QUALITY SYSTEMS INC
S-1/A, 1996-02-15
COMPUTER INTEGRATED SYSTEMS DESIGN
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<PAGE>   1
 
   
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 15, 1996
    
 
   
                                                      REGISTRATION NO. 333-00161
    
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
   
                                AMENDMENT NO. 1
    
   
                                       TO
    
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                             QUALITY SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                            ------------------------
 
<TABLE>
<S>                               <C>                               <C>
            CALIFORNIA                           7373                           95-2888568
 (STATE OR OTHER JURISDICTION OF     (PRIMARY STANDARD INDUSTRIAL            (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)     CLASSIFICATION CODE NUMBER)           IDENTIFICATION NO.)
</TABLE>
 
                            ------------------------
 
                             17822 EAST 17TH STREET
                            TUSTIN, CALIFORNIA 92680
                                 (714) 731-7171
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                                 SHELDON RAZIN
   
                CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
    
                             QUALITY SYSTEMS, INC.
                       17822 EAST 17TH STREET, SUITE 210
                            TUSTIN, CALIFORNIA 92680
                                 (714) 731-7171
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                                   COPIES TO:
 
<TABLE>
<S>                                                <C>
              BRUCE R. HALLETT, ESQ.                              DHIYA EL-SADEN, ESQ.
             LISA SCHECHTER GOON, ESQ.                            SCOTT J. CALFAS, ESQ.
             MATTHEW V. WATERMAN, ESQ.                           GIBSON, DUNN & CRUTCHER
          BROBECK, PHLEGER & HARRISON LLP                        333 SOUTH GRAND AVENUE
         4675 MACARTHUR COURT, SUITE 1000                     LOS ANGELES, CALIFORNIA 90071
          NEWPORT BEACH, CALIFORNIA 92660                            (213) 229-7000
                  (714) 752-7535
</TABLE>
 
                            ------------------------
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this Registration Statement becomes effective.
                            ------------------------
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  / /
 
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  / /
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  / /
 
     If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box.  / /
   
                            ------------------------
    
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2
 
                             QUALITY SYSTEMS, INC.
 
              CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
                  OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
 
   
<TABLE>
<CAPTION>
        FORM S-1 REGISTRATION STATEMENT
                ITEM AND HEADING                              HEADING IN PROSPECTUS
- ------------------------------------------------    ------------------------------------------
<S>   <C>                                           <C>
 1.   Forepart of the Registration Statement and
      Outside Front Cover Page of Prospectus....    Facing Page; Cross Reference Sheet;
                                                    Outside Front Cover Page; Additional
                                                    Information
 2.   Inside Front and Outside Back Cover Pages
      of Prospectus.............................    Inside Front and Outside Back Cover Pages
                                                    of Prospectus
 3.   Summary Information, Risk Factors and
      Ratio of Earnings to Fixed Charges........    Prospectus Summary; Risk Factors; The
                                                    Company; Selected Financial Data
 4.   Use of Proceeds...........................    Prospectus Summary; Use of Proceeds;
                                                    Capitalization
 5.   Determination of Offering Price...........    Outside Front Cover Page of Prospectus;
                                                    Underwriting
 6.   Dilution..................................    Not Applicable
 7.   Selling Security Holders..................    Principal and Selling Shareholders
 8.   Plan of Distribution......................    Outside and Inside Front Cover Pages;
                                                    Underwriting
 9.   Description of Securities to be
      Registered................................    Outside Front Cover Page; Prospectus
                                                    Summary; Capitalization; Description of
                                                    Capital Stock
10.   Interests of Named Experts and Counsel....    Legal Opinions; Experts
11.   Information with Respect to the
      Registrant................................    Outside and Inside Front Cover Pages;
                                                    Prospectus Summary; Risk Factors; The
                                                    Company; Use of Proceeds; Price Range for
                                                    Common Stock and Dividends;
                                                    Capitalization; Selected Financial Data;
                                                    Management's Discussion and Analysis of
                                                    Financial Condition and Results of
                                                    Operations; Business; Directors and
                                                    Executive Officers; Certain Transactions;
                                                    Principal and Selling Shareholders;
                                                    Description of Capital Stock; Shares
                                                    Eligible for Future Sale; Legal Opinions;
                                                    Experts; Financial Statements
12.   Disclosure of Commission Position on
      Indemnification for Securities Act
      Liabilities...............................    Not Applicable
</TABLE>
    
<PAGE>   3
 
     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
   
                 SUBJECT TO COMPLETION, DATED FEBRUARY 15, 1996
    
 
                                1,500,000 SHARES
 
                                      LOGO
                                      LOGO
                                  COMMON STOCK
                         ------------------------------
 
   
Of the 1,500,000 shares of Common Stock offered hereby, 1,000,000 shares are
being sold by Quality Systems, Inc. ("QSI" or the "Company") and 500,000 shares
are being sold by certain Selling Shareholders. The Company will not receive any
of the proceeds from the sale of shares by the Selling Shareholders. See "Use of
Proceeds." The Common Stock of the Company is quoted on the Nasdaq National
Market under the symbol "QSII." On February 12, 1996, the last sale price per
share of the Common Stock as reported by the Nasdaq National Market was $20.75.
See "Price Range for Common Stock and Dividends."
    
 
                         ------------------------------

          THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                   SEE "RISK FACTORS" AT PAGES 6 THROUGH 10.
 
                         ------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
   SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
     PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
     REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
<TABLE>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
                                              UNDERWRITING                         PROCEEDS TO
                              PRICE TO        DISCOUNTS AND      PROCEEDS TO         SELLING
                               PUBLIC        COMMISSIONS(1)      COMPANY(2)       SHAREHOLDERS
- -------------------------------------------------------------------------------------------------
<S>                       <C>               <C>               <C>               <C>
Per Share................         $                 $                 $                 $
- -------------------------------------------------------------------------------------------------
Total(3)................. $                 $                 $                 $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
 
(1) The Company and the Selling Shareholders have agreed to indemnify the
    Underwriters against certain liabilities, including liabilities under the
    Securities Act of 1933. See "Underwriting."
 
   
(2) Before deducting expenses payable by the Company estimated at $500,000.
    
 
(3) Certain of the Selling Shareholders have granted to the Underwriters a
    30-day option to purchase up to 225,000 additional shares of Common Stock at
    the Price to Public, less Underwriting Discount, solely to cover
    over-allotments, if any. If the Underwriters exercise such option in full,
    the total Price to Public, Underwriting Discount and Commissions, Proceeds
    to Company and Proceeds to Selling Shareholders will be $          ,
    $          , $          , and $          , respectively. See "Underwriting."
                         ------------------------------
 
The shares are offered by the Underwriters when, as and if delivered to and
accepted by the Underwriters, and subject to various prior conditions, including
their right to reject orders in whole or in part. It is expected that delivery
of share certificates will be made in New York, New York on or about
  , 1996.
 
   
BEAR, STEARNS & CO. INC.
    
                         PACIFIC GROWTH EQUITIES, INC.
                                                                 CRUTTENDEN ROTH
                                                                  INCORPORATED
 
               THE DATE OF THIS PROSPECTUS IS             , 1996
<PAGE>   4
 
                                                                            LOGO
 
                                                   Quality Systems' health care
        [PHOTO]               [PHOTO]              information systems automate
                                                   medical and dental practices
                                                   and improve efficiency in
                                                   such areas as billing,
                                                   patient scheduling and
                                                   insurance processing. These
                                                   systems also permit enhanced
                                                   quality of care by giving the
                                                   health care professional
                        [PHOTO]                    access to treatment and
                                                   outcome data.
 
                 The Company's health care
                 information systems automate both
                 medical and dental physician group
                 practices, management services
                 organizations ("MSOs"), physician
                 hospital organizations ("PHOs"),
                 health maintenance organizations
                 ("HMOs") and community health
                 centers with a focus on improving
                 overall practice efficiency. These
                 systems offer a broad range of
                 applications for a wide variety of
                 health care organizations.
                                                          [PHOTO]
                             QSI provides hardware
                             and software system
                             support to its clients
                             seven days a week, 24
                             hours a day. The Company
                             offers a selection of
                             other client services
                             including training,
                             consulting and custom
                             software development.
 
                         ------------------------------
 
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
(IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
 
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>   5
 
                               PROSPECTUS SUMMARY
 
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised.
 
                                  THE COMPANY
 
Quality Systems, Inc. ("QSI" or the "Company") develops and markets health care
information systems that automate medical and dental group practices, physician
hospital organizations ("PHOs"), management service organizations ("MSOs"),
health maintenance organizations ("HMOs") and community health centers. In
response to the growing need for more comprehensive, cost-effective information
solutions for physician and dental practice management, the Company's systems
provide clients with the ability to redesign patient care and other workflow
processes, to improve productivity and reduce information processing and
administrative costs and to provide multi-site access to patient information.
The Company's proprietary software systems include general patient information
and summary medical records, appointment scheduling, billing, insurance claims
submission and processing, managed care implementation and referral management,
treatment outcome studies, treatment planning, drug formularies, word processing
and accounting. In addition to providing fully integrated information solutions
to its clients, the Company provides comprehensive hardware and software
installation, maintenance and support services, system training services and
electronic claims submission services. The Company is also introducing patient
medical records automation for medical and dental practices utilizing
proprietary software developed by Clinitec International Inc. ("Clinitec"), a
developer of electronic medical records software systems.
 
The Company currently has an installed base of more than 475 operating health
care information systems serving PHOs, MSOs, HMOs and other health care
organizations, each of which consists of one to 120 physicians or dentists.
According to Medical Data International, it is estimated that the physician
practice management information systems market is currently $1.8 billion. The
Company believes that as health care providers are increasingly required to
reduce costs while maintaining the quality of health care, the Company will be
able to capitalize on its strategy of providing fully integrated information
systems and superior customer service.
 
The Company was founded in 1974, with an early focus on providing information
systems and services primarily for dental group practices. The Company's initial
"turnkey" systems were designed to improve productivity while reducing
information processing costs and personnel requirements. In the mid-1980's, the
Company capitalized on the opportunity presented by the increasing pressure of
cost containment on physicians and health care organizations and further
expanded its information processing systems into the broader medical market.
Today, the Company develops and provides integrated UNIX-based health care
information systems for both the medical and dental markets. These systems
operate on a stand-alone basis or in a networked environment and are expandable
to accommodate client needs.
 
   
     Augmenting its practice management software, the Company added electronic
medical records software to its product line in 1995 through a strategic
relationship with Clinitec. The Company currently holds a 25% interest in
Clinitec and a unilateral right to increase its interest to 51%, and has entered
into an agreement in principle (the "Clinitec Agreement in Principle") to
acquire Clinitec as a wholly-owned subsidiary. Clinitec's principal product,
NextGen, permits scanning, annotation, retrieval and analysis of medical records
in all formats, from documents to photographs and X-rays. NextGen has been
developed using a client/server platform, a graphical user interface for
compatibility with UNIX, Microsoft Windows, Windows NT and Windows 95 operating
systems, and a relational database for flexibility in screen customization and
logic flow. The Company is also in the process of developing an alternative
client/server version of its "back office" products utilizing a graphical user
interface with screens and templates similar to those in the NextGen product to
enable a more seamless integration of the QSI and NextGen applications. With the
addition of NextGen, the Company is able to provide its clients with a
comprehensive information management solution. NextGen, in conjunction with the
Company's practice management software, was first installed at a beta site in
August 1995 and is currently being installed in two additional sites. General
release of the combined systems is expected to occur in the quarter ending June
30, 1996.
    
 
                                        3
<PAGE>   6
 
                                  THE OFFERING
 
   
<TABLE>
<S>                                               <C>
Common Stock offered
  By the Company................................  1,000,000 shares
  By the Selling Shareholders...................  500,000 shares
     Total......................................  1,500,000 shares
  Common Stock to be outstanding after the
     offering...................................  5,653,491 shares(1)
Use of proceeds.................................  For the acquisition of an increased ownership
                                                  interest in Clinitec and for general corporate
                                                  purposes, including the financing of product sales
                                                  growth, development of new products, working
                                                  capital requirements and potential other
                                                  acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol...................  QSII
</TABLE>
    
 
- ---------------
 
   
(1) Excludes 132,125 shares of Common Stock which were subject to outstanding
    options as of February 12, 1996 at a weighted average exercise price of
    $4.61 per share under the Company's 1989 Stock Option Plan (the "1989
    Plan"). See "Directors and Executive Officers -- 1989 Stock Option Plan" and
    Note 6 to Notes to Financial Statements.
    
 
                                        4
<PAGE>   7
 
                         SUMMARY FINANCIAL INFORMATION
                   (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
 
   
<TABLE>
<CAPTION>
                                                                                    NINE MONTHS
                                                                                       ENDED
                                                     YEAR ENDED MARCH 31,           DECEMBER 31,
                                                  ---------------------------     ----------------
                                                   1993      1994      1995        1994     1995
                                                  -------   -------   -------     ------   -------
<S>                                               <C>       <C>       <C>         <C>      <C>
STATEMENT OF OPERATIONS:
  Net revenues:
     Sales of computer systems, upgrades and
       supplies.................................  $ 6,274   $ 6,146   $ 5,681     $3,895   $ 7,162
     Maintenance and other services.............    5,377     5,606     6,368      4,727     5,159
                                                  -------   -------   -------     ------   -------
                                                   11,651    11,752    12,049      8,622    12,321
  Cost of products and services.................    6,992     6,527     6,060      4,498     5,865
                                                  -------   -------   -------     ------   -------
  Gross profit..................................    4,659     5,225     5,989      4,124     6,456
  Earnings from operations......................      517       855       986        433     2,488
  Net earnings..................................  $   623   $   906   $   962     $  524   $ 1,670
                                                  =======   =======   =======     ======   =======
  Net earnings per share(1).....................  $  0.15   $  0.21   $  0.21     $ 0.11   $  0.35
                                                  =======   =======   =======     ======   =======
  Weighted average shares used in computation...    4,187     4,342     4,606      4,641     4,709
                                                  =======   =======   =======     ======   =======
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                                         AT DECEMBER 31, 1995
                                                                  -----------------------------------
                                                                              PRO FORMA AS ADJUSTED
                                                                            -------------------------
                                                                              51% OF        100% OF
                                                                  ACTUAL    CLINITEC(2)   CLINITEC(3)
                                                                  -------   -----------   -----------
<S>                                                               <C>       <C>           <C>
BALANCE SHEET DATA:
  Cash and cash equivalents and short-term investments..........  $ 7,662     $25,606       $22,210
  Working capital...............................................    9,302      27,513        24,117
  Total assets..................................................   15,386      33,438        37,001
  Shareholders' equity..........................................   11,681      28,365        32,907
</TABLE>
    
 
- ---------------
 
   
(1) Net earnings per share reflects primary earnings per share for all periods
    indicated. Primary and fully diluted net earnings per share were the same
    for all periods except for the year ended March 31, 1994, for which fully
    diluted net earnings per share was $0.20.
    
 
   
(2) Gives pro forma effect to the acquisition of an additional interest in
    Clinitec, providing the Company with a 51% ownership interest in Clinitec as
    if such acquisition had occurred on December 31, 1995, and adjusted to
    reflect the sale of 1,000,000 shares of Common Stock by the Company in the
    offering at an assumed public offering price of $20.75 per share and the
    application of the estimated net proceeds therefrom. See "Use of Proceeds."
    
 
   
(3) Gives pro forma effect to the acquisition of all of Clinitec for $4.9
    million in cash and $6.9 million in value of the Company's Common Stock as
    if such acquisition had occurred on December 31, 1995, and adjusted to
    reflect the sale of 1,000,000 shares of Common Stock by the Company in the
    offering at an assumed public offering price of $20.75 per share and the
    application of the estimated net proceeds reflect additional shares
    therefrom. See "Use of Proceeds."
    
 
                                        5
<PAGE>   8
 
                                    RISK FACTORS
 
   
Prospective investors should consider carefully the following factors, in
addition to the other information contained or incorporated by reference in this
Prospectus. Unless the context otherwise requires, as used in these risk
factors, the term Company shall also include Clinitec after it becomes a
subsidiary of QSI.
    
 
DEPENDENCE ON PRINCIPAL PRODUCT AND NEW PRODUCT DEVELOPMENT
 
The Company currently derives substantially all of its net revenues from sales
of its health care information systems and related services. The Company
believes that a primary factor in the market acceptance of its systems has been
its ability to meet the needs of users of health care information systems. The
Company's future financial performance will depend in large part on the
Company's ability to continue to meet the increasingly sophisticated needs of
its clients through the timely development and successful introduction of new
and enhanced versions of its systems and other complementary products. The
Company has historically expended a significant amount of its net revenues on
product development and believes that significant continuing product development
efforts will be required to sustain the Company's growth.
 
There can be no assurance that the Company will be successful in its product
development efforts, that the market will continue to accept the Company's
existing or new products, or that products or product enhancements will be
developed in a timely manner, meet the requirements of health care providers or
achieve market acceptance. If new products or product enhancements do not
achieve market acceptance, the Company's business, operating results and
financial condition could be adversely affected. At certain times in the past,
the Company has also experienced delays in purchases of its products by clients
anticipating the launch of new products by the Company. There can be no
assurance that material order deferrals in anticipation of new product
introductions will not occur. See "Business -- Products," "-- Relationship with
Clinitec" and "-- Product Enhancement and Development."
 
COMPETITION
 
The market for health care information systems is intensely competitive and the
Company faces significant competition from a number of different sources. In
addition, several of the Company's competitors have significantly greater
financial, technical, product development and marketing resources than the
Company. The industry is highly fragmented and includes numerous competitors,
none of which the Company believes dominates the overall market for group
practice management systems.
 
Among the Company's principal competitors are health care information systems
companies such as IDX Corporation, Medic Computer Systems, Physician Computer
Networks, Inc., and Cycare Systems, Inc. Furthermore, the Company also competes
indirectly and to varying degrees with other major health group information
companies, information management companies generally, and other software
developers which may more directly enter the markets in which the Company
competes. There can be no assurance that future competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Competitive pressures and other factors, such as new
product introductions by the Company or its competitors, may result in price
erosion that could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
The Company believes that once a health care provider has chosen a particular
health care information system vendor, the provider will, for a period of time,
be more likely to rely on that vendor for its future information system
requirements. As the health care industry undergoes further consolidation, each
sale of the Company's systems assumes even greater importance to the Company's
business, financial condition and results of operations. The Company's inability
to make initial sales of its systems to health care providers that are replacing
or substantially modifying their health care information systems could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Industry Background," "-- Sales and
Marketing" and "-- Competition."
 
                                        6
<PAGE>   9
 
TECHNOLOGICAL CHANGE
 
The software market generally is characterized by rapid technological change,
changing customer needs, frequent new product introductions and evolving
industry standards. The introduction of products incorporating new technologies
and the emergence of new industry standards could render the Company's existing
products obsolete and unmarketable. There can be no assurance that the Company
will be successful in developing and marketing new products that respond to
technological changes or evolving industry standards. If the Company is unable,
for technological or other reasons, to develop and introduce new products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, results of operations and financial
condition could be materially adversely affected.
 
The Company is currently developing a new generation of its software products
that will be designed for the client/server environment. There can be no
assurance that the Company will successfully develop these new software products
or that these products will operate successfully on the principal client/server
operating systems, which include UNIX, Microsoft Windows, Windows NT and Windows
95, or that any such development, even if successful, will be completed
concurrently with or prior to introductions by competitors of products designed
for the client/server environment. Any such failure or delay could adversely
affect the Company's competitive position or could make the Company's current
product line designed for the UNIX environment obsolete.
 
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
 
The Company's revenues and operating results have in the past fluctuated, and
may in the future fluctuate, from quarter to quarter and period to period as a
result of a number of factors including, without limitation, the size and timing
of orders from clients; the length of sales cycles and installation processes;
the ability of the Company's clients to obtain financing for the purchase of the
Company's products; changes in pricing policies or price reductions by the
Company or its competitors; the timing of new product announcements and product
introductions by the Company or its competitors; the availability and cost of
supplies; the financial stability of major clients; market acceptance of new
products, applications and product enhancements; the Company's ability to
develop, introduce and market new products, applications and product
enhancements and to control costs; the Company's success in expanding its sales
and marketing programs; deferrals of client orders in anticipation of new
products, applications or product enhancements; changes in Company strategy;
personnel changes; and general economic factors.
 
The Company's products are generally shipped as orders are received and
accordingly, the Company has historically operated with little backlog. As a
result, sales in any quarter are dependent on orders booked and shipped in that
quarter and are not predictable with any degree of certainty. In addition, the
Company's initial contact with a potential customer depends in significant part
on the customer's decision to replace, or substantially modify, its existing
information system. How and when to implement, replace or substantially modify
an information system are major decisions for health care providers.
Accordingly, the sales cycle for the Company's systems can vary significantly
and typically ranges from three to 12 months from initial contact to contract
execution and the installation cycle is typically two to three months from
contract execution to completion of installation. Because a significant
percentage of the Company's expenses are relatively fixed, a variation in the
timing of systems sales and installations can cause significant variations in
operating results from quarter to quarter. As a result, the Company believes
that interim period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
 
Further, the Company's historical operating results are not necessarily
indicative of future performance for any particular period and there can be no
assurance that the Company's recent revenue growth or its profitability will
continue on a quarterly or annual basis. Due to all of the foregoing factors, it
is possible that in some future quarter the Company's operating results may be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
                                        7
<PAGE>   10
 
PROPRIETARY TECHNOLOGY
 
The Company is heavily dependent on the maintenance and protection of its
intellectual property and relies largely on license agreements, confidentiality
procedures and employee nondisclosure agreements to protect its intellectual
property. The Company's software is not patented and existing copyright laws
offer only limited practical protection. There can be no assurance that the
legal protections and precautions taken by the Company will be adequate to
prevent misappropriation of the Company's technology or that competitors will
not independently develop technologies equivalent or superior to the Company's.
Further, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
 
The Company does not believe that its operations or products infringe on the
intellectual property rights of others. However, there can be no assurance that
others will not assert infringement or trade secret claims against the Company
with respect to its current or future products or that any such assertion will
not require the Company to enter into a license agreement or royalty
arrangements with the party asserting the claim. As competing health care
information systems increase in complexity and overall capabilities and the
functionality of these systems further overlaps, providers of such systems may
become increasingly subject to infringement claims. Responding to and defending
any such claims may distract the attention of Company management and have an
adverse effect on the Company's business, financial condition and results of
operations. In addition, claims may be brought against third parties from which
the Company purchases software, and such claims could adversely affect the
Company's ability to access third party software for its systems.
 
   
CLINITEC
    
 
   
A principal component of the Company's business strategy is the acquisition of a
controlling interest in Clinitec. While the Company has entered into a
non-binding agreement in principle to acquire Clinitec as a wholly-owned
subsidiary, there can be no assurance that such acquisition will be consummated.
However, if such acquisition is not consummated, the Company will in any event
exercise its contractual right to acquire shares resulting in a 51% ownership
interest in Clinitec unless the Board of Directors of the Company determines, in
accordance with its fiduciary duties, that the exercise of such contractual
right would have a material adverse financial effect on the Company's business
and prospects and its shareholders. The Company's future financial results will
depend in part on the Company's ability to successfully integrate Clinitec's
business with the Company's, including Clinitec's ability to hire and retain
high quality personnel for its operations. There can be no assurance that the
Company will be able to successfully coordinate its business activities with
those of Clinitec. Furthermore, there can be no assurance that the Company will
be successful in integrating Clinitec products with those of the Company or that
the acquisition of Clinitec will not have an adverse effect upon the Company's
operating results. In addition, Clinitec has sold only a limited quantity of its
principal products to date and there can be no assurance that its product will
achieve broad market acceptance. See "Use of Proceeds" and
"Business -- Relationship with Clinitec."
    
 
ABILITY TO MANAGE GROWTH
 
The Company has recently experienced a period of growth and increased personnel
which has placed, and will continue to place, a significant strain on the
Company's resources. The Company anticipates expanding its overall software
development, marketing, sales, client management and training capacity. In the
event the Company is unable to identify, hire, train and retain qualified
individuals in such capacities within a reasonable time frame, such failure
could have a material adverse effect on the Company. In addition, the Company's
ability to manage future increases, if any, in the scope of its operations or
personnel will depend on significant expansion of its research and development,
marketing and sales, management and financial and administrative capabilities.
The failure of the Company's management to effectively manage expansion in its
business could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Business -- Relationship with
Clinitec."
 
                                        8
<PAGE>   11
 
PRODUCT LIABILITY
 
Certain of the Company's products provide applications that relate to patient
medical information. Any failure by the Company's products to provide accurate
and timely information could result in claims against the Company. The Company
maintains insurance to protect against claims associated with the use of its
products, but there can be no assurance that its insurance coverage would
adequately cover any claim asserted against the Company. A successful claim
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and management time and resources. There can
be no assurance that the Company will not be subject to product liability
claims, that such claims will not result in liability in excess of its insurance
coverages, that the Company's insurance will cover such claims or that
appropriate insurance will continue to be available to the Company in the future
at commercially reasonable rates. Such claims could have a material adverse
affect on the Company's business, financial condition and results of operations.
 
UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT REGULATION
 
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care facilities. During the past several years, the health care industry
has been subject to an increase in governmental regulation of, among other
things, reimbursement rates and certain capital expenditures. Certain
legislators have announced that they intend to examine proposals to reform
certain aspects of the U.S. health care system including proposals which may
increase governmental involvement in health care, lower reimbursement rates and
otherwise change the operating environment for the Company's clients. 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 systems and related services. Cost containment measures instituted by
health care providers as a result of regulatory reform or otherwise could result
in greater selectivity in the allocation of capital funds. Such selectivity
could have an adverse effect on the Company's ability to sell its systems and
related services. The Company cannot predict what impact, if any, such proposals
or health care reforms might have on its business, financial condition and
results of operations.
 
The Company's software may be subject to regulation by the U.S. Food and Drug
Administration (the "FDA") as a medical device. Such regulation could require
the registration of the applicable manufacturing facility and software/hardware
products, application of detailed recordkeeping and manufacturing standards, and
FDA approval or clearance prior to marketing. An approval or clearance could
create delays in marketing, and the FDA could require supplemental filings or
object to certain of these applications. See "Business -- Governmental
Regulation."
 
DEPENDENCE UPON KEY PERSONNEL
 
The Company's future performance also depends in significant part upon the
continued service of its key technical and senior management personnel, many of
whom have been with the Company for a significant period of time. Because the
Company has a relatively small number of employees when compared to other
leading companies in the same industry, its dependence on maintaining its
employees is particularly significant. The Company is also dependent on its
ability to attract and retain high quality personnel, particularly highly
skilled software engineers for applications development. The industry is
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. There can be no assurance that the Company's current
employees will continue to work for the Company. Loss of services of key
employees could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company does not maintain key
man life insurance on any of its employees. The Company may need to grant
additional options to key employees and provide other forms of incentive
compensation to attract and retain such key personnel. See "Business -- Product
Enhancement and Development" and "-- Employees."
 
                                        9
<PAGE>   12
 
STOCK OWNERSHIP OF OFFICERS AND DIRECTORS
 
The Company's executive officers and directors will beneficially own
approximately 32.9% of the Company's outstanding shares of Common Stock
immediately following this offering, or 29.0% in the event the over-allotment
option is exercised. Accordingly, these shareholders will be able to
significantly influence the outcome of the election of the Company's directors
and of corporate actions requiring shareholder approval, such as mergers and
acquisitions. Such a high level of ownership by such persons may have a
significant effect in delaying, deferring or preventing a change in control of
the Company and may adversely affect the voting and other rights of other
holders of Common Stock.
 
VOLATILITY OF STOCK PRICE; NO DIVIDENDS
 
The trading price of the Common Stock has been and is likely to continue to be
subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant contracts, changes in
management, announcements of technological innovations or new products by the
Company or its competitors, legislative or regulatory changes, general trends in
the industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have particularly
affected the market price for many technology companies for reasons frequently
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. The Company currently intends to retain any future earnings for use in
its business and does not anticipate any cash dividends in the future. See
"Price Range for Common Stock and Dividends."
 
SHARES ELIGIBLE FOR FUTURE SALE
 
Sales of substantial amounts of Common Stock in the public market after this
offering could adversely affect the market price of the Common Stock. Upon the
completion of this offering, the Company will have 5,653,491 shares of Common
Stock outstanding. Of this amount, the 1,500,000 shares sold in this offering
(plus any additional shares sold upon the Underwriters' exercise of their
over-allotment option) and approximately 2,289,357 other shares (subject in
certain cases to the volume and other limitations of Rule 144 as promulgated
under the Securities Act of 1933, as amended ("Rule 144")) will be available for
immediate sale in the public market as of the date of this Prospectus. An
additional 1,864,134 shares will be available for sale in the public market
(subject to the volume and other restrictions of Rule 144) following the
expiration of the 90-day lock-up agreement with the Representatives of the
Underwriters. See "Principal and Selling Shareholders," "Shares Eligible for
Future Sale" and "Underwriting."
 
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
 
The Company has not yet identified specific uses for all of the net proceeds of
this offering. Accordingly, the Company's management will retain broad
discretion as to the allocation of the net proceeds of this offering. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock offered by the Selling Shareholders. See "Use of Proceeds."
 
                                       10
<PAGE>   13
 
                                  THE COMPANY
 
The Company was incorporated under the laws of California in April 1974. The
Company's executive offices are located at 17822 East 17th Street, Suite 210,
Tustin, California 92680 and its telephone number at that location is (714)
731-7171.
 
QS Quality Systems, Inc.(R), QS Quality Systems(R), and Quality Systems,
Inc.(R), are trademarks of the Company, and QSI(R) is a service mark of the
Company. NextGen(TM) is a trademark of Clinitec. This Prospectus also includes
trade names and trademarks of companies other than the Company.
 
                                USE OF PROCEEDS
 
   
The net proceeds to be received by the Company from the sale of the 1,000,000
shares of Common Stock offered hereby, at an assumed offering price of $20.75
per share, after deducting estimated underwriting discounts and expenses of the
offering payable by the Company, are approximately $19.1 million.
    
 
   
The Company may use up to $4.9 million of the net proceeds from the offering to
increase its ownership interest in Clinitec. The Company intends to use the
balance of the proceeds for general corporate purposes, including the financing
of product sales growth, development of new products, working capital
requirements and the possible acquisitions of complementary businesses and
technologies. The Company currently has no agreement or understanding with
respect to any such acquisitions. Pending the use thereof, the Company intends
to invest the net proceeds in short-term, interest-bearing investment-grade
securities. See "Business -- Relationship with Clinitec."
    
 
The Company will not receive any of the proceeds from the sale of shares of
Common Stock offered by the Selling Shareholders.
 
                   PRICE RANGE FOR COMMON STOCK AND DIVIDENDS
 
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "QSII." The following table sets forth for the quarters indicated, the
reported high and low closing sales prices as reported by Nasdaq.
 
   
<TABLE>
<CAPTION>
                                                                           HIGH     LOW
                                                                           ----     ----
    <S>                                                                    <C>      <C>
    FISCAL 1994:
      First Quarter......................................................  $ 2 3/4  $ 1 3/4
      Second Quarter.....................................................    2 1/4    1 1/2
      Third Quarter......................................................    2 3/4    1 3/4
      Fourth Quarter.....................................................    8 1/4    2 1/2
    FISCAL 1995:
      First Quarter......................................................  $ 7      $ 4 1/4
      Second Quarter.....................................................    4 3/4    3 1/2
      Third Quarter......................................................    4 3/8    2 1/2
      Fourth Quarter.....................................................    3 3/4    2 1/8
    FISCAL 1996:
      First Quarter......................................................  $ 4 7/8  $ 3
      Second Quarter.....................................................   17 1/8    4 1/2
      Third Quarter......................................................   31 1/2   14 1/16
      Fourth Quarter (through February 12, 1996).........................   29 1/2   18 1/4
</TABLE>
    
 
   
At February 12, 1996 there were approximately 198 holders of record of the
Company's outstanding shares of Common Stock, and the closing sale price of the
Common Stock on the Nasdaq National Market was $20.75 per share.
    
 
The Company anticipates that all future earnings, if any, will be retained for
use in the Company's business and it does not anticipate paying any cash
dividends in the future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion.
 
                                       11
<PAGE>   14
 
                                 CAPITALIZATION
 
   
The following table sets forth the actual capitalization of the Company at
December 31, 1995. The pro forma and as adjusted capitalization of the Company
set forth in the table below gives effect to: (i) the acquisition of Clinitec
shares resulting in a 51% interest in Clinitec and, alternatively, (ii) the
acquisition of 100% of Clinitec, in each case as adjusted to reflect the sale of
1,000,000 shares of Common Stock offered by the Company hereby (assuming an
offering price of $20.75 per share) and the receipt of the estimated net
proceeds therefrom, respectively. The pro forma information with respect to a
51% interest in Clinitec gives effect to the Company's exercise of its
contractual right to increase its interest to such level for $3,000,000 in cash.
The pro forma information with respect to 100% of Clinitec gives effect to the
terms of the Clinitec Agreement in Principle which provides for a payment by the
Company of $4.9 million in cash and $6.9 million in value of the Company's
Common Stock (valuing each share of Company Common Stock at the public offering
price contemplated hereby), amounting to 332,000 shares based upon the assumed
offering price of $20.75 per share.
    
 
   
<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1995
                                             -------------------------------------------------------------
                                                          51% OF CLINITEC(1)       100% OF CLINITEC(2)(3)
                                                       ------------------------   ------------------------
                                                                    PRO FORMA                  PRO FORMA
                                             ACTUAL    PRO FORMA   AS ADJUSTED    PRO FORMA   AS ADJUSTED
                                             -------   ---------   ------------   ---------   ------------
                                             (DOLLARS IN THOUSANDS)
<S>                                          <C>       <C>         <C>            <C>         <C>
Shareholders' equity:
  Common stock, $.01 par value, 20,000,000
     shares authorized, 4,638,000 shares
     issued and outstanding(4).............  $    46    $    46      $     56      $    50      $     60
  Additional paid-in capital...............    6,764      6,764        25,854       13,654        32,744
  Unrealized loss on available-for-sale
     securities............................      (46)       (46)          (46)         (46)          (46)
  Retained earnings........................    4,917      2,501         2,501          149           149
                                             -------     ------       -------      -------       -------
Total shareholders' equity.................  $11,681    $ 9,265      $ 28,365      $13,807      $ 32,907
                                             =======     ======       =======      =======       =======
</TABLE>
    
 
- ---------------
 
   
(1) Gives pro forma effect to the acquisition of an additional interest in
    Clinitec, providing the Company with a 51% ownership interest, as if such
    acquisition had occurred at December 31, 1995. See "Use of Proceeds" and
    "Business -- Relationship with Clinitec."
    
 
   
(2) Gives pro forma effect to the acquisition of Clinitec as a wholly-owned
    subsidiary as if such acquisition had occurred at December 31, 1995. See
    "Use of Proceeds" and "Business -- Relationship with Clinitec."
    
 
   
(3) 5,970,000 shares after giving effect to the estimated issuance of 332,000
    shares of Common Stock as part of the Clinitec Agreement in Principle and
    the sale of 1,000,000 shares of Common Stock offered by the Company hereby.
    
 
   
(4) Excludes 607,500 shares of Common Stock reserved for issuance under the
    Company's 1989 Plan of which 134,125 shares of Common Stock were subject to
    outstanding options at a weighted average exercise price of $2.44. See
    "Directors and Executive Officers -- 1989 Stock Option Plan."
    
 
                                       12
<PAGE>   15
                            SELECTED FINANCIAL DATA
                   (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
   
The following selected financial data with respect to the Company's statements
of operations for each of the five years in the period ended March 31, 1995 and
the balance sheet data as of the end of each such fiscal year are derived from
the audited financial statements of the Company. The statement of operations
data of the Company for the nine months ended December 31, 1994 and 1995 and the
balance sheet data as of December 31, 1995 are unaudited and were prepared by
management of the Company on the same basis as the audited financial statements
included elsewhere herein and, in the opinion of the Company, include all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the information set forth therein. The results for the nine
months ended December 31, 1995 are not necessarily indicative of the results to
be expected for the full year ending March 31, 1996 or future periods. The pro
forma financial data presented in the table below are derived from the unaudited
pro forma consolidated financial statements of the Company included elsewhere in
this Prospectus, which give effect to the Company's acquisition of an additional
interest in Clinitec. See "Capitalization." The following information should be
read in conjunction with the Financial Statements of the Company and Clinitec
and the related notes thereto, the pro forma consolidated financial statements
of the Company and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
    
   
<TABLE>
<CAPTION>
                                                                                           NINE MONTHS     
                                                                                              ENDED        
                                                    YEAR ENDED MARCH 31,                   DECEMBER 31,    
                                       -----------------------------------------------   ----------------  
                                        1991      1992      1993      1994      1995      1994     1995    
                                       -------   -------   -------   -------   -------   ------   -------  
<S>                                    <C>       <C>       <C>       <C>       <C>       <C>      <C>      
STATEMENT OF OPERATIONS DATA:                                                                              
Net revenues:                                                                                              
 Sales of computer systems, upgrades                                                                       
   and supplies....................... $ 8,844   $ 6,972   $ 6,274   $ 6,146   $ 5,681   $3,895   $ 7,162  
 Maintenance and other services.......   4,281     4,738     5,377     5,606     6,368    4,727     5,159  
                                       -------   -------   -------   -------   -------   ------    ------  
                                        13,125    11,710    11,651    11,752    12,049    8,622    12,321  
Cost of products and services.........   8,815     7,506     6,992     6,527     6,060    4,498     5,865  
                                       -------   -------   -------   -------   -------   ------    ------  
Gross profit..........................   4,310     4,204     4,659     5,225     5,989    4,124     6,456  
Operating expenses:                                                                                        
 Selling, general and                                                                                      
   administrative.....................   4,003     3,458     3,008     3,052     3,536    2,581     2,847  
 Research and development.............     961     1,148     1,134     1,318     1,467    1,110     1,121  
                                       -------   -------   -------   -------   -------   ------    ------  
Total operating expenses..............   4,964     4,606     4,142     4,370     5,003    3,691     3,968  
                                       -------   -------   -------   -------   -------   ------    ------  
Earnings (loss) from operations.......    (654)     (402)      517       855       986      433     2,488  
Interest and investment income........     302       204       192       400       429      249       340  
Equity in loss of Clinitec............      --        --        --        --        --       --       (41) 
Minority interest in loss of                                                                               
 Clinitec.............................      --        --        --        --        --       --        --  
                                       -------   -------   -------   -------   -------   ------    ------  
Earnings (loss) before income tax                                                                          
 provision............................    (352)     (198)      709     1,255     1,415      682     2,787  
Income tax provision(3)...............      --        --        86       349       453      158     1,117  
                                       -------   -------   -------   -------   -------   ------    ------  
Net earnings (loss)................... $  (352)  $  (198)  $   623   $   906   $   962   $  524   $ 1,670  
                                       =======   =======   =======   =======   =======   ======    ======  
Net earnings (loss) per share(4)...... $ (0.08)  $ (0.05)  $  0.15   $  0.21   $  0.21   $ 0.11   $  0.35  
                                       =======   =======   =======   =======   =======   ======    ======  
Weighted average shares outstanding...   4,187     4,187     4,187     4,342     4,606    4,641     4,709  
                                       =======   =======   =======   =======   =======   ======    ======  
</TABLE>
<TABLE> 
<CAPTION>
                                                    PRO FORMA                      PRO FORMA          
                                                51% OF CLINITEC(1)             100% OF CLINITEC(2)     
                                         --------------------------------   -------------------------- 
                                                             NINE MONTHS                  NINE MONTHS  
                                         YEAR ENDED             ENDED       YEAR ENDED       ENDED     
                                         MARCH 31,           DECEMBER 31,   MARCH 31,     DECEMBER 31  
                                            1995                 1995          1995          1995      
                                         ----------          ------------   ----------   ------------- 
<S>                                      <C>                  <C>            <C>          <C>          
STATEMENT OF OPERATIONS DATA:                                                                          
Net revenues:                                                                                          
 Sales of computer systems, upgrades                                                                   
   and supplies.......................    $  5,735             $  8,228      $  5,735       $ 8,228    
 Maintenance and other services.......       6,368                5,159         6,368         5,159    
                                          --------             --------      --------       -------                   
                                            12,103               13,387        12,103        13,387    
Cost of products and services.........       6,080                6,244         6,080         6,244    
                                          --------             --------      --------       -------                  
Gross profit..........................       6,023                7,143         6,023         7,143    
Operating expenses:                                                                                    
 Selling, general and                                                                                  
   administrative.....................       3,920                3,874         4,582         4,370    
 Research and development.............       1,645                1,231         1,759         1,316    
                                          --------             --------      --------       -------                   
Total operating expenses..............       5,565                5,105         6,341         5,686    
                                          --------             --------      --------       -------                   
Earnings (loss) from operations.......         458                2,038          (318)        1,457    
Interest and investment income........         429                  349           429           349    
Equity in loss of Clinitec............          --                   --            --            --    
Minority interest in loss of                                                                           
 Clinitec.............................         191                  165            --            --    
                                          --------             --------      --------       -------                     
Earnings (loss) before income tax                                                                      
 provision............................       1,078                2,552           111         1,806    
Income tax provision(3)...............         406                1,090           360         1,056    
                                          --------             --------      --------       -------                    
Net earnings (loss)...................    $    672(1)          $  1,462      $   (249)(2)   $   750   
                                          ========             ========      ========       =======                   
Net earnings (loss) per share(4)......    $   0.14             $   0.30      $  (0.05)      $  0.14    
                                          ========             ========      ========       =======                   
Weighted average shares outstanding...       4,751(5)             4,854(5)      5,174(6)      5,277(6) 
                                          ========             ========      ========       =======                   
</TABLE>
    
   
<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31, 1995
                                                                                                  ------------------
                                                                                                            51% OF
                                                                                                           CLINITEC(7)
                                                                AS OF MARCH 31,                            ----------
                                                  --------------------------------------------                PRO
                                                   1991     1992     1993     1994      1995      ACTUAL     FORMA
                                                  ------   ------   ------   -------   -------    -------   --------
<S>                                               <C>      <C>      <C>      <C>       <C>        <C>       <C>
BALANCE SHEET DATA:
 Cash and cash equivalents and short term
   investments..................................  $3,197   $3,453   $4,778   $ 6,071   $ 7,322    $ 7,662   $ 6,506
 Working capital................................   4,604    4,691    5,204     6,857     8,032      9,302     8,413
 Total assets...................................   8,942    8,805    9,596    11,094    12,668     15,386    14,338
 Total liabilities and minority interest........   2,844    2,906    3,074     3,054     3,480      3,705     5,073
 Shareholders' equity...........................   6,098    5,899    6,522     8,040     9,188     11,681     9,265
 
<CAPTION>
 
                                                                      100% OF CLINITEC(7)
                                                                   -------------------------
                                                    PRO FORMA        PRO        PRO FORMA
                                                  AS ADJUSTED(8)    FORMA     AS ADJUSTED(8)
                                                  --------------   --------   --------------
<S>                                               <C>              <C>        <C>
BALANCE SHEET DATA:
 Cash and cash equivalents and short term
   investments..................................     $ 25,606      $ 3,110       $ 22,210
 Working capital................................       27,513        5,017         24,117
 Total assets...................................       33,438       17,901         37,001
 Total liabilities and minority interest........        5,073        4,094          4,094
 Shareholders' equity...........................       28,365       13,807         32,907
</TABLE>
    
 
- ---------------
 
   
(1) Gives pro forma effect to the acquisition of an additional interest in
    Clinitec, providing the Company with a 51% ownership interest in Clinitec,
    as if such acquisition had occurred on April 1, 1994. See "Use of Proceeds"
    and "Business -- Relationship with Clinitec." Of the purchase price, $4.1
    million has been allocated to in-process research and development and is to
    be written off, net of an income tax benefit of $1.6 million, at the time of
    the purchase. The effect of this writeoff has not been reflected in the pro
    forma operating results.
    
 
   
(2) Gives pro forma effect to the acquisition of 100% of Clinitec as if such
    acquisition had occurred on April 1, 1994. See "Use of Proceeds" and
    "Business -- Relationship with Clinitec". Of the purchase price, $8.0
    million has been allocated to in-process research and development and is to
    be written off, net of an income tax benefit of $3.2 million, at the time of
    purchase. The effect of this writeoff has not been reflected in the pro
    forma operating results.
    
 
(3) The income tax provision for the year ended March 31, 1993 is net of an
    extraordinary credit resulting from the tax benefit from utilization of net
    operating loss carryforwards.
 
(4) Net earnings (loss) per share reflects primary earnings (loss) per share for
    all periods indicated. Primary and fully diluted net earnings (loss) per
    share were the same for all periods except for the year ended March 31,
    1994, for which fully diluted net earnings per share were $0.20.
 
   
(5) Assumes as outstanding 145,000 shares being offered by the Company hereby,
    which represents the approximate number of shares that have to be sold to
    fund the purchase of the additional shares of Clinitec.
    
 
   
(6) Assumes as outstanding 236,000 shares being offered by the Company hereby,
    which represents the approximate number of shares that have to be sold to
    fund the cash portion of the purchase of Clinitec and an estimated 332,000
    new shares to be issued by the Company as the non-cash portion of the
    purchase price.
    
 
   
(7) Gives pro forma effect to the acquisition of an additional interest in
    Clinitec, as if such acquisition had occurred on December 31, 1995, and the
    writeoff referenced in footnote 1 or 2 above, as applicable.
    
 
   
(8) Pro forma amounts adjusted to give effect to the sale of 1,000,000 shares of
    Common Stock by the Company in the offering at an assumed public offering
    price of $20.75 per share and the application of the estimated net proceeds
    
    therefrom.
 
                                       13
<PAGE>   16
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
Since fiscal 1993, approximately one-half of the Company's revenues have been
derived from sales of computer systems, upgrades and supplies, with the balance
derived from systems maintenance agreements and other support services. On sales
of its systems, upgrades and supplies, the Company recognizes revenues upon
shipment of products. Revenues attributable to the Company's software products
included with the systems are also recognized upon shipment, unless the
Company's installation obligations after shipment are significant, in which case
revenues are recognized on a percentage of completion basis. Revenues from
systems maintenance are typically recognized ratably over the life of the
contract. In the last five years, more than 90% of the Company's clients have
elected to purchase the Company's maintenance and support services.
 
During the past five years, the Company's systems sales have been impacted by a
number of factors which have had the effect of reducing systems sales and
systems upgrade sales while at the same time increasing the relative
profitability of these sales. Historically, the costs for the hardware
components used in the Company's systems have consistently declined while the
performance and capacity of such components have continually increased.
Consistent with the marketplace, the Company has adjusted its systems pricing to
its clients to reflect these decreased hardware costs. In addition, the Company
increasingly encounters prospective clients that already own, or desire to
acquire from third parties, significant quantities of hardware which may be
utilized with the Company's software. In such instances, the sales generated
from such clients are lower than they otherwise would be.
 
As a result of these market changes, the Company has increasingly focused its
efforts on the sale of its software user licenses and services, resulting in
higher margins. Aiding these efforts has been the continuing increase in the
capacity of the hardware components which the Company markets. The Company has
had a growing market for the sale of additional software user licenses to its
existing clients as such clients can often add more software user capacity to
their system with minimal or no change to their current central processing unit.
Such clients frequently also purchase hardware peripherals from the Company for
use with the newly purchased software user licenses.
 
   
The first nine months of fiscal 1996 have seen a marked increase in the
Company's system revenues. The Company attributes this increase to the dynamic
changes currently occurring in the health care industry and to growing
acceptance of the Company's products and services. Health care providers, faced
with economic pressures to reduce costs and increase productivity, are
increasingly aligning with HMOs, hospitals and other health care organizations
as well as consolidating with other health care providers into larger, more
efficient business entities. This trend results in an increase in the number of
large and complex health care organizations that are potential clients for the
Company's sophisticated systems. In addition, the continued growth of these
organizations after they become clients of the Company presents the potential
for the Company to increase sales of upgrades and additional software user
licenses. The Company's ability to address the complex software requirements of
such newly forming or growing business entities, in particular in the area of
managed care, is a key to success in this changing health care delivery
environment.
    
 
The sales cycle for the Company's systems typically ranges from three to 12
months from initial contact to contract execution. The installation cycle is
typically two to three months from contract execution to completion of
installation. Because a significant percentage of the Company's expenses are
relatively fixed, a variation in the timing of systems sales and installations
can cause significant variations in operating results from quarter to quarter.
 
The Company's products are generally shipped as orders are received and
accordingly, the Company has historically operated with little backlog. As a
result, sales in any quarter are dependent on orders booked and shipped in that
quarter and are not predictable with any degree of certainty. As a result, the
Company believes that interim period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
 
                                       14
<PAGE>   17
 
The Company's research and development expenses consist primarily of personnel
and equipment costs required to conduct the Company's product development
effort. The Company believes that significant investments in research and
development are required to remain competitive. As a consequence, in recent
years, the Company has increased the amount of its expenditures on research and
development, mainly through the employment of additional development personnel.
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After technological
feasibility is established, any additional development costs are capitalized and
amortized over periods ranging from three to five years.
 
   
If the Company acquires Clinitec as a wholly-owned subsidiary as contemplated by
the Clinitec Agreement in Principle, the Company expects to take a writeoff for
purchased in-process research and development of $8.0 million and record a
related income tax benefit of $3.2 million in the quarter in which the
transaction is consummated. If, however, the Company increases its ownership
interest in Clinitec to 51%, the Company expects to take a writeoff for
purchased in-process research and development of $4.1 million and record a
related income tax benefit of $1.6 million in the quarter in which such
transaction is consummated. See "Business -- Relationship with Clinitec." The
exact amount of the writeoff will be subject to change pending the timing of the
transaction and ultimate purchase allocations to be made by the Company.
    
 
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Financial Statements and related notes thereto included
elsewhere in this Prospectus. Historical results of operations, percentage
margin fluctuations and any trends that may be inferred from the discussion
below are not necessarily indicative of the operating results for any future
period.
 
RESULTS OF OPERATIONS
 
The following table sets forth for the periods indicated, the percentage of net
revenues represented by each item in the Company's statement of operations.
 
   
<TABLE>
<CAPTION>
                                                                                     NINE MONTHS
                                                                                   ENDED DECEMBER
                                                       YEAR ENDED MARCH 31,              31,
                                                     -------------------------     ---------------
                                                     1993      1994      1995      1994      1995
                                                     -----     -----     -----     -----     -----
<S>                                                  <C>       <C>       <C>       <C>       <C>
Net revenues:
  Sales of computer systems, upgrades and
     supplies......................................   53.8%     52.3%     47.1%     45.2%     58.1%
  Maintenance and other services...................   46.2      47.7      52.9      54.8      41.9
                                                     -----     -----     -----     -----     -----
                                                     100.0     100.0     100.0     100.0     100.0
Cost of products and services......................   60.0      55.5      50.3      52.2      47.6
                                                     -----     -----     -----     -----     -----
Gross profit.......................................   40.0      44.5      49.7      47.8      52.4
Operating expenses:
  Selling, general and administrative..............   25.8      26.0      29.3      29.9      23.1
  Research and development.........................    9.7      11.2      12.2      12.9       9.1
                                                     -----     -----     -----     -----     -----
Total operating expenses...........................   35.5      37.2      41.5      42.8      32.2
                                                     -----     -----     -----     -----     -----
Earnings from operations...........................    4.5       7.3       8.2       5.0      20.2
Interest and investment income.....................    1.6       3.4       3.6       2.9       2.7
Equity in loss of Clinitec.........................     --        --        --        --       (.3)
                                                     -----     -----     -----     -----     -----
Earnings before income tax provision...............    6.1      10.7      11.8       7.9      22.6
Income tax provision...............................    0.8       3.0       3.8       1.8       9.0
                                                     -----     -----     -----     -----     -----
Net earnings.......................................    5.3%      7.7%      8.0%      6.1%     13.6%
                                                     =====     =====     =====     =====     =====
</TABLE>
    
 
   
FOR THE NINE-MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1994.
    
 
   
NET REVENUES.  Net revenues for the nine months ended December 31, 1995
increased 42.9% to $12.3 million from $8.6 million for the nine months ended
December 31, 1994. This increase was due primarily to sales of computer systems,
upgrades, including software user licenses, and supplies, which grew 83.9% to
$7.2 million from $3.9 million. This growth resulted from an increase in the
number of larger systems and increased sales of upgrades. Net revenues from
maintenance and other services grew 9.2% to $5.2 million from $4.7 million.
    
 
                                       15
<PAGE>   18
 
   
This growth resulted from a larger client base for recurring revenues and
increased time and material billings for additional services.
    
 
   
COST OF PRODUCTS AND SERVICES.  Cost of products and services for the nine
months ended December 31, 1995 increased 30.4% to $5.9 million from $4.5 million
for the nine months ended December 31, 1994. This increase was due primarily to
the increase in systems sold and in net revenues. As a percentage of net
revenues, cost of products and services decreased to 47.6% from 52.2%. This
decrease was due to an increase in the proportion of revenues from lower cost
items.
    
 
   
SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses for the nine months ended December 31, 1995 increased 10.3% to $2.8
million from $2.6 million for the nine months ended December 31, 1994. This
increase was attributable to increases in sales and administrative personnel.
These increases were more than offset by increased sales during the same period,
resulting in a decrease in selling, general and administrative expenses, as a
percentage of net revenues, to 23.1% from 29.9%.
    
 
   
RESEARCH AND DEVELOPMENT.  Research and development expenses remained unchanged
at $1.1 million for the nine months ended December 31, 1995 compared to the nine
months ended December 31, 1994. This lower than normal increase resulted from a
higher proportion of capitalized software. Total research and development
expenditures and capitalized software increased to $1.2 million from $1.1
million. The Company anticipates increased expenditures in capitalized software
in connection with developing an alternate version of certain of its products
for the client/server environment to take advantage of new more powerful
technologies an to allow for a more seamless integration of the Company's and
Clinitec's NextGen applications.
    
 
   
INTEREST AND INVESTMENT INCOME.  Interest and investment income for the nine
months ended December 31, 1995 increased 35.8% to $340,000 from $249,000 for the
nine months ended December 31, 1994. Current period investment results represent
an annualized yield of approximately 6% on the Company's combined balances for
cash and cash equivalents and short-term investments. Interest and investment
income for the nine months ended December 31, 1994 included prior year first
quarter realized losses of $81,000 from sales of short-term investments and
first quarter unrealized losses of $10,000 from trading securities.
    
 
   
INCOME TAX PROVISION.  Income tax provision for the nine months ended December
31, 1995 increased 606.5% to $1.1 million from $158,100 for the nine months
ended December 31, 1994. This increase was due to increased earnings before
income tax provision and an increase in effective tax rates. The effective tax
rates for the respective periods were 40.1% and 23.2%. The rate for the prior
period was lower due to utilization of a deferred tax valuation allowance
related to net operating loss carryforwards.
    
 
FOR THE YEARS ENDED MARCH 31, 1995 AND 1994.
 
NET REVENUES.  Net revenues were relatively unchanged for the year ended March
31, 1995 increasing 2.5% to $12.0 million from $11.8 million for the year ended
March 31, 1994. Revenues derived from maintenance and other services increased
13.6% to $6.4 million from $5.6 million as a result of the Company's larger
installed base of systems and higher prices for services. Revenues attributable
to sales of computer systems, upgrades and supplies decreased 7.6% to $5.7
million from $6.1 million due to decreased systems sales during fiscal 1995.
 
COST OF PRODUCTS AND SERVICES.  Cost of products and services for the year ended
March 31, 1995 decreased 7.2% to $6.1 million from $6.5 million for the year
ended March 31, 1994. This decrease was due to an increase in the proportion of
revenues from lower cost items comprising net revenues and also resulted in
these costs, as a percentage of net revenues, decreasing to 50.3% from 55.5%.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses for the year ended March 31, 1995 increased 15.9% to
$3.5 million from $3.1 million for the year ended March 31, 1994 as a result of
increases in selling efforts and sales personnel, thereby increasing these
expenses, as a percentage of net revenues, to 29.3% from 26.0%.
 
RESEARCH AND DEVELOPMENT EXPENSES.  The amount of expenditures charged to
research and development expense for the year ended March 31, 1995 increased
11.3% to $1.5 million from $1.3 million for the year
 
                                       16
<PAGE>   19
 
   
ended March 31, 1994, and as a percentage of net revenues, to 12.2% from 11.2%.
This increase was primarily attributable to development of enhancements and
additions to the Company's systems.
    
 
INTEREST AND INVESTMENT INCOME.  Interest and investment income for the year
ended March 31, 1995 increased 7.3% to $429,000 from $400,000 for the year ended
March 31, 1994. This increase was due to an increase in funds available for
investment.
 
INCOME TAX PROVISION.  Income tax provision for the year ended March 31, 1995
increased 29.8% to $453,000 from $349,000 for the year ended March 31, 1994.
This was due to increased earnings before income tax provision and an increase
in effective tax rates. The effective tax rates for the respective periods were
32.0% and 27.8%. These lower than normal rates were due to utilization of a
deferred tax valuation allowance related to net operating loss carryforwards.
 
FOR THE YEARS ENDED MARCH 31, 1994 AND 1993.
 
NET REVENUES.  Net revenues were relatively unchanged for the year ended March
31, 1994, increasing 0.9% to $11.8 million from $11.7 million for the year ended
March 31, 1993. Revenues derived from maintenance and other services increased
4.3% to $5.6 million from $5.4 million. Revenues from sales of computer systems,
upgrades and supplies decreased 2.0% to $6.1 million from $6.3 million.
 
COST OF PRODUCTS AND SERVICES.  Cost of products and services for the year ended
March 31, 1994 decreased 6.7% to $6.5 million from $7.0 million for the year
ended March 31, 1993. This decrease was due to an increase in the proportion of
revenues from lower cost items comprising net revenue and to successful results
from the Company's cost containment program, resulting in reducing costs, as a
percentage of revenues, to 55.5% from 60.0%.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses were relatively unchanged in the year ended March 31,
1994, increasing 1.5% to $3.1 million from $3.0 million for the year ended March
31, 1993, and as a percentage of net revenues to 26.0% from 25.8%.
 
   
RESEARCH AND DEVELOPMENT EXPENSES.  The amount of expenditures charged to
research and development expense for the year ended March 31, 1994 increased
16.2% to $1.3 million from $1.1 million for the year ended March 31, 1993, and
as a percentage of net revenues to 11.2% from 9.7%.
    
 
INTEREST AND INVESTMENT INCOME.  Interest and investment income for the year
ended March 31, 1994 increased 108.3% to $400,000 from $192,000 for the year
ended March 31, 1993. This increase was due to an increase in funds available
for investment and a change in the investment mix in order to increase yields.
 
INCOME TAX PROVISION.  Income tax provision for the year ended March 31, 1994,
increased 305.8% to $349,000 from $86,000 for the year ended March 31, 1993. The
income tax expense for the year ended March 31, 1994, resulted from an initial
tax expense of $331,000 which was offset by a $245,000 tax benefit from
utilization of tax loss carryforwards. The effective tax rates were 27.8% and
12.1%, respectively.
 
LIQUIDITY AND CAPITAL RESOURCES
 
   
Since inception, the Company has financed its operations primarily through cash
generated from operations. Net cash provided by operating activities was $1.8
million, $1.2 million and $1.2 million for the years ended March 31, 1993, 1994
and 1995 and $580,000 and $1.5 million for the nine months ended December 31,
1994 and 1995, respectively. Net cash provided from operating activities
consists principally of net earnings plus increases in income taxes payable
offset by increases in accounts receivables.
    
 
   
Net cash provided by (used in) investing activities was $1.3 million, $(4.0)
million, and $3.6 million for the years ended March 31, 1993, 1994 and 1995 and
$1.7 million and $(1.4) million for nine months ended December 31, 1994 and
1995, respectively. Net cash provided by (used in) investing activities consists
principally of changes in short-term investments as well as additions to
equipment and improvements and capitalized software. The amounts for the period
ended December 31, 1995 were reduced by the Company's purchase of a 25% equity
interest in Clinitec for $1.0 million.
    
 
                                       17
<PAGE>   20
 
   
At December 31, 1995, the Company had cash and cash equivalents of $6.4 million
and short-term investments of $1.3 million. Short-term investments include debt
securities issued by foreign governments of $311,000 and an investment in a
hedge fund which trades in special situation securities of $530,000. The Company
does not believe these investments have significant principal risk; however,
there can be no assurance that the markets for these securities will not change,
causing a loss of principal.
    
 
   
Except for the Company's intention to make an additional investment in Clinitec,
and to expend funds on capitalized software in connection with alternative
versions of certain of its products for the client/server environment to take
advantage of more powerful technologies and to enable a more seamless
integration of the Company's and Clinitec's NextGen applications, the Company
has no significant capital commitments and currently anticipates that additions
to property and equipment for the remainder of fiscal 1996 and fiscal 1997 will
be comparable to recent past years. See "Use of Proceeds" and "Business --
Relationship with Clinitec."
    
 
The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with its current cash balances and cash flow from
operations, if any, will be sufficient to meet its working capital and capital
expenditure requirements through fiscal 1997.
 
QUARTERLY RESULTS
 
   
The following tables set forth certain unaudited statement of operations data
for the seven quarters ended December 31, 1995. These data have been derived
from unaudited financial statements that, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information when read in conjunction with the
Company's audited financial statements and notes thereto.
    
 
The Company believes that results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future period.
 
   
<TABLE>
<CAPTION>
                                                               QUARTER ENDED
                                   ----------------------------------------------------------------------
                                    JUNE    SEPTEMBER   DECEMBER   MARCH     JUNE    SEPTEMBER   DECEMBER
                                    1994      1994        1994      1995     1995      1995        1995
                                   ------   ---------   --------   ------   ------   ---------   --------
                                                               (IN THOUSANDS)
<S>                                <C>      <C>         <C>        <C>      <C>      <C>         <C>
Net revenues:
  Sales of computer systems,
     upgrades and supplies.......  $1,582    $ 1,148     $1,165    $1,786   $2,124    $ 2,524     $2,514
  Maintenance and other
     services....................   1,491      1,646      1,590     1,641    1,680      1,660      1,819
                                   ------     ------     ------    ------   ------     ------     ------
                                    3,073      2,794      2,755     3,427    3,804      4,184      4,333
Cost of products and services....   1,652      1,456      1,390     1,562    1,713      2,072      2,080
                                   ------     ------     ------    ------   ------     ------     ------
Gross profit.....................   1,421      1,338      1,365     1,865    2,091      2,112      2,253
Operating expenses:
  Selling, general and
     administrative..............     836        844        901       955      926      1,002        919
  Research and development.......     329        387        394       357      355        301        465
                                   ------     ------     ------    ------   ------     ------     ------
Total operating expenses.........   1,165      1,231      1,295     1,312    1,281      1,303      1,384
Earnings from operations.........     256        107         70       553      810        809        869
Interest and investment income
  (loss).........................     (12)       133        128       180      104        101        135
Equity in loss of Clinitec.......      --         --         --        --      (10)        (8)       (23)
                                   ------     ------     ------    ------   ------     ------     ------
Earnings before income tax
  provision......................     244        240        198       733      904        902        981
Income tax provision.............      44         54         60       295      367        374        376
                                   ------     ------     ------    ------   ------     ------     ------
Net earnings.....................  $  200    $   186     $  138    $  438   $  537    $   528     $  605
                                   ======     ======     ======    ======   ======     ======     ======
</TABLE>
    
 
                                       18
<PAGE>   21
 
The Company's revenues and operating results have fluctuated from quarter to
quarter as a result of a number of factors including, without limitation, the
size and timing of orders from major clients; the length of sales cycles and
installation processes; the ability of the Company's clients to obtain financing
for the purchase of the Company's products; changes in pricing policies or price
reductions by the Company or its competitors; the timing of new product
announcements and product introductions by the Company or its competitors; the
availability and cost of supplies; the financial stability of major clients;
market acceptance of new products, applications and product enhancements; the
Company's ability to develop, introduce and market new products, applications
and product enhancements and to control costs; the Company's success in
expanding its sales and marketing programs; deferrals of client orders in
anticipation of new products, applications or product enhancements; changes in
Company strategy; personnel changes; and general economic factors. Because a
significant percentage of the Company's expenses are relatively fixed, a
variation in the timing of systems sales and installations can cause significant
variations in operating results from quarter to quarter. As a result, the
Company believes that interim period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Further, the Company's historical operating
results are not necessarily indicative of future performance for any particular
period and there can be no assurance that the Company's recent revenue growth or
its profitability will continue on a quarterly or annual basis. Due to all of
the foregoing factors, it is possible that in some future quarter the Company's
operating results may be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
 
                                       19
<PAGE>   22
 
                                    BUSINESS
 
Quality Systems, Inc. ("QSI" or the "Company") develops and markets health care
information systems that automate medical and dental group practices, physician
hospital organizations ("PHOs"), management service organizations ("MSOs"),
health maintenance organizations ("HMOs") and community health centers. In
response to the growing need for more comprehensive, cost-effective information
solutions for physician and dental practice management, the Company's systems
provide clients with the ability to redesign patient care and other workflow
processes, to improve productivity and reduce information processing and
administrative costs and to provide multi-site access to patient information.
The Company's proprietary software systems include general patient information
and summary medical records, appointment scheduling, billing, insurance claims
submission and processing, managed care implementation and referral management,
treatment outcome studies, treatment planning, drug formularies, word processing
and accounting. In addition to providing fully integrated information solutions
to its clients, the Company provides comprehensive hardware and software
installation, maintenance and support services, system training services and
electronic claims submission services. The Company is also introducing patient
medical records automation for medical and dental practices utilizing
proprietary software developed by Clinitec International Inc. ("Clinitec"), a
developer of electronic medical records software systems.
 
The Company currently has an installed base of more than 475 operating health
care information systems serving PHOs, MSOs, HMOs and other health care
organizations, each of which consists of one to 120 physicians or dentists.
According to Medical Data International, it is estimated that the physician
practice management information systems market is currently $1.8 billion. The
Company believes that as health care providers are increasingly required to
reduce costs while maintaining the quality of health care, the Company will be
able to capitalize on its strategy of providing fully integrated information
systems and superior customer service.
 
The Company was founded in 1974, with an early focus on providing information
systems and services primarily for dental group practices. The Company's initial
"turnkey" systems were designed to improve productivity while reducing
information processing costs and personnel requirements. In the mid-1980's, the
Company capitalized on the opportunity presented by the increasing pressure of
cost containment on physicians and health care organizations and further
expanded its information processing systems into the broader medical market.
Today, the Company develops and provides integrated UNIX-based health care
information systems for both the medical and dental markets. These systems
operate on a stand-alone basis or in a networked environment and are expandable
to accommodate client needs.
 
   
Augmenting its practice management software, the Company added electronic
medical records software to its product line in 1995 through a strategic
relationship with Clinitec. The Company currently holds a 25% interest in
Clinitec and a unilateral right to increase its interest to 51%, and has entered
into a non-binding agreement in principle (the "Clinitec Agreement in
Principle") to acquire Clinitec as a wholly-owned subsidiary. Clinitec's
principal product, NextGen, permits scanning, annotation, retrieval and analysis
of medical records in all formats, from documents to photographs and X-rays.
NextGen has been developed using a client/server platform, a graphical user
interface for compatibility with UNIX, Microsoft Windows, Windows NT and Windows
95 operating systems, and a relational database for flexibility in screen
customization and logic flow. The Company is also in the process of developing
an alternative client/server version of its "back office" products utilizing a
graphical user interface with screens and templates similar to those in the
NextGen product to enable a more seamless integration of the QSI and NextGen
applications. With the addition of NextGen, the Company is able to provide its
clients with a comprehensive information management solution. NextGen, in
conjunction with the Company's practice management software, was first installed
at a beta site in August 1995 and is currently being installed in two additional
sites. General release of the combined systems is expected to occur in the
quarter ending June 30, 1996.
    
 
INDUSTRY BACKGROUND
 
Health care costs in the United States have risen dramatically over the past two
decades relative to the overall rate of inflation. Consequently, broad pressures
to reduce costs without sacrificing the quality of care have caused significant
changes in the health care industry. While reimbursement for health care has
historically
 
                                       20
<PAGE>   23
 
been based on a fee-for-service model of payment, managed care organizations and
other payors are increasingly utilizing alternative reimbursement models,
including fixed fee and capitation, that shift the financial risk of delivering
health care from payors to both physicians and institutional providers.
Pressures to control costs have also contributed to the movement of care from
more expensive inpatient settings, such as hospitals, to outpatient settings,
such as clinics and physician offices. Today, outpatient care providers,
particularly physician groups, deliver an increasing amount of health care
services, bear an increasing share of the financial risk and control a
substantial portion of total health care resources.
 
To compete in the changing health care environment, physicians and other
outpatient care providers are increasingly joining and affiliating with other
physicians, managed care organizations, hospitals and other enterprises to form
larger health care organizations such as PHOs, MSOs and HMOs. These
organizations are designed to take advantage of economies of scale associated
with managing health care services for large patient populations across
inpatient and outpatient settings, while achieving improved quality, reduced
costs and strengthened negotiating positions with managed care entities. In the
managed care environment, health care organizations are increasingly entering
into contracts which define the terms under which care is administered. The
expansion in the number of managed care and third-party payor organizations, as
well as additional government regulation and changes in reimbursement models,
has greatly increased the complexity of pricing practices, billing procedures
and reimbursement policies impacting medical practices. In addition, to operate
effectively, health care organizations must efficiently manage patient care and
other workflow processes which may extend across multiple care locations and
business entities.
 
To compete under the constraints of managed care while maintaining quality of
services, health care organizations have placed increasing demands on their
information systems. Initially, these information systems automated financial
and administrative functions. As it became necessary to manage patient flow
processes, the need arose to integrate all levels of "back-office" data with
clinical information such as patient test results and office visits.
Particularly for larger organizations and group practices, the Company believes
information systems must allow enterprise-wide exchange of patient information
incorporating administrative, financial and clinical information from multiple
entities, while focusing on the physician as the primary care giver. In
addition, large health care organizations increasingly require information
systems that can deliver high-performance in environments with multiple
concurrent computer users.
 
Many existing health care information systems, including systems designed for
physicians and small group practices, were designed for limited administrative
tasks such as billing and scheduling and can neither accommodate multiple
computing environments nor operate effectively across multiple locations and
entities. As the health care industry continues to evolve, physician groups and
health care organizations will increasingly require systems that compile
structured clinical information from multiple sources and enable measurement of
treatment outcomes and management of clinical processes. Such systems must be
integrated with financial and administrative information systems in order to
maintain patient flow while continuing to reduce costs and improve quality of
care. The Company believes that systems which integrate patient clinical data
with administrative, financial and other practice management data are best
positioned to succeed in the current managed care environment.
 
As health care organizations transition to new platforms and newer technologies,
they will be migrating toward the implementation of enterprise-wide,
patient-centered computing systems embedded with automated patient medical
records. These organizations cannot afford significant downtime or re-education,
nor can they risk choosing a system which has not proven its ability to handle
high volume processing with continuous dependability. The Company believes that
successful systems vendors in this market will have a sufficient installed base
and adequate resources to offer high quality, fully integrated products and the
value-added services needed to expand and support clients throughout this
evolution process.
 
THE QSI SOLUTION
 
In response to the growing need for more comprehensive, cost-effective health
care information solutions for physician and dental practice management, the
Company's systems provide clients with the ability to redesign patient care and
other workflow processes and improve productivity through multi-site and
multi-entry access
 
                                       21
<PAGE>   24
 
to patient information. Utilizing proven third-party hardware solutions combined
with the Company's proprietary software configured to maximize the efficiency of
a health care organization's information processing requirements, the Company's
solutions enable a seamless integration of a variety of administrative and
patient information operations. In addition, as a result of its strategic
relationship with Clinitec, the Company provides clients with an integrated
medical records management system as part of a total information management
solution. Leveraging over 20 years of experience in the health care information
services industry, the Company believes that it continues to distinguish its
solutions by providing its clients with sophisticated, full-featured software
systems along with comprehensive systems implementation, maintenance and
support.
 
QSI's systems automate many aspects of group practice management, including the
retention of general patient information, appointment scheduling, billing,
insurance claims submission and processing, managed care implementation and
referral management, treatment outcome studies, treatment planning, drug
formularies, word processing and accounting. The Company primarily uses the IBM
RS6000 central processing unit and IBM'S AIX version of the UNIX operating
system as a platform for its application software, which enables the Company to
continue providing a wide range of flexible and functional systems to
accommodate clients from solo practitioners to large group practices.
 
STRATEGY
 
The Company provides its clients with health care information systems designed
to improve the quality and reduce the cost of health care delivery. The
Company's strategy is to build on its experience as a provider of information
systems solutions for health care organizations.
 
Key elements of the Company's strategy include:
 
     Providing Increased Automation and Integration of Practice Management
     Systems. The Company's strategy is to provide user-friendly, comprehensive
     medical and dental practice management information systems that meet the
     information processing requirements of physician specialties and practices
     and are designed to manage the financial, administrative and practice
     management requirements of these practices. These products enable a single
     user to perform a larger number of tasks and operate more efficiently by
     providing real-time access to comprehensive patient information.
 
     Expanding Professional and Technical Service Offerings. The Company will
     continue to expand its professional and technical services, including
     information systems planning, process redesign, new product offerings,
     project management, contract programming, client management, training
     services and network design, to assist health care organizations. In
     addition, the Company intends to expand its electronic data interchange
     capabilities by increasing the number of insurance carriers and services
     offered.
 
     Leveraging Clinitec Relationship for Sale of NextGen Products. Leveraging
     on its recent alliance with Clinitec, the Company's strategy includes
     integration of a medical records management system into its product line.
     The Company believes that the "front office" electronic medical records
     solutions offered by Clinitec's NextGen software are a natural adjunct to
     the "back office" applications of QSI's existing software solutions.
 
     Targeting Large Health Care Provider Groups. The number of physicians and
     dentists practicing in group settings or as a part of managed care
     organizations has increased significantly in recent years. The Company
     believes the number and size of such groups will continue to grow as
     economic pressures drive health care providers to affiliate with or form
     new larger group practices. The Company believes that the proven ability of
     its integrated information solutions to meet the needs of physician and
     dental groups, particularly those with eight or more affiliated physicians
     and six or more affiliated dentists, will allow the Company to capitalize
     on the continued growth of the group practice market. In addition, the
     Company intends to aggressively pursue certain target markets including
     large, federally funded community health centers and other opportunities
     that arise due to the increase in managed care.
 
                                       22
<PAGE>   25
 
     Offering Comprehensive Services and Support. The Company believes its
     success is attributable in part to its exceptional customer service and
     support. The Company provides support to its clients seven days a week, 24
     hours a day. In addition, the Company's policy is to respond to user
     defined system-down emergencies with a response time of 15 minutes or less.
     Further, the Company's employees have the ability to service clients by
     remote access, allowing for quick response to client inquiries and quick
     resolutions to system issues. The Company believes that its commitment to
     provide extensive support has contributed significantly to the development
     of its business.
 
PRODUCTS
 
The Company's health care information systems consist primarily of proprietary
software applications and third-party hardware and software. The systems range
in capacity from one to hundreds of users, allowing the Company to address the
needs of both small and large clients. The software configuration of a typical
system includes a basic medical or dental application and additional software
applications. A typical system also consists of third party hardware components,
including a UNIX-based central processing unit, disk drives, a magnetic tape
unit, video display terminals, PCs, one or more printers, and telecommunications
equipment. The systems are modular in design and may be expanded to grow with
changing client requirements.
 
The Company purchases all the hardware components of its systems as well as the
requisite operating system licenses from manufacturers or distributors of those
components. It assembles and tests the hardware components and incorporates
QSI's proprietary application software and other third party software into
completed systems. The Company provides systems tailored to accommodate
particular client requirements. The Company continually evaluates the hardware
components of its systems with a view to utilizing hardware that is functional,
reliable and cost-effective.
 
                                       23
<PAGE>   26
 
The Company's systems include application and system software modules that
provide comprehensive solutions for physician and dental practices. Clients
typically purchase a base medical or dental application and add on additional
applications as desired. Systems have ranged in price from approximately $10,000
to over $900,000 depending upon size of group practice, number of system users
and number of sites. The primary system software is comprised of the
applications set forth in the table below.
 
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRIMARY SYSTEM SOFTWARE                          DESCRIPTION
- ------------------------------------------------------------------------------------------------
<S>                       <C>
  QSI Medical             Automates the financial and administrative functions of small to
                          large multi-specialty medical practices, providing a range of
                          functionality that includes:
                          - patient registration and benefits tracking
                          - coordination of pre-paid and capitated health plans, including
                            fee schedule maintenance and analysis of plan utilization and
                            profitability, treatment status, and collections reports
                          - extensive appointment inquiry and scheduling system
                          - efficient and rapid assistance in the processing of electronic
                            or manual insurance claims, patient billing and balance aging,
                            including open item payment posting and on-line "paperless"
                            collections features
                          - thorough standard and custom reporting to analyze the various
                            aspects of practice management
                          - unattended processing of predetermined job functions
- ------------------------------------------------------------------------------------------------
  QSI Dental              Automates the financial and administrative functions of small to
                          large dental practices, providing a range of functionality that
                          includes:
                          - patient registration and benefits tracking
                          - coordination of pre-paid and capitated health plans, including
                            fee schedule maintenance and analysis of plan utilization and
                            profitability, treatment status, and collections reports
                          - extensive appointment inquiry and scheduling system
                          - full treatment planning and management, with insurance
                            estimation and automated patient recalls
                          - marketing of services to current and potential patients
                          - efficient and rapid assistance in the processing of electronic
                            or manual insurance claims, patient billing and balance aging
                          - thorough standard and custom reporting to analyze the various
                            aspects of practice management
                          - unattended processing of predetermined job functions
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
 
                                       24
<PAGE>   27
 
In addition to the primary packages set forth above, the Company offers the
following add-on applications.
 
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
  ADD-ON APPLICATIONS                             DESCRIPTION
- ------------------------------------------------------------------------------------------------
<S>                       <C>
      Managed Care        Automates eligibility verification, scheduling, referral
                          authorization and claims adjudication. Creates and tracks outside
                          referral authorization requests with authorized procedures,
                          diagnosis and number of visits. Maintains licensing and credential
                          information on referral providers. Provides various statistical
                          reports to manage patient care in an at-risk environment.
- ------------------------------------------------------------------------------------------------
   QSI Dental School      Automates student transaction grading, tracks academic progress
                          and manages faculty rotations and student/patient assignment.
- ------------------------------------------------------------------------------------------------
Health Care Eligibility   Enables a dental client to administer a dental insurance plan.
                          Maintains accurate records of member enrollment and provides
                          premium payment tracking, month-end processing, account balance
                          tracking, automatic banking, word processing and file maintenance.
- ------------------------------------------------------------------------------------------------
  Accounting packages:
   -  General Ledger      Provides general journal and ledger capabilities, including income
                          statements, balance sheets, monthly journals, batch listings,
                          transaction registers, charts of accounts worksheets, and ledger
                          file listings.
   -  Accounts Payable    Produces and tracks batch/voucher listings, batch record listings,
                          paid batch listings, check edit reports, distributions, void check
                          distributions and vendor forecasts. Maintains a detailed check
                          register.
   -  Payroll             Maintains organized payroll registers and payroll history, from
                          which information can be accessed quickly and efficiently.
                          Includes check reconciliation, system maintenance, earnings
                          reports and payroll processing features.
- ------------------------------------------------------------------------------------------------
      QUIC Network        Provides clearing house services for electronic insurance claims
                          and electronic patient statements. Billing and status data is
                          transferred automatically over the Company's remote access to its
                          clients.
- ------------------------------------------------------------------------------------------------
   NextGen (Clinitec)     Provides for electronic medical records. Automates the collection
                          of clinical information through the use of pen-based wireless PCs,
                          or fixed PC workstations. Stores patient medical histories,
                          scanned images, X-rays, annotated documents, recorded voice and
                          user-customizable exam data. Automates document generation and
                          prescriptions. Allows for extensive outcome tracking and for a
                          "chartless office."
- ------------------------------------------------------------------------------------------------
Third Party Packages      Word processing applications, report writers, accounting packages,
                          procedure code editors and maximizers and other software that a
                          client may reasonably request.
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
 
The Company continues to make enhancements to its hardware and software packages
to provide increased functionality and flexibility to its clients. Recent
enhancements include additional interfaces for electronic claims submission and
insurance payments, increased ability to control managed care plans and fees,
electronic patient eligibility, extensions for community health centers, drug
formulary tracking, enhanced patient scheduling, and software to support
paperless collections. The Company has continued to take advantage of new
releases in the IBM RS6000 family, as well as new PC-based products utilizing
the SCO UNIX operating system. This introduction of a PC-based UNIX system for
physician and dental group practices allowed the Company increased pricing
flexibility and enabled the Company's systems to be used in smaller practice
settings. In addition, the Company has added enhanced telecommunications,
full-featured color terminals and more versatile printer options.
 
                                       25
<PAGE>   28
 
RELATIONSHIP WITH CLINITEC
 
   
On April 21, 1995, the Company entered into a strategic relationship with
Clinitec, a developer of electronic medical records software systems. As part of
this relationship, the Company acquired a 25% equity interest in Clinitec for $1
million. In addition to its 25% ownership position in Clinitec, the Company
holds a unilateral contractual right (the "Option"), exercisable until August
1997, to purchase additional shares from Clinitec for $3 million ($1.5 million
of which would be distributed pro rata to the Clinitec stockholders other than
QSI) which would result in the Company holding a 51% ownership interest in
Clinitec.
    
 
   
On February 13, 1996, the Company entered into the Clinitec Agreement in
Principle, which is non-binding, to acquire all of Clinitec. Such acquisition
would be achieved through the exercise of the Option and the acquisition of all
remaining shares of Clinitec for approximately $4.9 million in cash and $6.9
million in QSI stock (valuing each QSI share at the public offering price
contemplated hereby) to be distributed pro rata to all Clinitec stockholders
other than the Company. As part of such acquisition, Patrick Cline, the current
President of Clinitec, will remain as such and will become a Director and an
Executive Vice President of the Company. The Clinitec Agreement in Principle
contemplates that the closing of such transaction will occur on or before March
31, 1996; however, there can be no assurance that the acquisition will occur by
such date, if at all. If such acquisition is not consummated, the Company will
in any event exercise its contractual right to acquire shares resulting in a 51%
ownership interest in Clinitec unless the Board of Directors of the Company
determines, in accordance with its fiduciary duties, that the exercise of such
contractual right would have a material adverse financial effect on the
Company's business and prospects and its shareholders.
    
 
   
Clinitec's software product, NextGen, has been developed using a graphical user
interface client/server platform for compatibility with the UNIX, Microsoft
Windows, Windows NT and Windows 95 operating systems and a relational database
back end to permit flexibility in screen customization and logic flow. The
Company received the non-exclusive right to market NextGen for medical
applications, and the world-wide exclusive right to market NextGen for dental
markets.
    
 
NextGen operates in a client/server environment, using a desktop, laptop or
pen-based PC configuration. Medical records data can include:
 
     -  User customized templates for data capture and automatic document
generation
 
     -  Scanned or electronically acquired images including X-rays and
photographs
 
     -  Other records, documents and notes, including electronically captured
handwriting and annotations
 
     -  Digital voice recordings embedded in documents
 
In addition, specific templates designed into the system will permit research
and analysis of particular conditions and diagnoses, including the interaction
between various prescribed pharmaceuticals, and will allow for extensive
outcomes reporting.
 
NextGen offers software applications that are complementary to those offered by
QSI. The key "back office" applications incorporated into QSI's solutions such
as practice management, eligibility, claims processing and accounting can be
augmented by the "front office" applications of the NextGen software. Because
the Company's products are UNIX-based, the Company is able to add NextGen as
part of an integrated system. To address the client/server marketplace, the
Company is in the process of developing an alternative version of its products
for the client/server environment. In addition to a graphical user interface,
these client/server versions will include screens and templates similar to those
in NextGen to enable a more seamless integration of the QSI and NextGen
applications. The Company intends to leverage its existing client base for sales
of NextGen.
 
   
If the Company acquires all of Clinitec, it anticipates maintaining Clinitec as
a separate subsidiary and selling Clinitec software products in conjunction with
QSI products, as well as on a stand-alone basis.
    
 
                                       26
<PAGE>   29
 
SALES AND MARKETING
 
The Company sells and markets its products nationwide through a direct sales
force operating from sales offices in California, Florida, Georgia,
Massachusetts, New York and Texas. The Company's sales and marketing employees
identify and contact prospective clients by a variety of means, including
referrals from existing clients and contacts at professional society meetings
and seminars with persons involved in group practice as well as trade journal
advertising, direct mail advertising, and telemarketing. These employees are
knowledgeable about medical and dental group practice management, as well as
computer information systems and the Company's products. Typically, these
employees make presentations to potential clients by demonstrating the QSI
system and its capabilities on the prospective client's premises. In addition,
the Company performs remote demonstrations by utilizing a prospective client's
PC or by sending the prospective client a telecommunications kit including a
terminal.
 
The Company's sales cycle can vary significantly and typically ranges from three
to 12 months from initial contact to contract execution. Standard payment terms
include a 25% down payment with the balance due when the hardware is installed
and the installed system is ready for training. As part of the fees paid by its
clients, the Company receives up-front licensing fees, a monthly service fee
based on client configuration and the number of user ports and a nominal annual
license renewal fee based on the number of user ports.
 
Several clients have purchased the Company's system and, in turn, are providing
time-share services to local single and group practice practitioners. Under the
time-share agreements, the client provides the use of its system for a fee to
one or more practitioners. Although the Company does not receive a fee directly
from the time-share client, implementation of time-share arrangements has
resulted in the purchase of additional system capacity by the client offering
the time-share services, as well as new system purchases made by the time-share
clients. The Company continues to concentrate its sales and marketing efforts on
medical and dental practices, dental schools, physician clinics, MSOs, PHOs and
community health centers. MSOs and PHOs to which the Company has sold systems
provide use of the Company's software to those group and single practices
associated with the organization or hospital on either a time-sharing basis or
by directing the Company to contract with those practices for the sale of
stand-alone turnkey systems.
 
The Company has entered into marketing assistance agreements with certain of its
clients pursuant to which the clients allow the Company to demonstrate to
potential clients the use of systems on the existing clients' premises. In
addition, the Company has established certain of its clients as dealers for its
systems. Through this arrangement, the dealer markets and sells QSI systems to
prospects in a local territory. These prospects are generally smaller health
care facilities than those actively pursued by the Company. The Company's
PC-based products are well suited to this dealer marketing. In addition, the
dealer typically provides a variety of ongoing services for its clients. Dealers
are compensated based on system size and profitability, and the services which
they perform in lieu of the Company.
 
The Company often assists prospective clients in identifying third party sources
for financing the purchase of QSI systems. The financing usually is obtained by
the client directly from institutional lenders and typically takes the form of a
loan from the institution secured by the system to be purchased. Most of the
clients purchasing QSI systems have been assisted by the Company in finding
sources of financing for such purchases.
 
The Company has numerous clients and does not believe that the loss of any
single client would have a material adverse effect on the Company. No client
accounted for ten percent or more of net revenues during fiscal years ended
March 31, 1995 or 1994.
 
CUSTOMER SERVICE AND SUPPORT
 
The Company believes its success is attributable in part to its exceptional
customer service and support. The Company provides support to its clients seven
days a week, 24 hours a day. In addition, the Company's policy is to respond to
user defined system-down emergencies with a response time of 15 minutes or less.
All Company systems have a dedicated port for dial-up remote access,
facilitating rapid diagnosis by QSI technicians of system inquiries. Most
inquiries can be resolved without the need to dispatch Company
 
                                       27
<PAGE>   30
 
technicians. These support services also provide the Company with the
opportunity to monitor changes in each client's information processing
requirements and to recommend the purchase of system hardware or software
enhancements designed to satisfy these additional requirements. The Company
believes that its commitment to provide extensive support has contributed
significantly to the development of its business.
 
The Company offers clients support services for all system components, including
hardware and software maintenance, for a fixed monthly fee. In the last five
years, more than 90% of the Company's clients have elected to purchase the
Company's maintenance and support services. Hardware maintenance services are
coordinated through the Company's headquarters in California, with support from
field service locations in Northern and Southern California, New Jersey, North
Carolina and Wisconsin. The Company also subcontracts with IBM to perform
specific hardware maintenance tasks under QSI's direction. This arrangement has
provided the Company with economies of scale associated with IBM's service
infrastructure while still maintaining service standards.
 
The Company's continuing system software support staff operates from the
Company's offices in California and a location in Virginia. The support staff is
comprised of specialists who are knowledgeable in the area of hardware and
software technology as well as in the day-to-day operations of a group practice.
The Company's on-line access to all client systems enables the support staff to
provide immediate assistance to clients. This assistance ranges from correcting
minor procedural problems in the client's system to performing complex data base
reconstructions or software updates. The Company also utilizes an automated
on-line support system which assists clients in resolving minor problems and
facilitates automated electronic retrieval of problems along with symptoms
following a client's call to the Company's automated support system.
Additionally, the on-line support system maintains a complete call record at the
client's facility and the Company.
 
IMPLEMENTATION AND TRAINING
 
The Company provides implementation and training services from its headquarters
in California as well as remote locations in Florida, Kansas, Texas, and
Washington. The Company believes that its system delivery, implementation and
support services are key elements of its successful client relationships. When a
client signs a contract for the purchase of a system, a client manager, trained
in physician group practice procedures, is assigned to ensure that the client is
fully informed of system options and that the proper system configuration is
installed. This information is determined through discussions with the client
and observation of the client's practice. Once the set of software features is
established, the software configuration unique to a given client can be created
in an automated fashion.
 
Before activation of the client's system, Company personnel convert the relevant
client data into the system. Typically, the Company interfaces electronically to
convert the client's data from another computer system, allowing for a quick,
cost-effective and accurate conversion. The system is then subjected to
extensive testing which includes processing representative data using the
client's system configuration. In some situations, the data may be retained by
the client on ledger cards or other hard copy. In such situations, the Company
maintains a data entry staff to input the required data.
 
One or more trainers experienced in group practice procedures are assigned to
conduct an intensive training program for the client's employees. The program
includes a combination of computer assisted instruction ("CAI"), remote training
techniques and training classes conducted by QSI staff at the client's
office(s). CAI consists of workbooks, computer interaction and personal
instruction. CAI is also offered to clients, for an additional charge, after the
initial training program is completed for the purpose of training new and
additional employees. Remote training allows a trainer at the Company's office
to train one or more people at a client site via telephone and computer
connection, thus allowing an interactive and office-specific mode of training
without the expense and time required for travel. The Company also provides
ongoing training through electronic classrooms where employees at different
locations from the same or different companies can simultaneously interact
on-line with a trainer. In addition, the Company's on-line "help" documentation
feature facilitates client training as well as ongoing support.
 
                                       28
<PAGE>   31
 
COMPETITION
 
The market for health care information systems is intensely competitive and the
Company faces significant competition from a number of different sources. In
addition, several of the Company's competitors have significantly greater
financial, technical, product development and marketing resources than the
Company. The Company believes its principal competitive advantages are the
features and capabilities of its products and services, its high level of
customer support and its 20 year experience in the industry. The industry is
highly fragmented and includes numerous competitors, none of which the Company
believes dominates the overall market for group practice management systems. The
Company has not encountered substantial competition in the dental group
practices market of six or more dentists. The Company believes that numerous
firms sell computerized data processing systems to group dental practices
consisting of five or fewer dentists.
 
Among the Company's principal competitors for medical group practice clients are
health care information systems companies such as IDX Corporation, Medic
Computer Systems, Physician Computer Networks, Inc., and Cycare Systems, Inc.
Furthermore, the Company also competes indirectly and to varying degrees with
other major health care information companies, information management companies
generally, and other software developers which may more directly enter the
markets in which the Company competes. There can be no assurance that future
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations. Competitive pressures and other
factors, such as new product introductions by the Company or its competitors,
may result in price erosion that could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
PRODUCT ENHANCEMENT AND DEVELOPMENT
 
   
The computer software and hardware and medical practice management industries
are characterized by rapid technological change requiring the Company to engage
in continuing efforts to improve its systems. During fiscal years 1994 and 1995,
and the nine months ended December 31, 1995 the Company expended approximately
$1.3 million, $1.5 million and $1.1 million respectively, on research and
development activities. In addition, many of the Company's product enhancements
have resulted from software development work performed under contracts with QSI
clients. To the extent the Company fails to achieve technological advances
comparable to those made by others in the computer and medical practice
management industries, its products and services may become obsolete. See "Risk
Factors -- Technological Change."
    
 
GOVERNMENTAL REGULATION
 
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care facilities. During the past several years the health care industry
has been subject to an increase in governmental regulation of, among other
things, reimbursement rates and certain capital expenditures. Certain
legislators have announced that they intend to examine proposals to reform
certain aspects of the U.S. health care system including proposals which may
increase governmental involvement in health care, lower reimbursement rates and
otherwise change the operating environment for the Company's clients. 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 systems and related services. On the other hand, changes in the
regulatory environment have increased and may continue to increase the needs of
health care organizations for cost-effective data management and thereby enhance
the marketability of the Company's systems and related services. The Company
cannot predict what impact, if any, such proposals or health care reforms might
have on the Company's business, financial condition and results of operations.
 
The Company's software may be subject to regulation by the U.S. Food and Drug
Administration (the "FDA") as a medical device. Such regulation could require
the registration of the applicable manufacturing facility and software/hardware
products, application of detailed recordkeeping and manufacturing standards, and
FDA approval or clearance prior to marketing. An approval or clearance could
create delays in marketing,
 
                                       29
<PAGE>   32
 
and the FDA could require supplemental filings or object to certain of these
applications. See "Risk Factors -- Uncertainty in Health Care Industry;
Government Regulation."
 
EMPLOYEES
 
   
As of February 12, 1996, the Company employed 125 persons. Systems analysts,
programmers and qualified sales and marketing personnel are in short supply and,
consequently, competition for such individuals is intense. The Company believes
that its future success depends in part upon recruiting and retaining qualified
marketing and technical personnel as well as other employees. The Company
considers its employee relations to be good.
    
 
PROPERTIES
 
The Company's principal administrative, data processing, marketing and
development operations are located in approximately 15,800 square feet of leased
space in Tustin, California under a lease which expires in October 1996. In
addition, the Company leases approximately 13,200 square feet of space in Santa
Ana, California to house its assembly and warehouse operations, and an aggregate
of approximately 1875 feet of space in Florida, Georgia, New York, Texas and
Washington to house field sales, training and service operations. These leases,
including options, have expiration dates ranging from month-to-month to October
31, 1996 and provide for aggregate annual rental payments of approximately
$379,000. The Company believes that its facilities are adequate for its current
needs and that suitable additional or substitute space is available, if needed.
 
LEGAL PROCEEDINGS
 
The Company is a party to various legal proceedings incidental to its business,
none of which are considered by the Company to be material.
 
                                       30
<PAGE>   33
 
                        DIRECTORS AND EXECUTIVE OFFICERS
 
   
The following table sets forth certain information concerning the executive
officers and directors of the Company as of February 12, 1996.
    
 
   
<TABLE>
<CAPTION>
                 NAME                AGE                           POSITION
    -------------------------------  ----     --------------------------------------------------
    <S>                              <C>      <C>
    Sheldon Razin                     58      Chairman of the Board, Chief Executive Officer,
                                              President and Director
    Robert Beck                       55      Executive Vice President
    Robert McGraw                     38      Vice President Chief Financial Officer
    Greg Flynn                        38      Vice President Sales and Marketing
    Abe LaLande                       45      Vice President Hardware Research and Development
    Donn Neufeld                      39      Vice President Software and Operations
    Janet Razin                       55      Vice President, Corporate Secretary and Director
    Irma Carmona                      40      Corporate Controller
    John Bowers, M.D.                 57      Director(1)
    William Bowers                    67      Director(1)
    George Bristol                    47      Director(1)
    Graeme Frehner                    57      Director
    Gordon Setran                     73      Director(1)
</TABLE>
    
 
- ---------------
 
(1)  Member of Audit Committee
 
Officers are appointed by, and serve at the discretion of, the Board of
Directors. Except for Sheldon Razin and Janet Razin, who are husband and wife,
there are no family relationships between any of the directors or executive
officers of the Company. The Board has established an Audit Committee on which
John Bowers, M.D., George Bristol, Gordon Setran and William Bowers serve.
 
SHELDON RAZIN is the founder of the Company and has served as Chairman of the
Board of Directors and Chief Executive Officer since the Company's inception. He
also has served as the Company's President since its inception except for the
period from August 1990 to August 1991. Additionally, Mr. Razin served as
Treasurer from the Company's inception until October 1982. Prior to founding the
Company, he held various technical and managerial positions with Rockwell
International Corporation and was a founder of the Company's predecessor,
Quality Systems, a sole proprietorship engaged in the development of software
for commercial and space applications and in management consulting work. Mr.
Razin holds a B.S. degree in Mathematics from the Massachusetts Institute of
Technology. Mr. Razin is the husband of Janet Razin.
 
ROBERT BECK joined the Company, and has served as its Executive Vice President,
since April 1992. In this capacity, he is heavily involved in the Company's
sales and marketing efforts. Mr. Beck has been associated with turnkey
healthcare computing applications since 1975, holding a variety of increasingly
responsible management positions in several companies. Prior to joining the
Company, Mr. Beck served as Executive Vice President of Sandata, a provider of
DME and Home Health Care Turnkey Systems. Mr. Beck's experience includes
founding and running a corporation, The Hamilton Computer Group, Inc., which was
at one time a major competitor to the Company. He holds a B.A. degree in
Mathematics and Statistics from Hunter College.
 
   
ROBERT MCGRAW has been hired by the Company as its Vice President Chief
Financial Officer and will begin his employment on February 19, 1996. Prior to
joining the Company, Mr. McGraw was the Chief Financial Officer of CVD Financial
Corporation, an asset-based commercial lender, from March 1994 to February 1996.
He was an independent financial consultant from August 1989 to February 1991 and
from March 1992 to February 1994. From March 1991 to February 1992, Mr. McGraw
was Chief Financial Officer of MGV International, Inc., a diversified middle
market company with a personal computer manufacturing plant and wholesale
distribution operations. Mr. McGraw is a Certified Public Accountant and holds
an M.B.A. from UCLA and a B.A. with highest honors in Business Economics from
University of California, Santa Barbara.
    
 
                                       31
<PAGE>   34
 
GREG FLYNN has served as the Company's Vice President Sales and Marketing since
January 1996 after serving as Vice President Administration since June 1992. In
these capacities, Mr. Flynn has been responsible for numerous functions related
to the ongoing management of the Company. Previously, Mr. Flynn served as the
Company's Vice President Corporate Communications. Since joining the Company in
January 1982, Mr. Flynn has held a variety of increasingly responsible
management positions within the organization. Prior to joining the Company, Mr.
Flynn was a scriptreader/script consultant for a film production company. He
holds a B.A. degree in English from the University of California, Santa Barbara.
 
ABE LALANDE has served as the Company's Vice President Hardware Research and
Development since February 1989. From 1979 to 1982, he served as the Company's
senior field service engineer, and from 1982 to 1988, he served as Vice
President Field Service and Production. During fiscal 1989, Mr. LaLande left the
Company for three months to work for Toshiba America, Inc. Prior to joining the
Company, Mr. LaLande held various senior field service engineering positions
with Mini-Computer Systems (October 1978 to April 1979), Varian Associates
(February 1978 to October 1978) and General Automation (July 1977 to February
1978), all of which are computer manufacturing companies. He holds an A.A.
degree in Electronic Engineering from Fullerton College and an A.S. degree in
Computer Science from Control Data Institute.
 
DONN NEUFELD has served as the Company's Vice President Operations since June
1986 and as its Vice President-Software since January 1996. From April 1981
until June 1986, Mr. Neufeld held the position of Manager of Customer Support.
He joined the Company in December 1980 as part of the System Generation
Department. Prior to joining the Company, Mr. Neufeld was a System
Analyst/Programmer at Loma Linda University Medical Center.
 
JANET RAZIN has served as a Director, Vice President and Corporate Secretary of
the Company since its inception and served as the Company's Controller until
November 1981. She served as Vice President Chief Financial Officer from October
1982 until October 1984. Prior to joining the Company, she was a computer
programmer for Rockwell International Corporation. Mrs. Razin holds a B.A.
degree in Mathematics from Northeastern University. Mrs. Razin is the wife of
Sheldon Razin.
 
IRMA CARMONA has served as the Company's Corporate Controller since June 1994.
Since joining the Company in February 1980, Ms. Carmona has held a variety of
increasingly responsible financial positions within the organization including
Manager of Accounting from June 1984 until June 1994. Prior to joining the
Company, Ms. Carmona was a staff accountant for Thomas Cook Bankers.
 
JOHN BOWERS, M.D., has served as a Director since June 1987, and is the founder
and Chief Executive Officer of the Heart Institute of Nevada, a major
freestanding Cardiac Catheterization and Diagnostic Center. In 1970, Dr. Bowers
moved to Las Vegas, Nevada to associate with Dr. P.R. Akre, who organized the
first catheterization laboratory in Nevada. He subsequently became Director of
Cardiology at Sunrise Hospital and Valley Hospital. On June 1, 1975, he founded
Cardiology Associates of Nevada, John A. Bowers, M.D., FACC, a professional
corporation, and the forerunner of the Heart Institute of Nevada. Prior to 1970,
Dr. Bowers practiced cardiology in Santa Paula, California, after serving in the
Air Force at Vandenberg Air Force Base, California and Wright-Patterson Air
Force Base, Dayton, Ohio. Dr. Bowers graduated from Indiana University School of
Medicine in 1960.
 
WILLIAM BOWERS has served as a Director since June 1989. He was co-founder and
Chairman of MSI Data Corporation, a leading manufacturer of "on-the-move"
hand-held data collection systems, headquartered in Costa Mesa, California.
Founded in 1967, MSI was a public company until it was acquired by Symbol
Technologies, Inc. in 1988. Mr. Bowers is also a Director of D.H. Technology,
Inc., a publicly-owned company. Mr. Bowers has two Bachelors degrees, one in
Advertising from USC and another in Electrical Engineering from UCLA.
 
GEORGE BRISTOL, who has served as a Director since December 1982, has been a
member of the corporate finance group of Ernst & Young LLP, an international
professional services firm, since February 1992. Prior to this, Mr. Bristol was
a Managing Director with the investment banking firms of Dean Witter Reynolds
Inc. from September 1989 and Prudential Securities, Inc., for more than eight
years, until September 1989. Prior to joining Prudential Securities, Inc., Mr.
Bristol served as First Vice President of Blyth Eastman Paine
 
                                       32
<PAGE>   35
 
Webber Incorporated, an investment banking firm. He holds a B.A. degree from the
University of Michigan and an M.B.A. degree from the Harvard Business School.
 
GRAEME FREHNER, a co-founder of the Company, has served as a Director since
November 1982. He served as the Company's Vice President-Software from October
1982 to January 1996, when he retired from active management in the Company.
Despite this retirement, he intends to consult with the Company from time to
time. Mr. Frehner joined Quality Systems, the Company's predecessor, shortly
after it was founded. Prior to that time, he held a number of technical,
managerial and consulting positions with Planning Research Corporation and with
Autonetics, formerly a division of North American Aviation and currently a
division of Rockwell International Corporation. Mr. Frehner holds a B.S. degree
in Mathematics, Education and Physics from Brigham Young University.
 
GORDON SETRAN has served as a Director since November 1982, and was a Vice
President of California Federal Savings & Loan Association from 1975 until his
retirement in December 1985. Mr. Setran was a founder, President and Director of
First Federal Savings & Loan Association of Corona which was acquired by
California Federal Savings & Loan Association in 1975.
 
   
In the event that the acquisition of 100% of Clinitec is consummated, it is
anticipated that Patrick Cline will join the Company's Board of Directors and
will become an Executive Vice President of the Company. Mr. Cline is a
co-founder of Clinitec and has served as its Chairman of the Board of Directors,
Chief Executive Officer and President since its inception in January 1994. Prior
to co-founding Clinitec, Mr. Cline served, from July 1987 to January 1994, as
Vice President of Sales and Marketing with Script Systems, a subsidiary of
InfoMed, a healthcare information systems company. From January 1994 to May
1994, after the founding of Clinitec, Mr. Cline continued to serve, on a part
time basis, as Script Systems' Vice President of Sales and Marketing. Mr. Cline
has held senior positions in the health care information systems industry since
1981.
    
 
                                       33
<PAGE>   36
 
EXECUTIVE COMPENSATION
 
SUMMARY COMPENSATION TABLE. The following table provides certain summary
information concerning compensation paid or accrued by the Company and its
subsidiaries, to or on behalf of the Company's Chief Executive Officer and each
of the four other most highly compensated executive officers of the Company
(determined as of the end of the last fiscal year) (the "Named Executive
Officers") for the fiscal years ended March 31, 1993, 1994 and 1995:
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                            LONG-TERM
                                              ANNUAL COMPENSATION          COMPENSATION
                                           --------------------------   ------------------
                                  FISCAL               OTHER ANNUAL         SECURITIES          ALL OTHER
  NAME AND PRINCIPAL POSITION      YEAR     SALARY    COMPENSATION(1)   UNDERLYING OPTIONS   COMPENSATION(2)
- --------------------------------  ------   --------   ---------------   ------------------   ---------------
<S>                               <C>      <C>        <C>               <C>                  <C>
Sheldon Razin...................   1995    $213,750       $ 6,882                  --            $ 2,873
  Chairman and President           1994     180,000        23,372                  --              2,235
                                   1993     180,000        19,518                  --              1,172
Robert Beck(3)..................   1995     144,996            --                  --              2,740
  Executive Vice President         1994     144,996            --                  --              2,478
                                   1993     140,054            --              75,000                728
Greg Flynn......................   1995     108,929            --                  --              1,224
  Vice President Sales             1994      97,152            --              22,000                945
  and Marketing                    1993      89,760            --              20,000                378
Abe LaLande.....................   1995     105,000            --                  --              1,185
  Vice President Hardware
     Research                      1994     105,000            --                  --              1,010
     and Development               1993     105,000            --                  --                419
Donn Neufeld....................   1995     104,250            --                  --              1,178
  Vice President Software          1994      96,000            --              30,000                935
  and Operations                   1993      96,000            --                  --                394
</TABLE>
 
- ---------------
 
(1) This column reflects perquisite compensation which exceeds the lesser of
    $50,000 or 10% of the Named Executive Officer's total salary and bonus with
    the exception of Mr. Razin, which is included regardless. For the fiscal
    year ended March 31, 1995, no Named Executive Officer received perquisites
    exceeding that limit. For fiscal years ended March 31, 1995, 1994, and 1993,
    respectively, Mr. Razin's perquisites included $5,982, $22,472 and $18,578
    for the value of the use of a Company car, which includes insurance
    premiums, depreciation, and miscellaneous expenses.
 
(2) This column reflects (i) amounts attributable to Company contributions to
    the Company's Deferred Compensation Plan (or, for fiscal year ended March
    31, 1993, contributions to the Company's Profit-Sharing and Retirement Plan
    for Employees) and (ii) income attributable to the provision of additional
    life insurance for the Named Executive Officers. For fiscal year ended March
    31, 1995 such amounts were, respectively, as follows: Mr. Razin, $2,138 and
    $735; Mr. Beck $1,570 and $1,170; Mr. Flynn $1,089 and $135; Mr. LaLande,
    $1,050 and $135; and Mr. Neufeld, $1,043 and $135. For fiscal year ended
    March 31, 1994, such amounts were, respectively, as follows: Mr. Razin,
    $1,500 and $735; Mr. Beck, $1,308 and $1,170; Mr. Flynn, $810 and $135; Mr.
    LaLande, $875 and $135; and Mr. Neufeld, $800 and $135. For fiscal year
    ended March 31, 1993, such amounts were, respectively, as follows: Mr.
    Razin, $417 and $755; Mr. Beck, $0 and $728; Mr. Flynn, $239 and $139; Mr.
    LaLande, $280 and $139; and Mr. Neufeld, $255 and $139.
 
   
(3) The Company has an arrangement with Robert Beck under which Mr. Beck will
    receive, if the Company attains an aftertax profit of at least $2.5 million
    in any fiscal year in which the Company's sales are at least $25.0 million,
    a one-time grant of options for shares representing the difference between
    225,000 shares of Common Stock and the number of shares of Common Stock Mr.
    Beck has purchased up to such date pursuant to stock options granted by the
    Company. As of February 12, 1996, Mr. Beck had been granted options to
    purchase 75,000 shares and had exercised 53,750 shares of such options.
    
 
                                       34
<PAGE>   37
 
   
The Company has hired Robert McGraw to be its Chief Financial Officer. Mr.
McGraw will commence employment with the Company on February 19, 1996 at a
salary of $125,000 per year and will be granted options to purchase 30,000
shares of the Company's Common Stock. In addition, upon the consummation of the
acquisition of Clinitec contemplated by the Clinitec Agreement in Principle,
five key employees of Clinitec will enter into employment agreements with QSI
for three year terms. The Company anticipates that such Clinitec employees will
receive aggregate compensation of approximately $840,000 per year.
    
 
STOCK OPTIONS. No options were granted to the Named Executive Officers in the
last fiscal year.
 
AGGREGATED OPTION EXERCISE TABLE. The following table sets forth information (on
an aggregated basis) concerning the number of shares of the Company's Common
Stock acquired upon exercise of options granted by the Company, and shares of
the Company's Common Stock subject to exercisable and unexercisable stock
options which the Named Executive Officers held at the end of the 1995 fiscal
year. None of the Named Executive Officers held any stock appreciation rights at
the end of that fiscal year.
 
   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
                                     VALUES
 
<TABLE>
<CAPTION>
                                                            NUMBER OF UNDERLYING          VALUE OF UNEXERCISED
                                                           UNEXERCISED OPTIONS AT        IN-THE-MONEY OPTIONS AT
                                  SHARES                       MARCH 31, 1995               MARCH 31, 1995(1)
                                ACQUIRED ON    VALUE     ---------------------------   ---------------------------
             NAME                EXERCISE     REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
- ------------------------------  -----------   --------   -----------   -------------   -----------   -------------
<S>                             <C>           <C>        <C>           <C>             <C>           <C>
Sheldon Razin.................          0     $      0           0              0        $     0        $     0
Robert Beck...................      8,000       22,875      10,750         37,500         18,813         65,625
Greg Flynn....................      2,000        3,125      15,500         26,500         28,375         47,625
Abe LaLande...................     10,000       24,375      12,500          7,500         20,313         12,188
Donn Neufeld..................          0            0      13,500         24,500         22,875         42,625
</TABLE>
 
- ---------------
 
(1) The value of unexercised in-the-money options is the market price of the
    shares at fiscal year end ($3.25) less the exercise price of the option.
 
1989 STOCK OPTION PLAN
 
The Company's 1989 Stock Option Plan (the "1989 Plan") was adopted by the Board
of Directors on July 19, 1989 and approved by the shareholders on September 6,
1989. One million shares of Common Stock have been authorized for issuance under
the 1989 Plan. The number of shares issued to directors under the 1989 Plan when
added to the number of shares issuable to directors upon the exercise of stock
options granted under any other stock option plan maintained by the Company
shall not exceed 750,000.
 
The 1989 Plan provides that salaried officers or key employees, and non-employee
directors of the Company or its subsidiaries may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock at an
exercise price not less than 85% of their fair market value on the option grant
date. However, any option granted to a person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company (or its parent or any subsidiary) must have a purchase price of at least
110% of the fair market value on the grant date, and a term not longer than five
years.
 
The plan may be administered by the Board of Directors of the Company ("Board")
or a Committee consisting of three or more directors who are appointed by, and
serve at the pleasure of, the Board (the "Committee"). A Committee has not been
appointed. The Board as Plan Administrator has complete discretion to determine
which eligible individuals are to receive option grants, the number of shares
subject to each such grant, the status of any granted option as either an
incentive stock option or a non-statutory stock option under the federal tax
laws, the vesting schedule to be in effect for the option grant, and the maximum
term for which any granted option is to remain outstanding. Option grants to
nonemployee directors must be approved by the Board. Upon an acquisition of the
Company by merger or asset sale, each outstanding option may be subject to
accelerated vesting under certain circumstances.
 
                                       35
<PAGE>   38
 
The Board may amend or modify the 1989 Plan at any time. The 1989 Plan will
terminate on May 30, 1999, unless sooner terminated by the Board.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
The Company does not have a compensation committee or any other committee of the
Board of Directors performing equivalent functions. Instead, the full Board of
Directors makes decisions regarding executive officer compensation. During the
Company's last complete fiscal year ended March 31, 1995, the members of the
Board of Directors were Sheldon Razin, Janet Razin, John Bowers, M.D., William
Bowers, George Bristol, Graeme Frehner and Gordon Setran.
 
EMPLOYMENT CONTRACTS
 
   
The Company does not presently have any employment contracts in effect with the
President or any of the other Named Executive Officers other than the
arrangement referenced above in "Executive Compensation" regarding Robert Beck.
In connection with the Company's arrangement with Mr. Beck, Mr. Razin has agreed
that in the event he sells more than 20% of the Common Stock of the Company
beneficially owned by him at such time of sale, then Mr. Beck shall be entitled
to sell, in the same transaction as Mr. Razin and on the same terms and
conditions, a pro rata amount of the Common Stock held by Mr. Beck at such time
pursuant to stock options granted by the Company. On December 12, 1995, Mr. Beck
waived any and all rights under that agreement with respect to the offering
contemplated hereby. In addition, upon the consummation of the acquisition of
Clinitec contemplated by the Clinitec Agreement in Principle, the Company
intends to enter into employment agreements with certain key employees of
Clinitec. See "Executive Compensation."
    
 
DIRECTOR COMPENSATION
 
Directors of the Company who are also employees of the Company are not
compensated for their services as directors or committee members. Directors of
the Company who are not also employees receive a fee of $2,500 per year for
serving on the Board of Directors. Directors who serve on a committee of the
Board of Directors receive an annual fee of $1,000 and a fee of $250 for each
committee meeting attended, together with reasonable expenses of attendance at
committee meetings.
 
INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
The Company's Articles of Incorporation provide that the liability of the
Company's directors for monetary damages shall be eliminated to the fullest
extent permissible under California law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the right of the Company for breach of a director's duties to the Company or
its shareholders except for liability: (1) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (2) for acts
or omissions that a director believes to be contrary to the best interests of
the Company or its shareholders or that involve the absence of good faith on the
part of the director; (3) for any transaction from which a director derived an
improper personal benefit; (4) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (5) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (6) with respect to certain
transactions, or the approval of transactions in which a director has a material
financial interest; and (7) expressly imposed by statute, for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision does not eliminate or limit liability of an officer for any act
or omission as an officer, notwithstanding that the officer is also a director
or that his actions, if negligent or improper, have been ratified by the Board
of Directors. Further, the provision has no effect on claims under federal or
state securities laws and does not affect the availability of injunctions and
other equitable remedies available to the Company's shareholders for any
violation of a director's fiduciary duty to the Company or its shareholders.
Although the validity and scope of the legislation underlying the provision have
not yet been interpreted to any significant extent by the California courts, the
provision may relieve directors of monetary liability to the
 
                                       36
<PAGE>   39
 
Company for grossly negligent conduct, including conduct in situations involving
attempted takeovers of the Company.
 
The Articles also provide that the Company is authorized to provide
indemnification to its agents (as defined in Section 317 of the California
Corporations Code), through the Company's Bylaws or through agreements with such
agents or both, for breach of duty to the Company and its shareholders, in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
 
The Bylaws of the Company provide that a person sued as an agent of the Company
may be indemnified by the Company for reasonable expenses incurred thereby, if
(a) in the case of other than derivative suits, such person has acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the Company (and in the case of a criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful), and (b) in the case of a
derivative suit, such person has acted in good faith in a manner he or she
believed to be in the best interests of the Company and its shareholders, and
with such care, including reasonable inquiry, as an ordinarily prudent person,
in a like position would use under similar circumstances. The Bylaws further
provide that no indemnification shall be made in the case of a derivative suit
in respect of any claim as to which such person has been adjudged to be liable
to the corporation, except with court approval, nor shall indemnification be
made for amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or for expenses incurred in
defending a threatened or pending action which is settled or otherwise disposed
of without court approval. Indemnification under the Bylaws is mandatory in the
case of an agent of the Company (present or past) who is successful on the
merits in defense of a suit against him or her in such capacity. In all other
cases where indemnification is permitted by the Bylaws, a determination to
indemnify such person must be made by a majority of a quorum of disinterested
directors, a majority of disinterested shareholders, or the court in which the
suit is pending.
 
The Company has entered into agreements to indemnify its directors in addition
to the indemnification provided for in the Articles of Incorporation and Bylaws.
Among other things, these agreements provide that the Company will indemnify,
subject to certain requirements, each of the Company's directors for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by or
in the right of the Company, on account of services by such person as a director
or officer of the Company, or as a director or officer of any other company or
enterprise to which the person provides services at the request of the Company.
 
   
                              CERTAIN TRANSACTIONS
    
 
   
     The Company sold a computer system for $334,600 to Heart Institute of
Nevada during the quarter ended December 31, 1995. John Bowers, M.D., the
founder and Chief Executive Officer of Heart Institute of Nevada, is a member of
the Company's Board of Directors. The Company's gross profit on the sale is
comparable to the gross profit on sales of similar computer systems.
    
 
                                       37
<PAGE>   40
 
                       PRINCIPAL AND SELLING SHAREHOLDERS
 
   
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 12, 1996, and
as adjusted to reflect the sale by the Company and the Selling Shareholders of
the shares of Common Stock offered hereby, by (i) each person known by the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each of the Selling Shareholders, (iii) each of the Company's
directors, (iv) each of the Named Executive Officers and (v) all directors and
executive officers of the Company as a group:
    
 
   
<TABLE>
<CAPTION>
                                                SHARES BENEFICIALLY
                                                       OWNED                         SHARES BENEFICIALLY
                                                     PRIOR TO                               OWNED
                                                    OFFERING(1)        NUMBER OF      AFTER OFFERING(1)
                                                -------------------   SHARES BEING   -------------------
                    PERSON                       NUMBER     PERCENT     OFFERED       NUMBER     PERCENT
- ----------------------------------------------  ---------   -------   ------------   ---------   -------
<S>                                             <C>         <C>       <C>            <C>         <C>
Janet Razin and Sheldon Razin(2)(3)...........  2,186,220     47.1%      451,000     1,735,220     30.7%
Ahmed Hussein(4)..............................    350,000      7.5            --       350,000      6.2
Duncan-Hurst Capital Management Inc.(5).......    299,400      6.4            --       299,400      5.3
Graeme Frehner................................     76,554      1.7        20,000        56,554      1.0
John Bowers, M.D..............................     31,230        *            --        31,230        *
Fen Frehner(6)................................     25,000        *        13,000        12,000        *
George Bristol................................     13,500        *            --        13,500        *
David Razin(7)................................     12,000        *        10,000         2,000        *
Greg Flynn(8).................................     10,030        *            --        10,030        *
William Bowers................................     10,000        *            --        10,000        *
Donn Neufeld(9)...............................      8,000        *            --         8,000        *
Michael Yerrid(10)............................      7,500        *         5,000         2,500        *
Robert Beck(11)...............................      2,600        *            --         2,600        *
Gordon Setran.................................      1,500        *            --         1,500        *
Abe LaLande...................................      1,000        *         1,000            --        *
All directors and executive officers as a
  group
  (12 persons)(12)............................  2,340,634     50.3%      472,000     1,868,634     32.9%
</TABLE>
    
 
- ---------------
  *  Less than one percent
 (1) For purposes of this table, information as to shares of Common Stock
     assumes that (i) the persons in the table do not purchase shares in the
     offering and (ii) the Underwriters' over-allotment option is not exercised.
     Except as otherwise indicated, to the Company's knowledge, the persons
     named in the table have sole voting and sole investment power with respect
     to all shares beneficially owned, subject to community property laws where
     applicable.
 (2) Janet Razin and Sheldon Razin, each of whom is an officer and director of
     the Company, are married to one another and own their shares as community
     property.
 (3) The address of each of these persons is c/o Quality Systems, Inc., 17822
     East 17th Street, Suite 210, Tustin, California 92680.
 (4) As reflected in Schedule 13D dated December 8, 1995. Mr. Hussein's address
     is 401 E. 34th Street, Apt. #N-25A, New York, NY 10016.
   
 (5) As reflected in Schedule 13D dated January 30, 1996. Duncan-Hurst's address
     is 4365 Executive Drive, Suite 1520, San Diego, CA 92121. Duncan-Hurst has
     sole voting power of 171,650 of the 299,400 shares it beneficially owns.
    
   
 (6) Mr. Frehner is currently the Company's Manager of Software Research and
     Development and is the son of Graeme Frehner.
    
   
 (7) Includes 10,000 shares of Common Stock subject to stock options which are
     currently exercisable or may become exercisable within 60 days after
     February 12, 1996. Mr. Razin is currently the Company's Director of Product
     Development and is the son of Janet and Sheldon Razin.
    
   
 (8) Includes 8,000 shares of Common Stock subject to stock options which are
     currently exercisable or may become exercisable within 60 days after
     February 12, 1996.
    
   
 (9) Includes 8,000 shares of Common Stock subject to stock options which are
     currently exercisable or may become exercisable within 60 days after
     February 12, 1996.
    
   
(10) Includes 7,500 shares of Common Stock subject to stock options which are
     currently exercisable or may become exercisable within 60 days after
     February 12, 1996. Mr. Yerrid is currently the Company's Client Services
     Manager.
    
   
(11) Includes 2,500 shares of Common Stock subject to stock options which are
     currently exercisable or may become exercisable within 60 days after
     February 12, 1996.
    
   
(12) Includes shares of Common Stock subject to stock options which are
     currently exercisable or may become exercisable within 60 days after
     February 12, 1996, and are, respectively, as follows: Mr. Beck, 2,500; Mr.
     Flynn, 8,000; Mr. Neufeld, 8,000; and all directors and officers as a
     group, 18,500 shares.
    
 
                                       38
<PAGE>   41
 
                          DESCRIPTION OF CAPITAL STOCK
 
The Company's authorized capital stock consists of 20,000,000 shares of Common
Stock, $.01 par value per share.
 
COMMON STOCK
 
   
As of February 12, 1996, there were 4,638,491 shares of Common Stock outstanding
and held of record by 198 shareholders. Each holder of Common Stock is entitled
to one vote for each share held. Following this offering, the holders of Common
Stock, voting as a single class, will be entitled to elect all of the directors
of the Company. Matters submitted for shareholder approval generally require a
majority vote.
    
 
The shareholders, upon giving the notice required by California law and the
Company's Bylaws, may cumulate votes for the election of directors. Under
cumulative voting, each shareholder may give one nominee, whose name is placed
in nomination prior to the commencement of voting, a number of votes equal to
the number of directors to be elected, multiplied by the number of votes to
which a shareholder's shares are normally entitled, or distribute such number of
votes among as many nominees as the shareholder sees fit. The effect of
cumulative voting is that the holders of a majority of the outstanding shares of
Common Stock may not be able to elect all of the Company's directors.
 
Holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Price Range for Common Stock and Dividends." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share ratably in the Company's assets remaining after the payment of
liabilities. Holders of Common Stock have no preemptive or other subscription
rights. The shares of Common Stock are not convertible into any other security.
The outstanding shares of Common Stock are, and the shares being offered hereby
will be, upon issuance and sale, fully paid and nonassessable.
 
TRANSFER AGENT AND REGISTRAR
 
The transfer agent and registrar for the Company's Common Stock is U.S. Stock
Transfer Corporation.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
   
Upon completion of this offering, the Company will have 5,653,491 shares of
Common Stock outstanding, assuming only 15,000 of the 147,125 stock options
outstanding as of February 12, 1996 will be exercised before the offering and
excluding any shares issuable upon the consummation of the Clinitec Agreement in
Principle. Of this amount, the 1,500,000 shares sold in this offering (plus any
additional shares sold upon the Underwriters' exercise of their over-allotment
option) and approximately 2,289,357 other shares (subject in certain cases to
the volume and other limitations of Rule 144) will be available for immediate
sale in the public market as of the date of this Prospectus.
    
 
Upon the expiration of a 90-day Lockup Period (as defined below), approximately
1,864,134 shares of the Company's Common Stock will become available for sale in
the public market subject to compliance with Rule 144.
 
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned shares for at least two years
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the Common
Stock (approximately 56,535 shares immediately after this offering) or (ii) the
average weekly trading volume during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale. A person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale who has beneficially owned his or her shares for at least three years
is entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. Persons deemed to be affiliates must always sell
pursuant to Rule 144, even after the applicable holding periods have been
satisfied.
 
                                       39
<PAGE>   42
 
In addition, the Commission has published a notice of proposed rulemaking which,
if adopted as proposed, would shorten the applicable holding periods under Rule
144(d) and Rule 144(k) to one and two years, respectively (from the current two
and three-year periods). The Company cannot predict whether such amendments will
be adopted or the effect thereof on the trading market for its Common Stock. The
Company is unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for the Common Stock of the
Company, the personal circumstances of the sellers and other factors. There can
be no assurance that a significant public market for the Common Stock will be
sustained after the offering. Any future sale of substantial amounts of Common
Stock in the open market may adversely affect the market price of the Common
Stock offered hereby.
 
   
The Selling Shareholders of the Company, who in the aggregate will beneficially
own, following the offering, 1,805,774 shares of Common Stock, have agreed that
they will not, without the prior written consent of the Representatives (as
defined under "Underwriting") offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock beneficially owned by them for a period of 90 days
(the "Lockup Period") after the date of this Prospectus. In addition, the
Company has agreed pursuant to the Underwriting Agreement that it will not sell
any Common Stock without the prior consent of the Representatives of the
Underwriters for a period of 90 days from the date of this Prospectus, except
that the Company may, without such consent, grant certain options to purchase
stock pursuant to the Company's 1989 Plan.
    
 
On November 6, 1989, the Company filed a registration statement on Form S-8
under the Securities Act to register shares of the Common Stock issued or
reserved for issuance under the 1989 Plan, thus permitting the resale of such
shares by nonaffiliates in the public market without restriction under the
Securities Act.
 
                                       40
<PAGE>   43
 
                                  UNDERWRITING
 
   
Pursuant to the Underwriting Agreement, and subject to the terms and conditions
thereof, the Underwriters named below acting through Bear, Stearns & Co. Inc.,
Pacific Growth Equities, Inc. and Cruttenden Roth Incorporated, representatives
of the several Underwriters (the "Representatives"), have agreed, severally, to
purchase from the Company and the Selling Shareholders the respective number of
shares of Common Stock set forth below opposite their respective names:
    
 
   
<TABLE>
<CAPTION>
                                                                            NUMBER OF
                                   UNDERWRITER                               SHARES
        ------------------------------------------------------------------  ---------
        <S>                                                                 <C>
        Bear, Stearns & Co. Inc...........................................
        Pacific Growth Equities, Inc......................................
        Cruttenden Roth Incorporated......................................
 
                                                                            ----------
                  Total...................................................  1,500,000
                                                                            ===========
</TABLE>
    
 
   
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions therein set forth, to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.
    
 
   
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $       per share. The
Underwriters may allow and such dealers may reallow a concession not in excess
of $       per share to certain other dealers. After the public offering, the
public offering price and such concessions may be changed. The Representatives
have informed the Company that the Underwriters do not intend to confirm sales
to accounts over which they exercise discretionary authority.
    
 
   
The offering of the shares of Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
    
 
   
Certain Selling Shareholders have granted to the Underwriters an option,
exercisable not later than 30 days from the date of the effectiveness of the
offering, to purchase up to an aggregate of 225,000 additional shares of Common
Stock to cover over-allotments. To the extent the Underwriters exercise the
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the table above bears to the total number
of shares in such table and the Selling Shareholders will be obligated, pursuant
to the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the 1,500,000 shares of Common Stock offered hereby. If purchased, these
additional shares will be sold by the Underwriters on the same terms as those on
which the 1,500,000 shares are being offered.
    
 
   
The officers and directors of the Company, and the Selling Shareholders have
agreed not to offer, sell, transfer, assign or otherwise dispose of any of the
Common Stock owned by them prior to the expiration of 90 days from the date of
this Prospectus without the prior written consent of the Representatives. After
such 90 day period, such persons will be entitled to sell, distribute or
otherwise dispose of the Common Stock that they hold subject to the provisions
of applicable securities laws.
    
 
The Company has agreed that it will not issue, sell or grant options to purchase
or otherwise dispose of any shares of its Common Stock or securities convertible
into or exchangeable for its Common Stock, except with
 
                                       41
<PAGE>   44
 
respect to options or other rights outstanding on the date of this Prospectus or
pursuant to the 1989 Stock Option Plan, for a period of 90 days after the date
of this Prospectus without the prior written consent of the Representatives.
 
   
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and controlling persons, if any,
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments which the Underwriters or any such
controlling persons may be required to make in respect thereof.
    
 
In connection with this offering, certain Underwriters and selling group members
(if any) who are qualifying registered market makers on Nasdaq may engage in
passive market making transactions in the Common Stock on Nasdaq in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), during the two business day period before commencement of sales
in this offering. The passive market making transactions must comply with
applicable price and volume limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for the security. If all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded. Net purchases by a passive market maker on each
day are generally limited to a specified percentage of the passive market
maker's average daily trading volume in the Common Stock during a price period
and must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.
 
                                 LEGAL OPINIONS
 
Certain legal matters with respect to the issuance of the Common Stock offered
hereby will be passed upon for the Company and the Selling Shareholders by
Brobeck, Phleger & Harrison LLP, Newport Beach, California. Certain legal
matters relating to the offering will be passed upon for the Underwriters by
Gibson, Dunn & Crutcher, Los Angeles, California. Gibson, Dunn & Crutcher has,
from time to time, performed legal services for the Company and may, if
requested, do so in the future.
 
                                    EXPERTS
 
   
The financial statements of the Company as of March 31, 1994 and 1995 and for
each of the three years in the period ended March 31, 1995 and the financial
statements of Clinitec as of December 31, 1994 and for the period from January
31, 1994 (inception) to December 31, 1994 included in this Prospectus and the
financial statement schedule of the Company included elsewhere in the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
    
 
   
The balance sheet of Clinitec International, Inc. as of December 31, 1995 and
the statements of operations, shareholders' equity and cash flows for the year
then ended, included in this Prospectus and the Registration Statement, have
been included herein in reliance on the report of Coopers & Lybrand, L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
    
 
                                       42
<PAGE>   45
 
                             ADDITIONAL INFORMATION
 
The Company has filed a Registration Statement on Form S-1 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), pertaining to the
Common Stock covered by this Prospectus. This Prospectus omits certain
information and exhibits included in that Registration Statement, copies of
which may be obtained upon payment of a fee prescribed by the Commission or may
be examined free of charge at the principal office of the Commission in
Washington, D.C.
 
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Room 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661
and at Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Company's Common Stock is listed on the Nasdaq National Market
(Symbol: QSII), and reports and information concerning the Company can be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W. Washington, D.C. 20006.
 
                                       43
<PAGE>   46
 
                         INDEX TO FINANCIAL STATEMENTS
 
   
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
PRO FORMA FINANCIAL INFORMATION:
Pro Forma Consolidated Balance Sheet as of December 31, 1995 (unaudited).............    F-2
Pro Forma Consolidated Statement of Operations for the year ended March 31, 1995
  (unaudited)........................................................................    F-3
Pro Forma Consolidated Statement of Operations for the nine months ended December 31,
  1995 (unaudited)...................................................................    F-4
Notes to Pro Forma Consolidated Financial Statements (unaudited).....................    F-5
AUDITED FINANCIAL STATEMENTS OF QUALITY SYSTEMS, INC.:
Independent Auditors' Report.........................................................    F-8
Balance Sheets as of March 31, 1994 and 1995.........................................    F-9
Statements of Operations for each of the three years in the period ended March 31,
  1995...............................................................................   F-10
Statements of Shareholders' Equity for each of the three years in the period ended
  March 31, 1995.....................................................................   F-11
Statements of Cash Flows for each of the three years in the period ended March 31,
  1995...............................................................................   F-12
Notes to Financial Statements for each of the three years in the period ended March
  31, 1995...........................................................................   F-13
INTERIM FINANCIAL STATEMENTS OF QUALITY SYSTEMS, INC.:
Balance Sheet as of December 31, 1995 (unaudited)....................................   F-20
Statements of Operations for the nine months ended December 31, 1994 and 1995
  (unaudited)........................................................................   F-21
Statements of Cash Flows for the nine months ended December 31, 1994 and 1995
  (unaudited)........................................................................   F-22
Notes to Financial Statements for the nine months ended December 31, 1994 and 1995
  (unaudited)........................................................................   F-23
AUDITED FINANCIAL STATEMENTS OF CLINITEC INTERNATIONAL, INC.:
Independent Auditors' Reports........................................................   F-24
Balance Sheets as of December 31, 1994 and 1995......................................   F-26
Statements of Operations for the period from January 31, 1994 (inception) to
  December 31, 1994 and the year ended December 31, 1995.............................   F-27
Statements of Shareholders' Equity for the period from January 31, 1994 (inception)
  to
  December 31, 1994 and the year ended December 31, 1995.............................   F-28
Statements of Cash Flows for the period from January 31, 1994 (inception) to
  December 31, 1994 and the year ended December 31, 1995.............................   F-29
Notes to Financial Statements for the period from January 31, 1994 (inception) to
  December 31, 1994 and the year ended December 31, 1995.............................   F-30
</TABLE>
    
 
                                       F-1
<PAGE>   47
 
                             QUALITY SYSTEMS, INC.
 
   
                     PRO FORMA CONSOLIDATED BALANCE SHEETS
    
   
                      AS OF DECEMBER 31, 1995 (UNAUDITED)
    
                                 (IN THOUSANDS)
 
   
<TABLE>
<CAPTION>
                                   AS OF           AS OF
                                DECEMBER 31,   SEPTEMBER 30,                    51% OF CLINITEC             100% OF CLINITEC     
                                    1995            1995                   -------------------------    -------------------------
                                ------------   --------------               PRO FORMA                    PRO FORMA               
                                    QSI           CLINITEC      COMBINED   ADJUSTMENTS     PRO FORMA    ADJUSTMENTS     PRO FORMA
                                ------------   --------------   --------   -----------     ---------    -----------     ---------
                                                                            (NOTE 2)                    (NOTE 3)   
<S>                             <C>            <C>              <C>        <C>             <C>          <C>             <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.....    $  6,397         $  344       $ 6,741      $(1,500)(a)    $ 5,241       $(4,896)(g)    $ 1,845
Short-term investments........       1,265                        1,265                       1,265                        1,265
Accounts receivable, net......       4,365            311         4,676                       4,676                        4,676
Inventories...................         725             30           755                         755                          755
Other current assets..........         155             26           181                         181                          181
                                  --------         ------       -------      -------        -------       -------        -------
        Total current
          assets..............      12,907            711        13,618       (1,500)        12,118        (4,896)         8,722
Equipment and improvements,
  net.........................         467            154           621                         621                          621
Capitalized software costs,
  net.........................         580            216           796         (216)(e)        580          (216)(i)        580
Investment in Clinitec
  International, Inc..........         985                          985        3,000(a)          --        11,790(g)          --
                                                                                  41(b)                        41(h)
                                                                              (2,865)(c)                  (12,039)(i)
                                                                              (1,161)(e)                     (777)(k)
Cash surrender value of life
  insurance...................         316                          316                         316                          316
Other assets..................         131             12           143          357(c)         500           700(i)         843
Goodwill......................                                                   203(c)         203         6,819(i)       6,819
                                  --------         ------       -------      -------        -------       -------        -------
        Total assets..........    $ 15,386         $1,093       $16,479      $(2,141)       $14,338       $ 1,442        $17,901
                                  ========         ======       =======      =======        =======       =======        =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..............    $    943         $   25       $   968      $    --        $   968       $              $   968
Accrued payroll and related
  expenses....................         493             21           514                         514                          514
Other accrued expenses........         475             14           489                         489                          489
Deferred service revenue......       1,030                        1,030                       1,030                        1,030
Deferred compensation.........         316                          316                         316                          316
Estimated costs to complete
  system installations........         337             40           377                         377                          377
Income taxes payable..........          11                           11                          11                           11
                                  --------         ------       -------      -------        -------       -------        -------
        Total current
          liabilities.........       3,605            100         3,705                       3,705                        3,705
DEFERRED TAX LIABILITY........         100                          100            9(b)         252             9(h)         389
                                                                                 143(c)                       280(i)
                                  --------         ------       -------      -------        -------       -------        -------
        Total liabilities.....       3,705            100         3,805          152          3,957           289          4,094
MINORITY INTEREST.............                                                 1,116(e)       1,116
SHAREHOLDERS' EQUITY:
Preferred stock...............                        985           985        3,000(a)          --          (985)(k)
                                                                              (3,985)(e)
Common stock..................          46            857           903         (857)(e)         46             4(g)          50
                                                                                                             (857)(k)
Additional paid-in capital....       6,764                        6,764                       6,764         6,890(g)      13,654
Unrealized loss on
  available-for-sale
  securities..................         (46)                         (46)                        (46)                         (46)
Retained earnings.............       4,917           (849)        4,068       (1,500)(a)      2,501            32(h)         149
                                                                                  32(b)                    (4,800)(i)
                                                                              (2,448)(c)                      849(k)
                                                                               2,349(e)
                                  --------         ------       -------      -------        -------       -------        -------
        Total shareholders'
          equity..............      11,681            993        12,674       (3,409)         9,265         1,133         13,807
                                  --------         ------       -------      -------        -------       -------        -------
        Total liabilities and
          shareholders'
          equity..............    $ 15,386         $1,093       $16,479      $(2,141)       $14,338       $ 1,422        $17,901
                                  ========         ======       =======      =======        =======       =======        =======
</TABLE>
    
 
                                       F-2
<PAGE>   48
 
                             QUALITY SYSTEMS, INC.
 
   
                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
    
                 FOR THE YEAR ENDED MARCH 31, 1995 (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
   
<TABLE>
<CAPTION>
                             YEAR ENDED     PERIOD ENDED
                             MARCH 31,      DECEMBER 31,                      51% OF CLINITEC             100% OF CLINITEC     
                                1995            1994                     -------------------------    -------------------------
                             ----------    --------------                 PRO FORMA                    PRO FORMA               
                                QSI           CLINITEC       COMBINED    ADJUSTMENTS     PRO FORMA    ADJUSTMENTS     PRO FORMA
                             ----------    --------------    --------    -----------     ---------    -----------     ---------
                                                                          (NOTE 2)                     (NOTE 3)   
<S>                          <C>           <C>               <C>         <C>             <C>          <C>             <C>
NET REVENUES:
Sales of computer systems,
  upgrades and supplies....   $  5,681         $   54        $ 5,735       $              $ 5,735       $              $ 5,735
Maintenance and other
  services.................      6,368                         6,368                        6,368                        6,368
                              --------         ------        -------       -------        -------       -------        ------- 
                                12,049             54         12,103                       12,103                       12,103
COST OF PRODUCTS AND
  SERVICES.................      6,060             20          6,080                        6,080                        6,080
                              --------         ------        -------       -------        -------       -------        ------- 
Gross profit...............      5,989             34          6,023                        6,023                        6,023
                              --------         ------        -------       -------        -------       -------        ------- 
OPERATING EXPENSES:
Selling, general and
  administrative...........      3,536            364          3,900            20(d)       3,920           682(j)       4,582
Research and development...      1,467             59          1,526           119(d)       1,645(f)        233(j)       1,759(l)
                              --------         ------        -------       -------        -------       -------        ------- 
                                 5,003            423          5,426           139          5,565           915          6,341
                              --------         ------        -------       -------        -------       -------        ------- 
Earnings (loss) from
  operations...............        986           (389)           597          (139)           458          (915)          (318)
Interest and investment
  income...................        429                           429                          429                          429
Minority interest in loss
  of Clinitec..............                                                    191(e)         191
                              --------         ------        -------       -------        -------       -------        ------- 
Earnings before income tax
  provision (benefit)......      1,415           (389)         1,026            52          1,078          (915)           111
Income tax provision
  (benefit)................        453                           453           (47)(d)        406(f)        (93)(j)        360(l)
                              --------         ------        -------       -------        -------       -------        ------- 
Net earnings (loss)........   $    962         $ (389)       $   573       $    99        $   672(f)    $  (822)       $  (249)(l)
                              ========         ======        =======       =======        =======       =======        =======
Net earnings per share.....   $   0.21                                                    $  0.14                      $ (0.05)
                              ========                                                    =======                      =======
Weighted average shares                                                                                         
  used in calculation......      4,606                                                      4,751                        5,174
                              ========                                                    =======                      =======
</TABLE>
    
 
                                       F-3
<PAGE>   49
 
                             QUALITY SYSTEMS, INC.
 
   
                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
    
   
            FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
    
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
   
<TABLE>
<CAPTION>
                            NINE MONTHS      NINE MONTHS
                               ENDED            ENDED
                           DECEMBER 31,     SEPTEMBER 30,
                               1995              1995                          51% OF CLINITEC             100% OF CLINITEC
                           -------------    --------------                -------------------------    -------------------------
                                QSI            CLINITEC       COMBINED     PRO FORMA      PRO FORMA     PRO FORMA      PRO FORMA
                           -------------    --------------    --------    ADJUSTMENTS     ---------    ADJUSTMENTS     ---------
                                                                          -----------                  -----------
                                                                           (NOTE 2)                    (NOTE 3)
<S>                        <C>              <C>               <C>         <C>             <C>          <C>             <C>
NET REVENUES:
Sales of computer
  systems, upgrades and
  supplies...............     $ 7,162           $1,066        $ 8,228       $              $ 8,228       $              $ 8,228
Maintenance and other
  services...............       5,159                           5,159                        5,159                        5,159
                               ------            -----         ------        ------         ------       -------        -------
                               12,321            1,066         13,387                       13,387                       13,387
COST OF PRODUCTS AND
  SERVICES...............       5,865              379          6,244                        6,244                        6,244
                               ------            -----         ------        ------         ------       -------        -------
Gross profit.............       6,456              687          7,143                        7,143                        7,143
OPERATING EXPENSES:
Selling, general and
  administrative.........       2,847            1,012          3,859            15(d)       3,874           511(j)       4,370
Research and
  development............       1,121               20          1,141            90(d)       1,231(f)        175(j)       1,316(l)
                               ------            -----         ------        ------         ------       -------        -------
                                3,968            1,032          5,000           105          5,105           686          5,686
                               ------            -----         ------        ------         ------       -------        -------
Earnings (loss) from
  operations.............       2,488             (345)         2,143          (105)         2,038          (686)         1,457
Interest and investment
  income.................         340                9            349                          349                          349
Equity in loss of
  Clinitec...............         (41)                            (41 )          41(b)                        41(h)
Minority interest in loss
  of Clinitec............                                                       165(e)         165
                               ------            -----         ------        ------         ------       -------        -------
Earnings (loss) before
  income tax provision...       2,787             (336)         2,451           101          2,552          (645)         1,806
Income tax provision.....       1,117                           1,117           (27)(d)      1,090(f)        (61)(j)      1,056(l)
                               ------            -----         ------        ------         ------       -------        -------
Net earnings (loss)......     $ 1,670           $ (336)       $ 1,334       $   128        $ 1,462(f)    $  (584)       $   750(l)
                               ======            =====         ======        ======         ======       =======        =======
Net earnings per share...     $  0.35                                                      $  0.30                      $  0.14
                               ======                                                       ======                      =======
Weighted average shares
  used in calculation....       4,709                                                        4,854                        5,277
                               ======                                                       ======                      =======
</TABLE>
    
 
                                       F-4
<PAGE>   50
 
                             QUALITY SYSTEMS, INC.
 
              NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
   
     The unaudited pro forma consolidated statements of operations and balance
sheets give effect on a purchase accounting basis to the acquisition of an
additional interest (the Acquisition) in Clinitec International, Inc.
(Clinitec). The "51% of Clinitec" pro forma information reflects the Company's
exercise of its option to purchase an additional 26% equity interest in Clinitec
for $3 million (resulting in a 51% majority ownership in Clinitec by the
Company). The "100% of Clinitec" pro forma information reflects the Company's
purchase of 100% of the outstanding common shares of Clinitec for $4.9 million
in cash and $6.9 million in the Company's common shares (valuing each QSI share
at the public offering price contemplated hereby), pursuant to an agreement in
principle entered into with Clinitec. The pro forma consolidated statements of
operations for the fiscal year ended March 31, 1995 are comprised of the results
of Quality Systems, Inc. (QSI) for the fiscal year ended March 31, 1995 and the
results of Clinitec for the year ended December 31, 1994. The pro forma
consolidated statements of operations for the nine months ended December 31,
1995 are comprised of the results of QSI for the nine months ended December 31,
1995 and the results of Clinitec for the nine months ended September 30, 1995.
The pro forma consolidated balance sheets as of December 31, 1995 have been
prepared by consolidating the balance sheet of QSI as of December 31, 1995 with
the balance sheet of Clinitec as of September 30, 1995.
    
 
   
     The pro forma consolidated statements of operations for the fiscal year
ended March 31, 1995 and the nine months ended December 31, 1995 assume that the
Acquisition occurred at April 1, 1994. The pro forma consolidated balance sheet
as of December 31, 1995 assume that the Acquisition occurred on December 31,
1995. The pro forma consolidated statements of operations and balance sheets do
not purport to represent the results of operations or financial position of the
Company had the transactions and events assumed therein occurred on the dates
specified, nor are they necessarily indicative of the results of operations that
may be achieved in the future. The pro forma adjustments are based on
management's preliminary assumptions regarding purchase accounting adjustments.
The actual allocation of the purchase price will be adjusted to the extent that
actual amounts differ from management's estimates in accordance with FAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises."
    
 
     The pro forma consolidated financial information is based upon certain
assumptions and adjustments described in the notes to the pro forma financial
statements. The pro forma consolidated financial information should be read in
conjunction with the historical financial statements, and related notes, of QSI
and Clinitec contained elsewhere herein.
 
   
2. PRO FORMA ADJUSTMENTS -- 51% OF CLINITEC
    
 
     The following describe the pro forma adjustments made to reflect the
acquisition of an additional 26% interest in Clinitec:
 
   
     a) To reflect the acquisition of an additional interest in Clinitec,
        providing QSI with a 51% ownership interest through a purchase of
        Clinitec convertible preferred stock for $3 million. Concurrent with
        this acquisition, Clinitec is expected to distribute dividends to its
        common shareholders of $1.5 million.
    
 
   
     b) To reverse QSI's portion of Clinitec's net loss and the related tax
        asset (initially recorded using the equity accounting method) due to the
        pro forma change to the consolidation method.
    
 
                                       F-5
<PAGE>   51
 
                             QUALITY SYSTEMS, INC.
 
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED)
 
     c) To record purchase accounting adjustments resulting from the acquisition
        of the aggregate 51% ownership interest based on an appraisal of the
        fair value of the net assets of Clinitec as follows:
 
   
<TABLE>
        <S>                                                                  <C>
        Clinitec's net tangible assets.....................................  $   777
        QSI's additional cash investment...................................    3,000
        Dividend paid to Clinitec's shareholders...........................   (1,500)
                                                                             -------
        Adjusted net tangible assets.......................................    2,277
        Less 49% minority interest.........................................   (1,116)
                                                                             -------
        Net tangible assets applicable to 51% interest.....................    1,161
        QSI's investment, including $1 million for original 25%
          investment.......................................................    4,026
                                                                             -------
        Excess of purchase price over tangible net assets..................  $ 2,865
                                                                             =======
        Allocated to:
          In-process research and development of $4,080, net of $1,632 tax
             liability.....................................................  $ 2,448
          Intangible assets relating to existing technology of $357, net of
             $143 tax liability............................................      214
          Goodwill.........................................................      203
                                                                             -------
                                                                             $ 2,865
                                                                             =======
</TABLE>
    
 
   
     d) To record amortization of the intangible assets and the corresponding
        tax benefit, related to existing technology and goodwill, based on the
        straight line method over a three and ten year useful life,
        respectively.
    
 
   
     e) To eliminate Clinitec's equity accounts and QSI's investment account and
        set up 49% minority interest and minority interest in loss of Clinitec.
    
 
   
     f) In accordance with FASB Interpretation No. 4, the Company is required to
        write-off the amount allocated to in-process research and development
        acquired in the acquisition of $4.1 million, net of tax benefit of $1.6
        million. This write-off will be reflected in the period in which the
        Acquisition is consummated and has not been reflected in the Pro Forma
        Consolidated Statement of Operations, but is reflected in the Pro Forma
        Consolidated Balance Sheet.
    
 
   
3. PRO FORMA ADJUSTMENTS -- 100% OF CLINITEC
    
 
   
     The following describe the pro forma adjustments made to reflect the
acquisition of an additional 26% interest in Clinitec:
    
 
   
     g) To reflect the acquisition of 100% of the outstanding common shares of
        Clinitec for $4.9 million in cash and $6.9 million in QSI's common
        shares.
    
 
   
     h) To reverse QSI's portion of Clinitec's net loss and the related tax
        asset (initially recorded using the equity accounting method) due to the
        pro forma change to the consolidation method.
    
 
                                       F-6
<PAGE>   52
 
                             QUALITY SYSTEMS, INC.
 
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED)
 
   
     i) To record purchase accounting adjustments resulting from the acquisition
        of the aggregate 100% ownership interest based on an appraisal of the
        fair value of the net assets of Clinitec as follows:
    
 
   
<TABLE>
        <S>                                                                  <C>
        Clinitec's net tangible assets.....................................  $   777
        QSI's investment, including $1 million for original 25%
          investment.......................................................   12,816
                                                                             -------
        Excess of purchase price over tangible net assets..................  $12,039
                                                                             =======
        Allocated to:
          In-process research and development of $8,000 net of $3,200 tax
             liability.....................................................  $ 4,800
          Intangible assets relating to existing technology of $700, net of
             $280 tax liability............................................      420
          Goodwill.........................................................    6,819
                                                                             -------
                                                                             $12,039
                                                                             =======
</TABLE>
    
 
   
     j) To record amortization of the intangible assets and the corresponding
        tax benefit related to existing technology and goodwill, based on the
        straight line method over a three and ten year useful life,
        respectively.
    
 
   
     k) To eliminate Clinitec's equity accounts and QSI's investment account.
    
 
   
     l) In accordance with FASB Interpretation No. 4, the Company is required to
        write-off the $8.0 million in-process research and development acquired
        in the acquisition, net of tax benefit of $3.2 million. This write-off
        will be reflected in the period in which the Acquisition is consummated
        and has not been reflected in the Pro Forma Consolidated Statement of
        Operations, but is reflected in the Pro Forma Consolidated Balance
        Sheet.
    
 
4. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
 
   
     Pro forma weighted average shares for the 51% of Clinitec Acquisition
assume as outstanding 145,000 of the shares being offered by the Company in the
Offering, which represent the approximate number of shares that have to be sold
to fund the incremental $3,000,000 investment in Clinitec.
    
 
   
     Pro forma weighted average shares for the 100% of Clinitec Acquisition
assume as outstanding 236,000 of the shares being offered by the Company in the
Offering, which represent the approximate number of shares that have to be sold
to fund the $4.9 million cash portion of the purchase of Clinitec and an
estimated 332,000 new shares to be issued by the Company to fund the $6.9
million portion of the purchase price to be paid in QSI's common stock (valuing
each QSI share at the public offering price contemplated herein).
    
 
                                       F-7
<PAGE>   53
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Shareholders
Quality Systems, Inc.
 
     We have audited the accompanying balance sheets of Quality Systems, Inc. as
of March 31, 1994 and 1995 and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such financial statements present fairly, in all material
respects, the financial position of Quality Systems, Inc. as of March 31, 1994
and 1995 and the results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
 
DELOITTE & TOUCHE LLP
   
Costa Mesa, California
    
   
June 2, 1995, except for Note 8, the
    
   
date of which is February 13, 1996
    
 
                                       F-8
<PAGE>   54
 
                             QUALITY SYSTEMS, INC.
 
                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 
   
<TABLE>
<CAPTION>
                                                                                MARCH 31,
                                                                           -------------------
                                                                            1994        1995
                                                                           -------     -------
<S>                                                                        <C>         <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................  $ 1,093     $ 6,085
Short-term investments (Note 2)..........................................    4,978       1,237
Accounts receivable, less allowance for doubtful accounts of $66 (1994)
  and $77 (1995).........................................................    2,730       2,997
Inventories (Note 3).....................................................      895         783
Deferred tax asset (Note 4)..............................................       64         199
Other current assets.....................................................       87          74
                                                                           -------     -------
     Total current assets................................................    9,847      11,375
Equipment and improvements, net (Note 3).................................      593         535
Capitalized software costs, net (Note 1).................................      509         502
Cash surrender value of life insurance (Note 5)..........................       65         185
Other assets.............................................................       80          71
                                                                           -------     -------
     Total assets........................................................  $11,094     $12,668
                                                                           =======     =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.........................................................  $   849     $   597
Accrued payroll and related expenses.....................................      398         427
Other accrued expenses...................................................      455         492
Deferred service revenue.................................................      876         952
Deferred compensation (Note 5)...........................................       65         185
Estimated costs to complete system installations.........................      347         217
Income taxes payable (Note 4)............................................                  473
                                                                           -------     -------
     Total current liabilities...........................................    2,990       3,343
DEFERRED TAX LIABILITY (Note 4)..........................................       64         137
COMMITMENTS AND CONTINGENCIES (Note 7)
Shareholders' equity (Note 6):
Common stock, $.01 par value; 20,000,000 shares authorized; 4,445,000 and
  4,536,000 shares issued and outstanding, respectively..................       44          45
Additional paid-in capital...............................................    5,789       5,978
Unrealized loss on available-for-sale securities, net of tax benefit of
  $60 (1994)
  and $63 (1995).........................................................      (79)        (83)
Retained earnings........................................................    2,286       3,248
                                                                           -------     -------
     Total shareholders' equity..........................................    8,040       9,188
                                                                           -------     -------
     Total liabilities and shareholders' equity..........................  $11,094     $12,668
                                                                           =======     =======
</TABLE>
    
 
                       See notes to financial statements.
 
                                       F-9
<PAGE>   55
 
                             QUALITY SYSTEMS, INC.
 
                            STATEMENTS OF OPERATIONS
               FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
   
<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31,
                                                                -------------------------------
                                                                 1993        1994        1995
                                                                -------     -------     -------
<S>                                                             <C>         <C>         <C>
NET REVENUES:
Sales of computer systems, upgrades and supplies..............  $ 6,274     $ 6,146     $ 5,681
Maintenance and other services................................    5,377       5,606       6,368
                                                                -------     -------     -------
                                                                 11,651      11,752      12,049
COST OF PRODUCTS AND SERVICES.................................    6,992       6,527       6,060
                                                                -------     -------     -------
Gross profit..................................................    4,659       5,225       5,989
OPERATING EXPENSES:
Selling, general and administrative...........................    3,008       3,052       3,536
Research and development......................................    1,134       1,318       1,467
                                                                -------     -------     -------
                                                                  4,142       4,370       5,003
                                                                -------     -------     -------
Earnings from operations......................................      517         855         986
Interest and investment income (Note 2).......................      192         400         429
                                                                -------     -------     -------
Earnings before income tax provision..........................      709       1,255       1,415
Income tax provision (Note 4).................................      331         349         453
                                                                -------     -------     -------
Earnings before extraordinary credit..........................      378         906         962
Extraordinary credit -- tax benefit from utilization of net
  operating loss carryforwards................................      245
                                                                -------     -------     -------
NET EARNINGS..................................................  $   623     $   906     $   962
                                                                =======     =======     =======
NET EARNINGS PER SHARE:
  Earnings before extraordinary credit........................  $  0.09     $  0.21     $  0.21
  Extraordinary credit........................................  $  0.06          --          --
                                                                -------     -------     -------
  Net earnings per share......................................  $  0.15     $  0.21     $  0.21
                                                                =======     =======     =======
  Fully diluted earnings per share............................  $  0.15     $  0.20     $  0.21
                                                                =======     =======     =======
</TABLE>
    
 
                       See notes to financial statements.
 
                                      F-10
<PAGE>   56
 
                             QUALITY SYSTEMS, INC.
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY
               FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                     UNREALIZED
                                        COMMON                        LOSS ON
                                    SHARES ISSUED      ADDITIONAL    AVAILABLE-                     TOTAL
                                   ----------------     PAID-IN       FOR-SALE     RETAINED     SHAREHOLDERS'
                                   NUMBER    AMOUNT     CAPITAL      SECURITIES    EARNINGS        EQUITY
                                   ------    ------    ----------    ----------    ---------    -------------
<S>                                <C>       <C>       <C>           <C>           <C>          <C>
Balance at April 1, 1992.........  4,187      $ 42       $5,100         $ --        $   757        $ 5,899
Net earnings.....................                                                       623            623
                                   -----       ---       ------         ----         ------         ------
Balance at March 31, 1993........  4,187        42        5,100                       1,380          6,522
Exercise of stock options........    258         2          400                                        402
Tax benefit resulting from stock
  options........................                           289                                        289
Unrealized loss on
  available-for-sale securities,
  net of tax benefit of $60......                                        (79)                          (79)
Net earnings.....................                                                       906            906
                                   -----       ---       ------         ----         ------         ------
Balance at March 31, 1994........  4,445        44        5,789          (79)         2,286          8,040
Exercise of stock options........     91         1          150                                        151
Tax benefit resulting from stock
  options........................                            39                                         39
Unrealized loss on
  available-for-sale securities,
  net of tax benefit of $3.......                                         (4)                           (4)
Net earnings.....................                                                       962            962
                                   -----       ---       ------         ----         ------         ------
Balance at March 31, 1995........  4,536      $ 45       $5,978         $(83)       $ 3,248        $ 9,188
                                   =====       ===       ======         ====         ======         ======
</TABLE>
 
                       See notes to financial statements.
 
                                      F-11
<PAGE>   57
 
                             QUALITY SYSTEMS, INC.
 
                            STATEMENTS OF CASH FLOWS
               FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    YEARS ENDED MARCH 31,
                                                              ---------------------------------
                                                                1993         1994        1995
                                                              --------     --------     -------
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................  $    623     $    906     $   962
Adjustments to reconcile net earnings to net cash provided
  by operating activities:
  Depreciation and amortization of equipment and
     improvements...........................................       211          239         220
  Amortization of capitalized software costs................       147          165         198
  Realized gains from sales of short-term investments.......       (28)        (194)       (151)
  Unrealized (gains) losses on trading securities...........       (11)          99         (82)
  Deferred income taxes.....................................                                (62)
  Changes in:
     Accounts receivable....................................       264         (284)       (267)
     Inventories............................................       374           56         112
     Other current assets...................................         5           15          13
     Accounts payable.......................................       157         (153)       (252)
     Accrued expenses.......................................       (15)         (57)         66
     Deferred service revenue...............................        55           32          76
     Estimated costs to complete system installations.......      (116)         115        (130)
     Income taxes payable and taxes related to equity
       accounts.............................................        86          263         515
                                                              --------     --------     -------
          Net cash provided by operating activities.........     1,752        1,202       1,218
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments...............    12,042       10,074      12,725
Purchases of short-term investments.........................   (10,322)     (13,810)     (8,758)
Additions to equipment and improvements, net................      (318)        (101)       (162)
Additions to capitalized software costs.....................      (148)        (183)       (191)
Change in other assets......................................        (1)          17           9
                                                              --------     --------     -------
          Net cash provided by (used in) investing
            activities......................................     1,253       (4,003)      3,623
CASH FLOWS FROM FINANCING ACTIVITIES --
  Proceeds from exercise of stock options...................                    402         151
                                                              --------     --------     -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........     3,005       (2,399)      4,992
CASH AND CASH EQUIVALENTS, beginning of year................       487        3,492       1,093
                                                              --------     --------     -------
CASH AND CASH EQUIVALENTS, end of year......................  $  3,492     $  1,093     $ 6,085
                                                              ========     ========     =======
</TABLE>
 
   
Supplemental Information: During fiscal 1993, 1994 and 1995, the Company made
income tax payments of $2, $86 and $910, respectively.
    
 
                       See notes to financial statements.
 
                                      F-12
<PAGE>   58
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
               FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Description of Business -- Quality Systems, Inc. (QSI or the Company)
develops and markets proprietary information systems for medical and dental
group practices, physician hospital organizations, management service
organizations, health maintenance organizations and community health centers.
The Company's proprietary software systems include summary medical records and
general patient information, appointment scheduling, billing, insurance claims
submission and processing, managed care implementation and referral management,
treatment outcome studies, treatment planning, drug formularies, word processing
and accounting. In addition to providing fully integrated solutions to its
client, the Company provides its clients with comprehensive hardware and
software maintenance and support services, system training services and
electronic claims submission services.
 
     Revenue Recognition -- Licenses, sales of computer systems and system
upgrades are recognized at the time the basic software and hardware is shipped
and the estimated costs to complete the systems are not considered significant
in accordance with Statement of Position 91-1, Software Revenue Recognition.
Estimated costs to complete are normally insignificant and are charged to
expense in the period in which the sale is recognized. These costs typically
include labor and travel costs associated with training, installation and data
conversion. If estimated costs to complete are significant, revenue is
recognized on a percentage of completion basis.
 
     Maintenance revenue is recognized ratably over the life of the contract.
Advance maintenance revenue billings are included in deferred service revenue on
the accompanying balance sheets. Sales of supplies are recognized at the time of
shipment.
 
     Cash equivalents -- The Company considers all highly liquid interest
earning deposits purchased with an original maturity of three months or less to
be cash equivalents.
 
     Short-term investments -- The Company adopted Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115), as of the end of the fiscal year ended March 31,
1994. The cumulative effect from the change in accounting principle was not
material in determining net earnings for the year ended March 31, 1994. In
accordance with SFAS No. 115, investments are classified into one of the
following categories:
 
     - Held to maturity -- Debt securities for which the Company has the intent
       and the ability to hold to maturity.
 
     - Trading -- Debt securities that do not meet the "intent-to-hold"
       criterion and equity securities, both of which are bought and held
       principally for the purpose of being sold in the near term.
 
     - Available-for-sale -- Debt securities that do not meet the
       "intent-to-hold" criterion and equity securities that are not classified
       as trading securities.
 
     Held to maturity securities are carried in the balance sheet at cost
(unless there is a decline in the value of the individual securities that is not
due to temporary declines), and realized gains and losses are recorded in the
income statement in the period that they are earned or incurred. Trading
securities are carried in the balance sheet at fair market value and unrealized
gains and losses are recorded in the statement of operations. Available-for-sale
securities are carried in the balance sheet at fair market value. Realized gains
and losses are recorded in the income statement when they are earned or
incurred, and unrealized gains and losses, net of tax effect, are recognized as
a component of shareholders' equity.
 
     Realized gains and losses from investment transactions are determined on a
first-in, first-out basis.
 
     Accounts Receivable -- A majority of the Company's system sales are
financed by third-party sources, while the Company provides credit for most
maintenance contract sales. The Company performs ongoing
 
                                      F-13
<PAGE>   59
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995 -- (CONTINUED)
 
credit evaluations of its customers and maintains reserves for potential credit
losses, which have been within management's expectations.
 
     Inventories -- Inventories are valued at lower of cost (first-in,
first-out) or market. Certain inventories are maintained for customer support
pursuant to service agreements and are amortized over a five-year period using
the straight-line method.
 
     Equipment and Improvements -- Equipment and improvements are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization of
equipment and improvements are provided over the estimated useful lives of the
assets, or the related lease terms if shorter, by the straight-line method.
Useful lives range from five to seven years.
 
     Software Development Costs -- Development costs incurred in the research
and development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. After technological feasibility is established, any additional
development costs are capitalized and amortized over the economic life of the
related product in accordance with Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Accumulated amortization of capitalized software costs
amounted to $750,000 (1994) and $582,400 (1995). The Company performs an annual
review of the recoverability of such capitalized software costs. At the time a
determination has been made that capitalized amounts are not recoverable based
on the estimated cash flows to be generated from the applicable software, any
remaining capitalized amounts would be written off.
 
     Income Taxes -- Effective April 1, 1993, the Company adopted Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109).
Financial statements for prior years have not been restated, and there was no
material cumulative effect from the change in accounting principle.
 
     In accordance with SFAS No. 109, income taxes are provided for the tax
effects of transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes related primarily to differences between
the basis of assets and liabilities for financial and tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes also are recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future income taxes. Valuation allowances
are established as a reduction of net deferred tax assets when management cannot
determine that the recoverability of such assets is probable.
 
     Earnings per Share -- Primary and fully diluted earnings per share for the
year ending March 31, 1994 are based on the weighted average number of common
shares and common share equivalents outstanding of 4,342,000 and 4,461,000,
respectively. The difference between primary and fully diluted earnings per
share for the years ended March 31, 1993 and 1995 was not significant and
earnings per share was calculated based on the weighted average number of common
shares and common share equivalents outstanding of 4,187,000 and 4,606,000,
respectively. Common stock equivalents consist primarily of stock options and
are calculated using the treasury stock method.
 
2. SHORT-TERM INVESTMENTS
 
     Short-term investments consist of the following components (in thousands):
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED MARCH
                                                                               31,
                                                                       -------------------
                                                                        1994         1995
                                                                       ------       ------
    <S>                                                                <C>          <C>
    Trading securities...............................................  $1,038       $  927
    Available-for-sale securities....................................   3,940          310
                                                                       ------       ------
                                                                       $4,978       $1,237
                                                                       ======       ======
</TABLE>
 
                                      F-14
<PAGE>   60
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995 -- (CONTINUED)
 
     As of March 31, 1995, trading securities consisted of equity securities
with a fair market value of $913,000 and collateral cash of $790,000 offsetting
firm commitments to purchase additional equity securities with a fair market
value of $776,000 to satisfy short positions.
 
     The following is a summary of available-for-sale securities (in thousands):
 
<TABLE>
<CAPTION>
                                                                             MARCH 31,
                                                                          ---------------
                                                                           1994      1995
                                                                          ------     ----
    <S>                                                                   <C>        <C>
    Aggregate market....................................................  $3,940     $310
    Gross unrealized holding gains......................................      51
    Gross unrealized holding losses.....................................     190      146
    Amortized cost basis for:
      Overland Express Variable Rate Government Fund....................   1,590
      Other equity securities...........................................   1,947
      Debt securities issued by foreign governments, denominated in U.S.
         dollars........................................................     542      457
</TABLE>
 
     Interest and investment income includes realized gains on short-term
investments of $28,000, $194,000 and $151,000 for the years ended March 31,
1993, 1994 and 1995, respectively, unrealized gains of $11,000 and $82,000 for
the years ended March 31, 1993 and 1995, respectively, and unrealized losses of
$99,000 for the year ended March 31, 1994.
 
3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (IN THOUSANDS):
 
<TABLE>
<CAPTION>
                                                                              MARCH 31,
                                                                            -------------
                                                                            1994     1995
                                                                            ----     ----
    <S>                                                                     <C>      <C>
    Inventories:
      Computer systems and components.....................................  $419     $420
      Replacement parts for certain client systems, net of accumulated
         amortization of $1,126 (1994) and $1,026 (1995)..................   422      308
    Maintenance parts.....................................................    34       36
    Supplies for resale...................................................    18       17
    Discontinued equipment................................................     2        2
                                                                            ----     ----
                                                                            $895     $783
                                                                            ====     ====
</TABLE>
 
<TABLE>
<CAPTION>
                                                                            MARCH 31,
                                                                       -------------------
                                                                        1994        1995
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Equipment and improvements:
      Computers and electronic test equipment........................  $ 1,215     $ 1,251
      Furniture and fixtures.........................................      307         312
      Vehicles.......................................................      110         110
      Leasehold improvements.........................................      119         117
                                                                       -------     -------
                                                                         1,751       1,790
    Accumulated depreciation and amortization........................   (1,158)     (1,255)
                                                                       -------     -------
                                                                       $   593     $   535
                                                                       =======     =======
</TABLE>
 
                                      F-15
<PAGE>   61
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995 -- (CONTINUED)
 
4. INCOME TAXES
 
     The income tax provision consists of the following components (in
thousands):
 
<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31,
                                                                    ----------------------
                                                                    1993     1994     1995
                                                                    ----     ----     ----
    <S>                                                             <C>      <C>      <C>
    Federal:
      Current taxes...............................................  $245     $309     $414
      Deferred taxes..............................................                     (36)
                                                                    ----     ----     ----
                                                                     245      309      378
                                                                    ----     ----     ----
    State:
      Current taxes...............................................    86       40      101
      Deferred taxes..............................................                     (26)
                                                                    ----     ----     ----
                                                                      86       40       75
                                                                    ----     ----     ----
                                                                    $331     $349     $453
                                                                    ====     ====     ====
</TABLE>
 
     The income tax provision differs from an amount computed at statutory rates
as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                    YEARS ENDED MARCH 31,
                                                                   -----------------------
                                                                   1993     1994      1995
                                                                   ----     -----     ----
    <S>                                                            <C>      <C>       <C>
    Federal income tax provision at statutory rate...............  $241     $ 426     $481
    Increases (decreases) resulting from:
      State income taxes, net of federal benefit.................    86       121      107
      Change in valuation allowance..............................            (204)     (86)
      Adjustment to reconcile to prior year return...............                      (43)
      Dividends received deduction...............................              (9)     (10)
      Other......................................................     4        15        4
                                                                   ----      ----     ----
                                                                   $331     $ 349     $453
                                                                   ====      ====     ====
</TABLE>
 
     The changes in valuation allowances are related to benefits arising from
federal and state net operating loss carryforwards.
 
                                      F-16
<PAGE>   62
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995 -- (CONTINUED)
 
     The net deferred tax benefits in the accompanying balance sheets include
the following components (in thousands):
 
<TABLE>
<CAPTION>
                                                                             MARCH 31,
                                                                          ---------------
                                                                          1994      1995
                                                                          -----     -----
    <S>                                                                   <C>       <C>
    Deferred tax assets:
      Short-term investments............................................  $ 104     $  71
      Accounts receivable...............................................     29        33
      Inventory.........................................................     26        27
      Accumulated depreciation..........................................      4         5
      Accrued vacation and sick leave...................................    147       164
      Accrued liability for deferred compensation.......................     28       100
      State income taxes................................................               18
      Other accrued expenses............................................     13
      Loss carryforwards................................................    195
                                                                           ----      ----
                                                                            546       418
    Deferred tax liabilities:
      Inventory.........................................................    (27)      (22)
      Accumulated depreciation..........................................    (33)      (24)
      Capitalized software..............................................   (220)     (217)
      Deferred revenue..................................................   (180)      (93)
                                                                           ----      ----
                                                                           (460)     (356)
    Deferred tax asset valuation allowance..............................    (86)
                                                                           ----      ----
                                                                          $  --     $  62
                                                                           ====      ====
</TABLE>
 
     As required by SFAS 109, on the accompanying balance sheets deferred tax
assets and liabilities have been shown net based on the long-term or short-term
nature of the items which give rise to the deferred amounts.
 
5. EMPLOYEE BENEFIT PLANS
 
     The Company has a profit sharing and retirement plan (the Retirement Plan)
for the benefit of substantially all of its employees. The Retirement Plan was
amended during the fiscal year ended March 31, 1994 to add 401(k) features.
Participating employees may defer up to 15% of compensation per year. The
Company's annual contribution is determined by the Company's Board of Directors
and the Retirement Plan may be amended or discontinued at the discretion of the
Board of Directors. Contributions of $10,000, $19,000 and $21,000 were made to
the Retirement Plan for the years ended March 31, 1993, 1994 and 1995,
respectively.
 
     During the fiscal year ended March 31, 1994, the Company initiated a
deferred compensation plan (the Deferral Plan) for the benefit of officers and
key employees. Participating employees may defer all or a portion of their
compensation for a Deferral Plan year. In addition, the Company may, but is not
required to, make contributions into the Deferral Plan on behalf of
participating employees. Each participating employee's deferred compensation and
share of Company contributions have been invested in a life insurance policy
which has death benefit and mutual fund features. Investment decisions are made
by each participating employee from a family of mutual funds. The Company is the
owner and beneficiary of the life insurance policies and has an obligation to
pay the greater of the death benefit or the net cash surrender value upon each
employee's death or termination. The net cash surrender value of the life
insurance policies and the related
 
                                      F-17
<PAGE>   63
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995 -- (CONTINUED)
 
Company obligation for deferred compensation was $65,000 and $185,000 at March
31, 1994 and 1995, respectively, which have been included in the accompanying
balance sheets. The Company made contributions of $8,000 and $10,000 to the
Deferral Plan for the fiscal years ended March 31, 1994 and March 31, 1995,
respectively.
 
6. EMPLOYEE STOCK OPTIONS PLANS
 
     1981 Stock Option Plan -- Under a shareholder approved incentive stock
option plan (1981 Plan) for officers and key employees, 365,384 shares of common
stock were reserved for the issuance of options to purchase shares of common
stock at the fair market value at the date of grant. On October 31, 1991, the
1981 incentive stock option plan expired, and no additional shares could be
granted under the plan. As of March 31, 1995, all outstanding shares under this
plan had been exercised. A summary of option transactions follows:
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED MARCH 31,
                                                     ---------------------------------------
                                                        1993            1994          1995
                                                     -----------     -----------     -------
    <S>                                              <C>             <C>             <C>
    Options:
      Outstanding at beginning of year.............      224,500         199,000      33,300
         Granted...................................
         Exercised.................................                     (162,700)    (33,300)
         Cancelled.................................      (25,500)         (3,000)
                                                         -------        --------     -------
    Outstanding at end of year.....................      199,000          33,300          --
                                                         =======        ========     =======
    Range of option exercise prices:
      Granted......................................  $        --     $        --     $    --
      Exercised....................................  $        --     $1.06-$1.69     $  1.69
      Cancelled....................................  $1.06-$2.06     $1.06-$1.69     $    --
</TABLE>
 
     1989 Stock Option Plan -- During fiscal 1990, the Company's shareholders
approved a stock option plan (1989 Plan) under which 1,000,000 shares of common
stock have been reserved for the issuance of options.
 
     The 1989 Plan provides that salaried officers or key employees, and
non-employee directors of the Company or its subsidiaries may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
at an exercise price not less than 85% of their fair market value on the option
grant date.
 
     The Plan may be administered by the Board of Directors of the Company
(Board) or a Committee consisting of three or more directors who are appointed
by, and serve at the pleasure of, the Board (the Committee). A Committee has not
been appointed. The Board as Plan Administrator has complete discretion to
determine which eligible individuals are to receive option grants, the number of
shares subject to each such grant, the status of any granted option as either an
incentive stock option or a non-statutory stock option under federal tax laws,
the vesting schedule to be in effect for the option grant, and the option grant,
and the maximum term for which any granted option is to remain outstanding.
 
                                      F-18
<PAGE>   64
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995 -- (CONTINUED)
 
     Option grants to non-employee directors must be approved by the Board. Upon
an acquisition of the Company by merger or asset sale, each outstanding option
will be subject to accelerated vesting under certain circumstances. The Board
may amend or modify the 1989 Plan at any time. The 1989 Plan will terminate on
May 30, 1999, unless sooner terminated by the Board.
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED MARCH 31,
                                                  -------------------------------------------
                                                      1993           1994            1995
                                                  ------------    -----------     -----------
    <S>                                           <C>             <C>             <C>
    Options --
      Outstanding at beginning of year..........       207,000        337,000         272,200
         Granted................................       130,000        101,000           5,000
         Exercised..............................                      (95,800)        (57,500)
         Cancelled..............................                      (70,000)
                                                       -------        -------         -------
    Outstanding at end of year..................       337,000        272,200         219,700
                                                       =======        =======         =======
    Range of option exercise prices:
      Granted...................................   $1.38-$1.81          $1.50           $3.75
      Exercised.................................          $ --    $1.50-$1.69     $1.50-$1.69
      Cancelled.................................          $ --    $1.63-$1.81            $ --
</TABLE>
 
     At March 31, 1995, options for 155,750 shares were exercisable, and 624,500
shares were available for future grant under the 1989 Plan.
 
7. COMMITMENTS AND CONTINGENCIES
 
     The Company leases its facilities and office under noncancelable operating
lease agreements which contain lease renewal options through October 1996. The
Company has rental commitments in fiscal 1996 and 1997 of $345,000 and $196,000,
respectively. Total rental expense for all operating leases was $423,000,
$412,000 and $387,000 for the years ended March 31, 1993, 1994 and 1995,
respectively.
 
     The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. The Company believes such matters
are without merit, or involve such amounts that unfavorable disposition would
not have a material adverse effect on the Company's financial statements.
 
8. SUBSEQUENT EVENT
 
     In May 1995, the Company entered into a strategic relationship with
Clinitec International, Inc. (Clinitec), a developer of electronic medical
records software systems marketed under the trade name "NextGen". As part of
this relationship, the Company acquired a 25% equity interest in Clinitec for $1
million, and acquired an option to purchase an aggregate 51% equity interest in
Clinitec for an additional $3 million, exercisable at any time through August
1997.
 
   
     As part of the agreement with Clinitec, the Company received the
non-exclusive right to market NextGen for medical applications, and the
world-wide exclusive right to market NextGen for dental markets.
    
 
     The investment will be accounted for using the equity method of accounting,
whereby the original investment is recorded at cost and is adjusted periodically
to recognize the Company's 25% share of Clinitec's earnings or losses after the
date of investment.
 
   
     On February 13, 1996, the Company entered into a non-binding letter of
intent to exercise its option to acquire 51% of Clinitec and to enter into a
merger between a newly-formed subsidiary of the Company and Clinitec for an
aggregate consideration payable to all Clinitec shareholders other than QSI of
$11,790,000, of which $4,896,000 will be paid in cash and $6,894,000 will be
paid in the Company's common shares, valued at the price of the Company's
secondary public offering, expected to be completed in March 1996.
    
 
                                      F-19
<PAGE>   65
 
                             QUALITY SYSTEMS, INC.
 
                                 BALANCE SHEET
   
                      AS OF DECEMBER 31, 1995 (UNAUDITED)
    
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 
   
<TABLE>
<S>                                                                                  <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..........................................................  $ 6,397
Short-term investments.............................................................    1,265
Accounts receivable, net...........................................................    4,365
Inventories........................................................................      725
Other current assets...............................................................      155
                                                                                     -------
          Total current assets.....................................................   12,907
Equipment and improvements, net....................................................      467
Capitalized software costs, net....................................................      580
Investment in Clinitec International, Inc..........................................      985
Cash surrender value of life insurance.............................................      316
Other assets.......................................................................      131
                                                                                     -------
          Total assets.............................................................  $15,386
                                                                                     =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................................  $   943
Accrued payroll and related expenses...............................................      493
Other accrued expenses.............................................................      475
Deferred service revenue...........................................................    1,030
Deferred compensation..............................................................      316
Estimated costs to complete system installations...................................      337
Income taxes payable...............................................................       11
                                                                                     -------
          Total current liabilities................................................    3,605
DEFERRED TAX LIABILITY.............................................................      100
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares authorized; 4,638,491 shares issued
  and outstanding..................................................................       46
Additional paid-in capital.........................................................    6,764
Unrealized loss on available-for-sale securities, net of tax benefit of $35........      (46)
Retained earnings..................................................................    4,917
                                                                                     -------
          Total shareholders' equity...............................................   11,681
                                                                                     -------
          Total liabilities and shareholders' equity...............................  $15,386
                                                                                     =======
</TABLE>
    
 
                       See notes to financial statements.
 
                                      F-20
<PAGE>   66
 
                             QUALITY SYSTEMS, INC.
 
                            STATEMENTS OF OPERATIONS
 
   
        FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1995 (UNAUDITED)
    
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
   
<TABLE>
<CAPTION>
                                                                            NINE MONTHS ENDED
                                                                               DECEMBER 31,
                                                                            ------------------
                                                                             1994       1995
                                                                            ------     -------
<S>                                                                         <C>        <C>
NET REVENUES:
Sales of computer systems, upgrades and supplies (Note 3).................  $3,895     $ 7,162
Maintenance and other services............................................   4,727       5,159
                                                                            ------      ------
                                                                             8,622      12,321
COST OF PRODUCTS AND SERVICES.............................................   4,498       5,865
                                                                            ------      ------
Gross profit..............................................................   4,124       6,456
OPERATING EXPENSES:
Selling, general and administrative.......................................   2,581       2,847
Research and development..................................................   1,110       1,121
                                                                            ------      ------
                                                                             3,691       3,968
                                                                            ------      ------
EARNINGS FROM OPERATIONS..................................................     433       2,488
Interest and investment income............................................     249         340
Equity in loss of Clinitec International, Inc.............................                 (41)
                                                                            ------      ------
EARNINGS BEFORE INCOME TAX PROVISION......................................     682       2,787
Income tax provision......................................................     158       1,117
                                                                            ------      ------
NET EARNINGS..............................................................  $  524     $ 1,670
                                                                            ======      ======
NET EARNINGS PER SHARE....................................................  $ 0.11     $  0.35
                                                                            ======      ======
Weighted average common and common equivalent shares......................   4,641       4,709
                                                                            ======      ======
</TABLE>
    
 
                       See notes to financial statements.
 
                                      F-21
<PAGE>   67
 
                             QUALITY SYSTEMS, INC.
 
                            STATEMENTS OF CASH FLOWS
   
        FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1995 (UNAUDITED)
    
                                 (IN THOUSANDS)
 
   
<TABLE>
<CAPTION>
                                                                            NINE MONTHS ENDED
                                                                              DECEMBER 31,
                                                                           -------------------
                                                                            1994        1995
                                                                           -------     -------
<S>                                                                        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................................  $   524     $ 1,670
Adjustments to reconcile net earnings to net cash provided by operating
  activities:
  Depreciation and amortization of equipment and improvements............      166         161
  Amortization of capitalized software costs.............................      145         203
  Realized gains from sales of short-term investments....................      (28)          9
  Unrealized (gains) losses on trading securities........................      (92)        (55)
  Equity in loss of Clinitec International, Inc. ........................                   41
  Gain on sale of fixed assets...........................................                   (8)
  Deferred income taxes..................................................      (91)        173
  Changes in:
     Accounts receivable.................................................      (60)     (1,368)
     Inventories.........................................................        4          58
     Other current assets................................................        2          12
     Accounts payable....................................................     (196)        346
     Accrued expenses....................................................       30          48
     Deferred service revenue............................................       72          79
     Estimated costs to complete system installations....................     (145)        120
     Income taxes payable and taxes related to equity accounts...........      249          33
                                                                           -------     -------
Net cash provided by operating activities................................      580       1,522
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments............................   10,344       1,092
Purchases of short-term investments......................................   (8,501)     (1,010)
Investment in Clinitec International, Inc. ..............................               (1,026)
Additions to equipment and improvements, net.............................      (71)       (101)
Proceeds from sale of fixed assets.......................................       --          16
Additions to capitalized software costs..................................     (136)       (281)
Increase in deferred offering costs......................................       --         (68)
Change in other assets...................................................       31           9
                                                                           -------     -------
Net cash provided by (used in) investing activities......................    1,667      (1,369)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options..................................       44         159
                                                                           -------     -------
Net increase in cash and cash equivalents................................    2,291         312
Cash and cash equivalents, beginning of period...........................    1,093       6,085
                                                                           -------     -------
Cash and cash equivalents, end of period.................................  $ 3,384     $ 6,397
                                                                           =======     =======
</TABLE>
    
 
   
Supplemental Information: During the nine months ended December 31, 1994 and
1995, the Company made income tax payments of $10 and $911, respectively.
    
 
                                      F-22
<PAGE>   68
 
                             QUALITY SYSTEMS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
   
        FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1995 (UNAUDITED)
    
 
1. BASIS OF PRESENTATION
 
   
     The information set forth in these financial statements of Quality Systems,
Inc. (the Company) as of December 31, 1995 and for the nine months ended
December 31, 1994 and 1995 is unaudited. The information reflects all
adjustments consisting only of normal recurring entries that, in the opinion of
management, are necessary to present fairly the financial position and results
of operations of the Company for the periods indicated. Results of operations
for the interim periods are not necessarily indicative of the results of
operations for the full fiscal year or for any future period.
    
 
     Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted, in accordance with the rules and
regulations of the Securities and Exchange Commission.
 
     The information contained in these interim financial statements should be
read in conjunction with the Company's audited financial statements contained
elsewhere in this Registration Statement.
 
2. NET EARNINGS PER SHARE
 
   
     Net earnings per share for the nine months ended December 31, 1994 and 1995
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.
    
 
   
3. RELATED PARTY
    
 
   
     The Company sold a computer system for $334,600 to Heart Institute of
Nevada during the quarter ended December 31, 1995. John Bowers, M.D., the
Founder and Chief Executive Officer of Heart Institute of Nevada, is a member of
Quality Systems, Inc. Board of Directors. The Company's gross profit on the sale
is comparable to the gross profit on sales of similar computer systems.
    
 
   
4. NEW ACCOUNTING PRONOUNCEMENT
    
 
     The Financial Accounting Standards Board has recently issued Financial
Accounting Standards No. 123, Accounting for Stock-based Compensation, which
requires the determination and disclosure of compensation costs implicit in
stock option grants. The Company is required to adopt this standard beginning in
fiscal 1997. The Company does not plan to implement this standard until that
time and has not been able to quantify the effect of this standard.
 
                                      F-23
<PAGE>   69
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Stockholders
Clinitec International, Inc.
 
     We have audited the accompanying balance sheet of Clinitec International,
Inc. as of December 31, 1994 and the related statements of operations,
shareholders' equity and cash flows for the period from January 31, 1994
(inception) to December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, such financial statements present fairly, in all material
respects, the financial position of Clinitec International, Inc. as of December
31, 1994 and the results of its operations and its cash flows for the period
from January 31, 1994 (inception) to December 31, 1994, in conformity with
generally accepted accounting principles.
 
DELOITTE & TOUCHE LLP
   
Costa Mesa, California
    
December 17, 1995
 
                                      F-24
<PAGE>   70
 
   
                       REPORT OF INDEPENDENT ACCOUNTANTS
    
 
   
Board of Directors and Stockholders
    
   
Clinitec International, Inc.:
    
 
   
     We have audited the accompanying balance sheet of Clinitec International,
Inc. as of December 31, 1995, and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
    
 
   
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
    
 
   
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clinitec International, Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
    
 
   
COOPERS & LYBRAND L.L.P
    
 
   
2400 Eleven Penn Center
    
   
Philadelphia, Pennsylvania
    
   
February 13, 1996
    
 
                                      F-25
<PAGE>   71
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                                 BALANCE SHEETS
    
 
   
                                 (IN THOUSANDS)
    
 
   
                                  A S S E T S
    
 
   
<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                             ----------------
                                                                             1994       1995
                                                                             -----     ------
<S>                                                                          <C>       <C>
Current assets:
  Cash and cash equivalents................................................  $ 112     $  718
  Receivables, net of allowance of $5 in 1995
     Trade.................................................................               338
     Affiliates............................................................     34         33
  Inventories..............................................................     22        144
  Prepaid expenses and other current assets................................     12         73
                                                                             -----     ------
          Total current assets.............................................    180      1,306
Equipment and furniture, net...............................................     81        173
Capitalized software costs, net............................................     68        202
Deferred tax asset, net....................................................     --        128
Other assets...............................................................     13         10
                                                                             -----     ------
          Total assets.....................................................  $ 342     $1,819
                                                                             =====     ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Customer deposits........................................................  $  --     $  616
  Accounts payable and accrued expenses....................................     36         50
  Accrued payroll..........................................................     15         65
  Deferred revenue.........................................................                35
  Deferred tax liability...................................................                29
                                                                             -----     ------
          Total current liabilities........................................     51        795
                                                                             -----     ------
Deferred tax liability.....................................................     --         59
                                                                             -----     ------
Commitments and contingencies
Shareholders' equity:
  Convertible preferred stock, no par value; 1,000,000 shares authorized;
     359,382 shares issued and outstanding as of December 31, 1995.........               985
  Common stock, no par value; 3,000,000 shares authorized;
     970,000 shares and 1,078,250 shares issued and outstanding as of
     December 31, 1994 and 1995, respectively..............................    680        941
  Accumulated deficit......................................................   (389)      (961)
                                                                             -----     ------
          Total shareholders' equity.......................................    291        965
                                                                             -----     ------
          Total liabilities and shareholders' equity.......................  $ 342     $1,819
                                                                             =====     ======
</TABLE>
    
 
   
                       See notes to financial statements.
    
 
                                      F-26
<PAGE>   72
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                            STATEMENTS OF OPERATIONS
    
 
   
                                 (IN THOUSANDS)
    
 
   
<TABLE>
<CAPTION>
                                                                PERIOD FROM
                                                             JANUARY 31, 1994
                                                              (INCEPTION) TO          YEAR ENDED
                                                             DECEMBER 31, 1994     DECEMBER 31, 1995
                                                             -----------------     -----------------
<S>                                                          <C>                   <C>
REVENUES...................................................        $  54                $ 1,493
Cost of sales-hardware.....................................           20                    449
                                                                   -----                 ------
Gross profit...............................................           34                  1,044
                                                                   -----                 ------
OPERATING EXPENSES:
Payroll and related expenses...............................                                 861
Selling, general and administrative........................          364                    538
Research and development...................................           59                    150
                                                                   -----                 ------
                                                                     423                  1,549
                                                                   -----                 ------
LOSS FROM OPERATIONS.......................................         (389)                  (505)
Interest income............................................           --                     17
                                                                   -----                 ------
LOSS BEFORE INCOME TAX BENEFIT.............................         (389)                  (488)
Income tax benefit.........................................                                  40
                                                                   -----                 ------
NET LOSS...................................................        $(389)               $  (448)
                                                                   =====                 ======
</TABLE>
    
 
   
                       See notes to financial statements.
    
 
                                      F-27
<PAGE>   73
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                       STATEMENTS OF SHAREHOLDERS' EQUITY
    
 
   
     FOR THE PERIOD FROM JANUARY 31, 1994 (INCEPTION) TO DECEMBER 31, 1994
    
   
                      AND THE YEAR ENDED DECEMBER 31, 1995
    
 
   
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
    
 
   
<TABLE>
<CAPTION>
                                    COMMON STOCK          PREFERRED STOCK                         TOTAL
                                 -------------------    -------------------    ACCUMULATED    SHAREHOLDERS'
                                   SHARE      AMOUNT      SHARE      AMOUNT      DEFICIT         EQUITY
                                 ---------    ------    ---------    ------    -----------    -------------
<S>                              <C>          <C>       <C>          <C>       <C>            <C>
Balance, January 31, 1994
  (inception).................          --     $ --            --     $ --        $  --           $  --
  Issuance of common stock....     970,000      680            --                    --             680
  Net loss....................                                                     (389)           (389)
                                 ---------     ----       -------     ----        -----           -----
Balance, January 1, 1995......     970,000      680            --                  (389)            291
  Issuance of common stock....      10,000        5            --                    --               5
  Exercise of stock options...      55,100      130            --                    --             130
  Issuance of common stock for
     services.................      43,150      126            --                    --             126
  Issuance of preferred stock,
     net......................          --       --       359,382      985                          985
  Distribution upon
     termination of
     S-Corporation election...          --                     --                  (124)           (124)
  Net loss....................          --                     --                  (448)           (448)
                                 ---------     ----       -------     ----        -----           -----
Balance, December 31, 1995....   1,078,250     $941       359,392     $985        $(961)          $ 965
                                 =========     ====       =======     ====        =====           =====
</TABLE>
    
 
   
                       See notes to financial statements.
    
 
                                      F-28
<PAGE>   74
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                            STATEMENTS OF CASH FLOWS
    
 
   
                                 (IN THOUSANDS)
    
 
   
<TABLE>
<CAPTION>
                                                                      PERIOD FROM
                                                                      JANUARY 31,
                                                                         1994
                                                                    (INCEPTION) TO       YEAR ENDED
                                                                     DECEMBER 31,       DECEMBER 31,
                                                                         1994               1995
                                                                    ---------------     ------------
<S>                                                                 <C>                 <C>
Cash flows from operating activities:
  Net loss........................................................       $(389)            $ (448)
  Adjustments to reconcile net loss to net cash used in operating
     activities:
     Depreciation and amortization................................           9                 28
     Amortization of capitalized software costs...................           9                 57
     Common stock issued for services.............................                            126
     Deferred tax benefit.........................................                            (40)
     Changes in:
       Receivables................................................         (34)              (337)
       Inventories................................................         (22)              (122)
       Prepaid expenses and other current assets..................         (12)               (61)
       Accounts payable and accrued expenses......................          51                 64
       Customer deposits..........................................                            616
       Deferred revenue...........................................                             35
       Other......................................................                              3
                                                                         -----              -----
          Net cash used in operating activities...................        (388)               (79)
                                                                         -----              -----
Cash flows from investing activities:
  Additions to equipment and furniture............................         (90)              (120)
  Additions to capitalized software costs.........................         (77)              (191)
  Change in other assets..........................................         (13)
                                                                         -----              -----
          Net cash used in investing activities...................        (180)              (311)
                                                                         -----              -----
Cash flows from financing activities:
  Proceeds from issuance of common stock..........................         680                  5
  Proceeds from exercise of stock options.........................                            130
  Proceeds from issuance of preferred stock, net..................                            985
  Distributions...................................................                           (124)
                                                                         -----              -----
          Net cash provided by financing activities...............         680                996
Net increase in cash and cash equivalents.........................         112                606
Cash and cash equivalent, beginning of period.....................          --                112
                                                                         -----              -----
Cash and cash equivalents, end of period..........................       $ 112             $  718
                                                                         =====              =====
</TABLE>
    
 
   
                       See notes to financial statements.
    
 
                                      F-29
<PAGE>   75
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                         NOTES TO FINANCIAL STATEMENTS
    
 
   
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
    
 
   
  Nature of Operations:
    
 
   
     Clinitec International, Inc. ("Clinitec" or the "Company") was incorporated
on January 31, 1994. The Company designs, assembles, markets, installs,
maintains and supports an electronic medical records software system using a
client/server platform, a graphical user interface and a relational database
engine to permit flexibility in screen customization and logic flow.
    
 
   
     The systems are marketed throughout the United States to single and
multiple medical users including sole practitioners and large medical
organizations. Sales are effectuated through direct sales and selected reseller
and partnering channels and include software, hardware and maintenance
contracts.
    
 
   
  Use of Estimates in the Preparation of Financial Statements:
    
 
   
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
    
 
   
  Revenue Recognition:
    
 
   
     Sales of electronic medical records software systems are recorded when the
basic software and hardware is shipped if the Company's future obligations are
not considered significant and collection is probable. Estimated costs to
complete system installations and modifications are charged to expense in the
period in which the sale is recorded. If the Company's future obligations are
considered significant, revenue is recognized on the percentage of completion
basis. Maintenance revenue is recognized ratably over the life of the contract.
    
 
   
  Cash Equivalents:
    
 
   
     The Company considers all highly liquid interest earning deposits purchased
with an original maturity of three months or less to be cash equivalents.
    
 
   
  Concentration of Credit Risk:
    
 
   
     Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash and cash equivalents.
The Company has its cash and cash equivalents placed with two financial
institutions.
    
 
   
     The Company provides credit terms for most sales. The Company performs
ongoing credit evaluations of its customers and maintains reserves for potential
credit losses, which have been within management's expectations.
    
 
   
  Inventories:
    
 
   
     Inventories are valued at lower of cost (first-in, first-out) or market and
consist primarily of finished goods.
    
 
                                      F-30
<PAGE>   76
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
    
 
   
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
    
   
  Equipment and Furniture:
    
 
   
     Equipment and furniture are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization of equipment and improvements
are provided over the estimated useful lives of the assets, or the related lease
terms if shorter, by the straight-ine method. Useful lives range from five to
seven years.
    
 
   
     Upon retirement or other disposition, the cost of the asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is
included in income.
    
 
   
  Software Development Costs:
    
 
   
     Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. Development costs are
capitalized and amortized over the economic life (generally three years) of the
related product. The Company performs an annual review of the recoverability of
such capitalized software costs. At the time a determination has been made that
capitalized amounts are not recoverable based on the estimated cash flows to be
generated from the applicable software, any remaining capitalized amounts would
be written off.
    
 
   
  Income Taxes:
    
 
   
     The Company had elected to be taxed as an "S" corporation under the
provisions of the Internal Revenue Code and similar State statutes. Accordingly,
the Company's taxable income or loss is treated as if it were distributed to the
shareholders. In May 1995, concurrent with the sale of preferred stock (Note 6),
the Company terminated its S corporation status.
    
 
   
     Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of assets and liabilities for
financial and tax reporting. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available to
offset future taxable income and tax credits that are available to offset future
income taxes. Valuation allowances are established as a reduction of net
deferred tax assets when management cannot determine that it is more likely than
not the assets are recoverable.
    
 
   
  Stock Splits:
    
 
   
     During 1995, the Company effected two stock splits aggregating 4,075:1. All
share amounts in the accompanying financial statements have been restated to
reflect the splits.
    
 
   
  New Accounting Pronouncement:
    
 
   
     The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(Statement No. 123). Statement No. 123 requires the Company to value all
stock-based compensation based on the estimated fair market value at the grant
date and spread the deemed cost over the vesting period. Statement No. 123
permits a choice of whether to charge operations or disclose the calculated cost
as pro forma information. This standard requires disclosure, beginning in 1996,
of the deemed cost effective with 1995 grants. The Company has not yet
quantified its cost or determined its method of adoption under Statement No.
123.
    
 
                                      F-31
<PAGE>   77
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
    
 
   
2.  ACCOUNTS RECEIVABLE:
    
 
   
     The Company entered into a software license agreement, for a user license
of its software over a seven year period, for $250,000. The Company received
$100,000 at signing and the remaining $150,000 is to be received in thirty-six
equal monthly payments, plus interest (defined as "reasonable" in the
agreement,) over three years.
    
 
   
  Major Customers:
    
 
   
     In fiscal year 1995, revenues of approximately $287,000 (19%) were
generated from a customer. In addition, at December 31, 1995, accounts
receivable, net, included approximately $81,000 from this customer.
    
 
   
3.  EQUIPMENT AND FURNITURE:
    
 
   
     Equipment and improvements consisted of the following at December 31, 1994
and 1995 (in thousands):
    
 
   
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                        -------------
                                                                        1994     1995
                                                                        ----     ----
        <S>                                                             <C>      <C>
        Computers and electronic test equipment.......................  $48      $136
        Purchased computer software...................................   17        27
        Furniture and fixtures........................................   25        46
                                                                        ---      ----
                                                                         90       209
        Accumulated depreciation and amortization.....................   (9)      (36)
                                                                        ---      ----
                                                                        $81      $173
                                                                        ===      ====
</TABLE>
    
 
   
4.  SOFTWARE DEVELOPMENT:
    
 
   
     Capitalized software development costs consist of the following at December
31, 1994 and 1995
    
   
(in thousands):
    
 
   
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                        -------------
                                                                        1994     1995
                                                                        ----     ----
        <S>                                                             <C>      <C>
        Software development..........................................  $77      $268
        Less accumulated amortization.................................   (9)      (66)
                                                                        ---      ----
                                                                        $68      $202
                                                                        ===      ====
</TABLE>
    
 
   
     Amortization expense included in the statement of operations amounted to
$9,000 and $57,000 for the period January 31, 1994 (inception) to December 31,
1994 and the year ended December 31, 1995, respectively.
    
 
   
5.  EMPLOYEE BENEFIT PLAN:
    
 
   
     The Company had a Simplified Employee Pension ("SEP") plan for the benefit
of substantially all of its employees. The SEP is a type of defined contribution
plan whereby participating employees may defer compensation up to certain annual
IRS limitations. The Company does not make any contributions to the plan.
    
 
                                      F-32
<PAGE>   78
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
    
 
   
6.  COMMITMENTS AND CONTINGENCIES:
    
 
   
  Leases:
    
 
   
     The Company leases its principal facility and other sales offices under
noncancelable operating lease agreements which expires May 1997. The Company has
rental commitments in 1996 and 1997 of $57,000 and $18,000, respectively.
    
 
   
     Total rental expense for the period from January 31, 1994 (inception) to
December 31, 1994 and for the year ended December 31, 1995 was approximately
$10,000 and $44,000, respectively.
    
 
   
  Employment Agreements:
    
 
   
     The Company has entered into employment agreements of three to five years
with certain key employees. Such agreements may normally be terminated by the
Company if specified performance criteria are not met. Under the term of the
agreements, the Company is obligated to pay aggregate base salaries of $329,000,
$276,000, $144,000, and $116,000 in fiscal 1996, 1997, 1998, and 1999,
respectively. Certain agreements have provisions for the payment of cash or
stock bonuses based on specified performance criteria. Under one of the
agreements, an employee is entitled to receive common shares in the amount of
8,150 annually for the years ending December 31, 1996, 1997 and 1998 if certain
sales levels are attained.
    
 
   
7.  INCOME TAXES:
    
 
   
     The significant components of deferred tax assets and liabilities at
December 31, 1995 are as follows
    
   
(in thousands):
    
 
   
<TABLE>
<CAPTION>
                                                                        ASSETS     LIABILITIES
                                                                        ------     -----------
    <S>                                                                 <C>        <C>
    Deferred tax:
      Federal tax loss carryforward...................................   $128
      State tax loss carryforward.....................................     41
      Depreciation....................................................                 $ 6
      Capitalized software............................................                  82
                                                                         ----          ---
                                                                          169           88
      Less valuation allowance........................................     41
                                                                         ----          ---
                                                                         $128          $88
                                                                         ====          ===
</TABLE>
    
 
   
     A valuation allowance was established against the Company's state deferred
tax asset due to the short carryforward period associated with the net operating
loss carryforward.
    
 
   
     At December 31, 1995, the Company had a net operating loss carryforward of
approximately $412,000 for federal tax purposes which expires in 2010, if not
utilized. The net operating loss carryforward for state tax purposes is $412,000
and expires in 1997. These carryforwards may be applied as a reduction to future
taxable income of the Company, if any.
    
 
   
8.  RELATED PARTY TRANSACTIONS:
    
 
   
     During 1994 and 1995, approximately $52,000 and $104,000, respectively, of
sales were to customers who are affiliated through ownership interests.
    
 
                                      F-33
<PAGE>   79
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
    
 
   
9.  STOCKHOLDERS' EQUITY:
    
 
   
  Common Stock:
    
 
   
     During 1995, the Company issued 43,150 shares of common stock in
consideration for approximately $126,000 of employment services.
    
 
   
  Stock Options:
    
 
   
     Stock options were offered to certain initial customers to promote the
Company's software and to establish strategic development partner relationships.
Each of the stock options were tied to a fixed option price at the date of
exercise.
    
 
   
<TABLE>
<CAPTION>
                                                                              OPTION PRICE
                                                                  SHARES        PER SHARE
                                                                  -------     -------------
    <S>                                                           <C>         <C>
    Balance as of January 31, 1994 (inception)..................   74,500     $1.55 - $3.68
      Granted...................................................
      Exercised.................................................
      Expired...................................................
    Balance as of January 1, 1995...............................   74,500     $1.55 - $3.68
      Granted...................................................       --          --
      Exercised.................................................  (55,100)    $1.80 - $3.68
      Expired...................................................  (19,400)         --
    Balance as of December 31, 1995.............................       --          --
</TABLE>
    
 
   
  Dividends:
    
 
   
     Upon termination of the Company's S election, dividends of approximately
$124,000 were distributed to the shareholders.
    
 
   
  Preferred Stock:
    
 
   
     In May 1995, the Company entered into an agreement with Quality Systems,
Inc. ("QSI") for QSI to market the Company's product. As part of this agreement,
QSI acquired 338,300 shares of convertible preferred stock, representing a 25%
equity interest, for $1 million and an option to acquire an additional 26%
equity interest for $3 million, exercisable at a conversion price of $2.96 per
share at any time through August 1997. The preferred stock is convertible to
common stock on a 1:1 basis, which may be adjusted based on certain provisions
limiting dilution. There were 21,082 shares issued pursuant to these
antidilutive provisions. The holders of preferred stock are entitled to the
number of votes equal to the shares of common stock into which the preferred
stock is convertible at the record date. Dividends on the convertible preferred
stock are noncumulative and holders have a liquidation preference over all other
stockholders of $2.06 per share.
    
 
   
     Under the provisions of the agreement, the Company must use the net
proceeds received upon exercise of the option for working capital purposes,
except that the Company may distribute up to $1.5 million of such proceeds to
the Company's existing stockholders, excluding QSI.
    
 
   
     As a result of the above transaction, the Company terminated its S
Corporation election for tax purposes. The cumulative effect of such change in
tax status on the Company's financial position and results of operations
resulted in a charge of $57,000 relating to deferred tax liabilities existing as
of the date of change. Such charge is included as a component of the income tax
benefit for 1995.
    
 
                                      F-34
<PAGE>   80
 
   
                          CLINITEC INTERNATIONAL, INC.
    
 
   
                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED
    
 
   
10.  SUBSEQUENT EVENTS:
    
 
   
     On February 13, 1996, the Company entered into a non-binding letter of
intent with QSI whereby QSI will exercise its option to acquire 51% of the
Company and enter into a merger between a newly-formed subsidiary of QSI and the
Company for an aggregate consideration payable to all Clinitec shareholders
other than QSI of $11,790,000, of which $4,896,000 will be paid in cash and
$6,894,000 will be paid in QSI's common shares, valued at the price of the QSI's
secondary public offering, expected to be completed in March 1996.
    
 
                                      F-35
<PAGE>   81
       

 

                             [PHOTO] 


When QSI's technologically advanced health care information system
is used in conjunction with NextGen's power and flexibility, the
health care professional benefits from an integrated solution that
positively affects numerous aspects of patient care and practice
management.
 
                                 Used in conjunction
                                 with a wireless,
                                 portable
                                 workstation, NextGen
                                 allows the health            [PHOTO]
                                 care provider to
                                 retrieve and update
                                 patient records
                                 while moving from
                                 examination room to
                                 examination room,
                                 and even from office
                                 to office.
 
NextGen processes,
manipulates and manages
patient information in data,
visual and audio formats.
NextGen stores patient                 [PHOTO]
medical histories, scanned
images, X-rays, annotated
documents, recorded voice and
user customizable exam data.
 


<PAGE>   82
 
- ---------------------------------------------------------
- ---------------------------------------------------------
    NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH QUALIFIED SOLICITATION.
                            ------------------------
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                          PAGE
                                          ----
<S>                                       <C>
Prospectus Summary......................    3
Risk Factors............................    6
The Company.............................   11
Use of Proceeds.........................   11
Price Range for Common Stock and
  Dividends.............................   11
Capitalization..........................   12
Selected Financial Data.................   13
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations............................   14
Business................................   20
Directors and Executive Officers........   31
Certain Transactions....................   37
Principal and Selling Shareholders......   38
Description of Capital Stock............   39
Shares Eligible for Future Sale.........   39
Underwriting............................   41
Legal Opinions..........................   42
Experts.................................   42
Additional Information..................   43
Index to Financial Statements...........  F-1
</TABLE>
    
 
    UNTIL               , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
                                1,500,000 SHARES
                                     [LOGO]
                                     [LOGO]
                                  COMMON STOCK
                              --------------------
 
                                   PROSPECTUS
                              --------------------
   
                            BEAR, STEARNS & CO. INC.
    
 
                         PACIFIC GROWTH EQUITIES, INC.
 
                                CRUTTENDEN ROTH
                                  INCORPORATED
                                              , 1996
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE>   83
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable in connection with the sale and distribution
of the securities being registered. All amounts are estimated except the
Securities and Exchange Commission, NASD registration fees and the Nasdaq
National Market additional listing fee. All of the expenses below will be paid
by the Company.
 
   
<TABLE>
<CAPTION>
                                       ITEM                                      AMOUNT
    --------------------------------------------------------------------------  --------
    <S>                                                                         <C>
    Registration fee..........................................................  $ 15,986
    NASD Filing Fee...........................................................     5,136
    Nasdaq National Market additional listing fee.............................    17,500
    Blue Sky fees and expenses................................................    10,000
    Printing and engraving expenses...........................................    90,000
    Legal fees and expenses...................................................   165,000
    Accounting fees and expenses..............................................   190,000
    Transfer Agent and Registrar fees.........................................     1,200
    Miscellaneous.............................................................     5,178
                                                                                     ---
         Total................................................................  $500,000
                                                                                     ===
</TABLE>
    
 
   
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
    
 
Section 317 of the California General Corporation Law provides generally that a
person sued as a director, officer or agent of a corporation may be indemnified
by the corporation for reasonable expenses, including counsel fees, if (a) in
the case of other than derivative suits, he has acted in good faith and in a
manner he reasonably believed to be in the best interests of the corporation
(and in the case of a criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful), and (b) in the case of a derivative suit, he has
acted in good faith in a manner he believed to be in the best interests of the
corporation and its shareholders, and with such care, including reasonable
inquiry, as an ordinarily prudent person, in a like position would use under
similar circumstances. Section 317 provides that no indemnification shall be
made in the case of a derivative suit in respect of any claim as to which a
director, officer or agent has been adjudged to be liable to the corporation,
except with court approval, nor shall indemnification be made for costs of and
expenses in connection with settlement, with court approval. Indemnification is
mandatory in the case of a director, officer, or agent who is successful on the
merits in defense of a suit against him. The determination whether to indemnify
a director, officer or agent is made by a majority of disinterested directors, a
majority of disinterested shareholders, or the court in which the suit is
pending.
 
The Company's Articles of Incorporation provide that the liability of the
Company's directors for monetary damages shall be eliminated to the fullest
extent permissible under California law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the right of the Company for breach of a director's duties to the Company or
its shareholders except for liability: (1) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (2) for acts
or omissions that a director believes to be contrary to the best interests of
the Company or its shareholders or that involve the absence of good faith on the
part of the director; (3) for any transaction from which a director derived an
improper personal benefit; (4) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (5) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (6) with respect to certain
transactions, or the approval of transactions in which a director has a material
financial interest; and (7)
 
                                      II-1
<PAGE>   84
 
expressly imposed by statute, for approval of certain improper distributions to
shareholders or certain loans or guarantees. This provision does not eliminate
or limit liability of an officer for any act or omission as an officer,
notwithstanding that the officer is also a director or that his actions, if
negligent or improper, have been ratified by the Board of Directors. Further,
the provision has no effect on claims under federal or state securities laws and
does not affect the availability of injunctions and other equitable remedies
available to the Company's shareholders for any violation of a director's
fiduciary duty to the Company or its shareholders. Although the validity and
scope of the legislation underlying the provision have not yet been interpreted
to any significant extent by the California courts, the provision may relieve
directors or monetary liability to the Company for grossly negligent conduct,
including conduct in situations involving attempted takeovers of the Company.
 
The Articles also provide that the Company is authorized to provide
indemnification to its agents (as defined in Section 317 of the California
Corporations Code), through the Company's Bylaws or through agreements with such
agents or both, for breach of duty to the Company and its shareholders, in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
 
The Bylaws of the Company provide that a person sued as an agent of the Company
may be indemnified by the Company for reasonable expenses incurred thereby, if
(a) in the case of other than derivative suits, such person has acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the Company (and in the case of a criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful), and (b) in the case of a
derivative suit, such person has acted in good faith in a manner he or she
believed to be in the best interests of the Company and its shareholders, and
with such care, including reasonable inquiry, as an ordinarily prudent person,
in a like position would use under similar circumstances. The Bylaws further
provide that no indemnification shall be made in the case of a derivative suit
in respect of any claim as to which such person has been adjudged to be liable
to the corporation, except with court approval, nor shall indemnification be
made for amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or for expenses incurred in
defending a threatened or pending action which is settled or otherwise disposed
of without court approval. Indemnification under the Bylaws is mandatory in the
case of an agent of the Company (present or past) who is successful on the
merits in defense of a suit against him or her in such capacity. In all other
cases where indemnification is permitted by the Bylaws, a determination to
indemnify such person must be made by a majority of a quorum of disinterested
directors, a majority of disinterested shareholders, or the court in which the
suit is pending.
 
The Company has entered into agreements to indemnify its directors in addition
to the indemnification provided for in the Articles of Incorporation and Bylaws.
Among other things, these agreements provide that the Company will indemnify,
subject to certain requirements, each of the Company's directors for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by or
in the right of the Company, on account of services by such person as a director
or officer of the Company, or as a director or officer of any other company or
enterprise to which the person provides services at the request of the Company.
 
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification by
the Underwriters of the Company and its officers and directors and the Selling
Shareholders, and by the Company and the Selling Shareholders of the
Underwriters, for certain liabilities arising under the Securities Act of 1933
or otherwise.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
 
During the last three years preceding the date hereof there were no transactions
involving sales of the Registrant's securities.
 
                                      II-2
<PAGE>   85
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
     (A) EXHIBITS
 
     The following Exhibits are attached hereto and incorporated herein by
reference:
 
   
<TABLE>
<CAPTION>
EXHIBIT
 NO.                                          DESCRIPTION
- ------     ----------------------------------------------------------------------------------
<C>        <S>
  1.1      Form of Underwriting Agreement.
  3.1 *    Restated Articles of Incorporation of the Registrant.
  3.2      Bylaws of the Registrant.(1)
3.2.1 *    Certificate of Amendment of Bylaws of the Registrant.
  5.1      Opinion of Brobeck, Phleger & Harrison LLP regarding the validity of the
           securities being registered.
 10.1      1989 Incentive Stock Option Plan.(2)
 10.2 *    Form of Incentive Stock Option Agreement.
 10.3 *    Form of Non-Qualified Stock Option Agreement.
 10.4      Quality Systems, Inc. Retirement Savings Plan.(3)
 10.5      Deferred Compensation Plan.(4)
 10.6      Lease Agreement dated March 11, 1993 between the Registrant and Craig Development
           Corporation.(5)
 10.7      Lease Agreement dated September 12, 1994 between the Registrant and Koll/Realty
           Orangewood Business Center General Partnership.(6)
 10.8      Series "A" Convertible Preferred Stock Purchase Agreement, as amended, dated April
           21, 1995 between the Registrant and Clinitec International, Inc.(7)
 10.9      Marketing Agreement, as amended, dated April 1, 1995 between the Registrant and
           Clinitec International, Inc.(8)
10.10 *    Form of Indemnification Agreement.
10.11      Clinitec Agreement in Principle, dated February 13, 1996, between the Registrant
           and Clinitec International, Inc.
 23.1      Independent Auditors' Consent and Report on Schedule -- Deloitte & Touche LLP.
 23.2      Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1)
 23.3      Independent Accountants' Consent -- Coopers & Lybrand L.L.P.
 24.1 *    Power of Attorney.
 27.1      Financial Data Schedule.
</TABLE>
    
 
- ---------------
 
   
 *  Exhibit previously filed.
    
 
(1) Incorporated by reference to Exhibit 3.3 of Amendment No. 2 to the Company's
    Registration Statement on Form S-1 dated November 30, 1982, File No.
    2-80056.
 
(2) Incorporated by reference to the Company's Registration Statement on Form
    S-8, File No. 33-31949.
 
(3) Incorporated by reference to Exhibit 10.4.2 of the Company's Annual Report
    on Form 10-KSB for the year ended March 31, 1994, File No. 0-13801.
 
(4) Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1994, File No. 0-13801.
 
(5) Incorporated by reference to Exhibit 10.35 of the Company's Annual Report on
    Form 10-K for the year ended March 31, 1993, File No. 0-13801.
 
(6) Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1995, File No. 0-13801.
 
(7) Incorporated by reference to Exhibit 10.11 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1995, File No. 0-13801.
 
(8) Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1995, File No. 0-13801.
 
                                      II-3
<PAGE>   86
 
     (B) FINANCIAL STATEMENT SCHEDULES
 
     Schedule II -- Valuation and Qualifying Accounts
 
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
 
ITEM 17. UNDERTAKINGS
 
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreements certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
 
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted as to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue. The undersigned Registrant hereby undertakes that: (1) for purposes
of determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus as filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus filed
by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective, and (2) for the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-4
<PAGE>   87
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Tustin, State of California, on the 14th day of February 1996.
    
 
                                          QUALITY SYSTEMS, INC.
 
   
                                          By:      /s/  SHELDON RAZIN
    
                                             -----------------------------------
                                             Sheldon Razin
                                             President and Chairman of the Board
 
   
     Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
    
 
   
<TABLE>
<CAPTION>
               SIGNATURE                                TITLE                        DATE
- ----------------------------------------  ----------------------------------  ------------------
<C>                                       <S>                                 <C>
           /s/  SHELDON RAZIN             Chairman, President and Director     February 14, 1996
- ----------------------------------------  (Principal Executive Officer)
             Sheldon Razin                                             

                    *                     Vice President, Secretary and        February 14, 1996
- ----------------------------------------  Director
              Janet Razin                         

          /s/  IRMA CARMONA               Corporate Controller (Principal      February 14, 1996
- ----------------------------------------  Financial and Accounting Officer)
              Irma Carmona                

                    *                     Director                             February 14, 1996
- ---------------------------------------
             Graeme Frehner

                    *                     Director                             February 14, 1996
- ---------------------------------------
           John Bowers, M.D.

                    *                     Director                             February 14, 1996
- --------------------------------------- 
            William Bowers

                    *                     Director                             February 14, 1996
- ---------------------------------------
             George Bristol

                    *                     Director                             February 14, 1996
- ---------------------------------------
             Gordon Setran

*By:      /s/  SHELDON RAZIN
    -----------------------------------
             Sheldon Razin
           (Attorney-in-fact)
</TABLE>
    
 
                                      II-5
<PAGE>   88
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 ADDITIONS
                                              BALANCE AT    -------------------
                                               BEGINNING        CHARGED TO                      BALANCE AT
                DESCRIPTION                    OF PERIOD    COSTS AND EXPENSES    DEDUCTIONS   END OF PERIOD
- --------------------------------------------  -----------   -------------------   ----------   -------------
<S>                                           <C>           <C>                   <C>          <C>
Allowance for doubtful accounts:
  Fiscal 1993...............................     $ 106              $ 7              $(20)          $93
  Fiscal 1994...............................        93                7               (34)           66
  Fiscal 1995...............................        66               28               (17)           77
</TABLE>
 
                                       S-1
<PAGE>   89
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
EXHIBIT
 NO.                                          DESCRIPTION
- ------     ----------------------------------------------------------------------------------
<C>        <S>
  1.1      Form of Underwriting Agreement.
  3.1 *    Restated Articles of Incorporation of the Registrant.
  3.2      Bylaws of the Registrant.(1)
3.2.1 *    Certificate of Amendment of Bylaws of the Registrant.
  5.1      Opinion of Brobeck, Phleger & Harrison LLP regarding the validity of the
           securities being registered.
 10.1      1989 Incentive Stock Option Plan.(2)
 10.2 *    Form of Incentive Stock Option Agreement.
 10.3 *    Form of Non-Qualified Stock Option Agreement.
 10.4      Quality Systems, Inc. Retirement Savings Plan.(3)
 10.5      Deferred Compensation Plan.(4)
 10.6      Lease Agreement dated March 11, 1993 between the Registrant and Craig Development
           Corporation.(5)
 10.7      Lease Agreement dated September 12, 1994 between the Registrant and Koll/Realty
           Orangewood Business Center General Partnership.(6)
 10.8      Series "A" Convertible Preferred Stock Purchase Agreement, as amended, dated April
           21, 1995 between the Registrant and Clinitec International, Inc.(7)
 10.9      Marketing Agreement, as amended, dated April 1, 1995 between the Registrant and
           Clinitec International, Inc.(8)
10.10 *    Form of Indemnification Agreement.
10.11      Clinitec Agreement in Principle, dated February 13, 1996, between the Registrant
           and Clinitec International, Inc.
 23.1      Independent Auditors' Consent and Report on Schedule -- Deloitte & Touche LLP.
 23.2      Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1)
 23.3      Independent Accountants' Consent -- Coopers & Lybrand L.L.P.
 24.1 *    Power of Attorney.
 27.1      Financial Data Schedule.
</TABLE>
    
 
- ---------------
 
   
 *  Exhibit previously filed.
    
 
(1) Incorporated by reference to Exhibit 3.3 of Amendment No. 2 to the Company's
    Registration Statement on Form S-1 dated November 30, 1982, File No.
    2-80056.
 
(2) Incorporated by reference to the Company's Registration Statement on Form
    S-8, File No. 33-31949.
 
(3) Incorporated by reference to Exhibit 10.4.2 of the Company's Annual Report
    on Form 10-KSB for the year ended March 31, 1994, File No. 0-13801.
 
(4) Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1994, File No. 0-13801.
 
(5) Incorporated by reference to Exhibit 10.35 of the Company's Annual Report on
    Form 10-K for the year ended March 31, 1993, File No. 0-13801.
 
(6) Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1995, File No. 0-13801.
 
(7) Incorporated by reference to Exhibit 10.11 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1995, File No. 0-13801.
 
(8) Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on
    Form 10-KSB for the year ended March 31, 1995, File No. 0-13801.

<PAGE>   1
                                                                     EXHIBIT 1.1

                                                               DRAFT OF 02/12/96

                              ____________, 1996

                       1,500,000 Shares of Common Stock

                            QUALITY SYSTEMS, INC.

                            UNDERWRITING AGREEMENT
                            ----------------------

BEAR, STEARNS & CO. INC.
PACIFIC GROWTH EQUITIES, INC.
CRUTTENDEN ROTH INCORPORATED
     as Representatives of the
     several Underwriters named in
     Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York  10167

Dear Sirs:

     Quality Systems, Inc., a corporation organized and existing under the laws
of California (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule
I hereto (the "Underwriters") 1,000,000 shares of common stock, par value $.01
per share, of the Company (the "Common Stock") and the selling shareholders of
the Company named in Schedule II hereto (the "Selling Shareholders") propose to
sell to the Underwriters an additional 500,000 shares of Common Stock, which
aggregate of 1,500,000 shares of Common Stock is referred to herein as the
"Firm Shares".  In addition, for the sole purpose of covering over-allotments
in connection with the sale of the Firm Shares, certain Selling Shareholders
(as set forth in Schedule II hereto) propose to sell to the Underwriters, at
the option of the Underwriters, up to an additional 225,000 shares (the
"Additional Shares") of Common Stock.  The Firm Shares and any Additional
Shares purchased by the Underwriters are referred to herein as the "Shares".
The Shares are more fully described in the Registration Statement referred to
below.

     1. Representations and Warranties of the Company and the Selling
Shareholders.

     A. The Company represents and warrants to, and agrees with, the
Underwriters that:




<PAGE>   2


           (a) A registration statement on Form S-1 (File No. 333-00161) with
      respect to the Shares has been prepared by the Company in conformity with
      the requirements of the Securities Act of 1933, as amended (the "Act"),
      and the rules and regulations (the "Rules and Regulations") of the
      Securities and Exchange Commission (the "Commission") thereunder, and has
      been filed with the Commission.  The Company has prepared and has filed
      or proposes to file prior to the effective date of such registration
      statement an amendment or amendments to such registration statement,
      which amendment or amendments have been or will be similarly prepared.

           The Company will next file with the Commission one of the following:
      (i) prior to effectiveness of such registration statement, a further
      amendment thereto, including the form of final prospectus, (ii) a final
      prospectus in accordance with Rules 430A and 424(b) of the Rules and
      Regulations or (iii) a term sheet as described in and in accordance with
      Rules 434 and 424(b) of the Rules and Regulations (a "Term Sheet").  As
      filed, such amendment and form of final prospectus, or such final
      prospectus, or such Term Sheet, shall include all Rule 430A Information
      (as defined below) and, except to the extent that you shall agree in
      writing to a modification, shall be in all substantive respects in the
      form furnished to you prior to the date and time that this Underwriting
      Agreement (this "Agreement") was executed and delivered by the parties
      hereto, or, to the extent not completed at such date and time, shall
      contain only such specific additional information and other changes
      (beyond that contained in the latest Preliminary Prospectus) as the
      Company previously shall have advised you in writing would be included or
      made therein.

           The term "Registration Statement" as used in this Agreement shall
      mean such registration statement at the time such registration statement
      becomes or became effective including all financial schedules and
      exhibits thereto and, in the event any post-effective amendment thereto
      becomes effective prior to the Closing Date (as hereinafter defined),
      also shall mean such registration statement as so amended; provided,
      however, that such term also shall include all Rule 430A Information
      deemed to be included in such registration statement at the time such
      registration statement becomes or became effective as provided by Rule
      430A of the Rules and Regulations.  The term "Preliminary Prospectus"
      shall mean any preliminary prospectus referred to in the preceding
      paragraph and any preliminary prospectus included in the Registration
      Statement at the time it becomes or became effective

                                      2

<PAGE>   3


      that omits Rule 430A Information.  The term "Prospectus" as used in this
      Agreement shall mean either (i) the prospectus relating to the Common
      Shares in the form in which it first is filed with the Commission
      pursuant to Rule 424(b) of the Rules and Regulations, (ii) if the Company
      relies on Rule 434 of the Rules and Regulations, the Term Sheet relating
      to the Shares that first is filed pursuant to Rule 424(b)(7) of the Rules
      and Regulations, together with the Preliminary Prospectus identified
      therein that such Term Sheet supplements, or, (iii) if a Term Sheet is
      not used and no filing pursuant to Rule 424(b) of the Rules and
      Regulations is required, shall mean the form of final prospectus included
      in the Registration Statement at the time such registration statement
      becomes or became effective.  The term "Rule 430A Information" means
      information with respect to the Shares and the offering thereof permitted
      to be omitted from the Registration Statement when it becomes or became
      effective pursuant to Rule 430A of the Rules and Regulations.  Any
      reference to the "date" of a Prospectus that includes a Term Sheet shall
      mean the date of the Term Sheet.

           (b) The Commission has not issued any order preventing or suspending
      the use of any Preliminary Prospectus, and each Preliminary Prospectus
      has conformed in all material respects to the requirements of the Act and
      the Rules and Regulations and, as of its date, has not included any
      untrue statement of a material fact or omitted to state a material fact
      necessary to make the statements therein, in the light of the
      circumstances under which they were made, not misleading; and at the time
      the Registration Statement becomes or became effective, and at all times
      subsequent thereto up to and including each Closing Date hereinafter
      mentioned, the Registration Statement and the Prospectus, and any
      amendments or supplements thereto, will contain or contained all material
      statements and information required to be included therein by the Act and
      the Rules and Regulations and will in all material respects conform, or
      did in such respects conform, to the requirements of the Act and the
      Rules and Regulations, and neither the Registration Statement nor the
      Prospectus, nor any amendment or supplement thereto, will include or
      included any untrue statement of a material fact or omit to state a
      material fact required to be stated therein or necessary to make the
      statements therein not misleading; provided, however, no representation
      or warranty contained in this subsection 1.A(b) shall be applicable to
      information contained in or omitted from any Preliminary Prospectus, the
      Registration Statement, the Prospectus or any such amendment or
      supplement in

                                      3

<PAGE>   4


      reliance upon and in conformity with written information furnished to the
      Company by or on behalf of any Underwriter, directly or through the
      Representatives, reciting in writing that it is specifically for use in
      the preparation thereof.

           (c) The Company does not own or control, directly or indirectly, any
      corporation, association or other entity. The Company has been duly 
      incorporated and is validly existing as a corporation in good standing 
      under the laws of California, with full power and authority (corporate 
      and other) to own and lease its properties and conduct its business as 
      described in the Prospectus; the Company owns 25% of the outstanding 
      capital stock and the outstanding voting stock of Clinitec International,
      Inc., a Pennsylvania corporation ("Clinitec") free and clear of all 
      claims, liens, charges and encumbrances; the Company holds a valid 
      option (the "Clinitec Option") to acquire additional voting equity stock
      of Clinitec and, upon the exercise and closing of the Clinitec Option, 
      would own 51% of the outstanding capital stock of Clinitec and 51% of 
      the outstanding voting stock of Clinitec; there are no actual or 
      threatened challenges to the enforceability of the Clinitec Option or 
      any facts that may constitute a defense by any party to the 
      enforceability of the Clinitec Option;  the Company is in possession of 
      and operating in compliance with all authorizations, licenses, permits, 
      consents, certificates and orders material to the conduct of its 
      business, all of which are valid and in full force and effect; the 
      Company is duly qualified to do business and in good standing as a 
      foreign corporation in each jurisdiction in which the ownership or
      leasing of properties or the conduct of its business requires such
      qualification, except for jurisdictions in which the failure to so
      qualify would not have a material adverse effect upon the Company; and no
      proceeding has been instituted in any such jurisdiction, revoking,
      limiting or curtailing, or seeking to revoke, limit or curtail such power
      and authority or qualification.

           (d) On or prior to the Closing Date (as hereinafter defined), the
      Company will have taken all necessary action (corporate or other) to
      irrevocably exercise in full the Clinitec Option unless at the Closing
      Date the Company is a party to either a valid and extant (i) Agreement in
      Principle dated as of February 13, 1996 (the "Clinitec Agreement in 
      Principle") that has not been rejected or disavowed by either party 
      thereto, or (ii) a definitive agreement with Clinitec that has not been 
      rejected or disavowed by either party thereto, to purchase 100% of 
      Clinitec.

           (e) The Company has authorized and outstanding capital stock as set
      forth under the heading "Capitalization" in the Prospectus; the issued
      and outstanding shares of Common Stock have been duly authorized and the
      outstanding shares of Common Stock have been validly issued, are fully
      paid and nonassessable, have been duly approved for quotation on

                                      4

<PAGE>   5


      the Nasdaq National Market; the issued and outstanding shares of Common
      Stock and the outstanding options described in the Prospectus have been
      issued in compliance with all federal and state securities laws, were not
      issued in violation of or subject to any preemptive rights or other
      rights to subscribe for or purchase securities, and conform in all
      material respects to any description thereof contained in the Prospectus.
      Except as disclosed in or contemplated by the Prospectus and the
      financial statements of the Company, and the related notes thereto,
      included in the Prospectus, the Company has no outstanding options to
      purchase, or any preemptive rights or other rights to subscribe for or to
      purchase, any securities or obligations convertible into, or any
      contracts or commitments to issue or sell, shares of its capital stock or
      any such options, rights, convertible securities or obligations.  The
      description of the Company's stock option, stock bonus and other stock
      plans or arrangements, and the options or other rights granted and
      exercised thereunder, set forth in the Prospectus, accurately and fairly
      presents the information required to be shown with respect to such plans,
      arrangements, options and rights.

           (f) The Shares to be sold by the Company have been duly authorized
      and, when issued, delivered and paid for in the manner set forth in this
      Agreement, will be duly authorized, validly issued, fully paid and
      nonassessable, and will conform to the description thereof contained in
      the Prospectus.  The Shares to be sold by the Selling Shareholders have
      been duly authorized, and are validly issued, fully paid and
      nonassessable, and conform to the description thereof contained in the
      Prospectus.  No preemptive rights or other rights to subscribe for or
      purchase exist with respect to the issuance and sale of the Shares
      pursuant to this Agreement.  No holder of any securities of the Company
      has any right that has not been waived to require the Company to register
      the sale of any shares of Common Stock or other securities of the Company
      owned by such holder under the Act in the public offering contemplated by
      this Agreement.  No further approval or authority of the shareholders,
      the Board of Directors of the Company or any other party will be required
      for the transfer and sale of the Firm Shares or the Additional Shares to
      be sold as contemplated herein except for compliance with the Act, the
      Blue Sky laws applicable to the public offering of the Shares by the 
      several Underwriters and the clearance of such offering with the National
      Association of Securities Dealers, Inc. (the "NASD").

           (g) The Company has full legal right, power and authority to enter
      into this Agreement and perform the transactions contemplated hereby.
      This Agreement has been duly authorized, executed and delivered by the
      Company and constitutes a valid and binding obligation


                                      5

<PAGE>   6


      of the Company, enforceable against it in accordance with its terms,
      except (i) as such enforceability may be limited by the effect of 
      bankruptcy, insolvency, reorganization, moratorium and other similar 
      laws relating to rights and remedies of creditors, and (ii) to the 
      extent that rights to indemnity or contribution hereunder may be limited
      by federal or state securities laws or the public policy underlying such
      laws.  The making and performance of this Agreement by the Company and the
      consummation of the transactions herein contemplated will not violate any
      provisions of the articles of incorporation or bylaws, as amended or
      restated, or other organizational documents, of the Company, and will not
      conflict with, result in the breach or violation of, or constitute,
      either by itself or upon notice or the passage of time or both, a default
      under, result in the acceleration of any indebtedness under or
      performance required by, result in any right of termination of, increase
      any amounts payable under, decrease any amounts receivable under, or, to
      the Company's best knowledge, adversely change any other rights pursuant
      to, any agreement, mortgage, deed of trust, lease, franchise, license,
      indenture, permit or other instrument to which the Company is a party or
      by which the Company or any of its properties may be bound or affected,
      or any statute or any authorization, judgment, decree, order, rule or
      regulation of any court or any regulatory body, administrative agency or
      other governmental body, or arbitrator (domestic or foreign) applicable
      to the Company or any of its properties.  No consent, approval,
      authorization or other order of any court, regulatory body,
      administrative agency or other governmental body is required for the
      execution and delivery of this Agreement or the consummation of the
      transactions contemplated by this Agreement except for compliance with
      the Act, the Blue Sky laws applicable to the public offering of the
      Shares by the several Underwriters and the clearance of such offering
      with the NASD.

           (h) Deloitte & Touche LLP and Coopers & Lybrand L.L.P., who have
      expressed their opinion with respect to the financial statements and
      schedules of the Company and Clinitec, respectively, filed with the
      Commission as a part of the Registration Statement and included in the
      Prospectus and in the Registration Statement, are each independent
      accountants as required by the Act and the Rules and Regulations.

           (i) The financial statements and schedules, if any, of the Company,
      and the related notes thereto, included in the Registration Statement and
      the Prospectus present fairly the financial positions of the Company as
      of the respective dates of such financial statements and schedules, and
      the results of operations and cash flows of the Company, respectively,
      for the respective periods covered thereby.  Such statements, schedules
      and related notes have been prepared in accordance with generally
      accepted


                                      6

<PAGE>   7


      accounting principles applied on a consistent basis as certified by the
      independent accountants named in subsection 1.A(h).  No other financial
      statements, schedules or information are required by the Act or the Rules
      and Regulations to be included in the Registration Statement.  The
      financial data set forth in the Prospectus under the captions
      "Capitalization" and "Selected Financial Data" fairly present the
      information set forth therein on the basis stated in the Registration
      Statement.

           (j) Except as disclosed in the Prospectus, and except as to
      violations, breaches, defaults and events of default that individually or
      in the aggregate would not have a material adverse effect on the Company,
      (i) the Company is not in violation or default of any provision of its
      articles of incorporation or bylaws, as amended or restated, or other
      organizational documents, or is in breach of or default with respect to
      any provision of any agreement, judgment, decree, order, mortgage, deed
      of trust, lease, franchise, license, indenture, permit or other
      instrument to which the Company is a party or by which the Company or any
      of its properties are bound; and (ii) there does not exist any state of
      facts that constitutes an event of default on the part of the Company as
      defined in such documents or which, with notice or lapse of time or both,
      would constitute such an event of default.

           (k) There are no contracts or other documents required to be
      described in the Registration Statement or to be filed as exhibits to the
      Registration Statement by the Act or by the Rules and Regulations that
      have not been described or filed as required.  The descriptions of the
      contracts in the Prospectus are accurate in all material respects and
      fairly present the information required by the Act and/or the Rules and
      Regulations to be presented in Form S-1; except as disclosed in the
      Prospectus, the contracts so described in the Prospectus are in full
      force and effect on the date hereof, and the Company or, to the best of
      the Company's knowledge, any other party is not in breach of or default
      under any of such contracts other than any such breach or default as
      would not, individually or in the aggregate, prevent or adversely affect
      the transactions contemplated by this Agreement or result in a material
      adverse change in the condition (financial or other), properties,
      business, results of operations or prospects of the Company.

           (l) Except as disclosed in the Prospectus, there are no legal or
      governmental actions, suits or proceedings pending or, to the best of the
      Company's knowledge, threatened to which the Company is or may be


                                      7

<PAGE>   8


      a party or of which property owned or leased by the Company is or may be
      the subject or related to environmental or discrimination matters, that
      might, individually or in the aggregate, prevent or affect adversely the
      transactions contemplated by this Agreement or result in a material
      adverse change in the condition (financial or other), properties,
      business, results of operations or prospects of the Company; and no labor
      disturbance by the employees of the Company exists or is imminent that
      might be expected to affect adversely such condition, properties,
      business, results of operations or prospects.  The Company is not a party
      or subject to the provisions of any injunction, judgment, decree or order
      of any court, regulatory body, administrative agency or other
      governmental body that could be expected to result in a material adverse
      change in the condition (financial or other), properties, business,
      results of operations or prospects of the Company.

           (m) The Company has good and marketable title to all the properties
      and assets reflected as owned by it in the financial statements
      hereinabove described (or elsewhere in the Prospectus), subject to no
      lien, mortgage, pledge, charge or encumbrance of any kind except (i)
      those, if any, reflected in such financial statements (or elsewhere in
      the Prospectus), or (ii) those which are not material in amount and do
      not affect adversely the use made and proposed to be made of such
      property by the Company.  The Company holds its leased properties under
      valid and binding leases, with such exceptions as are not materially
      significant in relation to the business of the Company.  Except as
      disclosed in the Prospectus, the Company owns or leases all such
      properties as are necessary to its operations as now conducted or as
      proposed to be conducted.

           (n) Since the respective dates as of which information is given in
      the Registration Statement and Prospectus, and except as described in or
      specifically contemplated by the Prospectus: (i) the Company has not
      incurred any material liabilities or obligations, indirect, direct or
      contingent, or entered into any material verbal or written agreement or
      other transaction that is not in the ordinary course of business or that
      could result in a material reduction in the future earnings of the
      Company; (ii) the Company has not sustained any loss or interference with
      its business or properties from fire, flood, windstorm, accident or 
      other calamity, whether or not covered by insurance, that materially and
      adversely affects the condition (financial or other), business, results 
      of operations or prospects of the Company;


                                      8

<PAGE>   9


      (iii) the Company has not paid or declared any dividends or other
      distributions with respect to its capital stock and the Company is not in
      default in the payment of principal of or interest on any outstanding
      debt obligations; (iv) there has not been any change in the capital stock
      (other than upon the sale of the Common Shares hereunder and upon the
      exercise of options and other rights described in the Registration
      Statement) or increase in indebtedness material to the Company (other
      than in the ordinary course of business); and (v) there has not been any
      material adverse change in the condition (financial or other), business,
      properties, results of operations or prospects of the Company.

           (o) Except as disclosed in or specifically contemplated by the
      Prospectus, the Company has sufficient trademarks, trade names, patent
      rights, mask works, copyrights, licenses, approvals and governmental
      authorizations to conduct its business as now conducted; the expiration 
      of any trademarks, trade names, patent rights, mask works, copyrights, 
      licenses, approvals or governmental authorizations would not have a 
      material adverse effect on the condition (financial or other), business,
      results of operations or prospects of the Company; except as disclosed 
      in or specifically contemplated by the Prospectus, the Company has no 
      knowledge of any material infringement by it or its customers, with 
      respect to their use of the Company's trademarks, trade name rights, 
      patent rights, mask works, copyrights, licenses, trade secrets or other 
      similar rights of others, and there is no claim being made against the 
      Company or its customers with respect to their use of the Company's 
      products, which claims are regarding trademarks, trade names, patents, 
      mask works, copyrights, licenses, trade secrets or other infringements 
      which could have a material adverse effect on the condition (financial 
      or other), business, results of operations or prospects of the Company.

           (p) The Company has not been advised, and has no reason to believe,
      that it is not conducting business in compliance with all applicable
      laws, rules and regulations of the jurisdictions in which it is
      conducting business, including, without limitation, all applicable local,
      state and federal environmental laws and regulations; except where
      failure to be so in compliance would not materially and adversely affect
      the condition (financial or other), business, results of operations or
      prospects of the Company.

           (q) The Company has filed all necessary federal, state and foreign
      income and franchise tax returns and has paid all taxes shown as due
      thereon;

                                      9

<PAGE>   10


      and the Company has no knowledge of any tax deficiency which has been or
      might be asserted or threatened against the Company which could
      materially and adversely affect the business, operations or properties of
      the Company.

           (r) The Company is not an "investment company" within the meaning of
      the Investment Company Act of 1940, as amended.

           (s) The Company has not distributed and will not distribute prior to
      the Closing Date any offering material in connection with the offering
      and sale of the Shares other than the Prospectus, the Registration
      Statement and the other materials permitted by the Act.

           (t) The Company maintains, with insurers of recognized financial
      responsibility, insurance of the types and in the amounts as are
      reasonable and customary in the businesses in which it is engaged,
      including, but not limited to, insurance covering real and personal
      property owned or leased by the Company against theft, damage,
      destruction, acts of vandalism and all other risks customarily insured
      against, all of which insurance is in full force and effect.

           (u) The Company has not at any time during the last five years (i)
      made any unlawful contribution to any candidate for foreign or domestic
      office, or failed to disclose fully any contribution in violation of law,
      or (ii) made any payment to any foreign or federal or state governmental
      officer or official or other person charged with similar public or
      quasi-public duties, other than payments required or permitted by the
      laws of the United States or any jurisdiction thereof.

           (v) The Company has not taken and will not take, directly or
      indirectly, any action designed to or that might be reasonably expected
      to cause or result in stabilization or manipulation of the price of the
      Common Stock to facilitate the sale or resale of the Shares.

           (x) Other than the Underwriters acting in their capacity as such, no
      person is or will be owed any finders fee or commission or similar
      payment in connection with the transactions contemplated by this
      Agreement.



                                      10

<PAGE>   11


      B. Each Selling Shareholder severally represents and warrants to, and 
agrees with, the several Underwriters that:

           (a) Such Selling Shareholder has, and on the Closing Date and the
      Additional Closing Date hereinafter mentioned will have, good and valid
      title to the Firm Shares and/or the Additional Shares, as applicable,
      proposed to be sold by such Selling Shareholder hereunder on such Closing
      Date and full right, power and authority to enter into this Agreement and
      to sell, assign, transfer and deliver such Shares hereunder, free and
      clear of all voting trust arrangements, liens, encumbrances, equities,
      security interests, restrictions and claims whatsoever; and upon delivery
      of and payment for such Shares hereunder, the Underwriters will acquire
      good and marketable title thereto, free and clear of all liens,
      encumbrances, equities, claims, restrictions, security interests, voting
      trusts or other defects of title whatsoever.

           (b) Such Selling Shareholder has executed and delivered a Power of
      Attorney and caused to be executed and delivered on his or her behalf a
      Custody Agreement (hereinafter collectively referred to as the
      "Stockholders Agreement") and in connection herewith such Selling
      Shareholder further represents, warrants and agrees that such Selling
      Shareholder has deposited in custody, under the Stockholders Agreement,
      with the agent named therein (the "Agent") as custodian, certificates in
      negotiable form for the Shares to be sold hereunder by such Selling
      Shareholder, for the purpose of further delivery pursuant to this
      Agreement.  Such Selling Shareholder agrees that the Shares to be sold by
      such Selling Shareholder on deposit with the Agent are subject to the
      interests of the Company and the Underwriters, that the arrangements made
      for such custody are to that extent irrevocable, and that the obligations
      of such Selling Shareholder hereunder shall not be terminated, except as
      provided in this Agreement or in the Stockholders Agreement, by any act
      of such Selling Shareholder, by operation of law, by the death or
      incapacity of such Selling Shareholder or by the occurrence of any other
      event.  If the Selling Shareholder should die or become incapacitated, or
      if any other event should occur, before the delivery of the Shares
      hereunder, the documents evidencing Shares then on deposit with the Agent
      shall be delivered by the Agent in accordance with the terms and
      conditions of this Agreement as if such death, incapacity or other event
      had not occurred, regardless of whether or not the Agent shall have
      received notice thereof.  This Agreement and the Stockholders Agreement
      have been duly executed and delivered by or on behalf of such Selling

                                      11

<PAGE>   12


      Shareholder and the form of such Stockholders Agreement has been
      delivered to you.

           (c) The performance of this Agreement and the Stockholders Agreement
      and the consummation of the transactions contemplated hereby and by the
      Stockholders Agreement will not result in a breach or violation by such
      Selling Shareholder of any of the terms or provisions of, or constitute a
      default by such Selling Shareholder under, any indenture, mortgage, deed
      of trust, trust (constructive or other), loan agreement, lease,
      franchise, license or other agreement or instrument to which such Selling
      Shareholder is a party or by which such Selling Shareholder or any of its
      properties is bound, any statute, or any judgment, decree, order, rule or
      regulation of any court or governmental agency or body applicable to such
      Selling Shareholder or any of its properties.

           (d) Such Selling Shareholder has not taken and will not take,
      directly or indirectly, any action designed to or which has constituted
      or that might reasonably be expected to cause or result in stabilization
      or manipulation of the price of any security of the Company to facilitate
      the sale or resale of the Shares.

           (e) Each Preliminary Prospectus and the Prospectus, insofar as it
      has related to such Selling Shareholder, has conformed in all material
      respects to the requirements of the Act and the Rules and Regulations and
      has not included any untrue statement of a material fact or omitted to
      state a material fact necessary to make the statements therein not
      misleading in light of the circumstances under which they were made; and
      neither the Registration Statement nor the Prospectus, nor any amendment
      or supplement thereto, as it relates to such Selling Shareholder,
      included or will include any untrue statement of a material fact or omit
      to state any material fact required to be stated therein or necessary to
      make the statements therein not misleading.

           (f) Such Selling Shareholder is not aware that any of the
      representations and warranties set forth in Section 1.A above is untrue
      or inaccurate in any material respect.

     C. Sheldon Razin, in his capacity as a Selling Shareholder, additionally
represents and warrants to, and agrees with, the several Underwriters that each
Preliminary Prospectus and the Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and has
not included any untrue statement of a

                                      12

<PAGE>   13


material fact or omitted to state a material fact necessary to make the
statements therein not misleading in light of the circumstances under which
they were made; and neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, included or will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.

     2. Purchase, Sale and Delivery of the Shares.

     (a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, (i) the Company agrees to issue and sell to the several Underwriters and
the Underwriters, severally and not jointly, agree to purchase from the
Company, at a price per share of $_______, the number of Firm Shares set forth
opposite the respective names of the Underwriters in Column (1) of Schedule I
hereto and (ii) the Selling Shareholders, severally and not jointly, agree to
sell to the several Underwriters and the Underwriters, severally and not
jointly, agree to purchase from the Selling Shareholders, at the same price per
share as specified in clause (i) hereof, the number of Firm Shares set forth
opposite the respective names of the Underwriters in Column (2) of Schedule I
hereto.  The number of Firm Shares to be sold by each Selling Shareholder to
each Underwriter shall be the number which bears the same proportion to the
total number of Firm Shares to be sold by such Selling Shareholder, as
specified in Schedule II hereto, as the number of Firm Shares set forth
opposite the name of such Underwriter in Column (2) of Schedule I (or such
number increased as set forth in Section 9 hereof) bears to 500,000, subject to
such adjustments to eliminate any fractional shares as you in your sole
discretion shall make.

     (b) Payment of the purchase price for, and delivery of certificates for,
the Firm Shares shall be made at the office of Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167, or such other location as may be
mutually acceptable.  Such delivery and payment shall be made at 10:00 A.M. on
the third business day (unless such time and date postponed in accordance with
the provisions of Section 9 hereof) following the date of the effectiveness of
the Registration Statement (or, if the Company has elected to rely upon Rule
430A of the Regulations, the third business day after the determination of the
initial public offering price of the Shares), or such other time not later than
ten business days after such date as shall be agreed upon by you, the Selling
Shareholders and the Company (such time and date of payment and delivery being
herein called the "Closing Date").  Delivery of the certificates for the Firm
Shares shall be made to you for the respective accounts

                                      13

<PAGE>   14


of the several Underwriters against payment by the several Underwriters through
the Representatives of the purchase price for the Firm Shares to the order of
the Company and to each of the Selling Shareholders by certified or official
bank checks payable in New York Clearing House Funds.

     The Company shall cause certificates for the Firm Shares to be prepared in
registered form, in such name or names and in such authorized denominations as
you may request in writing at least two full business days prior to the Closing
Date.  The Company and the Selling Shareholders will permit you to examine and
package such certificates for delivery at least one full business day prior to
the Closing Date.

     (c) In addition, certain of the Selling Shareholders (as set forth on
Schedule II hereto) hereby grant to the several Underwriters the option to
purchase up to an aggregate of 225,000 Additional Shares (as set forth opposite
the respective names of the Underwriters in Column (3) of Schedule I hereto),
at the same purchase price per share to be paid by the several Underwriters to
the Company and the Selling Shareholders for the Firm Shares as set forth in
this Section 2, for the sole purpose of covering over-allotments in the sale of
Firm Shares by the several Underwriters.  This option may be exercised at any
time, in whole or in part, on or before the thirtieth day following the date of
the Prospectus, by written notice by you to the Selling Shareholders or their
respective Attorneys-in-Fact, on behalf of such Selling Shareholders.  Such
notice shall set forth the aggregate number of Additional Shares as to which
the option is being exercised and the date and time, as reasonably determined
by you, when the Additional Shares are to be delivered (such date and time
being herein sometimes referred to as the "Additional Closing Date"); provided,
however, that the Additional Closing Date shall not be earlier than the Closing
Date or earlier than the second full business day after the date on which the
option shall have been exercised nor later than the three full business day
after the date on which the option shall have been exercised (unless such time
and date are postponed in accordance with the provisions of Section 9 hereof).
The Company shall cause certificates for the Additional Shares to be prepared
in registered form in such name or names and in such authorized denominations
as you may request in writing at least two full business days prior to the
Additional Closing Date.  The Company and the Selling Shareholders will permit
you to examine and package such certificates for delivery at least one full
business day prior to the Additional Closing Date.

     The number of Additional Shares to be sold by each Selling Shareholder
shall be the number which bears the same proportion to the total number of
Additional Shares that are

                                      14

<PAGE>   15


to be sold by the Selling Shareholders on the Additional Closing Date, as
specified in the notice provided to the Selling Shareholders or their
Attorney-in-Fact, on behalf of such Selling Shareholders, as the maximum number
of Additional Shares that may be sold by such Selling Shareholder bears to
225,000 (the "Additional Share Allotment").  The number of Additional Shares to
be sold by each Selling Shareholder to each Underwriter shall be the number
that bears the same proportion to such Selling Shareholder's Additional Share
Allotment as number of Additional Shares set forth opposite the name of such
Underwriter in Column (3) of Schedule I hereto (or such number increased as set
forth in Section 9 hereof) bears to 225,000, subject, however, to such
adjustments to eliminate any fractional shares as you in your sole discretion
shall make.

     Payment for the Additional Shares shall be made by certified or official
bank check or checks, in New York Clearing House or similar next day funds,
payable to the order of the applicable Selling Shareholders at the offices of
Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, or such
other location as may be mutually acceptable, upon delivery of the certificates
for the Additional Shares to you for the respective accounts of the
Underwriters.

     3. Offering.  Upon your authorization of the release of the Firm Shares,
the Underwriters propose to offer the Shares for sale to the public upon the
terms set forth in the Prospectus.

     4. Covenants of the Company and the Selling Shareholders.

     A. The Company covenants and agrees with the several Underwriters that:

     (a) If the Registration Statement has not yet been declared effective at
the time of execution of this Agreement the Company will use its best efforts
to cause the Registration Statement and any amendments thereto to become
effective as promptly as possible, and if Rule 430A is used or the filing of
the Prospectus or any Term Sheet that constitutes a part thereof is otherwise
required under Rules 424(b) and/or 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rules 424(b) and/or
434 within the prescribed time period and will provide evidence satisfactory to
you of such timely filing.

     The Company will notify you immediately (and, if requested by you, will
confirm such notice in writing) (i) when the Registration Statement and any
amendments

                                      15

<PAGE>   16


thereto become effective, (ii) of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor, (v) of the receipt of any comments from the
Commission, and (vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for that
purpose.  If the Commission shall propose or enter a stop order at any time,
the Company will make every reasonable effort to prevent the issuance of any
such stop order and, if issued, to obtain the lifting of such order as soon as
possible.  The Company will not file any amendment to the Registration
Statement or any amendment of or supplement to the Prospectus (including the
prospectus required to be filed pursuant to Rule 424(b) or the term sheet
required to be filed pursuant to Rule 434) that differs from the prospectus or
term sheet on file at the time of the effectiveness of the Registration
Statement before or after the effective date of the Registration Statement to
which you shall reasonably object in writing after being timely furnished in
advance a copy thereof.

     (b) If at any time when a prospectus relating to the Shares is required to
be delivered under the Act any event shall have occurred as a result of which
the Prospectus as then amended or supplemented includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement the Prospectus or Registration
Statement to comply with the Act or the Regulations, the Company will notify
you promptly and prepare and file with the Commission an appropriate amendment
or supplement (in form and substance satisfactory to you) which will correct
such statement or omission and will use its best efforts to have any amendment
to the Registration Statement declared effective as soon as possible.

     (c) The Company will, without charge, promptly deliver to you a signed
copy of the Registration Statement, including exhibits and all amendments
thereto, [or a conformed copy of the registration statement originally filed
with respect to the Shares, including exhibits and all amendments thereto,
certified by the Secretary of the Company to be true and complete copies

                                      16

<PAGE>   17


thereof as filed with the Commission by electronic transmission.]  The Company
will promptly deliver to each of the several Underwriters such number of copies
of any preliminary prospectus, the Prospectus, the Registration Statement, and
all amendments of and supplements to such documents, if any, as you may
reasonably request.

     (d) The Company will endeavor in good faith, in cooperation with you, at
or prior to the time the Registration Statement becomes effective, to qualify
the Shares for offering and sale under the securities laws relating to the
offering or sale of the Shares of such jurisdictions as you may designate and
to maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation in any jurisdiction in
which it is not otherwise required to be so qualified, or to execute a general
consent for service of process in any jurisdiction in which it is not otherwise
required to execute such a consent.

     (e) The Company will make generally available (within the meaning of
Section 11(a) of the Act and Rule 158 of the Rules and Regulations) to its
security holders and to you as soon as practicable, but not later than 45 days
after the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earning statement (in
form complying with the provisions of Section 11(a) of the Act and Rule 158 of
the Rules and Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.

     (f) During the period of 90 days from the date of the Prospectus, the
Company will not, without the prior written consent of Bear, Stearns & Co.
Inc., on behalf of the Representatives, issue, sell, offer or agree to sell,
encumber, pledge, grant any option for the sale of, or otherwise dispose (or
announce any offer, sale, grant of an option to purchase or other disposition)
of, directly or indirectly, any Common Stock (or any securities convertible
into, exercisable for or exchangeable for Common Stock), and the Company will
obtain the undertaking of each of its officers and directors, each of the
Selling Shareholders and such of its other shareholders as have been heretofore
designated by you not to engage in any of the aforementioned transactions on
their own behalf, other than the sale by the Company and the Selling
Shareholders of Shares hereunder and the Company's issuance of Common Stock
upon the exercise of presently outstanding stock options disclosed in the
Prospectus.


                                      17

<PAGE>   18


     (g) During a period of three years from the effective date of the 
Registration Statement, the Company will furnish to the Representatives copies 
of (i) all reports to its shareholders; and (ii) all reports, financial 
statements and proxy or information statements filed by the Company with the 
Commission or any national securities exchange.

     (h) The Company will apply the proceeds from the sale of the Shares as set
forth under "Use of Proceeds" in the Prospectus.

     (i) The Company will use its best efforts to remain qualified, and to
cause the Shares to be included, for quotation on the Nasdaq National Market.

     (j) The Company will file with the Commission such reports on Form SR as
may be required pursuant to Rule 463 of the Regulations.

     (k) On or prior to June 30, 1996, the Company will take all action to 
irrevocably exercise in full, the Clinitec Option, unless the Company has, on
or before such date, consummated the acquisition of 100% of Clinitec, provided,
                                                                      --------
however, that the Company shall not be required to exercise the Clinitec Option
- -------
if the Board of Directors of the Company determines, in accordance with its
fiduciary duties, that the exercise of the Clinitec Option would have a 
material adverse financial effect on the Company's business and prospects and 
its shareholders.

     B. Each of the Selling Shareholders covenants and agrees with the several
Underwriters that, during the period of 90 days from the date of the
Prospectus, he or she will not, without the prior written consent of Bear,
Stearns & Co. Inc., on behalf of the Representatives, issue, sell, offer or
agree to sell, encumber, pledge, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any Common Stock (or any securities
convertible into, exercisable for or exchangeable for Common Stock).

     5. Payment of Expenses.  Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company and the Selling Shareholders hereunder, including
those in connection with (i) preparing, printing, duplicating, filing and
distributing the Registration Statement, as originally filed, and all amendments
thereof (including all exhibits thereto), any preliminary prospectus, the
Prospectus and any amendments thereof or supplements thereto (including,
without limitation, fees and expenses of the Company's accountants and
counsel), the underwriting documents (including this Agreement and the
Agreement Among Underwriters) and all other documents related to the public
offering of the Shares (including those supplied to the Underwriters in
quantities as hereinabove stated), (ii) the issuance, transfer and delivery of
the Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the

                                      18

<PAGE>   19


qualification of the Shares under state or foreign securities or Blue Sky laws,
including the costs of printing and mailing a preliminary and final "Blue Sky
Memorandum" and the fees of counsel for the Underwriters and such counsel's
disbursements in relation thereto, (iv) quotation of the Shares on the Nasdaq
National Market, (v) filing fees of the Commission and the NASD, (vi) the cost
of printing certificates representing the Shares and (vii) the cost and charges
of any transfer agent or registrar.     

     6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Shares and the Additional
Shares, as provided herein, shall be subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
herein contained, as of the date hereof and as of the Closing Date (for
purposes of this Section 6, "Closing Date" shall refer to the Closing Date for
the Firm Shares and any Additional Closing Date, if different, for the
Additional Shares), to the absence from any certificates, opinions, written
statements or letters furnished to you or to Gibson, Dunn & Crutcher
("Underwriters' Counsel") pursuant to this Section 6 of any material
misstatement or omission, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder, and to the following
additional conditions:

     (a) The Registration Statement shall have become effective not later than
5:30 P.M., New York time, on the date of this Agreement, or at such later time
and date as shall have been consented to in writing by you; if the Company
shall have elected to rely upon Rule 430A of the Regulations, the Prospectus or
any Term Sheet that constitutes a part thereof shall have been filed with the
Commission in a timely fashion in accordance with Section 4.A(a) hereof; and,
at or prior to the Closing Date, and Additional Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereof shall have been issued and no proceedings
therefor shall have been initiated or threatened by the Commission.

     (b) At the Closing Date and the Additional Closing Date you shall have
received the opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Company, dated the Closing Date or the Additional Closing Date, as the case may
be, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:

           (1) The Company has been duly incorporated and is validly existing
      as a corporation in good standing under the laws of the State of
      California, is duly qualified to do business as a foreign corporation and
      is in good standing in all

                                      19

<PAGE>   20


      other jurisdictions where the ownership or leasing of properties or the
      conduct of its business requires such qualification, except for
      jurisdictions in which the failure to so qualify would not have a
      material adverse effect on the Company and has full corporate power and
      authority to own its properties and conduct its business as described in
      the Registration Statement, and has no subsidiaries;

           (2) The authorized, issued and outstanding capital stock of the
      Company is as set forth under the caption "Capitalization" in the
      Prospectus; all outstanding shares of Common Stock (including the Firm
      Shares to be sold by the Selling Shareholders and the Additional Shares)
      have been duly authorized and validly issued, are fully paid and
      nonassessable, have been issued in compliance with federal and state
      securities laws, were not issued in violation of or subject to any
      preemptive rights or other rights to subscribe for or purchase any
      securities and conform to the description thereof contained in the
      Prospectus; without limiting the foregoing, there are no preemptive or
      other rights to subscribe for or purchase any of the Shares to be sold by
      the Company hereunder;

           (3) All of the issued and outstanding shares of Clinitec owned
      beneficially by the Company are so owned free and clear of all liens,
      encumbrances, equities, claims, security interests, voting trusts or
      other defects of title whatsoever;

           (4) The certificates evidencing the Shares to be delivered hereunder
      are in due and proper form under California law, and when duly
      countersigned by the Company's transfer agent and registrar, and
      delivered to you or upon your order against payment of the agreed
      consideration therefor in accordance with the provisions of this
      Agreement, the Shares represented thereby will be duly authorized and
      validly issued, fully paid and nonassessable, will not have been issued
      in violation of or subject to any preemptive rights or other rights to
      subscribe for or purchase securities and will conform in all material
      respects to the description thereof contained in the Prospectus;

           (5) Except as disclosed in or specifically contemplated by the
      Prospectus, there are no outstanding options, warrants or other rights
      calling for the issuance of, and, to the best knowledge of such counsel,
      no commitments, plans or arrangements to issue, any shares of capital
      stock of the Company or

                                      20

<PAGE>   21


      any security convertible into or exchangeable for capital stock of the
      Company;

           (6) The statements under the captions "Risk Factors - Proprietary
      Technology," "Risk Factors - Product Liability," "Risk Factors -
      Uncertainty in Health Care Industry; Government Regulation," "Description
      of Capital Stock," "Business-Government Regulation" and "Shares Eligible
      for Future Sale," at the time the Registration Statement became
      effective, fairly summarize, in all material respects, the matters
      described therein insofar as such statements constitute a summary of
      documents referred to therein or matters of law;

           (7)(a) The Registration Statement has become effective under the
      Act, and, to the best of such counsel's knowledge, no stop order
      suspending the effectiveness of the Registration Statement or preventing
      the use of the Prospectus has been issued and no proceedings for that
      purpose have been instituted or are pending or contemplated by the
      Commission; any required filing of the Prospectus and any supplement
      thereto pursuant to Rule 424(b) of the Rules and Regulations has been
      made in the manner and within the time period required by such Rule
      424(b);

              (b) The Registration Statement, the Prospectus and each amendment
      or supplement thereto (except for the financial statements and schedules
      included therein as to which such counsel need express no opinion) comply
      as to form in all material respects with the requirements of the Act and
      the Rules and Regulations;

              (c) To such counsel's best knowledge, there are no franchises,
      leases, contracts, agreements or documents of a character required to be
      disclosed in the Registration Statement or Prospectus or to be filed as
      exhibits to the Registration Statement which are not disclosed or filed,
      as required; and

              (d) To such counsel's best knowledge, there are no legal or
      governmental actions, suits or proceedings pending or threatened against
      the Company which are required to be described in the Prospectus which
      are not described as required;

           (8) The Company has full corporate power and authority to enter into
      this Agreement and to sell and deliver the Firm Shares to be sold by it
      to the several Underwriters; this Agreement has been duly and validly
      authorized by all necessary corporate

                                      21

<PAGE>   22


      action by the Company, has been duly and validly executed and delivered
      by and on behalf of the Company; this Agreement has been duly and validly
      delivered by and on behalf of the Selling Shareholders; and no approval,
      authorization, order, consent, registration, filing, qualification,
      license or permit of or with any court, regulatory, administrative or
      other governmental body is required for the execution and delivery of
      this Agreement by the Company or the consummation of the transactions
      contemplated by this Agreement except such as have been obtained and are
      in full force and effect under the Act and such as may be required under
      applicable Blue Sky laws in connection with the purchase and distribution
      of the Shares by the Underwriters and the clearance of such offering with
      the NASD;

           (9) The execution and performance of this Agreement and the
      consummation of the transactions herein contemplated will not conflict
      with, result in the acceleration of any indebtedness under or performance
      required by, result in any right of termination of, increase any amounts
      payable under, decrease any amounts receivable under, result in the
      breach of, or constitute, either by itself or upon notice or the passage
      of time or both, a default under, or, to such counsel's best knowledge
      adversely change any other rights pursuant to, any agreement, mortgage,
      deed of trust, lease, franchise, license, indenture, permit or other
      instrument known to such counsel to which the Company is a party or by
      which the Company or any of its property may be bound or affected which
      is material to the Company, or violate any of the provisions of the
      articles of incorporation or bylaws, or other organizational documents,
      of the Company or, so far as is known to such counsel violate any
      statute, judgment, decree, order, rule or regulation of any court or
      governmental body having jurisdiction over the Company or any of its
      property;

           (10) The Company is not in violation of its articles of
      incorporation or bylaws, as amended or restated, or other organizational
      documents, or in breach of or default with respect to any provision of
      any agreement, mortgage, deed of trust, lease, franchise, license,
      indenture, permit or other instrument known to such counsel to which the
      Company is a party or by which it or any of its properties may be bound
      or affected, except where such default would not materially and adversely
      affect the Company; and, to the best knowledge of such counsel, the
      Company is in compliance with all laws, rules, regulations, judgments,
      decrees, orders and statutes of any court or jurisdiction to which they
      are subject, except where

                                      22

<PAGE>   23


      noncompliance would not materially and adversely affect the Company;

           (11) To the best knowledge of such counsel no holders of securities
      of the Company have rights which have not been waived to the registration
      of shares of Common Stock or other securities because of the filing of
      the Registration Statement by the Company or the offering contemplated
      hereby;

           (12) Except as set forth in the Registration Statement and the
      Prospectus, such counsel has no knowledge that any patent or copyright
      held by others is infringed by the activities of the Company described in
      the Registration Statement or the Prospectus or by the manufacture, use
      or sale of any product, device, system or instrument made by the Company;

           (13) Except as set forth in the Registration Statement and the
      Prospectus, such counsel has no knowledge of any actual or threatened
      material action, suit, claim or proceeding relating to patents, patent
      rights or licenses, trademarks or trademark rights, copyrights,
      collaborative research, licenses or royalty arrangements or agreements or
      trade secrets, know-how or proprietary techniques or technology,
      including, processes and substances, owned by or affecting the business
      operations of the Company which are pending or threatened against the
      Company or any of its officers or directors;

           (14) This Agreement and the Stockholders Agreement have been duly
      authorized, executed and delivered by or on behalf of each of the Selling
      Shareholders; the Agent has been duly and validly authorized to act as
      the custodian of the Common Shares to be sold by each such Selling
      Shareholder; the performance of this Agreement and the Stockholders
      Agreement, and the consummation of the transactions herein and therein
      contemplated by the Selling Shareholders will not conflict with, result
      in the acceleration of any indebtedness under or performance required by,
      result in any right of termination of, increase any amounts payable
      under, decrease any amounts receivable under, to such counsel's best
      knowledge adversely change any other rights pursuant to, result in a
      breach or violation of, or constitute, either by itself or upon notice of
      the passage of time or both, a default under, any indenture, mortgage,
      deed of trust, trust (constructive or other), loan agreement, lease,
      franchise, license, or other agreement or instrument to which any of the
      Selling Shareholders is a party or by which any of the Selling

                                      23

<PAGE>   24


      Shareholders or any of their properties may be bound, or violate any
      statute, judgment, decree, order, rule or regulation known to such
      counsel as applicable to the Selling Shareholders of any court or
      governmental body having jurisdiction over any of the Selling
      Shareholders or any of their properties; and no approval, authorization,
      order or consent of any court, regulatory body, administrative agency or
      other governmental body is required for the execution and delivery of
      this Agreement and the Stockholders Agreement or the consummation by the
      Selling Shareholders of the transactions contemplated herein or therein
      except such as have been obtained and are in full force and effect under
      the Act and such as may be required under the rules of the NASD and
      applicable Blue Sky laws, as to which no opinion is expressed;

           (15) The Selling Shareholders have full right, power and authority
      to enter into this Agreement and the Stockholders Agreement and to sell,
      transfer and deliver the Common Shares to be sold on such Closing Date by
      such Selling Shareholders hereunder and good and marketable title to such
      Common Shares so sold, free and clear of all liens, encumbrances,
      equities, claims, restrictions, security interests, voting trusts, or
      other defects of title whatsoever, has been transferred to the
      Underwriters (whom counsel may assume to be bona fide purchasers) who
      have purchased such Common Shares hereunder;

           (16) To the best knowledge of such counsel, there are no actual or
      threatened challenges to the enforceability of the Clinitec Option or any
      facts that may constitute a defense by any party to the enforceability of
      the Clinitec Option.

     In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and its subsidiaries, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel.
The opinion of such counsel for the Company shall state that the opinion of any
such other

                                      24

<PAGE>   25


counsel is in form satisfactory to such counsel and, in their opinion, you and
they are justified in relying thereon.

     (c) All proceedings taken in connection with the sale of the Firm Shares
and the Additional Shares as herein contemplated shall be satisfactory in form
and substance to you and to Underwriters' Counsel, and the Underwriters shall
have received from said Underwriters' Counsel a favorable opinion, dated as of
the Closing Date and the Additional Closing Date, as the case may be, with
respect to the issuance and sale of the Shares, the Registration Statement and
the Prospectus and such other related matters as you may reasonably require,
and the Company and the Selling Shareholders shall have furnished to
Underwriters' Counsel such documents as they request for the purpose of
enabling them to pass upon such matters.

     (d) At the Closing Date and the Additional Closing Date you shall have
received a certificate of the Chief Executive Officer and Corporate Controller
of the Company, dated the Closing Date or Additional Closing Date to the effect
that (i) the condition set forth in subsection (a) of this Section 6 has been
satisfied, (ii) as of the date hereof and as of the Closing Date or Additional
Closing Date, as the case may be, the representations and warranties of the
Company set forth in Section 1.A hereof are accurate, (iii) as of the Closing
Date, or Additional Closing Date, as the case may be, the obligations of the
Company to be performed hereunder on or prior thereto have been duly performed
and (iv) subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, the Company has not sustained
any material loss or interference with its business or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development
involving a material adverse change, in the business prospects, properties,
operations, condition (financial or otherwise), or results of operations of the
Company, except in each case as described in or contemplated by the Prospectus.

     (e) At the time this Agreement is executed and at the Closing Date (or
Additional Closing Date, as the case may be), you shall have received a letter,
from Deloitte & Touche LLP, independent public accountants for the Company,
dated, respectively, as of the date of this Agreement and as of the Closing
Date addressed to the Underwriters and in form and substance satisfactory to
you, to the effect that: (i) they are independent certified public accountants
with respect to the Company within the meaning of the Act and the Regulations
and stating that the

                                      25

<PAGE>   26


answer to Item 10 of the Registration Statement is correct insofar as it
relates to them; (ii) in their opinion, the financial statements and schedules
and the pro forma financial statements and schedules of the Company included in
the Registration Statement and the Prospectus and covered by their opinion
therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim consolidated
financial statements of the Company, a reading of the minutes of meetings and
consents of the shareholders and boards of directors of the Company and the
committees of such boards subsequent to March 31, 1995, inquiries of officers
and other employees of the Company and its subsidiaries who have responsibility
for financial and accounting matters of the Company and its subsidiaries with
respect to transactions and events subsequent to March 31, 1995 and other
specified procedures and inquiries to a date not more than five days prior to
the date of such letter, nothing has come to their attention that would cause
them to believe that: (A) the unaudited consolidated financial statements and
schedules of the Company presented in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and, if applicable, the Exchange
Act and the applicable published rules and regulations of the Commission
thereunder or that such unaudited consolidated financial statements are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration Statement and
the Prospectus; (B) with respect to the period subsequent to December 31, 1995
there were, as of the date of the most recent available monthly consolidated
financial statements of the Company and its subsidiaries, if any, and as of a
specified date not more than five days prior to the date of such letter, any
changes in the capital stock or long-term indebtedness of the Company or any
decrease in the net current assets or stockholders' equity of the Company, in
each case as compared with the amounts shown in the most recent balance sheet
presented in the Registration Statement and the Prospectus, except for changes
or decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter or (C) that during
the period from January 1, 1996 to the date of the most recent available
monthly consolidated financial statements of the Company and its subsidiaries,
if any, and to a specified date not more than five days prior to the date of
such letter, there was any decrease, as compared with the corresponding period
in the prior fiscal year, in total revenues, or total or per share net income,
except for decreases which the Registration Statement and

                                      26

<PAGE>   27


the Prospectus disclose have occurred or may occur or which are set forth in
such letter; and (iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, and other financial information
pertaining to the Company set forth in the Registration Statement and the
Prospectus, which have been specified by you prior to the date of this
Agreement, to the extent that such amounts, numbers, percentages, and
information may be derived from the general accounting and financial records of
the Company and its subsidiaries or from schedules furnished by the Company,
and excluding any questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified readings, inquiries, and
other appropriate procedures specified by you set forth in such letter, and
found them to be in agreement.

     (f) Prior to the Closing Date and the Additional Closing Date the Company
and the Selling Shareholders shall have furnished to you such further
information, certificates and documents as you may reasonably request
including, without limitation, in the case of each Selling Shareholder, a
custody agreement in form and substance reasonably satisfactory to
Underwriters' Counsel relating to the sale of Additional Shares hereunder (the
"Additional Shares Custody Agreement").

     (g) You shall have received from each person who is a director or officer
of the Company, each Selling Shareholder and such additional shareholders as
have been heretofore designated by you an agreement to the effect that such
person will not, directly or indirectly, without the prior written consent of
Bear, Stearns & Co. Inc. on behalf of the Representatives, offer, sell, offer
or agree to sell, encumber, pledge, grant any option to purchase or otherwise
dispose (or announce any offer, sale, grant of an option to purchase or other
disposition) of any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable or exercisable for shares of Common Stock) for
a period of 90 days after the date of the Prospectus.

     (h) At the Closing Date, the Shares shall have been approved for quotation
on the Nasdaq National Market.

     (i) There shall not have occurred any change, or any development involving
a prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations, of the Company from that set forth in the
Registration Statement, that, in your judgment, is material and adverse and
that make it, in your judgment, impracticable to market the Shares on the terms
and in the manner contemplated in the Prospectus.


                                      27

<PAGE>   28

     If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
cancelled by you at, or at any time prior to, the Additional Closing Date.
Notice of such cancellation shall be given to the Company and the Selling
Shareholders in writing, or by telephone, telex or telegraph, confirmed in
writing.

     7. Indemnification.

     (a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), against any and all losses, liabilities, claims,
damages and expenses whatsoever as incurred (including but not limited to
attorneys' fees and disbursements and any and all expenses whatsoever incurred
in investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Shares, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any supplement
thereto or amendment thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that the Company will not be liable in any such case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Underwriter through you expressly for use therein.  This indemnity will be in
addition to any liability which the Company may otherwise have, including under
this Agreement.


                                      28

<PAGE>   29


     (b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each Selling Shareholder, each of the directors
of the Company, each of the officers of the Company who shall have signed the
Registration Statement, and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any and all losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to attorneys' fees and
disbursements and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), jointly or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Shares, as originally filed or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein; provided,
however, that in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder.  This indemnity will be in addition to
any liability which any Underwriter may otherwise have, including under this
Agreement.  The Company acknowledges that the statements set forth in the last
paragraph of the cover page and in the paragraphs under the caption
"Underwriting" in the Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the
registration statement relating to the Shares as originally filed or in any
amendment thereof, any related preliminary prospectus or the Prospectus or in
any amendment thereof or supplement thereto, as the case may be.

     (c) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any and all

                                      29

<PAGE>   30


losses, liabilities, claims, damages and expenses whatsoever (including but not
limited to attorneys' fees and disbursements and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any supplement thereto or amendment thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case (for each Selling Shareholder other than Mr. Sheldon
Razin) to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein relating to such Selling Shareholder in reliance upon and in conformity
with written information relating to such Selling Shareholder furnished to the
Company by such Selling Shareholder expressly for use therein; provided,
however, that the liability of each Selling Shareholder (including Mr. Sheldon
Razin) hereunder shall in no event exceed the net proceeds received by such 
Selling Shareholder from the sale of Common Stock pursuant to this Agreement.
This indemnity will be in addition to any liability which any Selling 
Shareholder may otherwise have, including under this Agreement.

     (d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7).  In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof with counsel satisfactory
to such indemnified party.  Notwithstanding the

                                      30

<PAGE>   31


foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by one of
the indemnifying parties in connection with the defense of such action, (ii)
the indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses shall be borne by
the indemnifying parties.  Anything in this subsection to the contrary
notwithstanding, (y) an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld, and (z) no
indemnifying party, in the defense of any such claim or action, shall consent
to the entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release for all liability with respect to such
claim or action, without the written consent of such indemnified party.

     8. Contribution.  In order to provide for contribution in circumstances in
which the indemnification provided for in Sections 7(a), (b) or (c) hereof is
for any reason held to be unavailable from the Company, any Underwriter or any
Selling Shareholder who would otherwise be liable as an indemnifying party
under Section 7 of this Agreement, as the case may be, or is insufficient to
hold harmless a party indemnified thereunder, the Company, such Selling
Shareholder and such Underwriter shall contribute to the aggregate losses,
claims, damages, liabilities and expenses of the nature contemplated by such
indemnification provisions (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted, but after deducting in the
case of losses, claims, damages, liabilities and expenses suffered by the
Company, such Selling Shareholder or such Underwriter, any contribution
received by the Company, such Selling Shareholder or such Underwriter from
persons other than (i) the Underwriters or the Selling Shareholder in the case
of the Company, (ii) the Company or any Selling Shareholder in the case of the
Underwriters, and (iii) the Company or any Underwriter, in the case of the
Selling Shareholders, who may also be liable for contribution, including
persons

                                      31

<PAGE>   32


who control the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, officers of the Company who signed the Registration
Statement and directors of the Company) as incurred to which the Company, such
Selling Shareholder and such Underwriter may be subject, in such proportions as
is appropriate to reflect the relative benefits received by the Company, such
Selling Shareholder and such Underwriter from the offering of the Shares or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company, such Selling Shareholder and such Underwriter in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations.  The relative benefits received by the Company, such Selling
Shareholder and such Underwriter shall be deemed to be in the same proportion
as (x) the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company, (y) the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by such Selling Shareholder and (z) the
underwriting discounts and commissions received by such Underwriter,
respectively, in each case as set forth in the table on the cover page of the
Prospectus.  The relative fault of the Company, such Selling Shareholder and
such Underwriter shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, such Selling Shareholder or such Underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.  The Company, such Selling
Shareholder and such Underwriter agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above.  Notwithstanding the provisions
of this Section 8, (i) in no case shall any Underwriter (except as may be
provided in the Agreement Among Underwriters entered into by and among the
several Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, (ii) in no case shall any Selling Shareholder be liable or
responsible for any amount in excess of the net proceeds received by such
Selling Shareholder from the sale of Common Stock pursuant to this Agreement,
and (iii) no person guilty of fraudulent misrepresentation (within the

                                      32

<PAGE>   33


meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.  For purposes of this Section 8,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, each person, if any, who controls any
Selling Shareholder within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Selling Shareholder, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) through (iii) of this Section 8.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 8, notify such party or parties from whom contribution may
be sought, but the omission to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its consent; provided, however, that such consent was not unreasonably
withheld.

     9. Default by an Underwriter.

     (a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, such Shares to which the default relates shall be
purchased by the non-defaulting Underwriters in proportion to the respective
proportions which the numbers of Firm Shares set forth opposite their
respective names in Column (1) of Schedule I hereto bear to the aggregate
number of Firm Shares set forth opposite the names of the non-defaulting
Underwriters.


                                      33

<PAGE>   34


     (b) In the event that such default relates to more than 10% of the Firm 
Shares or Additional Shares, as the case may be, you may in your discretion 
arrange for yourself or for another party or parties (including any 
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein.  In the event that within five calendar days
after such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as
provided in this Section 9, this Agreement or, in the case of a default with
respect to the Additional Shares, the obligations of the Underwriters to
purchase and of the applicable Selling Shareholders to sell the Additional
Shares shall thereupon terminate, without liability on the part of the Company,
the Selling Shareholders or the several Underwriters with respect thereto
(except in each case as provided in Sections 5, 7(a),(b),(c) and 8 hereof), but
nothing in this Agreement shall relieve a defaulting Underwriter or
Underwriters of its or their liability, if any, to the other several
Underwriters, the Company and the Selling Shareholders for damages occasioned
by its or their default hereunder.

     (c) In the event that the Firm Shares or Additional Shares to which the
default relates are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date,
as the case may be, for a period, not exceeding five business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of the Underwriters and
Underwriters' Counsel, may thereby be made necessary or advisable.  The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares and Additional Shares.

     10. Survival of Representations and Agreements.  All representations and
warranties, covenants and agreements of the Underwriters, the Selling
Shareholders and the Company contained in this Agreement, including the
representations and warranties contained in Section 1, the agreements contained
in Section 5, the indemnity agreements contained in Section 7 and the
contribution agreements contained in Section 8, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person thereof or by or on behalf of the
Company, any of its

                                      34

<PAGE>   35


officers and directors or any Selling Shareholder or any controlling person
thereof, and shall survive delivery of and payment for the Shares to and by the
several Underwriters.  The representations contained in Section 1 and the
agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the
termination of this Agreement, including termination pursuant to Sections 9 or
11 hereof.

     11. Effective Date of Agreement; Termination.

     (a) This Agreement shall become effective, upon the later of when (i) you,
the Company and the Selling Shareholders shall have received notification of
the effectiveness of the Registration Statement or (ii) the execution of this
Agreement.  If either the initial public offering price or the purchase price
per Share has not been agreed upon prior to 5:00 P.M., New York time, on the
fifth full business day after the Registration Statement shall have become
effective, this Agreement shall thereupon terminate without liability to the
Company or the Underwriters except as herein expressly provided.  Until this
Agreement becomes effective as aforesaid, it may be terminated by the Company
by notifying you and the Selling Shareholders or by you notifying the Company
and the Selling Shareholders, or the Attorney-in-Fact on their behalf.
Notwithstanding the foregoing, the provisions of this Section 11 and of
Sections 1, 5, 7 and 8 hereof shall at all times be in full force and effect.

     (b) You shall have the right to terminate this Agreement at any time prior
to the Closing Date or the obligations of the Underwriters to purchase the
Additional Shares at any time prior to the Additional Closing Date, as the case
may be, if (i) any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future
materially disrupt, the market for the Company's securities or the securities
markets in general; or (ii) if trading on the New York or American Stock
Exchanges shall have been suspended or materially limited, or minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been required, on the New York or American Stock
Exchanges by the New York or American Stock Exchanges or by order of the
Commission or any other governmental authority having jurisdiction; or (iii) if
a banking moratorium has been declared by a state or federal authority, or if a
moratorium in foreign exchange trading by major international banks or person
has been declared, or if any new restriction materially adversely affecting the
distribution of the Firm Shares or the Additional Shares, as the case may be,
shall have become effective; or (iv) if there shall have occurred any outbreak
or escalation of major hostilities or any change in the financial markets or
any calamity or crises that, in your reasonable judgment, is

                                      35

<PAGE>   36


material and adverse; or (v) if there shall have been such a change in the
market for securities in general or in political, financial or economic
conditions, in the case of each of clauses (i) through (v) if, in your
reasonable judgment, any such event, individually or in the aggregate with 
any other such event, makes it inadvisable to proceed with the offering, sale 
and delivery of the Firm Shares or the Additional Shares, as the case may be, 
on the terms contemplated by the Prospectus.

     (c) Any notice of termination pursuant to this Section 11 shall be by
telephone, telex, telecopy, or telegraph, confirmed in writing by letter.

     (d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Sections 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the several Underwriters set forth herein is
not satisfied or because of any refusal, inability or failure on the part of
the Company or any Selling Shareholder to perform any agreement herein or
comply with any provision hereof, the Company will, subject to demand by you,
reimburse the Underwriters for all out-of-pocket expenses (including the fees
and expenses of their counsel), incurred by the several Underwriters in
connection herewith.

     12.  Notices.  All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, telecopied or telexed or telegraphed
and confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167, Attention: Brian McCarthy; if sent to
the Company or any Selling Shareholder, shall be mailed, delivered, or
telegraphed and confirmed in writing to the Company, 17822 East 17th Street,
Suite 210, Tustin, California 92680 , Attention: Mr. Sheldon Razin.  All such
notices and communications shall be deemed to have been duly given: when
delivered by hand, if personally delivered; three business days after being
deposited in the mail, postage prepaid, if mailed; one business day after being
sent by next-day courier; when answered back, if telexed; and when receipt
acknowledged, if telecopied.

     13.  Parties.  This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Selling Shareholders and
the Company and the controlling persons, directors, officers, employees and
agents referred to in Sections 7 and 8, and their respective successors and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or

                                      36

<PAGE>   37


claim under or in respect of or by virtue of this Agreement or any provision
herein contained.  The term "successors and assigns" shall not include a
purchaser, in its capacity as such, of Shares from any of the Underwriters.

     14. Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.

     If the foregoing correctly sets forth the understanding among you, the
Company, and the Selling Shareholders, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.

                                        Very truly yours,

                                        QUALITY SYSTEMS, INC.


                                        By 
                                           ------------------------------
                                             Sheldon Razin
                                             Chairman and Chief 
                                             Executive Officer

                                        THE SELLING SHAREHOLDERS, ACTING
                                        SEVERALLY


                                        ---------------------------------
                                             Sheldon Razin


                                        ---------------------------------
                                             Janet Razin


                                        ---------------------------------
                                             Graeme Frehner


                                        ---------------------------------
                                             Fen Frehner


                                        ---------------------------------
                                             David Razin


                                        ---------------------------------
                                             Michael Yerrid

Accepted as of the date first above written

BEAR, STEARNS & CO. INC.
PACIFIC GROWTH EQUITIES, INC.
CRUTTENDEN ROTH INCORPORATED


BY BEAR, STEARNS & CO. INC.

By
  ---------------------------
        General Partner

On behalf of themselves and the other
Underwriters named in Schedule I hereto.


                                      37

<PAGE>   38


                                   SCHEDULE I

                     Number of Shares to Be Purchased


<TABLE>
<CAPTION>
                                                        Maximum No. of        
                                          From the      Additional Shares     
                               From the   Selling       Shares to be
Name of Underwriter            Company    Shareholders  Purchased            
- -------------------            -------    ------------  -----------------
<S>                            <C>        <C>           <C>
Bear, Stearns & Co. Inc.
Pacific Growth Equities, Inc.
Cruttenden Roth Incorporated















TOTAL                          1,000,000  500,000       225,000
                               =========  =======       =======
</TABLE>















                     Schedule I to Underwriting Agreement


                                    Page 1

<PAGE>   39


                                  SCHEDULE II


                              Selling Shareholders


<TABLE>
<CAPTION>
                                                             Maximum No. of
                                     No. of Firm            Additional Shares
Name of Selling Shareholder       Shares to be Sold            to be Sold
- ---------------------------       -----------------         -----------------
<S>                                     <C>                     <C>
Sheldon and Janet Razin                 452,000                  225,000
Graeme Frehner                           20,000                        0
Fen Frehner                              13,000                        0
David Razin                              10,000                        0
Michael Yerrid                            5,000                        0
</TABLE>



















                     Schedule II to Underwriting Agreement


                                    Page 1


<PAGE>   1

                                                                    EXHIBIT 5.1


                               February 14, 1996


Quality Systems, Inc.
Meredith Financial Centre
Centre Building, Suite 210
17822 East 17th Street
Tustin, CA 92680


            Re:  Registration Statement on Form S-1
                 ----------------------------------


Ladies and Gentlemen:

            We have examined the Registration Statement on Form S-1 filed by
Quality Systems, Inc. (the "Company") with the Securities and Exchange
Commission (the "Commission") on or about January 11, 1996, and Amendment No. 1
thereto to be filed with the Commission on or about February 15, 1996
(collectively, the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of 1,725,000 shares
of the Company's Common Stock (the "Shares").  The Shares include an
over-allotment option granted to the underwriters by the Selling Shareholders
to purchase up to 225,000 additional shares of the Company's Common Stock and
are to be sold to the underwriters as described in the Registration Statement
for resale to the public.  As your counsel in connection with this transaction,
we have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.

            It is our opinion that, upon conclusion of the proceedings being
taken or contemplated by us to be taken prior to the issuance of that portion
of the Shares to be issued by the Company, and upon completion of the
proceedings being taken in order to permit the sale of the Shares to be carried
out in accordance with the securities laws of the various states where
required, the Shares, when issued (in the case of the Shares to be newly issued
by the Company) and sold in the manner described in the Registration Statement,
will be legally and validly issued, fully paid and nonassessable.

            We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in such Registration Statement, including the prospectus constituting
a part thereof, and any amendments thereto.



                                                 Very truly yours,


                                                 BROBECK, PHLEGER & HARRISON LLP

<PAGE>   1
                                                                EXHIBIT 10.11






                               February 13, 1996



PRIVILEGED AND CONFIDENTIAL

Clinitec International, Inc.
Cedar Creek Corporate Center
195A Witmer Road
Horsham, PA 19044
Attention:  Patrick Cline, President

Gentlemen:

         This letter expresses the intent of Quality Systems, Inc., a
California corporation ("QSI"), and Clinitec, International, Inc., a
Pennsylvania corporation ("Clinitec"), to enter into a series of transactions
(collectively, the "Transactions") whereby QSI will acquire Clinitec's
business.  The parties intend to enter into definitive agreements regarding the
Transactions which will set forth the definitive understandings, terms and
conditions agreed to by the parties with respect to the Transactions.

         1.      Structure of Transactions.

                 (a)      QSI shall exercise its option (the "Option") pursuant
to Article IX of that certain Series A Convertible Preferred Stock Purchase
Agreement among Clinitec, Patrick Cline and Nazir Memon, and QSI, dated April
21, 1995, to acquire such number of additional shares of Clinitec Series A
Convertible Preferred Stock to bring QSI's stock holdings in Clinitec (on a
fully diluted basis) to fifty-one percent (51%) (the "Option Transaction").

                 (b)      Following or concurrent with the close of the Option
Transaction, a newly created, wholly-owned subsidiary of QSI will merge with
Clinitec and all of the outstanding shares of Clinitec stock, and any and all
options, warrants or other rights to acquire or which may convert into Clinitec
stock, will be cancelled and the holders thereof other than QSI (the "Clinitec
Shareholders") will receive common stock of QSI (the "QSI Common Stock") and
cash.  The QSI subsidiary resulting from the Merger (the "Clinitec Subsidiary")
shall retain the name "Clinitec International, Inc."  The parties intend that
the Merger (as defined below) be a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended.
<PAGE>   2
Mr. Patrick Cline                                              February 13, 1996
                                                                          Page 2


                 (c)      The timing of the Option Transaction and the Merger
shall be determined by the parties; however, the parties intend that the
closing of the Transactions occur on or before March 31, 1996.

         2.      Purchase Price.  Pursuant to the contemplated Transactions,
QSI shall deliver to Clinitec and Clinitec's Shareholders the following
consideration:

                 (a)      Upon the closing of the Option Transaction, QSI shall
deliver to Clinitec One Million Five Hundred Thousand Dollars ($1,500,000) in
cash.  The parties acknowledge that this $1.5 million shall be distributed by
Clinitec to the Clinitec Shareholders on a pro rata basis proportionate to the
Clinitec Shareholders' respective ownership (in relation to one another) of
Clinitec.  Further, the parties acknowledge that QSI shall not be required to
contribute $1.5 million of additional capital (for a total of $3.0 million)
into Clinitec as contemplated by the terms of the Option if the Merger and the
Option Transaction occur concurrently.  Otherwise, the additional $1.5 million
of consideration for the Option Transaction (for a total of $3.0 million) shall
be due and payable upon the closing thereof.  However, if the Merger occurs
subsequent to the closing of the Option Transaction, then the $1.5 million of
additional capital paid to Clinitec in connection with the Option Transaction
shall be returned by Clinitec to QSI upon the closing of the Merger.

                 (b)      Pursuant to an agreement and plan of merger and any
other documents ancillary thereto (collectively, the "Merger Agreements"), upon
consummation of the transactions contemplated by the Merger Agreements (such
consummation, the "Merger"), the Clinitec Shareholders shall receive as
consideration the following:

                          (i)     Cash in the amount of Three Million Three
                                  Hundred Ninety-five Thousand Seven Hundred
                                  Dollars ($3,395,700) payable to the Clinitec
                                  Shareholders on a pro rata basis
                                  proportionate to their respective percentage
                                  ownership of Clinitec; and

                          (ii)    That number of shares of QSI Common Stock
                                  determined by dividing Six Million Eight
                                  Hundred Ninety-four Thousand Three Hundred
                                  Dollars ($6,894,300) by the offering price
                                  (the "Stock Price") of QSI Common Stock
                                  offered pursuant to its Secondary Public
                                  Offering (as defined below).  The term
                                  "Secondary Public Offering" shall mean a
                                  registered public offering of shares of QSI
                                  Common Stock pursuant to that certain
                                  Registration Statement on Form S-1 filed with
                                  the Securities and Exchange Commission on
                                  January 11, 1996.
<PAGE>   3
Mr. Patrick Cline                                              February 13, 1996
                                                                          Page 3


         3.      Restricted Stock.  The QSI Common Stock issued pursuant to the
Merger will be issued in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "1933 Act"), by reason of Section 4(2)
thereof or Regulation D promulgated thereunder, and shall be "restricted
securities" under the 1933 Act and Rule 144 promulgated thereunder and
otherwise may only be sold or transferred pursuant to an effective Registration
Statement under the 1933 Act or an exemption from registration requirements of
the 1933 Act.  Additionally, all former Clinitec Shareholders receiving shares
of QSI Stock pursuant to the Merger shall enter into an agreement with QSI
restricting the sale of such QSI Common Stock by such holders for a period of
two years following the closing of the Merger.

         4.      Representations and Warranties.  In connection with the
Transactions, Clinitec and certain key Clinitec Shareholders designated by QSI
will make customary representations and warranties regarding, among other
things, Clinitec's business, operations, financial condition and assets.
Additionally, such key Clinitec Shareholders will indemnify, defend and hold
QSI harmless from and against any and all claims, damages, liability or
obligations of any nature whatsoever (i) arising out of or relating to any
breach of any covenant or any representation or warranty made or given by
Clinitec or any key Clinitec Shareholder in or pursuant to any Merger
Agreement, or (ii) arising out of or relating to any acts or omissions of
Clinitec or any current or former officer, director, employee or agent of
Clinitec prior to the closing of the Transactions.

                 Further, Clinitec and such key Clinitec Shareholders shall
represent and warrant that:

                 (a)      the NextGen product's document processing function
has been developed with reasonable diligence and skill, and that Clinitec will
use its best efforts to review and incorporate newer, faster methods of
generating documents should such methods be feasible;

                 (b)      the NextGen product is based upon client/server
architecture and is designed to be scaleable to support up to 500 appropriately
configured and connected workstations performing typical functions, and that if
performance problems arise with large scale implementations of the product,
that Clinitec will use its best efforts to resolve such problems on a timely
basis;

                 (c)      Clinitec will use its best efforts to cooperate with
QSI to identify tools and procedures, and to use its best efforts to develop
appropriate NextGen product functions, which assist with the support and
updating of a large network of NextGen users; and

<PAGE>   4
Mr. Patrick Cline                                              February 13, 1996
                                                                          Page 4


                 (d)      Clinitec will work with QSI to design, and will use
its best efforts to develop, NextGen product functions that assist with
work-flow, including patient tracking and provider notification methodology
automated transcription lists, to-do lists, message and document routing linked
to patient charts, etc.

                 Further, Clinitec and such key Clinitec Shareholders shall
represent and warrant that the forecasts provided to QSI by Clinitec on
February 13, 1996 represent a reasonable projection for the calendar year 1996,
exclusive of QSI's direct sales.

         5.      Conditions to Closing.  The consummation of the Transactions
will be subject to, among other things:

                 (a)      Negotiation, execution and delivery of definitive
Merger Agreements and other related documentation reflecting the terms and
conditions of the Transactions and such other terms and conditions as are
mutually agreed upon by QSI and Clinitec;

                 (b)      Completion by QSI and its attorneys, accountants,
advisors and agents of due diligence review of Clinitec;

                 (c)      Obtaining all necessary approvals and consents of all
third parties required by law or under QSI's and/or Clinitec's material
agreements, licenses and permits;

                 (d)      The Transactions being approved by the respective
Boards of Directors of Clinitec and QSI; and

                 (e)      Since December 31, 1995, the business of Clinitec
shall have been conducted in the ordinary course, and there shall have been no
material adverse change in the business, prospects, operations, earnings,
assets or financial condition of Clinitec.

         6.      Due Diligence.  Clinitec will provide to QSI (and to QSI's
attorneys, accountants, financial institutions, advisors and other appropriate
representatives) reasonable access to its books, records, facilities, and
properties; provided, however, that any non-public information or materials
obtained by QSI pursuant to its due diligence review shall be treated as
confidential.

         7.      Board Seat Position.  The parties intend that the authorized
number of directors of QSI be increased by one position and that Patrick Cline
be nominated to fill such vacant position.

         8.      Employment Agreements.  The parties intend that certain key
employees of Clinitec, including without limitation, Patrick Cline, Bryan
Rosenberger, Nazir Memon, Bob
<PAGE>   5
Mr. Patrick Cline                                              February 13, 1996
                                                                          Page 5


Ellis, and Jerry Shultz, enter into employment agreements with QSI containing
three-year terms.  The employment agreements shall contain customary terms and
provisions with compensation provisions consistent with Exhibit A hereto.
                                                        
         9.      Agreements Not to Compete.  Certain key shareholders and
employees, including, without limitation, Nazir Memon, Patrick Cline, Bryan
Rosenberger, Bob Ellis, and Jerry Shultz, will enter into agreements which
restrict them from competing with Clinitec or QSI during the term of their
employment and for the following periods of time (the "Restriction Period")
following termination or expiration of such employment agreements:

                 (a)      for a period of two years following the Merger, the
Restriction Period shall be three years;

                 (b)      during the period beginning on the day subsequent to
expiration of two years following the Merger and ending on the day preceding
the third anniversary of the Merger (the "Gap Period"), the Restriction Period
shall be two years plus the number of days remaining in the Gap Period; and

                 (c)      subsequent to expiration of three years following the
Merger, the Restriction Period shall be two years.

         10.     Operation of Business.  Until the closing of the Transactions
(or the termination of the binding provisions of this letter), Clinitec will
continue to operate its business in substantially the same manner as in the
past and consistent with past business practices and accounting procedures, and
any significant expenditures, commitments or operational changes (including
changes in the rates of compensation or other benefits for employees) not in
the ordinary course of business will be subject to QSI's prior approval.
Following the closing of the Option Transaction, Clinitec shall not issue or
grant any option, warrant or other right to acquire or which may convert into
Clinitec stock.

         11.     Binding Effect.  Except for paragraphs 6, 10 and 12 hereof
(which shall be binding on the parties), this letter does not create any
binding or legal obligation of or on any party, but merely represents the
present intention of the parties.

         12.     General.

                 (a)      After executing this letter and until the earlier of
(i) 45 days following the closing of the Secondary Public Offering or (ii) May
15, 1996, Clinitec agrees, and shall use its best efforts to cause its
officers, directors, employees, agents and shareholders, not to solicit or
encourage, directly or indirectly, in any manner, any discussion with, or
furnish or 

<PAGE>   6
Mr. Patrick Cline                                              February 13, 1996
                                                                          Page 6


cause to be furnished any information to any person other than QSI in
connection with, or to negotiate for or pursue the sale of all or substantially
all of the assets or stock of Clinitec or any portion of its business or any
business combination or merger of Clinitec with, any other party.  Clinitec
will promptly inform QSI of any inquiries or proposals with respect to the
foregoing.  In the event that the agreements in this paragraph are violated by
Clinitec or its officers, directors, employees, agents or shareholders, and QSI
does not consummate the Merger or the Transactions, then, in addition to other
remedies available to QSI, QSI shall be entitled to receive from Clinitec all
out-of- pocket expenses (including reasonable attorneys' fees and expenses)
relating to the Transactions that QSI has incurred.  Subject to the foregoing,
if the proposed Transactions do not close by the earlier of (i) 45 days
following the closing of the Secondary Public Offering or (ii) May 15, 1996,
each party is released from any obligations under this letter.

                 (b)      Neither of the parties to this letter shall disclose
to the public or to any third party the existence of this letter or the
proposed Transactions described herein other than with the express written
consent of the other party, except as may be required by law or deemed
appropriate by QSI in connection with the Secondary Public Offering.

                 (c)      Except as otherwise provided herein, each party will
be responsible for its own expenses in connection with all matters relating to
the Transactions herein proposed.  If the proposed Transactions shall not be
consummated for any reason other than a violation of subparagraph (a) above,
neither party will be responsible for any of the other party's expenses.

                 (d)      Each party will indemnify, defend and hold harmless
the other against the claims of any brokers or finders claiming by, through or
under the indemnifying party.
<PAGE>   7
Mr. Patrick Cline                                              February 13, 1996
                                                                          Page 7


         If this letter properly reflects the mutual intention of QSI and
Clinitec with respect to the matters discussed herein, please sign, date and
return to me a copy of this letter.

         I look forward to working with you and the rest of the Clinitec team
on bringing the Transactions to a successful and timely closing.

                                        Sincerely,

                                        QUALITY SYSTEMS, INC.



                                        By: Greg Flynn for Sheldon Razin
                                            -----------------------------------
                                            Sheldon Razin Chairman of the
                                            Board and Chief Executive Officer



Agreed to and Accepted this 13th Day of February 1996.
                            ----        --------

CLINITEC INTERNATIONAL, INC.


By:  Patrick Cline
    ------------------------------
     Patrick Cline
     Its:  President


<PAGE>   8
                                   EXHIBIT A


TOTAL COMPENSATION CAP:  Total compensation cap for employees during calendar
                         year 1996, 1997, 1998 shall be as follows:

<TABLE>
<CAPTION>
              Patrick     Bryan           Nazir       Bob       Jerry      Other     Other
              Cline       Rosenberger     Memon       Ellis     Shultz     Sales     Empl.
              -------     -----------     -----       -----     ------     -----     -----
 <S>          <C>         <C>             <C>         <C>       <C>        <C>       <C>       <C>
 1996         $250k       $ 95k           $150k       $150k     $195k      $170k     $100k
                                      
 1997         $275k       $104k           $165k       $165k     $214k      $187k     $110k     See Note
                                                                                               (1)
 1998         $302k       $115k           $181k       $181k     $236k      $206k     $121k     See Note
                                                                                               (2)
</TABLE>




Note (1):  Provided that (i) Clinitec continues to be operated by its current
management, and (ii) QSI does not impose fees for services or other obligations
on Clinitec which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved by QSI due to
business synergies, management of the combined entities and economies of scale,
if Clinitec does not achieve at least 75% of its profitability forecast for
1997 then the total compensation caps for 1996 will replace the caps for 1997.

Note (2):  Provided that (i) Clinitec continues to be operated by its current
management, and (ii) QSI does not impose fees for services or other obligations
on Clinitec which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved by QSI due to
business synergies, management of the combined entities and economies of scale,
if Clinitec does not achieve at least a 50% increase in its profitability for
1998 over 1997, then the total compensation caps in effect for the prior year
will replace the caps for 1998.

<PAGE>   1
 
                                                                    EXHIBIT 23.1
 
              INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
 
To the Board of Directors and Shareholders of
Quality Systems, Inc.:
 
   
     We consent to the use in this Amendment No. 1 to Registration Statement No.
333-00161 of Quality Systems, Inc. on Form S-1 of our report dated June 2, 1995,
except for Note 8 the date of which is February 13, 1996, on the financial
statements of Quality Systems, Inc. as of March 31, 1994 and 1995 and for each
of the three years in the period ended March 31, 1995 and our report dated
December 17, 1995 on the financial statements of Clinitec International, Inc. as
of and for the year ended December 31, 1994, both appearing in the Prospectus,
which is a part of such Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
    
 
     Our audit of the financial statements of Quality Systems, Inc. referred to
in our aforementioned report also included the financial statement schedule,
listed in Item 16. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
 
DELOITTE & TOUCHE LLP
Costa Mesa, California
   
February 14, 1996
    

<PAGE>   1
 
   
                                                                    EXHIBIT 23.3
    
 
   
                       CONSENT OF INDEPENDENT ACCOUNTANTS
    
 
   
     We consent to the inclusion in this registration statement on Form S-1
(File No. 333-00161) of our report dated February 13, 1996, on our audit of the
financial statements of Clinitec International, Inc. We also consent to the
reference to our firm under the caption "Experts."
    
 
   
COOPERS & LYBRAND L.L.P.
    
 
   
Philadelphia, Pennsylvania
    
   
February 14, 1996
    

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          MAR-31-1996
<PERIOD-END>                               DEC-31-1995
<CASH>                                       6,396,800
<SECURITIES>                                 1,265,200
<RECEIVABLES>                                4,364,900
<ALLOWANCES>                                         0
<INVENTORY>                                    724,600
<CURRENT-ASSETS>                            12,906,900
<PP&E>                                         466,900
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                              15,385,600
<CURRENT-LIABILITIES>                        3,604,600
<BONDS>                                              0
<COMMON>                                        46,400
                                          0
                                0
<OTHER-SE>                                  11,634,500
<TOTAL-LIABILITY-AND-EQUITY>                15,385,600
<SALES>                                      7,161,600
<TOTAL-REVENUES>                            12,321,000
<CGS>                                                0
<TOTAL-COSTS>                                5,865,400
<OTHER-EXPENSES>                             3,967,300
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                              2,786,600
<INCOME-TAX>                                 1,116,900
<INCOME-CONTINUING>                          1,669,700
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 1,669,700
<EPS-PRIMARY>                                      .35
<EPS-DILUTED>                                      .35
        

</TABLE>


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