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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)

|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2003



or



| ̈ |  | TRANSITION REPORT PURSUANT OF SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission File Number: 000-50082



IMPAC MEDICAL SYSTEMS, INC.



|Delaware                                                       |  | 94-3109238                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



100
West Evelyn Avenue, Mountain View, California 94041

(Address of principle executive offices)



(650) 623-8800

(Registrants telephone number, including area code)





(Former name, former address and former fiscal year, if changed since last report)



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



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). ̈Yes x No



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:



Indicate by check mark whether the registrant has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ̈



APPLICABLE ONLY TO CORPORATE
ISSUERS:



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



|Common Stock outstanding as of April 22, 2003 |  | 9,401,444
|--------------------------------------------- |  | ---------



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TABLE OF CONTENTS



|        |  |                                                                                                            |  | Page
|------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|        |  | PART I.    FINANCIAL INFORMATION                                                                           |  |     
|       
|Item 1. |  | Condensed Consolidated Financial Statements (unaudited)                                                    |  | 1   
|       
|        |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and September 30,
2002                          |  | 1   
|       
|        |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31,
2003 and 2002 |  | 2   
|       
|        |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2003 and
2002           |  | 3   
|       
|        |  | Notes to Condensed Consolidated Financial Statements                                                       |  | 4   
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 9   
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 18  
|       
|Item 4. |  | Controls and Procedures                                                                                    |  | 18  
|       
|        |  | PART II.    OTHER INFORMATION                                                                              |  |     
|       
|Item 1. |  | Legal Proceedings                                                                                          |  | 18  
|       
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                  |  | 18  
|       
|Item 3. |  | Defaults Upon Senior Securities                                                                            |  | 18  
|       
|Item 4. |  | Submission of Matter to a Vote of Securities Holders                                                       |  | 19  
|       
|Item 5. |  | Other Information                                                                                          |  | 19  
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                           |  | 19  
|       
|        |  | Signatures                                                                                                 |  | 20  
|       
|        |  | Certifications of Principal Executive Officer and Principal Financial Officer                              |  | 21  



Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995.



The statements contained in this Form 10-Q that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, including
statements regarding the Companys expectations, beliefs, hopes, intentions or strategies regarding the future. Forward looking statements include statements regarding the Companys business strategy, timing of, and plans for, the
introduction of new products and enhancements, future sales, market growth and direction, competition, market share, revenue growth, operating margins and profitability. All forward looking statements included in this document are based upon
information available to the Company as of the date hereof, and the Company assumes no obligation to update any such forward looking statement. Actual results could differ materially from the Companys current expectations. Factors that could
cause or contribute to such differences include the Companys ability to expand outside the radiation oncology market or expand into international markets, lost sales or lower sales prices due to competitive pressures, ability to integrate its
products successfully with related products and systems in the medical services industry, reliance on distributors and manufacturers of oncology equipment to market its products, and other factors and risks discussed in the Companys final
prospectus dated November 20, 2002 and other reports filed by the Company from time to time with the Securities and Exchange Commission.







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##### Table Of Contents



PART
I.    FINANCIAL INFORMATION



Item 1.    Condensed Consolidated Financial Statements (unaudited)



IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                              |  | March 31, 2003 |        |   | September 30, 2002 |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ------------------ | -
|(In thousands)                                                                                                                |  |                |        |   |                    |  
|Assets                                                                                                                        |  |                |        |   |                    |  
|Current assets:                                                                                                               |  |                |        |   |                    |  
|Cash and cash equivalents                                                                                                     |  | $              | 48,227 |   |                    | $
|Available-for-sale securities                                                                                                 |  |                | 458    |   |                    |  
|Accounts receivable, net                                                                                                      |  |                | 12,137 |   |                    |  
|Inventories                                                                                                                   |  |                | 64     |   |                    |  
|Deferred income taxes                                                                                                         |  |                | 712    |   |                    |  
|Income tax refund receivable                                                                                                  |  |                | 685    |   |                    |  
|Prepaid expenses and other current assets                                                                                     |  |                | 2,934  |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Total current assets                                                                                                          |  |                | 65,217 |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Available-for-sale securities                                                                                                 |  |                | 3,265  |   |                    |  
|Property and equipment, net                                                                                                   |  |                | 3,565  |   |                    |  
|Deferred income taxes                                                                                                         |  |                | 864    |   |                    |  
|Goodwill and other intangible assets, net                                                                                     |  |                | 1,704  |   |                    |  
|Other assets                                                                                                                  |  |                | 529    |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Total assets                                                                                                                  |  | $              | 75,144 |   |                    | $
|                                                                                                                              |  |                |        |   |                    |  
|                                                                                                                             
|Liabilities, Redeemable Convertible
Preferred Stock, Common Stock Subject to Rescission Rights and Stockholders Equity      
|Current liabilities:                                                                                                          |  |                |        |   |                    |  
|Customer deposits                                                                                                             |  | $              | 9,585  |   |                    | $
|Accounts payable                                                                                                              |  |                | 976    |   |                    |  
|Accrued liabilities                                                                                                           |  |                | 3,197  |   |                    |  
|Income taxes payable                                                                                                          |  |                | 998    |   |                    |  
|Deferred revenue                                                                                                              |  |                | 9,839  |   |                    |  
|Capital lease obligations                                                                                                     |  |                | 69     |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Total current liabilities                                                                                                     |  |                | 24,664 |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Customer deposits                                                                                                             |  |                | 92     |   |                    |  
|Capital lease obligations, non-current                                                                                        |  |                | 79     |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Total liabilities                                                                                                             |  |                | 24,835 |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Redeemable convertible preferred stock                                                                                        |  |                |       |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Common stock subject to rescission rights                                                                                     |  |                | 98     |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Stockholders equity:                                                                                                         |  |                |        |   |                    |  
|Preferred stock                                                                                                               |  |                |       |   |                    |  
|Common stock                                                                                                                  |  |                | 9      |   |                    |  
|Additional paid-in capital                                                                                                    |  |                | 42,748 |   |                    |  
|Accumulated other comprehensive loss                                                                                          |  |                | (20    | ) |                    |  
|Retained earnings                                                                                                             |  |                | 7,474  |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Total stockholders equity                                                                                                    |  |                | 50,211 |   |                    |  
|                                                                                                                              |  |                |        |   |                    |  
|Total liabilities, redeemable convertible preferred stock, common stock subject to
rescission rights and stockholders equity |  | $              | 75,144 |   |                    | $
|                                                                                                                              |  |                |        |   |                    |  



The
accompanying notes are an integral part of these condensed consolidated financial statements.



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IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                              |  | Three Months Ended March 31, |        |   | Six Months Ended March 31, |  
|----------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | -------------------------- | -
|(In thousands, except per share data)                                         |  | 2003                         |        |   | 2002                       |  
|Sales:                                                                        |  |                              |        |   |                            |  
|Software license and other, net                                               |  | $                            | 10,651 |   |                            | $
|Maintenance and services                                                      |  |                              | 4,687  |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Total net sales                                                               |  |                              | 15,338 |   |                            |  
|Cost of sales:                                                                |  |                              |        |   |                            |  
|Software license and other, net                                               |  |                              | 2,538  |   |                            |  
|Maintenance and services                                                      |  |                              | 1,674  |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Total cost of sales                                                           |  |                              | 4,212  |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Gross profit                                                                  |  |                              | 11,126 |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Operating expenses:                                                           |  |                              |        |   |                            |  
|Research and development                                                      |  |                              | 2,358  |   |                            |  
|Sales and marketing                                                           |  |                              | 3,418  |   |                            |  
|General and administrative                                                    |  |                              | 1,531  |   |                            |  
|Amortization of intangible assets                                             |  |                              | 103    |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Total operating expenses                                                      |  |                              | 7,410  |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Operating income                                                              |  |                              | 3,716  |   |                            |  
|Interest expense                                                              |  |                              | (5     | ) |                            |  
|Interest and other income                                                     |  |                              | 143    |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Income before provision for income taxes                                      |  |                              | 3,854  |   |                            |  
|Provision for income taxes                                                    |  |                              | (1,426 | ) |                            |  
|                                                                              |  |                              |        |   |                            |  
|Net income                                                                    |  |                              | 2,428  |   |                            |  
|Accretion of redeemable convertible preferred stock                           |  |                              |       |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Net income (loss) available for common stockholders                           |  | $                            | 2,428  |   |                            | $
|                                                                              |  |                              |        |   |                            |  
|Net income (loss) per common share:                                           |  |                              |        |   |                            |  
|Basic                                                                         |  | $                            | 0.26   |   |                            | $
|                                                                              |  |                              |        |   |                            |  
|Diluted                                                                       |  | $                            | 0.25   |   |                            | $
|                                                                              |  |                              |        |   |                            |  
|Weighted-average shares used in computing net income (loss) per common
share: |  |                              |        |   |                            |  
|Basic                                                                         |  |                              | 9,340  |   |                            |  
|                                                                              |  |                              |        |   |                            |  
|Diluted                                                                       |  |                              | 9,913  |   |                            |  
|                                                                              |  |                              |        |   |                            |  



The
accompanying notes are an integral part of these condensed consolidated financial statements.





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IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                  |  | Six Months Ended March 31, |        
|--------------------------------------------------------------------------------- |  | -------------------------- | -------
|                                                                                  |  | 2003                       |        
|(In thousands)                                                                    |  |                            |        
|Cash flows from operating activities:                                             |  |                            |        
|Net income                                                                        |  | $                          | 3,704  
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                            |        
|Depreciation and amortization of property and equipment                           |  |                            | 811    
|Amortization of goodwill and other intangible assets                              |  |                            | 205    
|Provision for doubtful accounts                                                   |  |                            | 186    
|Deferred income taxes                                                             |  |                            |       
|Loss on disposal of property and equipment                                        |  |                            | 101    
|Gain from sale of investment                                                      |  |                            |       
|Changes in assets and liabilities, net of effects of acquisitions:                |  |                            |        
|Accounts receivable                                                               |  |                            | (4,549 
|Inventories                                                                       |  |                            | 21     
|Prepaid expenses and other current assets                                         |  |                            | 351    
|Other assets                                                                      |  |                            | (190   
|Customer deposits                                                                 |  |                            | (244   
|Accounts payable                                                                  |  |                            | 106    
|Accrued liabilities                                                               |  |                            | (55    
|Income tax payable/refund receivable                                              |  |                            | (961   
|Deferred revenue                                                                  |  |                            | 1,661  
|                                                                                  |  |                            |        
|Net cash provided by operating activities                                         |  |                            | 1,147  
|                                                                                  |  |                            |        
|Cash flows from investing activities:                                             |  |                            |        
|Acquisition of property and equipment                                             |  |                            | (1,149 
|Proceeds from disposal of property and equipment                                  |  |                            | 51     
|Payments for MC2acquisition, net                                                  |  |                            |       
|Proceeds from sale of investment                                                  |  |                            |       
|Purchases of available-for-sale securities                                        |  |                            | (16,634
|Proceeds from sales of available-for-sale securities                              |  |                            | 16,387 
|Proceeds from maturities of available-for-sale securities                         |  |                            | 66     
|                                                                                  |  |                            |        
|Net cash used in investing activities                                             |  |                            | (1,279 
|                                                                                  |  |                            |        
|Cash flows from financing activities:                                             |  |                            |        
|Principal payments on capital leases                                              |  |                            | (31    
|Proceeds from the issuance of common stock, net                                   |  |                            | 24,986 
|Repurchase of common stock                                                        |  |                            |       
|                                                                                  |  |                            |        
|Net cash provided by (used in) financing activities                               |  |                            | 24,955 
|                                                                                  |  |                            |        
|Net increase in cash and cash equivalents                                         |  |                            | 24,823 
|Effect of exchange rates on cash                                                  |  |                            | (28    
|Cash and cash equivalents at beginning of period                                  |  |                            | 23,432 
|                                                                                  |  |                            |        
|Cash and cash equivalents at end of period                                        |  | $                          | 48,227 
|                                                                                  |  |                            |        



The accompanying notes are an integral part of these condensed consolidated financial statements.







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IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(unaudited)



NOTE 1Basis of Presentation



The accompanying unaudited condensed consolidated financial statements of IMPAC Medical Systems, Inc. and its subsidiaries (the
Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of
the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2003, or for any future period. The balance sheet at September 30, 2002 has been derived from the audited consolidated financial statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements and notes should be read with the financial statements and notes thereto for the year ended
September 30, 2002 included in the Companys final prospectus dated November 20, 2002.



NOTE 2Initial Public Offering



On November 20, 2002, the Company completed an initial public offering in which it sold 1,875,000 shares of common stock at $15.00 per share for net cash proceeds of approximately $24,400,000, net of
underwriting discounts, commissions and other offering costs. Upon the closing of the offering, all of the Companys outstanding shares of redeemable convertible preferred stock automatically converted into 1,238,390 shares of common stock. In
addition to the shares sold by the Company, an additional 312,500 shares were sold by selling stockholders on the date of the offering and 328,125 shares were sold by selling stockholders in the exercise of the underwriters over-allotment
option during December 2002.



NOTE 3Significant
Accounting Policies



The Companys
significant accounting policies are disclosed in the Companys final prospectus dated November 20, 2002 for the year ended September 30, 2002. With the exception of the new significant accounting policies set forth below, the Companys
significant accounting policies have not materially changed as of March 31, 2003.



Inventories



Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. As of March 31, 2003 and September 30, 2002, inventories are comprised entirely of finished goods.



Goodwill and other intangible assets



Goodwill and other intangible assets, including customer
lists and acquired workforce, are stated at cost and were amortized on a straight-line basis over their estimated useful lives of generally two to five years. Effective October 1, 2002, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, which establishes financial accounting and reporting for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17 (APB
No. 17), Intangible Assets. In accordance with SFAS No. 142, the Company has ceased amortizing goodwill and instead performs an assessment for impairment at least annually by applying a fair-value based test. The Company has also
reclassified the unamortized balance of acquired workforce to goodwill. Accordingly, no goodwill or acquired or acquired workforce amortization was recognized during the three and six months ended March 31, 2003. The provisions of SFAS No. 142 also
required the completion of a transitional impairment test within 12 months of adoption, with any impairment treated as a cumulative effect of change in accounting principle. During the first quarter of fiscal 2003, the Company completed the
transitional impairment test, which did not result in impairment of recorded goodwill.



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For
comparative purposes, the following table illustrates the Companys net income (loss) available for common stockholders adjusted to exclude goodwill and acquired workforce amortization expense as if amortization had ceased October 1, 2001 (in
thousands, except per share data):



|                                                                |  | Three Months Ended March 31, |       |      | Six Months Ended March 31, |       
|--------------------------------------------------------------- |  | ---------------------------- | ----- | ---- | -------------------------- | ------
|                                                                |  | 2003                         |       | 2002 |                            |       
|Net income (loss) available for common stockholders as reported |  | $                            | 2,428 |      | $                          | (1,592
|Amortization of goodwill                                        |  |                              |      |      |                            | 54    
|                                                                |  |                              |       |      |                            |       
|Adjusted net income (loss) available for common stockholders    |  | $                            | 2,428 |      | $                          | (1,538
|                                                                |  |                              |       |      |                            |       
|Net income (loss) per common share, basic                       |  |                              |       |      |                            |       
|As reported                                                     |  | $                            | 0.26  |      | $                          | (0.26 
|                                                                |  |                              |       |      |                            |       
|As adjusted                                                     |  | $                            | 0.26  |      | $                          | (0.26 
|                                                                |  |                              |       |      |                            |       
|Net income (loss) per common share, diluted                     |  |                              |       |      |                            |       
|As reported                                                     |  | $                            | 0.25  |      | $                          | (0.26 
|                                                                |  |                              |       |      |                            |       
|As adjusted                                                     |  | $                            | 0.25  |      | $                          | (0.26 
|                                                                |  |                              |       |      |                            |       



Redeemable
convertible preferred stock



Upon the
closing of the Companys initial public offering in November 2002, all outstanding shares of redeemable convertible preferred stock automatically converted into shares of common stock. Prior to the initial public offering, the carrying value of
the redeemable convertible preferred stock was increased by periodic accretions using the effective interest method, so that the carrying amount would equal the redemption value at the redemption date. These increases were effected through charges
against retained earnings.



Accounting for stock-based
compensation



In December 2002, the
Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No. 123 (SFAS No. 148) which amends
FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods
ending after December 15, 2002.



The Company uses
the intrinsic value method of APB Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, in accounting for its employee stock options, and presents disclosure of pro forma information required under SFAS No.
123, as amended by SFAS No. 148. No compensation expense is included in the net income (loss) available for common stockholders as reported during the three and six months ended March 31, 2003 and 2002.



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Had
compensation costs been determined based upon the fair value at the grant date, consistent with the methodology prescribed under SFAS No. 123, the Companys total stock-based compensation cost, pro forma net loss attributable to common
stockholders and pro forma net loss per common share, basic and diluted, would have been as follows (in thousands, except per share data):



|                                                                |  | Three Months Ended March 31, |       |   | Six Months Ended March 31, |  
|--------------------------------------------------------------- |  | ---------------------------- | ----- | - | -------------------------- | -
|                                                                |  | 2003                         |       |   | 2002                       |  
|Net income (loss) available for common stockholders as reported |  | $                            | 2,428 |   |                            | $
|Less stock-based compensation cost under a fair value method    |  |                              | (165  | ) |                            |  
|                                                                |  |                              |       |   |                            |  
|Pro forma net income (loss) available for common stockholders   |  | $                            | 2,263 |   |                            | $
|                                                                |  |                              |       |   |                            |  
|Net income (loss) per common share, basic                       |  |                              |       |   |                            |  
|As reported                                                     |  | $                            | 0.26  |   |                            | $
|                                                                |  |                              |       |   |                            |  
|Pro forma                                                       |  | $                            | 0.24  |   |                            | $
|                                                                |  |                              |       |   |                            |  
|Net income (loss) per common share, diluted                     |  |                              |       |   |                            |  
|As reported                                                     |  | $                            | 0.25  |   |                            | $
|                                                                |  |                              |       |   |                            |  
|Pro forma                                                       |  | $                            | 0.23  |   |                            | $
|                                                                |  |                              |       |   |                            |  



The
determination of fair value of all options granted after the Companys initial public offering include an expected volatility factor in addition to the risk free interest rate, expected term and expected dividends.



Other comprehensive loss



Comprehensive loss generally represents all changes in
stockholders equity except those resulting from investments or contributions by stockholders. The Companys unrealized gains and losses on available-for-sale securities and cumulative translation adjustments represent the components of
comprehensive loss that were excluded from the net income (loss) available for common stockholders.



During the three and six months ended March 31, 2002, the only component of accumulated other comprehensive loss was the change in
unrealized gains (losses) on available-for-sale securities, which was not significant. The following table lists the beginning balance, the change during the six months ended March 31, 2003 and ending balance of each component of accumulated other
comprehensive loss (in thousands):



|                                                       |  | Unrealized gains (losses) on securities |    |   | Foreign currency translation adjustments |   |     | Accumulated other comprehensive loss | 
|------------------------------------------------------ |  | --------------------------------------- | -- | - | ---------------------------------------- | - | --- | ------------------------------------ | 
|Balances, October 1, 2002                              |  | $                                       | (1 | ) |                                          | $ |    |                                      | 
|Change during the three months ended December 31, 2002 |  |                                         | 5  |   |                                          |   | (6  | )                                    | 
|Change during the three months ended March 31, 2003    |  |                                         | (5 | ) |                                          |   | (13 | )                                    | 
|                                                       |  |                                         |    |   |                                          |   |     |                                      | 
|Balances, March 31, 2003                               |  | $                                       | (1 | ) |                                          | $ | (19 | )                                    | 
|                                                       |  |                                         |    |   |                                          |   |     |                                      | 



During
the three and six months ended March 31, 2003, the total comprehensive net income, comprised of net income available for common stockholders and accumulated other comprehensive loss, was $2,410,000 and $1,456,000, respectively.



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Net income (loss) per
common share



Basic net income (loss) per
common share is computed by dividing net income (loss) available for common stockholders by the weighted-average number of vested common shares outstanding for the period. Diluted net income (loss) per common share is computed giving effect to all
potential dilutive common stock, including options and redeemable convertible preferred stock.



A reconciliation of the numerator and denominator used in the basic and diluted net loss per share follows (in thousands).



|                                                                                     |  | Three Months Ended March 31, |       |      | Six Months Ended March 31, |       
|------------------------------------------------------------------------------------ |  | ---------------------------- | ----- | ---- | -------------------------- | ------
|                                                                                     |  | 2003                         |       | 2002 |                            |       
|Numerator:                                                                           |  |                              |       |      |                            |       
|Net income                                                                           |  | $                            | 2,428 |      | $                          | 1,586 
|Accretion of redeemable convertible preferred stock                                  |  |                              |      |      |                            | (3,178
|                                                                                     |  |                              |       |      |                            |       
|Net income (loss) available for common stockholders                                  |  | $                            | 2,428 |      | $                          | (1,592
|                                                                                     |  |                              |       |      |                            |       
|Denominator:                                                                         |  |                              |       |      |                            |       
|Weighted average shares used in computing basic net income (loss) per common
share   |  |                              | 9,340 |      |                            | 6,027 
|Dilutive effect of options to purchase shares                                        |  |                              | 573   |      |                            |      
|Dilutive effect of redeemable convertible preferred stock                            |  |                              |      |      |                            |      
|                                                                                     |  |                              |       |      |                            |       
|Weighted average shares used in computing diluted net income (loss) per common
share |  |                              | 9,913 |      |                            | 6,027 
|                                                                                     |  |                              |       |      |                            |       



The
following outstanding options and redeemable convertible preferred stock were excluded from the computation of diluted net income (loss) per share as their effect is antidilutive (in thousands):



|                                       |  | March 31,
|-------------------------------------- |  | ---------
|                                       |  | 2003     
|Options to purchase common stock       |  | 5,357    
|Redeemable convertible preferred stock |  |         



Recent accounting
pronouncements



In November 2002, the FASB
issued FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, a
guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with
guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. These consolidated financial statements comply with the disclosure requirements of this interpretation.



In November 2002, the Emerging Issues Task Force
(EITF) reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple
products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. As the Company accounts for multiple element arrangements under
the higher-level authoritative literature of Statement of Position No. 97-2, Software Revenue Recognition, as amended, the Company expects that the adoption of EITF Issue No. 00-21 will have no material impact on its financial position
or on its results of operations.



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In January
2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company expects that the adoption of FIN 46 will have no material impact on its financial position or on its results of operations.



NOTE 4Commitments



Facilities



In December 2002, the Company entered into a sublease
agreement to lease additional office space in Cambridge, Massachusetts. The term of the sublease is three years from the commencement date of April 4, 2003. At the time of signing, total obligations under the sublease amounted to $1,077,180 or
$359,060 per year, payable in equal monthly installments.



In February 2003, the Company executed an addendum to the existing facility lease to expand the corporate headquarters facility. The addendum terminates concurrently with the original lease in March 2007. At the time of signing,
total obligations under the addendum amounted to $1,717,307, or $431,424 per year, payable in equal monthly installments.



NOTE 5Common Stock Subject to Rescission Rights



Prior to the effectiveness of the Companys registration statement for its initial public offering, an officer of the Company sent an
email to 15 friends whom he had designated as potential purchasers of common stock in a directed share program in connection with the initial public offering. The email requested that the recipients send an indication of interest to the officer. The
email was not accompanied by a preliminary prospectus and may have constituted a prospectus that does not meet the requirements of the Securities Act of 1933. The email was promptly followed by telephone conversations advising recipients that they
could indicate an interest in purchasing shares only after they had received a preliminary prospectus. If the email did constitute a violation of the Securities Act of 1933, the recipients of the letter who purchased common stock in the
Companys initial public offering could have the right, for a period of one year from the date of their purchase of common stock, to obtain recovery of the consideration paid in connection with their purchase of common stock or, if they had
already sold the stock, sue the Company for damages resulting from their purchase of common stock. As of March 31, 2003, the Company has classified a total of 6,500 shares of common stock which have these rescission rights outside of
stockholders equity, as the redemption features are not within the control of the Company.



NOTE 6Stockholders Equity



Reincorporation



On October 29, 2002, the Companys Board of Directors and stockholders approved the reincorporation of the Company in the state of Delaware, which became effective on November 13, 2002. Under the terms of its
Certificate of Incorporation, the Company is authorized to issue 60,000,000 shares of $0.001 par value common stock and 5,000,000 shares of $0.001 par value preferred stock. The Board of Directors has the authority to issue the undesignated
preferred stock in one or more series and to fix the rights preferences, privileges and restrictions thereof. The accompanying condensed consolidated financial statements have been retroactively restated to give effect to the reincorporation.





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Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations



The following discussion should be read in conjunction with our consolidated financial statements and the related notes appearing in
our final prospectus dated November 20, 2002. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the
timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth elsewhere in this Form 10-Q.



Overview



We provide information technology systems for cancer care. Our systems provide electronic medical record,
imaging, decision support, scheduling and billing applications in an integrated platform to manage the complexities of cancer care, from detection and diagnosis through treatment and follow-up. We were founded in 1990, and our growth has been
primarily organic, supplemented by several product and small company acquisitions.



Net Sales and Revenue Recognition



We sell our products directly throughout the world and primarily in North America, Europe and the Pacific Rim countries. In addition, we use non-exclusive distributors to augment our direct sales efforts. Sales through
distributors represented 4.9% and 8.0% of our total net sales in the three and six months ended March 31, 2003, respectively, and 8.1% and 13.4% for the same periods in fiscal 2002, respectively, all of which were sold through Siemens Medical
Systems, Inc. The decline in distributor sales as a percentage of net sales is primarily attributable to a higher growth rate in our direct sales. We have signed agreements with other distributors, which have not yet generated sales. Revenues from
the sale of our products and services outside the United States accounted for 10.4% and 5.2% of our net sales in the three and six months ended March 31, 2003, respectively, and 13.7% and 7.3% of our net sales for the same periods in fiscal 2002,
respectively. The decline in international sales as a percentage of net sales is primarily attributable to a higher growth rate in our domestic sales.



We license point-of-care and registry software products. Our point-of-care products are comprised of modules that process administrative,
clinical, imaging and therapy delivery information. Our registry products aggregate data on patient outcomes for regulatory and corporate reporting purposes. Currently, a majority of our point-of-care software is licensed on a perpetual basis, and a
majority of our registry sales is licensed on a term basis.



Our focus with regard to software licensing and maintenance and support service is to provide flexibility in the structure and pricing of our product offerings to meet the unique functional and financial needs of our customers. For
those customers who license on a perpetual basis, we promote annual maintenance and support service agreements as an incremental investment designed to preserve the value of the customers initial investment. For those customers who license on
a term basis, annual maintenance and support contributes greatly to the value of the annual license, and the two cannot be segregated from each other. For those customers using our application service provider option, independent of the licensing
method, these annual fees allow the customer to outsource, in a cost effective manner, support and connectivity functions that are normally handled by internal resources.



The decision to implement, replace, expand or substantially modify an information system is a significant
commitment for healthcare organizations. In addition, our systems typically require significant capital expenditures by the customer. Consequently, we experience long sales and implementation cycles. The sales cycle for our systems ranges from six
to twenty-four months or more from initial contact to contract execution. Our implementation cycle generally ranges from three to nine months from contract execution to completion of implementation.



We record orders for products licensed on a perpetual basis
upon the receipt of a signed purchase and license agreement, purchase order, and a substantial deposit. We record orders for products licensed on a term basis upon receipt of a signed purchase and license agreement, purchase order and a deposit
typically equal to the first years fees. All contract deposits are held as a liability until the customer has accepted the product as outlined in the terms and conditions set forth in the purchase and license agreement. Maintenance and support
is recorded as deferred revenue upon the invoice date and held as a current liability on the balance sheet. Under the terms of the original purchase and license agreement, maintenance and support automatically renews on an annual basis unless the
customer provides a written cancellation. We recognize revenue from these sales ratably over the underlying maintenance period.



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For direct
software sales licensed on a perpetual basis, we include one year of maintenance and support as part of the purchase price. We recognize revenue upon acceptance of the installed product at the customer site. Since the first year of maintenance and
support is included in the purchase price, we defer 12% of the purchase price and recognize that portion of the revenue ratably over a twelve-month period. Standard annual fees for maintenance and support after the first year equal 12% of the then
current list price unless the customer negotiates other terms or service levels. We recognize these fees ratably over the applicable twelve-month period.



For direct software sales licensed on a term basis, the initial term lasts from three to five years with annual renewals after the initial
term. The customer pays a deposit typically equal to the initial annual fee upon signing the license agreement, and we invoice the customer for subsequent annual fees 60 days before the anniversary date of the signed agreement. We recognize revenue
for the annual fees under these term license agreements ratably over the applicable twelve-month period. The purchase price includes annual maintenance and support.



We recognize revenue from third-party products and related configuration and installation services sold with
our licensed software upon acceptance by the customer. We recognize revenue from third-party products sold separately from our licensed software upon delivery. Third-party products represented 4.5% and 4.3% of our total net sales in the three and
six months ended March 31, 2003, respectively, and 4.9% and 4.0% for the same period in fiscal 2002, respectively. The increase in third-party sales as a percentage of net sales is attributable to a higher growth rate in our third-party product
sales.



We recognize distributor related revenues
upon the receipt of a completed purchase order and the related customer information needed to generate software registration keys, which allow us to distribute the software to the end user and satisfy our regulatory information tracking
requirements. We invoice maintenance and support annually and recognize revenue ratably over the applicable twelve-month period.



Costs and Expenses



A large part of our company cost structure is driven by the number of employees and all related benefit and facility costs. As a result, a
significant amount of strategic and fiscal planning is focused on this area, so we can develop internal resources at a controlled and sustainable rate. Since revenue recognition happens subsequent to all implementation and training activities, we
incur the costs of labor, travel and some third-party product expenses in advance.



Cost of sales consists primarily of:



| |  |  | labor costs relating to the implementation, installation, training and application support of our point-of-care and registry software;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | travel expenses incurred in the installation and training of our point-of-care software;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | direct expenses related to the purchase, shipment, installation and configuration of third-party hardware and software sold with our point-of-care software;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continuing engineering expenses related to the maintenance of existing released software; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | overhead attributed to our client services personnel.
| | - |  | -----------------------------------------------------



System installations require several phases of implementation in the process of accepting product delivery and have led to our development
of a highly specialized client service organization. All new orders require multiple site visits from our personnel to properly install, configure and train customer personnel. Several point-of-care products are used with various third-party
hardware and software products that are also sold and configured during the implementation process. After the initial implementation process, our application support staff provides phone support and any applicable system updates. A substantial
percentage of engineering costs are allocated to client services due to continuing engineering efforts related to the support and enhancement of our products. Historically, cost of sales has increased at approximately the same rate as net sales.
However, as newly developed products and acquired product lines are released to the customers, additional investments in client service staff could cause gross margins to fluctuate.



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Research and
development expenses include costs associated with the design, development and testing of our products. These costs consist primarily of:



| |  |  | salaries and related development personnel expenses;
| | - |  | ----------------------------------------------------



| |  |  | software license and support fees associated with development tools;
| | - |  | --------------------------------------------------------------------



| |  |  | travel expenses incurred to test products in the customer environment; and
| | - |  | --------------------------------------------------------------------------



| |  |  | overhead attributed to our development and test engineering personnel.
| | - |  | ----------------------------------------------------------------------



We currently expense all research and development costs as incurred. Our research and development efforts are
periodically subject to significant non-recurring costs that can cause fluctuations in our quarterly research and development expense trends. We expect that research and development expenses will increase in absolute dollars for the foreseeable
future as we continue to invest in product development.



Sales and marketing expenses primarily consist of:



| |  |  | salaries, commissions and related travel expenses for personnel engaged in sales and the contracts administration process;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | salaries and related product marketing, marketing communications, media services and business development personnel expenses;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | expenses related to marketing programs, public relations, trade shows, advertising and related communications; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | overhead attributed to our sales and marketing personnel.
| | - |  | ---------------------------------------------------------



We have recently expanded our sales force, made significant investments in marketing communications and increased trade show activities to
enhance market awareness of our products. We expect that sales and marketing expenses will increase in absolute dollars for the foreseeable future as we continue to expand our sales and marketing capabilities.



General and administrative expenses primarily consist of:



| |  |  | salaries and related administrative, finance, human resources, regulatory, information services and executive personnel expenses;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | other significant expenses relate to facilities, recruiting, external accounting and legal and regulatory fees;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | general corporate expenses; and
| | - |  | -------------------------------



| |  |  | overhead attributed to our general and administrative personnel.
| | - |  | ----------------------------------------------------------------



A significant portion of facility, infrastructure and maintenance costs are allocated as overhead to other
functions based on distribution of headcount. Our general and administrative expenses increased after our initial public offering, and we expect these expenses will remain higher in absolute dollars in the future.



Depreciation and Amortization



Our property and equipment is recorded at our cost minus
accumulated depreciation and amortization. We depreciate the costs of our tangible capital assets on a straight-line basis over the estimated economic life of the asset, which is generally three to seven years. Acquisition related intangible assets
have historically been amortized based upon the estimated economic life, which is generally two to five years. Leasehold improvements and equipment purchased through a capital lease are amortized over the life of the related asset or the lease term,
if shorter. If we sell or retire an asset, the cost and accumulated depreciation is removed from the balance sheet and the appropriate gain or loss is recorded. We expense repair and maintenance costs as incurred.





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Accretion of Redeemable
Convertible Preferred Stock



From September
27, 2002 until our initial public offering, the holders of a majority of our then outstanding redeemable convertible preferred stock could have required us to redeem the preferred shares by paying in cash an amount equal to the greater of $3.23 per
share or the fair market value plus all declared or accumulated but unpaid dividends within thirty days. These shares automatically converted to common stock upon the closing of our initial public offering in November 2002. We accreted charges that
reflected the increase in market value of the redeemable convertible preferred stock as an adjustment to retained earnings and, as a result, increased the amount of net loss attributable to common stockholders. After the initial public offering, no
further accretion has been required. The redemption value of the redeemable convertible preferred stock was $16.7 million at the time of the initial public offering. This amount was reclassified on our balance sheet from redeemable convertible
preferred stock to common stock and additional paid-in capital upon the closing of the initial public offering.



Results of Operations



The following table sets forth certain operating data as a percentage of net sales for the periods indicated:



|                                         |  | Three Months Ended March 31, |   |  | Six Months Ended March 31, |  
|---------------------------------------- |  | ---------------------------- | - |  | -------------------------- | -
|                                         |  | 2003                         |   |  | 2002                       |  
|Sales:                                   |  |                              |   |  |                            |  
|Software license and other, net          |  | 69.4                         | % |  | 72.1                       | %
|Maintenance and services                 |  | 30.6                         |   |  | 27.9                       |  
|                                         |  |                              |   |  |                            |  
|Total net sales                          |  | 100.0                        |   |  | 100.0                      |  
|Cost of sales:                           |  |                              |   |  |                            |  
|Software license and other, net          |  | 16.5                         |   |  | 17.3                       |  
|Maintenance and services                 |  | 11.0                         |   |  | 8.0                        |  
|                                         |  |                              |   |  |                            |  
|Total cost of sales                      |  | 27.5                         |   |  | 25.3                       |  
|                                         |  |                              |   |  |                            |  
|Gross profit                             |  | 72.5                         |   |  | 74.7                       |  
|                                         |  |                              |   |  |                            |  
|Operating expenses:                      |  |                              |   |  |                            |  
|Research and development                 |  | 15.4                         |   |  | 17.1                       |  
|Sales and marketing                      |  | 22.3                         |   |  | 26.2                       |  
|General and administrative               |  | 10.0                         |   |  | 9.8                        |  
|Amortization of intangible assets        |  | 0.6                          |   |  | 1.0                        |  
|                                         |  |                              |   |  |                            |  
|Total operating expenses                 |  | 48.3                         |   |  | 54.1                       |  
|                                         |  |                              |   |  |                            |  
|Operating income                         |  | 24.2                         |   |  | 20.6                       |  
|Interest and other income, net           |  | 0.9                          |   |  | 0.7                        |  
|                                         |  |                              |   |  |                            |  
|Income before provision for income taxes |  | 25.1                         |   |  | 21.3                       |  
|Provision for income taxes               |  | (9.3                         | ) |  | (7.9                       | )
|                                         |  |                              |   |  |                            |  
|Net income                               |  | 15.8                         | % |  | 13.4                       | %
|                                         |  |                              |   |  |                            |  



Comparison of Three
Months Ended March 31, 2003 and 2002



Net
Sales.    Net sales increased 29.8% to $15.3 million in the three months ended March 31, 2003 from $11.8 million for the same period in fiscal 2002. Net software related sales increased 25.1% to $10.7 million in the three
months ended March 31, 2003 from $8.5 million for the same period in fiscal 2002. Sales of additional new products in oncology accounted for $1.1 million of the $2.2 million increase, sales of imaging systems accounted for $925,000, and the
remaining increase is attributed to new sales in registry and laboratory software. An increase in the average system price, due primarily to an increase in the number of products included in each order, contributed 34.2% of the overall increase in
net software related sales in the three months ended March 31, 2003 as compared to the same period in fiscal 2002, with the remaining contribution being attributable to an increase in the volume of installations. Maintenance and services sales also
increased 41.9% to $4.7 million for the three months ended March 31, 2003 from $3.3 million for the same period in fiscal 2002. Maintenance and support contracts contributed $1.2



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million of the $1.4 million
increase and additional training and installation contributed $114,000. Our continued high customer retention on maintenance and support contracts, the general price increase, and expansion of our service offerings all contributed to the growth of
maintenance and services as a percentage of net sales.



Cost of Sales.    Total cost of sales increased 41.1% to $4.2 million for the three months ended March 31, 2003 from $3.0 million for the same period in fiscal 2002. Our gross margin decreased to 72.5% for
the three months ended March 31, 2003 from 74.7% for the same period in fiscal 2002. Cost of sales relating to net software sales increased 24.7% to $2.5 million for the three months ended March 31, 2003 from $2.0 million for the same period in
fiscal 2002. Our gross margin associated with net software sales remained relatively constant at 76.2% for the three months ended March 31, 2003 compared to 76.1% for the same period in fiscal 2002. The increase in expenses related to $278,000 in
employee costs, $153,000 in supplies and materials and $59,000 in implementation costs. Cost of sales relating to maintenance and services increased 76.2% to $1.7 million for the three months ended March 31, 2003 from $950,000 for the same period in
fiscal 2002. Our gross margin associated with maintenance and services decreased to 64.3% for the three months ended March 31, 2003 from 71.2% for the same period in fiscal 2002. The increase in expenses of $724,000 was related to $296,000 in
employee related expenses, $201,000 in telecommunication costs associated with our data center operations, $149,000 in continuing engineering costs, and $57,000 in travel expenses. Planned investment in our support organization to accommodate the
application service provider agreement signed with US Oncology and continued development of our direct international support presence for the three months ended March 31, 2003 contributed to the decline in our gross margin associated with
maintenance and services.



Research and
Development.    Research and development expenses increased 16.8% to $2.4 million for the three months ended March 31, 2003 from $2.0 million for the same period in fiscal 2002. As a percentage of total net sales, research
and development expenses decreased to 15.4% for the three months ended March 31, 2003 from 17.1% for the same period in fiscal 2002. Additional engineering headcount and the associated personnel expenses were the primary factors for the increase in
absolute dollars. The decrease as a percentage of total net sales in the three months ended March 31, 2003 was due to increased net sales relative to research and development expenses.



Sales and Marketing.Sales and marketing expenses increased 10.4% to $3.4
million for the three months ended March 31, 2003 from $3.1 million for the same period in fiscal 2002. As a percentage of total net sales, sales and marketing expenses decreased to 22.3% for the three months ended March 31, 2003 from 26.2% for the
same period in fiscal 2002. The increase in expenses related to $166,000 in travel expenses, $137,000 in employee related costs, $43,000 in commission expense, $16,000 in advertising expense, and $7,000 in telephone costs partially offset by a
$24,000 reduction in outside services for marketing communications and a $19,000 reduction in sponsorships. The decrease as a percentage of total net sales in the three months ended March 31, 2003 was due to increased net sales relative to sales and
marketing expenses.



General and
Administrative.    General and administrative expenses increased 32.8% to $1.5 million for the three months ended March 31, 2003 from $1.2 million for the same period in fiscal 2002. As a percentage of total net sales,
general and administrative expenses increased to 10.0% for the three months ended March 31, 2003 from 9.8% for the same period in fiscal 2002. The increase in absolute dollars was primarily due to increases in business insurance premiums of
$161,000, an increase in our allowance for doubtful accounts of $136,000, an increase in outside professional service fees of $64,000 and regulatory fees of $17,000 offset by a decrease in travel expenses of $20,000, a decrease in telephone expenses
of $6,000 and a decrease in maintenance expenses of $3,000. The increase in the allowance for doubtful accounts was related to the overall increase in our accounts receivable balance at March 31, 2003.



Amortization of Intangible
Assets.    Amortization expenses decreased 20.8% to $103,000 for the three months ended March 31, 2003 from $130,000 for the same period in fiscal 2002. Our acquisition of Intellidata, Inc. in April 2002 increased
amortization expense as it relates to developed/core technology, customer base and a covenant-not-to-compete. No goodwill is included in the amortization related to this transaction. In compliance with Statement of Financial Accounting Standards
(SFAS) No. 142 Goodwill and other Intangible Assets, we have ceased amortization of goodwill and acquired workforce effective October 1, 2002 and this has resulted in an overall decline in total amortization expense for the
three month period.



Operating
Income.    Operating income increased 52.5% to $3.7 million for the three months ended March 31, 2003 from $2.4 million for the same period in fiscal 2002. Operating income increased significantly due to the higher rate of
increase in net sales relative to the rate of increase in operating expenses.





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Interest
and Other Income, Net.    Interest and other income, net increased 68.3% to $138,000 for the three months ended March 31, 2003 from $82,000 for the same period in fiscal 2002. The increase is primarily related to additional
cash balances being invested from our public offering proceeds.



Income Taxes.    Our effective tax rate was 37.0% for the three months ended March 31, 2003 and 2002. The increase in absolute dollars was due to higher operating income.



Accretion of Redeemable Convertible Preferred
Stock.    Historically, each reporting period, the carrying value of the redeemable convertible preferred stock has been increased by periodic accretions, using the effective interest method, so that the carrying amount would
equal the redemption value at the redemption date. These increases were effected through charges against retained earnings. Several factors have influenced our determination of the value of the redeemable convertible preferred stock. These factors
included plans for the initial public offering, the performance of our business, changes in our business model and significant product introductions, current market conditions and the performance of the stock price of our comparable companies.
During the three months ended March 31, 2002, we recorded accretion charges of $3.2 million, representing the increase in the redemption value of the Series A redeemable convertible preferred stock. Upon the closing of our initial public offering in
November 2002, all shares of our redeemable convertible preferred stock automatically converted into an equal number of shares of common stock. Therefore, we did not incur accretion charges related to the Series A redeemable convertible preferred
stock during the three months ended March 31, 2003.



Comparison of Six Months Ended March 31, 2003 and 2002



Net Sales.    Net sales increased 34.8% to $27.5 million in the six months ended March 31, 2003 from $20.4 million for the same period in fiscal 2002. Net software related
sales increased 34.2% to $18.5 million in the six months ended March 31, 2003 from $13.8 million for the same period in fiscal 2002. New system sales in oncology accounted for $1.8 million of the $4.7 million increase, sales of imaging systems
accounted for $1.5 million, sales of additional new products in oncology accounted for $1.3 million, and the remaining increase was attributed to new sales in registry, urology and laboratory software. An increase in average system price, due
primarily to an increase in the number of products included in each order, contributed 42.4% of the overall increase in net software related sales in the six months ended March 31, 2003 as compared to the same period in fiscal 2002, with the
remaining contribution being attributable to an increase in the volume of installations. Maintenance and services also increased 36.0% to $9.1 million for the six months ended March 31, 2003 from $6.7 million for the same period in fiscal 2002.
Maintenance and support contracts contributed $2.1 million of the $2.4 million increase and additional training and installation contributed $190,000. Our continued high customer retention on maintenance and support contracts, the general price
increase, and expansion of our service offerings all contributed to the growth of maintenance and services as a percentage of net sales.



Cost of Sales.    Total cost of sales increased 43.7% to $8.0 million for the six months ended March 31, 2003
from $5.5 million for the same period in fiscal 2002. Our gross margin decreased to 71.1% for the six months ended March 31, 2003 from 72.9% for the same period in fiscal 2002. Cost of sales relating to net software sales increased 22.6% to $4.6
million for the six months ended March 31, 2003 from $3.7 million for the same period in fiscal 2003. Our gross margin associated with net software sales increased to 75.2% for the six months ended March 31, 2003 from 72.9% for the same period in
fiscal 2002. The increase in expenses related to $431,000 in employee costs, $264,000 in supplies and materials, and $165,000 in implementation costs. The improvement in gross margins associated with net software sales relates to stronger demand for
implementation of new systems during the six months ended March 31, 2003, a slight delay in recruiting qualified personnel, as well as efficiencies gained by organizational improvements during fiscal 2002. Cost of sales relating to maintenance and
services increased 87.7% to $3.4 million for the six months ended March 31, 2003 from $1.8 million for the same period in fiscal 2002. Our gross margin associated with maintenance and services decreased to 62.8% for the six months ended March 31,
2003 from 73.0% for the same period in fiscal 2002. The increase in expenses was associated with $674,000 in employee related expenses, $350,000 in continuing engineering costs, $400,000 in telecommunication costs associated with our data center
operations, $109,000 in travel expenses, and $43,000 in supplies. Planned investment in our support organization to accommodate the application service provider agreement signed with US Oncology and continued development of our direct international
support presence for the six months ended March 31, 2003 contributed to the decline in our gross margin associated with maintenance and services.



Research and Development.    Research and development expenses increased 19.7% to $4.5 million for the six
months ended March 31, 2003 from $3.7 million for the same period in fiscal 2002. As a percentage of total net sales, research and development expenses decreased to 16.2% for the six months ended March 31, 2003 from 18.3% for the same period in
fiscal 2002. Additional engineering headcount and the associated personnel expenses were the



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primary factors for the
increase in absolute dollars. The decrease as a percentage of total net sales in the six months ended March 31, 2003 was due to increased net sales relative to research and development expenses.



Sales and Marketing.Sales and
marketing expenses increased 11.1% to $6.6 million for the six months ended March 31, 2003 from $5.9 million for the same period in fiscal 2002. As a percentage of total net sales, sales and marketing expenses decreased to 23.9% for the six months
ended March 31, 2003 from 29.0% for the same period in fiscal 2002. The increase in expenses related to $282,000 in commissions due to higher sales, $272,000 in employee related costs, $244,000 in travel expenses, $27,000 in telephone costs and
$14,000 in trade show expenses offset by a $129,000 reduction in outside services for marketing communications and $41,000 in sponsorships. The decrease as a percentage of total net sales in the six months ended March 31, 2003 was due to increased
net sales relative to sales and marketing expenses, the cyclical nature of trade show spending and a slight delay in recruiting qualified sales staff.



General and Administrative.    General and administrative expenses increased 37.9% to $2.7 million for the six
months ended March 31, 2003 from $1.9 million for the same period in fiscal 2002. As a percentage of total net sales, general and administrative expenses increased to 9.7% for the six months ended March 31, 2003 from 9.4% for the same period in
fiscal 2002. The increase in absolute dollars was primarily due to increases in business insurance premiums of $223,000, an increase in our allowance for doubtful accounts of $186,000, employee related expenses of $114,000, professional service fees
of $75,000, travel expenses of $58,000, rent expense of $50,000, depreciation expense of $36,000, outside services of $27,000, and regulatory fees of $27,000. The increase in the allowance for doubtful accounts was related to the overall increase in
our accounts receivable balance at March 31, 2003.



Amortization of Intangible Assets.    Amortization expenses decreased 7.2% to $205,000 for the six months ended March 31, 2003 from $221,000 for the same period in fiscal 2002. Our acquisition of
Intellidata in April 2002 increased amortization expense as it relates to developed/core technology, customer base and a covenant-not-to-compete. No goodwill is included in the amortization related to this transaction. In compliance with SFAS No.
142, we have ceased amortization of goodwill and acquired workforce effective October 1, 2002 and this has resulted in an overall decline in total amortization expense for the six month period.



Operating Income.    Operating
income increased 83.7% to $5.7 million for the six months ended March 31, 2003 from $3.1 million for the same period in fiscal 2002. Operating income increased significantly due to the higher rate of increase in net sales relative to the rate of
increase in operating expenses.



Interest and
Other Income, Net.    Interest and other income, net increased 13.2% to $215,000 for the six months ended March 31, 2003 from $190,000 for the same period in fiscal 2002. The increase is primarily related to additional cash
balances being invested from our public offering proceeds offset by lower interest income from investments in short and long-term marketable securities resulting from lower interest rates in the 2003 period.



Income Taxes.    Our effective tax
rate was 37.0% for the three months ended March 31, 2003 and 2002. The increase in absolute dollars was primarily due to higher operating income.



Accretion of Redeemable Convertible Preferred Stock.    Historically, each reporting period, the carrying value
of the redeemable convertible preferred stock has been increased by periodic accretions, using the effective interest method, so that the carrying amount would equal the redemption value at the redemption date. These increases were effected through
charges against retained earnings. Several factors have influenced our determination of the value of the redeemable convertible preferred stock. These factors included plans for the initial public offering, the performance of our business, changes
in our business model and significant product introductions, current market conditions and the performance of the stock price of our comparable companies. During the six months ended March 31, 2003, we recorded accretion charges of $2.2 million, all
of which was incurred during the first quarter in the time period leading up to the initial public offering. This represents a 55.3% decrease from the accretion charges incurred in the six months ended March 31, 2002 of $5.0 million. Upon the
closing of our initial public offering in November 2002, all shares of our redeemable convertible preferred stock automatically converted into an equal number of shares of common stock. Therefore, we have not incurred, nor will we incur, accretion
charges related to the Series A redeemable convertible preferred stock after our initial public offering.



Backlog



As of March 31, 2003, we had a backlog of $39.3 million compared to a backlog of $27.8 million as of March 31, 2002. Our backlog is comprised of deferred revenues for system sales and maintenance and support services. We expect to
fulfill approximately $36.0 million of our backlog at March 31, 2003 during the twelve



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months following March 31,
2003 with the remaining portion to be completed in subsequent periods. We cannot assure you that contracts included in backlog will generate the specified revenues or that these revenues will be fully recognized within the specified time periods.



Seasonality



Historically, we have experienced a seasonal pattern in our
operating results related primarily to revenues, with our first quarter typically having the lowest revenues followed by significant revenue growth in the subsequent quarters of our fiscal year. In particular, we have experienced strong revenue
growth in the fourth quarter that we believe to be related to the year end of many of our customers budgetary cycles. We believe the seasonality of our revenue in the first quarter is due to the impact of the holiday season and a major
industry trade show on the on-site portion of the implementation process. Net income levels are typically the lowest in our first fiscal quarter with significant improvement occurring in sequential quarters.



In addition, the implementation of a significant contract
previously included in backlog could generate a large increase in revenue and net income for any given quarter or fiscal year, which may prove unusual when compared to changes in revenue and net income in other periods. Furthermore, we typically
experience long sales cycles for new customers, which may extend over several quarters before a sale is consummated and a customer implementation occurs. As a result, we believe that quarterly results of operations will continue to fluctuate and
that quarterly results may not be indicative of future periods. The timing of revenues is influenced by a number of factors, including the timing of individual orders, customer implementations and seasonal customer buying patterns.



Liquidity and Capital Resources



We have financed our operations since inception primarily
through cash from operating activities, a $4.0 million private placement of equity in 1996 and in November 2002, we received net proceeds of $24.4 million from our initial public offering of common stock. Cash, cash equivalents and
available-for-sale securities were $52.0 million at March 31, 2003.



During the six months ended March 31, 2003, net cash provided by operating activities was $1.1 million compared to $3.4 million for the same period in fiscal 2002. In the six months ended March 31, 2003, cash provided by
operations was primarily attributable to increases in sales leading to a higher net income after adjustment for the non-cash charges relating to depreciation and amortization, a decrease in prepaid expenses and other current assets and an increase
in deferred revenue, offset by an increase in accounts receivable due to higher sales and a decrease in income taxes payable. In the six months ended March 31, 2002, cash provided by operations was primarily attributable to increases in sales
leading to a higher net income after adjustment for the non-cash charges relating to depreciation and amortization, an increase in customer deposits and increases in income taxes payable and deferred revenue, offset by an increase in accounts
receivable due to higher sales and a decrease in accrued liabilities.



In determining average days sales outstanding and accounts receivable turnover, we use our gross annual invoicing and gross accounts receivable balances in each calculation as we believe this provides a more
conservative and relevant measurement basis due to the significance of our deferred revenue. Our accounts receivable turnover decreased to 4.5 for the six months ended March 31, 2003 from 5.3 for the same period in fiscal 2002. Our days sales
outstanding at March 31, 2003 increased to 79 from 68 at March 31, 2002. We believe that the overall increase in sales for the six months ended March 31, 2003 as compared to the same period in fiscal 2002 have impacted the calculation of accounts
receivable turnover and days sales outstanding ratios. We continue our efforts to improve collections by maintaining appropriate staffing levels, formalizing escalation procedures, and improving internal communications. Revenue is only recognized
when all of the criteria for revenue recognition have been met which is upon acceptance and invoicing of the final balance of the fee unless the invoice has payment terms extending longer than 60 days. Any invoice that has payment terms longer than
60 days is considered to have extended payment terms and is not be recognized as a receivable or revenue until it is due and payable.



Net cash used in investing activities was $1.3 million for the six months ended March 31, 2003 and $1.0 million for the same period in
fiscal 2002. During the six months ended March 31, 2003, cash used in investing activities primarily related to the purchase of $1.1 million of capital equipment to support ongoing operations. During the six months ended March 31, 2002, cash used in
investing activities primarily related to the purchase of $560,000 in capital assets and $500,000 in payments relating to the acquisition of MC2.





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Net cash
provided by financing activities was $25.0 million for the six months ended March 31, 2003, compared to net cash used in financing activities of $11,000 for the same period in fiscal 2002. Cash provided by financing activities during the six months
ended March 31, 2003 can be attributed primarily to net proceeds of $24.4 million received in our initial public offering during November 2002. During the six months ended March 31, 2002, cash used in financing activities can be attributed to
principal payments on our capital lease of $28,000 and repurchases of common stock in the amount of $21,000, offset from proceeds received from stock option exercises of $38,000.



In fiscal 2000, we entered a capital lease for the purchase of furniture for our corporate headquarters. This
capital lease is scheduled to be fully repaid in February 2005. The interest rate for this financing is 13.54% per year and equates to an aggregate monthly payment of $7,000. As of March 31, 2003, the principal balance outstanding on the capital
lease totaled $148,000. We have granted a security interest to the lenders in all furniture covered by this lease.



The following table describes our commitments to settle contractual obligations in cash not recorded on the balance sheet as of March 31,
2003 (in thousands). The telecommunications contracts with AT&T include wireless, frame-relay, voice/data and internet transport services.





|Fiscal Year |  | Property Leases |  | Operating Leases |  | Telecommunications Contracts |  | Total Future Obligations
|----------- |  | --------------- |  | ---------------- |  | ---------------------------- |  | ------------------------
|2003        |  | $1,411          |  | $ 31             |  | $   545                      |  | $1,987                  
|2004        |  | 2,673           |  | 52               |  | 1,353                        |  | 4,078                   
|2005        |  | 2,713           |  | 27               |  | 1,232                        |  | 3,972                   
|2006        |  | 2,514           |  | 6                |  | 1,200                        |  | 3,720                   
|2007        |  | 1,011           |  |                 |  | 930                          |  | 1,941                   



We
expect to increase capital expenditures consistent with our anticipated growth in infrastructure and personnel. We also may increase our capital expenditures as we expand our product lines or invest in new markets. We believe that the net proceeds
from the common stock sold in the initial public offering, together with available funds and cash generated from operations will be sufficient to meet our operating requirements, assuming no change in the operations of our business, for at least the
next 18 months.



Recent Accounting Pronouncements



In November 2002, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about
the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. These consolidated financial statements comply with the disclosure requirements of
this interpretation.



In November 2002, the
Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangemetns entered into in fiscal periods beginning after June 15, 2003. As we account for multiple element
arrangements under the higher-level authoritative literature of Statement of Position No. 97-2, Software Revenue Recognition, as amended, we expect that the adoption of EITF Issue No. 00-21 will have no material impact on our financial
position or on our results of operations.



In
January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We believe that the adoption of this FIN 46 will have no material impact on our financial position or on our results of operations.



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Item 3.    Quantitative and Qualitative Disclosures About Market Risk



The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. These
exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.



We have been exposed to interest rate risk as it applies to our limited use of debt instruments and interest earned on holdings of long
and short-term marketable securities. Interest rates that may affect these items in the future will depend on market conditions and may differ from the rates we have experienced in the past. A 10% change in interest rates would not be material to
our results of operations. We reduce the sensitivity of our results of operations to these risks by maintaining an investment portfolio, which is primarily comprised of highly rated, short-term investments. We do not hold or issue derivative,
derivative commodity instruments or other financial instruments for trading purposes.



We have operated mainly in the United States and greater than 99% of our sales were made in U.S. dollars in each of the six months ended March 31, 2003 and 2002. Accordingly, we have not had any
material exposure to foreign currency rate fluctuations. Currently, all of our international distributors denominate all transactions in U.S. dollars. However, as we sell to customers in the United Kingdom and Europe through our recently formed UK
subsidiary a majority of those sales may be denominated in euros or pounds sterling. The functional currency of our new UK subsidiary is pounds sterling. Thus, exchange rate fluctuations between the euro and pounds sterling will be recognized in the
statements of operations as these foreign denominated sales are remeasured by our UK subsidiary. As exchange rate fluctuations occur between pounds sterling and the U.S. dollar, these fluctuations will be recorded as cumulative translation
adjustments within stockholders equity as a component of accumulated other comprehensive income (loss) as our UK subsidiary is translated into U.S. dollars for consolidation purposes.



Item 4.    Controls and Procedures



Our Chief Executive Officer and Chief Financial Officer have reviewed, within 90 days of this filing, the disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-14(c) and 15d-14(c)) that ensure that information relating to the company required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported in a timely and proper manner.
Based upon this review, we believe that there are adequate controls and procedures in place to ensure that information relating to the company that is required to be disclosed by us in the reports that we file or submit under the Exchange Act is
properly disclosed as required by the Exchange Act and related regulations. There have been no significant changes in the controls or other factors that could significantly affect the controls since the evaluation was performed.



PART II. OTHER INFORMATION



Item 1.    Legal Proceedings



We are not currently a party to any material legal proceedings.



Item 2.    Changes in Securities and Use of Proceeds



Our registration statement (Registration No. 333-89724) under the Securities Act of 1933, as amended, for our initial public offering
became effective on November 19, 2002. A total of 2,515,625 shares of common stock were registered, and we sold 1,875,000 shares of our common stock to an underwriting syndicate. Thomas Weisel Partners LLC, SG Cowen Securities Corporation and U.S.
Bancorp Piper Jaffray Inc. were the managing underwriters of the offering. An additional 640,625 shares of common stock were sold on behalf of selling stockholders as part of the same offering. All shares were sold to the public at a price of $15.00
per share. In connection with the offering, we paid approximately $2.0 million in underwriting discounts and commissions to the underwriters. Offering proceeds, net of aggregate costs to us of approximately $1.8 million, were approximately $24.4
million. We intend to use the net proceeds of the offering for working capital and to expand our business generally, including possible acquisitions.



Item 3.    Defaults Upon Senior Securities



Not Applicable.



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Item 4.    Submission of Matter to a Vote of Securities Holders



Not applicable.



Item 5.    Other Information



The audit committee has reviewed the range of services provided by PricewaterhouseCoopers LLP to the Company for both historic and proposed projects. In addition to audit services for the Company and
all wholly owned subsidiaries, PricewaterhouseCoopers LLP is authorized to provide services related to federal and state tax compliance and any transaction services that may be needed in connection with due diligence projects.



Item 6.    Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------



|
|
|
|
|
|
|



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



There were no reports on form 8-K filed during the three month period ended March 31, 2003.



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SIGNATURES



Pursuant
to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.



IMPAC MEDICAL SYSTEMS, INC. RegistrantDated: April 24, 2003/s/    JOSEPH K. JACHINOWSKIJoseph K. Jachinowski Chairman of the Board, President and Chief Executive
Officer/s/    Kendra A. BorregoKendra A. Borrego Chief Financial Officer






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I, Joseph K. Jachinowski, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of IMPAC Medical Systems, Inc.;
|-- |  | ----------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: April 24, 2003



/s/    JOSEPH K. JACHINOWSKIJoseph K. Jachinowski Chief Executive Officer (Principal Executive Officer)






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I, Kendra A. Borrego, certify
that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of IMPAC Medical Systems, Inc.;
|-- |  | ----------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: April 24, 2003



/s/    KENDRA A. BORREGOKendra A. Borrego Chief Financial Officer (Principal Financial Officer)






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