<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13801
QUALITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
California 95-2888568
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17822 East 17th Street, Tustin, California 92780
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (714) 731-7171
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed, since last year)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
Yes XX No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
6,207,966 shares of Common Stock, $.01 par value, as of July 31, 2000
<PAGE> 2
PART I. CONSOLIDATED FINANCIAL INFORMATION.
------- -----------------------------------
Item 1. Financial Statements.
------- ---------------------
QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, March 31,
2000 2000
---------- ----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 15,332 $ 15,926
Short-term investments 246 243
Accounts receivable, net 13,972 13,710
Inventories 1,068 1,010
Other current assets 1,516 2,496
---------- ----------
Total current assets 32,134 33,385
Equipment and Improvements, net 2,020 1,797
Capitalized Software Costs, net 1,936 1,984
Deferred Tax Asset 2,980 3,042
Excess of Cost Over Net Assets
of Acquired Business, net 2,027 2,112
Other Assets 1,703 1,816
---------- ----------
Total assets $ 42,800 $ 44,136
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,160 $ 1,246
Deferred service revenue 5,540 5,691
Other current liabilities 3,310 5,116
---------- ----------
Total liabilities 10,010 12,053
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.01 par value, 20,000 shares
authorized, 6,213 and 6,201 shares issued
and outstanding, respectively 62 62
Additional paid-in capital 35,565 35,483
Accumulated deficit (2,837) (3,462)
---------- ----------
Total shareholders' equity 32,790 32,083
---------- ----------
Total liabilities and
shareholders' equity $ 42,800 $ 44,136
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Net Revenues:
Sales of computer systems,
upgrades and supplies $ 4,395 $ 5,116
Maintenance and other services 4,867 3,986
-------- --------
9,262 9,102
Cost of Products and Services 4,032 4,058
-------- --------
Gross Profit 5,230 5,044
Selling, General and
Administrative Expenses 3,365 3,040
Research and Development Costs 1,005 892
-------- --------
Income from Operations 860 1,112
Investment Income 246 166
-------- --------
Income before Provision
for Income Taxes 1,106 1,278
Provision for Income Taxes 481 536
-------- --------
Net Income and Comprehensive Income $ 625 $ 742
======== ========
Net Income per Share,
basic & diluted $ 0.10 $ 0.12
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 625 $ 742
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 578 644
Loss (Gain) on short-term investments (3) 3
Deferred income taxes 1,405 (77)
Changes in:
Accounts receivable (262) 1,631
Inventories (58) 12
Other current assets (70) (20)
Other assets 113 (114)
Accounts payable ( 86) (598)
Deferred service revenue (151) 747
Income taxes payable and taxes
related to equity accounts (1,913) (309)
Other current liabilities (186) 234
-------- --------
Net Cash Provided (Used)by
Operating Activities (8) 2,895
-------- --------
Cash Flows from Investing Activities:
Net additions to
equipment and improvements (394) (103)
Additions to capitalized software costs (274) (323)
Change in other assets - (5)
-------- --------
Net Cash Used in Investing Activities (668) (431)
-------- --------
Cash Flows from Financing Activities:
Proceeds from
exercise of stock options 82 4
-------- --------
Net Cash Provided by
Financing Activities 82 4
-------- --------
Net Increase (Decrease)
in Cash and Cash Equivalents (594) 2,468
Cash and Cash Equivalents,
beginning of period 15,926 14,196
-------- --------
Cash and Cash Equivalents, end of period $ 15,332 $ 16,664
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
Supplemental Information - During the three months ended June 30, 2000
and 1999, the Company made income tax payments, net of refunds received,
of $831 and $928, respectively.
<PAGE> 6
QUALITY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes which would be presented were
such financial statements prepared in accordance with generally accepted
accounting principles, and should be read in conjunction with the audited
financial statements presented in the Company's Annual Report for the
fiscal year ended March 31, 2000. In the opinion of management, the
accompanying financial statements reflect all adjustments which are
necessary for a fair presentation of the results of operations for the
interim periods presented. The results of operations for such interim
periods are not necessarily indicative of results of operations to be
expected for the full year.
NOTE 2 - STOCK REPURCHASE
------ ----------------
In February 1997, the Company's Board of Directors authorized the
repurchase on the open market of up to 10% of the shares of the Company's
outstanding Common Stock, subject to compliance with applicable laws and
regulations. This stock authorization has been renewed annually and
currently expires on June 7, 2001. The timing and amount of any repurchase
is at the discretion of the Company's management. The Company's management
could, in the exercise of its judgment, repurchase fewer shares than
authorized. During the three months ended June 30, 2000, the Company did
not repurchase any shares. Since the inception of the repurchase
authorization through July 31, 2000, 113,400 shares have been repurchased
at a cost of $654,000.
NOTE 3 - INCOME TAXES
------ ------------
The provision for (benefit from) income taxes for the three months ended
June 30, 2000 and 1999 differ from the expected combined statutory rates
primarily due to the impact of non-deductible amortization of certain
intangible assets acquired in the May 1996 acquisition of Clinitec
International, Inc. and the effect of varying state income tax rates.
<PAGE> 7
NOTE 4 - NET INCOME (LOSS) PER SHARE
------ ---------------------------
The following table reconciles the weighted average shares outstanding for
basic and diluted net income per share for the period indicated.
<TABLE>
<CAPTION>
Three Months
Ended June 30, 2000
------------------------
(in thousands except
per share amounts)
<S> <C>
Net income $ 625
-----------
Basic net income per common share:
Weighted average of common shares outstanding 6,209
-----------
Basic net income per common share $ 0.10
===========
Diluted net income per share:
Weighted average of common shares outstanding 6,209
Weighted average of common shares equivalents--
Weighted average options outstanding 88
-----------
Weighted average number of common
and common equivalent shares 6,297
-----------
Diluted net income per common share $ 0.10
===========
</TABLE>
The net income per share, basic and diluted, for the three months ended
June 30, 1999 was computed using the weighted average number of shares
actually outstanding during the period of 6,215,000 and common share
equivalents of 3,000.
NOTE 5 - NEW ACCOUNTING STANDARD
------ -----------------------
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin #101, Revenue Recognition in Financial Statements (SAB
101). SAB 101 summarizes the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB
101 is effective for the third quarter of fiscal year 2001. The Company is
currently evaluating the impact SAB 101 will have on its financial
statements, if any.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
------- -----------------------------------------------------------
and Results of Operations.
--------------------------
Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q, including discussions of
the Company's product development plans and business strategies and market
factors influencing the Company's results, are forward-looking statements
that involve certain risks and uncertainties. Actual results may differ
from those anticipated by the Company as a result of various factors, both
foreseen and unforeseen, including, but not limited to, the Company's
ability to continue to develop new products and increase systems sales in a
market characterized by rapid technological evolution, consolidation, and
competition from larger, better capitalized competitors. Many other
economic, competitive, governmental and technological factors could impact
the Company's ability to achieve its goals and interested persons are urged
to review the risks described below, as well as in the Company's other
public disclosures and filings with the Securities and Exchange Commission.
COMPANY OVERVIEW.
Quality Systems, Inc. ("QSI") and its wholly-owned subsidiaries, Clinitec
International, Inc. ("Clinitec") and MicroMed Healthcare Information
Systems, Inc. ("MicroMed"), (collectively, the "Company") develop and
market healthcare information systems that automate medical and dental
group practices, physician hospital organizations ("PHOs"), management
service organizations ("MSOs"), community health centers and dental
schools. In response to the growing need for more comprehensive, cost-
effective information solutions for physician and dental practices, the
Company's systems provide its clients with the ability to redesign patient
care and other workflow processes, improve productivity, reduce information
processing and administrative costs, and provide multi-site access to
patient information. The Company's proprietary software systems include
general patient information, electronic medical records, appointment
scheduling, billing, insurance claims submission and processing, managed
care plan implementation and referral management, treatment outcome
studies, treatment planning, drug formularies, dental charting, and letter
generation. Several of the Company's proprietary software systems may be
operated remotely using thin client connectivity or a standard web browser.
In addition to providing fully integrated software information solutions to
its clients, the Company offers comprehensive hardware and software
installation services, maintenance and support services, system training
services, and electronic insurance claims submission services.
The Company currently has an installed base of more than 600 healthcare
information systems serving PHOs, MSOs, group practices, specialty
practices, dental schools and other healthcare organizations, each of which
consists of from one to 250 physicians or dentists. The Company believes
that as healthcare providers are increasingly required to reduce costs
while maintaining the quality of healthcare, the Company will be able to
capitalize on its strategy of providing fully integrated information
systems and superior client service.
<PAGE> 9
QSI is a California Corporation formed in 1974 and was founded with an
early focus on providing information systems and services primarily for
dental group practices. QSI's initial "turnkey" systems were designed to
improve productivity while reducing information processing costs and
personnel requirements. In the mid-1980's, QSI capitalized on the
opportunity presented by the increasing pressure of cost containment on
physicians and healthcare organizations and further expanded its
information processing systems into the broader medical market. Today, QSI
primarily develops and provides integrated character-based healthcare
information systems utilizing a UNIX* operating system for both the medical
and dental markets ("Legacy Product"). These expandable systems operate on
a stand-alone basis or in a networked environment.
During fiscal 1998, QSI released a new product, the Clinical Product Suite
("CPS"), a comprehensive dental solution designed specifically for the
large dental group practice environment. CPS integrates the dental Legacy
Product with a computer-based clinical information system that incorporates
a wide range of clinical tools, including electronic charting of dental
procedures, treatment plans and existing conditions; periodontal charting,
via light-pen, voice-activation, or keyboard entry, for full periodontal
examinations and PSR scoring; digital imaging of x-ray and intra-oral
camera images; computer-based patient education modules; full access to
patient information, treatment plans, and insurance plans; and document and
image scanning for digital storage and linkage to the electronic patient
record. CPS incorporates a Windows-based client/server technology
consisting of one or more file servers together with any combination of
desktops or laptops. The file server(s) used in connection with CPS
utilize(s) a Windows NT** operating system. Based on the server
configuration chosen, CPS is scalable from one to hundreds of workstations.
QSI's wholly owned subsidiaries, Clinitec and Micromed, develop and sell
both proprietary electronic medical records software and practice
management systems under the product name of NextGen***. Major product
categories of the NextGen suite of applications include Electronic Medical
Records (NextGenemr), Enterprise Practice Management (NextGenepm), Enterprise
Appointment Scheduling (NextGeneas), Enterprise Master Patient Index
(NextGenepi), Managed Care, Electronic Data Interchange, System Interfaces,
Internet Operability (NextGen web), and a Patient-centric and Provider-
centric Web Portal Solution (NextMD).
NextGenemr allows healthcare providers to create and maintain medical
records using a series of user-definable clinical "templates." Data is
generally captured using a light pen or a mouse, and entries are then
turned into sentences and/or paragraphs to create documentation. NextGenemr
also supports the scanning and annotation of paper documents, photographs
and X-rays, and contains many other advanced features. NextGenemr is
marketed both in conjunction with the Company's practice management
software offerings as well as on a stand-alone basis where NextGenemr may
interface with other practice management systems. The Company believes that
it currently provides a comprehensive information management solution for
the medical marketplace.
* UNIX is a registered trademark of AT&T Corporation.
** Microsoft Windows, Windows NT, Windows 95, Windows 98 and Windows 2000 are
registered Trademarks of Microsoft Corporation.
*** NextGen is a registered trademark of Clinitec International, Inc.
<PAGE> 10
NextGenepm has been developed with a client/server architecture; a GUI
design utilizing Windows 95, Windows 98, Windows 2000, or Windows NT
operating system platforms; and, a platform independent relational database
that is ANSI SQL-compliant. NextGenepm is designed to provide a flexible,
enterprise-wide solution employing a master patient index.
Recognizing the need and benefits to be obtained by using its software in
conjunction with the capabilities of the Internet, the Company enhanced its
enterprise practice management and electronic medical software packages in
fiscal 2000 to enable them to be run via Private Intranet or the Internet
in an Application Services Provider (ASP) environment.
Additionally, in April 2000, the Company announced the launch of an
Internet-based consumer health portal, NextMD.com. NextMD.com will be a
vertical portal for the healthcare industry, linking patients with their
physicians, insurers, laboratories, and online pharmacies, while providing
a centralized source of health-oriented information for both consumers and
medical professionals. Patients whose physicians are linked to the portal
will be able to request appointments, send appointment changes or
cancellations, receive test results online, request prescription refills,
view and/or pay their statements, and communicate with their physicians,
all in a secure, online environment. The Company's NextGen suite of
information systems will be linked to NextMD.com, integrating a number of
these features with physicians' existing systems.
RISK FACTORS.
COMPETITION.
The market for healthcare information systems is intensely competitive and
the Company faces significant competition from a number of different
sources. The electronic medical records market, in particular, is subject
to rapid changes in technology and the Company expects that competition in
this portion of the market will increase as new competitors enter the
marketplace. In addition, several of the Company's competitors have
significantly greater name recognition as well as substantially 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 either group
practice management or clinical systems.
Furthermore, the Company also competes indirectly and to varying degrees
with other major healthcare related 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 or new product
introductions will not have a material adverse effect on the Company's
business, results of operations and financial condition. Competitive
pressures and other factors, such as new product introductions by the
Company or its competitors, may result in price or market share erosion
that could have a material adverse effect on the Company's business,
results of operations and financial condition.
<PAGE> 11
In addition, the Company believes that once a healthcare provider has
chosen a particular healthcare 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. Furthermore, if the healthcare
industry continues to undergo further consolidation as it has recently
experienced, each sale of the Company's systems will assume even greater
importance to the Company's business, results of operations and financial
condition. The Company's inability to make initial sales of its systems to
either newly formed groups and/or healthcare providers that are replacing
or substantially modifying their healthcare information systems could have
a material adverse effect on the Company's business, results of operations
and financial condition. If new systems sales do not materialize,
maintenance service revenues can be expected to decrease over time due to
the effect of failure to capture new maintenance revenues therefrom in
combination with attrition of existing maintenance revenues associated with
the Company's current clients whose systems become obsolete or are replaced
by competitors' products.
FLUCTUATION 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 system components; 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 minimal 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.
Furthermore, the Company's systems can be relatively large and expensive
and individual systems sales can represent a significant portion of the
Company's revenues for a quarter such that the loss of even one such sale
can have a significant adverse impact on the Company's quarterly
profitability.
Clients often defer systems purchases until the Company's quarter end, so
quarterly results generally cannot be predicted and frequently are not
known until the quarter has concluded. 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 healthcare 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/shipment.
<PAGE> 12
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.
Through March 31, 1998, the Company recognized revenue in accordance with
the provisions of the American Institute of Certified Public Accountants
("AICPA") Statement of Position No. 91-1, "Software Revenue Recognition"
("SOP 91-1"). The AICPA has adopted Statement of Position No. 97-2,
"Software Revenue Recognition" ("SOP 97-2"), that supersedes SOP 91-1
and became effective for the Company on April 1, 1998. There can be no
assurance that application and subsequent interpretations of this
pronouncement by the Company, its independent auditors or the Securities
and Exchange Commission will not further modify the Company's revenue
recognition policies, or that such modifications would not have a material
adverse effect on the operating results reported in any particular quarter.
There can be no assurance that the Company will not be required to adopt
changes in its licensing or services practices to conform to SOP 97-2, or
that such changes, if adopted, would not result in delays or cancellations
of potential sales of the Company's products.
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.
DEPENDENCE ON PRINCIPAL PRODUCT AND NEW PRODUCT DEVELOPMENT.
The Company currently derives substantially all of its net revenues from
sales of its healthcare 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 healthcare
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,
successful introduction and implementation 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 and implemented in a timely manner, meet the
requirements of healthcare providers, or achieve market acceptance. If new
products or product enhancements do not achieve market acceptance, the
Company's business, results of operations and financial condition could be
materially 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.
<PAGE> 13
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. New product development depends upon significant research and
development expenditures which depend ultimately upon sales growth. Any
material weakness in revenues or research funding could impair the
Company's ability to respond to technological advances in the marketplace
and to remain competitive. 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 will be
materially adversely affected.
In response to increasing market demand, the Company is currently
developing new generations of certain of its software products designed for
the client-server and Internet/intranet environments. 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, Windows 95, Windows 98 and Windows 2000, or that any such
development, even if successful, will be completed concurrently with or
prior to introduction by competitors of products designed for the client-
server and Internet/intranet environments. Any such failure or delay could
adversely affect the Company's competitive position or could make the
Company's current products obsolete.
LITIGATION.
On April 22, 1997, a purported class action entitled JOHN P. CAVENY v.
QUALITY SYSTEMS, INC., ET AL. was filed in the Superior Court of the State
of California for the County of Orange, in which Mr. Caveny, on behalf of
himself and all others who purchased the Company's Common Stock between
June 26, 1995 and July 3, 1996, alleges that the Company, and Sheldon
Razin, Robert J. Beck, Gregory S. Flynn, Abe C. LaLande, Donn Neufeld, Irma
G. Carmona, John A. Bowers, Graeme H. Frehner, and Gordon L. Setran (all of
the foregoing individuals were either officers, directors or both during
the period from June 26, 1995 through July 3, 1996), as well as other
defendants not affiliated with the Company, violated California
Corporations Code Sections 25400 and 25500, California Civil Code Sections
1709 and 1710, and California Business and Professions Code Sections 17200
et. seq., by issuing positive statements about the Company that allegedly
were knowingly false, in part, in order to assist the Company and the
individual defendants in selling Common Stock at an inflated price in the
Company's March 5, 1996 public offering and at other points during the
class period. The complaint seeks compensatory and punitive damages in
unspecified amounts, disgorgement, declaratory and injunctive relief, and
attorneys' fees.
On January 25, 1999, the court denied plaintiffs' motion to certify the
class representative and class legal counsel. Plaintiffs have appealed that
decision. On February 25, 2000, the Fourth District Court of Appeals
affirmed the order disqualifying the class legal counsel. On May 9, 2000,
the Court of Appeals issued its Remittur certifying its decision as final.
<PAGE> 14
Plaintiff will seek new class counsel. However, the named defendants will
again have the opportunity to oppose class certification. The Company and
its named officers and directors deny all remaining allegations of
wrongdoing made against them in these suits, consider the allegations
groundless and without merit, and intend to vigorously defend against these
actions.
On May 14, 1997, a second purported class action entitled WENDY WOO v.
QUALITY SYSTEMS, INC., ET AL. was filed in the same court. This complaint,
which has been consolidated with the Caveny lawsuit, essentially repeats
the allegations in the Caveny lawsuit and seeks identical relief. The
Company and the other named defendants successfully demurred to the
plaintiffs' claim under California Civil Code Sections 1709 and 1710, and
that claim, which served as the only basis for plaintiffs' request for
punitive damages, has been dismissed from both actions.
On July 1, 1997, a third purported class action entitled WADE CHENEY v.
QUALITY SYSTEMS, INC., ET AL. was filed in the United States District Court
of the Central District of California, Southern Division. The complaint
makes essentially the same factual allegations as in the Caveny and Woo
complaints, and purports to state claims under Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and under
Section 20(a) of said Act. By Court order dated August 13, 1997, this
action was stayed temporarily and the Court reserved jurisdiction to lift
the stay after all matters are final in the Caveny and Woo actions or if
otherwise appropriate, and on August 15, 1997 the case was removed from the
Court's active caseload. The Company denies all allegations of wrongdoing
made in this suit, considers the allegations groundless and without merit,
and if the stay is ever lifted, the Company intends to vigorously defend
against this action.
On March 23, 1999, a purported class action and derivative complaint
entitled IRVING ROSENZWEIG v. SHELDON RAZIN, ET AL. was filed in the
Superior Court of the State of California for the County of Orange, in
which Mr. Rosenzweig, on behalf of himself and all non-director
shareholders, and derivatively on behalf of the Company, alleges that
Sheldon Razin, John Bowers, William Bowers, Patrick Cline, Janet Razin and
Gordon Setran (all of the foregoing individuals are directors of the
Company) breached their fiduciary duties by allegedly entrenching
themselves in their positions of control, failing to ensure that third-
party offers involving the Company were fully and fairly considered, and/or
failing to conduct a reasonable inquiry to assure the maximization of
shareholder value. The complaint seeks declaratory and injunctive relief,
an accounting of monetary damages allegedly suffered by plaintiff and the
purported class, and attorneys' fees. Defendants demurred to each of the
causes of action alleged in the complaint and the court sustained those
demurrers with leave to amend in December 1999. Rather than file an
amended complaint, plaintiff filed a motion for attorney's fees.
Defendants, in turn, filed a motion to dismiss the action for failure to
file an amended pleading within the time limit specified by the court.
The parties agreed to a settlement of action and stipulated to a final
judgement and order which was entered by the court on May 15, 2000 at which
time the action was dismissed. The final judgement and order provided for
a dismissal of the action with prejudice, releases given to each of the
defendants, and payment of the nominal sum of $100,000 (paid by the
Company's Directors and Officers Liability Insurance Company) in full
settlement of plaintiff's motion for attorney's fees.
<PAGE> 15
The settlement further expressly provided that it did not constitute an
admission of any liability of defendants, which defendants continue to
vigorously deny.
The Company is a party to various other legal proceedings incidental to its
business, none of which are considered by the Company to be material.
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 and are often not
enforced as vigorously as those in 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 arrangement with the party asserting the claim. As
competing healthcare 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 a material adverse effect on the
Company's business, results of operations and financial condition. 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.
ABILITY TO MANAGE GROWTH.
The Company has experienced periods of growth has increased personnel,
which has placed, and may continue to place, a significant strain on the
Company's resources. The Company also 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
timeframe, 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 administrative and financial 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.
<PAGE> 16
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.
The Company does not maintain key man life insurance on any of its
employees. 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.
Furthermore, the Company may need to grant additional stock options to key
employees and provide other forms of incentive compensation to attract and
retain such key personnel.
PRODUCT LIABILITY.
Certain of the Company's products provide applications that relate to
patient clinical information. Any failure by the Company's products to
provide accurate and timely information could result in claims against the
Company. In addition, a court or government agency may take the position
that our delivery of health information directly, including through
licensed physicians, or delivery of information by a third party-site that
a consumer accesses through the Company's web sites, exposes the Company to
malpractice or other personal injury liability for wrongful delivery of
healthcare services or erroneous health information. 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, results of operations
and financial condition. Even unsuccessful claims could result in the
Company's expenditure of funds in litigation and management time and
resources.
Certain physicians or other healthcare professionals who use the Company's
Internet based products will directly enter health information about their
patients including information that constitutes a record under applicable
law, that the Company will store on the Company's computer systems.
Numerous federal and state laws and regulations, the common law, and
contractual obligations govern collection, dissemination, use and
confidentiality of patient-identifiable health information, including:
- State privacy and confidentiality laws;
- The Company's contracts with customers and partners;
- State laws regulating healthcare professionals, such as physicians,
pharmacists and nurse practitioners;
- Medicaid laws;
<PAGE> 17
- The Heath Insurance Portability and Accountability Act of 1996 and
related rules proposed by the Heath Care Financing Administration; and
Health Care Financing Administration standards for Internet
transmission of health data.
The U.S. Congress has been considering proposed legislation that would
establish a new federal standard for protection and use of health
information. Any failure by us or by our personnel or partners to comply
with any of these legal and other requirements would result in material
liability.
Although the company has systems in place for safeguarding patient health
information from unauthorized disclosure, these systems may not preclude
successful claims against the Company for violation of applicable law or
other requirements. Other third-party sites or links that consumers access
through the Company's web sites also may not maintain systems to safeguard
this health information, or may circumvent systems the Company put in place
to protect the information from disclosure. In addition, future laws or
changes in current laws may necessitate costly adaptations to the Company's
systems.
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 coverage, 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, results of
operations and financial condition.
UNCERTAINTY IN HEALTHCARE INDUSTRY; GOVERNMENT REGULATION.
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement processes and
operation of healthcare facilities. During the past several years, the
healthcare industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates and certain capital
expenditures. In the past, various legislators have announced that they
intend to examine proposals to reform certain aspects of the U.S.
healthcare system including proposals which may increase governmental
involvement in healthcare, lower reimbursement rates and otherwise change
the operating environment for the Company's clients. Healthcare 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
healthcare 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 healthcare reforms might have on its business,
results of operations and financial condition.
In the year 2001, the Department of Health and Human Services expects to
finalize proposed regulations at the federal level authorized under the
Health Insurance Portability and Accountability Act of 1996.
<PAGE> 18
These proposed regulations will establish new federal standards for privacy
of health information. The Company anticipates that these regulations will
directly affect the Company's products and services, but the Company cannot
accurately predict the impact at this time. Achieving compliance with these
regulations could be costly and distract management's attention and other
resources from the Company's historical business, and any noncompliance by
the Company could result in civil and criminal penalties. In addition,
development of related federal and state regulations and policies on
confidentiality of health information could negatively affect the Company's
business.
The Company's software may be subject to regulation by the FDA as a medical
device. Such regulation could require the registration of the applicable
manufacturing facility and software/hardware products, application of
detailed record-keeping 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, the result of which could have a material
adverse effect on the Company's business, results of operations and
financial condition.
YEAR 2000
The Company is aware of issues associated with the programming code in
existing computer systems related to the millennium. In particular,
software applications that use only two digits to identify a year in the
date field may fail or create errors in the year 2000 ("Year 2000 Issues").
Year 2000 Issues create risk for the Company from unforeseen problems in
computer systems that the Company sells to customers on a nationwide basis
which are used, among other things, to process their financial transactions
and schedule patients ("Company Products"), as well as systems that the
Company uses internally to provide certain services to its customers and to
process its own financial transactions ("Internal Use Systems"). The
potential costs and uncertainties associated with Year 2000 Issues will
depend upon a number of factors, including the Company's proprietary and
third party developed software, hardware (hardware and third party
developed software will hereinafter be referred to collectively as "Third
Party Products") and the nature of the industry in which the Company
operates.
The nature of the Company's business and its relationships with its
customers make it difficult to assess the magnitude of the Company's
potential exposure as a result of Year 2000 issues. Company Products and
Third Party Products sold by the Company may fail to operate properly or as
expected due to Year 2000 Issues. Such failures could result in system
failures or miscalculations causing disruptions of customers' operations,
including among other things, an inability to process transactions, send
invoices, conduct communications, treat patients or engage in similar
normal business activities. In addition, Company Products and Third Party
Products are often used in conjunction with other vendors' products and
services and the Company must rely on these other vendors to complete the
material remediation efforts necessary with regards to Year 2000 Issues in
connection with such products and services. Should such vendors be unable
to complete such remediation efforts in a timely manner, the use of such
products and services on the same system as Company Products and Third
Party Products may result in system failures. As a result of one or more of
the above potential system failures, certain of the Company's customers may
assert breach of warranty or other claims against the Company relating to
<PAGE> 19
Year 2000 functionality. The assertion of such claims may have a material
adverse impact upon the Company's business, results of operations and
financial condition. Furthermore, the efforts and resources devoted to Year
2000 Issues of current and potential customers of the Company could result
in the deferral, delay or cancellation by customers of current
installations of and plans to purchase systems from the Company.
Internal Use Systems, including both information systems and non-
information systems, may not operate properly or as expected due to Year
2000 Issues. Year 2000 Issues could result in system failures or
miscalculations causing disruption of the Company's operations, including
among other things, an inability to process its own and certain of its
customers' financial transactions, send invoices, conduct communications,
or engage in similar normal business activities.
The failure of one or more Internal Use Systems as a result of Year 2000
Issues may have a material adverse impact upon the Company's business,
results of operations and financial condition. The Company cannot be sure
that Year 2000 Issues will not affect its business. Thus far, the Company
has incurred no materially adverse problems related to Year 2000 Issues
associated with the computer systems, software, other property and
equipment it uses. However, the Company cannot guarantee that Year 2000
Issues will not adversely affect its business, operating results or
financial condition at some point in the future.
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 consolidated
statements of operations.
<TABLE>
<CAPTION>
Three Months
Ended
June 30,
----------------
2000 1999
------ -----
<S> <C> <C>
Net Revenues:
Sales of computer systems, upgrades and supplies 47.5% 56.2%
Maintenance and other services 52.5 43.8
------ ------
100.0 100.0
Cost of Products and Services 43.5 44.6
------ ------
Gross Profit 56.5 55.4
Selling, General and Administrative Expenses 36.4 33.4
Research and Development Costs 10.9 9.8
------ ------
Income (Loss) from Operations 9.2 12.2
Investment Income 2.7 1.8
------ ------
Income (Loss) before Provision
for (Benefit from) Income Taxes 11.9 14.0
Provision for (Benefit from) Income Taxes 5.2 5.9
------ ------
Net Income (Loss) 6.7% 8.1%
====== ======
</TABLE>
<PAGE> 20
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999.
The Company's net income for the three months ended June 30, 2000 was
$625,000, or $0.10 per share on a basic and diluted basis, as compared to a
net income of $742,000, or $0.12 per share on a basic and diluted basis,
for the three months ended June 30, 1999.
Net Revenues. Net revenues for the three months ended June 30, 2000
increased 1.8% to $9.3 million from $9.1 million for the three months
ended June 30, 1999. Sales of computer systems, upgrades and supplies
declined 14.1% to $4.4 million from $5.1 million while net revenues from
maintenance and other services grew 22.1% to $4.9 million from $4.0 million
during the comparable periods. The decline in net revenues from sales of
computer systems, upgrades and supplies was principally the result of
a decrease in sales of the Legacy Product. The increase in maintenance and
other services net revenue resulted principally from an increase in
revenues from the Company's increased client base from which to generate
maintenance and other service revenue together with an increase in revenues
generated from the Company's electronic data interchange services.
Cost of Products and Services. Cost of products and services for the three
months ended June 30, 2000 and 1999 were relatively unchanged at $4.0 and
$4.1 million respectively, while cost of products and services as a
percentage of net revenues decreased to 43.5% from 44.6% during the
comparable periods. The cost of products and services as a percentage of
net revenues decreased while the dollar amount remained unchanged as a
result of the impact of increased sales in the June 30, 2000 period
together with a change in the relative mix of hardware content in such
sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 2000 increased
10.7% to $3.4 million as compared to $3.0 million for the three months
ended June 30, 1999. Selling, general and administrative expenses as a
percentage of net revenues increased to 36.4% from 33.4%. The increase in
the amount of such expenses resulted primarily from increased marketing
expenses of the NextGen EPM and EMR. The increase of such expenses as a
percentage of net revenues resulted from the increase in the aforementioned
expenses combined with relatively unchanged revenue.
Research and Development Costs. Research and development costs for the
three months ended June 30, 2000 increased 12.7% to 1.0 million compared to
approximately $900,000 in the three months ended June 30, 1999. The
increase in research and development costs can be attributed to stepped up
investments in NextGen ERM and EPM enhancements. Research and development
costs as a percentage of net revenues increased to 10.9% as compared to
9.8% for the respective periods primarily as a result of the effect of the
increased expenses in the June 2000 quarter.
Investment Income. Investment income for the three months ended June 30,
2000 was up 48.2% at approximately $250,000 compared to $170,000 in the
three months ended June 30, 1999. Investment income in the quarter ended
June 30, 1999 included a loss from investments in certain special situation
securities. The Company had no investments in special situation securities
during the quarter ended June 30, 2000.
Provision for Income Taxes. The provision for income taxes for the three
months ended June 30, 2000 was approximately $480,000 as compared to
approximately $540,000 for the three months ended June 30, 1999.
<PAGE> 21
The provision for and benefit from income taxes for the three months ended
June 30, 2000 and 1999 differ from the combined statutory rates primarily
due to the impact of non-deductible amortization of certain intangible
assets acquired in the May 1996 Clinitec acquisition and the effect of
varying state income tax rates.
LIQUIDITY AND CAPITAL RESOURCES.
Cash and cash equivalents decreased approximately $594,000 for the three
months ended June 30, 2000 primarily as a result of a reduction in income
taxes payable along with investments in capitalized software and equipment.
Cash and cash equivalents increased $2.5 million for the three months ended
June 30, 1999 principally as a result of cash provided by operating
activities.
Net cash used by operating activities for the three months ended
June 30, 2000 was approximately $8,000 consisting primarily of the
Company's $625,000 in net income adjusted for the principal non-cash
operating expenses of depreciation and amortization less an decrease in
deferred service revenue, an increase in accounts receivable, a decrease in
accounts payable and a large decrease in income taxes payable. Net cash
provided by operating activities for the three months ended June 30, 1999
was $2.9 million consisting primarily of the Company's $742,000 net income
adjusted for the principal non-cash operating expenses of depreciation and
amortization plus an increase in deferred revenue and a decrease in
accounts receivable offset in part by a decrease in accounts payable.
Net cash used in investing activities for the three months ended June 30,
2000 was $668,000 consisting principally of additions to equipment and
improvements and capitalized software. Net cash used in investing
activities for the three months ended June 30, 1999 was $431,000 of
additions to equipment and improvements and capitalized software.
Net cash provided by financing activities for the three months ended June
30, 2000 and 1999 was $82,000 and $4,000, respectively, generated by the
exercise of stock options.
In February 1997, the Company's Board of Directors authorized the
repurchase on the open market of up to 10% of the shares of the Company's
outstanding Common, subject to compliance with applicable laws and
regulations. This authorization has been renewed annually and currently
expires on June 7, 2001. The timing and amount of any repurchase is at the
discretion of the Company's management. The Company's management could, in
the exercise of its judgment, repurchase fewer shares than authorized.
During the three months ended June 30, 2000, the Company did not repurchase
any shares. Since the inception of the repurchase authorization through
July 31, 2000, 113,400 shares have been repurchased at a cost of $654,000.
At June 30, 2000, the Company had cash and cash equivalents of $15.3
million and short-term investments of $246,000. Except for the Company's
intention to expend funds for the development of complementary products to
its existing product line and 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 products, the Company has no other significant capital
commitments and currently anticipates that additions to equipment and
improvements for fiscal 2001 will be comparable to fiscal 2000. The Company
believes that its cash and cash equivalents and short-term investments on
hand at June 30, 2000, together with cash flows from operations, if any,
will be sufficient to meet its working capital and capital expenditure
requirements for the next year.
<PAGE> 22
PART II. OTHER INFORMATION.
Item 1. Litigation
-------- ----------
On April 22, 1997, a purported class action entitled JOHN P. CAVENY v.
QUALITY SYSTEMS, INC., ET AL. was filed in the Superior Court of the State
of California for the County of Orange, in which Mr. Caveny, on behalf of
himself and all others who purchased the Company's Common Stock between
June 26, 1995 and July 3, 1996, alleges that the Company, and Sheldon
Razin, Robert J. Beck, Gregory S. Flynn, Abe C. LaLande, Donn Neufeld, Irma
G. Carmona, John A. Bowers, Graeme H. Frehner, and Gordon L. Setran (all of
the foregoing individuals were either officers, directors or both during
the period from June 26, 1995 through July 3, 1996), as well as other
defendants not affiliated with the Company, violated California
Corporations Code Sections 25400 and 25500, California Civil Code Sections
1709 and 1710, and California Business and Professions Code Sections 17200
et. seq., by issuing positive statements about the Company that allegedly
were knowingly false, in part, in order to assist the Company and the
individual defendants in selling Common Stock at an inflated price in the
Company's March 5, 1996 public offering and at other points during the
class period. The complaint seeks compensatory and punitive damages in
unspecified amounts, disgorgement, declaratory and injunctive relief, and
attorneys' fees.
On January 25, 1999, the court denied plaintiffs' motion to certify the
class representative and class legal counsel. Plaintiffs have appealed that
decision. On February 25, 2000, the Fourth District Court of Appeals
affirmed the order disqualifying the class legal counsel. On May 9, 2000,
the Court of Appeals issued its Remittur certifying its decision as final.
Plaintiff will seek new class counsel. However, the named defendants will
again have the opportunity to oppose class certification. The Company and
its named officers and directors deny all remaining allegations of
wrongdoing made against them in these suits, consider the allegations
groundless and without merit, and intend to vigorously defend against these
actions.
On May 14, 1997, a second purported class action entitled WENDY WOO v.
QUALITY SYSTEMS, INC., ET AL. was filed in the same court. This complaint,
which has been consolidated with the Caveny lawsuit, essentially repeats
the allegations in the Caveny lawsuit and seeks identical relief. The
Company and the other named defendants successfully demurred to the
plaintiffs' claim under California Civil Code Sections 1709 and 1710, and
that claim, which served as the only basis for plaintiffs' request for
punitive damages, has been dismissed from both actions.
On July 1, 1997, a third purported class action entitled WADE CHENEY v.
QUALITY SYSTEMS, INC., ET AL. was filed in the United States District Court
of the Central District of California, Southern Division. The complaint
makes essentially the same factual allegations as in the Caveny and Woo
complaints, and purports to state claims under Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and under
Section 20(a) of said Act. By Court order dated August 13, 1997, this
action was stayed temporarily and the Court reserved jurisdiction to lift
the stay after all matters are final in the Caveny and Woo actions or if
otherwise appropriate, and on August 15, 1997 the case was removed from the
Court's active caseload. The Company denies all allegations of wrongdoing
made in this suit, considers the allegations groundless and without merit,
and if the stay is ever lifted, the Company intends to vigorously defend
against this action.
<PAGE> 23
On March 23, 1999, a purported class action and derivative complaint
entitled IRVING ROSENZWEIG v. SHELDON RAZIN, ET AL. was filed in the
Superior Court of the State of California for the County of Orange, in
which Mr. Rosenzweig, on behalf of himself and all non-director
shareholders, and derivatively on behalf of the Company, alleges that
Sheldon Razin, John Bowers, William Bowers, Patrick Cline, Janet Razin and
Gordon Setran (all of the foregoing individuals are directors of the
Company) breached their fiduciary duties by allegedly entrenching
themselves in their positions of control, failing to ensure that third-
party offers involving the Company were fully and fairly considered, and/or
failing to conduct a reasonable inquiry to assure the maximization of
shareholder value. The complaint seeks declaratory and injunctive relief,
an accounting of monetary damages allegedly suffered by plaintiff and the
purported class, and attorneys' fees. Defendants demurred to each of the
causes of action alleged in the complaint and the court sustained those
demurrers with leave to amend in December 1999. Rather than file an
amended complaint, plaintiff filed a motion for attorneys' fees.
Defendants, in turn, filed a motion to dismiss the action for failure to
file an amended pleading within the time limit specified by the court.
The parties agreed to a settlement of action and stipulated to a final
judgement and order which was entered by the court on May 15, 2000 at which
time the action was dismissed. The final judgement and order provided for
a dismissal of the action with prejudice, releases given to each of the
defendants, and payment of the nominal sum of $100,000 (paid by the
Company's Directors and Officers Liability Insurance Company) in full
settlement of plaintiff's motion for attorney's fees.
The settlement further expressly provided that it did not constitute an
admission of any liability of defendants, which defendants continue to
vigorously deny.
The Company is a party to various other legal proceedings incidental to its
business, none of which are considered by the Company to be material.
Item 2. Changes in Securities and Use of Proceeds.
------- ------------------------------------------
None
Item 3. Defaults Upon Senior Securities
------- -------------------------------
None
Item 4. Submissions of Matters to a Vote of Securities Holders
------- -------------------------------------------------------
None
Item 5. Other Information
------- -----------------
None
<PAGE> 24
Item 6. Exhibits and Reports on Form 8-K.
------- ---------------------------------
Exhibits:
---------
None
Reports on Form 8-K:
--------------------
None.
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUALITY SYSTEMS, INC.
<TABLE>
<S> <C>
Date: August 10, 2000 By /s/ Pat Cline
----------------------------------
Pat Cline
Chief Executive Officer
Principal Executive Officer
Date: August 10, 2000 By /s/ Paul Holt
----------------------------------
Paul Holt
Chief Financial Officer;
Principal Accounting Officer
</TABLE>
<PAGE> 26
INDEX TO EXHIBITS
Sequential
Page
Exhibit No.
------- ----------
27.0 Financial Data Schedule, is filed herewith. 27
