This Form 10-Q contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Part I, Item 2-"Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A-"Risk Factors," but appear throughout this Form 10-Q. Forward-looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality, volatility of our common stock, financial condition or other future financial or business performance, strategies, expectations, or business prospects, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition.

Forward-looking statements can be identified by the use of words such as "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this Form 10-Q and in our other SEC filings, including our Annual Report on Form 10-K filed with the SEC on September 24, 2012. Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. We operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial position or results of operations. All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

Business overview

We are a leading provider of integrated information technology solutions and managed business services to healthcare providers serving communities throughout the United States. At the core of our suite of solutions and services is PrimeSUITE, our award-winning, fully integrated EHR, PM and interoperability solution. PrimeSUITE integrates clinical, financial and administrative data in a single database to enable comprehensive views of patient records and efficient workflow throughout each patient encounter, reduce clinical and administrative errors, and allow for the seamless exchange of data between our customers and the broader healthcare community. We augment our solutions by offering managed business services such as clinically-driven revenue cycle and EHR-enabled research services. By integrating clinical, financial and administrative data processes, our solutions and services allow providers to deliver advanced care and improve their efficiency and profitability.

Our technology solutions and services are designed to address the needs of providers in various settings: independent physician practices, group practices, hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic centers, federally-qualified health centers ("FQHCs"), community health centers ("CHCs"), accountable care communities ("ACCs") and accountable care organizations ("ACOs"), and integrated delivery networks ("IDNs"). Our single database technology platform, which reflects over 13 years of development, is scalable to serve the needs of ambulatory providers of any size. As providers' needs evolve, our platform allows for the efficient development and integration of new solutions, which we refer to as our innovation platform. Our solutions are available on either a cloud-based or, with respect to PrimeSUITE, a premise-based model.

The ambulatory EHR market has historically been underpenetrated and installed systems have been underutilized. Adoption of these technologies has been low for several reasons, including providers' resistance to making the required investment as well as concerns that electronic records would disrupt clinical and administrative workflows. Adoption of EHR solutions is accelerating as more providers realize the possible return on investment from adoption of solutions such as PrimeSUITE. Government initiatives and legislation have provided financial incentives and implementation support for ambulatory providers to adopt EHR solutions.

In order for us to continue to deliver on this commitment to our providers we are committed to investing in our innovation platform and managed business services to address the trends and challenges we believe will affect our providers now and in the future. We will invest in the development of new products and enhancements to existing products that we believe present opportunities for substantial efficiencies to ourselves and our providers' businesses. In responding to the acceleration of EHR adoption, government regulations such as the HITECH Act and ARRA, and other market trends such as increasing consumerism, the shift to quality-based reimbursement and the focus on improving the coordination of care among providers, we also face the following opportunities, challenges and risks, which could impact our business:

? Maintaining Adequate Capacity to Satisfy Potential Increased Demand. We have taken steps to position ourselves to take advantage of expected increased demand by increasing our direct sales force, enhancing our relationships with strategic alliance partners with established sales forces and increasing our systems installation capacity by utilizing third-party training and implementation specialists certified in PrimeSUITE deployment. While we believe these steps are sufficient to satisfy expected demand, additional investments and steps may be required.

? Ensuring Continued Certification of Our Solutions. In order to qualify for government incentives for EHR adoption, our solutions must continue to meet various and changing requirements for product certification and must enable our providers to achieve "meaningful use" as defined by existing and new regulations. We will continue to invest significant resources to ensure compliance of our solutions and to train and consult with our providers to enable them to navigate "meaningful use" regulations. Our ability to achieve certification under applicable standards from time to time and the length and cost of related solutions development and enhancement could materially impact our ability to take advantage of increased demand and require larger research and development investments than anticipated.

? Ensuring Our Ability to Address Emerging Demand Trends.
Trends toward community-based purchasing decisions where individuals, hospitals, health systems and IDNs subsidize the purchase of EHR solutions for their affiliated physicians in order to expand connectivity within their provider community, and government-funded providers and initiatives, such as RECs, to encourage and support the implementation of EHR, could result in longer sales cycles and installation periods. This may also increase the need for additional training and implementation specialists because of the size and complexity of those sales. As a result, while we expect these trends to result in increased demand for our solutions and managed business services, they may require additional investment by us and may have unintended or unexpected consequences that could impact our business.

? Demand by Smaller Providers Could Accelerate Transition to Cloud-based Model. The adoption of EHR by the large untapped market of smaller provider customers and their greater need to minimize capital outlays could accelerate adoption of cloud-based arrangements as opposed to perpetual licensing arrangements. While additional cloud-based arrangements will result in increased recurring revenue over a longer period of time than we have achieved historically, near-term revenue would be reduced as a result while costs associated with these sales would still be expensed currently. Additionally, revenue associated with cloud-based deployments is subject to deferral over extended periods which further reduces near-term revenue.

? Uncertain Impact of Recent Legislation. Recently enacted public laws reforming the U.S. healthcare system may impact our business. The Patient Protection and Affordable Care Act ("PPACA") and The Health Care and Education and Reconciliation Act of 2010 (the "Reconciliation Act"), which amends the PPACA (collectively the "Health Reform Laws"), were signed into law in March 2010. The Health Reform Laws contain various provisions that may impact the Company and our customers. Some of these provisions may have a positive impact, by expanding the use of electronic health records in certain federal programs, for example, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including the Company.

Sources of Revenue and Expenses

Revenue

We derive our revenue primarily from sales of our PrimeSUITE platform of proprietary solutions, related hardware and professional services to providers in ambulatory settings. Currently, a significant portion of our solution sales are made as perpetual licenses to our customers. Our core PrimeSUITE application is available in a premise-based model. In addition, it is also available in a cloud-based model, which is the sole deployment model for all of our other solutions.

We classify our revenue as: (1) Systems Sales, (2) Training and Consulting Services, (3) Support Services, and (4) Electronic Data Interchange and Business Services. Systems Sales are products comprised of software licenses, primarily PrimeSUITE, and related hardware and third-party software. Training and Consulting Services include implementation, training and consulting associated with Systems Sales and our other technologies as well. Support Services includes revenues derived from support provided to our premise-based customers as well as all the solutions we offer on a per user or transaction basis, such as PrimeSUITE and PrimeEXCHANGE services for connectivity to third-parties and third-party database charges. Electronic Data Interchange and Business Services include third-party charges for patient claims, statements and eligibility, and clinically-driven RCM and EHR-enabled research services.

As our installed customer base continues to grow, we anticipate that Support Services and Electronic Data Interchange and Business Services, which are recurring in nature, will expand as a percentage of our total revenue. As cloud-based offerings continue to gain acceptance, we anticipate and are currently observing increased migration toward this model for our core PrimeSUITE application. Historically, we have experienced moderate seasonality to our annual revenue with the smallest percentage of sales typically occurring in our first fiscal quarter due primarily to provider purchasing patterns. See "Results of Operations" for more information.

Cost of Revenue.

Cost of revenue for Systems Sales consists primarily of third-party costs and allocable compensation and benefits related to application development for certain customers, third-party hardware and software costs and amortization of capitalized software development costs and acquired technology. Cost of revenue for Training and Consulting Services consists primarily of compensation (including stock-based compensation) and benefits of our billable professionals and fees to third-party specialists for deployment, implementation and training, and travel costs. Cost of revenue for Support Services consists primarily of compensation (including stock-based compensation) and benefits of support specialists, and fees to third-parties for database services and services from our managed services partners. Cost of revenue for Electronic Data Interchange consists primarily of fees to third-parties for processing claims, statements and eligibility requests; cost of revenue for Business Services consists primarily of compensation (including stock-based compensation) and benefits of personnel who deliver our revenue cycle management services and various third-party costs associated with our EHR-enabled clinical research services. As higher-margin recurring revenue increases as a percentage of total revenue, we believe overall gross margin will also increase over time.

Sales, General and Administrative Expenses

Sales, general and administrative ("SG&A") expenses consist primarily of compensation (including stock-based compensation) and benefits, commissions, travel, professional fees, advertising and other administrative and general expenses, including depreciation and amortization of equipment and leasehold improvements, for the Company's sales and marketing functions; executive offices, administration, human resources, corporate information technology support, legal, finance and accounting, and other corporate services. We intend to invest in our infrastructure as appropriate to expand our market share and accommodate our growing customer base. We expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs and compliance costs under the Sarbanes-Oxley Act and the requirements of the New York Stock Exchange. As a result, we expect SG&A expenses to increase as we grow, but remain relatively constant as a percentage of revenue and ultimately decline as we achieve leverage from our infrastructure investments.

Research and Development Expenses

Research and development expenses consist primarily of compensation (including stock-based compensation) and benefits, third-party contractor costs and other facility and administrative costs, including depreciation of equipment directly related to development of new products and upgrading and enhancing existing products. In accordance with GAAP, research and development costs related to new application development and enhancements to existing products are expensed until technological feasibility is established. Once technological feasibility is established such costs are capitalized until the product or enhancement is ready for market, at which point capitalization ceases. We capitalize research and development costs under these criteria including the compensation-related costs of personnel and related third-party contractors working directly on specific projects. We intend to invest in our innovation platform to maintain cutting-edge technology for the benefit of our customers as well as to meet evolving requirements of the market, including certifications and standards.

Provision for Income Taxes

In preparing our financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities.

Results of Operations

The following table sets forth revenue and cost of revenue by category for the
three and six months ended December 31, 2012, as compared to the comparable
periods of the prior year:

                                     Three Months Ended December 31,                               Change
                                    2012                          2011                      Increase (Decrease)
                           Amount                        Amount                           Amount
                          (000's)       Percentage       (000's)      Percentage          (000's)          Percentage
Revenue:

System sales             $   10,638             32%     $   9,205             32%     $         1,433              16%
Training and
consulting services           4,107             13%         6,301             22%              (2,194 )           -35%
Support services             11,059             34%         7,710             26%               3,349              43%
Electronic data
interchange and
business services             6,917             21%         5,906             20%               1,011              17%

Total revenue                32,721            100%        29,122            100%               3,599              12%

Cost of revenue:

System sales                  4,415             42%         2,761             30%               1,654              60%
Training and
consulting services           3,312             81%         4,560             72%              (1,248 )           -27%
Support services              3,189             29%         2,672             35%                 517              19%
Electronic data
interchange and
business services             4,399             64%         4,153             70%                 246               6%

Total cost of revenue        15,315             47%        14,146             49%               1,169               8%



                                      Six Months Ended December 31,                               Change
                                   2012                          2011                      Increase (Decrease)
                          Amount                        Amount                           Amount
                          (000's)      Percentage       (000's)      Percentage          (000's)          Percentage
Revenue:

System sales             $  19,673             30%     $  15,854             29%     $         3,819              24%
Training and
consulting services         10,970             17%        12,904             24%              (1,934 )           -15%
Support services            21,351             32%        14,767             27%               6,584              45%
Electronic data
interchange and
business services           13,501             21%        11,248             20%               2,253              20%

Total revenue               65,495            100%        54,773            100%              10,722              20%

Cost of revenue:

System sales                 7,422             38%         4,608             29%               2,814              61%
Training and
consulting services          7,914             72%         8,992             70%              (1,078 )           -12%
Support services             6,314             30%         4,929             33%               1,385              28%
Electronic data
interchange and
business services            8,593             64%         7,975             71%                 618               8%

Total cost of revenue       30,243             46%        26,504             48%               3,739              14%

Revenue. Total revenue was $32.7 million for the three months ended December 31, 2012, compared to $29.1 million for the three months ended December 31, 2011, an increase of $3.6 million or 12%. Systems sales grew by 16%, support services and electronic data interchange and business services grew 43% and 17%, respectively, while training and consulting services declined 35%. Overall the revenues from systems sales and training and consulting services, which we characterize as one-time in nature, declined 5% from the comparable period of 2011. On the other hand, revenues from support services and electronic data interchange and business services, which we characterize as recurring in nature, grew 32% over the year-ago quarter and accounted for 55% of total revenue.

The current quarter's trend in systems sales and training and consulting services reflects fewer transactions overall in the current quarter and delays in shipment and/or implementation of several sizeable transactions that had been anticipated. We believe these factors are largely due to the confluence of a number of difficult to quantify circumstances. These include the lessening influence on buying patterns of the "Meaningful Use" regulatory regime, and general economic environment conditions which rose to prominence in the quarter including uncertainty regarding: healthcare reform emanating from the national elections; debt ceiling questions around spending programs, including stimulus under the HiTech Act, and potential reimbursement reductions under the SGR provisions of the Medicare act. None of these conditions reached any semblance of resolutions until January 2013. Additionally, the quarter saw the Northeast severely impacted by the devastation from a major storm, recovery from which required many weeks. We are also observing an increase in activity from larger enterprise customers which engenders a lengthier sales cycle as well as fewer hours of associated training and consulting services as a number of these customers prefer to assume portions of system implementation. Another factor is the required deferral, over an extended period, of implementation-related revenue in connection with cloud-based deployments principally PrimeSUITE.

Support services, electronic data interchange and business services are recurring in nature and growth in this revenue is largely attributable to our growing customer base. Our ability to sell additional products, including the cloud-based version of our core PrimeSUITE offering, and services to our existing customer base also benefitted revenue growth in the three months ended December 31, 2012, compared to the same period of the prior year.

For the six months ended December 31, 2012, total revenue was $65.5 million compared to $54.8 million for the six months ended December 31, 2011, an increase of $10.7 million or 20%. Systems sales grew by $3.8 million or 24%, support services and electronic data interchange and business services grew 45% and 20%, respectively, while training and consulting services declined 15%.

Cost of Revenue. Total cost of revenue was $15.3 million for the three months ended December 31, 2012, compared to $14.1 million for the three months ended December 31, 2011, an increase of $1.2 million or 8%. Cost of systems sales increased by 60%, cost of support services and electronic data interchange and business services grew 19% and 6%, respectively, while cost of training and consulting services declined 27%. On an overall basis, gross profit margins were 53% for the three months ended December 31, 2012, as compared to 51% for the same period of the prior year. This improvement in the quarter resulted from a combination of factors; including a sales mix with higher-margin support services that contributed substantially all of the total increase in revenue for the period. Benefits were also attained by the improved margin profiles of support services and electronic data interchange and business services. Improved support services margins are attributable to customers' adoption of higher-margin innovations and to improvements in margin profiles of various services offerings that involve third parties. These beneficial effects were partly offset by 1) a decline in margins for training and consulting services due to significantly lower utilization in the quarter, 2) $626,000 in increased amortization of software development costs and recently-acquired technology, and
3) the impact on the margin profile of systems sales for recently-undertaken, lower margin, development work we are currently doing for a certain customer.

For the six months ended December 31, 2012, total cost of goods sold was $30.2 million compared to $26.5 million for the six months ended December 31, 2011, an increase of $3.7 million or 14%. Cost of systems sales grew by $2.8 million or 61%, cost of support services and electronic data interchange and business services grew 28% and 8%, respectively, while cost of training and consulting services declined 12%.

Sales, General and Administrative. Total SG&A expenses were $14.8 million for the three months ended December 31, 2012, compared to $11.5 million for the three months ended December 31, 2011, an increase of $3.3 million or 28%. Growth in SG&A is largely a result of the required infrastructure to support the overall growth in the business. We have increased headcount and related costs and have made other investments in sales, marketing and advertising which we believe positions us to capture increased market share in what we believe will be an expanding market over the next several years. Additionally, implementation of our long-term equity incentive plan increased stock-based compensation by $448,000 for the three months ended December 31, 2012 as compared to the year-ago period. Further, growth in our headcount and professional services related to implementation of a new suite of business tools has increased SG&A costs for subscription to these services. As a percentage of revenue, SG&A was 45% for the three months ended December 31, 2012, compared to 39% for the three months ended December 31, 2011.

For the six months ended December 31, 2012, total SG&A was $28.1 million compared to $22.2 million for the comparable period of 2011, an increase of $5.9 million or 27%. As a percentage of total revenue, SG&A was 43% for the three months ended December 31, 2012, compared to 40% for the three months ended December 31, 2011. We believe that investments in our growth and related infrastructure can be leveraged to maintain our sales growth in future years without a proportionate increase in cost.

Research and Development Expenses. Research and development expenses were $4.4 million for the three months ended December 31, 2012, compared to $3.8 million for the three months ended December 31, 2011, an increase of $600,000 or 16%. The increases are largely related to compensation, including stock-based compensation of $208,000, benefits and related costs for additional headcount and to increased costs related to the expanded platform of development tools. Our innovation platform requires continuing investment in research and development, which evolves to meet the needs of our customers, our market and industry regulators. In addition to research and development to support our innovation platform, we develop new products and enhance functionality of existing products. These application development costs are capitalized once technological feasibility is attained and capitalization ceases once the technology is available for market. Capitalized software development costs were approximately $3.6 million and $2.8 million for the three months ended December 31, 2012 and 2011, respectively. Amortization of capitalized software development costs totaled approximately $1.0 million and $496,000 for the three months ended December 31, 2012 and 2011, respectively.

For the six months ended December 31, 2012, research and development expenses were $9.2 million compared to $7.0 million for the comparable period of 2011, an increase of $2.2 million or 31%. Capitalized software development costs were . . .