<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 June 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.
4,535,866 shares of Common Stock, $.01 par value,
as of August 8, 1995
<PAGE> 2
PART I FINANCIAL INFORMATION
------ ---------------------
Item 1. Financial Statements
-----------------------------
QUALITY SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
------------- -----------
1995 1995
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,651,700 $ 6,085,300
Short-term investments 766,800 1,237,200
Accounts receivable, net 3,708,600 2,996,500
Inventories 842,900 782,900
Deferred tax asset 162,800 199,000
Other current assets 49,400 74,300
------------- -----------
Total current assets 11,182,200 11,375,200
Equipment and improvements, net 504,600 535,300
Capitalized software costs, net 528,800 501,300
Investment Clinitec International, Inc. 990,100 -
Cash surrender value of life insurance 229,500 185,100
Other assets 77,000 70,900
------------- -----------
Total assets $ 13,512,200 $12,667,800
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 961,300 $ 597,400
Accrued payroll and related expenses 419,700 427,100
Accrued expenses 462,000 492,400
Deferred service revenue 981,800 951,500
Deferred compensation 229,500 185,100
Estimated costs to complete system
installations 227,100 216,500
Income taxes payable 354,900 473,400
----------- -----------
Total current liabilities 3,636,300 3,343,400
Deferred tax liability 129,800 136,800
----------- -----------
Total liabilities 3,766,100 3,480,200
----------- -----------
Stockholders' equity:
Common stock, $.01 par value, 20,000,000
shares authorized, 4,535,866 shares
issued and outstanding 45,400 45,400
Additional paid-in capital 5,977,600 5,977,600
Unrealized loss on available-for-sale
securities (61,700) (83,000)
Retained earnings 3,784,800 3,247,600
----------- -----------
Total stockholders' equity 9,746,100 9,187,600
----------- -----------
Total liabilities and stockholders'
equity $13,512,200 $12,667,800
=========== ===========
</TABLE>
<PAGE> 3
QUALITY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
June 30,
1995 1994
----------- -----------
<S> <C> <C>
Net revenues:
Sales of computer systems,
upgrades and supplies $ 2,123,700 $ 1,582,000
Maintenance and other services 1,680,700 1,491,200
----------- -----------
3,804,400 3,073,200
----------- -----------
Costs and expenses:
Cost of products and services 1,713,400 1,651,800
Selling, general and
administrative 925,900 835,800
Research and development 355,000 329,800
----------- -----------
2,994,300 2,817,400
----------- -----------
Income from operations 810,100 255,800
Interest and investment
income (loss) 103,800 (11,600)
Equity loss (9,900) -
----------- -----------
Income before income tax provision 904,000 244,200
Income tax provision 366,800 43,800
----------- -----------
Net income $ 537,200 $ 200,400
=========== ===========
Earnings per share:
Primary $.11 $.04
Fully diluted $.11 $.04
Equivalent number of
shares outstanding:
Primary 4,702,047 4,666,136
Fully diluted 4,730,540 4,666,136
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE> 4
QUALITY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
June 30
1995 1994
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 537,200 $ 200,400
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization
of equipment and improvements 58,200 57,900
Amortization of capitalized
software costs 59,400 46,400
Realized (gains) losses from sales
of short-term investments (56,700) 81,000
Unrealized gains on trading securities (38,200) (11,100)
Equity loss 9,900 -
Deferred income taxes 29,200 -
Changes in:
Accounts receivable (712,100) (443,600)
Inventories (60,000) (99,700)
Other current assets 24,900 25,600
Accounts payable 363,900 187,900
Accrued expenses (37,800) (29,800)
Deferred service revenue 30,300 37,000
Estimated costs to complete
system installations 10,600 (11,100)
Income taxes payable and taxes
related to equity accounts (134,800) 43,800
--------- ---------
Net cash provided by operating activities 84,000 84,700
--------- ---------
Cash flows from investing activities:
Proceeds from sales of short-term
investments 630,400 3,801,900
Purchases of short-term investments (27,500) (2,281,900)
Additions to equipment and
improvements, net (27,500) (28,400)
Additions to capitalized software
costs (86,900) (50,200)
Investment in Clinitec
International, Inc. (1,000,000) -
Change in other assets (6,100) 29,300
--------- ---------
Net cash provided by (used in) investing
activities: (517,600) 1,470,700
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of
stock options - 3,400
---------- ----------
Net increase (decrease) in cash and
cash equivalents (433,600) 1,558,800
---------- ----------
Cash and cash equivalents, beginning of
period 6,085,300 1,092,900
---------- ----------
Cash and cash equivalents, end of period $5,651,700 $2,651,700
=========== ===========
</TABLE>
Supplemental information - During the three months ended June 30, 1995
and 1994 the Company made income tax payments of $472,500 and $9,600
respectively.
The accompanying notes are an integral part of the financial
statements.
<PAGE> 5
QUALITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 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.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition
------- -----------------------------------------------------------
and Results of Operations
-------------------------
Results of Operations
---------------------
Three months ended June 30, 1995 compared to three months ended
---------------------------------------------------------------
June 30, 1994
-------------
Revenues increased $731,200 from $3,073,200 in the three months
ended June 30, 1994 to $3,804,400 in the three months ended June 30,
1995, an increase of 24%. Sales of computer systems, upgrades and
supplies increased $541,700, from $1,582,000 in the same quarter of
last year to $2,123,700 in the current quarter. The increase was due
primarily to increased sales of larger systems. Revenues from
maintenance and others services increased 13%, from $1,491,200 in the
quarter ended June 30, 1994 to $1,680,700 in the current quarter. The
increase was due to increases in maintenance revenues from a larger
installed base and in time and material billings for additional
services.
Cost of products and services, as a percentage of revenues,
decreased from 54% for the quarters ended June 30, 1994 to 45% for the
quarter ended June 30, 1995 due to changes in sales mix. Selling,
general and administrative expenses increased from $835,800 in the
same quarter of last year to $925,900 in the current quarter, due to
an increase in selling expense. The increase in selling expense
results from hiring additional sales personnel in the third quarter of
the prior year. However, the increase in selling expense was 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 27% to 24%. Research and
development expenditures increased from $329,800 to $355,000 as the
Company maintained its commitment to continually enhance the
functionality and flexibility of its systems.
Interest and investment income was $103,800 for the quarter ended
June 30, 1995 compared to a loss of $11,600 for the quarter ended June
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.
Interest and investment income for the quarter ended June 30, 1994
included realized losses from sales of short-term investments of
$81,000 and unrealized losses from trading securities of $10,100,
which more than offset other interest and investment income.
<PAGE> 7
Liquidity and Capital Resources
-------------------------------
A comparison of the Company's balance sheet amounts for cash and
cash equivalents and for short-term investments at June 30, 1995 with
the comparable balances at March 31, 1995 is as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995 Decrease
---------- ---------- ----------
<S> <C> <C> <C>
Cash and cash equivalents $5,651,700 $6,085,300 ($433,600)
Short-term investments 766,800 1,237,200 ( 470,400)
---------- ---------- ----------
$6,418,500 $7,322,500 ($904,000)
</TABLE>
The decrease of $904,000 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 quarter
ended June 30, 1995 was $84,000. Positive cash flows from net income
of $537,200 and an increase in accounts payable of $363,900 were
largely offset by an increase in accounts receivable of $712,100. The
increase in accounts receivable was due to the increase in revenues as
previously discussed.
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> 8
PART II. OTHER INFORMATION
-------- ------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits: None
---------
(b) Reports on Form 8-K: None
--------------------
<PAGE> 9
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 August 9, 1995 By /s/ Sheldon Razin
--------------- ----------------------------------
Sheldon Razin
President and Chairman
of the Board of Directors;
Principal Executive Officer
Date August 9, 1995 By /s/ Irma G. Carmona
--------------- ----------------------------------
Irma G. Carmona
Corporate Controller;
Principal Accounting Officer
</TABLE>
