<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ___________
Commission file number: 0-28212
SUNQUEST INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 86-0378223
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4801 East Broadway Boulevard
Tucson, Arizona 85711
(Address of principal executive office) (Zip Code)
(520) 570-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed
since last report)
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. [X] Yes [ ] No
On October 29, 1997, there were 15,374,979 shares of Common Stock
outstanding.
<PAGE>
Sunquest Information Systems, Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 1997
Table of Contents
Page
----
Part I. Financial Information
Item 1. Financial Statements
(a.) Condensed consolidated balance sheets as 3
of September 30, 1997 (unaudited) and December
31, 1996
(b.) Unaudited condensed consolidated 4
statements of income for each of the three and
nine month periods ended September 30, 1997 and
September 30, 1996
(c.) Unaudited condensed consolidated 5
statements of cash flows for each of the nine
months ended September 30, 1997 and September
30, 1996
(d.) Unaudited notes to condensed consolidated 6
financial statements
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security 23
Holders
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
(a.) Exhibits 23
(b.) Reports on Form 8-K 23
Signatures 24
2
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Part I. Financial Information
Item 1. Financial Statements
Sunquest Information Systems, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
(unaudited)
ASSETS
Cash and cash equivalents $18,700 $31,911
Trade receivables, net 41,091 30,283
Other current assets 2,498 3,678
Deferred tax asset 3,750 3,940
------- -------
Total current assets 66,039 69,812
Property and equipment, net 11,689 9,371
Capital leases from related party, net 4,294 4,888
Software development costs, net 12,519 9,936
Other assets, net 1,897 2,904
------- -------
Total assets $96,438 $96,911
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $3,269 $2,833
Current portion of long-term debt - 289
Accrued compensation and related taxes 5,010 4,669
Accrued expenses 5,073 6,817
Obligations under capital leases
from related party 703 613
Obligations under capital lease 53 40
Deferred revenue 10,007 11,586
Related party payable - 3,900
Other liabilities 1,000 -
------- -------
Total current liabilities 25,115 30,747
Obligations under capital leases
from related party 5,244 5,783
Obligations under capital lease 60 138
Deferred income taxes 3,083 2,076
Transition costs 1,691 1,400
Other liabilities 1,000 -
Shareholders' equity 60,245 56,767
------- -------
Total liabilities and
shareholders' equity $96,438 $96,911
======= =======
</TABLE>
See accompanying notes.
3
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Sunquest Information Systems, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
System sales $12,098 $10,707 $39,351 $30,685
Support and service 12,173 8,595 37,507 25,256
------- ------- ------- -------
Total revenues 24,271 19,302 76,858 55,941
------- ------- ------- -------
Operating expenses:
Cost of system sales 4,999 5,049 19,154 13,579
Client services 7,316 4,256 20,738 13,246
Research and development 3,159 2,360 9,025 7,102
Sales and marketing 3,244 2,418 10,110 7,562
General and administrative 2,656 2,566 9,128 6,619
Capitalized software development
cost adjustment 1,529 - 1,529 -
Acquired, in-process technology 1,265 - 1,265 -
------- ------- ------- -------
Total operating expenses 24,168 16,649 70,949 48,108
------- ------- ------- -------
Operating income 103 2,653 5,909 7,833
Other income (expense):
Interest income 217 529 876 879
Interest expense (278) (323) (903) (1,062)
Other (25) 116 10 398
------- ------- ------- -------
Income before income taxes 17 2,975 5,892 8,048
Income tax provision:
Current year operations 285 1,234 2,737 1,711
Change in tax status - - - 1,122
------- ------- ------- -------
Net (loss) income ($268) $1,741 $3,155 $5,215
======= ======= ======= =======
(Loss) earnings per share
determination:
Historical income before
income taxes $17 $2,975 $5,892 $8,048
Income tax provision:
Actual 285 1,234 2,737 -
Pro forma - - - 3,415
------- ------- ------- -------
Applicable net (loss) income ($268) $1,741 $3,155 $4,633
======= ======= ======= =======
Weighted-average shares
outstanding 15,372 15,354 15,367 13,437
======= ======= ======= =======
Net (loss) income per share:
Actual ($0.02) $0.11 $0.21 -
======= ======= ======= =======
Pro forma - - - $0.34
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
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Sunquest Information Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,155 $5,215
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 5,820 3,700
Capitalized software development cost
adjustment 1,529 -
Acquired, in-process technology 1,265 -
Bad debt expense 713 230
Deferred revenue (1,705) 2,360
Deferred income taxes 1,197 1,131
Changes in operating assets and liabilities:
Receivables (11,521) (3,471)
Inventory 1,097 (1,916)
Prepaid expenses and other (268) 11
Other assets 1,157 (11)
Accounts payable 436 (602)
Accrued compensation and related taxes 341 1,385
Other accrued expenses (2,494) (208)
------- -------
Net cash provided by operating
activities 722 7,824
------- -------
Cash flows from investing activities:
Purchase of PreciseCare system (1,410) -
Repayment of notes receivable from
related party - 3,242
Purchase of property and equipment (4,290) (2,035)
Capitalized software development costs (3,853) (2,141)
------- -------
Net cash used in investing activities (9,553) (934)
------- -------
Cash flows from financing activities:
Net repayments under line of credit - (1,900)
Principal payments on debt (289) (200)
Principal payments on capitalized leases
from related party (449) (375)
Principal payments on capitalized lease (65) -
Net proceeds from initial public offering - 50,146
Net proceeds from employee stock
purchase plan 136 78
S corporation distributions (3,601) (15,031)
------- -------
Net cash (used in) provided by
financing activities (4,268) 32,718
------- -------
Foreign currency translation adjustment (112) (3)
------- -------
Net (decrease) increase in cash and
cash equivalents (13,211) 39,605
Cash and cash equivalents at beginning of
period 31,911 352
------- -------
Cash and cash equivalents at end of period $18,700 $39,957
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
Unaudited Notes to Condensed Consolidated Financial Statements
Note 1 - Interim Statement Presentation
The unaudited condensed consolidated financial statements of
Sunquest Information Systems, Inc. (the "Company") have been
prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission") and in
accordance with generally accepted accounting principles for the
preparation of interim financial statements. Accordingly,
certain information and footnote disclosures normally included in
annual financial statements have been omitted or condensed.
These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the notes thereto incorporated by reference into
the Company's 1996 Annual Report on Form 10-K filed with the
Commission. The 1996 balance sheet amounts were derived from
audited statements.
In the opinion of management, all necessary adjustments have been
made to provide a fair presentation to the unaudited financial
information. The operating results for the three and nine month
periods ended September 30, 1997 are not necessarily indicative
of the results that may be expected for any other interim period
or for the full year ending December 31, 1997.
Note 2 - Initial Public Offering
On June 10, 1996, the Company completed its initial public
offering. A total of 3,450,000 shares of Common Stock were sold
for net proceeds to the Company of approximately $50.1 million,
after deducting expenses of the offering of approximately $1.2
million and underwriters' discounts and commissions of
approximately $3.9 million.
Prior to May 30, 1996, the Company was taxed as an S corporation.
During the quarter ended June 30, 1996, the Company declared and
paid to shareholders of record as of April 30, 1996 the "First S
Corporation Distribution" of $14.5 million, which was estimated
to be equal to the Company's undistributed cumulative S
corporation earnings from January 1, 1990 through December 31,
1995. During the six months ended June 30, 1996, the Company
also made distributions of $531,000 to shareholders related to
the shareholders' tax liabilities on S corporation taxable
earnings. In April 1996, the Company declared, payable to
shareholders of record as of April 30, 1996, the "Second S
Corporation Distribution," estimated to be $3.9 million, equal to
the Company's undistributed cumulative S corporation taxable
earnings from January 1, 1996 through May 29, 1996. The
estimated "Second S Corporation Distribution" was reduced by
approximately $300,000 when the actual calculations of S
Corporation Distributions were finalized. The Company paid the
adjusted "Second S Corporation Distribution" of $3.6 million in
full on May 14, 1997.
6
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Note 3 - Income Taxes
Prior to May 30, 1996, the Company was taxed as an S corporation
and, accordingly, was not subject to federal and certain state
income taxes. As a result, the Company's shareholders, rather
than the Company, were required to pay federal and certain state
income taxes based on the Company's taxable earnings through May
29, 1996, whether or not the earnings were distributed to such
shareholders. The Company had provided for income taxes in
states in which it operated that did not recognize S corporation
status.
The provisions for income taxes subsequent to the change in
corporate tax status are accounted for in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
The reconciliation of income tax expense is set forth below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income tax provision at the
statutory rate $ 6 $1,041 $2,062 $ 2,817
Increases (decreases):
State income taxes (19) 252 244 670
Acquired, in-process
technology 357 - 357 -
Deferred taxes attributable
to conversion from
S corporation - - - 1,122
Taxes absorbed by the
shareholders of the
Company prior to
conversion from
S corporation - - - (1,725)
Other (59) (59) 74 (51)
------ ------ ------ -------
Total income tax expense $ 285 $1,234 $2,737 $ 2,833
====== ====== ====== =======
</TABLE>
Note 4 - Employee Stock Purchase Plan
For the three months ended September 30, 1997, the Company issued
3,200 shares of its Common Stock for approximately $44,000
pursuant to the Employee Stock Purchase Plan. For the nine
months ended September 30, 1997, the Company has issued a total
of 12,392 shares of its Common Stock for approximately $136,000
pursuant to the Employee Stock Purchase Plan.
Note 5 - Pro Forma Net Income and Net Income Per Share Information
Pro forma net income has been computed as if the Company had been
subject to federal and all applicable state income taxes at an
estimated tax rate of 43%. Pro forma net income per share is
based on the weighted-average number of shares of Common Stock
outstanding during the period. Common share equivalents consist of shares
7
<PAGE>
issuable upon the exercise of stock options, using the treasury stock method
and were not dilutive for the periods presented.
Note 6 - Purchase of Inpatient Pharmacy System
On August 29, 1997, MSC Acquisition, Inc., a newly formed
subsidiary of the Company, purchased certain inpatient pharmacy
software systems and related assets comprising the PreciseCare
Medication Management System ("PreciseCare") from Medintell
Systems Corporation ("Medintell"). MSC Acquisition, Inc. was
subsequently renamed "Sunquest Pharmacy Information Systems,
Inc.". The Company plans to continue development, add outpatient
functionality and to market PreciseCare through this wholly owned
subsidiary.
Total consideration for the purchase of PreciseCare consisted of
$1,410,000 in cash and $1,167,000 of assumed obligations and
transition costs. The acquired, in-process technology was
treated as a research and development cost reducing after-tax
income for the three and nine month periods ended September 30,
1997 by $1,113,000, or $.07 per share, including permanent tax
differences related to accrued liabilities.
The allocation of the purchase price to the estimated fair values
of the identified tangible and intangible assets was based upon
the most current information available. This allocation may be
adjusted prospectively as information becomes available.
Allocation of purchase price
----------------------------
(In thousands)
Tangible assets $ 297
Developed technology 1,015
In-process technology 1,265
Liabilities assumed (1,041)
Deferred revenue (126)
-------
$ 1,410
=======
Approximately 80% of the total liabilities assumed of $1,041,000
are related to transition costs. Approximately $750,000 of such
liabilities are expected to be incurred within the next twelve
months and have been included in accrued expenses on the balance
sheet. The long-term portion is included in transition costs.
Note 7 - Reduction in Carrying Value of Capitalized Software
Development Costs
In the three months ended September 30, 1997, the Company reduced
the carrying value of IntelliCare software development costs by
$1,529,000. The after-tax effect of this adjustment was a
reduction to net income of $917,000, or $.06 per share. The
adjustment was related to certain modules incorporated into the
Company's IntelliCare suite of products that have had their
8
<PAGE>
base code rewritten since development or have not generated sufficient
sales to justify continued capitalization.
Note 8 - Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS No. 128), which is required to be adopted by
the Company for the year ending December 31, 1997. The
provisions of SFAS No. 128 will be adopted in the Company's
financial statements in its 1997 Annual Report. At that time,
the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods.
Under the new provisions for calculating earnings per share, the
dilutive effect of stock options will be excluded in the
determination of "basic earnings per share" and only included in
"diluted earnings per share." The impact of SFAS No. 128 on the
calculation of actual and pro forma earnings per share for the
three and nine month periods ended September 30, 1997 and 1996 is
not expected to be material.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Sunquest Information Systems, Inc. designs, develops,
markets, installs and supports health care information systems
for large and mid-sized hospitals, clinics and other facilities,
including integrated delivery networks. Revenues are derived
from the licensing of software, the provision of value-added
services and the sale of related hardware.
On November 26, 1996, the Company purchased all of the
outstanding stock of Antrim Corporation ("Antrim") from Antrim's
parent corporation, The Compucare Company, for $5.0 million in
cash in a transaction accounted for under the purchase method of
accounting. The results of operations of Antrim have been
included in the Company's financial statements since the date of
acquisition.
On August 29, 1997, MSC Acquisition, Inc., a newly formed
subsidiary of the Company, purchased certain inpatient pharmacy
software systems and related assets comprising the PreciseCare
Medication Management System ("PreciseCare") from Medintell
Systems Corporation ("Medintell"), for $1.4 million in cash and
the assumption of certain obligations. MSC Acquisition, Inc. was
subsequently renamed "Sunquest Pharmacy Information Systems,
Inc." The Company plans to continue development, add outpatient
functionality and to market PreciseCare through this wholly owned
subsidiary. Management believes that the addition of pharmacy
systems is an important component in the Company's strategy to be
a "best-of-suite vendor" in enterprise clinical departmental
systems. In conjunction with the purchase of PreciseCare, the
Company reduced earnings by $1.3 million for acquired, in-process
technology. The after-tax effect of this charge to operations,
including permanent tax differences related to accrued
liabilities, was a reduction to net income of $1.1 million, or
$.07 per share. In addition, the Company and ValueRx Inc., an
affiliate of Medintell, have entered into a marketing arrangement
with respect to PreciseCare.
In the three months ended September 30, 1997, the Company
reduced the carrying value of IntelliCare software development
costs by $1.5 million. The after-tax effect of this adjustment
was a reduction to net income of $917,000, or $.06 per share.
The adjustment was related to certain modules incorporated into
the Company's IntelliCare suite of products that have had their base
code rewritten since development or have not generated sufficient
sales to justify continued capitalization.
10
<PAGE>
For the quarter ended September 30, 1997, the Company
posted a net loss of $268,000 or $.02 per share after the
previously described charges to operations, totaling $.13 per
share, compared to net income of $1.7 million or $.11 per share
for the corresponding period in 1996. For the nine months ended
September 30, 1997, net income was $3.2 million or $.21 per share
compared to pro forma net income of $4.6 million or $.34 per
share for the corresponding period in 1996. The charges to
operations reduced net income per share by $.13 for the nine
months ended September 30, 1997 from $.34 per share to $.21 per
share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Excluding charges to operations $ 0.11 $ 0.11 $ 0.34 $ 0.34
Acquired, in-process
technology, net of permanent
tax difference related to
accrued liabilities (0.07) - (0.07) -
Capitalized software
development cost adjustment (0.06) - (0.06) -
------ ------ ------ ------
($0.02) $ 0.11 $ 0.21 $ 0.34
====== ====== ====== ======
</TABLE>
During the three months ended September 30, 1997, the
Company identified a trend toward longer sales and installation
cycles with integrated delivery network ("IDN") customers. If this trend
continues, the Company may continue to experience slower revenue
recognition from IDN customers than in earlier periods.
The results of operations for the three and nine month
periods ended September 30, 1997 are not necessarily indicative
of the results that may be expected for any other interim period
or for the full year ending December 31, 1997.
Results of Operations
- ---------------------
Comparison of Three Months Ended September 30, 1997 and September 30, 1996
Revenues. The Company's total revenues were $24.3 million
for the three months ended September 30, 1997 compared to $19.3
million for the three months ended September 30, 1996, an
increase of $5.0 million, or 25.7%. Revenues from system sales
were $12.1 million for the three months ended September 30, 1997
compared to $10.7 million for the three months ended September
30, 1996, an increase of $1.4 million, or 13%. This increase was
primarily attributable to the addition of Antrim and an increase
in installations of software and hardware to existing customers.
Revenues from support and service were $12.2 million for the
three months ended September 30, 1997 compared to $8.6 million
for the three months ended September 30, 1996, an increase of
$3.6 million, or 41.6%. This increase was primarily attributable
to the addition of Antrim, the Company's increased installed
customer base and custom services for existing customers.
11
<PAGE>
At September 30, 1997, the Company had a total contract
backlog of $86.0 million, which consisted of $38.1 million of
system sales and $47.9 million of support and service. The
Company's total contract backlog at June 30, 1997, was $85.2
million, which consisted of $37.3 million of system sales and
$47.9 million of support and service. At September 30, 1996,
total contract backlog was $72.1 million, which consisted of
$35.7 million of system sales and $36.4 million of support and
service.
Cost of System Sales. Cost of system sales was $5.0 million
for the three months ended September 30, 1997 compared to $5.0
million for the three months ended September 30, 1996, a decrease
of $50,000, or 1%. This decrease was primarily attributable to
decreases in hardware deliveries offset by increased amortization
of previously capitalized software development costs and
additional costs related to resold hardware maintenance at
Antrim. Amortization of previously capitalized software
development costs was $949,000 for the three months ended
September 30, 1997 compared to $531,000 for the three months
ended September 30, 1996, an increase of $418,000, or 78.7%. This
increase in amortization was primarily attributable to the
addition of Antrim and to the licensing of third party software.
Client Services. Client services expenses were $7.3 million
for the three months ended September 30, 1997 compared to $4.3
million for the three months ended September 30, 1996, an
increase of $3.1 million, or 71.9%. This increase was primarily
attributable to the addition of Antrim, additional staff
dedicated to the installation and support of the Company's
systems and additional staff dedicated to providing consulting
services sold to customers.
Research and Development. Research and development expenses
were $3.2 million for the three months ended September 30, 1997
compared to $2.4 million for the three months ended September 30,
1996, an increase of $799,000, or 33.9%. This increase in
research and development expenses was primarily attributable to
additional staff dedicated to a new release of the Company's
laboratory information system product. The Company capitalized
$858,000 of its software development costs for the three months
ended September 30, 1997 compared to $660,000 for the three
months ended September 30, 1996. This increase in capitalized
software development costs was primarily attributable to the
addition of Antrim's product lines.
Sales and Marketing. Sales and marketing expenses were $3.2
million for the three months ended September 30, 1997 compared to
$2.4 million for the three months ended September 30, 1996, an
increase of $826,000, or 34.2%. This increase was primarily
attributable to the addition of Antrim, increased sales and
marketing staff and increased commissions resulting from growth
in sales bookings in the comparable three month period.
General and Administrative. General and administrative
expenses were $2.7 million for the three months ended September
30, 1997 compared to $2.6 million for the three months ended
September 30, 1996, an increase of $90,000, or 3.5%. This
increase was primarily attributable to the addition of Antrim and
increased depreciation expense resulting from additions of
property and equipment partially offset by decreases in bonus
compensation and profit sharing relating to operating income
below expectation.
12
<PAGE>
For the three months ended September 30, 1997, the Company
paid transition costs related to the Antrim acquisition of
$265,000 which were charged against accruals established at the
time of the acquisition. These costs were primarily associated
with replacing certain Antrim software products with Sunquest
products.
Comparison of Nine Months Ended September 30, 1997 and September 30, 1996
Revenues. The Company's total revenues were $76.9 million
for the nine months ended September 30, 1997 compared to $55.9
million for the nine months ended September 30, 1996, an increase
of $20.9 million, or 37.4%. Revenues from system sales were
$39.4 million for the nine months ended September 30, 1997
compared to $30.7 million for the nine months ended September 30,
1996, an increase of $8.7 million, or 28.2%. This increase was
primarily attributable to the addition of Antrim, increases in
installations of software to new customer and an increase in
installations of software and hardware to existing customers.
Revenues from support and service were $37.5 million for the nine
months ended September 30, 1997 compared to $25.3 million for the
nine months ended September 30, 1996, an increase of $12.2
million, or 48.5%. This increase was primarily attributable to
the addition of Antrim, the Company's increased installed
customer base and customer services for existing customers.
Cost of System Sales. Cost of system sales was $19.2
million for the nine months ended September 30, 1997 compared to
$13.6 million for the nine months ended September 30, 1996, an
increase of $5.6 million, or 41.1%. This increase was primarily
attributable to the addition of Antrim, increases in hardware and
operating system deliveries and increased amortization of
previously capitalized software development costs. Amortization
of previously capitalized software development costs was $2.8
million for the nine months ended September 30, 1997 compared to
$1.6 million for the nine months ended September 30, 1996, an
increase of $1.2 million, or 73%. This increase in amortization
was primarily attributable to the addition of Antrim and to the
licensing of third party software.
Client Services. Client services expenses were $20.7 million
for the nine months ended September 30, 1997 compared to $13.2
million for the nine months ended September 30, 1996, an increase
of $7.5 million, or 56.6%. This increase was primarily
attributable to the addition of Antrim, additional staff
dedicated to the support and installation of the Company's
systems and additional staff dedicated to providing consulting
services sold to customers These increases were partially offset
by the elimination of resources required to support the Tandem
systems of Ameritech as a result of the expiration of the
agreements with the Tandem customers.
Research and Development. Research and development expenses
were $9.0 million for the nine months ended September 30, 1997
compared to $7.1 million for the nine months ended September 30,
1996, an increase of $1.9 million, or 27.1%. This increase in
research and development expenses was primarily attributable to
additional staff dedicated to the evaluation and development of
new technologies and a new release of the Company's laboratory
information systems. The Company capitalized $2.9 million of its
software development costs for the nine months ended September
30, 1997 compared to $2.1 million for the nine months ended
13
<PAGE>
September 30, 1996, an increase of $712,000, or 33.3%. This
increase in capitalized software development costs was primarily
attributable to the addition of Antrim's product lines.
Sales and Marketing. Sales and marketing expenses were
$10.1 million for the nine months ended September 30, 1997
compared to $7.6 million for the nine months ended September 30,
1996, an increase of $2.5 million, or 33.7%. This increase was
primarily attributable to the addition of Antrim, increased sales
and marketing staff, and increased advertising and promotional
expenses.
General and Administrative. General and administrative
expenses were $9.1 million for the nine months ended September
30, 1997 compared to $6.6 million for the nine months ended
September 30, 1996, an increase of $2.5 million, or 37.9%. This
increase was primarily attributable to the addition of Antrim,
increased depreciation expense resulting from additions of
property and equipment, additional employees and increased
professional services costs related to the Company's public
status. These increases were partially offset by decreased bonus
compensation and profit sharing relating to operating income
below expectations and rental income received from subleasing a
portion of the building the Company purchased in February 1997.
For the nine months ended September 30, 1997, the Company
paid transition costs related to the Antrim acquisition of $1.3
million which were charged against accruals established at the
time of the acquisition. These costs were primarily associated
with replacing certain Antrim software products with Sunquest
products, employee costs and professional services related to the
acquisition.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $722,000 for the
nine months ended September 30, 1997 compared to $7.8 million for
the nine months ended September 30, 1996.
As of September 30, 1997, the Company had net trade
receivables of $41.1 million which consisted of $27.8 million in
net billed trade receivables and $13.3 million in unbilled trade
receivables. At December 31, 1996, the Company had net trade
receivables of $30.3 million which consisted of $25.1 million in
net billed trade receivables and $5.2 million in unbilled trade
receivables. Net trade receivables have increased by $10.8
million since December 31, 1996, with $8.1 million related to the
unbilled portion. The unbilled receivables represent revenue
that has been recognized in accordance with the percentage-of-
completion accounting method, but which has not yet been billed
to customers. The Company believes that this increase in
unbilled receivables is primarily a result of the timing of
system sales and installations in the period as well as resource
constraints in the billings and collections staffing. The
Company maintains an allowance for doubtful accounts that it
believes is adequate to cover potential credit losses. The
average collection period on net billed trade receivables was 87
days at September 30, 1997 compared to 77 days at December 31,
1996.
14
<PAGE>
In the nine months ended September 30, 1997, the Company
paid approximately $2.0 million in transition costs and
liabilities related to the Antrim acquisition. These costs were
accrued at the time of acquisition.
Cash used in investing activities was $9.6 million for the
nine months ended September 30, 1997. Purchases of software,
property and equipment totaled $5.7 million. Of this amount,
$1.4 million was used to purchase PreciseCare and $1.8 million
was used on February 21, 1997 to purchase land and a building
located in Tucson, Arizona, that will be used for customer-
related activities. The remaining $2.5 million was used
primarily for computers and computer-related equipment and office
equipment. Capitalized software development costs totaled $3.9
million. Of this amount, $1.0 million was related to the initial
payment under the Value Added Reseller ("VAR") agreement of
February 7, 1997 with Dynamic Healthcare Technologies, Inc.
("Dynamic") for the license of a software program known as CoPath
Client/Server ("CoPath"). CoPath is a computer clinical
information system used in surgical pathology, cytology and
autopsy. Pursuant to the terms of this agreement, the remaining
balance of $2.0 million is expected to be paid by the Company
over the next two years.
Cash used in financing activities was $4.3 million for the
nine months ended September 30, 1997. Of this amount, $3.6
million was used to pay the "Second S Corporation Distribution"
on May 14, 1997 and $803,000 was used for principal payments on
debt and capital leases. These amounts were partially offset by
the issuance of 12,392 shares of the Company's Common Stock for
approximately $136,000 under the Employee Stock Purchase Plan.
At September 30, 1997, cash and cash equivalents were $18.7
million, and working capital was $40.9 million. At December 31,
1996, cash and cash equivalents were $31.9 million, and working
capital was $39.1 million.
The Company has a revolving line of credit with a bank
allowing the Company to borrow up to $10.0 million. Any
borrowings under the line of credit will bear interest at the
bank reference rate unless the Company elects a fixed rate or
certain variable rates contemplated by the agreement. All
outstanding principal and interest under the line of credit are
due December 31, 1997 except for any amounts outstanding under
stand-by letters of credit which have a maximum maturity of 365
days. Approximately $204,000 of the line of credit is used to
secure a letter of credit and is not available for immediate
expenditure. There were no borrowings outstanding as of
September 30, 1997.
Other than the $2.0 million related to the VAR agreement
with Dynamic, the Company currently has no significant
commitments for capital expenditures; however, the Company
continues to be actively involved in identifying and evaluating
potential acquisitions which may result in the expenditure of
funds.
Management believes that existing cash and cash equivalents,
cash available under its revolving line of credit and funds
generated from operations will be sufficient to meet operating
requirements for at least the next twelve months.
15
<PAGE>
Forward-Looking Statements
This report, and other reports and communications to
shareholders, may contain forward-looking statements with
respect to, among other things, the market for the Company's
products, the Company's future revenues and prospects, and
certain plans and objectives of the Company's management. The
following are certain factors that may cause the Company's actual
results to vary materially from those which are the subject of
any such forward-looking statements.
Material Factors
Dependence on Single Product. To date, the Company has
derived substantially all of its revenues from sales of
laboratory information systems ("LISs") and related
implementation support services. The Company expects that it
will continue to derive a significant portion of its total
revenues for the foreseeable future from sales of LISs and
related implementation and support services. Accordingly, market
factors adversely affecting sales of LISs could have a material
adverse effect on the Company's business and results of
operations. Such factors include, but are not limited to,
consolidation among the Company's customers, changes in the
criteria used by such customers in making purchase decisions, and
competitive pricing pressures. The Company's target market for
its LISs, consisting primarily of large and mid-sized hospitals,
is characterized by a high degree of consolidation resulting in
fewer purchasing decisions at a higher dollar value, a trend that
may favor larger vendors with greater numbers of hospitals
currently under contract. There can be no assurance that the
Company will continue to be the vendor of choice as newly
consolidated customers replace legacy systems. In addition,
changes in the criteria used in making purchasing decisions such
as a shift from purchasing best-of-fit systems to purchasing
single vendor, hospital-wide systems may have a material adverse
effect on the Company's ability to attract new customers.
Competitive pressures or other factors, including the Company's
efforts to expand its LIS offerings to new markets, may result in
significant price decreases that could have a material adverse
effect on the Company's business and results of operations.
There can be no assurance that the Company will be able to
sustain or increase the level of revenues from sales of its LISs
on an annual or quarterly basis.
Rapid Technological Change and Dependence on New Product
Development, Enhancement and Acceptance. The HCIS market is
characterized by rapid technological advances, frequent new
product introductions and evolving industry standards that are
outside the control of the Company. The development and sale of
additional applications is a principal means of competition in
the HCIS market. Advances in both hardware and software
technology, including the introduction of new hardware platforms,
new programming languages and new software applications, will
require the Company to make significant ongoing expenditures for
research and development in order to adapt the Company's existing
and subsequently introduced HCISs to such new technologies and to
take advantage of the benefits they offer. For the foreseeable
future, the Company intends to continue to devote substantial
financial, managerial and personnel resources to its product
development efforts. The development of new and enhanced HCISs
is a complex and uncertain process requiring high levels of
innovation and the accurate anticipation of technological and
market trends, and from time to time the Company has experienced
delays in introducing new HCISs and HCIS enhancements. The
16
<PAGE>
Company intends to complete its migration of products and clients
to Windows-based and year 2000 compliant software. The inability
to accomplish this development or any significant delay in such
development may have an adverse effect on the Company's business
and results of operations. The failure of the Company to develop
and introduce new HCISs and HCIS enhancements successfully or the
failure to respond effectively to technological changes could
have a material adverse effect on the Company's business and
results of operations.
Successful Introduction of Clinical Repository Systems. In
the three months ended September 30, 1997, the Company reduced
the carrying value of software development costs related to its
suite of clinical repository systems ("CRSs"). These adjustments
were related to certain modules incorporated into IntelliCare
that have had their base code rewritten since development or have not
generated sufficient sales to justify continued capitalization.
The Company has experienced slower than anticipated sales of its
CRSs. To date, the Company has sold three systems. The
Company's CRSs are in production use at the Company's first two
sites, and implementation is underway at a third site in the
United Kingdom. The Company is currently developing additional
modules for its CRSs and is also investigating the possible
acquisition of additional modules developed by third parties for
its CRSs. There can be no assurance that the Company will be
successful in completing the development or acquisition of
additional modules or that such development or acquisitions will
be completed in a timely manner. The market for clinical
repository products is in an early stage, and a significant
number of vendors are currently offering or developing
competitive versions of CRSs. These vendors include not only
existing clinical information system suppliers, but other vendors
throughout the HCIS industry. Any significant delay in the
scheduled availability of the Company's CRSs could have a
material adverse effect on the Company's ability to compete
successfully in the emerging clinical repository marketplace.
Moreover, there is a wide variation in the approach and
functionality of CRSs currently being offered or developed by
vendors, and no assurance can be given that the Company's CRSs,
if successfully developed, will achieve and maintain marketplace
acceptance. If the Company's CRSs are not developed
substantially on schedule, do not perform substantially as
expected or are not accepted in the marketplace, the Company's
ability to maintain long-term growth may be materially adversely
affected.
Competition. The markets for HCISs, including the markets
for the Company's information systems, are highly competitive.
Most of the Company's revenues are derived from lengthy,
competitive procurement processes managed by sophisticated
purchasers that extensively investigate and compare HCISs offered
by the Company and its competitors. The Company believes that
the principal competitive factors influencing the market for its
HCISs include vendor and product reputation, product
architecture, functionality and features, ease of use, rapidity
of implementation, quality of client support, product performance
and price. There can be no assurance that the Company will be
able to compete successfully with respect to any of such factors.
In addition, many of the Company's current and potential
competitors have significantly greater financial, managerial,
development, technical, marketing and sales resources than the
Company and may be able to devote those resources to develop and
introduce new products more rapidly than the Company or with
significantly greater functionality than, and superior overall
performance to, those offered by the Company. These competitors
may also be able to initiate and withstand significant price
decreases more effectively than the Company. To be competitive,
17
<PAGE>
the Company must be able to respond effectively to the
introduction of new and improved HCISs by its competitors. There
can be no assurance that the Company will be able to develop new
or improved HCISs and services in a timely and cost effective
manner or that the Company's current and future HCISs and
services will achieve and maintain market acceptance.
Significant Fluctuations in Quarterly Operating Results;
Revenue Recognition Policy. The Company's quarterly revenues and
results of operations have varied significantly as a result of a
number of factors, including (i) the volume and timing of systems
sales and installations; (ii) the timing of client acceptances;
(iii) the length and complexity of the systems sales and
installation cycles; (iv) seasonal buying trends as a result of
clients' annual purchasing and budgeting practices; and (v) the
Company's sales commission practices. The Company expects that
these variations will continue for the foreseeable future. The
Company recognizes revenues from the software portion of system
sales on a percentage-of-completion method based upon completion
of specified milestones (which are determined based upon actual
hours incurred related to total estimated installation hours).
As a result, the timing of revenue recognition varies
considerably and could be impeded by a number of factors,
including availability of Company personnel, the Company's need
to allocate system installation resources to other installations
or to research and development activities, availability of client
personnel and other resources, and complexity of the clients'
needs and delays imposed by clients. During the three months
ended September 30, 1997, the Company identified a trend toward
longer sales and installation cycles with integrated delivery
network customers. Any continuing trend of delays in progress
toward completing a material system installation or a number of
smaller installations could reduce the revenues recognized in any
given period and could have a material adverse effect on the
Company's business and results of operations. Because a
significant percentage of the Company's expenses, particularly
employee compensation, is relatively fixed, variations in the
timing of system sales and installations can cause significant
variations in operating results from quarter to quarter. If
total revenues are below expectations in any period, the
Company's inability to adjust spending to compensate fully for
the lower revenues may magnify the adverse effect of such a
shortfall on the Company's results of operations. Accordingly,
the Company believes that period-to-period comparisons of revenue
and results of operations are not necessarily meaningful and
should not be relied upon as indicators of future performance.
Risks Associated with Identifying and Integrating
Acquisitions. The Company intends to continue to grow through
the acquisition of complementary products, technologies or
businesses in the HCIS industry. The Company's management has
limited experience in identifying appropriate acquisitions and in
integrating products, technologies and businesses into its
operations. The evaluation, negotiation and integration of any
such acquisition may divert the time, attention and resources of
the Company, particularly its management. There can be no
assurance that the Company will be able to integrate successfully
any acquired products, technologies or businesses into its
operations. In addition, there is significant competition for
acquisition opportunities in the HCIS industry. Consolidation in
the industry may intensify such competition and thereby increase
the costs of such acquisition opportunities. The failure to
compete successfully for strategic acquisition opportunities or
to integrate successfully any acquired products, technologies or
businesses could have a material adverse effect on the Company.
18
<PAGE>
Dependence on Key Personnel; Management of Changing
Business. The Company's future success depends to a significant
extent upon Dr. Sidney A. Goldblatt, the President and Chief
Executive Officer of the Company, the Company's other executive
officers, and certain other managerial, technical and marketing
personnel. Dr. Goldblatt, 62, is a co-founder of the Company and
has served as the principal executive officer of the Company
since 1986. The loss of the services of Dr. Goldblatt or other
key personnel could have a material adverse effect on the
Company's business and results of operations. The Company's
ability to manage growth will require it to continue to attract,
motivate and retain highly skilled managerial, technical and
marketing personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful
in attracting, motivating and retaining the personnel required to
maintain and improve its business and results of operations.
Regulation. The Company expects that the United States Food
and Drug Administration ("FDA") is likely to become increasingly
active in regulating computer software that is intended for use
in health care settings. In March 1994, the FDA issued a letter
advising that the FDA considers medical devices to include
software products intended for use in the manufacture of blood
and blood components or for the maintenance of data used to
assist personnel in making decisions concerning the suitability
of blood donors and the release of blood or blood components for
transfusion or further manufacture. As such, the FDA determined
that manufacturers and distributors of these products, such as
the Company, are subject to FDA regulation. The FDA can impose
extensive requirements governing pre- and post market conditions
such as device investigation, approval, labeling and
manufacturing. Compliance with these new requirements and any
future requirements imposed by the FDA could be costly and could
delay or preclude the introduction of certain new products. The
Company is unable to determine at this time the effect, if any,
that these requirements may have on its business.
Antrim, a wholly owned subsidiary of the Company located in
Plano, Texas, was the subject of a good manufacturing practices
("GMP") audit conducted by the FDA in March 1996. As a result of
the audit, Antrim received a warning letter from the FDA in June
1996 instructing Antrim to resolve certain GMP issues and to
contract with an independent, third-party auditor to certify that
certain procedures were in place. The independent audit was
conducted in November 1996 and the results of the audit indicated
that the non-compliance issues had not been resolved. The
Company, working through the FDA's Dallas District Office, has
proposed to sunset the Antrim blood bank product and to replace
it with the Company's blood bank software in lieu of expending
time and resources to bring the Antrim product into substantial
GMP compliance. The Company is currently awaiting a decision by
the Center for Biologics, Evaluation, and Research in Washington,
D.C. as to the acceptability of this proposal. In addition, the
Department of Health of the State of Texas (the "DOH") imposes
certain licensing requirements and other standards on certain
distributors and manufacturers of certain medical devices located
within Texas, such as Antrim. Antrim has filed the required
license application with the DOH. The DOH is authorized to
impose substantial penalties for non-compliance with its
regulations.
The health care industry is subject to changing political,
economic and regulatory influences that may affect the
procurement practices and operation of health care providers.
Many lawmakers have announced that they intend to propose
programs to reform the United
19
<PAGE>
States health care system. These programs may contain proposals
to increase governmental involvement in health care, lower
reimbursement rates and otherwise change the regulatory
environment in which the Company's clients operate. Health care
providers may react to these proposals and the uncertainty
surrounding such proposals by curtailing or deferring
investments, including those for the Company's HCISs. This may
result in greater selectivity in the allocation of capital funds,
which could have a material adverse effect on the Company's
ability to sell its HCISs and services. Such regulatory changes,
if adopted, and the reaction of health care providers to such
changes may have a material adverse effect on the Company's
business and results of operations.
Dependence on Proprietary Rights. The Company's future
success depends in large part upon its ability to protect its
technology and proprietary rights. The Company relies on a
combination of patent, copyright, trade secret and trademark laws
and contractual restrictions to establish and protect its
proprietary rights, although the laws of certain foreign
countries in which the Company licenses or may license its
products may not protect the Company's proprietary rights to the
same extent as do laws in the United States. It may nonetheless
be possible for third parties to misappropriate the Company's
technology and proprietary information or to develop
independently similar or superior technology. There can be no
assurance that the legal protections afforded to the Company and
the measures taken by the Company will be adequate to protect its
intellectual property. Any misappropriation of the Company's
technology or proprietary information could have a material
adverse effect on the Company's business and results of
operations. Moreover, the Company is subject to the risk that
others will assert adverse claims and commence litigation
alleging infringement or misappropriation of their intellectual
property rights. There can be no assurance that others will not
assert claims or commence litigation with respect to the
Company's current or future HCISs. In any such event, the
Company may be required to engage in protracted and costly
litigation, regardless of the merits of such claims; discontinue
the use of certain software codes, processes or trademarks;
cease to manufacture, use and license infringing products;
develop non-infringing technology; or enter into license
arrangements with respect to the disputed intellectual property.
There can be no assurance that the Company would be able to
develop alternative technology or that any necessary licenses
would be available or that, if available, such licenses could be
obtained on commercially reasonable terms. Responding to and
defending any of these claims could distract the attention of
management and have a material adverse effect on the Company's
business and results of operations.
Product Liability. The Company's systems include
applications that may relate to confidential patient medical
histories and treatment plans. Improper disclosure of this
information or any failure by the Company's systems to provide
accurate and timely information could result in claims against
the Company by its clients or their patients. A successful claim
brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company's business or
results of operations, and even unsuccessful claims could result
in the expenditure of substantial funds in litigation and the
diversion of management time and resources. There can be no
assurance that the Company will not be subject to such claims in
the future, that such claims will not result in liability in
excess of any insurance coverage maintained by the
20
<PAGE>
Company with respect to such claims, that insurance will cover
such claims or that appropriate insurance will continue to be
available to the Company at commercially reasonable rates.
Volatility of Stock Price. In recent years, the stock
market in general, and the shares of software technology
companies in particular, have experienced extreme price
fluctuations that are often unrelated to the operating
performance of such companies. The Company has experienced
fluctuations in its stock price related to these general market
fluctuations and to such operating factors as quarterly
fluctuations in its revenues or results of operations, general
conditions in the information technology services industry and
announcements of new products or services by the Company or its
competitors. These fluctuations may adversely affect the future
market price of the Company's Common Stock.
Control by Current Shareholders; Payments upon Change in
Control. As of the date of this Report, Dr. Sidney A. Goldblatt;
Bradley L. Goldblatt, Dr. Goldblatt and Nina M. Dmetruk, the
Executive Vice President, Chief Financial Officer and Secretary
of the Company, as trustees for the benefit of Bradley L.
Goldblatt; Bradley L. Goldblatt, Dr. Goldblatt and Ms. Dmetruk,
as trustees for the benefit of Curtis S. Goldblatt; and Jodi Beth
Gottlieb, Dr. Goldblatt and Ms. Dmetruk, as trustees for the
benefit of Jodi Beth Gottlieb (such trusts being collectively
referred to herein as the "Trusts") own approximately 77.4% of
the outstanding Common Stock. As a result, these shareholders,
if acting in concert, will be able to elect or remove the entire
Board of Directors and control the outcomes of all other issues
submitted to the Company's shareholders for approval. This
concentration of ownership may enable Dr. Goldblatt and the
Trusts to cause or prevent change in control of the Company
without the approval of other shareholders. There can be no
assurance that this concentration of ownership will not have a
material adverse effect on the market price of the Common Stock.
In the event that Dr. Goldblatt, his three children and trusts
created in their benefit (including the Trusts) cease to own,
directly or indirectly, fifty percent or more of the outstanding
stock of the Company, Ms. Dmetruk will be entitled to elect,
during the ninety days following such event, to terminate her
employment with the Company and receive $1.2 million in severance
pay.
Effect of Certain Statutory Anti-Takeover Provisions. The
Company is subject to certain anti-takeover provisions of the
Pennsylvania Business Corporation Law. Under these provisions,
certain transactions with an "interested shareholder" must be
approved by a majority of votes that all shareholders, other than
the interested shareholder, are entitled to cast, and if any
person or group acquires 20% or more of the voting power of the
Company, with certain exceptions, the remaining shareholders may
elect to sell their shares to such person or group for the fair
value of the shares, including a proportionate amount of any
control premium. In addition, there are special requirements for
business combinations between the Company and interested
shareholders, certain restrictions on the voting of shares by
persons who acquire 20% or more of the voting power of the
Company, and requirements for the disgorgement of profits in
certain circumstances. These provisions may have the effect of
deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in
which shareholders might otherwise receive a premium for their
shares over the current market prices.
21
<PAGE>
Transactions with Affiliates. The Company has historically
engaged in transactions with affiliates, including Dr. Sidney A.
Goldblatt, the President and Chief Executive Officer of the
Company, the Trusts and certain affiliates of the Trusts.
Although the Company took precautions to achieve results which
the Company believes were equivalent to arm's-length
transactions, there can be no assurance that actual results will
be as favorable to the Company as arm's-length transactions. In
May 1996, the Company adopted a policy that all future
transactions between the Company and its officers, directors,
principal shareholders and their affiliates shall be on terms no
less favorable to the Company than could be obtained by the
Company from unrelated third parties, and shall be approved by a
majority of the outside independent and disinterested directors.
This policy does not apply to transactions entered into before
the adoption of the policy or to renewals of existing
transactions on similar terms.
Foreign Sales. Although the Company intends to increase
sales of its systems and services to clients located outside the
United States, such sales have historically accounted for less
than ten percent of the Company's total revenues. The Company's
operations outside the United States are subject to the risks
that agreements may be more difficult to enforce and receivables
more difficult to collect through a foreign country's legal
system; foreign customers often have longer payment cycles;
foreign countries could make unexpected changes in regulatory
requirements or be the subject of significant political and
economic instability; foreign subsidiaries, distributors and
sales representatives may be difficult to manage; foreign
countries could impose additional withholding taxes or otherwise
tax the Company's foreign income, impose tariffs or adopt other
restrictions on foreign trade; and intellectual property rights
may be more difficult to enforce in foreign countries. There can
be no assurance that any of these factors will not have a
material adverse effect on the Company's future international
sales and, consequently, on the Company's business, financial
condition and results of operations. In addition, exchange rate
fluctuations may render the Company's products less competitive
relative to local product offerings, or could result in foreign
exchange losses, depending upon the currency in which the Company
sells its products. To date, the Company has not engaged in
exchange rate hedging activities to minimize the risks of such
fluctuations. The Company may seek to implement hedging
techniques in the future with respect to its foreign currency
transactions. There can be no assurance, however, that the
Company will be successful in such hedging activities.
No Dividends Contemplated. The Company does not anticipate
that it will pay any dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain
earnings, if any, to fund the development and growth of its
business. The Company has a bank line of credit agreement and a
mortgage guarantee that prohibit the payment of any capital
distributions or dividends.
22
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
27E - Financial Data Schedule, filed herewith.
(b.) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended September 30, 1997.
23
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
SUNQUEST INFORMATION SYSTEMS, INC.
(Registrant)
Date: November 4, 1997 By: /s/ Nina M. Dmetruk
____________________________________________
Nina M. Dmetruk
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
24
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