##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, DC 20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal
    year ended March 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission File Number:
    001-12537
  QUALITY SYSTEMS, INC.
 (Exact name of Registrant as
    specified in its charter)
  California(State or Other Jurisdiction
    of
    Incorporation or Organization)

95-2888568(IRS Employer
    Identification No.)18111 Von Karman Avenue, Suite 600, Irvine,
    California(Address of principal
    executive offices)

92612(Zip
    Code)   Registrants telephone number, including area code:
 (949) 255-2600
  Securities registered pursuant to Section 12(b) of the
    Act:
  Common Stock, $0.01 Par Value

NASDAQ Global Select MarketTitle of each class

Name of each exchange on which registered   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
        Common Stock, $0.01 Par Value

28,884,481(Class)

(Outstanding at May 21, 2010)     *
    
    For purposes of this Annual Report on
    Form 10-K,
    in addition to those shareholders which fall within the
    definition of affiliates under Rule 405 of the
    Securities Act of 1933, as amended, holders of ten percent or
    more of the Registrants common stock are deemed to be
    affiliates for purposes of this Report.  DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K:




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##### 





QUALITY
    SYSTEMS, INC.FORM 10-K
    For the Fiscal Year Ended March 31, 2010
    INDEX
  
  Item



PagePART IItem 1.

Business


4Item 1A.

Risk Factors


13Item 1B.

Unresolved Staff Comments


24Item 2.

Properties


25Item 3.

Legal Proceedings


25Item 4.

Reserved


25PART IIItem 5.

Market for Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities


25Item 6.

Selected Financial Data


28Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


29Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


52Item 8.

Financial Statements and Supplementary Data


53Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


53Item 9A.

Controls and Procedures


53Item 9B.

Other Information


54PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


54Item 11.

Executive Compensation


54Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters


54Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


54Item 14.

Principal Accountant Fees and Services


54PART IVItem 15.

Exhibits and Financial Statement Schedules


55Signatures


59EX-10.36EX-10.37EX-10.38EX-10.39EX-10.40EX-10.41EX-10.42EX-10.43EX-10.44EX-21EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1   2




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CAUTIONARY
    STATEMENT
  Form 10-K
   3




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PART I  ITEM 1.
    BUSINESS  Company
    Overview
      Business
    Segments
  re-casted
    Segment Revenue Breakdown


Segment Revenue Growthfor the Year Ended March 31,


for the Year Ended March 31,2010


2009


2008


2010


2009


2008QSI Dental Division


5.9
%


6.5
%


8.6
%


8.1
%


(1.2
)%


(3.3
)%NextGen Division


79.4
%


83.1
%


91.4
%


13.6
%


19.6
%


21.3
%Practice Solutions Division


14.7
%


10.4
%


0.0
%


67.5
%


N/A



N/AConsolidated


100.0
%


100.0
%


100.0
%


18.9
%


31.6
%


18.7
%   QSI Dental Division.
   4




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NextGen Division.
        
    NextGen ambulatory product suite that integrates as one system
    to streamline patient care with standardized, real-time clinical
    and administrative workflow through the practice, which consists
    of:  ○
    NextGen Electronic Health Records
    (NextGenehr)

    to ensure complete, accurate documentation to manage patient
    care electronically and to improve clinical processes and
    patient outcomes with electronic charting at the point of
    care; and○
    NextGen Enterprise Practice Management
    (NextGenepm)

    to automate business processes, from front-end scheduling to
    back-end collections and financial and administrative processes
    for increased performance and efficiencies.  
    NextGen inpatient products that deliver secure, highly
    adaptable, and easy to use applications to patient centered
    hospitals and health systems, which consists of:  ○
    NextGen Clinicals, which resides on an advanced truly active web
    2.0 platform  and is designed to initiate widespread
    work efficiency and communication, reduce errors and
    time-to-chart,
    and improve care; and○
    NextGen Financials, which is a financial and administrative
    system that helps hospitals significantly improve the smart
    operations and financial and regulatory management of their
    facilities.  
    NextGen Community Connectivity, which consists of:  ○
    NextGen Health Information Exchange (HIE), formerly
    Community Health Solution, to exchange patient data securely
    with community healthcare organizations;○
    NextGen Patient Portal (NextMD.com) to communicate
    with patients online and import information directly into
    NextGenehr; and○
    NextGen Health Quality Measures (HQM) to allow
    seamless quality measurement and reporting for practice and
    physician performance initiatives.   5




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
    EDI services that are intended to automate a number of manual,
    often paper-based or telephony intensive communications between
    patients
    and/or
    providers
    and/or
    payors;
    Hosting services that allow practices seeking the benefits of IT
    automation but not the maintenance of in-house hardware and
    networking;
    NextGuard  Data Protection services that provide an
    off-site, data archiving, restoration, and disaster recovery
    preparedness solution for practices to protect clinical and
    financial data;
    Consulting services, such as data conversions or interface
    development, that allow practices to build custom add-on
    features; and
    Physician Resources services that allow practices to consult
    with the NextGen Divisions physician team.  Practice Solutions Division. epm
            Industry
    Background
   6




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Our
    Strategy
    
    Continued development and enhancement of select software
    solutions in target markets;
    Continued investments in our infrastructure including, but not
    limited to, product development, sales, marketing,
    implementation, and support;
    Continued efforts to make infrastructure investments within an
    overall context of maintaining reasonable expense discipline;
    Addition of new customers through maintaining and expanding
    sales, marketing and product development activities;
    Expanding our relationship with existing customers through
    delivery of add-on and complementary products and
    services; and
    Continuing our gold standard commitment of service in support of
    our customers.    Products
    and Services
   7




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NextGen Ambulatory Practice Management
    Systems.
  epm epm epm fee-for-service epm
  NextGen Ambulatory Clinical Systems. ehr
  ehr ehr ehr
  
    Data captured using user-customizable input
    templates;
    Scanned or electronically acquired images, including X-rays and
    photographs;
    Data electronically acquired through interfaces with clinical
    instruments or external systems;
    Other records, documents or notes, including electronically
    captured handwriting and annotations; and
    Digital voice recordings.  ehr ehr
  QSI Dental Division Practice Management and Clinical
    Systems.
 8




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NextGen Inpatient Solutions.
  Revenue Cycle Management Services.
  
    Electronic claims submission service that submits Health
    Insurance Portability and Accountability Act of 1996
    (HIPAA) compliant insurance claims electronically to
    insurance payers;
    Electronic remittance and payment posting service that uses
    NextGen Document Management system to link an image of each
    explanation of benefit (EOB) to the corresponding
    encounter at the time of payment posting to minimizes the need
    for storage of paper EOBs; and
    Accounts receivable
    follow-up
    methodology that allows practices to establish parameters,
    adjustment rules and standards for account elevation.  Electronic Data Interchange. and/or and/or
 9




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
    Electronic claims submission through our relationships with a
    number of payors and national claims clearinghouses;
    Electronic patient statement processing, appointment reminder
    cards and calls, recall cards, patient letters, and other
    correspondence;
    Electronic insurance eligibility verification; and
    Electronic posting of remittances from insurance carriers into
    the accounts receivable application.  Community Connectivity. ehs and/or
  Sales and
    Marketing
         10




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Customer
    Service and Support
    day-to-day
    when-and-if
  Implementation
    and Training
  and/or
   11




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E-learning E-learning
    Competition
          Product
    Enhancement and Development
    OTHER
    INFORMATION
  Employees
    Intellectual
    Property
    Available
    Information
  www.qsii.com
 12




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1-800-SEC-0330. www.sec.gov
  ITEM 1A.
    RISK
    FACTORS    Risks
    Related to Our Business
  The effects of the recent global economic crisis may impact
    our business, operating results or financial
    condition
  We face significant, evolving competition which, if we fail
    to properly address, could adversely affect our business,
    results of operations, financial condition and price of our
    stock.
    and/or
  Many of our competitors have greater resources than we do. In
    order to compete successfully, we must keep pace with our
    competitors in anticipating and responding to the rapid changes
    involving the industry in which we operate, or our business,
    results of operations and financial condition may be adversely
    affected.
 13




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We face risk
    and/or the
    possibility of claims from activities related to strategic
    partners, which could be expensive and time-consuming, divert
    personnel and other resources from our business and result in
    adverse publicity that could harm our
    business and/or and/or
  We may engage in future acquisitions, which may be expensive
    and time consuming and from which we may not realize anticipated
    benefits.
  
    potentially dilutive issuances of our securities, the incurrence
    of debt and contingent liabilities and amortization expenses
    related to intangible assets, which could adversely affect our
    results of operations and financial condition;
    use of cash as acquisition currency may adversely affect
    interest or investment income, thereby potentially adversely
    affecting our earnings and /or earnings per share;
    difficulty in effectively integrating any acquired technologies
    or software products into our current products and technologies;
    difficulty in predicting and responding to issues related to
    product transition such as development, distribution and
    customer support;
    the possible adverse effect of such acquisitions on existing
    relationships with third party partners and suppliers of
    technologies and services;
    the possibility that staff or customers of the acquired company
    might not accept new ownership and may transition to different
    technologies or attempt to renegotiate contract terms or
    relationships, including maintenance or support agreements;
    the possibility that the due diligence process in any such
    acquisition may not completely identify material issues
    associated with product quality, product architecture, product
    development, intellectual property issues, key personnel issues
    or legal and financial contingencies, including any deficiencies
    in internal controls and procedures and the costs associated
    with remedying such deficiencies; 14




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
    difficulty in integrating acquired operations due to
    geographical distance, and language and cultural
    differences; and
    the possibility that acquired assets become impaired, requiring
    us to take a charge to earnings which could be significant.    Our failure to manage growth could harm our business, results
    of operations and financial condition.
  Our operations are dependent upon our key personnel. If such
    personnel were to leave unexpectedly, we may not be able to
    execute our business plan.
    Continuing worldwide political and economic uncertainties may
    adversely affect our revenue and
    profitability. and/or
  The failure of auction rate securities to sell at their reset
    dates could impact the liquidity of the investment and could
    negatively impact the carrying value of the
    investment.
 15




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Risks
    Related to Our Products and Service
  If our principal products and our new product development
    fail to meet the needs of our clients, we may fail to realize
    future growth.
    If the emerging technologies and platforms of Microsoft and
    others upon which we build our products do not gain or continue
    to maintain broad market acceptance, or if we fail to develop
    and introduce in a timely manner new products and services
    compatible with such emerging technologies, we may not be able
    to compete effectively and our ability to generate revenue will
    suffer.
  We face the possibility of subscription pricing, which may
    force us to adjust our sales, marketing and pricing
    strategies. ehr epm
  We face the possibility of claims based upon our Web site
    content, which may cause us expense and management
    distraction
 16




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If our security measures are breached or fail, and
    unauthorized access is obtained to a clients data, our
    services may be perceived as not being secure, clients may
    curtail or stop using our services, and we may incur significant
    liabilities.
  Failure by our clients to obtain proper permissions and
    waivers may result in claims against us or may limit or prevent
    our use of data, which could harm our
    business.
  We face the possibility of damages resulting from internal
    and external security breaches, and viruses
   17




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and/or
  We are subject to the development and maintenance of the
    Internet infrastructure, which is not within our control, and
    which may diminish Internet usage and availability as well as
    access to our Web site
  Our products may be subject to product liability legal
    claims, which could have an adverse effect on our business,
    results of operations and financial
    condition.
    
    state and federal privacy and confidentiality laws;
    our contracts with customers and partners;
    state laws regulating healthcare professionals;
    Medicaid laws;
    the HIPAA and related rules proposed by the Health Care
    Financing Administration; and
    Health Care Financing Administration standards for Internet
    transmission of health data.    and/or
 18




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We are subject to the effect of payor and provider conduct
    which we cannot control and accordingly, there is no assurance
    that revenue for our services will continue at historic
    levels
      Risks
    Related to Regulation
  We face increasing involvement of the federal government in
    our industry, which may give rise to uncertain and unwarranted
    expectations concerning the benefits we are to receive from
    government funding and programs. ehr
  We face the risks and uncertainties that are associated with
    litigation against us, which may adversely impact our marketing,
    distract management and have a negative impact upon our
    business, results of operations and financial
    condition.
    Because we believe that proprietary rights are material to
    our success, misappropriation of these rights could adversely
    affect our financial condition.
   19




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If we are deemed to infringe on the proprietary rights of
    third parties, we could incur unanticipated expense and be
    prevented from providing our products and
    services.
  We are dependent on our license rights and other services
    from third parties, which may cause us to discontinue, delay or
    reduce product shipments
  There is significant uncertainty in the healthcare industry
    in which we operate, and we are subject to the possibility of
    changing government regulation, which may adversely impact our
    business, financial condition and results of
    operations.
     20




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We may be subject to false or fraudulent claim
    laws.
      If our products fail to comply with evolving government and
    industry standards and regulations, we may have difficulty
    selling our products.
  We are subject to changes in and interpretations of financial
    accounting matters that govern the measurement of our
    performance, one or more of which could adversely affect our
    business, financial condition, cash flows, revenue and results
    of operations
 21




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and/or
  Failure to maintain effective internal controls in accordance
    with Section 404 of the Sarbanes-Oxley Act of 2002 could
    have an adverse effect on our business, and our per share price
    may be adversely affected. Form 10-K
        Risks
    Related to Ownership of Our Common Stock
  The unpredictability of our quarterly operating results may
    cause the price of our common stock to fluctuate or
    decline.
  
    the size and timing of orders from clients;
    the specific mix of software, hardware, and services in client
    orders;
    the length of sales cycles and installation processes;
    the ability of our clients to obtain financing for the purchase
    of our products;
    changes in pricing policies or price reductions by us or our
    competitors;
    the timing of new product announcements and product
    introductions by us or our competitors;
    changes in revenue recognition or other accounting guidelines
    employed by us
    and/or
    established by the Financial Accounting Standards Board or other
    rule-making bodies;
    accounting policies concerning the timing of the recognition of
    revenue;
    the availability and cost of system components; 22




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
    the financial stability of clients;
    market acceptance of new products, applications and product
    enhancements;
    our ability to develop, introduce and market new products,
    applications and product enhancements;
    our success in expanding our sales and marketing programs;
    deferrals of client orders in anticipation of new products,
    applications, product enhancements, or public/private sector
    initiatives;
    execution of or changes to our strategy;
    personnel changes; and
    general market/economic factors.        period-to-period
  985-605, Software, Revenue Recognition ASC 985-605. ASC 985-605
      Our common stock price has been volatile, which could result
    in substantial losses for investors purchasing shares of our
    common stock and in litigation against
    us.
  
    actual or anticipated quarterly variations in operating results;
    rumors about our performance, software solutions, or merger and
    acquisition activity;
    changes in expectations of future financial performance or
    changes in estimates of securities analysts;
    governmental regulatory action;
    health care reform measures; 23




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
    client relationship developments;
    purchases or sales of company stock;
    activities by one or more of our major shareholders concerning
    our policies and operations;
    changes occurring in the markets in general;
    macroeconomic conditions, both nationally and
    internationally; and
    other factors, many of which are beyond our control.      Two of our directors are significant shareholders, which
    makes it possible for them to have significant influence over
    the outcome of all matters submitted to our shareholders for
    approval and which influence may be alleged to conflict with our
    interests and the interests of our other
    shareholders. and/or
  Our future policy concerning the payment of dividends is
    uncertain, which could adversely affect the price of our
    stock.
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   24




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ITEM 2.
    PROPERTIES    month-to-month
  Square FeetQSI Dental DivisionIrvine, California  Corporate Headquarters


24,000Other U.S. locations


5,000NextGen DivisionHorsham, Pennsylvania


98,000Austin, Texas


39,000Atlanta, Georgia


35,000Laguna Hills, California


4,500Practice Solutions DivisionSt. Louis, Missouri


66,500Hunt Valley, Maryland


33,500Total leased properties


305,500   ITEM 3.
    LEGAL
    PROCEEDINGS      ITEM 4.
    RESERVED PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Price and Holders
    High

LowQuarter EndedJune 30, 2008

$
35.97


$
29.00September 30, 2008

$
47.94


$
27.34December 31, 2008

$
44.98


$
25.70March 31, 2009

$
48.46


$
34.26June 30, 2009

$
62.00


$
43.44September 30, 2009

$
64.16


$
50.87December 31, 2009

$
65.98


$
57.63March 31, 2010

$
68.59


$
51.30  25




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Dividends
        Record

Payment

DividendBoard Approval Date

Date

Date

AmountFiscal year 2010January 27, 2010

March 23, 2010

April 5, 2010

$
0.30October 28, 2009

December 23, 2009

January 5, 2010


0.30July 23, 2009

September 25, 2009

October 5, 2009


0.30May 27, 2009

June 12, 2009

July 6, 2009


0.30Fiscal year 2009January 28, 2009

March 11, 2009

April 3, 2009

$
0.30October 30, 2008

December 15, 2008

January 5, 2009


0.30August 4, 2008

September 15, 2008

October 1, 2008


0.30May 29, 2008

June 15, 2008

July 2, 2008


0.25Fiscal year 2008January 30, 2008

March 14, 2008

April 7, 2008

$
0.25October 25, 2007

December 14, 2007

January 7, 2008


0.25July 31, 2007

September 14, 2007

October 5, 2007


0.25May 31, 2007

June 15, 2007

July 5, 2007


0.25    26




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Performance
    Graph
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Quality Systems, Inc., The NASDAQ Composite Index
    And The NASDAQ Computer & Data Processing Index
  
     27




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ITEM 6.
    SELECTED
    FINANCIAL DATA    Consolidated
    Financial Data
  Year Ended March 31,2010


2009


2008


2007


2006(In thousands, except per share data)Statements of Income Data:Revenue

$
291,811


$
245,515


$
186,500


$
157,165


$
119,287Cost of revenue


110,807



88,890



62,501



50,784



39,828Gross profit


181,004



156,625



123,999



106,381



79,459Selling, general and administrative expenses


86,951



69,410



53,260



45,337



35,554Research and development costs


16,546



13,777



11,350



10,166



8,087Amortization of acquired intangible assets


1,783



1,035











Income from operations


75,724



72,403



59,389



50,878



35,818Interest income


226



1,203



2,661



3,306



2,108Other income (expense)


268



(279
)


953







Income before provision for income taxes


76,218



73,327



63,003



54,184



37,926Provision for income taxes


27,839



27,208



22,925



20,952



14,604Net income

$
48,379


$
46,119


$
40,078


$
33,232


$
23,322Basic net income per share

$
1.69


$
1.65


$
1.47


$
1.24


$
0.88Diluted net income per share

$
1.68


$
1.62


$
1.44


$
1.21


$
0.85Basic weighted average shares outstanding


28,635



28,031



27,298



26,882



26,413Diluted weighted average shares outstanding


28,796



28,396



27,770



27,550



27,356Dividends declared per common share

$
1.20


$
1.15


$
1.00


$
1.00


$
0.875   March 31,

March 31,

March 31,

March 31,

March 31,2010

2009

2008

2007

2006Balance Sheet Data:Cash and cash equivalents

$
84,611


$
70,180


$
59,046


$
60,028


$
57,255Working capital

$
118,935


$
98,980


$
79,932


$
76,616


$
61,724Total assets

$
310,180


$
242,101


$
187,908


$
150,681


$
122,247Total liabilities

$
121,891


$
86,534


$
74,203


$
59,435


$
49,838Total shareholders equity

$
188,289


$
155,567


$
113,705


$
91,246


$
72,409  28




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ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    Overview
      
    Management Overview.  This section provides a
    general description of our Company and operating segments, a
    discussion as to how we derive our revenue, background
    information on certain trends and developments affecting our
    Company, a summary of our acquisition transactions and a
    discussion on managements strategy for driving revenue
    growth.
    Critical Accounting Policies and
    Estimates.  This section discusses those
    accounting policies that are considered important to the
    evaluation and reporting of our financial condition and results
    of operations, and whose application requires us to exercise
    subjective or complex judgments in making estimates and
    assumptions. In addition, all of our significant accounting
    policies, including our critical accounting policies, are
    summarized in Note 2 to the Consolidated Financial
    Statements included in this Report.
    Overview of Results of Operations and Results of Operations
    by Operating Divisions.  These sections provide
    our analysis and outlook for the significant line items on our
    Consolidated Statements of Income, as well as other information
    that we deem meaningful to understand our results of operations
    on both a consolidated basis and an operating division basis.
    Liquidity and Capital Resources.  This section
    provides an analysis of our liquidity and cash flows and
    discussions of our contractual obligations and commitments as of
    March 31, 2010.
    New Accounting Pronouncements.  This section
    provides a summary of the most recent authoritative accounting
    standards and guidance that have either been recently adopted by
    our Company or may be adopted in the future.  Management
    Overview
   29




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Critical
    Accounting Policies and Estimates
   30




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Revenue Recognition

Judgments and UncertaintiesWe generate revenue from the sale of licensing rights to use our software products sold directly to end-users and value-added resellers, or VARs. We also generate revenue from sales of hardware and third party software, implementation, training, software customization, EDI, post-contract support (maintenance) and other services, including RCM services, performed for customers who license our products.Revenue from implementation and training services is recognized as the corresponding services are performed. Maintenance revenue is recognized ratably over the contractual maintenance period. RCM revenue is derived from services fees, which include amounts charged for ongoing billing and other related services and are generally billed to the customer as a percentage of total collections. We do not recognize revenue for services fees until these collections are made as the services fees are not fixed or determinable until such time.

A typical system contract contains multiple elements of the above items.  FASB ASC Topic 985-605-25, Software, Revenue Recognition, Multiple Elements,or ASC 985-605-25, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements. The fair value of an element must be based on vendor specific objective evidence (VSOE).  We limit our assessment of VSOE for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. VSOE calculations are updated and reviewed at the end of each quarter or annually depending on the nature of the product or service. We have established VSOE for the related undelivered elements based on the bell-shaped curve method.  Maintenance VSOE for our largest customers is based on stated renewal rates only if the rate is determined to be substantive and falls within our customary pricing practices.When evidence of fair value exists for the undelivered elements only, the residual method, provided for under ASC 985-605, is used. Under the residual method, we defer revenue related to the undelivered elements in a system sale based on VSOE of fair value of each of the undelivered elements, and allocate the remainder of the contract price net of all discounts to revenue recognized from the delivered elements. Undelivered elements of a system sale may include implementation and training services, hardware and third party software, maintenance, future purchase discounts, or other services. If VSOE of fair value of any undelivered element does not exist, all revenue is deferred until VSOE of fair value of the undelivered element is established or the element has been delivered.We bill for the entire system sales contract amount upon contract execution, except for maintenance which is billed separately. Amounts billed in excess of the amounts contractually due are recorded in accounts receivable as advance billings. Amounts are contractually due when services are performed or in accordance with contractually specified payment dates. Provided the fees are fixed or determinable and collection is considered probable, revenue from licensing rights and sales of hardware and third party software is generally recognized upon shipment and transfer of title. In certain transactions whose collections risk is high, the cash basis method is used to recognize revenue. If the fee is not fixed or determinable, then the revenue recognized in each period (subject to application of other revenue recognition criteria) will be the lesser of the aggregate of amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method. Fees which are considered fixed or determinable at the inception of our arrangements must include the following characteristics:   The fee must be negotiated at the outset
    of an arrangement, and generally be based on the specific volume
    of products to be delivered without being subject to change
    based on variable pricing mechanisms such as the number of units
    copied or distributed or the expected number of users; and   Payment terms must not be considered
    extended. If a significant portion of the fee is due more than
    12 months after delivery or after the expiration of the
    license, the fee is presumed not fixed or determinable. 31




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##### Table of Contents



Revenue Recognition (continued)

Effect if Actual Results Differ from AssumptionsAlthough we believe that our approach to estimates and judgments
    as described herein is reasonable, actual results could differ
    and we may be exposed to increases or decreases in revenue that
    could be material.Valuation of Marketable Securities and ARS Put Option RightsOur investments at March 31, 2010 and 2009 are in tax exempt municipal ARS which are classified as either current or non-current marketable securities on our Consolidated Balance Sheets, depending on the liquidity and timing of expected realization of such securities.Our ARS are held by UBS Financial Services Inc.. On November 13, 2008, we entered into an Auction Rate Security Rights Agreement with UBS, whereby the we accepted UBSs offer to purchase the Companys ARS investments at any time during the period of June 30, 2010 through July 2, 2012. As a result, we had obtained an asset, ARS put option rights, whereby the we have a right to put the ARS back to UBS. We expect to exercise its ARS put option rights and put its ARS back to UBS on June 30, 2010, the earliest date allowable under the Rights Agreement.

Judgments and UncertaintiesMarketable securities are recorded at fair value, based on quoted market rates or on valuation analysis when appropriate. The cost of marketable securities sold is based upon the specific identification method. Realized gains or losses and other-than-temporary declines in the fair value of marketable securities are determined on a specific identification basis and reported in interest and other income, net, as incurred.The fair value of our marketable securities has been estimated by management based on certain assumptions of what market participants would use in pricing the asset in a current transaction, or level 3  unobservable inputs in accordance with FASB ASC Topic 820-10, Fair Value Measurements and Disclosures-Overall, or ASC 820-10. Management used a model to estimate the fair value of these securities that included certain level 2 inputs as well as assumptions, including a liquidity discount, based on managements judgment, which are highly subjective and therefore considered level 3 inputs in the fair value hierarchy. The estimate of the fair value of the marketable securities could change based on market conditions.Effect if Actual Results Differ from AssumptionsAlthough we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in gains and losses that could be material.Allowance for Doubtful Accounts

Judgments and UncertaintiesWe maintain allowances for doubtful accounts for estimated
    losses resulting from the inability of our customers to make
    required payments. We perform credit evaluations of our
    customers and maintain reserves for estimated credit losses.
    Reserves for potential credit losses are determined by
    establishing both specific and general reserves.

Specific reserves are based on managements estimate of the probability of collection for certain troubled accounts. General reserves are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances net of deferred revenue and specifically reserved accounts. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances would be required.Effect if Actual Results Differ from AssumptionsAlthough we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in required reserves that could be material. 32




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##### Table of Contents



Software Development Costs

Judgments and UncertaintiesDevelopment costs incurred in the research and development of
    new software products and enhancements to existing software
    products are expensed as incurred until technological
    feasibility has been established. After technological
    feasibility is established with the completion of a working
    model of the enhancement or product, any additional development
    costs are capitalized in accordance with FASB ASC Topic
    985-20,
    Software, Costs of Computer Software to be Sold, Leased or
    Marketed,or
    ASC 985-20.
    Such capitalized costs are amortized on a straight line basis
    over the estimated economic life of the related product, which
    is generally three years.

We perform an annual review of the recoverability of such capitalized software costs. At the time a determination is made that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, any remaining capitalized amounts are written off.Effect if Actual Results Differ from AssumptionsAlthough we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material.Goodwill

Judgments and UncertaintiesGoodwill is related to the NextGen Division and the HSI, PMP,
    Sphere, and Opus acquisitions, which closed on May 20,
    2008, October 28, 2008, August 12, 2009, and
    February 10, 2010, respectively.

In accordance with FASB ASC Topic 350-20,
    Intangibles  Goodwill and Other, Goodwill, or
    ASC 350-20, we test goodwill for impairment annually at the end
    of our first fiscal quarter, referred to as the annual test
    date. We will also test for impairment between annual test dates
    if an event occurs or circumstances change that would indicate
    the carrying amount may be impaired. Impairment testing for
    goodwill is performed at a reporting unit level, which is
    defined as an operating segment or one level below an operating
    segment (referred to as a component). A component of an
    operating segment is a reporting unit if the component
    constitutes a business for which discrete financial information
    is available and segment management regularly reviews the
    operating results of that component. An impairment loss would
    generally be recognized when the carrying amount of the
    reporting units net assets exceeds the estimated fair
    value of the reporting unit.Effect if Actual Results Differ from AssumptionsWe have not made any material changes in the accounting
    methodology we use to assess impairment loss during the past
    three fiscal years.The carrying values of goodwill at March 31, 2010 were $46.2
    million. We have determined that there was no risk of impairment
    to our goodwill as of March 31, 2010.We do not believe there is a reasonable likelihood that there
    will be a material change in the future estimates or assumptions
    we use to test for impairment losses on goodwill and other
    intangible assets. However, if actual results are not consistent
    with our estimates or assumptions, we may be exposed to an
    impairment charge that could be material. 33




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##### Table of Contents



Business Combinations  Purchase Price AllocationsDuring the last three fiscal years, we completed three significant acquisitions:In February 2010, we acquired Opus for $20.6 million.In October 2008, we acquired PMP for $19.7 million, including transaction costs.In May 2008, we acquired HSI for $15.6 million, including transaction costs.

Judgments and UncertaintiesIn accordance with business combination accounting under FASB ASC Topic 805, Business Combinations, or ASC 805, we allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.Effect if Actual Results Differ from AssumptionsWe do not believe there is a reasonable likelihood that there
    will be a material change in the future estimates or assumptions
    we use to complete the purchase price allocation and estimate
    the fair value of acquired assets and liabilities. However, if
    actual results are not consistent with our estimates or
    assumptions, we may be exposed to losses or gains that could be
    material.Intangible Assets

Judgments and UncertaintiesIntangible assets consist of capitalized software costs,
    customer relationships, trade names and certain intellectual
    property. Intangible assets related to customer relationships
    and trade names arose in connection with the acquisition of HSI,
    PMP, Opus, and Sphere.

These intangible assets were recorded at fair value and are
    stated net of accumulated amortization and impairments.
    Intangible assets are amortized over their remaining estimated
    useful lives, ranging from 3 to 9 years. Our amortization
    policy for intangible assets is based on the principles in FASB
    ASC Topic 350-30, Intangibles  Goodwill and Other,
    General Intangibles Other than Goodwill, or ASC 350-30,
    which requires that the amortization of intangible assets
    reflect the pattern that the economic benefits of the intangible
    assets are consumed.Effect if Actual Results Differ from AssumptionsAlthough we believe that our approach to estimates and judgments
    as described herein is reasonable, actual results could differ
    and we may be exposed to decreases in the fair value of our
    intangible assets, resulting in impairment charges that could be
    material.Share-Based Compensation

Judgments and UncertaintiesWe have a stock-based compensation plan, which includes stock
    options and restricted stock units. See Note 2,
    Summary of Significant Accounting Policies, and
    Note 13, Consolidated Financial Statements of this Report
    for a complete discussion of our stock-based compensation
    programs.

We apply the provisions of FASB ASC Topic 718,
    Compensation  Stock Compensation,or
    ASC 718, which requires the measurement and recognition of
    compensation expense for all share-based payment awards made to
    employees and directors based on estimated fair values.
    ASC 718 requires us to estimate the fair value of
    Share-Based Awards, to the share-based payment
    awards on the date of grant using an option-pricing model. We
    estimate the expected term of the option using historical
    exercise experience. We estimate volatility by using the
    weighted average historical volatility of our common stock,
    which we believe approximates expected volatility. The risk free
    rate is the implied yield available on the U.S Treasury
    zero-coupon issues with remaining terms equal to the expected
    term. The expected dividend yield is the average dividend rate
    during a period equal to the expected term of the option. Those
    inputs are then entered into the Black Scholes model to
    determine the estimated fair value. The value of the portion of
    the award that is expected to vest is recognized as expense over
    the requisite service period in our Consolidated Statements of
    Income. 34




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##### Table of Contents



Share-Based Compensation
    (continued)

Effect if Actual Results Differ from AssumptionsWe do not believe there is a reasonable likelihood there will be
    a material change in the future estimates or assumptions we use
    to determine stock-based compensation expense. However, if
    actual results are not consistent with our estimates or
    assumptions, we may be exposed to changes in stock-based
    compensation expense that could be material.Self-Insured Liabilities

Judgments and UncertaintiesEffective January 1, 2010, the Company became self-insured
    with respect to healthcare claims, subject to stop-loss limits.
    The Company accrues for estimated self-insurance costs and
    uninsured exposures based on claims filed and an estimate of
    claims incurred but not reported as of each balance sheet date.
    However, it is possible that recorded accruals may not be
    adequate to cover the future payment of claims. Adjustments, if
    any, to estimated accruals resulting from ultimate claim
    payments will be reflected in earnings during the periods in
    which such adjustments are determined.

Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported at the balance sheet date.Effect if Actual Results Differ from AssumptionsWe do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.   Overview
    of Our Results
  
    Our total revenue increased 18.9% and income from operations
    grew 4.6% on a consolidated basis for the year ended
    March 31, 2010. Revenue was positively impacted by growth
    in recurring revenue, including maintenance, EDI and RCM
    revenue, which grew 22.4%, 18.7% and 71.1% respectively, offset
    by higher corporate expenses.
    Uncertainty over the final rules regarding incentive payments
    tied to the ARRA continued to negatively impact system sales
    revenue in fiscal year 2010. We have made investments in our
    sales and marketing areas in anticipation of receiving the final
    rules related to the ARRA.
    Our year over year growth in revenue and operating income during
    the year ended March 31, 2010 was partially attributable to
    the HSI and PMP acquisitions. HSI and PMP combined generated
    $42.7 million of revenue for fiscal year 2010 as compared
    to a total of $24.4 million of revenue for the ten and five
    months of respective results in fiscal year 2009.
    Operating income was negatively impacted by a shift in revenue
    mix with an increased share of hardware, EDI, and RCM revenue,
    resulting in a decline in our gross profit margin. We also
    experienced higher selling, general and administrative expenses
    primarily due to higher selling related expenses incurred in
    preparation for the ARRA, which was enacted in February 2009, as
    well as higher corporate related expenses.
    We do not believe the revenue mix changes noted above represent
    a change in the overall purchasing environment. On top of the
    potential benefits from the ARRA, we have benefited and hope to
    continue to benefit from the increased demands on healthcare
    providers for greater efficiency and lower costs, as well as
    increased adoption rates for electronic medical records and
    other technology in the healthcare arena.
    While we expect to benefit from the increasing demands for
    greater efficiency as well as government support for increased
    adoption of electronic health records, the current economic
    environment, combined with unpredictability of the federal
    governments plans to promote increased adoption of
    electronic medical records, makes the near term achievement of
    such benefits and, ultimately, their impact on system sales,
    uncertain. 35




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##### Table of Contents



NextGen
    Division
  
    NextGen Division revenue increased 13.6% in the year ended
    March 31, 2010 and divisional operating income (excluding
    unallocated corporate expenses) increased 8.3% from the year
    ended March 31, 2009. Organic revenue growth in the NextGen
    Division was 11.6% and 20.4% for the years ended March 31,
    2010 and 2009, respectively.
    The acquisitions of Opus and Sphere in fiscal year 2010 added
    approximately $2.9 million in revenue for the year ended
    March 31, 2010 and $0.7 million in additional
    operating income in the same period a year ago.
    Recurring revenue, consisting of maintenance and EDI revenue,
    represented $111.9 million and accounted for 48.3% of total
    NextGen Division revenue during fiscal year 2010. In the same
    period a year ago, recurring revenue represented 44.3% of total
    NextGen Division revenue, or $90.3 million.
    During the year ended March 31, 2010, we added staffing
    resources in anticipation of future growth from the ARRA. We
    intend to continue doing so in future periods to maximize our
    opportunities from the ARRA.
    Our goals include taking maximum advantage of future benefits
    related to the ARRA and continuing to further enhance and expand
    the marketing and sales of our existing products, developing new
    products for targeted markets, continuing to add new customers,
    selling additional software and services to existing customers,
    expanding penetration of connectivity and other services to new
    and existing customers, and capitalizing on growth and cross
    selling opportunities within the Practice Solutions Division and
    the recently acquired acute care software product lines.  QSI
    Dental Division
  
    QSI Dental Division revenue increased 8.1% in the year ended
    March 31, 2010 and divisional operating income (excluding
    unallocated corporate expenses) increased 2.2% from the year
    ended March 31, 2009.
    An increase in system sales revenue offset by an increase in
    selling, general and administrative expenses were the chief
    contributors to the operating income results in fiscal year 2010.
    In July 2009, we licensed source code from PlanetDDS, Inc. that
    will allow us to deliver hosted, web-based SaaS practice
    management and clinical software solutions to the dental
    industry. The software solution will be marketed primarily to
    the multi-location dental group practice market in which the
    Division has historically been a dominant player. This new
    software solution (NextDDS) brings the QSI Dental Division to
    the forefront of the emergence of internet based applications
    and cloud computing and represents a significant growth
    opportunity for us to sell both to our existing customer base as
    well as new customers.
    Our goal for the QSI Dental Division is to maximize profit
    performance given the constraints represented by a relatively
    weak purchasing environment in the dental group practice market
    while taking advantage of opportunities with the new NextDDS
    product. The QSI Dental Division also intends to leverage the
    NextGen Divisions sales force to sell its dental
    electronic medical records software to practices that provide
    both medical and dental services such as Federal Qualified
    Health Centers, which are receiving grants as part of the ARRA.  Practice
    Solutions Division
  
    Practice Solutions Division revenue increased 67.5% in the year
    ended March 31, 2010 and divisional operating income
    (excluding unallocated corporate expenses) decreased 5.7% from
    the year ended March 31, 2009. A significant driver of the
    increase in revenue was that fact that fiscal year 2010 included
    a full year of results for HSI and PMP versus approximately ten
    and five months of respective results in fiscal year 2009. The
    Practice Solutions Division also benefited from organic growth
    achieved through cross selling RCM services to existing NextGen
    Division customers. 36




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##### Table of Contents




    Operating income as a percentage of revenue declined to
    approximately 5.4% of revenue versus 9.5% of revenue primarily
    as a result of a smaller amount of software sales to RCM
    customers compared to the prior year as well as costs related to
    transitioning to the NextGen platform including training of
    staff and initial set up and other costs related to achieving
    higher production volumes.    Year Ended March 31,2010


2009


2008(Unaudited)Revenues:Software, hardware and supplies


30.8
%


34.8
%


40.9
%Implementation and training services


4.9



5.4



7.2System sales


35.7



40.2



48.1Maintenance


30.6



29.7



30.3Electronic data interchange services


12.0



12.0



12.0Revenue cycle management and related services


12.6



8.7



0.5Other services


9.2



9.3



9.1Maintenance, EDI, RCM and other services


64.3



59.8



51.9Total revenues


100.0



100.0



100.0Cost of revenue:Software, hardware and supplies


4.2



5.4



5.8Implementation and training services


4.1



4.2



5.5Total cost of system sales


8.3



9.6



11.4Maintenance


4.6



4.8



6.7Electronic data interchange services


8.7



8.7



8.5Revenue cycle management and related services


9.5



6.0



0.3Other services


7.0



7.1



6.7Total cost of maintenance, EDI, RCM and other services


29.7



26.6



22.1Total cost of revenue


38.0



36.2



33.5Gross profit


62.0



63.8



66.5Operating expenses:Selling, general and administrative


29.8



28.3



28.6Research and development costs


5.7



5.6



6.1Amortization of acquired intangible assets


0.6



0.4



0.0Total operating expenses


36.1



34.3



34.6Income from operations


25.9



29.5



31.8Interest income


0.1



0.5



1.4Other income (expense)


0.1



(0.1
)


0.5Income before provision for income taxes


26.1



29.9



33.8Provision for income taxes


9.5



11.1



12.3Net income


16.6
%


18.8
%


21.5
%  37




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##### Table of Contents



Comparison
    of Fiscal Years Ended March 31, 2010 and March 31,
    2009
  Net Income.
  
    an 18.9% increase in consolidated revenue, including an increase
    of $27.7 million in revenue from our NextGen Division and
    an increase of $17.4 million in revenue from our Practice
    Solutions Division;
    a 13.6% increase in NextGen Division revenue, which accounted
    for 79.4% of consolidated revenue;
    an increase of recurring revenue, including RCM, maintenance,
    and EDI revenue, offset by a decline in our gross profit margin
    due primarily to both a shift in revenue mix with increased RCM
    revenue and lower gross margins related to RCM revenue;
    an increase in selling, general and administrative expenses as a
    percentage of revenue related to higher selling and corporate
    expenses and
    a decrease in interest income primarily due significantly lower
    interest rates, as compared to the prior year, on money market
    accounts in which we invest a majority of our cash.  Revenue.
    System Sales.
     38




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##### Table of Contents



Hardware, Third


ImplementationParty Software


and Training


Total SystemSoftware


and Supplies


Services


SalesYear ended March 31, 2010QSI Dental Division

$
1,699


$
1,409


$
825


$
3,933NextGen Division


79,832



4,944



13,284



98,060Practice Solutions Division


1,877







267



2,144Consolidated

$
83,408


$
6,353


$
14,376


$
104,137Year ended March 31, 2009QSI Dental Division

$
915


$
1,171


$
938


$
3,024NextGen Division


74,128



6,775



12,437



93,340Practice Solutions Division


2,397











2,397Consolidated

$
77,440


$
7,946


$
13,375


$
98,761         ehr epm
   39




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##### Table of Contents



Maintenance, EDI, Revenue Cycle Management and Other
    Services.
    Revenue CycleMaintenance


EDI


Management


Other


TotalYear ended March 31, 2010QSI Dental Division

$
7,217


$
5,038


$



$
940


$
13,195NextGen Division


81,867



29,997







21,697



133,561Practice Solutions Division


108







36,665



4,145



40,918Consolidated

$
89,192


$
35,035


$
36,665


$
26,782


$
187,674Year ended March 31, 2009QSI Dental Division

$
7,167


$
4,766


$



$
894


$
12,827NextGen Division


65,559



24,756







20,299



110,614Practice Solutions Division


136







21,431



1,746



23,313Consolidated

$
72,862


$
29,522


$
21,431


$
22,939


$
146,754     Cost of Revenue.
 40




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##### Table of Contents



Year Ended March 31,2010


%


2009


%QSI Dental DivisionRevenue

$
17,128



100.0
%

$
15,851



100.0
%Cost of revenue


7,788



45.5
%


7,582



47.8
%Gross profit

$
9,340



54.5
%

$
8,269



52.2
%NextGen DivisionRevenue

$
231,621



100.0
%

$
203,954



100.0
%Cost of revenue


73,534



31.7
%


65,311



32.0
%Gross profit

$
158,087



68.3
%

$
138,643



68.0
%Practice Solutions DivisionRevenue

$
43,062



100.0
%

$
25,710



100.0
%Cost of revenue


29,485



68.5
%


15,997



62.2
%Gross profit

$
13,577



31.5
%

$
9,713



37.8
%ConsolidatedRevenue

$
291,811



100.0
%

$
245,515



100.0
%Cost of revenue


110,807



38.0
%


88,890



36.2
%Gross profit

$
181,004



62.0
%

$
156,625



63.8
%   ramp-up
    Hardware,


Payroll andThird Party


Related








Total Cost of


GrossSoftware


Benefits


EDI


Other


Revenue


ProfitYear ended March 31, 2010QSI Dental Division


8.5
%


13.8
%


16.0
%


7.2
%


45.5
%


54.5
%NextGen Division


2.5
%


13.2
%


9.5
%


6.5
%


31.7
%


68.3
%Practice Solutions Division


0.5
%


43.6
%


1.1
%


23.3
%


68.5
%


31.5
%Consolidated


2.5
%


17.7
%


8.7
%


9.1
%


38.0
%


62.0
%Year ended March 31, 2009QSI Dental Division


7.6
%


19.8
%


17.1
%


3.3
%


47.8
%


52.2
%NextGen Division


3.9
%


11.0
%


9.1
%


8.0
%


32.0
%


68.0
%Practice Solutions Division


0.2
%


45.0
%


0.0
%


17.0
%


62.2
%


37.8
%Consolidated


3.7
%


15.1
%


8.4
%


9.0
%


36.2
%


63.8
%  41




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##### Table of Contents



Selling, General and Administrative
    Expenses.
  
    $9.9 million increase in salaries and related expenses in
    the NextGen Division primarily as a result of headcount
    additions;
    $2.5 million increase in marketing and trade shows in the
    NextGen Division;
    $1.5 million increase from the acquisition of Sphere and
    Opus;
    $3.3 million increase in corporate related expenses,
    primarily as a result of headcount additions, and
    $0.4 million increase in other selling and administrative
    expenses.   42




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##### Table of Contents



Research and Development Costs.
  Amortization of Acquired Intangible
    Assets.
  Interest Income.
    Other Income (Expense).
  Provision for Income Taxes.
   43




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##### Table of Contents



Comparison
    of Fiscal Years Ended March 31, 2009 and March 31,
    2008
    Net Income.
  
    a 31.6% increase in consolidated revenue, including
    $21.4 million in RCM revenue from our recently acquired
    entities;
    a 34.7% increase in NextGen Division revenue which accounted for
    93.5% of consolidated revenue;
    a shift in revenue mix with increased maintenance, EDI and RCM
    revenue resulting in a decline in our gross profit margin;
    an increase in selling, general and administrative expenses as a
    percentage of revenue related to higher than usual legal
    expenses, primarily as a result of certain legal matters related
    to intellectual property infringement claims in the NextGen
    Division and a proxy contest; and
    a decrease in interest income primarily due a greater proportion
    of funds invested in short-term U.S Treasuries and tax free
    money market accounts which returned significantly lower
    interest rates as compared to the prior year.  Revenue.
    System Sales.
  ehr epm
 44




---



##### Table of Contents



Hardware, Third


ImplementationParty Software


and Training


Total SystemSoftware


and Supplies


Services


SalesYear ended March 31, 2009QSI Dental Division

$
915


$
1,171


$
938


$
3,024NextGen Division


76,525



6,775



12,437



95,737Consolidated

$
77,440


$
7,946


$
13,375


$
98,761Year ended March 31, 2008QSI Dental Division

$
360


$
1,134


$
1,154


$
2,648NextGen Division


69,276



5,593



12,252



87,121Consolidated

$
69,636


$
6,727


$
13,406


$
89,769         ehr epm
    Maintenance, EDI, Revenue Cycle Management and Other
    Services.
 45




---



##### Table of Contents



Revenue CycleMaintenance


EDI


Management


Other


TotalYear ended March 31, 2009QSI Dental Division

$
7,167


$
4,766


$



$
894


$
12,827NextGen Division


65,695



24,756



21,431



22,045



133,927Consolidated

$
72,862


$
29,522


$
21,431


$
22,939


$
146,754Year ended March 31, 2008QSI Dental Division

$
7,186


$
4,564


$



$
1,639


$
13,389NextGen Division


49,269



17,886



871



15,316



83,342Consolidated

$
56,455


$
22,450


$
871


$
16,955


$
96,731     Cost of Revenue.
    Year Ended March 31,2009


%


2008


%QSI Dental DivisionRevenue

$
15,851



100.0
%

$
16,037



100.0
%Cost of revenue


7,582



47.8
%


7,545



47.0
%Gross profit

$
8,269



52.2
%

$
8,492



53.0
%NextGen DivisionRevenue

$
229,664



100.0
%

$
170,463



100.0
%Cost of revenue


81,308



35.4
%


54,956



32.2
%Gross profit

$
148,356



64.6
%

$
115,507



67.8
%ConsolidatedRevenue

$
245,515



100.0
%

$
186,500



100.0
%Cost of revenue


88,890



36.2
%


62,501



33.5
%Gross profit

$
156,625



63.8
%

$
123,999



66.5
%  46




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##### Table of Contents



Hardware,


Payroll andThird Party


Related








Total Cost of


GrossSoftware


Benefits


EDI


Other


Revenue


ProfitYear ended March 31, 2009QSI Dental Division


7.6
%


19.8
%


17.1
%


3.3
%


47.8
%


52.2
%NextGen Division


3.5
%


14.8
%


7.8
%


9.3
%


35.4
%


64.6
%Consolidated


3.7
%


15.1
%


8.4
%


9.0
%


36.2
%


63.8
%Year ended March 31, 2008QSI Dental Division


8.0
%


19.1
%


15.7
%


4.2
%


47.0
%


53.0
%NextGen Division


3.8
%


11.2
%


7.5
%


9.7
%


32.2
%


67.8
%Consolidated


4.2
%


11.8
%


8.2
%


9.3
%


33.5
%


66.5
%             Selling, General and Administrative
    Expenses.
  
    $2.7 million increase in legal expenses in the NextGen
    Division;
    $1.7 million increase in compensation expense in the
    NextGen Division; 47




---



##### Table of Contents




    $1.2 million increase in outside services and consulting
    services in the NextGen Division;
    $0.9 million increase in advertising in the NextGen
    Division;
    $6.7 million increase in other selling, general and
    administrative expenses in the NextGen Division; and
    $3.9 million increase in corporate related expenses.      Research and Development Costs.
  Amortization of Acquired Intangible
    Assets.
  Interest Income.
  
    a lower amount of investments held in ARS when compared to the
    prior year;
    larger amounts invested in money market accounts which earned
    significantly lower interest rates as compared to the prior
    year; and
    overall comparatively lower amounts of funds available for
    investment during the year due to payments of $8.2 million
    and $17.0 million, respectively, for the Companys
    acquisitions of HSI and PMP and increased quarterly dividend
    payments.  Other Income (Expense).
    Provision for Income Taxes.
 48




---



##### Table of Contents



Liquidity
    and Capital Resources
    Year Ended March 31,2010

2009

2008Cash and cash equivalents

$
84,611


$
70,180


$
59,046Net increase (decrease) in cash and cash equivalents

$
14,431


$
11,134


$
(982
)Net income

$
48,379


$
46,119


$
40,078Net cash provided by operating activities

$
55,220


$
48,712


$
43,599Number of days of sales outstanding


125



125



136   Cash Flow
    from Operating Activities
      Year Ended March 31,2010


2009


2008Net income

$
48,379


$
46,119


$
40,078Non-cash expenses


16,152



17,719



11,299Gain on life insurance proceeds, net










(755
)Tax benefit from exercise of stock options, net






1



65Change in deferred revenue


12,528



3,130



5,447Change in accounts receivable


(18,944
)


(11,369
)


(13,811
)Change in other assets and liabilities


(2,895
)


(6,888
)


1,276Net cash provided by operating activities

$
55,220


$
48,712


$
43,599   Net Income.
  Non-Cash Expenses.
 49




---



##### Table of Contents



Tax Benefits From Stock Options.
  Deferred Revenue.
  Accounts Receivable.
  
    NextGen Division revenue grew 13.6%, 19.6% and 21.3% for the
    years ended March 31, 2010, 2009 and 2008, respectively;
    Turnover of accounts receivable is generally slower in the
    NextGen Division due to the fact that the systems sales related
    revenue have longer payment terms, generally up to one year,
    which historically have accounted for a major portion of NextGen
    Division sales;
    The Opus acquisition added approximately $2.1 million of
    accounts receivable as of March 31, 2010; and
    We experienced an increase in the volume of undelivered services
    billed in advance by the NextGen Division which were unpaid as
    of the end of each period and included in accounts receivable.
    This resulted in an increase in both deferred revenue and
    accounts receivable of approximately $9.5 million,
    $1.2 million and $4.9 million for the years ended
    March 31, 2010, 2009 and 2008, respectively.      Cash
    flows from investing activities
   50




---



##### Table of Contents



Cash
    flows from financing activities
    Cash and
    cash equivalents and marketable securities
           51




---



##### Table of Contents



DividendBoard Approval Date

Record Date

Payment Date

AmountFiscal year 2010January 27, 2010

March 23, 2010

April 5, 2010

$
0.30October 28, 2009

December 23, 2009

January 5, 2010


0.30July 23, 2009

September 25, 2009

October 5, 2009


0.30May 27, 2009

June 12, 2009

July 6, 2009


0.30Fiscal year 2009January 28, 2009

March 11, 2009

April 3, 2009

$
0.30October 30, 2008

December 15, 2008

January 5, 2009


0.30August 4, 2008

September 15, 2008

October 1, 2008


0.30May 29, 2008

June 15, 2008

July 2, 2008


0.25Fiscal year 2008January 30, 2008

March 14, 2008

April 7, 2008

$
0.25October 25, 2007

December 14, 2007

January 7, 2008


0.25July 31, 2007

September 14, 2007

October 5, 2007


0.25May 31, 2007

June 15, 2007

July 5, 2007


0.25     Contractual Obligations.
  Year Ended March 31,2011

$
4,4132012


4,5652013


4,5772014


3,9632015 and beyond


7,215$
24,733   New
    Accounting Pronouncements
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS     52




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e) 15d-15(e)
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
           53




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##### Table of Contents



Internal Control  Integrated Framework
    Changes
    in Internal Control over Financial Reporting
  Rule 13a-15(f)
  ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED SHAREHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   54




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##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Page Report of Independent Registered
    Public Accounting Firm


60 Report of Independent Registered
    Public Accounting Firm


61 Consolidated Balance Sheets as of
    March 31, 2010 and March 31, 2009


62 Consolidated Statements of
    Income  Fiscal Years Ended March 31, 2010,
    March 31, 2009 and March 31, 2008


63 Consolidated Statements of
    Shareholders Equity  Fiscal Years Ended
    March 31, 2010, March 31, 2009 and March 31,
    2008


64 Consolidated Statements of Cash
    Flows  Fiscal Years Ended March 31, 2010,
    March 31, 2009 and March 31, 2008


65 Notes to Consolidated Financial
    Statements


67   10-K
   Schedule II  Valuation and
    Qualifying Accounts


98      55




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##### Table of Contents



INDEX TO
    EXHIBITS
  ExhibitNumber

Description3
.1

Restated Articles of Incorporation of Quality Systems, Inc.
    filed with the Secretary of State of California on
    September 8, 1989, are hereby incorporated by reference to
    Exhibit 3.1 to the registrants Registration Statement
    on
    Form S-1
    (Registration
    No. 333-00161)
    filed January 11, 1996.3
.2

Certificate of Amendment to Articles of Incorporation of Quality
    Systems, Inc. filed with the Secretary of State of California
    effective March 4, 2005, is hereby incorporated by
    reference to Exhibit 3.1.1 of the registrants Annual
    Report on
    Form 10-K
    for the year ended March 31, 2005.3
.3

Certificate of Amendment to Articles of Incorporation of Quality
    Systems, Inc. filed with the Secretary of State of California
    effective October 6, 2005 is hereby incorporated by
    reference to Exhibit 3.01 of the registrants Current
    Report on
    Form 8-K
    filed October 11, 2005.3
.4

Certificate of Amendment to Articles of Incorporation of Quality
    Systems, Inc. filed with the Secretary of State of California
    effective March 3, 2006 is hereby incorporated by reference
    to Exhibit 3.1 of the registrants Current Report on
    Form 8-K
    filed March 6, 2006.3
.5

Amended and Restated Bylaws of Quality Systems, Inc., effective
    October 30, 2008, are hereby incorporated by reference to
    Exhibit 3.1 of the registrants Current Report on
    Form 8-K
    filed October 31, 2008.10
.1*

Amended and Restated 1998 Stock Option Plan is hereby
    incorporated by reference to Exhibit 10.10.1 of the
    registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2005.10
.2*

Form of Incentive Stock Option Agreement for Amended and
    Restated 1998 Stock Option Plan is hereby incorporated by
    reference to Exhibit 10.1 to the registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2004.10
.3*

Form of Non-Qualified Stock Option Agreement for Amended and
    Restated 1998 Stock Option Plan is hereby incorporated by
    reference to Exhibit 10.2 to the registrants
    Quarterly Report on Form 10Q for the quarter ended
    September 20, 2004.10
.4*

2005 Stock Option and Incentive Plan is incorporated by
    reference to Exhibit 10.01 to the registrants Current
    Report on
    Form 8-K
    filed October 5, 2005.10
.5*

Form of Nonqualified Stock Option Agreement for 2005 Stock
    Incentive Plan is incorporated by reference to Exhibit 10.2
    to the registrants Current Report on
    Form 8-K
    filed June 5, 2007.10
.6*

Form of Incentive Stock Option Agreement for 2005 Stock
    Incentive Plan is incorporated by reference to Exhibit 10.3
    to the registrants Current Report on
    Form 8-K
    filed June 5, 2007.10
.7*

1993 Deferred Compensation Plan is hereby incorporated by
    reference to Exhibit 10.5 to the registrants Annual
    Report on
    Form 10-KSB
    for the year ended March 31, 1994.10
.8*

1998 Employee Stock Contribution Plan is hereby incorporated by
    reference to Exhibit 4.1 to the registrants
    Registration Statement on
    Form S-8
    (Registration
    No. 333-63131).10
.9*

Form of Second Amended and Restated Indemnification Agreement
    for directors and executive officers is hereby incorporated by
    reference to Exhibit 10.3 of the registrants Current
    Report on
    Form 8-K
    filed on February 2, 2010.10
.10

Lease Agreement between Company and Tower Place, L.P. dated
    November 15, 2000, commencing February 5, 2001 is
    hereby incorporated by reference to Exhibit 10.14 to the
    registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2001.10
.11

Fourth Amendment to lease agreement between the Company and
    Tower Place, L.P. dated September 22, 2005 is incorporated
    by reference to Exhibit 10.24 to the registrants
    Annual Report on
    Form 10-K
    for the year ended March 31, 2006.10
.12

Fifth Amendment to lease agreement between the Company and Tower
    Place, L.P. dated January 31, 2007 is incorporated by
    reference to Exhibit 10.13 to the registrants Annual
    Report on
    Form 10-K
    for the year ended March 31, 2007.10
.13

Lease Agreement between the Company and HUB Properties LLC dated
    May 8, 2002 is hereby incorporated by reference to
    Exhibit 10.18 to the registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2003. 56




---



##### Table of Contents



ExhibitNumber

Description10
.14

Second Amendment to Office Lease agreement between the Company
    and HUB Properties LLC dated February 14, 2006 is
    incorporated by reference to Exhibit 10.25 to the
    registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2006.10
.15

Amended and Restated Second Amendment to Office Lease agreement
    between the Company and HUB Properties LLC dated May 31,
    2006 is incorporated by reference to Exhibit 10.17 to the
    registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2007.10
.16

Lease agreement between the Company and Von Karman Michelson
    Corporation dated September 6, 2005 is incorporated by
    reference to Exhibit 10.23 to the registrants Annual
    Report on
    Form 10-K
    for the year ended March 31, 2006.10
.17

Office lease between the Company and SLTS Grand Avenue, L.P.
    dated May 3, 2006 is incorporated by reference to
    Exhibit 10.20 to the registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2007.10
.18*

Board Service Agreement between the Company and Patrick Cline is
    incorporated by reference to Exhibit 10.2.1 to the
    registrants Current Report on
    Form 8-K
    dated May 31, 2005.10
.19*

Director Compensation Program is incorporated by reference to
    Exhibit 10.1 to the registrants Current Report on
    Form 8-K
    filed February 2, 2010.10
.20

Settlement Agreement dated as of August 8, 2006 between the
    registrant and Ahmed Hussein is incorporated by reference to
    Exhibit 10.1 to the registrants Current Report on
    Form 8-K
    filed August 9, 2006.10
.21*

Description of Compensation Program for Named Executive Officers
    for Fiscal Year Ended March 31, 2010 is incorporated by
    reference to Exhibit 10.1 to the registrants Current
    Report on
    Form 8-K
    filed June 1, 2009.10
.22

Agreement and Plan of Merger dated May 16, 2008 by and
    among Quality Systems, Inc., Bud Merger Sub, LLC and Lackland
    Acquisition II, LLC, is incorporated by reference to
    Exhibit 10.27 to the registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2008.10
.23

Office lease between the Company and Lakeshore Towers Limited
    Partnership Phase II, a California limited partnership, dated
    October 18, 2007, is incorporated by reference to
    Exhibit 10.28 to the registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2008.10
.24

Standard Service Center Lease Agreement between the Lincoln
    National Life Insurance Company and Lackland Acquisition II,
    LLC, dated November 28, 2001, is incorporated by reference
    to Exhibit 10.29 to the registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2008.10
.25

First Amendment to Standard Service Center Lease Agreement
    between the Lincoln National Life Insurance Company and Lackland
    Acquisition II, LLC, dated August 17, 2005, is incorporated
    by reference to Exhibit 10.30 to the registrants
    Annual Report on
    Form 10-K
    for the year ended March 31, 2008.10
.26

Standard Service Center Lease Agreement between the Lincoln
    National Life Insurance Company and InfoNow Solutions of
    St. Louis, LLC, dated November 28, 2001, is
    incorporated by reference to Exhibit 10.31 to the
    registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2008.10
.27

Second Amendment to Service Center Lease Agreement between the
    TM Properties, LLC, successor to the Lincoln National Life
    Insurance Company and Lackland Acquisition II, LLC, dated
    August 17, 2005, is incorporated by reference to
    Exhibit 10.32 to the registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2008.10
.28

Assignment of Lease between InfoNow Solutions of St. Louis,
    Lackland Acquisition II, LLC and TM Properties, LLC dated
    August 17, 2005, is incorporated by reference to
    Exhibit 10.33 to the registrants Annual Report on
    Form 10-K
    for the year ended March 31, 2008.10
.29

Agreement and Plan of Merger dated October 15, 2008 by and
    among (i) Quality Systems, Inc. (ii) NextGen
    Healthcare Information Systems, Inc. (iii) Ruth Merger Sub,
    Inc. (iv) Practice Management Partners, Inc. and
    (v) certain shareholders set forth therein, is incorporated
    by reference to Exhibit 10.1 to the registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended December 31, 2008. 57




---



##### Table of Contents



ExhibitNumber

Description10
.30

First Amendment to Lease Agreement between Hill Management
    Services, Inc. and Practice Management Partners, Inc., dated
    January 15, 2008, is incorporated by reference to
    Exhibit 10.2 to the registrants Quarterly Report on
    Form 10-Q
    for the quarter ended December 31, 2008.10
.31

First Amendment to Sublease Agreement between RehabCare Group,
    Inc. and Practice Management Partners Inc., dated January 15
    2008, is incorporated by reference to Exhibit 10.3 to the
    registrants Quarterly Report on
    Form 10-Q
    for the quarter ended December 31, 2008.10
.32

Third Amendment to Lease Agreement between Pinecrest LLC and
    Practice Management Partners, Inc., dated April 30, 2007,
    is incorporated by reference to Exhibit 10.4 to the
    registrants Quarterly Report on
    Form 10-Q
    for the quarter ended December 31, 2008.10
.33*

Employment Agreement dated August 11, 2008 between Quality
    Systems, Inc., and Steven Plochocki, is incorporated by
    reference to Exhibit 10.1 to the registrants Current
    Report on
    Form 8-K
    filed on August 12, 2008.10
.34*

Outside Directors Amended and Restated Restricted Stock
    Agreement is incorporated by reference to Exhibit 10.2 to
    the Companys Current Report on
    Form 8-K
    filed February 9, 2010.10
.35*

Employment Offer and Terms of Employment dated
    September 17, 2009, between Quality Systems, Inc. and
    Philip N. Kaplan, is incorporated by reference to
    Exhibit 10.1 to the registrants Current Report on
    Form 8-K
    filed on September 21, 2009.10
.36**

Agreement and Plan of Merger dated February 10, 2010, by
    and among Quality Systems, Inc., OHS Merger Sub, Inc., Opus
    Healthcare Solutions, Inc., and the Shareholders of Opus
    Healthcare Solutions, Inc.10
.37**

Sixth Amendment to Lease Agreement between the Company and Tower
    Place, L.P. dated April 1, 2010.10
.38**

Third Amendment to Office Lease agreement between the Company
    and HUB Properties LLC dated January 1, 2010.10
.39**

Fourth Amendment to Office Lease agreement between the Company
    and HUB Properties LLC dated March 17, 2010.10
.40**

Third Amendment to Service Center Lease Agreement between the TM
    Properties, LLC, successor to the Lincoln National Life
    Insurance Company and Lackland Acquisition II, LLC, dated
    March 15, 2010.10
.41**

Second Amendment to Lease Agreement between Hill Management
    Services, Inc. and Practice Management Partners, Inc., dated
    November 1, 2009.10
.42**

Modification of Lease #1 between Olen Commercial Realty Corp.
    and NXG Acute Care LLC, dated October 13, 2009.10
.43**

Lease between Olen Commercial Realty Corp. and NXG Acurate Care
    LLC, dated October 1, 2009.10
.44**

Sublease Agreement between Centex Homes and Opus Healthcare
    Solutions, Inc., dated February , 2009.21
**

List of subsidiaries.23
.1**

Consent of Independent Registered Public Accounting
    Firm  PricewaterhouseCoopers LLP.23
.2**

Consent of Independent Registered Public Accounting
    Firm  Grant Thornton LLP.31
.1**

Certification of Principal Executive Officer Required by
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934, as amended, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31
.2**

Certification of Principal Financial Officer Required by
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934, as amended, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
.1**

Certification of Chief Executive Officer and Chief Financial
    Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    This exhibit is a management contract or a compensatory plan or
    arrangement.**
    
    Filed herewith. 58




---



##### Table of Contents



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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. By:
    /s/  Steven
    T. Plochocki       Form 10-K, Form 10-K.
    Signature

Title

Date/s/  Sheldon
    RazinSheldon
    Razin

Chairman of the Board and Director

May 26, 2010/s/  Steven
    T. PlochockiSteven
    T. Plochocki

Chief Executive Officer
    (Principal Executive Officer) and Director

May 26, 2010/s/  Paul
    A. HoltPaul
    A. Holt

Chief Financial Officer
    (Principal Financial Officer) and Secretary

May 26, 2010/s/  Patrick
    B. ClinePatrick
    B. Cline

President and Chief Strategy Officer,
    and Director

May 26, 2010/s/  Murray
    BrennanMurray
    Brennan

Director

May 26, 2010/s/  George
    BristolGeorge
    Bristol

Director

May 26, 2010Ahmed
    Hussein

DirectorJoseph
    Davis

Director/s/  Craig
    BarbaroshCraig
    Barbarosh

Director

May 26, 2010/s/  Russell
    PfluegerRussell
    Pflueger

Director

May 26, 2010  59




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            
    60




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             
   61




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.CONSOLIDATED BALANCE SHEETS
  March 31,


March 31,2010


2009(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
84,611


$
70,180Restricted cash


2,339



1,303Marketable securities


7,158



Accounts receivable, net


107,458



90,070Inventories, net


1,340



1,125Income taxes receivable


2,953



5,605Net current deferred tax assets


5,678



3,994Other current assets


8,684



6,312Total current assets


220,221



178,589Marketable securities






7,395Equipment and improvements, net


8,432



6,756Capitalized software costs, net


11,546



9,552Intangibles, net


20,145



8,403Goodwill


46,189



28,731Other assets


3,647



2,675Total assets

$
310,180


$
242,101LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
3,342


$
5,097Deferred revenue


64,109



47,584Accrued compensation and related benefits


8,951



9,511Dividends payable


8,664



8,529Other current liabilities


16,220



8,888Total current liabilities


101,286



79,609Deferred revenue, net of current


474



521Net deferred tax liabilities


10,859



4,566Deferred compensation


1,883



1,838Other noncurrent liabilities


7,389



Total liabilities


121,891



86,534Commitments and contingenciesShareholders equity:Common Stock$0.01 par value; authorized 50,000 shares; issued andoutstanding 28,879 and 28,447 shares at March 31, 2010and March 31, 2009, respectively


289



284Additional paid-in capital


122,271



103,524Retained earnings


65,729



51,759Total shareholders equity


188,289



155,567Total liabilities and shareholders equity

$
310,180


$
242,101   The accompanying notes to these
    Consolidated Financial Statements are an integral part of these
    Consolidated Statements.
 62




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##### Table of Contents



QUALITY
    SYSTEMS, INC.CONSOLIDATED STATEMENTS OF INCOME
  Fiscal Year EndedMarch 31,


March 31,


March 31,2010


2009


2008(In thousands, except per share data)Revenues:Software, hardware and supplies

$
89,761


$
85,386


$
76,363Implementation and training services


14,376



13,375



13,406System sales


104,137



98,761



89,769Maintenance


89,192



72,862



56,455Electronic data interchange services


35,035



29,522



22,450Revenue cycle management and related services


36,665



21,431



871Other services


26,782



22,939



16,955Maintenance, EDI, RCM and other services


187,674



146,754



96,731Total revenues


291,811



245,515



186,500Cost of revenue:Software, hardware and supplies


12,115



13,184



10,887Implementation and training services


11,983



10,286



10,341Total cost of system sales


24,098



23,470



21,228Maintenance


13,339



11,859



12,446Electronic data interchange services


25,262



21,374



15,776Revenue cycle management and related services


27,715



14,674



558Other services


20,393



17,513



12,493Total cost of maintenance, EDI, RCM and other services


86,709



65,420



41,273Total cost of revenue


110,807



88,890



62,501Gross profit


181,004



156,625



123,999Operating expenses:Selling, general and administrative


86,951



69,410



53,260Research and development costs


16,546



13,777



11,350Amortization of acquired intangible assets


1,783



1,035



Total operating expenses


105,280



84,222



64,610Income from operations


75,724



72,403



59,389Interest income


226



1,203



2,661Other income (expense)


268



(279
)


953Income before provision for income taxes


76,218



73,327



63,003Provision for income taxes


27,839



27,208



22,925Net income

$
48,379


$
46,119


$
40,078Net income per share:Basic

$
1.69


$
1.65


$
1.47Diluted

$
1.68


$
1.62


$
1.44Weighted average shares outstanding:Basic


28,635



28,031



27,298Diluted


28,796



28,396



27,770Dividends declared per common share

$
1.20


$
1.15


$
1.00   The accompanying notes to these
    Consolidated Financial Statements are an integral part of these
    Consolidated Statements.
 63




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##### Table of Contents



QUALITY
    SYSTEMS, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY
  AccumulatedAdditional





Other


TotalCommon Stock


Paid-in


Retained


Comprehensive


ShareholdersShares


Amount


Capital


Earnings


Loss


Equity(In thousands)Balance, March 31, 2007


27,123


$
271


$
65,666


$
25,309


$



$
91,246Exercise of stock options


325



3



4,757











4,760Tax benefit resulting from exercise of stock options










1,376











1,376Stock-based compensation










3,757











3,757Dividends declared














(27,316
)






(27,316
)Net income














40,078







40,078Unrealized loss on marketable securities, net of tax


















(196
)


(196
)Balance, March 31, 2008


27,448



274



75,556



38,071



(196
)


113,705Exercise of stock options


697



7



12,512











12,519Tax benefit resulting from exercise of stock options










3,382











3,382Stock-based compensation










1,977











1,977Common stock issued for acquisitions


302



3



10,097











10,100Dividends declared














(32,431
)






(32,431
)Net income














46,119







46,119Reclassification of unrealized loss on marketable securities,
    net of tax


















196



196Balance, March 31, 2009


28,447



284



103,524



51,759







155,567Exercise of stock options


238



3



5,852











5,855Tax benefit resulting from exercise of stock options










1,576











1,576Stock-based compensation










2,073











2,073Stock-based compensation related to acquisitions










433











433Common stock issued for acquisitions


194



2



8,813











8,815Dividends declared














(34,409
)






(34,409
)Net income














48,379







48,379Balance, March 31, 2010


28,879


$
289


$
122,271


$
65,729


$



$
188,289   The accompanying notes to these
    Consolidated Financial Statements are an integral part of these
    Consolidated Statements.
 64




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##### Table of Contents



QUALITY
    SYSTEMS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
  Fiscal Year EndedMarch 31,


March 31,


March 31,2010


2009


2008(In thousands)Cash flows from operating activities:Net income

$
48,379


$
46,119


$
40,078Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation


3,663



2,911



2,369Amortization of capitalized software costs


5,927



5,163



4,149Amortization of other intangibles


1,783



1,034



Gain on life insurance proceeds, net










(755
)Provision for bad debts


3,465



2,089



1,171Provision (recovery) for inventory obsolescence


27



(13
)


52Share-based compensation


2,073



1,977



3,757Deferred income tax (benefit) expense


(786
)


4,462



(199
)Tax benefit from exercise of stock options


1,576



3,382



1,376Excess tax benefit from share-based compensation


(1,576
)


(3,381
)


(1,311
)Loss on disposal of equipment and improvements






96



Changes in assets and liabilities, net of amounts acquired:Accounts receivable


(18,944
)


(11,369
)


(13,811
)Inventories


(238
)


(88
)


99Income taxes receivable


3,875



(5,433
)


Other current assets


(2,310
)


(1,202
)


(89
)Other assets


(894
)


(448
)


381Accounts payable


(1,810
)


(299
)


(561
)Deferred revenue


12,528



3,130



5,447Accrued compensation and related benefits


(1,006
)


136



1,825Income taxes payable


(1,404
)


(1,541
)


1,226Other current liabilities


846



2,055



(1,232
)Deferred compensation


46



(68
)


(373
)Net cash provided by operating activities


55,220



48,712



43,599Cash flows from investing activities:Additions to capitalized software costs


(7,921
)


(5,863
)


(6,019
)Additions to equipment and improvements


(4,935
)


(3,218
)


(2,113
)Proceeds from sale of marketable securities


425



14,825



91,825Purchases of marketable securities










(114,645
)Proceeds from life insurance policy, net










755Cash acquired from purchase of Opus


2,036







Purchase of Opus


(250
)






Purchase of Sphere


(300
)






Purchase of PMP, including direct transaction costs






(16,950
)


Purchase of HSI, including direct transaction costs






(8,241
)


Payment of contingent consideration related to purchase of PMP


(3,000
)






Net cash used in investing activities


(13,945
)


(19,447
)


(30,197
) 65




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Fiscal Year EndedMarch 31,


March 31,


March 31,2010


2009


2008(In thousands)Cash flows from financing activities:Excess tax benefit from share-based compensation


1,576



3,381



1,311Proceeds from exercise of stock options


5,855



12,519



4,760Dividends paid


(34,275
)


(30,763
)


(20,455
)Loan repayment






(3,268
)


Net cash used in financing activities


(26,844
)


(18,131
)


(14,384
)Net increase (decrease) in cash and cash equivalents


14,431



11,134



(982
)Cash and cash equivalents at beginning of year


70,180



59,046



60,028Cash and cash equivalents at end of year

$
84,611


$
70,180


$
59,046Supplemental disclosures of cash flow information:Cash paid during the period for income taxes, net of refunds

$
24,506


$
26,455


$
20,546Non-cash investing and financing activities:Unrealized gain (loss) on marketable securities, net of tax

$



$
196


$
(196
)Issuance of stock options with fair value of $433 in connection
    with the purchase of PMP

$
433


$



$
Effective February 10, 2010, the Company acquired Opus in a
    transaction summarized as follows:Fair value of net assets acquired

$
32,209


$



$
Cash paid


(250
)






Common stock issued for Opus stock


(8,815
)






Fair value of contingent consideration


(11,516
)






Liabilities assumed

$
11,628


$



$
Effective August 12, 2009, the Company acquired Sphere in a
    transaction summarized as follows:Fair value of net assets acquired

$
1,453


$



$
Cash paid


(300
)






Fair value of contingent consideration


(1,074
)






Liabilities assumed

$
79


$



$
Effective October 28, 2008, the Company acquired PMP in a
    transaction summarized as follows:Fair value of net assets acquired

$



$
23,875


$
Cash paid






(16,950
)


Common stock issued for PMP stock






(2,750
)


Liabilities assumed

$



$
4,175


$
Effective May 20, 2008, the Company acquired HSI in a
    transaction summarized as follows:Fair value of net assets acquired

$



$
20,609


$
Cash paid






(8,241
)


Common stock issued for HSI stock






(7,350
)


Liabilities assumed

$



$
5,018


$
   The accompanying notes to these
    Consolidated Financial Statements are an integral part of these
    Consolidated Statements.
 66




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##### Table of Contents



QUALITY
    SYSTEMS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 and 2009
    (IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
  1.
    Organization
    of Business  Description
    of Business
            epm
    Acquisitions
   67




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          2.
    Summary
    of Significant Accounting Policies  Principles of Consolidation.
  Business Segments. Segment
    Reporting,
  Basis of Presentation.
      Revenue Recognition. 985-605, Software, Revenue Recognition ASC 985-605.
  985-605-25, Software, Revenue Recognition, Multiple Elements, ASC 985-605-25,
 68




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      ASC 985-605,
    
    The fee must be negotiated at the outset of an arrangement, and
    generally be based on the specific volume of products to be
    delivered without being subject to change based on variable
    pricing mechanisms such as the number of units copied or
    distributed or the expected number of users.
    Payment terms must not be considered extended. If a significant
    portion of the fee is due more than 12 months after
    delivery or after the expiration of the license, the fee is
    presumed not fixed or determinable.    605-35, Revenue Recognition, Construction-Type and Production-Type
    Contracts, ASC 605-35. ASC 605-35,
  
    the contract includes provisions that clearly specify the
    enforceable rights regarding goods or services to be provided
    and received by the parties, the consideration to be exchanged,
    and the manner and terms of settlement;
    the customer can be expected to satisfy its obligations under
    the contract;
    the Company can be expected to perform its contractual
    obligations; and
    reliable estimates of progress towards completion can be made. 69




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   ASC 605-35,
  percentage-of-completion
  605-15, Revenue Recognition, Products, ASC 605-15. ASC 605-15
  
    the price is fixed or determinable;
    the customer is obligated to pay and there are no contingencies
    surrounding the obligation or the payment;
    the customers obligation would not change in the event of
    theft or damage to the product;
    the customer has economic substance;
    the amount of returns can be reasonably estimated; and
    the Company does not have significant obligations for future
    performance in order to bring about resale of the product by the
    customer.    985-605-05, Software, Revenue Recognition Hosting Arrangements, ASC 985-605-05, ASC 985-605-05, ASC 985-605-05, ASC 985-605-25.
  985-605-55, Software, Revenue Recognition, Flowchart of Revenue
    Recognition on Software Arrangements ASC 985-605-55,
     70




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash and Cash Equivalents.
  Restricted Cash.
  Marketable Securities and ARS Put Option
    Rights.
      Investments  Debt and Equity
    Securities,
   71




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Allowance for Doubtful Accounts.
    Inventories. (first-in,
  Equipment and Improvements.
  

Computers and electronic test equipment

3-5 years

Furniture and fixtures

5-7 years

Leasehold improvements

lesser of lease term or estimated useful life of asset   Software Development Costs. 985-20, Software, Costs of Computer Software to be Sold, Leased or
    Marketed, ASC 985-20.
 72




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Goodwill. 350-20, Intangibles  Goodwill and Other, Goodwill ASC 350-20, reporting-unit
  Intangible Assets. 350-30, Intangibles  Goodwill and Other, General
    Intangibles Other than Goodwill ASC 350-30,
  Long-Lived Assets. 360-10, Property, Plant, and Equipment, Impairment or Disposal of
    Long-Lived Assets ASC 360-10.
    Income Taxes. Income Taxes,
   73




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Self-Insurance Liabilities.
    Advertising Costs.
  Marketing Assistance Agreements.
  Other Comprehensive Income.
  Year Ended March 31,2010


2009


2008Net income

$
48,379


$
46,119


$
40,078Other comprehensive income:Unrealized loss on marketable securities, net of tax










(196
)Comprehensive income

$
48,379


$
46,119


$
39,882   Earnings per Share. Earnings Per Share
   74




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended March 31,2010


2009


2008Net income

$
48,379


$
46,119


$
40,078Basic net income per share:Weighted average shares outstanding  Basic


28,635



28,031



27,298Basic net income per common share

$
1.69


$
1.65


$
1.47Net income

$
48,379


$
46,119


$
40,078Diluted net income per share:Weighted average shares outstanding  Basic


28,635



28,031



27,298Effect of potentially dilutive securities


161



365



472Weighted average shares outstanding  Diluted


28,796



28,396



27,770Diluted net income per common share

$
1.68


$
1.62


$
1.44     Share-Based Compensation. Compensation  Stock Compensation,
    Year Ended March 31,2010


2009


2008Costs and expenses:Cost of revenue

$
85


$
195


$
496Research and development


108



242



800Selling, general and administrative


1,880



1,540



2,461Total share-based compensation


2,073



1,977



3,757Amounts capitalized in software development costs


(27
)


(21
)


(39
)Amounts charged against earnings, before income tax benefit

$
2,046


$
1,956


$
3,718Related income tax benefit


(608
)


(549
)


(969
)Decrease in net income

$
1,438


$
1,407


$
2,749   Sales Taxes. 605-45, Revenue Recognition, Principal Agent Considerations ASC 605-45,
 75




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Use of Estimates.
  Newly Adopted Accounting Standards.
  Fair Value Measurements and
    Disclosures
  other-than-temporary 820-10-65, Fair Value Measurements and Disclosures 
    Transition and Open Effective Date Information ASC 820-10-65; 320-10-65, Investments  Debt and Equity
    Securities  Transition and Open Effective Date
    Information ASC 320-10-65; 825-10-65, Financial Instruments  Transition and Open
    Effective Date Information ASC 825-10-65. ASC 820-10-65 ASC 820-10. ASC 820-10-65 ASC 820-10-65 ASC 820-10-65 ASC 320-10-65. ASC 320-10-65 ASC 320-10-65 ASC 820-10-65. 825-10-65 ASC 825-10-65
 76




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ASC 820-10-65 ASC 320-10-65.
  805-20, Business Combinations, Identifiable Assets and Liabilities,
    and Any Noncontrolling Interest ASC 805-20. ASC 805-20 Contingencies ASC 805-20
  805-10-65-1, Business Combinations  Overall 
    Transition Related to Business Combinations Noncontrolling Interests in
    Consolidated Financial Statements  an amendment of
    Accounting Review Bulletin No. 51 ASC 805-10-65-1, 805-10, Business Combinations  Overall ASC 805-10, ASC 805-20. ASC 805-10-65-1 ASC 805-10-65-1 ASC 805-10-65-1 805-10-65-1 ASC 805-10 ASC 805-20
  350-30-55, Intangibles  Goodwill and Other, Defensive
    Intangible Asset ASC 350-30-55. ASC 350-30-55 ASC 350-30-55 ASC 350-30-55 ASC 350-30-55
  260-10-45, Earnings Per Share, Required EPS Presentation on the Face of
    the Income Statement ASC 260-10-45. ASC 260-10-45 ASC 260-10-45
 77




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ASC 260-10-45
  350-30-65, Intangibles  Goodwill and Other, General
    Intangibles Other than Goodwill  Transition and Open
    Effective Date Information ASC 350-30-65. ASC 350-30-65 350-20, Intangibles  Goodwill and Other, Goodwill. 350-30-65 ASC 350-30-65 ASC 350-30-65
  Recently Issued Accounting Standards.
  2009-13, Revenue Recognition (Topic 605) 
    Multiple-Deliverable Revenue Arrangements 2009-13, 2009-14, Software (Topic 985)  Certain Revenue Arrangements
    That Include Software Elements, 2009-14. 2009-13 2009-13 2009-14
  3.
    Cash and
    Cash Equivalents   78




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Fair
    Value Measurements    Level 1
  Level 2
  Level 3
    Quoted Prices


Significantin Active


OtherBalance at


Markets for


Observable


UnobservableMarch 31,


Identical Assets


Inputs


Inputs2010


(Level 1)


(Level 2)


(Level 3)Cash and cash equivalents

$
84,611


$
84,611


$



$
Restricted cash


2,339



2,339







Marketable securities(1)


7,158











7,158ARS put option rights(2)


548











548$
94,656


$
86,950


$



$
7,706   Quoted Prices


Significantin Active


OtherBalance at


Markets for


Observable


UnobservableMarch 31,


Identical Assets


Inputs


Inputs2009


(Level 1)


(Level 2)


(Level 3)Cash and cash equivalents

$
70,180


$
70,180


$



$
Restricted cash


1,303



1,303







Marketable securities(1)


7,395











7,395ARS put option rights(3)


468











468$
79,346


$
71,483


$



$
7,863       (1)
    
    Marketable securities consist of ARS(2)
    
    ARS put option rights are included on the accompanying
    Consolidated Balance Sheets in other current assets as of
    March 31, 2010.(3)
    
    ARS put option rights are included on the accompanying
    Consolidated Balance Sheets in other assets as of March 31,
    2009.The fair value of the Companys ARS, including the
    Companys ARS put option rights, has been estimated by
    management based on its assumptions of what market participants
    would use in pricing the asset in a current transaction, or
    Level 3  unobservable inputs, in accordance with
    ASC 820, and represents $7,706 and $7,863 or 79




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.1% and 9.9%, of total financial assets measured at fair value
    in accordance with ASC 820 at March 31, 2010 and 2009,
    respectively. Management used a model to estimate the fair value
    of these securities that included certain Level 2 inputs as
    well as assumptions, such as a liquidity discount and credit
    rating of the issuers, based on managements judgment,
    which are highly subjective and therefore considered
    Level 3 inputs in the fair value hierarchy. The estimate of
    the fair value of the ARS could change based on market
    conditions. For additional information on cash and cash
    equivalents, restricted cash or marketable securities, see
    Note 2.    Balance at March 31, 2009

$
7,863Transfer in/(out) of Level 3


Proceeds from sale (at par)


(425
)Recognized gain


268Balance at March 31, 2010

$
7,706       Year Ended March 31,2010

2009

2008Interest Income

$
226


$
1,203


$
2,661   5.
    Business
    Combinations      Acquisition
    of Sphere
   80




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash paid

$
300Contingent consideration


1,074Total purchase price

$
1,374       August 12,2009Fair value of the net tangible assets acquired and liabilities
    assumed:Current assets (consisting of accounts receivable only)

$
158Current liabilities, including long-term debt due within one year


(79
)Total tangible assets acquired and liabilities assumed


79Fair value of identifiable intangible assets acquired:Customer relationships


156Software technology


119Goodwill (including assembled workforce of $84)


1,020Total identifiable intangible assets acquired


1,295Total purchase price

$
1,374     Acquisition
    of Opus
      build-up
   81




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash paid

$
250Common stock issued at fair value


8,815Contingent consideration


11,516Total purchase price

$
20,581       February 10,2010Fair value of the net tangible assets acquired and liabilities
    assumed:Cash and cash equivalents

$
2,036Current assets (including accounts receivable of $1,753)


3,435Equipment and improvements and other long-term assets


483Accounts payable and accrued liabilities


(7,678
)Deferred revenues


(3,950
)Total tangible assets acquired and liabilities assumed


(5,674
)Fair value of identifiable intangible assets acquired:Customer relationships


1,250Software technology


12,000Goodwill (including assembled workforce of $1,000)


13,005Total identifiable intangible assets acquired


26,255Total purchase price

$
20,581     6.
    Goodwill  ASC 350-20,
 82




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance at





Balance atMarch 31,


Additions to


March 31,2009


Goodwill


2010NextGen DivisionOpus Healthcare Solutions, Inc.

$



$
13,005


$
13,005NextGen Sphere, LLC






1,020



1,020NextGen Healthcare Information Systems, Inc.


1,840







1,840Total NextGen Division goodwill


1,840



14,025



15,865Practice Solutions DivisionPractice Management Partners, Inc.


16,052



3,433



19,485Healthcare Strategic Initiatives


10,839







10,839Total Practice Solutions Division goodwill


26,891



3,433



30,324Total goodwill

$
28,731


$
17,458


$
46,189   7.
    Intangible
    Assets    Customer


Trade


SoftwareRelationships


Name


Technology


TotalGross carrying amount

$
10,206


$
637


$
12,119


$
22,962Accumulated amortization


(2,357
)


(269
)


(191
)


(2,817
)Net intangible assets

$
7,849


$
368


$
11,928


$
20,145Aggregate amortization expense during the year

$
1,434


$
158


$
191


$
1,783     Customer


Trade


SoftwareRelationships


Name


Technology


TotalBalance as of April 1, 2009

$
7,877


$
526


$



$
8,403Acquisition


1,406







12,119



13,525Amortization


(1,434
)


(158
)


(191
)


(1,783
)Balance as of March 31, 2010

$
7,849


$
368


$
11,928


$
20,145     For the year ended March 31,2011

$
3,2552012


3,3202013


3,1842014


3,0552015 and beyond


7,331Total

$
20,145  83




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    Capitalized
    Software Costs    March 31,


March 31,2010


2009Gross carrying amount

$
41,429


$
33,508Accumulated amortization


(29,883
)


(23,956
)Net capitalized software costs

$
11,546


$
9,552Aggregate amortization expense during the year

$
5,927


$
5,163     Year Ended March 31,2010


2009Beginning of the year

$
9,552


$
8,852Capitalization


7,921



5,863Amortization


(5,927
)


(5,163
)End of the year

$
11,546


$
9,552     For the year ended March 31,2011

$
5,7292012


3,7832013


1,7682014


2662015 and beyond


Total

$
11,546   9.
    Composition
    of Certain Financial Statement Captions    March 31,


March 31,2010


2009Accounts receivable, excluding undelivered software, maintenance
    and services

$
72,500


$
64,003Undeliverable software, maintenance and implementation services
    billed in advance, included in deferred revenue


39,447



29,944Accounts receivable, gross


111,947



93,947Allowance for doubtful accounts


(4,489
)


(3,877
)Accounts receivable, net

$
107,458


$
90,070  84




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    March 31,


March 31,2010


2009Computer systems and components, net of reserve for obsolescence
    of $237 and $210, respectively

$
1,322


$
1,105Miscellaneous parts and supplies


18



20Inventories, net

$
1,340


$
1,125     March 31,


March 31,2010


2009Computer and electronic test equipment

$
18,599


$
15,384Furniture and fixtures


5,136



3,520Leasehold improvements


1,969



1,59525,704



20,499Accumulated depreciation and amortization


(17,272
)


(13,743
)Equipment and improvements, net

$
8,432


$
6,756     March 31,


March 31,2010


2009Payroll, bonus and commission

$
4,185


$
5,768Vacation


4,766



3,743Accrued compensation and related benefits

$
8,951


$
9,511     March 31,


March 31,2010


2009Maintenance

$
13,242


$
8,776Implementation services


38,137



28,631Annual license services


8,214



7,988Undelivered software and other


4,516



2,189Deferred revenue

$
64,109


$
47,584Deferred revenue, net of current

$
474


$
521  85




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    March 31,


March 31,2010


2009Contingent consideration related to acquisition

$
5,275


$
Care services liabilities


2,336



1,303Accrued EDI expense


2,000



1,258Customer deposits


1,036



674Accrued royalties


926



933Deferred rent


641



782Self insurance reserve


516



Sales tax payable


506



602Commission payable


468



385Professional services


391



409Other accrued expenses


2,125



2,542Other accrued liabilities

$
16,220


$
8,888   10.
    Other
    Income (Expense)    11.
    Income
    Taxes   86




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended March 31,2010


2009


2008Current:Federal taxes

$
23,750


$
18,818


$
18,120State taxes


5,043



4,992



4,34828,793



23,810



22,468Deferred:Federal taxes


(768
)


2,802



333State taxes


(186
)


596



124(954
)


3,398



457Total

$
27,839


$
27,208


$
22,925     Year Ended March 31,2010


2009


2008Current:Federal income tax statutory rate


35.0
%


35.0
%


35.0
%Increase (decrease) resulting from:State income taxes, net of Federal benefit


4.3



5.2



4.8Research and development tax credits


(0.9
)


(1.3
)


(1.3
)Qualified production activities income deduction


(2.0
)


(1.4
)


(1.8
)Other


0.1



(0.4
)


(0.3
)Effective income tax rate


36.5
%


37.1
%


36.4
%  87




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    March 31,


March 31,2010


2009Deferred tax assets:Deferred revenue and allowance for doubtful accounts

$
5,577


$
3,271Inventory valuation


115



100Purchased in-process research and development


601



912Accrued compensation and benefits


2,325



1,955Deferred compensation


783



789State income taxes


640



185Compensatory stock option expense


252



125Other


125



779Total deferred tax assets


10,418



8,116Deferred tax liabilities:Accelerated depreciation


(1,529
)


(1,114
)Capitalized software


(4,806
)


(4,126
)Intangibles assets


(6,938
)


(1,412
)Prepaid expense


(2,326
)


(2,036
)Total deferred tax liabilities


(15,599
)


(8,688
)Deferred tax assets (liabilities), net

$
(5,181
)

$
(572
)     Uncertain
    tax positions
    Balance at March 31, 2008

$
613Additions for prior year tax positions


15Reductions for prior year tax positions


(561
)Balance at March 31, 2009

$
67Additions for prior year tax positions


598Reductions for prior year tax positions


(9
)Balance at March 31, 2010

$
656     and/or
   88




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    12.
    Employee
    Benefit Plans  and/or
      13.
    Share-Based
    Awards  Employee
    Stock Option Plans
   89




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        WeightedWeighted


Average


AggregateAverage


Remaining


IntrinsicExercise


Contractual


ValueNumber of Shares


Price


Life


(In thousands)Outstanding, March 31, 2007


1,461,950


$
18.46Granted


225,500


$
38.78Exercised


(325,266
)

$
14.64






$
4,955Forfeited/Canceled


(58,450
)

$
21.12Outstanding, March 31, 2008


1,303,734


$
22.81Granted


298,331


$
38.71Exercised


(697,083
)

$
17.96






$
17,182Forfeited/Canceled


(84,900
)

$
25.93Outstanding, March 31, 2009


820,082


$
32.39



3.63Granted


289,484


$
58.44



7.75Exercised


(237,603
)

$
24.64



2.49


$
8,254Forfeited/Canceled


Outstanding, March 31, 2010


871,963


$
43.15



4.51


$
15,945Vested and expected to vest, March 31, 2010


861,701


$
43.10



4.50


$
15,806Exercisable, March 31, 2010


261,127


$
31.92



2.49


$
7,708  90




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended March 31,2010

2009

2008Expected life

4.42 - 4.75 years

4.01 years

3.75 - 4.01 yearsExpected volatility

45.49% - 47.65%

42.00% - 46.70%

42.37% - 44.81%Expected dividends

1.90% - 2.20%

2.90% - 3.50%

2.67% - 3.38%Risk-free rate

0.82% - 2.41%

1.07% - 3.40%

2.46% - 5.09%                  91




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##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Performance-Based
    Awards
     Year EndedMarch 31, 2010Expected life

4.42 yearsExpected volatility

45.49%Expected dividends

2.20%Risk-free rate

2.32%    WeightedNon-Vested


AverageNumber of


Fair ValueShares


PriceOutstanding, April 1, 2009


465,345


$
11.74Granted


289,484


$
19.30Vested


(143,993
)

$
12.03Forfeited/Canceled


Outstanding, March 31, 2010


610,836


$
15.26    92




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Restricted
    Stock Units
      14.
    Commitments,
    Guarantees and Contingencies  Rental
    Commitments
    Year Ended March 31,2011

$
4,4132012


4,5652013


4,5772014


3,9632015 and beyond


7,215$
24,733   Commitments
    and Guarantees
   93




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Litigation
    15.
    Operating
    Segment Information         94




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    epm
        March 31,


March 31,


March 31,2010


2009


2008Revenue:QSI Dental Division

$
17,128


$
15,851


$
16,037NextGen Division


231,621



203,954



170,463Practice Solutions Division


43,062



25,710



Consolidated revenue

$
291,811


$
245,515


$
186,500Operating income:QSI Dental Division

$
3,460


$
3,385


$
3,662NextGen Division


88,108



81,323



66,558Practice Solutions Division


2,314



2,455



Unallocated corporate expense


(18,158
)


(14,760
)


(10,831
)Consolidated operating income

$
75,724


$
72,403


$
59,389    95




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  16.
    Subsequent
    Events    17.
    Selected
    Quarterly Operating Results (unaudited)    Quarter Ended06/30/08


09/30/08


12/31/08


03/31/09


06/30/09


09/30/09


12/31/09


03/31/10(Unaudited)Revenues:Software, hardware and supplies

$
21,369


$
21,297


$
22,336


$
20,384


$
17,776


$
22,856


$
24,346


$
24,783Implementation and training services


3,585



3,486



2,675



3,629



3,457



3,380



3,313



4,226System sales


24,954



24,783



25,011



24,013



21,233



26,236



27,659



29,009Maintenance


17,136



17,234



19,152



19,340



21,640



21,475



22,139



23,938Electronic data interchange services


6,670



6,985



8,008



7,859



8,161



8,796



8,897



9,181Revenue cycle management and related services


1,957



4,527



6,835



8,112



8,992



8,888



9,602



9,183Other services


4,507



5,452



6,473



6,507



6,612



6,303



6,665



7,202Maintenance, EDI, RCM and other services


30,270



34,198



40,468



41,818



45,405



45,462



47,303



49,504Total revenues


55,224



58,981



65,479



65,831



66,638



71,698



74,962



78,513Cost of revenue:Software, hardware and supplies


3,486



3,395



3,030



3,273



2,704



3,737



2,810



2,864Implementation and training services


3,015



2,626



2,143



2,502



2,881



3,296



2,898



2,908Total cost of system sales


6,501



6,021



5,173



5,775



5,585



7,033



5,708



5,772Maintenance


3,082



2,947



2,826



3,004



3,025



3,255



3,392



3,667Electronic data interchange services


4,891



5,256



5,541



5,686



5,890



6,164



6,525



6,683Revenue cycle management and related services


1,305



3,132



4,475



5,762



6,522



6,856



7,124



7,213Other services


3,448



3,866



5,085



5,114



4,867



5,003



5,560



4,963Total cost of maintenance, EDI, RCM and other services


12,726



15,201



17,927



19,566



20,304



21,278



22,601



22,526Total cost of revenue


19,227



21,222



23,100



25,341



25,889



28,311



28,309



28,298Gross profit


35,997



37,759



42,379



40,490



40,749



43,387



46,653



50,215 96




---



##### Table of Contents



QUALITY
    SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Quarter Ended06/30/08


09/30/08


12/31/08


03/31/09


06/30/09


09/30/09


12/31/09


03/31/10(Unaudited)Operating expenses:Selling, general and administrative


15,182



18,000



18,276



17,952



20,093



20,061



21,574



25,223Research and development costs


3,119



3,342



3,624



3,692



3,977



4,346



3,954



4,269Amortization of acquired intangible assets


70



283



325



357



357



367



377



682Total operating expenses


18,371



21,625



22,225



22,001



24,427



24,774



25,905



30,174Income from operations


17,626



16,134



20,154



18,489



16,322



18,613



20,748



20,041Interest income


374



340



328



161



78



59



43



46Other income














(279
)


58







136



74Income before provision for income taxes


18,000



16,474



20,482



18,371



16,458



18,672



20,927



20,161Provision for income taxes


6,886



5,975



7,332



7,015



6,112



6,852



7,775



7,100Net income

$
11,114


$
10,499


$
13,150


$
11,356


$
10,346


$
11,820


$
13,152


$
13,061Net income per share:Basic*

$
0.40


$
0.38


$
0.46


$
0.40


$
0.36


$
0.41


$
0.46


$
0.45Diluted*

$
0.40


$
0.37


$
0.46


$
0.40


$
0.36


$
0.41


$
0.46


$
0.45Weighted average shares outstanding:Basic


27,465



27,930



28,340



28,393



28,492



28,597



28,667



28,784Diluted


27,771



28,211



28,473



28,526



28,635



28,742



28,833



28,929Dividends declared per common share

$
0.25


$
0.30


$
0.30


$
0.30


$
0.30


$
0.30


$
0.30


$
0.30     *
    
    Quarterly EPS will not sum to annual EPS due to rounding 97




---



##### Table of Contents



Schedule II  Valuation
    and Qualifying Accounts
  ALLOWANCE
    FOR DOUBTFUL ACCOUNTS
  Balance at

Additions



Balance atBeginning of

Charged to Costs



End ofYear

and Expenses

Deductions

Year(In thousands)For the Year EndedMarch 31, 2010

$
3,877


$
3,465


$
(2,853
)

$
4,489March 31, 2009

$
2,528


$
2,089


$
(740
)

$
3,877March 31, 2008

$
2,438


$
1,171


$
(1,081
)

$
2,528   ALLOWANCE
    FOR INVENTORY OBSOLESCENCE
  Balance at

Additions



Balance atBeginning of

Charged to Costs



End ofYear

and Expenses

Deductions

Year(In thousands)For the Year EndedMarch 31, 2010

$
210


$
27


$



$
237March 31, 2009

$
223


$



$
(13
)

$
210March 31, 2008

$
324


$
52


$
(153
)

$
223  98




---



##### Table of Contents



INDEX TO
    EXHIBITS ATTACHED TO THIS REPORT
  ExhibitNumber

Description10
.36

Agreement and Plan of Merger dated February 10, 2010, by
    and among Quality Systems, Inc., OHS Merger Sub, Inc., Opus
    Healthcare Solutions, Inc., and the Shareholders of Opus
    Healthcare Solutions, Inc.10
.37

Sixth Amendment to Lease Agreement between the Company and Tower
    Place, L.P. dated April 1, 2010.10
.38

Third Amendment to Office Lease agreement between the Company
    and HUB Properties LLC dated January 1, 2010.10
.39

Fourth Amendment to Office Lease agreement between the Company
    and HUB Properties LLC dated March 17, 2010.10
.40

Third Amendment to Service Center Lease Agreement between the TM
    Properties, LLC, successor to the Lincoln National Life
    Insurance Company and Lackland Acquisition II, LLC, dated
    March 15, 2010.10
.41

Second Amendment to Lease Agreement between Hill Management
    Services, Inc. and Practice Management Partners, Inc., dated
    November 1, 2009.10
.42

Modification of Lease #1 between Olen Commercial Realty Corp.
    and NXG Acute Care LLC, dated October 13, 2009.10
.43

Lease between Olen Commercial Realty Corp. and NXG Acurate Care
    LLC, dated October 1, 2009.10
.44

Sublease Agreement between Centex Homes and Opus Healthcare
    Solutions, Inc., dated February , 2009.21


List of subsidiaries.23
.1

Consent of Independent Registered Public Accounting
    Firm  PricewaterhouseCoopers LLP.23
.2

Consent of Independent Registered Public Accounting
    Firm  Grant Thornton LLP.31
.1

Certification of Principal Executive Officer Required by
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934, as amended, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Principal Financial Officer Required by
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934, as amended, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive Officer and Chief Financial
    Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  99