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                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ______________________
                                   FORM 10-QSB
     (Mark One)

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     [ X ]  SECURITIES EXCHANGE ACT OF 1934

     For the quarterly period ended June 30, 1995
                                    _____________
                                       OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     [   ]  SECURITIES EXCHANGE ACT OF 1934

     For the transition period from  ______________ to  ___________________

                         Commission file number 0-13801
                                                _______

                             QUALITY SYSTEMS, INC.
       _________________________________________________________________
       (Exact name of small business issuer as specified in its charter)

           California                                      95-2888568
     _______________________________                 ___________________
     (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                  Identification No.)

     17822 East 17th Street, Tustin, California                    92680
     __________________________________________                  __________
      (Address of principal executive offices)                   (Zip Code)

     Issuer's telephone number, including area code: (714) 731-7171
                                                     ______________
                          NOT APPLICABLE
        ________________________________________________________________
        (Former name, former address and former fiscal year, if changed,
         since last year)

     Indicate by check mark whether the issuer (1) has filed all reports
     required to be filed by Section 13 or 15(d) of the Securities Exchange
     Act of 1934 during the preceding 12 months (or for such shorter period
     that the registrant was required to file such reports); and (2) has
     been subject to such filing requirements for the past 90 days.
                Yes   XX       No
                    _____         _____

                   APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer's
     classes of common stock, as of the latest practicable date.

              4,535,866 shares of Common Stock, $.01 par value,
                             as of August 8, 1995





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                         PART I  FINANCIAL INFORMATION
                         ------  ---------------------
     Item 1.  Financial Statements
     -----------------------------
                             QUALITY SYSTEMS, INC.
                                 BALANCE SHEETS
                                     ASSETS

June 30, March 31, ------------- ----------- 1995 1995 ------------- ----------- Current assets: Cash and cash equivalents $ 5,651,700 $ 6,085,300 Short-term investments 766,800 1,237,200 Accounts receivable, net 3,708,600 2,996,500 Inventories 842,900 782,900 Deferred tax asset 162,800 199,000 Other current assets 49,400 74,300 ------------- ----------- Total current assets 11,182,200 11,375,200 Equipment and improvements, net 504,600 535,300 Capitalized software costs, net 528,800 501,300 Investment Clinitec International, Inc. 990,100 - Cash surrender value of life insurance 229,500 185,100 Other assets 77,000 70,900 ------------- ----------- Total assets $ 13,512,200 $12,667,800 ============= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 961,300 $ 597,400 Accrued payroll and related expenses 419,700 427,100 Accrued expenses 462,000 492,400 Deferred service revenue 981,800 951,500 Deferred compensation 229,500 185,100 Estimated costs to complete system installations 227,100 216,500 Income taxes payable 354,900 473,400 ----------- ----------- Total current liabilities 3,636,300 3,343,400 Deferred tax liability 129,800 136,800 ----------- ----------- Total liabilities 3,766,100 3,480,200 ----------- ----------- Stockholders' equity: Common stock, $.01 par value, 20,000,000 shares authorized, 4,535,866 shares issued and outstanding 45,400 45,400 Additional paid-in capital 5,977,600 5,977,600 Unrealized loss on available-for-sale securities (61,700) (83,000) Retained earnings 3,784,800 3,247,600 ----------- ----------- Total stockholders' equity 9,746,100 9,187,600 ----------- ----------- Total liabilities and stockholders' equity $13,512,200 $12,667,800 =========== ===========
3 QUALITY SYSTEMS, INC. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended ------------------------ June 30, 1995 1994 ----------- ----------- Net revenues: Sales of computer systems, upgrades and supplies $ 2,123,700 $ 1,582,000 Maintenance and other services 1,680,700 1,491,200 ----------- ----------- 3,804,400 3,073,200 ----------- ----------- Costs and expenses: Cost of products and services 1,713,400 1,651,800 Selling, general and administrative 925,900 835,800 Research and development 355,000 329,800 ----------- ----------- 2,994,300 2,817,400 ----------- ----------- Income from operations 810,100 255,800 Interest and investment income (loss) 103,800 (11,600) Equity loss (9,900) - ----------- ----------- Income before income tax provision 904,000 244,200 Income tax provision 366,800 43,800 ----------- ----------- Net income $ 537,200 $ 200,400 =========== =========== Earnings per share: Primary $.11 $.04 Fully diluted $.11 $.04 Equivalent number of shares outstanding: Primary 4,702,047 4,666,136 Fully diluted 4,730,540 4,666,136
The accompanying notes are an integral part of the financial statements. 4 QUALITY SYSTEMS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended --------------------------- June 30 1995 1994 ------------ ------------- Cash flows from operating activities: Net income $ 537,200 $ 200,400 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of equipment and improvements 58,200 57,900 Amortization of capitalized software costs 59,400 46,400 Realized (gains) losses from sales of short-term investments (56,700) 81,000 Unrealized gains on trading securities (38,200) (11,100) Equity loss 9,900 - Deferred income taxes 29,200 - Changes in: Accounts receivable (712,100) (443,600) Inventories (60,000) (99,700) Other current assets 24,900 25,600 Accounts payable 363,900 187,900 Accrued expenses (37,800) (29,800) Deferred service revenue 30,300 37,000 Estimated costs to complete system installations 10,600 (11,100) Income taxes payable and taxes related to equity accounts (134,800) 43,800 --------- --------- Net cash provided by operating activities 84,000 84,700 --------- --------- Cash flows from investing activities: Proceeds from sales of short-term investments 630,400 3,801,900 Purchases of short-term investments (27,500) (2,281,900) Additions to equipment and improvements, net (27,500) (28,400) Additions to capitalized software costs (86,900) (50,200) Investment in Clinitec International, Inc. (1,000,000) - Change in other assets (6,100) 29,300 --------- --------- Net cash provided by (used in) investing activities: (517,600) 1,470,700 ---------- ---------- Cash flows from financing activities: Proceeds from exercise of stock options - 3,400 ---------- ---------- Net increase (decrease) in cash and cash equivalents (433,600) 1,558,800 ---------- ---------- Cash and cash equivalents, beginning of period 6,085,300 1,092,900 ---------- ---------- Cash and cash equivalents, end of period $5,651,700 $2,651,700 =========== ===========
Supplemental information - During the three months ended June 30, 1995 and 1994 the Company made income tax payments of $472,500 and $9,600 respectively. The accompanying notes are an integral part of the financial statements. 5 QUALITY SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS June 30, 1995 and 1994 NOTE 1 - BASIS OF PRESENTATION ------ --------------------- The accompanying unaudited condensed financial statements have been prepared in accordance with the requirements of Form 10-QSB and, therefore, do not include all information and footnotes which would be presented were such financial statements prepared in accordance with generally accepted accounting principles, and should be read in conjunction with the audited financial statements presented in the Company's Annual Report for the fiscal year ended March 31, 1995. In the opinion of management, the accompanying financial statements reflect all adjustments which are necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year. 6 Item 2. Management's Discussion and Analysis of Financial Condition ------- ----------------------------------------------------------- and Results of Operations ------------------------- Results of Operations --------------------- Three months ended June 30, 1995 compared to three months ended --------------------------------------------------------------- June 30, 1994 ------------- Revenues increased $731,200 from $3,073,200 in the three months ended June 30, 1994 to $3,804,400 in the three months ended June 30, 1995, an increase of 24%. Sales of computer systems, upgrades and supplies increased $541,700, from $1,582,000 in the same quarter of last year to $2,123,700 in the current quarter. The increase was due primarily to increased sales of larger systems. Revenues from maintenance and others services increased 13%, from $1,491,200 in the quarter ended June 30, 1994 to $1,680,700 in the current quarter. The increase was due to increases in maintenance revenues from a larger installed base and in time and material billings for additional services. Cost of products and services, as a percentage of revenues, decreased from 54% for the quarters ended June 30, 1994 to 45% for the quarter ended June 30, 1995 due to changes in sales mix. Selling, general and administrative expenses increased from $835,800 in the same quarter of last year to $925,900 in the current quarter, due to an increase in selling expense. The increase in selling expense results from hiring additional sales personnel in the third quarter of the prior year. However, the increase in selling expense was more than compensated for by increased sales during the current quarter, with the result that selling, general and administrative expenses, as a percentage of revenues, decreased from 27% to 24%. Research and development expenditures increased from $329,800 to $355,000 as the Company maintained its commitment to continually enhance the functionality and flexibility of its systems. Interest and investment income was $103,800 for the quarter ended June 30, 1995 compared to a loss of $11,600 for the quarter ended June 30, 1994. Investment results in the current quarter represent an annualized yield of about 6% on the Company's average combined balances for cash and cash equivalents and short-term investments. Interest and investment income for the quarter ended June 30, 1994 included realized losses from sales of short-term investments of $81,000 and unrealized losses from trading securities of $10,100, which more than offset other interest and investment income. 7 Liquidity and Capital Resources ------------------------------- A comparison of the Company's balance sheet amounts for cash and cash equivalents and for short-term investments at June 30, 1995 with the comparable balances at March 31, 1995 is as follows:
June 30, March 31, 1995 1995 Decrease ---------- ---------- ---------- Cash and cash equivalents $5,651,700 $6,085,300 ($433,600) Short-term investments 766,800 1,237,200 ( 470,400) ---------- ---------- ---------- $6,418,500 $7,322,500 ($904,000)
The decrease of $904,000 was due primarily to an acquisition of a 25% ownership position in Clinitec International, Inc. for $1,000,000. Net cash from operating activities during the quarter ended June 30, 1995 was $84,000. Positive cash flows from net income of $537,200 and an increase in accounts payable of $363,900 were largely offset by an increase in accounts receivable of $712,100. The increase in accounts receivable was due to the increase in revenues as previously discussed. The Company generally receives substantially all of the cash months after a computer system or enhancement is delivered. The Company structures its maintenance contracts so that billings under the contract are made on a monthly basis and in advance of the period of coverage. The Company believes that cash generated from operations, cash on hand and short-term investments readily convertible into cash will provide sufficient liquidity to provide continued working capital for operations for the foreseeable future. Due to its available cash resources, the Company has not relied on borrowings to meet its working capital requirements. The Company is not capital intensive and has traditionally purchased and capitalized only equipment which is to be used for in-house hardware and software development and testing efforts. Technological improvements in the computer industry have often resulted in price declines for hardware and other electronic components which have lessened the impact of inflation. 8 PART II. OTHER INFORMATION -------- ------------------ Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits: None --------- (b) Reports on Form 8-K: None -------------------- 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QUALITY SYSTEMS, INC. Date August 9, 1995 By /s/ Sheldon Razin --------------- ---------------------------------- Sheldon Razin President and Chairman of the Board of Directors; Principal Executive Officer Date August 9, 1995 By /s/ Irma G. Carmona --------------- ---------------------------------- Irma G. Carmona Corporate Controller; Principal Accounting Officer