted for as pooling of interests and,
accordingly, the consolidated financial statements have been
retroactively restated as if the mergers had occurred as of the
beginning of the earliest period presented.

Use of Estimates

The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States 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 and amounts recorded for capitalized software development
costs.

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 and determinable and collectibility of the fee
is probable.

34



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




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 entered 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 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.

Remote hosting and outsourcing services are marketed under
long-term agreements that are generally of five to ten years in
duration. Revenues under these arrangements are recognized
monthly as the work is performed. Revenues related to other
support services, such as training, consulting, and other
implementation services, are recognized when the services are
performed. The Company recognizes revenues from the sale of
hardware upon delivery of the equipment to the customer.

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 processing 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.

35



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




2.  Summary of Significant Accounting
Policies  (Continued)


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.

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

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
period. Implementation periods 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 $3.3 million and $1.8 million as of
December 31, 2000 and 2001, 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:

|                     |                                                                                 |                                |   |        |        |  |   |        |        | 
|-------------------- | ------------------------------------------------------------------------------- | ------------------------------ | - | ------ | ------ |  | - | ------ | ------ | 
|                     |                                                                                 | 2000                           |   | 2001  
|                     |                                                                                 |                                |   |       
|                     |                                                                                 |                               
|                     |                                                                                 | (in thousands)                
|                    
|                    
|                    
|                    
|Accounts Receivable: |                                                                                 |                                |   |        |        |  |   |       
|                    
|                    
|                    
|                    
|                     | Unbilled accounts receivable related to long-term
	contracts
	(current portion) |                                | $ | 3,783  |        |  | $ | 3,212  |       
|                    
|                    
|                    
|                    
|                     | Other unbilled accounts receivable                                              |                                |   | 8,766  |        |  |   | 6,768  |       
|                     |                                                                                 |                                |   |        |        |  |   |       
|                     | Total unbilled accounts receivable                                              |                                |   | 12,549 |        |  |   | 9,980  |       
|                    
|                    
|                    
|                    
|                     | Billed accounts receivable, net                                                 |                                |   | 51,363 |        |  |   | 56,114 |       
|                     |                                                                                 |                                |   |        |        |  |   |       
|                     |                                                                                 | Total accounts receivable, net |   | $      | 63,912 |  |   | $      | 66,094 | 
|                     |                                                                                 |                                |   |        |        |  |   |       

The Company does not have any obligation to refund any portion
of the software or hardware fees and its contracts are
non-cancelable.

36



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




2.  Summary of Significant Accounting
Policies  (Continued)


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.

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 range from two to ten
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
substantially lengthen the property and equipment lives are
charged to expense as incurred.

Capitalized Software Development Costs

The Company capitalizes a portion of its internal computer
software development costs incurred subsequent to establishing
technological feasibility, including salaries, benefits, 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 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 $6.7 million,
$6.4 million and $6.9 million for the years ended
December 31, 1999, 2000 and 2001, 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 $1.2 million, $2.9 million and
$4.5 million for the years ended December 31, 1999,
2000 and 2001, respectively. Accumulated amortization of
capitalized software development costs were $9.6 million
and $14.1 million as of December 31, 2000 and 2001,
respectively.

In June 1999, based on a review of products acquired in
conjunction with the MSI merger and other related activities,
the Company recorded a write-off of approximately
$2.8 million of capitalized software development costs
related to duplicate products that did not have any alternative
future use.

37



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




2.  Summary of Significant Accounting
Policies  (Continued)


Acquired Technology and Intangible Assets

The intangible assets from the Companys acquisitions (Note
6), which are amortized to cost of systems and services on a
straight-line basis over their estimated useful lives, consisted
of the following (in thousands):

|                               |  |              |         |      |  |       |        |     |  |             |         |  |  |   |       |  |  |  |              | 
|------------------------------ |  | ------------ | ------- | ---- |  | ----- | ------ | --- |  | ----------- | ------- |  |  | - | ----- |  |  |  | ------------ | 
|                               |  |              |         |     
|                               |  | December 31, |         |     
|                               |  |              |         |     
|                               |  |              |         |      |  |      
|                               |  | 2000         |         | 2001 |  |      
|                               |  |              |         |      |  |      
|                               |  | Gross        |         | Net  |  | Gross |        | Net |  | Useful Life
|                               |  |              |         |      |  |       |        |     |  |            
|Acquired technology            |  | $            | 95,795  |      |  | $     | 19,714 |     |  | $           | 95,795  |  |  | $ | 3,345 |  |  |  | 3  5 years  | 
|                              
|                              
|                              
|                              
|Ongoing customer relationships |  |              | 10,690  |      |  |       | 2,740  |     |  |             | 10,690  |  |  |   | 174   |  |  |  | 5 years      | 
|                              
|                              
|                              
|                              
|Network services               |  |              | 5,764   |      |  |       | 481    |     |  |             | 5,764   |  |  |   |      |  |  |  | 3 years      | 
|                              
|                              
|                              
|                              
|Goodwill                       |  |              | 17,834  |      |  |       | 4,610  |     |  |             | 17,834  |  |  |   | 454   |  |  |  | 5  12 years | 
|                              
|                              
|                              
|                              
|Other                          |  |              | 162     |      |  |       |       |     |  |             |        |  |  |   |      |  |  |  |              | 
|                               |  |              |         |      |  |       |        |     |  |             |         |  |  |   |       |  |  |  |              | 
|                               |  | $            | 130,245 |      |  | $     | 27,545 |     |  | $           | 130,083 |  |  | $ | 3,973 |  |  |  |              | 
|                               |  |              |         |      |  |       |        |     |  |             |         |  |  |   |       |  |  |  |              | 

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

The carrying values of acquired technology and intangible assets
are reviewed if the facts and circumstances suggest that they
may be impaired. This review indicates whether assets will be
recoverable based on future expected cash flows. Based on its
review, the Company does not believe that an impairment of its
excess of cost over fair value of net assets acquired has
occurred.

In accordance with Statement of Financial Accounting Standards
No. 142, amortization of goodwill ceased as of
January 1, 2002, leaving a recorded balance of $454,000. An
impairment review of our remaining goodwill balance will be
conducted on an annual basis.

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.

Long-Term Debt

Prior to August 2001, the Company has maintained a revolving
credit facility (the Revolver) whereunder borrowings
were secured by substantially all of the assets of the Company.
Under the Revolver, available borrowings were based on accounts
receivable and certain other criteria, up to a maximum of $30
million. In light of its increased cash balance, the Company
terminated the Revolver in August 2001.

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 carryforwards given the provisions of the
enacted tax laws.

Stock-Based Compensation

The Company has chosen to continue to account 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 and to elect the
disclosure option of Statement of Financial

38



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




2.  Summary of Significant Accounting
Policies  (Continued)


Accounting Standards (FAS) No. 123,
Accounting for Stock-Based Compensation.
Accordingly, 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.

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 FAS 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 5,494,673, 9,148,878 and 8,006,072 shares of
common stock at December 31, 1999, 2000 and 2001, respectively,
and warrants to acquire up to 40,829, 5,160 and 5,160 shares of
common stock at December 31, 1999, 2000 and 2001
respectively, were the only securities issued which would be
included in the diluted earnings per share calculation if
dilutive. In 1999 and 2000 the inclusion of stock options and
warrants would have been antidilutive due to the net loss
reported by the Company. The computations of the basic and
diluted per share amounts for the were as follows for the years
ended December 31:

|                                 |                                  |      |        |            |  |      |         |            |  |   |       |            | 
|-------------------------------- | -------------------------------- | ---- | ------ | ---------- |  | ---- | ------- | ---------- |  | - | ----- | ---------- | 
|                                 |                                  | 1999 |        | 2000       |  | 2001
|                                 |                                  |      |        |            |  |     
|Basic Earnings Per Share:        |                                  |      |        |            |  |      |         |            |  |   |       |           
|                                
|                                
|                                
|                                
|Net (loss) income (in thousands) |                                  | $    | (9,445 | )          |  | $    | (33,959 | )          |  | $ | 4,408 |           
|                                
|                                
|                                
|                                
|                                 | Weighted average shares:         |      |        |            |  |      |         |            |  |   |       |            | 
|                                
|                                
|                                
|                                
|                                 | Outstanding                      |      |        | 34,803,934 |  |      |         | 36,765,975 |  |   |       | 43,243,512 | 
|                                 |                                  |      |        |            |  |      |         |            |  |   |       |           
|Basic earnings per share         |                                  | $    | (0.27  | )          |  | $    | (0.92   | )          |  | $ | 0.10  |           
|                                 |                                  |      |        |            |  |      |         |            |  |   |       |           
|Diluted Earnings Per Share:      |                                  |      |        |            |  |      |         |            |  |   |       |           
|                                
|                                
|                                
|                                
|Net (loss) income (in thousands) |                                  | $    | (9,445 | )          |  | $    | (33,959 | )          |  | $ | 4,408 |           
|                                
|                                
|                                
|                                
|Weighted average shares:         |                                  |      |        |            |  |      |         |            |  |   |       |           
|                                
|                                
|                                
|                                
|                                 | Outstanding                      |      |        | 34,803,934 |  |      |         | 36,765,975 |  |   |       | 43,243,512 | 
|                                
|                                
|                                
|                                
|                                 | Effect of dilutive stock options |      |        |           |  |      |         |           |  |   |       | 3,551,849  | 
|                                 |                                  |      |        |            |  |      |         |            |  |   |       |           
|                                 | Total shares                     |      |        | 34,803,934 |  |      |         | 36,765,975 |  |   |       | 46,795,361 | 
|                                 |                                  |      |        |            |  |      |         |            |  |   |       |           
|Diluted earnings per share       |                                  | $    | (0.27  | )          |  | $    | (0.92   | )          |  | $ | 0.09  |           
|                                 |                                  |      |        |            |  |      |         |            |  |   |       |           

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 Translation

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

39



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


2.  Summary of Significant Accounting
Policies  (Continued)

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, 2001.

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 September 2000, the Financial Accounting Standards Board
(FASB) issued SFAS 140 (SFAS 140),
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. SFAS 140, which
replaces SFAS 125 (SFAS 125), Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, addresses certain issues not previously
addressed in SFAS 125. SFAS 140 is effective for transfers and
servicing occurring after March 31, 2001 and, for certain
provisions, fiscal years ending after December 15, 2000.
The adoption of SFAS 140 has had no impact on the Companys
financial position or results of operations.

In June 2001, the FASB issued SFAS No. 141 (SFAS
141), Business Combinations and SFAS
No. 142 (SFAS 142), Goodwill and Other
Intangible Assets. These standards require that all
business combinations be accounted for using the purchase method
and that goodwill and intangible assets with indefinite useful
lives should not be amortized but should be tested for
impairment at least annually, and they provide guidelines for
new disclosure requirements. These standards outline the
criteria for initial recognition and measurement of intangibles,
assignment of assets and liabilities including goodwill to
reporting units and goodwill impairment testing. Additionally,
under the provisions of these standards, the unamortized balance
of negative goodwill will be written off and recognized as a
change in accounting principle. The provisions of SFAS 141 and
142 apply to all business combinations after June 30, 2001.
The provisions of SFAS 142 for existing goodwill and other
intangible assets are required to be implemented effective
January 1, 2002. The company is currently evaluating the
impact of SFAS No. 142 on the consolidated financial
statements. In accordance with SFAS 142, amortization of
goodwill ceased as of January 1, 2002, leaving a recorded
balance of $454,000 of goodwill as of December 31, 2001.

In October of 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
No. 121 for the 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 on Goodwill is not included in the scope of SFAS
No. 144 and will be treated in accordance with the
accounting standards established in SFAS No. 142,
Goodwill and Other Intangible Assets. According to
SFAS No. 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 Company adopted this
statement on January 1,

40



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


2.  Summary of Significant Accounting
Policies  (Continued)

2002, and does not expect the statement to have a material
effect on the Company as a significant portion of identified
intangible assets will be fully amortized by December 31,
2002.

3.  Property and Equipment

Property and equipment is summarized as follows (in thousands):

|                                                |  |                    |         |      |  |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | -
|                                                |  |                   
|                                                |  | As of December 31,
|                                                |  |                   
|                                                |  | 2000               |         | 2001
|                                                |  |                    |         |     
|Computer equipment                              |  | $                  | 22,292  |      |  | $ | 18,204  |  
|                                               
|                                               
|                                               
|                                               
|Office equipment and other                      |  |                    | 6,240   |      |  |   | 5,824   |  
|                                               
|                                               
|                                               
|                                               
|Purchased software                              |  |                    | 6,667   |      |  |   | 6,633   |  
|                                               
|                                               
|                                               
|                                               
|Leasehold improvements                          |  |                    | 4,723   |      |  |   | 7,183   |  
|                                                |  |                    |         |      |  |   |         |  
|                                                |  |                    | 39,922  |      |  |   | 37,844  |  
|                                               
|                                               
|                                               
|                                               
|Less: Accumulated depreciation and amortization |  |                    | (23,121 | )    |  |   | (16,169 | )
|                                                |  |                    |         |      |  |   |         |  
|                                                |  | $                  | 16,801  |      |  | $ | 21,675  |  
|                                                |  |                    |         |      |  |   |         |  

Depreciation and amortization expense of property and equipment
totaled approximately $7.2 million, $5.7 million and
$6.7 million in 1999, 2000 and 2001, respectively.

4.  Stockholders Equity and Mandatorily
Redeemable Preferred Stock

Mandatorily Redeemable Preferred Stock

In connection with its acquisition of Alltel the Company sold
30,000 shares of Series B 8.5% Cumulative Redeemable
Preferred Stock (Series B) and warrants to
purchase up to 1,799,715 shares of Non-Voting Common Stock at
$.01 per share for total consideration of $30.0 million.
Additionally, 20,000 shares of the Series C 8.5% Cumulative
Redeemable Preferred Stock (Series C) were
issued to Alltel Information Services, Inc. (AIS) as
part of the consideration paid for Alltel. During 1999, 962,513
shares of Common Stock were issued upon the exercise of the
warrants issued in conjunction with Series B and
Series C.

Series A Convertible Preferred Stock

In March 1996, PCS sold 20,000 shares of its Series A
Convertible Preferred Stock (PCS Series A) for
$2.0 million to outside investors. At the time of the PCS
merger, the PCS Series A were converted into 241,183 shares
of Common Stock of the Company.

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

41



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




4.  Stockholders Equity and Mandatorily
Redeemable Preferred Stock  (Continued)


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
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.  Acquisitions

As discussed in Note 2, on February 17, 1999, the Company
completed a merger with PCS for total consideration of
approximately $35.0 million. The Company issued 1,104,000
of its Common Stock for all of the common stock outstanding of
PCS. Prior to the transaction, PCS issued convertible notes and
warrants to purchase common stock to certain investors. As of
December 31, 1998, the balance of convertible notes payable
was $1.9 million. At the time of the PCS merger, the
convertible debt was converted into 102,515 shares of Common
Stock of the Company. No adjustments were made to the net assets
of PCS as a result of the acquisition. The merger was accounted
for as a pooling of interests and accordingly, the accompanying
consolidated financial statements have been retroactively
restated as if the merger occurred as of the earliest period
presented. PCS provides enterprise resource planning software
throughout the healthcare industry.

Effective March 31, 1999, the Company acquired the common
stock of Intelus Corporation (Intelus) and Med Data
Systems, Inc. (Med Data), both wholly owned
subsidiaries of Sungard Data Systems, Inc. for total
consideration of $25.0 million in cash. The acquired
entities both provide document imaging technology and workflow
solutions to entities throughout the healthcare industry. The
acquisition was accounted for as a purchase and, accordingly,
the purchase price was allocated based on the fair value of the
net assets acquired.

Effective July 1, 1999, the Company sold Med Data for total
consideration of $5.0 million in cash. The Company reduced
acquired technology originally recorded in the purchase during
the quarter ended September 30, 1999 by $4.4 million, which
represents the difference between the sales price and the net

42



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




5.  Acquisitions  (Continued)


tangible assets sold. The final purchase price is composed of
and allocated as follows after adjustment for the sale of Med
Data (in thousands):

|                                                      |  |   |        | 
|----------------------------------------------------- |  | - | ------ | 
|                                                     
|                                                     
|                                                     
|                                                     
|Cash                                                  |  | $ | 25,000 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Liabilities assumed                                   |  |   | 6,406  | 
|                                                      |  |   |        | 
|                                                      |  |   | 31,406 | 
|                                                      |  |   |        | 
|Current assets                                        |  |   | 8,630  | 
|                                                     
|                                                     
|                                                     
|                                                     
|Fixed assets                                          |  |   | 778    | 
|                                                      |  |   |        | 
|                                                      |  |   | 9,408  | 
|                                                      |  |   |        | 
|Identifiable intangible assets (acquired
	technology) |  | $ | 21,998 | 
|                                                      |  |   |        | 

Unaudited pro forma results of operations as if the
aforementioned acquisitions had occurred on January 1, 1999
is as follows (in thousands except per share data):

|                                     |  |                   |         |  
|------------------------------------ |  | ----------------- | ------- | -
|                                     |  | Year Ended       
|                                     |  | December 31, 1999
|                                     |  |                  
|Revenues                             |  | $                 | 252,818 |  
|                                    
|                                    
|                                    
|                                    
|Net loss                             |  |                   | (9,884  | )
|                                    
|                                    
|                                    
|                                    
|Basic and diluted net loss per share |  | $                 | (.28    | )

As discussed in Note 2, on June 17, 1999, the Company
completed a merger with MSI for total consideration of
approximately $53.6 million. The Company issued 2,375,000
of its common stock for all of the common stock outstanding of
MSI. No adjustments were made to the net assets of MSI as a
result of the acquisition. The merger was accounted for as a
pooling of interests and accordingly, the accompanying
consolidated financial statements have been retroactively
restated as if the merger occurred as of the earliest period
presented. MSI provides web enabling and integration software.
In connection with the pooling of MSI, the Company recorded a
stock compensation charge of $1.0 million related to
certain MSI options that were required to be fully vested at the
merger date. Prior to the merger with Eclipsys, MSI was a
Subchapter S Corporation. During 1999, MSI paid distributions to
stockholders of $375,000. In connection with the Eclipsys
merger, the Subchapter S election was terminated.

During July 1999, the Company invested in HEALTHvision, Inc., a
Dallas based, privately held internet healthcare company, in
conjunction with VHA, Inc. and investment entities affiliated
with General Atlantic Partners, LLC. The Company purchased
3,400,000 shares of common stock for $34,000, which represented
34% of the outstanding common stock on an if-converted basis of
HEALTHvision, Inc. As of December 31, 2001 these shares
represented 28% of the common stock of HEALTHvision, Inc. on an
if-converted basis. The Company accounts for the investment
using the equity method of accounting. In connection with the
formation of HEALTHvision, Inc., certain employees of Eclipsys
became employees of HEALTHvision, Inc. and as a result the
Company recorded a stock compensation charge of $982,000 due to
accelerated vesting of those employees stock options.

On March 30, 2000, the Company entered into a definitive
merger agreement to be acquired by 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.

43



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


6.  Other Current Liabilities

Other current liabilities consisted of the following (in
thousands):

|                                    |  |              |        |      |  |   |        | 
|----------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                    |  |             
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2000         |        | 2001
|                                    |  |              |        |     
|Accounts payable                    |  | $            | 2,660  |      |  | $ | 1,486  | 
|                                   
|                                   
|                                   
|                                   
|Accrued compensation and incentives |  |              | 11,952 |      |  |   | 12,219 | 
|                                   
|                                   
|                                   
|                                   
|Customer deposits                   |  |              | 990    |      |  |   | 511    | 
|                                   
|                                   
|                                   
|                                   
|Accrued royalties                   |  |              | 2,695  |      |  |   | 2,679  | 
|                                   
|                                   
|                                   
|                                   
|Other                               |  |              | 10,064 |      |  |   | 5,853  | 
|                                    |  |              |        |      |  |   |        | 
|                                    |  | $            | 28,361 |      |  | $ | 22,748 | 
|                                    |  |              |        |      |  |   |        | 

During the quarter ended June 30, 1999, the Company
initiated a restructuring of its operations. This restructuring
was completed during the quarter ended September 30, 1999
and resulted in a charge totaling $5.1 million. The charge
principally related to the closing of duplicate facilities and
the termination of certain employees. As of December 31,
2000 and 2001, the liability related to the restructuring in
1999 totaled $764,000 and $0, respectively. During 2000, the
Company initiated and completed another restructuring of its
operations. This restructuring rationalized employee headcount
following the Companys completion of the integration of
its acquisitions. Additionally, the Company consolidated its
research and development and implementation functions. Charges
in connection with this restructuring in 2000 totaled
$1.2 million. As of December 31, 2001, there were no
significant liabilities remaining related to either
restructuring.

7. Income Taxes

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 (in thousands):

|                                                      |  |                         |        |      |  |      |         |   |  |   |        |  
|----------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                      |  |                        
|                                                      |  | Year Ended December 31,
|                                                      |  |                        
|                                                      |  | 1999                    |        | 2000 |  | 2001
|                                                      |  |                         |        |      |  |     
|Statutory federal income tax rate                     |  | $                       | (3,212 | )    |  | $    | (11,546 | ) |  | $ | 1,499  |  
|                                                     
|                                                     
|                                                     
|                                                     
|State income taxes                                    |  |                         | (374   | )    |  |      | (1,345  | ) |  |   | 175    |  
|                                                     
|                                                     
|                                                     
|                                                     
|Non-deductible deal costs                             |  |                         | 650    |      |  |      |        |   |  |   |       |  
|                                                     
|                                                     
|                                                     
|                                                     
|Non-deductible amortization                           |  |                         | 2,610  |      |  |      | 2,640   |   |  |   | 1,943  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Other                                                 |  |                         | 326    |      |  |      | 301     |   |  |   | 344    |  
|                                                     
|                                                     
|                                                     
|                                                     
|Valuation allowance, includes effect of
	acquisitions |  |                         |       |      |  |      | 9,950   |   |  |   | (3,961 | )
|                                                      |  |                         |        |      |  |      |         |   |  |   |        |  
|Income tax provision                                  |  | $                       |       |      |  | $    |        |   |  | $ |       |  
|                                                      |  |                         |        |      |  |      |         |   |  |   |        |  

44



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001




7. Income Taxes  (Continued)


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

|                                             |  |                    |         |      |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | -
|                                             |  |                   
|                                             |  | As of December 31,
|                                             |  |                   
|                                             |  | 2000               |         | 2001
|                                             |  |                    |         |     
|Deferred tax assets:                         |  |                    |         |      |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Intangible assets                            |  | $                  | 38,071  |      |  | $ | 40,823  |  
|                                            
|                                            
|                                            
|                                            
|Deferred revenue                             |  |                    | 328     |      |  |   |        |  
|                                            
|                                            
|                                            
|                                            
|Allowance for doubtful accounts              |  |                    | 6,579   |      |  |   | 3,241   |  
|                                            
|                                            
|                                            
|                                            
|Accrued expenses                             |  |                    | 1,534   |      |  |   | 203     |  
|                                            
|                                            
|                                            
|                                            
|Depreciation                                 |  |                    | 794     |      |  |   |        |  
|                                            
|                                            
|                                            
|                                            
|Other                                        |  |                    | 600     |      |  |   | 1,719   |  
|                                            
|                                            
|                                            
|                                            
|Net operating loss carryforwards             |  |                    | 46,895  |      |  |   | 48,419  |  
|                                             |  |                    |         |      |  |   |         |  
|                                             |  | $                  | 94,801  |      |  | $ | 94,405  |  
|                                             |  |                    |         |      |  |   |         |  
|Deferred tax liabilities:                    |  |                    |         |      |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Unbilled Receivables                         |  | $                  | (7,630  | )    |  | $ | (5,647  | )
|                                            
|                                            
|                                            
|                                            
|Depreciation                                 |  |                    |        |      |  |   | (500    | )
|                                            
|                                            
|                                            
|                                            
|Capitalization of software development costs |  |                    | (4,354  | )    |  |   | (5,250  | )
|                                             |  |                    |         |      |  |   |         |  
|Net deferred tax asset                       |  |                    | 82,817  |      |  |   | 83,008  |  
|                                             |  |                    |         |      |  |   |         |  
|Valuation allowance                          |  |                    | (82,817 | )    |  |   | (83,008 | )
|                                             |  |                    |         |      |  |   |         |  
|                                             |  | $                  |        |      |  | $ |        |  
|                                             |  |                    |         |      |  |   |         |  

At December 31, 2001, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$122.7 million. The carryforwards expire in varying amounts
through 2021. Of this amount, $39.3 million related 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 $4.9 million that expire in varying
amounts through 2006.

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
ownership changes as defined under Section 382 of the
Internal Revenue Code in January 1997 and December 1998. As a
result of the ownership changes, net operating loss
carry-forwards of approximately $1.5 million at January,
1997 and $55.0 million at December 1998, which were
incurred prior to the date of change, are subject to annual
limitations on their future use. As of December 31, 2001, a
valuation allowance has been established against the deferred
tax assets that management does not believe are more likely than
not to be realized.

8. 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

45



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


8. Employee Benefit Plans  (Continued)

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 further options or 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

On May 22, 2000, the Board adopted the 2000 Stock Incentive
Plan (the 2000 Plan). The 2000 Plan provides for the
granting of stock options, restricted stock, or other
stock-based awards. Under the provisions of the 2000 Plan, no
options or other awards may be granted after May 2010. The 2000
Plan increases the number of shares of common stock reserved
under the 2000 Plan, together with the 1999 Plan, the Incentive
Plan, the 1996 Plan and the 1998 Employee Stock Purchase Plan,
to 12,000,000.

|                                     |           |         |           |            |   |         |       |          |  |         |           |           |   |   |       |       |  |  |           |            |   |   |       |       | 
|------------------------------------ | --------- | ------- | --------- | ---------- | - | ------- | ----- | -------- |  | ------- | --------- | --------- | - | - | ----- | ----- |  |  | --------- | ---------- | - | - | ----- | ----- | 
|                                     |           |         |           |            |   |        
|                                     |           | 1999    |           | 2000       |   | 2001   
|                                     |           |         |           |            |   |        
|                                     |           |         |           | Weighted   |   |         |       | Weighted |  |         |           | Weighted 
|                                     |           |         |           | Average    |   |         |       | Average  |  |         |           | Average  
|                                     |           |         |           | Exercise   |   |         |       | Exercise |  |         |           | Exercise 
|                                     |           | Options |           | Price      |   | Options |       | Price    |  | Options |           | Price    
|                                     |           |         |           |            |   |         |       |          |  |         |           |          
|Outstanding at beginning of the year |           |         | 4,344,958 |            |   | $       | 10.69 |          |  |         | 5,494,673 |           |   | $ | 16.98 |       |  |  | 9,148,878 |            |   | $ | 12.87 |      
|                                    
|                                    
|                                    
|                                    
|                                     | Granted   |         |           | 3,141,212  |   |         |       | 19.62    |  |         |           | 4,977,159 |   |   |       | 8.46  |  |  |           | 1,196,284  |   |   |       | 14.70 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Exercised |         |           | (1,610,556 | ) |         |       | 3.75     |  |         |           | (510,253  | ) |   |       | 6.62  |  |  |           | (1,342,619 | ) |   |       | 10.96 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Forfeited |         |           | (380,941   | ) |         |       | 22.53    |  |         |           | (812,701  | ) |   |       | 17.71 |  |  |           | (996,471   | ) |   |       | 22.89 | 
|                                     |           |         |           |            |   |         |       |          |  |         |           |           |   |   |       |       |  |  |           |            |   |   |       |      
|Outstanding at end of year           |           |         | 5,494,673 |            |   |         | 16.98 |          |  |         | 9,148,878 |           |   |   | 12.87 |       |  |  | 8,006,072 |            |   |   | 12.22 |      
|                                     |           |         |           |            |   |         |       |          |  |         |           |           |   |   |       |       |  |  |           |            |   |   |       |      
|Exercisable at end of the year       |           |         | 1,115,891 |            |   |         |       |          |  |         | 2,319,237 |           |   |   |       |       |  |  | 3,425,434 |            |   |   |       |      
|                                     |           |         |           |            |   |         |       |          |  |         |           |           |   |   |       |       |  |  |           |            |   |   |       |      

|                                   |  |          |       |          |  |          |       |          |  |          |      |          |  |   |      |  |  |   |       |  |  |   |       | 
|---------------------------------- |  | -------- | ----- | -------- |  | -------- | ----- | -------- |  | -------- | ---- | -------- |  | - | ---- |  |  | - | ----- |  |  | - | ----- | 
|                                   |  |          |       |          |  |         
|                                   |  | 1999     |       | 2000     |  | 2001    
|                                   |  |          |       |          |  |         
|                                   |  | 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   |  | $        | 19.62 |          |  |          |       |          |  | $        | 8.46 |          |  |   |      |  |  | $ | 14.70 |  |  |   |       | 
|                                  
|                                  
|                                  
|                                  
|Option price< Fair market value    |  |          |      |          |  |          |       |          |  |          |     |          |  |   |      |  |  |   |      |  |  |   |       | 
|                                  
|                                  
|                                  
|                                  
|Weighted Fair Market Value Options |  |          |       |          |  | $        | 18.51 |          |  |          |      |          |  | $ | 7.98 |  |  |   |       |  |  | $ | 10.70 | 

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 1999, 2000 and 2001 consistent
with the provisions of FAS 123, the Companys net loss and
loss per

46



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


8. Employee Benefit Plans  (Continued)

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

|                                     |             |                         |   |         |   |      |   |         |   |  |   |       | 
|------------------------------------ | ----------- | ----------------------- | - | ------- | - | ---- | - | ------- | - |  | - | ----- | 
|                                     |             |                        
|                                     |             | Year Ended December 31,
|                                     |             |                        
|                                     |             | 1999                    |   | 2000    |   | 2001
|                                     |             |                         |   |         |   |     
|Net (loss) income:                   |             |                         |   |         |   |      |   |         |   |  |   |      
|                                    
|                                    
|                                    
|                                    
|                                     | As reported |                         | $ | (9,445  | ) |      | $ | (33,959 | ) |  | $ | 4,408 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Pro forma   |                         |   | (23,788 | ) |      |   | (45,032 | ) |  |   | 1,252 | 
|                                    
|                                    
|                                    
|                                    
|Basic net (loss) income per share:   |             |                         |   |         |   |      |   |         |   |  |   |      
|                                    
|                                    
|                                    
|                                    
|                                     | As reported |                         | $ | (0.27   | ) |      | $ | (0.92   | ) |  | $ | 0.10  | 
|                                    
|                                    
|                                    
|                                    
|                                     | Pro forma   |                         | $ | (0.68   | ) |      | $ | (1.22   | ) |  | $ | 0.03  | 
|                                    
|                                    
|                                    
|                                    
|Diluted net (loss) income per share: |             |                         |   |         |   |      |   |         |   |  |   |      
|                                    
|                                    
|                                    
|                                    
|                                     | As reported |                         | $ | (0.27   | ) |      | $ | (0.92   | ) |  | $ | 0.09  | 
|                                    
|                                    
|                                    
|                                    
|                                     | Pro forma   |                         | $ | (0.68   | ) |      | $ | (1.22   | ) |  | $ | 0.03  | 

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 1999,
2000 and 2001: dividend yield of 0% for all years, risk-free
interest rate of 6.34% for 1999, 5.75% for 2000 and 4.27% for
2001, expected life of 7.44, 9.88 and 6.81 years based on
the plan and volatility of 133% for 1999, 113% for 2000, and 78%
for 2001.

The following table summarizes information about stock options
outstanding at December 31, 2001:

|                        |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 
|----------------------- |  | ------------------- | --------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                        |  |                     |           |                    
|                        |  | Options Outstanding |           | Options Exercisable
|                        |  |                     |           |                    
|                        |  |                     |           | Weighted            |  |          |      |            
|                        |  |                     |           | Average             |  | Weighted |      |             |  | Weighted
|                        |  | Number              |           | Remaining           |  | Average  |      | Number      |  | Average 
|                        |  | Outstanding         |           | Contractual         |  | Exercise |      | Exercisable |  | Exercise
|Range of Exercise Price |  | at 12/31/01         |           | Life (in years)     |  | Price    |      | at 12/31/01 |  | Price   
|                        |  |                     |           |                     |  |          |      |             |  |         
|$ 0.10-$ 6.50           |  |                     | 1,177,736 |                     |  |          | 6.99 |             |  | $        | 6.01  |  |  |  | 624,027   |  |  | $ | 5.62  | 
|                       
|                       
|                       
|                       
|$ 6.51-$ 7.50           |  |                     | 44,614    |                     |  |          | 6.00 |             |  |          | 7.35  |  |  |  | 30,861    |  |  |   | 7.39  | 
|                       
|                       
|                       
|                       
|$ 7.51-$ 8.50           |  |                     | 2,775,235 |                     |  |          | 8.53 |             |  |          | 8.25  |  |  |  | 1,023,257 |  |  |   | 8.25  | 
|                       
|                       
|                       
|                       
|$ 8.51-$13.20           |  |                     | 1,107,202 |                     |  |          | 8.80 |             |  |          | 11.60 |  |  |  | 243,028   |  |  |   | 9.76  | 
|                       
|                       
|                       
|                       
|$13.21-$15.50           |  |                     | 1,078,953 |                     |  |          | 7.78 |             |  |          | 14.58 |  |  |  | 611,251   |  |  |   | 14.70 | 
|                       
|                       
|                       
|                       
|$15.51-$20.15           |  |                     | 965,735   |                     |  |          | 8.31 |             |  |          | 18.43 |  |  |  | 309,144   |  |  |   | 19.43 | 
|                       
|                       
|                       
|                       
|$20.16-$23.50           |  |                     | 745,826   |                     |  |          | 7.42 |             |  |          | 22.83 |  |  |  | 493,046   |  |  |   | 23.10 | 
|                       
|                       
|                       
|                       
|$23.51-$26.00           |  |                     | 22,049    |                     |  |          | 5.11 |             |  |          | 25.71 |  |  |  | 19,845    |  |  |   | 25.71 | 
|                       
|                       
|                       
|                       
|$26.01-$36.00           |  |                     | 39,374    |                     |  |          | 5.58 |             |  |          | 35.83 |  |  |  | 31,497    |  |  |   | 35.83 | 
|                       
|                       
|                       
|                       
|$36.01-$43.57           |  |                     | 49,348    |                     |  |          | 5.88 |             |  |          | 43.57 |  |  |  | 39,478    |  |  |   | 43.57 | 

In connection with the Transition merger, options held by
employees of Transition were converted into options to purchase
1,792,854 shares of Common Stock based on the .525 conversion
ratio. All option disclosures reflect the impact of Transition
options after retroactive restatement for the impact of the
Transition merger. As of December 31, 1999, 2000 and 2001,
respectively, there were 327,626, 181,986 and 160,624 options
outstanding related to Transitions stock options plans.

In connection with the PCS and MSI mergers, options held by
employees were converted into outstanding options of the
Company. As of December 31, 1999, 2000 and 2001,
respectively, there were 11,764, 10,859 and 10,859 options
outstanding related to PCSs stock option plan. As of
December 31, 1999,

47



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


8. Employee Benefit Plans  (Continued)

2000 and 2001, respectively, there were 72,435, 47,676 and
26,557 options outstanding related to MSIs stock option
plan.

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, 1999, 2000 and 2001, the Board authorized
matching contributions totaling $0, $801,000 and $532,000,
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.

9.  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 $11.6 million, $10.6 million
and $11.4 million for the years ended December 31,
1999, 2000 and 2001 respectively. Future minimum rental payments
for noncancelable operating leases as of December 31, 2001
are as follows (in thousands):

|                         |  |   |        | 
|------------------------ |  | - | ------ | 
|Year Ending December 31, |  |  
|                         |  |  
|2002                     |  | $ | 10,256 | 
|                        
|                        
|                        
|                        
|2003                     |  |   | 9,946  | 
|                        
|                        
|                        
|                        
|2004                     |  |   | 7,939  | 
|                        
|                        
|                        
|                        
|2005                     |  |   | 4,655  | 
|                        
|                        
|                        
|                        
|2006                     |  |   | 3,432  | 
|                        
|                        
|                        
|                        
|Thereafter               |  |   | 3,933  | 
|                         |  |   |        | 
|                         |  | $ | 40,161 | 
|                         |  |   |        | 

Litigation

The Company is involved in 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.

10.  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.

48



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


10.  Related Party Transactions 
(Continued)

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.

The Company leases office space from a former stockholder of
SDK. During the years ended December 31, 1999, 2000 and
2001, the Company paid $330,000, $849,000 and $692,000,
respectively, under this lease. The lease, which was amended to
increase the space at the end of 1999, is noncancelable and
expires in 2009.

Our Chairman of the Board and Chief Executive Officer of the
Company 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. Our Chairman has no
ownership or other interest in the charter company. For flights
chartered by the Company, we paid the charter company $530,000,
$412,000 and $775,000, in 1999, 2000 and 2001, respectively. The
Chairmans company received $339,000, $298,000 and
$481,000, during 1999, 2000 and 2001, respectively, for these
transactions.

As discussed in Note 5, during July 1999, we 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. 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, 2001 our shares
represented 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, 2001. 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
$1,133,000 during 2001. During 2001, the Company earned revenues
from HEALTHvision of $2,553,000 and had accounts receivable due
from HEALTHvision of $1,049,000 at December 31, 2001. For
the year ended December 31, 2001, HEALTHvision, Inc had total
revenues of approximately $17.6 million
(unaudited) and a net loss of approximately
$9.9 million (unaudited). Additionally, HEALTHvision had
total assets of approximately $13.6 million
(unaudited) as of December 31, 2001. Our Chairman and
CEO serves as co-chairman of HEALTHvision.

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 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

49



---



##### 



ECLIPSYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


For the Three Years Ended December 31, 2001


10.  Related Party Transactions 
(Continued)

totaled $976,000, $274,000 and $0 for the years ended
December 31, 1999, 2000 and 2001 respectively, and are
included as a reduction in research and development expenses in
the accompanying consolidated statements of operations.

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 the sum of $953,921 in 2001.
As of December 31, 2001, Partners owed the Company the sum
of $203,515 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.

11.  Investment Write-Down

In April 1998, the Company made a strategic investment in
Simione Central Holdings, Inc. (Simione) a publicly
traded company, purchasing 420,000 shares of restricted common
stock from certain stockholders of Simione for
$5.6 million. At the time of the transaction, the common
stock represented 4.9% of Simiones outstanding common
stock. The Company accounted for its investment in these shares
using the cost method.

Concurrent with the investment, the Company and Simione entered
into a remarketing agreement pursuant to which the Company had
certain rights to distribute Simione software products.

At December 31, 1998, the Company determined that an other
than temporary impairment of its investment occurred.
Accordingly, the investment was written down to its estimated
fair value of approximately $800,000 and the Company recorded a
charge of $4.8 million in the accompanying statement of
operations. During the first quarter of 2000, the Company
recorded a charge of approximately $800,000 to write down the
remaining balance of its investment. In late 2000, the Company
sold its investment for approximately $226,000. The subsequent
recovery was recorded to partially offset the previously
recorded write downs.

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.

50



---



##### 



ECLIPSYS CORPORATION

SCHEDULE II-VALUATION OF QUALIFYING ACCOUNTS


For Each of the Three Years in the Period Ended
December 31, 2001







|                                                 |                                            |              |       |           |  |          |        |            |  |            |    |  |  |   |         |   |  |   |       |        | 
|------------------------------------------------ | ------------------------------------------ | ------------ | ----- | --------- |  | -------- | ------ | ---------- |  | ---------- | -- |  |  | - | ------- | - |  | - | ----- | ------ | 
|                                                 |                                            | Balance at   |       |           |  |          |        |            |  | Balance at
|                                                 |                                            | Beginning of |       |           |  | Acquired |        |            |  | End of    
|                                                 |                                            | Period       |       | Additions |  | Reserves |        | Write-offs |  | Period    
|                                                
|                                                
|December 31, 1999Allowance for doubtful accounts |                                            | $            | 3,724 |           |  | $        | 2,304  |            |  | $          | 81 |  |  | $ | (2,417  | ) |  | $ | 3,692 |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Valuation allowance for deferred tax asset |              |       | 69,082    |  |          |        | 1,744      |  |            |    |  |  |   |         |   |  |   |       | 70,826 | 
|                                                
|                                                
|                                                
|                                                
|                                                
|December 31, 2000Allowance 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, 2001Allowance for doubtful accounts |                                            |              | 5,656 |           |  |          | 4,305  |            |  |            |    |  |  |   | (4,389  | ) |  |   | 5,572 |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Valuation allowance for deferred tax asset |              |       | 82,817    |  |          |        | 191        |  |            |    |  |  |   |         |   |  |   |       | 83,008 | 
|                                                

51



---



##### 



Quarterly Results (Unaudited)

The following table presents quarterly statement of operations
data for each of the eight quarters in the period ended
December 31, 2001. 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, 2000


(In thousands, except per share data)


|                                    |  |         |        |         |  |         |         |         |  |      |         |   |  |   |        |   |  |   |         |  
|----------------------------------- |  | ------- | ------ | ------- |  | ------- | ------- | ------- |  | ---- | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                    |  | First   |        | Second  |  | Third   |         | Fourth  |  |     
|                                    |  | Quarter |        | Quarter |  | Quarter |         | Quarter |  | Year
|                                    |  |         |        |         |  |         |         |         |  |     
|Revenues                            |  | $       | 64,690 |         |  | $       | 47,129  |         |  | $    | 50,613  |   |  | $ | 54,105 |   |  | $ | 216,538 |  
|                                   
|                                   
|                                   
|                                   
|Gross profit margin                 |  |         | 29,137 |         |  |         | 9,786   |         |  |      | 7,739   |   |  |   | 20,617 |   |  |   | 67,279  |  
|                                   
|                                   
|                                   
|                                   
|Net income (loss)                   |  |         | 4,989  |         |  |         | (15,231 | )       |  |      | (18,288 | ) |  |   | (5,430 | ) |  |   | (33,959 | )
|                                   
|                                   
|                                   
|                                   
|Basic net income (loss) per share   |  | $       | 0.14   |         |  | $       | (0.42   | )       |  | $    | (0.50   | ) |  | $ | (0.15  | ) |  | $ | (0.92   | )
|                                   
|                                   
|                                   
|                                   
|Diluted net income (loss) per share |  | $       | 0.13   |         |  | $       | (0.42   | )       |  | $    | (0.50   | ) |  | $ | (0.15  | ) |  | $ | (0.92   | )

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                            |  | $       | 54,671 |         |  | $       | 59,200 |         |  | $    | 62,442 |  |  | $ | 60,681 |  |  | $ | 236,994 | 
|                                   
|                                   
|                                   
|                                   
|Gross profit margin                 |  |         | 21,575 |         |  |         | 25,901 |         |  |      | 28,826 |  |  |   | 26,756 |  |  |   | 103,058 | 
|                                   
|                                   
|                                   
|                                   
|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    | 



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

Not applicable.

52



---



##### 



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 2002, 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
2002 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 2002 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 2002 and is
incorporated herein by reference.

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 2002 and is
incorporated herein by reference.

53



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##### 



Part IV



|         |                                                                  
|-------- | -----------------------------------------------------------------
|Item 14. | 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                                                                                                                                                                                                             
| | 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                                                                                                                                                                                                                                             
| | 10.8**      |  |  | 1998 Stock Incentive Plan, as amended                                                                                                                                                                                                                       
| | 10.9*****   |  |  | Amended and Restated 1998 Employee Stock Purchase
	Plan, as amended                                                                                                                                                                                         

54



---



##### 



| |                |  |  |                                                                                                                                 
| | -------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------
| | 10.13**        |  |  | Settlement of Claims Agreement, dated as of
	March 13, 1998, between ALLTEL Information Services, Inc.
	and Eclipsys Corporation
| | 10.14*****     |  |  | 1999 Stock Incentive Plan, as amended                                                                                           
| | 10.15********* |  |  | 2000 Stock Incentive Plan                                                                                                       
| | 21             |  |  | Subsidiaries of the Registrant                                                                                                  
| | 23             |  |  | Consent of PricewaterhouseCoopers LLP                                                                                           






|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
| | confidential treatment granted on August 6, 1998 in
	connection with the Registrants IPO



|          |                                                                                                                                                          
|--------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|*         | 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,
	2000 (File No. 000-24539)                   

(b) Reports on Form 8-K.

None.

55



---



##### 



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/ HARVEY J. WILSONHarvey J. Wilson     |  | Chief Executive Officer, (Principal Executive
	Officer), Director                            |  | March 25, 2002
|                                        
|/s/ ROBERT J. COLLETTIRobert J. Colletti |  | Senior Vice President, Chief Financial Officer
	(Principal Financial and Accounting Officer) |  | March 25, 2002
|                                        
|/s/ STEVEN A. DENNINGSteven A. Denning   |  | Director                                                                                     |  | March 25, 2002
|                                        
|/s/ G. FRED DIBONAG. Fred Dibona         |  | Director                                                                                     |  | March 25, 2002
|                                        
|/s/ EUGENE V. FIFEEugene V. Fife         |  | Director                                                                                     |  | March 25, 2002
|                                        
|/s/ BRADEN KELLYBraden Kelly             |  | Director                                                                                     |  | March 25, 2002
|                                        
|/s/ JAY B. PIEPERJay B. Pieper           |  | Director                                                                                     |  | March 25, 2002

56