In fiscal year 2008 and the first quarter of 2009, we saw a trend towards large multi-site customers in the ambulatory market. This trend has also prompted a shift from payment of the license fee in advance to multi-year payment arrangements where payments occur ratably over time. We believe that this shift is due to the need for radiology groups to reduce the up front capital needs typically required in a traditional software sale. We believe this trend had a negative impact on our revenues as a result of the need to recognize the revenue over extended periods. Software discounts have remained relatively constant during the first quarter of 2009; however, continued economic uncertainty could impact both the level of discounts as well as delay capital purchasing decisions. Revenues in the acute care market consist primarily of software and the associated maintenance and services. We believe the acute care market continues to be driven by the replacement market for existing PACS systems, especially to reduce total cost of ownership and reduce overhead costs. We believe the replacement market represents an attractive opportunity for our solution to improve return on investment and lower costs. However, continued economic uncertainty could cause potential customers to delay or eliminate replacement initiatives and the related capital expenditures when they have an existing system.
On April 2, 2009 we completed the acquisition of Emageon Inc., a leading provider of technology solutions for hospitals and healthcare networks. Under the terms of the merger agreement, AMICAS acquired all of the outstanding shares of Emageon Inc. common stock for $1.82 per share in cash, for a total of approximately $39.0 million. The Company is currently determining the final allocation of the purchase price based on the estimated fair values of the assets and liabilities acquired as of the acquisition date. Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our financial statements and accompanying notes, which we believe have been prepared in conformity with U.S. GAAP. The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to revenue recognition, allowances for future returns, discounts and bad debts, tangible and intangible assets, deferred costs, income taxes, restructurings, commitments, contingencies, claims and litigation. We base our judgments and estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, our actual results could differ from those estimates.
Management believes the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of its consolidated financial statements.
• Revenue Recognition

• Accounts Receivable

• Long-lived Assets

• Goodwill Assets and Business Combinations

• Income Taxes

• Share-Based Payment

• Fair Value

These policies are unchanged from those used to prepare the annual consolidated financial statements for the year ended December 31, 2008. We discuss our critical accounting policies under the heading "Critical Accounting Policies and Estimates" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 allows companies to elect to measure many financial assets and financial liabilities at fair value (the "fair value option"). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, SFAS 159 specifies that all subsequent changes in fair value for that instrument must be reported in earnings. We did not elect to use the fair value option. Therefore, the adoption of SFAS 159 did not have a significant impact our consolidated financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141-R, "Business Combinations" ("SFAS 141-R"). This statement replaces SFAS No. 141, but retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for all business combinations. This statement requires an acquirer to recognize and measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values as of the acquisition date. The statement requires acquisition costs and any restructuring costs associated with the business combination to be recognized separately from the fair value of the business combination. SFAS No. 141-R establishes requirements for recognizing and measuring goodwill acquired in the business combination or a gain from a bargain purchase as well as disclosure requirements designed to enable users to better interpret the results of the business combination. SFAS No. 141-R is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS 141R will have a material impact on our accounting for the acquisition of Emageon, Inc. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements: An Amendment of ARB No. 51" ("SFAS No. 160"). SFAS No. 160 changes the accounting and reporting for noncontrolling (minority) interests in subsidiaries and for deconsolidation of a subsidiary. Under the revised requirements, the noncontrolling interest will be shown in the balance sheet as a separate line in equity instead of as a liability. In the income statement, separate totals will be shown for consolidated net income including noncontrolling interest, noncontrolling interest as a deduction, and consolidated net income attributable to the controlling interest. In addition, changes in ownership interests in a subsidiary that do not result in deconsolidation are equity transactions if a controlling financial interest is retained. If a subsidiary is deconsolidated, the parent company will now recognize gain or loss to net income based on fair value of the noncontrolling equity at that date. The application of SFAS No. 160 did not have a significant impact on the our financial statements
On January 1, 2009, we adopted FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3"). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used for purposes of determining the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). FSP FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset SFAS 141-R and other U.S. generally accepted accounting principles. The application of FSP FAS 142-3 did not have a significant impact on our financial statements.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" ("FSP FAS 115-2 and FAS 124-2"). FSP FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. We do not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a significant impact on our financial statements.

In June 2008, the FASB issued FSP EITF No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF No. 03-6-1"). FSP EITF No. 03-6-1 clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends or dividend equivalents before vesting should be considered participating securities. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008 on a retrospective basis and was adopted by the Company on January 1, 2009. The adoption of FSP EITF No. 03-6-1 did not have an impact on the calculation of EPS for the quarter ended March 31, 2009 or any prior quarters.

Results of Continuing Operations
Revenues

                                                    Three Months Ended March 31,
                                           2009        Change      Change (%)        2008
                                                       (dollars in thousands)
   Maintenance and services             $  9,962     $    209            2.1 %    $  9,753
   Percentage of total revenues             88.4 %                                    76.3 %

   Software licenses and system sales   $  1,309     $ (1,726 )        (56.9 )%   $  3,035
   Percentage of total revenues             11.6 %                                    23.7 %

   Total revenues                       $ 11,271     $ (1,517 )        (11.9 )%   $ 12,788

The Company has two primary revenue-generating areas: software license fees and system revenues, and maintenance and services revenues. Software license fees and system revenues are derived from the sale of software product licenses and computer hardware. Maintenance and services revenues come from providing ongoing product support, implementation, training and EDI. Maintenance and services revenues
There are three primary components of maintenance and services revenues:
(1) software and hardware maintenance, (2) EDI revenues, and (3) service revenues. Maintenance and services revenues grew 2.1% or $0.2 million in the first quarter of 2009 as compared to the first quarter of 2008. The components of the change are as follows:
• Software and hardware maintenance revenues increased approximately $0.3 million in the first quarter of 2009 as compared to the first quarter of 2008. The increase was primarily a result of the increase in the size of our installed customer base. The growth in our installed customer base is dependent on our ability to sell software licenses and systems sales and to maintain our existing installed base through product upgrades and new and innovative features.

• EDI revenues remained flat in the first quarter of 2009 as compared to the first quarter of 2008. EDI revenues were flat as volumes from customers for these services remained relatively constant.

• Service revenues decreased slightly by approximately $0.1 million in the first quarter of 2009 as compared to the first quarter of 2008. Service revenues decreased slightly due primarily to timing of revenue recognition.

Software license and systems revenues
Software license and system revenues decreased 56.9% or $1.7 million in the first quarter of 2009 as compared to the first quarter of 2008.
The decrease in software license and systems revenues is primarily attributable to the effect of extended payment terms, which increases the time it takes to convert the software license and systems orders to revenue, and the effect of a large third party hardware sale in the first quarter of 2008. Software license and systems

revenues are highly dependent on our product mix, such as large third party purchases or significant software license volumes to our customers, the level of software discounts, and software revenue recognition policies under generally accepted accounting principles, which can delay revenue recognition.
We believe our customers and potential customers continue to look for automation solutions as they try to grow their businesses. Underlying this trend is the public demand for non-invasive diagnostic procedures and a public interest in health and fitness which we believe will continue to drive growth in the imaging industry. We believe these trends support our end-to-end strategy and are consistent with our goal to approach the market with our AMICAS One Suite product. However we believe that there will continue to be intense competition in this market.
Quarterly and annual revenues and related operating results are highly dependent on the volume and timing of the signing of license agreements and product deliveries during each quarter, which are very difficult to forecast. A significant portion of our quarterly sales of software product licenses and computer hardware is concluded in the last month of each quarter, generally with a concentration of our quarterly revenues earned in the final ten business days of that month. Also, our projections for revenues and operating results include significant sales of new product and service offerings, including our AMICAS PACS, AMICAS RIS, AMICAS Financials, RadStream, Dashboards and AMICAS Documents. Due to these and other factors, our revenues and operating results are very difficult to forecast.

Cost of revenues

                                                                 Three Months Ended March 31,
                                                  2009             Change          Change (%)           2008
                                                                    (dollars in thousands)
Maintenance and services                        $ 4,232          $    (37 )             (0.9 )%       $ 4,269
Percentage of maintenance and services
revenues                                           42.5 %                                                43.8 %

Software licenses and hardware sales            $ 1,060          $ (1,151 )            (52.1 )%       $ 2,211
Percentage of software licenses and
hardware sales                                     81.0 %                                                72.9 %

Total cost of revenues                          $ 5,292          $ (1,188 )            (18.3 )%       $ 6,480

Cost of maintenance and services revenues Cost of maintenance and services revenues primarily consists of the cost of EDI insurance claims processing, outsourced hardware maintenance, EDI billing and statement printing services, postage, third- party consultants and personnel salaries, benefits and other allocated indirect costs related to the delivery of services and support. Cost of maintenance and services revenue remained relatively flat at approximately $4.2 million for the three months ended March 31, 2009 as compared to $4.3 million for the same period in 2008. Margins for cost of maintenance and services revenues were consistent with the prior year as revenues increased only slightly in the first quarter of 2009. Cost of software license and hardware revenues Cost of software license and system revenues consists primarily of costs incurred to purchase computer hardware, third-party software and other items for resale in connection with sales of new systems and software, and amortization of software product costs. Total cost of software licenses and hardware sales decreased from

$2.2 million for the three months ended March 31, 2008 to $1.1 million for the same period in 2009. The decrease of $1.2 million is primarily attributable to a decrease in expenses associated with the sales of hardware.

Operating expenses

                                                        Three Months Ended March 31,
                                                2009       Change     Change (%)       2008
                                                           (dollars in thousands)
  Selling, general and administrative         $ 4,521     $ (481 )         (9.6 )%   $ 5,002
  Percentage of total revenues                   40.1 %                                 39.1 %

  Research and development                    $ 2,286     $   91            4.1 %    $ 2,195
  Percentage of total revenues                   20.3 %                                 17.2 %

  Depreciation and amortization               $   185     $  (90 )        (32.7 )%   $   275

  Percentage of total revenues                    1.6 %                                  2.2 %

  Acquisition related and integration costs   $   549     $  549              - %    $     -
  Percentage of total revenues                    4.9 %                                    - %

Selling, general and administrative
Selling, general and administrative expenses include fixed and variable compensation and benefits of all personnel (other than research and development and services personnel), facilities, travel, communications, bad debt, legal, marketing, insurance and other administrative expenses. Selling, general and administrative expenses decreased from $5.0 million for the three months ended March 31, 2008 to $4.5 million for the same period in 2009. This reduction is primarily the result of a decrease in personnel costs due to reduced headcount as well as reductions in other administrative expenses. Research and development
Research and development expense of $2.3 million in the first three months of 2009 represents an increase of approximately $0.1 million from $2.2 million for the same period in 2008. This increase is primarily due to an increase in personnel costs.
Depreciation and amortization
Depreciation and amortization decreased from $275,000 in 2008 to $185,000 in 2009. The decrease is primarily due to a decrease in amortization expense related to intangible assets that were fully amortized during 2008, offset by increases in fixed assets purchased during 2009. Acquisition related and integration costs We incurred approximately $0.5 million in acquisition related and integration costs related to our acquisition of Emageon, Inc. which was completed on April 2, 2009. These costs consisted primarily of legal, accounting and consulting services.

Interest Income

                                                Three Months Ended March 31,
                                          2009      Change     Change (%)      2008
                                                   (dollars in thousands)
           Interest income               $ 447     $ (342 )        (43.3 )%   $ 789
           Loss on sale of investment    $   -     $   31              - %    $ (31 )

The decrease of approximately $0.3 million in interest income is primarily due to a combination of lower cash balances and lower yields on our investments during the three months ended March 31, 2009 as compared to the same period in 2008.
We sold an investment during the quarter ended March 31, 2008 that resulted in a loss of approximately $31,000. We do not anticipate significant realized investment losses in our portfolio in the future. Provision for income taxes
In the three months ended March 31, 2009, we recorded an income tax provision of $53,000 attributed to continuing operations. The income tax provision is primarily due to state tax liabilities and interest on uncertain tax positions. In the three months ended March 31, 2008, we recorded an income tax provision of $61,000 attributed to continuing operations which is also due primarily to state tax liabilities and interest on uncertain tax positions. Liquidity and Capital Resources
To date, we have financed our business through cash flows from operations, proceeds from the issuance of common stock. Based upon our current working capital position, current operating plans and expected business conditions, and our acquisition of Emageon Inc on April 2, 2009, we continue to expect to fund our short and long-term working capital needs and other commitments primarily through our operating cash flow. In addition, at this point in time, our liquidity has not been materially impacted by the recent disruption in the capital and credit markets and we do not expect that it will be materially impacted in the near future. We will continue to closely monitor our liquidity and the capital and credit markets. However, we cannot predict with any certainty the impact to us of any further disruption in the credit environment.
Our cash, cash equivalents and marketable securities balance was $56.6 million as of March 31, 2009, as compared to $55.0 million as of December 31, 2008. In April of 2009, we utilized approximately $39.0 million to complete our acquisition of Emageon Inc. Cash provided by operating activities for the first quarter of 2009 was $1.8 million as compared to $1.0 million in the same period in 2008. The primary increase in cash provided by operating activities is due to the increase in deferred revenue, offset by decreases in prepaid expenses and accounts payable. The increase in deferred revenue is primarily attributable to payments from customers where we have been unable to recognize revenue. We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, specifically the timing of when we recognize revenue, our accounts receivable collections and the timing of other payments and acquisition and restructuring costs associated with our acquisition of Emageon Inc. Cash provided by investing activities for the first quarter of 2009 was $35.0 million, as compared to $7.9 million of cash generated in the same period in 2008. During the first quarter of 2009 our held to maturity investments matured and we sold our available for sale securities and converted them to cash and cash equivalents in anticipation of our acquisition of Emageon Inc. for cash.

Cash used in financing activities for the first quarter of 2009 was approximately $25,000, consisting of $116,000 generated in connection with the exercise of stock options by certain employees, and $141,000 used to repurchase common stock as compared to $4.4 million of cash used in the same period in 2008. Cash used in 2008 was primarily to repurchase common stock. On April 2, 2009, we used $39.0 million of cash to complete our acquisition of Emageon Inc. The following table summarizes, as of March 31, 2009, the general timing of . . .