<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-QSB
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
__________________
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 0-13801
_______
QUALITY SYSTEMS, INC.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
California 95-2888568
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17822 East 17th Street, Tustin, California 92680
__________________________________________ __________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (714) 731-7171
______________
NOT APPLICABLE
________________________________________________________________
(Former name, former address and former fiscal year, if changed,
since last year)
Indicate by check mark whether the issuer (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 XX No
_____ _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
4,589,241 shares of Common Stock, $.01 par value,
as of November 8, 1995
Exhibit Index on sequentially numbered Page 11
Page 1 of 13
<PAGE> 2
PART I FINANCIAL INFORMATION
------ ---------------------
Item 1. Financial Statements
-----------------------------
QUALITY SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,008,300 $ 6,085,300
Short-term investments 1,286,700 1,237,200
Accounts receivable, net 4,721,400 2,996,500
Inventories 763,800 782,900
Deferred tax asset 104,300 199,000
Other current assets 78,200 74,300
------------- -----------
Total current assets 11,962,700 11,375,200
Equipment and improvements, net 491,700 535,300
Capitalized software costs, net 587,400 501,300
Investment, Clinitec International, Inc. 982,300 -
Cash surrender value of life insurance 270,400 185,100
Other assets 68,500 70,900
------------- -----------
Total assets $ 14,363,000 $12,667,800
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,014,300 $ 597,400
Accrued payroll and related expenses 555,100 427,100
Accrued expenses 489,000 492,400
Deferred service revenue 1,010,500 951,500
Deferred compensation 270,400 185,100
Estimated costs to complete system
installations 247,000 216,500
Income taxes payable 175,600 473,400
----------- -----------
Total current liabilities 3,761,900 3,343,400
Deferred tax liability 130,200 136,800
----------- -----------
Total liabilities 3,892,100 3,480,200
----------- -----------
Stockholders' equity:
Common stock, $.01 par value,
20,000,000 shares authorized, 4,569,241
and 4,535,866 shares issued and
outstanding respectively 45,700 45,400
Additional paid-in capital 6,169,400 5,977,600
Unrealized loss on available-for-sale
securities (56,800) (83,000)
Retained earnings 4,312,600 3,247,600
----------- -----------
Total stockholders' equity 10,470,900 9,187,600
----------- -----------
Total liabilities and stockholders'
equity $14,363,000 $12,667,800
=========== ===========
</TABLE>
<PAGE> 3
QUALITY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Sales of computer
systems, upgrades
and supplies $2,523,700 $1,147,500 $4,647,400 $2,729,500
Maintenance and other
services 1,659,600 1,646,300 3,340,300 3,137,500
---------- ---------- ---------- ----------
4,183,300 2,793,800 7,987,700 5,867,000
Costs and expenses: ---------- ---------- ---------- ----------
Cost of products and
services 2,071,500 1,456,400 3,784,900 3,108,200
Selling, general and
administrative 1,001,500 844,000 1,927,400 1,679,800
Research and development 301,200 386,600 656,200 716,400
---------- ---------- ---------- ----------
3,374,200 2,687,000 6,368,500 5,504,400
---------- ---------- ---------- ----------
Income from operations 809,100 106,800 1,619,200 362,600
interest and investment
income 100,500 132,300 204,300 120,700
Equity loss (7,800) - (17,700) -
---------- ---------- ---------- ----------
Income before income
tax provision 901,800 239,100 1,805,800 483,300
Income tax provision 374,000 54,000 740,800 97,800
---------- ---------- ---------- ----------
Net income $ 527,800 $ 185,100 $1,065,000 $ 385,500
========== ========== ========== ==========
Earnings per share:
Primary $.12 $.04 $.23 $.08
Fully diluted $.12 $.04 $.23 $.08
Equivalent number of
shares outstanding:
Primary 4,699,853 4,632,295 4,678,777 4,642,913
Fully diluted 4,714,491 4,644,562 4,709,550 4,642,913
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE> 4
QUALITY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
September 30
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,065,000 $ 385,500
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization
of equipment and improvements 110,700 114,800
Amortization of capitalized
software costs 127,300 94,600
Realized (gains) losses from sales
of short-term investments 11,200 135,200
Unrealized gains on trading securities (33,300) (170,600)
Equity loss 17,700 -
Deferred income taxes 88,100 -
Changes in:
Accounts receivable (1,724,900) 99,500
Inventories 19,100 49,100
Other current assets (3,900) (9,000)
Accounts payable 416,900 (171,700)
Accrued expenses 124,600 (40,800)
Deferred service revenue 59,000 60,500
Estimated costs to complete
system installations 30,500 (81,600)
Income taxes payable, and taxes
related to equity accounts (179,800) 97,800
--------- ---------
Net cash provided by operating activities 128,200 563,300
--------- ---------
Cash flows from investing activities:
Proceeds from sales of short-term
investments 1,068,400 6,784,800
Purchases of short-term investments (1,049,500) (5,605,000)
Net additions to equipment and
improvements, net (67,100) (48,700)
Additions to capitalized software
costs (213,400) (76,700)
Investment in Clinitec (1,000,000) -
Change in other assets 2,400 30,200
--------- ---------
Net cash provided by (used in) investing
activities: (1,259,200) 1,084,600
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of
stock options 54,000 44,200
----------- -----------
Net increase (decrease) in cash and
cash equivalents (1,077,000) 1,692,100
----------- -----------
Cash and cash equivalents, beginning of
period 6,085,300 1,092,900
----------- -----------
Cash and cash equivalents, end of period $5,008,300 $2,785,000
=========== ===========
</TABLE>
Supplemental information - During the six months ended September 30,
1995 and 1994 the Company made income tax payments of $832,500 and
$9,600, respectively.
The accompanying notes are an integral part of the financial
statements.
<PAGE> 5
QUALITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1994
NOTE 1 - BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited condensed financial statements have
been prepared in accordance with the requirements of Form 10-QSB and,
therefore, do not include all information and footnotes which would be
presented were such financial statements prepared in accordance with
generally accepted accounting principles, and should be read in
conjunction with the audited financial statements presented in the
Company's Annual Report for the fiscal year ended March 31, 1995. In
the opinion of management, the accompanying financial statements
reflect all adjustments which are necessary for a fair presentation of
the results of operations for the interim periods presented. The
results of operations for such interim periods are not necessarily
indicative of results of operations to be expected for the full year.
NOTE 2 - EARNINGS PER SHARE
------ ------------------
Earnings per share for the six months ended September 30, 1995
and September 30, 1994 was computed based on the weighted average
number of shares actually outstanding, plus the shares that would be
outstanding, using the treasury stock method, assuming the exercise of
all outstanding options which were considered to be common stock
equivalents. Primary and fully diluted net earnings per share amounts
are based on weighted average number of shares outstanding of
4,678,777 and 4,709,550 for September 30, 1995 respectively and
4,642,913 for both primary and fully diluted net earnings per share
for September 30, 1994.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition
------- -----------------------------------------------------------
and Results of Operations
-------------------------
Results of Operations
---------------------
Three months ended September 30, 1995 compared to three months ended
--------------------------------------------------------------------
September 30, 1994.
-------------------
Revenues increased to $4,183,300, for the three months ended
September 30, 1995, a 50% increase over the revenues of $2,793,800 for
the three months ended September 30, 1994. Sales of computer systems,
upgrades and supplies increased $1,376,200, from $1,147,500 in the
same quarter of last year to $2,523,700 in the current quarter. The
increase was due to both increased sales of larger systems and to
increased sales of upgrades. Revenues from maintenance and other
services increased nominally, from $1,646,300 in the quarter ended
September 30, 1994 to $1,659,600 in the current quarter. There was an
$87,400 increase in maintenance revenues, but revenues from time and
material billings for additional services was down slightly from the
same quarter of last year.
Costs of products and services, as a percentage of revenues,
decreased from 52% for the quarter ended September 30, 1994 to 50% for
the quarter ended September 30, 1995 due to changes in sales mix.
Selling, general and administrative expenses increased from $844,000
in the same quarter of last year to $1,001,500 in the current quarter,
due to an increase in selling expense of $62,900 and an increase in
general and administrative expense of $94,600. However, these
increases were more than compensated for by increased sales during the
current quarter, with the result that selling, general and
administrative expenses, as a percentage of revenues, decreased from
30% to 24%. Research and development expenditures decreased from
$386,600 to $301,200 due to a redeployment of staff to capitalized
software projects. The expenditures for capitalized software
increased from $26,500 in the three months ended September 30, 1994 to
$126,500 in the three months ended September 30, 1995.
Interest and investment income was $100,500 for the quarter ended
September 30, 1995 compared to investment and interest income of
$132,300 for the quarter ended September 30, 1994. Investment results
in the current quarter represent an annualized yield of about 6% on
the Company's average combined balances for cash and cash equivalents
and short-term investments.
<PAGE> 7
Six months ended September 30, 1995 compared to six months ended
----------------------------------------------------------------
September 30, 1994.
-------------------
Revenues increased to $7,987,700 for the six months ended
September 30, 1995, a 36% increase over the revenues of $5,867,000 for
the six months ended September 30, 1994. Sales of computer systems,
upgrades and supplies increased $1,917,900, from $2,729,500 in the
prior year to $4,647,400 in the current year, for the same reasons as
discussed above. Revenues from maintenance and other services
increased $202,800, from $3,137,500 in the prior year to $3,340,300 in
the current year, with most of the increase attributable to an
increase in recurring maintenance revenues.
Costs of products and services, as a percentage of revenues,
decreased from 53% for the six months ended September 30, 1994 to 47%
for the six months ended September 30, 1995 and selling, general and
administrative expenses decreased from 29% to 24% for the same reasons
as discussed above.
Interest and investment income was $204,300 for the six months
ended September 30, 1995 compared to $120,700 for the six months ended
September 30, 1994. Current year investment results represent an
annualized yield of about 6% on the Company's combined balances for
cash and cash equivalents and short-term investments. Interest and
investment income for the six months ended September 30, 1994 included
prior year first quarter realized losses from sales of short-term
investments of $81,000 and unrealized losses from trading securities
of $10,100.
Liquidity and Capital Resources
-------------------------------
A comparison of the Company's balance sheet amounts for cash and
cash equivalents and for short-term investments at September 30, 1995
with the comparable balances at March 31, 1995 is as follows:
<TABLE>
<CAPTION>
September 30, March 31, Increase
1995 1995 (Decrease)
<S> <C> <C> <C>
Cash and cash equivalents $5,008,300 $6,085,300 ($1,077,000)
Short-term investments 1,286,700 1,237,200 49,500
---------- ---------- ------------
$6,295,000 $7,322,500 ($1,027,500)
</TABLE>
The decrease of $1,027,500 was due primarily to an acquisition of
a 25% ownership position in Clinitec International, Inc. for
$1,000,000. Net cash from operating activities during the six months
ended September 30, 1995 was $128,200. Positive cash flows from net
income of $1,065,000, and an increase in accounts payable of $416,900,
were more then offset by an increase in accounts receivable of
$1,724,900. The increase in accounts receivable was due to technical
delays in collecting $578,000 from one large client, which was
subsequently collected in October 1995, and to the increase in
revenues as previously discussed.
<PAGE> 8
The Company generally receives substantially all of the cash
months after a computer system or enhancement is delivered. The
Company structures its maintenance contracts so that billings under
the contract are made on a monthly basis and in advance of the period
of coverage.
The Company believes that cash generated from operations, cash on
hand and short-term investments readily convertible into cash will
provide sufficient liquidity to provide continued working capital for
operations for the foreseeable future. Due to its available cash
resources, the Company has not relied on borrowings to meet its
working capital requirements.
The Company is not capital intensive and has traditionally
purchased and capitalized only equipment which is to be used for
in-house hardware and software development and testing efforts.
Technological improvements in the computer industry have often
resulted in price declines for hardware and other electronic
components which have lessened the impact of inflation.
<PAGE> 9
PART II. OTHER INFORMATION
-------- ------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits:
---------
The Exhibits listed on the accompanying Index to Exhibits
on page 11 are file as part of this report.
(b) Reports on Form 8-K: None
--------------------
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
QUALITY SYSTEMS, INC.
<TABLE>
<S> <C>
Date November 8, 1995 By /s/ Sheldon Razin
---------------- ----------------------------------
Sheldon Razin
President and Chairman
of the Board of Directors;
Principal Executive Officer
Date November 8, 1995 By /s/ Irma G. Carmona
---------------- ----------------------------------
Irma G. Carmona
Corporate Controller;
Principal Accounting Officer
</TABLE>
<PAGE> 11
INDEX TO EXHIBITS
Sequential
Page
Exhibit No.
------- ----------
11.0 Earnings per share computation, is filed herewith 12
27.0 Financial Data Schedule, is filed herewith. 13
<PAGE> 12
EXHIBIT 11.0
------------
Earnings per share for the six months ended September 30, 1995
and September 30, 1994 was computed based on the weighted average
number of shares actually outstanding, plus the shares that would be
outstanding, using the treasury stock method, assuming the exercise of
all outstanding options which were considered to be common stock
equivalents. Primary and fully diluted net earnings per share amounts
are based on weighted average number of shares outstanding of
4,678,777 and 4,709,550 for September 30, 1995 respectively and
4,642,913 for both primary and fully diluted net earnings per share
for September 30, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 5,008,300
<SECURITIES> 1,286,700
<RECEIVABLES> 4,721,400
<ALLOWANCES> 0
<INVENTORY> 763,800
<CURRENT-ASSETS> 11,962,700
<PP&E> 491,700
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,363,000
<CURRENT-LIABILITIES> 3,761,900
<BONDS> 0
<COMMON> 45,700
0
0
<OTHER-SE> 10,425,200
<TOTAL-LIABILITY-AND-EQUITY> 14,363,000
<SALES> 4,647,400
<TOTAL-REVENUES> 7,987,700
<CGS> 0
<TOTAL-COSTS> 3,784,900
<OTHER-EXPENSES> 2,583,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,805,800
<INCOME-TAX> 740,800
<INCOME-CONTINUING> 1,065,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,065,000
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
