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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q/A

(Amendment No. 1)



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(Mark One)

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



For the quarterly period ended December 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



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IMPAC MEDICAL SYSTEMS, INC.



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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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. ̈Yes    x  No



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    x  Yes ̈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 12 , 2004 |  | 9,878,019



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##### Table of Contents

Explanatory Note



The purpose of this Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q of IMPAC Medical Systems, Inc. (the Company) for the quarter ended
December 31, 2003 is to restate our consolidated financial statements as of and for the three months ended December 31, 2003 and 2002, and related disclosures, including the selected financial data included herein as of and for the three months
ended December 31, 2003 and 2002.



Generally, no attempt has been made in this
Amendment No. 1 to modify or update other disclosures presented in the original report on Form 10-Q except as required to reflect the effects of the restatement. This Form 10-Q/A generally does not reflect events occurring after the filing of the
original Form 10-Q or modify or update those disclosures affected by subsequent events. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-Q on April 19, 2004.
Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-Q, including any amendments to those filings. The following items have
been amended as a result of the restatement:



| | Part I  Item 1  Condensed Consolidated Financial Statements (unaudited);
|- | --------------------------------------------------------------------------



| | Part I  Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations;
|- | --------------------------------------------------------------------------------------------------------



| | Part I  Item 4  Controls and Procedures; and
|- | ----------------------------------------------



| | Part II  Item 6  Exhibits and Reports on Form 8-K.
|- | ----------------------------------------------------



Our Chief Executive Officer and Chief Financial Officer have also reissued their certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act.



We have restated our financial results for the three months ended December 31, 2003 and 2002
to conform certain of our revenue recognition policies to Statement of Position (SOP) 97-2 Software Revenue Recognition and the judgment it requires as to when it can be considered that all elements of a multiple element arrangement have
been delivered (except for those for which there is vendor specific objective evidence of fair value) and revenue for those delivered elements can be recognized. As a result of the restatement, some previously recognized revenues have been shifted
to earlier or later quarters (resulting in a change to previously reported deferred revenue) and others have been reclassified to deferred revenue at December 31, 2003 and will be recognized in periods subsequent to December 31, 2003 in accordance
with SOP 97-2. In addition, certain previously deferred revenues and related deferred costs have been recognized as revenue and expenses in the restatement period. The restatement also gives effect to the recognition of a deferred tax liability
associated with the acquisition of Intellidata, Inc. in April 2002. The restatement does not impact previously reported total cash flows from operations. As a result of the impact of changes in the timing of revenue recognition, net sales increased
(decreased) by $1.0 million and ($208,000) in the three months ended December 31, 2003 and 2002, respectively, with corresponding decreases (increases) in deferred revenue. We also deferred the recognition of the related direct incremental
commission expense and certain direct incremental travel expenses associated with installations at customer sites as well as the federal income tax provision (benefit). Net income increased (decreased) by $720,000 and ($128,000) in the three months
ended December 31, 2003 and 2002, respectively, from the amounts reported in our Form 10-Q filed April 19, 2004.



Additional detail regarding the restatement is included in Note 8 of the Notes to the Condensed Consolidated Financial Statements included in Part I  Item 1 of this
Amendment No. 1 on Form 10-Q/A.



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##### Table of Contents

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION



|           |  |                                                                                                       |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                       |  | Page
|Item 1.    |  | Financial Statements                                                                                  |  | 1   
|           |  |                                                                                                      
|           |  | Condensed Consolidated Balance Sheets as of December 31, 2003 and September 30, 2003                  |  | 1   
|           |  |                                                                                                      
|           |  | Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2003 and 2002 |  | 2   
|           |  |                                                                                                      
|           |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 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                 |  | 11  
|           |  |                                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                            |  | 17  
|           |  |                                                                                                      
|Item 4.    |  | Controls and Procedures                                                                               |  | 17  
|           |  |                                                                                                      
|           |  | 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 Matters to a Vote of Securities Holders                                                 |  | 18  
|           |  |                                                                                                      
|Item 5.    |  | Other Information                                                                                     |  | 18  
|           |  |                                                                                                      
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                      |  | 19  
|           | 
|Signatures |  | 20                                                                                                   



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



The
statements contained in this Form 10-Q/A 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, our inability to recognize revenue from multiple element software contracts where certain elements have been delivered, installed and accepted but other
elements remain undelivered, lost sales or lower sales prices due to competitive pressures, the 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, changes in Medicare reimbursement policies, the integration and performance of acquired businesses, and other factors and risks discussed in the Companys Form 10-K/A filed November 1,
2004 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. Financial Statements



IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                      |  |                       |         |   |                   |   |        |  
|------------------------------------------------------------------------------------- |  | --------------------- | ------- | - | ----------------- | - | ------ | -
|(In thousands)                                                                        |  | December 31, 2003     |         |   | September 30,2003 |  
|                                                                                      |  | Restated (See Note 8) |        
|Assets                                                                                |  |                       |         |  
|Current assets:                                                                       |  |                       |         |   |                   |   |        |  
|Cash and cash equivalents                                                             |  | $                     | 36,220  |   |                   | $ | 57,979 |  
|Available-for-sale securities                                                         |  |                       | 5,575   |   |                   |   | 7,052  |  
|Accounts receivable, net                                                              |  |                       | 15,957  |   |                   |   | 12,100 |  
|Unbilled accounts receivable                                                          |  |                       | 975     |   |                   |   |       |  
|Income tax refund receivable                                                          |  |                       | 339     |   |                   |   | 339    |  
|Inventories                                                                           |  |                       | 69      |   |                   |   | 66     |  
|Deferred income taxes, net                                                            |  |                       | 6,744   |   |                   |   | 6,400  |  
|Prepaid expenses and other current assets                                             |  |                       | 4,824   |   |                   |   | 4,691  |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Total current assets                                                                  |  |                       | 70,703  |   |                   |   | 88,627 |  
|Available-for-sale securities                                                         |  |                       | 3,765   |   |                   |   | 2,719  |  
|Property and equipment, net                                                           |  |                       | 3,820   |   |                   |   | 3,573  |  
|Deferred income taxes                                                                 |  |                       | 862     |   |                   |   | 883    |  
|Goodwill                                                                              |  |                       | 14,333  |   |                   |   | 1,227  |  
|Other intangible assets, net                                                          |  |                       | 9,436   |   |                   |   | 918    |  
|Other assets                                                                          |  |                       | 459     |   |                   |   | 459    |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Total assets                                                                          |  | $                     | 103,378 |   |                   | $ | 98,406 |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Liabilities, Common Stock Subject to Rescission Rights and Stockholders Equity       |  |                       |         |   |                   |   |        |  
|Current liabilities:                                                                  |  |                       |         |   |                   |   |        |  
|Capital lease obligations, current                                                    |  | $                     | 157     |   |                   | $ | 74     |  
|Accounts payable                                                                      |  |                       | 320     |   |                   |   | 864    |  
|Accrued liabilities                                                                   |  |                       | 2,951   |   |                   |   | 4,758  |  
|Income taxes payable                                                                  |  |                       | 2,855   |   |                   |   | 2,353  |  
|Deferred revenue                                                                      |  |                       | 32,126  |   |                   |   | 27,552 |  
|Customer deposits, current                                                            |  |                       | 10,643  |   |                   |   | 10,864 |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Total current liabilities                                                             |  |                       | 49,052  |   |                   |   | 46,465 |  
|Customer deposits, net of current portion                                             |  |                       | 232     |   |                   |   | 232    |  
|Capital lease obligations, net of current portion                                     |  |                       | 21      |   |                   |   | 41     |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Total liabilities                                                                     |  |                       | 49,305  |   |                   |   | 46,738 |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Common stock subject to rescission rights                                             |  |                       |        |   |                   |   | 98     |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Stockholders equity:                                                                 |  |                       |         |   |                   |   |        |  
|Preferred stock                                                                       |  |                       |        |   |                   |   |       |  
|Common stock                                                                          |  |                       | 10      |   |                   |   | 10     |  
|Additional paid-in capital                                                            |  |                       | 48,908  |   |                   |   | 47,792 |  
|Accumulated other comprehensive loss                                                  |  |                       | (33     | ) |                   |   | (16    | )
|Retained earnings                                                                     |  |                       | 5,188   |   |                   |   | 3,784  |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Total stockholders equity                                                            |  |                       | 54,073  |   |                   |   | 51,570 |  
|                                                                                      |  |                       |         |   |                   |   |        |  
|Total liabilities, common stock subject to rescission rights and stockholders equity |  | $                     | 103,378 |   |                   | $ | 98,406 |  
|                                                                                      |  |                       |         |   |                   |   |        |  



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



1



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##### Table of Contents

IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                              |  |                                |        |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                              |  | Three Months EndedDecember 31, |       
|                                                                              |  | 2003                           |        |   | 2002 |  
|(In thousands, except per share amounts)                                      |  | Restated (See Note 8)          |       
|Net sales:                                                                    |  |                                |        |   |      |   |        |  
|Software license and other, net                                               |  | $                              | 9,225  |   |      | $ | 6,568  |  
|Maintenance and services                                                      |  |                                | 6,207  |   |      |   | 4,384  |  
|                                                                              |  |                                |        |   |      |   |        |  
|Total net sales                                                               |  |                                | 15,432 |   |      |   | 10,952 |  
|                                                                              |  |                                |        |   |      |   |        |  
|Cost of sales:                                                                |  |                                |        |   |      |   |        |  
|Software license and other, net                                               |  |                                | 2,991  |   |      |   | 1,985  |  
|Maintenance and services                                                      |  |                                | 2,203  |   |      |   | 1,701  |  
|Amortization of purchased technology                                          |  |                                | 69     |   |      |   | 89     |  
|                                                                              |  |                                |        |   |      |   |        |  
|Total cost of sales                                                           |  |                                | 5,263  |   |      |   | 3,775  |  
|                                                                              |  |                                |        |   |      |   |        |  
|Gross profit                                                                  |  |                                | 10,169 |   |      |   | 7,177  |  
|                                                                              |  |                                |        |   |      |   |        |  
|Operating expenses:                                                           |  |                                |        |   |      |   |        |  
|Research and development                                                      |  |                                | 2,431  |   |      |   | 2,112  |  
|Sales and marketing                                                           |  |                                | 4,052  |   |      |   | 3,165  |  
|General and administrative                                                    |  |                                | 1,128  |   |      |   | 1,111  |  
|Amortization of intangible assets                                             |  |                                | 51     |   |      |   | 13     |  
|Write-off of purchased in-process research and development                    |  |                                | 557    |   |      |   |       |  
|                                                                              |  |                                |        |   |      |   |        |  
|Total operating expenses                                                      |  |                                | 8,219  |   |      |   | 6,423  |  
|                                                                              |  |                                |        |   |      |   |        |  
|Operating income                                                              |  |                                | 1,950  |   |      |   | 776    |  
|Interest expense                                                              |  |                                | (3     | ) |      |   | (6     | )
|Interest and other income                                                     |  |                                | 148    |   |      |   | 83     |  
|                                                                              |  |                                |        |   |      |   |        |  
|Income before provision for income taxes                                      |  |                                | 2,095  |   |      |   | 853    |  
|Provision for income taxes                                                    |  |                                | (691   | ) |      |   | (294   | )
|                                                                              |  |                                |        |   |      |   |        |  
|Net income                                                                    |  |                                | 1,404  |   |      |   | 559    |  
|Accretion of redeemable convertible preferred stock                           |  |                                |       |   |      |   | (2,229 | )
|                                                                              |  |                                |        |   |      |   |        |  
|Net income (loss) available to common stockholders                            |  | $                              | 1,404  |   |      | $ | (1,670 | )
|                                                                              |  |                                |        |   |      |   |        |  
|Net income (loss) per common share:                                           |  |                                |        |   |      |   |        |  
|Basic                                                                         |  | $                              | 0.14   |   |      | $ | (0.22  | )
|                                                                              |  |                                |        |   |      |   |        |  
|Diluted                                                                       |  | $                              | 0.14   |   |      | $ | (0.22  | )
|                                                                              |  |                                |        |   |      |   |        |  
|Weighted-average shares used in computing net income (loss) per common share: |  |                                |        |   |      |   |        |  
|Basic                                                                         |  |                                | 9,758  |   |      |   | 7,469  |  
|                                                                              |  |                                |        |   |      |   |        |  
|Diluted                                                                       |  |                                | 10,240 |   |      |   | 7,469  |  
|                                                                              |  |                                |        |   |      |   |        |  



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



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##### Table of Contents

IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                              |  |                                |         |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------ | -
|                                                                              |  | Three Months EndedDecember 31, |        
|                                                                              |  | 2003                           |         |   | 2002 |  
|(In thousands)                                                                |  | Restated (See Note 8)          |        
|Cash flows from operating activities:                                         |  |                                |         |   |      |   |        |  
|Net income                                                                    |  | $                              | 1,404   |   |      | $ | 559    |  
|Adjustments to reconcile net income to net cash used in operating activities: |  |                                |         |   |      |   |        |  
|Depreciation and amortization of property and equipment                       |  |                                | 438     |   |      |   | 402    |  
|Amortization of intangible assets                                             |  |                                | 120     |   |      |   | 102    |  
|Accretion of available-for-sale securities                                    |  |                                | 34      |   |      |   |       |  
|Deferred income taxes                                                         |  |                                | (343    | ) |      |   | (75    | )
|Provision for doubtful accounts                                               |  |                                | 32      |   |      |   | 30     |  
|Write-off of acquired in-process research and development                     |  |                                | 557     |   |      |   |       |  
|Changes in assets and liabilities, net of effects of acquisitions:            |  |                                |         |   |      |   |        |  
|Accounts receivable                                                           |  |                                | (1,391  | ) |      |   | (2,549 | )
|Inventories                                                                   |  |                                | (3      | ) |      |   | 29     |  
|Prepaid expenses and other current assets                                     |  |                                | (117    | ) |      |   | 614    |  
|Other assets                                                                  |  |                                | 37      |   |      |   | (71    | )
|Customer deposits                                                             |  |                                | (221    | ) |      |   | 214    |  
|Accounts payable                                                              |  |                                | (544    | ) |      |   | (5     | )
|Accrued liabilities                                                           |  |                                | (1,810  | ) |      |   | (1,142 | )
|Income tax payable/refund receivable                                          |  |                                | 503     |   |      |   | (1,130 | )
|Deferred revenue                                                              |  |                                | 965     |   |      |   | 2,112  |  
|                                                                              |  |                                |         |   |      |   |        |  
|Net cash used in operating activities                                         |  |                                | (339    | ) |      |   | (915   | )
|                                                                              |  |                                |         |   |      |   |        |  
|Cash flows from investing activities:                                         |  |                                |         |   |      |   |        |  
|Acquisition of property and equipment                                         |  |                                | (372    | ) |      |   | (565   | )
|Payments for the acquisition of Tamtron and MRS                               |  |                                | (22,430 | ) |      |   |       |  
|Purchases of available-for-sale securities                                    |  |                                | (1,076  | ) |      |   | (7,648 | )
|Proceeds from sales of available-for-sale securities                          |  |                                |        |   |      |   | 46     |  
|Proceeds from maturities of available-for-sale securities                     |  |                                | 1,450   |   |      |   | 7,764  |  
|                                                                              |  |                                |         |   |      |   |        |  
|Net cash used in investing activities                                         |  |                                | (22,428 | ) |      |   | (403   | )
|                                                                              |  |                                |         |   |      |   |        |  
|Cash flows from financing activities:                                         |  |                                |         |   |      |   |        |  
|Principal payments on capital leases                                          |  |                                | (18     | ) |      |   | (15    | )
|Proceeds from the issuance of common stock, net                               |  |                                | 1,019   |   |      |   | 24,477 |  
|                                                                              |  |                                |         |   |      |   |        |  
|Net cash provided by financing activities                                     |  |                                | 1,001   |   |      |   | 24,462 |  
|                                                                              |  |                                |         |   |      |   |        |  
|Effect of exchange rates on cash                                              |  |                                | 7       |   |      |   | (15    | )
|Net increase (decrease) in cash and cash equivalents                          |  |                                | (21,759 | ) |      |   | 23,144 |  
|Cash and cash equivalents at beginning of period                              |  |                                | 57,979  |   |      |   | 23,432 |  
|                                                                              |  |                                |         |   |      |   |        |  
|Cash and cash equivalents at end of period                                    |  | $                              | 36,220  |   |      | $ | 46,561 |  
|                                                                              |  |                                |         |   |      |   |        |  



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



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##### Table of Contents

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 accounting principles generally accepted in the United States of America 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 month period ended December 31, 2003
are not necessarily indicative of the results that may be expected for the year ending September 30, 2004, or for any future period.



The Companys management restated its consolidated financial statements as of and for the fiscal years ended September 30, 2003, 2002, 2001 and 2000, including the
quarters ended December 31, 2003 and 2002, to shift some previously recognized revenues to later quarters or to defer recorded revenues and recognize them in periods subsequent to September 30, 2003. The balance sheet at September 30, 2003 has been
derived from the audited consolidated financial statements, as restated, 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 in conjunction with the financial statements and notes thereto for the year ended September 30, 2003 included in the Companys Annual Report on Form 10-K/A filed November 1, 2004.



NOTE 2Public Offerings



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 $24,300,000, 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. The Company did not receive any proceeds from the sale of shares by the selling stockholders or the exercise of the
over-allotment option.



Secondary Offering



On May 12, 2003, the Company completed a secondary offering in which it sold 200,000
shares of common stock at $19.00 per share for net cash proceeds of approximately $3,200,000, net of underwriting discounts, commissions and other offering costs. In addition to the shares sold by the Company, 2,178,223 shares were sold by selling
stockholders on the date of the offering and 356,733 shares were sold by selling stockholders in the exercise of the underwriters over-allotment option during May 2003. The Company did not receive any proceeds from the sale of shares by the
selling stockholders or from the exercise of the over-allotment option.



NOTE 3Significant Accounting Policies



The
Companys significant accounting policies are disclosed in the Companys Form 10-K/A filed on November 1, 2004 for the year ended September 30, 2003. With the exception of the new significant accounting policy for revenue recognition for
pathology information management systems set forth below, the Companys significant accounting policies have not materially changed as of December 31, 2003.



Inventories



Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. As of December 31, 2003 and September 30, 2003 inventory is 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 are 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 workforce amortization was recognized during the three months ended December 31, 2002 and 2003. The annual goodwill impairment test was
completed during the first quarter of fiscal 2004, and did not result in any impairment of recorded goodwill.



Redeemable convertible preferred stock



Upon the closing of the Companys initial public offering, all outstanding shares of redeemable convertible preferred stock automatically converted into shares of
common stock. Prior to the conversion, 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 and were carried out through the initial public offering closing date. Because the redeemable convertible preferred stock automatically converted into common
stock upon the closing of the initial public offering, the non-cash accretion charges are no longer required and will not be applied in future quarters.



Revenue recognition



The Companys revenue is derived primarily from two sources: (i) software license revenue, from sales to distributors and end users, and (ii) maintenance and
services revenue from providing software support, education and consulting services to end users. The Company typically requires deposits upon the receipt of a signed purchase and license agreement, which are classified as customer deposit
liabilities on the Companys consolidated balance sheet.



The Company
accounts for sales of software and maintenance revenue under the provisions of Statement of Position 97-2, (SOP 97-2), Software Revenue Recognition, as amended. SOP 97-2 requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on vendor-specific objective evidence (VSOE) of the fair value of the delivered and/or undelivered elements. For hardware transactions where no software is involved, the
Company applies the provisions of Staff Accounting Bulletin 104 Revenue Recognition.



4



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##### Table of Contents

The fee for multiple element arrangements is allocated to each element of the arrangement, such as maintenance and
support services, based on the relative fair values of the elements. The Company determines the fair value of each element in multiple element arrangements based on VSOE for each element, which is based on the price charged when the same element is
sold separately. If VSOE of the fair value of all undelivered elements exists but VSOE of the fair value does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair
value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. If VSOE of the fair value does not exist for all undelivered elements, revenue is deferred until VSOE of fair value exists for
all undelivered elements, the elements for which VSOE of fair value does not exist have been delivered or the elements for which VSOE of fair value does not exist (a) have been deleted from the contract or (b) there is available competent evidence
that allows for the reasonable judgment that it is remote that the customer will request delivery.



The Company recognizes revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been accepted, the fee is fixed or determinable, and collection of the resulting
receivable is probable. Acceptance generally occurs after the product has been installed, training has occurred and the product is in clinical use at the customer site. For distributor related transactions, acceptance occurs with delivery of
software registration keys to the distributors order fulfillment department.



The first year of maintenance and support, which includes updates and support, for the Companys software products is included in the purchase price. Upon revenue recognition, the Company defers 12% of the list price, which is the
renewal rate, and recognizes that portion over the remaining term of the included maintenance and support period. Fair value of services, such as training or consulting, is based upon separate sales by the Company of these services to other
customers. Payments received for maintenance and services are deferred and recognized as revenue ratably over the service term. Training and consulting services are billed based on hourly rates, and are generally recognized as revenue as these
services are performed. Amounts deferred for installed and accepted software products under multiple element arrangements where VSOE of the fair value for all undelivered elements does not exist, maintenance services and term software license
agreements comprise the main components of deferred revenue.



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 the
Company invoices the customer for subsequent annual fees 60 days before the anniversary date of the signed agreement. The Company recognizes revenue for the annual fees under these term license agreements ratably over the applicable twelve-month
period. The annual fee includes maintenance and support.



The Company
recognizes revenue from third-party products and related configuration and installation services sold with its licensed software upon acceptance by the customer. The Company recognizes revenue from third-party products sold separately from its
licensed software upon delivery.



In December 2003, the Company added a
pathology information management system to its suite of product offerings with the acquisition of certain assets of Tamtron Corporation from IMPATH Inc. (see Note 6). Pathology information management systems involve significant implementation and
customization efforts essential to the functionality of the related products. Accordingly, the Company recognizes the license and professional consulting services generated through the sale of pathology management information systems using the
percentage-of-completion method using labor hours incurred as prescribed by SOP No. 81-1, Accounting for Performance of Construction-Type and Certain Product-Type Contracts. The progress toward completion is measured based on labor hours
incurred as compared to total estimated hours to complete. The Company accounts for a change in estimate in the period the change was identified. Provisions for estimated contract losses are recognized in the period in which the loss becomes
probable and can be reasonably estimated.



The Company has also entered into an
application service provider agreement whereby the Company provides all software, equipment and support during the term of the agreement. Revenues are recognized ratably over the term of the agreement, generally 60 months. Under the terms of these
agreements, the customers must pay for the final two months of the term up front. These deposits are classified as long-term customer deposit liabilities on the Companys consolidated balance sheet.



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 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 to common stockholders as reported during the three months ended December 31, 2003 and 2002.



5



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##### Table of Contents

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 income (loss) available to common stockholders and pro forma net income (loss) per common share, basic and diluted, would have been as follows (in
thousands, except per share data):



|                                                                                     |  |                                |       |   |      |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ----- | - | ---- | - | ------ | -
|                                                                                     |  | Three Months EndedDecember 31, |      
|                                                                                     |  | 2003                           |       |   | 2002 |  
|                                                                                     |  | Restated (See Note 8)          |      
|Net income (loss) available to common stockholders as reported                       |  | $                              | 1,404 |   |      | $ | (1,670 | )
|Deduct: Stock-based employee compensation determined under a fair value based method |  |                                | (274  | ) |      |   | (67    | )
|                                                                                     |  |                                |       |   |      |   |        |  
|Pro forma net income (loss) available to common stockholders                         |  | $                              | 1,130 |   |      | $ | (1,737 | )
|                                                                                     |  |                                |       |   |      |   |        |  
|Net income (loss) per common share, basic                                            |  |                                |       |   |      |   |        |  
|As reported                                                                          |  | $                              | 0.14  |   |      | $ | (0.22  | )
|                                                                                     |  |                                |       |   |      |   |        |  
|Pro forma                                                                            |  | $                              | 0.12  |   |      | $ | (0.23  | )
|                                                                                     |  |                                |       |   |      |   |        |  
|Net income (loss) per common share, diluted                                          |  |                                |       |   |      |   |        |  
|As reported                                                                          |  | $                              | 0.14  |   |      | $ | (0.22  | )
|                                                                                     |  |                                |       |   |      |   |        |  
|Pro forma                                                                            |  | $                              | 0.11  |   |      | $ | (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. No options were granted during the three months ended December
31, 2003 and 2002.



Other comprehensive income



Comprehensive income 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 income that were excluded from the net income. Total comprehensive income for the three months ended December 31, 2003 and 2002, is presented in the following table (in thousands):



|                                               |  |                               |       |   |      |   |     |  
|---------------------------------------------- |  | ----------------------------- | ----- | - | ---- | - | --- | -
|                                               |  | Three MonthsEnded December31, |      
|                                               |  | 2003                          |       |   | 2002 |  
|                                               |  | Restated (See Note 8)         |      
|Net income                                     |  | $                             | 1,404 |   |      | $ | 559 |  
|Other comprehensive income (loss):             |  |                               |       |   |      |   |     |  
|Change in unrealized gain (loss) on securities |  |                               | (25   | ) |      |   | 5   |  
|Foreign currency translation adjustments       |  |                               | 8     |   |      |   | (6  | )
|                                               |  |                               |       |   |      |   |     |  
|Comprehensive income                           |  | $                             | 1,387 |   |      | $ | 558 |  
|                                               |  |                               |       |   |      |   |     |  



6



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##### Table of Contents

Net income (loss) per common share



Basic net income (loss) per common share is computed by dividing net income (loss) available to 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 to purchase common stock.



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



|                                                                                     |  |                                |        |      |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ------ | ---- | - | ------ | -
|                                                                                     |  | Three Months EndedDecember 31, |       
|                                                                                     |  | 2003                           |        | 2002 |  
|                                                                                     |  | Restated (See Note 8)          |       
|Numerator                                                                            |  |                                |        |      |   |        |  
|Net income                                                                           |  | $                              | 1,404  |      | $ | 559    |  
|Accretion of redeemable convertible preferred stock                                  |  |                                |       |      |   | (2,229 | )
|                                                                                     |  |                                |        |      |   |        |  
|Net income (loss) available to common stockholders                                   |  | $                              | 1,404  |      | $ | (1,670 | )
|                                                                                     |  |                                |        |      |   |        |  
|Denominator                                                                          |  |                                |        |      |   |        |  
|Weighted-average shares used in computing basic net income (loss) per common share   |  |                                | 9,758  |      |   | 7,469  |  
|Dilutive effect of options to purchase shares                                        |  |                                | 482    |      |   |       |  
|                                                                                     |  |                                |        |      |   |        |  
|Weighted-average shares used in computing diluted net income (loss) per common share |  |                                | 10,240 |      |   | 7,469  |  
|                                                                                     |  |                                |        |      |   |        |  



At December 31, 2003 and 2002, options
to purchase 90,000 and 626,000 shares of common stock, respectively, were excluded from the computation of diluted net loss per share as their effect is antidilutive.



Recent accounting pronouncements



In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB 51, which subsequently has been revised by FIN 46-R. The primary objectives of FIN 46-R are to provide guidance on the identification of entities for which control is achieved through means other than through
voting rights (variable interest entities or VIEs) and how to determine when and which business enterprise should consolidate the VIE (the primary beneficiary). This new model for consolidation applies to an entity in which either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entitys activities without receiving additional subordinated financial support from other parties. In
addition, FIN 46-R requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46-R is effective for VIEs created after January 31, 2003 and is effective for all
VIEs created before February 1, 2003 that are Special Purpose Entities (SPEs) in the first reporting period ending after December 15, 2003 and for all other VIEs created before February 1, 2003 in the first reporting period ending after March 15,
2004. The Company believes there are no entities qualifying as VIEs and the adoption of FIN 46-R to date has not had any effect on the Companys financial position, cash flows or results of operations.



In May 2003, the EITF reached a consensus on EITF Issue No. 03-05, Applicability of
AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in Arrangements Containing More-Than-Incidental Software. EITF No. 03-05 addresses the applicability of Statement of Position No. 97-2 regarding
software and non-software deliverables in a multiple element arrangement, giving consideration to whether the deliverables are essential to the functionality of one another and whether the whole arrangement falls within SOP 97-2 as a result. EITF
Issue No. 03-05 is effective for interim periods beginning after August 13, 2003. The adoption of EITF Issue No. 03-05 is not expected to have a material impact on the Companys financial position and results of operations.



NOTE 4Commitments



Facilities



In addition to facility leases listed in our Form 10-K/A filed on November 1, 2004, on December 23, 2003, the Company acquired certain assets and assumed certain
liabilities of Tamtron Corporation and Medical Registry Services, Inc. (see Note 6). In connection with this asset purchase, the Company assumed lease agreements for facilities in San Jose, California and Hackensack, New Jersey from December 23,
2003 forward. The leases expire in March 2004 and July 2005, respectively. Total minimum future payments, payable in monthly installments, due under the lease agreements as assumed amounted to $212,653. Total minimum future operating and facility
lease payments, inclusive of amounts assumed in the Tamtron/MRS Acquisition payable in monthly installments, amounted to $8.6 million as of December 31, 2003.



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 was not accompanied by a preliminary prospectus and may have constituted a prospectus that did not meet the
requirements of the Securities Act of 1933. 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 had 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. For one year following the initial public offering, the Company classified a total of
6,500 shares issued with rescission rights outside of stockholders equity, as the redemption features were not within the control of the Company. Any possible rescission rights would have lapsed in November 2003, and the 6,500 shares were
reclassified to stockholders equity.



NOTE 6Acquisitions



On December 23, 2003, the Company completed the acquisition of certain
assets and certain liabilities of Tamtron Corporation (Tamtron) and Medical Registry Services, Inc. (MRS), the PowerPath®pathology information management and cancer registry information system businesses of IMPATH Inc. for total cash consideration of $22.0 million and approximately $430,000 of acquisition costs. The
acquisitions were made pursuant to an asset purchase agreement, dated November 24, 2003, by and among Tamtron, MRS and the Company. The Company intends to continue to operate each of the acquired businesses.



7



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##### Table of Contents

The acquisition of assets and liabilities of Tamtron and MRS was accounted for in accordance with SFAS No. 141
Business Combinations using the purchase method of accounting and, accordingly, the results of operations of Tamtron and MRS were included in the Companys consolidated financial statements subsequent to December 23, 2003. The
purchase price was allocated to the net tangible and identifiable intangible assets acquired and the liabilities assumed based on their estimated fair values at the date of acquisition as determined by an independent appraisal and management. The
excess of the purchase price over the fair value of the net identifiable assets was allocated to goodwill. The purchase price was allocated as follows (in thousands):



|                                    |  |   |        |  
|----------------------------------- |  | - | ------ | -
|Tangible assets                     |  | $ | 3,839  |  
|Deferred revenue                    |  |   | (3,609 | )
|Other assumed liabilities           |  |   | (101   | )
|Developed/core technology           |  |   | 5,138  |  
|Customer base                       |  |   | 3,032  |  
|Trade name                          |  |   | 469    |  
|In-process research and development |  |   | 557    |  
|Goodwill                            |  |   | 13,105 |  
|                                    |  |   |        |  
|                                    |  | $ | 22,430 |  
|                                    |  |   |        |  



The Company is amortizing
developed/core technology, the customer base and tradename on a straight line basis over two to five years, five to seven years and two to six years, respectively. In accordance with SFAS No. 142, no amortization has been recorded on the goodwill.
As a result of these acquisitions, the Company expects to recognize amortization expense of $1.5 million during the remainder of fiscal year 2004. The Company expects to recognize amortization expense of $2.0 million, $1.6 million, $1.4 million,
$1.4 million and $638,000 during fiscal years 2005, 2006, 2007, 2008 and thereafter, respectively.



The fair value of the identifiable assets, including the portion of the purchase price attributed to the developed/core technology, acquired in-process research and development, the customer base and the trade name
was determined by an independent appraisal and management. The income approach was used to value developed/core technology, acquired in-process research and development, the customer base and the trade name, which includes an analysis of the
completion costs, cash flows, other required assets and risk associated with achieving such cash flows. Gross margins were estimated to be stable and operating expense ratios were estimated to slightly improve over the years. The present value of
the cash flows for MRS was calculated with a discount rate of 15% for the developed/core technology, customer base and trade name, and 20% for the in-process research and development. The present value of the cash flows for Tamtron was calculated
with a discount rate of 15% for the developed/core technology and customer base, 17.5% for the trade name and 20% for the in-process research and development.



The in-process research and development projects relate primarily to the development of additional modules to the pathology information system and additional features
for the registry system and are expected to be completed over the next twelve months. The purchased in-process technology was not considered to have reached technological feasibility and it has no alternative future use. Accordingly, it was recorded
as a component of operating expense. The revenues, expenses, cash flows and other assumptions underlying the estimated fair value of the acquired in-process research and development involve significant risks and uncertainties. The risks and
uncertainties associated with completing the acquired in-process projects include retaining key personnel and being able to successfully and profitably produce, market and sell related products. The Company does not know of any developments which
would lead it to significantly change its original estimate of the expected timing and commercial viability of these projects.



Goodwill of approximately $13.1 million represented the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.
The Company believes that its existing registry product offering along with the assets of MRS positions it as a leader in the market for data aggregation of cancer care information. The Company also believes that the addition of assets from Tamtron
in the area of pathology information systems creates a more relevant and comprehensive product offering to its customers. The combination of both acquisitions allows the Company to better achieve its goal to provide a total solution that manages the
complexity of cancer care throughout the spectrum of detection, diagnosis, treatment and follow-up.



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##### Table of Contents

Pro Forma Financial Information



The following pro forma financial information is based on the respective historical
financial statements of the Company, Tamtron and MRS. The pro forma financial information reflects the consolidated results of operations as if the acquisitions of Tamtron and MRS occurred at the beginning of each of the periods presented and
includes the amortization of the identifiable intangible assets. The pro forma data excludes non-recurring charges, such as in-process research and development of approximately $557,000 in the quarter ended December 31, 2003. The pro forma financial
data presented is not necessarily indicative of the Companys results of operations that might have occurred had the transaction been completed at the beginning of the periods presented, and do not purport to represent what the Companys
consolidated results of operations might be for any future period (in thousands, except per share data).



|                                                                              |  |                                |        |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------ | -
|                                                                              |  | Three Months EndedDecember 31, |       
|                                                                              |  | 2003                           |        | 2002 |  
|                                                                              |  | (unaudited)                    |       
|Net sales                                                                     |  | $                              | 18,247 |      | $ | 13,397 |  
|Net income (loss) available to common stockholders                            |  | $                              | 2,058  |      | $ | (1,952 | )
|Net income (loss) per common share:                                           |  |                                |        |      |   |        |  
|Basic                                                                         |  | $                              | 0.21   |      | $ | (0.26  | )
|Diluted                                                                       |  | $                              | 0.20   |      | $ | (0.26  | )
|Weighted-average shares used in computing net income (loss) per common share: |  |                                |        |      |   |        |  
|Basic                                                                         |  |                                | 9,758  |      |   | 7,469  |  
|Diluted                                                                       |  |                                | 10,240 |      |   | 7,469  |  



NOTE 7Subsequent Events



In January 2004, the Company established a wholly-owned subsidiary in
Australia, IMPAC Medical Systems Pty Ltd.



In March 2004, the Company entered
into a lease agreement to lease new office space in San Jose, California. The lease expires March 31, 2007. Future minimum payments under the lease amount to $503,593, payable in equal monthly installments.



NOTE 8  Restatement of Financial Statements



April 2004 Restatement



The Company adopted SOP 97-2 which became effective for the Company in October 1999 for the
purposes of revenue recognition. Subsequent to filing the Form 10-K for the fiscal year ended September 30, 2003, management determined that the Company had recognized revenue for certain transactions prematurely. Accordingly, in April 2004, the
Company restated its financial statements for the fiscal years ended September 30, 2000, 2001, 2002 and 2003 to shift some previously recognized revenues to later quarters and to defer other previously recorded revenues to periods subsequent to
September 30, 2003.



The accounting issues that gave rise to the initial
restatement in April 2004 fell into three categories. First, the Company recognized revenue from certain multiple element software contracts once individual elements had been installed, accepted and were in clinical use at the customer site. The
Company has now determined that the Company did not have VSOE of the fair value of the undelivered elements. Accordingly, the Company should have deferred the recognition of revenue on those contracts until it had VSOE of the fair value for all the
undelivered elements, the elements for which VSOE of the fair value did not exist had subsequently been delivered or the elements for which VSOE of fair value did not exist had been formally or constructively canceled. Instances where contracts were
deemed to have been constructively canceled were limited to instances where more than a year had lapsed since the last software product was accepted.



Second, the Company recognized revenue as of the date of first clinical use, unless a customer objected in writing within five business days after first clinical use. The
Company has now determined that formal acceptance could not have occurred without the passage of five days, and, hence, the Company must adjust the date of revenue recognition of delivered and accepted products forward five business days from the
date of first clinical use.



Third, the Company recognized revenue for
maintenance and support of perpetually licensed software products during the first year by deferring 12% of the purchase price and recognizing this amount over the 12 months following the customers acceptance. The Company has now determined
that the Company should have deferred 12% of the current list price rather than purchase price.



October 2004 Restatement



The accounting issue that gave rise to the second restatement, in October 2004, related to the timing of revenues recognized on sales agreements which management
determined had been constructively cancelled with respect to the undelivered software products. In our April 2004 restatement, the Company applied the concept of constructive cancellation to approximately 40 sales agreements where management
determined that the probability of delivering the remaining undelivered element(s) was remote and the undelivered element(s) was not critical to the operation of the delivered elements.



During our initial restatement, management used hindsight and considered the passage of time since the last delivered software product had
been accepted as evidence that it was remote that the customer would request delivery of the remaining software products included in the arrangement. If more than one year had lapsed since the last software product was accepted, management deemed
the undelivered elements to have been constructively canceled as of the date the last element was delivered. In those instances, the Company shifted the revenues to the acceptance date of the last products delivered under the applicable sales
agreement.



Subsequent to the Companys April 2004 restatement, management
determined that it should not have used hindsight and should have instead recognized the revenue related to the previously delivered elements during the period when management determined, based upon then available evidence, that it was remote that
the customer would request delivery of the remaining undelivered software products. As a result, the Company had to shift revenue related to arrangements with constructively canceled undelivered elements to the date when sufficient competent
evidence of the constructive cancellation was obtained for the periods prior to and including December 31, 2003, or will be obtained in future periods.



The restatement also gives effect to the recognition of a deferred tax liability associated with the acquisition of Intellidata, Inc. in April 2002. A deferred tax
liability should have been created at the time of the acquisition to account for the differences in the amortization periods of related intangible assets for book and tax purposes. The recognition of the additional deferred tax liability of
approximately $573,000 in April 2002 caused a corresponding increase to goodwill.



9



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##### Table of Contents

As a result of the impact of changes in the timing of revenue recognition, net sales increased (decreased) by $1.0
million and ($208,000) in the three months ended December 31, 2003 and 2002, respectively, with a corresponding decrease (increase) in deferred revenue. The Company also deferred the recognition of the related direct incremental commission expense
and certain direct incremental travel expenses associated with revenue now being deferred until the related revenue is recognized and considered the deferred revenue in the determination of its allowance for doubtful accounts. The Company also
revised its provision for income taxes for the effect of these matters.



As a
result, the accompanying condensed consolidated financial statements have been restated from the amounts previously reported for the three months ended December 31, 2003 and 2002. The amounts under the headings As Reported reflect the
originally reported results and our originally reported results as amended by the first restatement in April 2004, respectively. The amounts under the headings Restated reflect the Companys restated results after this restatement.
A summary of the significant effects of the restatement is as follows:



|                                                   |  |                                      |        |          |   |             |  |   |          |   |  |   |        |  
|-------------------------------------------------- |  | ------------------------------------ | ------ | -------- | - | ----------- |  | - | -------- | - |  | - | ------ | -
|                                                   |  | Three Months Ended December 31,      |       
|                                                   |  | 2003                                 |        | 2002     |  
|                                                   |  | As Reported                          |        | Restated |   | As Reported |  |   | Restated |  
|                                                   |  | (in thousands except per share data) |       
|Consolidated Statements of Operations Data:        |  |                                      |        |          |   |             |  |   |          |   |  |   |        |  
|Net sales                                          |  | $                                    | 14,391 |          | $ | 15,432      |  | $ | 11,160   |   |  | $ | 10,952 |  
|Gross profit                                       |  |                                      | 9,258  |          |   | 10,169      |  |   | 7,465    |   |  |   | 7,177  |  
|Operating income                                   |  |                                      | 907    |          |   | 1,950       |  |   | 979      |   |  |   | 776    |  
|Net income                                         |  |                                      | 684    |          |   | 1,404       |  |   | 687      |   |  |   | 559    |  
|Net income (loss) available to common stockholders |  |                                      | 684    |          |   | 1,404       |  |   | (1,542   | ) |  |   | (1,670 | )
|Net income (loss) per common share::               |  |                                      |        |          |   |             |  |   |          |   |  |   |        |  
|Basic                                              |  | $                                    | 0.07   |          | $ | 0.14        |  | $ | (0.21    | ) |  | $ | (0.22  | )
|                                                   |  |                                      |        |          |   |             |  |   |          |   |  |   |        |  
|Diluted                                            |  | $                                    | 0.07   |          | $ | 0.14        |  | $ | (0.21    | ) |  | $ | (0.22  | )
|                                                   |  |                                      |        |          |   |             |  |   |          |   |  |   |        |  



|                                          |  |                         |        |                          |   |             |  |          |        |  |   |       
|----------------------------------------- |  | ----------------------- | ------ | ------------------------ | - | ----------- |  | -------- | ------ |  | - | ------
|                                          |  | As of December 31, 2003 |        | As of September 30, 2003
|                                          |  | As Reported             |        | Restated                 |   | As Reported |  | Restated
|                                          |  | (in thousands)         
|Consolidated Balance Sheets Data:         |  |                         |        |                          |   |             |  |          |        |  |   |       
|Prepaid expenses and other current assets |  | $                       | 4,905  |                          | $ | 4,824       |  | $        | 4,667  |  | $ | 4,691 
|Deferred income tax assets, net           |  |                         | 8,082  |                          |   | 7,606       |  |          | 7,471  |  |   | 7,283 
|Goodwill                                  |  |                         | 13,760 |                          |   | 14,333      |  |          | 654    |  |   | 1,227 
|Deferred revenue                          |  |                         | 32,694 |                          |   | 32,126      |  |          | 27,079 |  |   | 27,552
|Retained earnings                         |  |                         | 4,496  |                          |   | 5,188       |  |          | 3,812  |  |   | 3,784 



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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 Form 10-K/A for the fiscal
year ended September 30, 2003, filed November 1, 2004. 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/A.



The Managements Discussion and Analysis of Financial Condition and Results of
Operations presented below reflects the effects of the restatement of our condensed consolidated balance sheet as of December 31, 2003 and the condensed consolidated statements of operations and statements of cash flows for the three months ended
December 31, 2002 and 2003. See Note 8 to the condensed consolidated financial statements for further discussion of this matter.



Overview



We provide information technology systems for cancer care. Our systems provide electronic medical record, imaging, decision support, scheduling, laboratory management 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 our primary distributor, Siemens Medical Systems, Inc., represented 7.1% of our total net sales in the three months
ended December 31, 2003 and 10.5% for the same period in 2002. 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 2.1% of our net sales in the three months ended December 31, 2003 and 7.2% of our net sales for the same period in 2002.
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
software 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. In addition to the core system, approximately one third of our customers purchase additional product
modules along with the core system that they intend to implement over a period of time beyond the typical implementation cycle of three to nine months.



We have experienced significant variations in revenues and operating results from quarter to quarter. Our quarterly operating results may continue to fluctuate due to a
number of factors, including: the timing, size and complexity of our product sales and implementations; our inability to recognize revenue from multiple element software contracts where certain elements have been delivered, installed and accepted
but other elements remain undelivered; construction delays at client centers which impact our ability to install products; the timing of installation of third party medical devices, including accelerators, simulation machines and imaging devices, at
client sites, which must be installed before we can implement our systems; overall demand for healthcare information technology; and other factors discussed in the Managements Discussion and Analysis of Financial Condition and Results of
OperationsRisk Factors section of our Annual Report on Form 10-K/A for the year ended September 30, 2003.



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 on the condensed
consolidated balance sheet until products are delivered and accepted 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 consolidated 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.



For
direct software sales licensed on a perpetual basis, we include one year of maintenance and support as part of the purchase price. 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.



Our sales arrangements
with customers frequently cover multiple products and services. Our revenue is subject to SOP 97-2, as further discussed in Note 3 to our consolidated financial statements. In approximately two-thirds of our arrangements, our customers request
delivery and installation of our software products in one phase, and we generally can recognize revenue when the software products have been installed and accepted by our customers. In the balance of our arrangements, our customers request that
delivery and installation of our software products be delivered in multiple phases. Such multiple phased installations may be requested, for example, when the customer has not installed medical devices with which our software will interact. In those
instances, revenue for the entire arrangement generally cannot be recognized until the last software product is installed and accepted. In a few instances, the customer may never request delivery of all the software products included in the
arrangement. In those instances, revenue from the arrangement is recognized at the time we make the judgment, based on sufficient competent evidence, that it is remote that the customer will request delivery of the remaining undelivered software
products, i.e., when they have been constructively canceled.



We recognize
revenue once software products outlined in the related purchase and license agreement have been installed, accepted and in clinical use at the customer site. When a customer accepts only a subset of the products outlined in a multiple element
purchase and license agreement and we have not established vendor specific objective evidence, or VSOE, of the fair value of the undelivered elements, we invoice the customer for the accepted products and record the transaction as deferred software
license revenue. We recognize the deferred revenue when all elements in a multiple element arrangement are accepted, VSOE of the fair value is established on the remaining undelivered elements, or the undelivered elements for which VSOE of the fair
value does not exist have been formally or constructively canceled, whichever occurs first. We recognize revenue on sales arrangements with undelivered products that have been constructively canceled at the date when we have sufficient competent
evidence of that cancellation.



The first year of maintenance and support for
our software products is included in the purchase price. Upon revenue recognition, we defer 12% of the list price, which is



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the renewal rate, and recognize that portion over the remaining term of the included maintenance and support period. For
example, if revenue recognition occurs four months subsequent to product acceptance, we would recognize one third of the 12% maintenance and support deferral as revenue and recognize the remaining two thirds of the deferral over the following eight
months. In situations where the first phase of software products are installed greater than one year prior to our ability to recognize the related revenue, it is not necessary to defer 12% of the list price and recognize that portion over the
included maintenance and support period as the first year maintenance and support obligation is no longer applicable. In these cases, 12% of the license purchase price is classified as maintenance and services revenue at the time of revenue
recognition.



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. As a percentage of total net sales, third-party product
revenues remained fairly constant, representing 4.3% of our total net sales in the three months ended December 31, 2003 and 4.4% for the same period in 2002.



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 allows the distributor to deploy the software to the end user and satisfy our regulatory information tracking requirements. We provide maintenance and support to our distributor. The cost of the first years support is included in
the fee. Renewal support is purchased for 5% of the transfer price for software licenses sold to their customers. We defer the distributors first year post-contract support, based on the renewal rate, and recognize that portion of the revenue
ratably over the support period. We invoice maintenance and support annually at the beginning of each fiscal year and recognize revenue ratably over the applicable twelve-month period.



In December 2003, we added a pathology information management system to our suite of product offerings with the acquisition of certain
assets of Tamtron Corporation from IMPATH Inc. (see Note 6 to the condensed consolidated financial statements). Pathology information management systems involve significant implementation and customization efforts essential to the functionality of
the related products. Accordingly, we recognize the license and professional consulting services generated through the sale of pathology management information systems using the percentage-of-completion method using labor hours incurred as
prescribed by SOP No. 81-1, Accounting for Performance of Construction-Type and Certain Product-Type Contracts. The progress toward completion is measured based on labor hours incurred as compared to total estimated hours to complete. We
account for a change in estimate in the period the change was identified. Provisions for estimated contract losses are recognized in the period in which the loss becomes probable and can be reasonably estimated.



Costs and Expenses



A large part of our company cost structure is driven by the number of employees and 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;
| | - | -----------------------------------------------------------------------------------------



| |  | overhead attributed to our client services personnel; and
| | - | ---------------------------------------------------------



| |  | amortization of purchased technology.
| | - | -------------------------------------



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. In transactions where we are required to defer the recognition of software license revenue, the
associated incremental direct travel expenses are recorded as a prepaid expense until the associated revenue is recognized. 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.



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
| | - | ------------------------------------------------------------------------------------------------------------------



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| |  | 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. In transactions where we are required to defer the recognition of
software license revenue, the associated incremental direct commission expense is recorded as a prepaid expense until the associated revenue is recognized.



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. We expect that
our general and administrative expenses will increase as a public company.



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 six 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.



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, decreased the amount of net income (loss) available to common stockholders. After the initial public offering, no further accretion is
required. The redemption value of the redeemable convertible preferred stock was $16.8 million at the time of the initial public offering. This amount was reallocated on our balance sheet from redeemable convertible preferred stock to common stock
and additional paid-in capital, less the stated par value.



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Results of Operations



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



|                                                |  |                                                                           |   |  |       |  
|----------------------------------------------- |  | ------------------------------------------------------------------------- | - |  | ----- | -
|                                                |  | Three Months EndedDecember 31,                                            |  
|                                                |  | 2003                                                                      |   |  | 2002  |  
|                                                |  | (Restated) (See Note 8 to our condensedconsolidated financial statements) |  
|Sales:                                          |  |                                                                           |   |  |       |  
|Software license and other, net                 |  | 59.8                                                                      | % |  | 60.0  | %
|Maintenance and services                        |  | 40.2                                                                      |   |  | 40.0  |  
|                                                |  |                                                                           |   |  |       |  
|Total net sales                                 |  | 100.0                                                                     |   |  | 100.0 |  
|                                                |  |                                                                           |   |  |       |  
|Cost of sales:                                  |  |                                                                           |   |  |       |  
|Software license and other, net                 |  | 19.4                                                                      |   |  | 18.1  |  
|Maintenance and services                        |  | 14.3                                                                      |   |  | 15.5  |  
|Amortization of purchased technology            |  | 0.4                                                                       |   |  | 0.9   |  
|                                                |  |                                                                           |   |  |       |  
|Total cost of sales                             |  | 34.1                                                                      |   |  | 34.5  |  
|                                                |  |                                                                           |   |  |       |  
|Gross profit                                    |  | 65.9                                                                      |   |  | 65.5  |  
|                                                |  |                                                                           |   |  |       |  
|Operating expenses:                             |  |                                                                           |   |  |       |  
|Research and development                        |  | 15.8                                                                      |   |  | 19.3  |  
|Sales and marketing                             |  | 26.3                                                                      |   |  | 28.9  |  
|General and administrative                      |  | 7.3                                                                       |   |  | 10.1  |  
|Amortization of intangible assets               |  | 0.3                                                                       |   |  | 0.1   |  
|Write-off of purchased research and development |  | 3.6                                                                       |   |  |      |  
|                                                |  |                                                                           |   |  |       |  
|Total operating expenses                        |  | 53.5                                                                      |   |  | 58.4  |  
|                                                |  |                                                                           |   |  |       |  
|Operating income                                |  | 12.6                                                                      |   |  | 7.1   |  
|Interest and other income, net                  |  | 1.0                                                                       |   |  | 0.7   |  
|                                                |  |                                                                           |   |  |       |  
|Income before provision for income taxes        |  | 13.6                                                                      |   |  | 7.8   |  
|Provision for income taxes                      |  | (4.5                                                                      | ) |  | (2.7  | )
|                                                |  |                                                                           |   |  |       |  
|Net income                                      |  | 9.1                                                                       | % |  | 5.1   | %
|                                                |  |                                                                           |   |  |       |  



Three Months Ended December 31,
2003 Compared with Three Months Ended December 31, 2002



Net Sales.
Net sales increased 40.9% to $15.4 million in the three months ended December 31, 2003 from $11.0 million for the same period in 2002. Net software related sales increased 40.5% to $9.2 million in the three months ended December 31, 2003 from $6.6
million for the same period in 2002. Sales of new products to new customers in oncology accounted for $1.2 million of the $2.7 million increase, new products to existing customers in oncology accounted for $966,000, sales of imaging products
accounted for $411,000, and net sales from laboratory, urology and registry in the three months ended December 31, 2003 accounted for the remaining portion, of which $78,000 was related to the registry product acquisition. Maintenance and services
increased 41.6% to $6.2 million for the three months ended December 31, 2003 from $4.4 million for the same period in 2002. Maintenance and support contracts contributed primarily to the $1.8 million increase, of which $54,000 was related to the
pathology product acquisition. 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. For a discussion of Deferred Revenue, see Backlog below.



Cost
of Sales. Total cost of sales increased 39.4% to $5.3 million for the three months ended December 31, 2003 from $3.8 million for the same period in 2002. Our gross margin improved slightly to 65.9% for the three months ended December 31, 2003
from 65.5% for the same period in 2002. Cost of sales relating to net software sales increased 50.7% to $3.0 million for the three months ended December 31, 2003 from $2.0 million for the same period in 2002. Our gross margin associated with net
software sales decreased to 67.6% for the three months ended December 31, 2003 from 69.8% for the same period in 2002. The increase in expenses related to $623,000 in employee costs, $227,000 in supplies and materials, $110,000 in travel costs and
$46,000 in implementation costs. The decline in gross margin associated with net software sales relates to our need to invest early in the fiscal year on resources that will provide implementation capacity to meet the demand for projected new
systems during the remainder of fiscal year 2004. In addition, the $623,000 increase in employee related costs included $77,000 associated with employees acquired upon the closing of the Tamtron and MRS asset purchases on December 23, 2003 (the
Tamtron/MRS Acquisition). During the three months ended December 31, 2003, we deferred $55,000 in direct incremental travel expenses associated with software installation and training trips compared to $55,000 during the same period in
fiscal 2002. We expect to recognize the deferred travel expenses once the associated product revenues are recognized. In addition, amortization expense associated with acquired developed core technology decreased 23.4% to $69,000 for the three
months ended December 31, 2003 from $89,000 for the same period in 2002.



Cost
of sales relating to maintenance and services increased 29.5% to $2.2 million for the three months ended December 31, 2003 from $1.7 million for the same period in 2002. Our gross margin associated with maintenance and services increased to 64.5%
for the three months ended December 31, 2003 from 61.2% for the same period in 2002. The increase in expenses was related to $312,000 in continuing engineering costs and $234,000 in employee related costs partially offset by reductions of $26,000 in
travel expense, $9,000 in telephone expense and $8,000 in supplies and materials. We continued to invest in our support organization, but at a more conservative rate and operational efficiencies contributed to the increase in our gross margin
associated with maintenance and services. In addition, the $234,000 increase in employee related costs included $15,000 associated with employees acquired as part of the Tamtron/MRS Acquisition.



Research and Development. Research and development expenses increased 15.1% to $2.4
million for the three months ended December 31, 2003 from $2.1 million for the same period in 2002. As a percentage of total net sales, research and development expenses decreased to 15.8% for the three months ended December 31, 2003 from 19.3% for
the same period in 2002. Additional engineering headcount and the associated personnel expenses of $348,000 were the primary factors for the increase, offset by reductions of $18,000 in telephone expense and $12,000 in supplies and materials. The
decrease as a percentage of total net sales in the three months ended December 31, 2003 was due to increased net sales relative to research and development expenses. The $348,000 increase in employee related costs included $58,000 associated with
employees acquired as part of the Tamtron/MRS Acquisition.



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Sales and Marketing. Sales and marketing expenses increased 28.0% to $4.1 million for the three months ended
December 31, 2003 from $3.2 million for the same period in 2002. As a percentage of total net sales, sales and marketing expenses decreased to 26.3% for the three months ended December 31, 2003 as compared to 28.9% for the same period in 2002. The
increase in absolute dollars related to $626,000 in employee related costs, $114,000 in travel, $62,000 in outside services, $53,000 in advertising, $53,000 in sponsorships, $24,000 in trade shows and $17,000 in supplies and materials, partially
offset by reductions of $59,000 in commissions and $2,000 in telephone costs. The $626,000 increase in employee related costs included $51,000 associated with employees acquired as part of the Tamtron/MRS Acquisition. During the three months ended
December 31, 2003, we deferred $6,000 in direct incremental commission expenses compared to $7,000 during the same period in fiscal 2002. We expect to recognize the deferred commission expenses once the associated product revenues are recognized.



General and Administrative. General and administrative expenses
increased 1.5% to $1.1 million for the three months ended December 31, 2003 from $1.1 million for the same period in 2002. As a percentage of total net sales, general and administrative expenses decreased to 7.3% for the three months ended December
31, 2003 from 10.1% for the same period in 2002. The increase in absolute dollars was primarily due to increases in professional fees of $118,000 and maintenance costs of $48,000 partially offset by reductions of travel expenses of $54,000, business
insurance costs of $41,000, regulatory fees of $23,000, rent expense of $19,000 and other operating expenses of $15,000.



Amortization of Intangible Assets. Amortization expenses increased 292.3% to $51,000 for the three months ended December 31, 2003 from $13,000 for the same period
in 2002. The Tamtron/MRS Acquisition in December 2003 increased amortization expense of customer base and trade names.



In-Process Research and Development. During the three months ended December 31, 2003, we recorded a write-off of in-process research and development in the amount
of $557,000 due to an analysis allocating the purchase price paid for certain intellectual property in that period. Both Tamtron and MRS were in the process of adding new functionality to their lines of software products and we believed there was
sufficient risk in completing the technology to qualify the in-process research and development $557,000 write-off. During the three months ended December 31, 2002, we did not have any transactions that required an in-process research and
development write-off.



Operating Income. Operating income increased
151.3% to $2.0 million for the three months ended December 31, 2003 from $776,000 for the same period in 2002. Operating income primarily increased due to higher net sales partially offset by the in-process technology write off of $557,000 related
to our asset purchase in December 2003.



Interest and Other Income, Net.
Interest and other income, net increased 88.3% to $145,000 for the three months ended December 31, 2003 from $77,000 for the same period in 2002. The increase is related to higher interest income from increased cash and cash equivalents and
investments in short and long-term marketable securities resulting from higher cash balances for the 2003 period.



Income Taxes. Our effective tax rate decreased slightly to 33.0% for the three months ended December 31, 2003 from 34.5% during the same period in 2002 primarily
due to lower profitability in the current fiscal period and the effect of research and development tax credits. The provision for income taxes increased in absolute dollars to $656,000 for the three months ended December 31, 2003 compared to
$294,000 for the same period in 2002.



Accretion of Redeemable Convertible
Preferred Stock. Historically, each reporting period, 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. During the three months ended December 31, 2002, we recorded accretion charges of $2.2 million, representing the increase in the
redemption value of the Series A redeemable convertible preferred stock in the period after our fiscal year end and immediately leading up to the initial public offering. 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 accretion charges related to the Series A redeemable convertible preferred stock subsequent to the
initial public offering.



Backlog



Our backlog is comprised of customer deposits, deferred software license revenue, other
deferred revenue and unearned revenue. Customer deposits represent required deposits paid by our customers when they place orders. These deposits are held as a liability until revenue is recognized. Deferred software license revenue represents the
revenues on installed, accepted and invoiced products that we cannot yet recognize because the products installed were only a subset of the products outlined in a multiple element arrangement for which we do not have VSOE of the fair value on all of
the undelivered elements. If VSOE of the fair value of all undelivered elements exists but VSOE of the fair value does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the
fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. If VSOE of the fair value does not exist for all undelivered elements, revenue is deferred until VSOE of fair value exists
for all undelivered elements, the elements for which VSOE of fair value does not exist have been delivered or the elements for which VSOE of fair value does not exist (a) have been deleted from the contract or (b) there is available competent
evidence that allows for the reasonable judgment that it is remote that the customer will request delivery. Other deferred revenue represents maintenance and support services and term licenses which are generally recognized ratably over the support
period and license term, respectively. Unearned revenue represents the value of products ordered but not installed or accepted in excess of the contract deposit. Orders are recognized only once we have received a signed purchase and license
agreement, an authorized purchase order and a deposit check. Therefore, amounts in our sales pipeline that have not met all three order recognition criteria are not included in our backlog.



The components of backlog as of December 31, 2003 and 2002 are as follows (amounts in
thousands):



|                                  |  |                                                                |        |      |   |       
|--------------------------------- |  | -------------------------------------------------------------- | ------ | ---- | - | ------
|                                  |  | December 31,                                                  
|                                  |  | 2003                                                           |        | 2002
|                                  |  | (Restated) (See Note 8 to ourconsolidated financialstatements)
|Customer deposits                 |  | $                                                              | 10,875 |      | $ | 10,106
|Deferred software license revenue |  |                                                                | 15,061 |      |   | 11,136
|Other deferred revenue            |  |                                                                | 17,065 |      |   | 11,030
|Unearned revenue                  |  |                                                                | 26,027 |      |   | 21,724
|                                  |  |                                                                |        |      |   |       
|Total backlog                     |  | $                                                              | 69,028 |      | $ | 53,996
|                                  |  |                                                                |        |      |   |       



Of the total $69.0 million of backlog
at December 31, 2003, we expect to recognize approximately $62.0 million of our backlog during the twelve months following December 31, 2003 with the remaining portion to be recognized 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.



15



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Deferred revenue increased $9.9 million to $32.1 million at December 31, 2003 from $22.2 million at December 31, 2002. Of
the $9.9 million increase, deferred oncology software license revenue and the related deferred maintenance and support contributed $2.8 million. The remaining $7.1 million increase relates to other deferred revenue of $3.6 million in post contract
maintenance and support for oncology products, $1.4 million in registry term licenses, $973,000 in post contract maintenance and support for pathology products and $1.1 million of pathology license revenue.



Seasonality



We experience a seasonal pattern in our revenues, with our first quarter typically having the lowest revenues followed by increasing revenue
growth in the subsequent quarters of our fiscal year. We believe the seasonality of our revenue is influenced by the year end of many of our customers budgetary cycles. As much of the labor and indirect expense associated with software systems
for which revenue has been deferred are not matched with the subsequent revenue recognition, net income does not display a clear and predictable seasonal pattern.



In addition, the implementation of a significant contract previously included in backlog, or a contract intended to be installed in a phased
manner over a longer than average time period, 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, net proceeds of $24.4 million from our initial public offering of common stock in November 2002 and net proceeds of $3.2 million from our secondary public offering of common stock in
May 2003. Cash, cash equivalents and available-for-sale securities were $45.6 million at December 31, 2003.



During the three months ended December 31, 2003, net cash used in operating activities was $339,000 compared to net cash used in operating activities of $915,000 for the same period in 2002. Cash used in operations
during the three months ended December 31, 2003 was primarily attributable to an increase in deferred income taxes and accounts receivable and a decrease in accrued liabilities. These uses of cash were partially offset by net income after non-cash
adjustments for depreciation and amortization and the $577,000 write-off of acquired in-process research and development and an increase in deferred revenue. Cash used in operations during the three months ended December 31, 2002 was primarily
attributable to an increase in the accounts receivable balance and to decreases in the accrued liabilities and income taxes payable balances. These uses of cash were partially offset by net income after non-cash adjustments for depreciation and
amortization, a decrease in the prepaid expenses and other current assets balance and an increase in deferred revenues.



In determining average days sales outstanding and accounts receivable turnover, we use our gross annual invoicing in each calculation as we believe this provides a more
relevant measurement basis due to the significance of our deferred revenue. Our accounts receivable turnover decreased to 4.2 for the three months ended December 31, 2003 from 4.9 for the same period in 2002. Our days sales outstanding at December
31, 2003 increased to 85 from 73 at December 31, 2002. The increase in days sales outstanding is due to the accounts receivable balances we acquired from Tamtron and MRS in late December 2003. Had we not acquired the approximately $2.5 million in
additional accounts receivable at the end of the quarter, our days sales outstanding would have decreased slightly to 72. Generally, the first quarter of our fiscal year experiences slower cash collections due to the seasonal impact of holidays in
November and December. 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 $22.4 million for the three months ended December 31, 2003 and $403,000 for the same period in 2002. During the three months ended December 31, 2003, cash used in investing
activities primarily related to the Tamtron/MRS acquisition. Total cash outlays for this acquisition amounted to approximately $22.4 million, including acquisition costs. During the three months ended December 31, 2002, cash used in investing
activities primarily related to the purchase of $565,000 of capital equipment to support ongoing operations partially offset by net proceeds from sales and maturities of available-for-sale securities of $374,000.



Net cash provided by financing activities was $1.0 million for the three months ended
December 31, 2003 and $24.5 million for the same period in 2002. Cash provided by financing activities during the three months ended December 31, 2003 primarily related to net proceeds of $1.0 million received from common stock issuances. Cash
provided by financing activities during the three months ended December 31, 2002 primarily related to net proceeds of $24.4 million received in our initial public offering during November 2002.



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. The Company also assumed a number of capital leases in
conjunction with the acquisition of certain assets of Tamtron. As of December 31, 2003, the principal balance outstanding on the capital leases totaled $178,000.



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



|                                           |  |                |           |                 |   |                             |  |                          |           |  |   |           
|------------------------------------------ |  | -------------- | --------- | --------------- | - | --------------------------- |  | ------------------------ | --------- |  | - | ----------
|Fiscal Year                                |  | PropertyLeases |           | OperatingLeases |   | TelecommunicationsContracts |  | Total Future Obligations
|Less than one year (before 9/30/2004)      |  | $              | 2,183,000 |                 | $ | 37,000                      |  | $                        | 1,140,000 |  | $ | 3,360,000 
|One to three years (10/1/2004 - 9/30/2007) |  |                | 6,330,000 |                 |   | 33,000                      |  |                          | 3,429,000 |  |   | 9,792,000 
|                                           |  |                |           |                 |   |                             |  |                          |           |  |   |           
|Total                                      |  | $              | 8,513,000 |                 | $ | 70,000                      |  | $                        | 4,569,000 |  | $ | 13,152,000
|                                           |  |                |           |                 |   |                             |  |                          |           |  |   |           



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 our public offerings, 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.



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Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB 51, which subsequently has been revised by FIN 46-R. The primary objectives of FIN 46-R are to provide guidance on the identification of entities for which control is achieved through means other than through
voting rights (variable interest entities or VIEs) and how to determine when and which business enterprise should consolidate the VIE (the primary beneficiary). This new model for consolidation applies to an entity in which either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entitys activities without receiving additional subordinated financial support from other parties. In
addition, FIN 46-R requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46-R is effective for VIEs created after January 31, 2003 and is effective for all
VIEs created before February 1, 2003 that are Special Purpose Entities (SPEs) in the first reporting period ending after December 15, 2003 and for all other VIEs created before February 1, 2003 in the first reporting period ending after March 15,
2004. We believe there are no entities qualifying as VIES and the adoption of FIN 46-R to date has not had any effect on our financial position, cash flows or results of operations.



In May 2003, the EITF reached a consensus on EITF Issue No. 03-05, Applicability of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Non-Software Deliverables in Arrangements Containing More-Than-Incidental Software. EITF No. 03-05 addresses the applicability of Statement of Position No. 97-2 regarding software and non-software deliverables in a multiple
element arrangement, giving consideration to whether the deliverables are essential to the functionality of one another. EITF Issue No. 03-05 is effective for interim periods beginning after August 13, 2003. The adoption of EITF Issue No. 03-05 is
not expected to have a material impact on our financial position and results of operations.



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 three months ended
December 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



a. Evaluation Of Disclosure Controls And Procedures.



Joseph
Jachinowski, our Chief Executive Officer, and Kendra Borrego, our Chief Financial Officer, conducted an evaluation of the effectiveness of IMPACs disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended) as of December 31, 2003. Based upon their evaluation, they each found the Companys disclosure controls and procedures were adequate to ensure that information required to be disclosed in the reports that IMPAC files
and submits under the Exchange Act is recorded, processed, summarized and reported as and when required, and that information required to be disclosed is accumulated and communicated to them as appropriate to allow timely decisions regarding
required disclosure, except as set forth below.



As described in Note 8 of the
notes to the condensed consolidated financial statements included in Part IItem 1 of this Form 10-Q/A, subsequent to the issuance of IMPACs consolidated financial statements for the year ended September 30, 2003, our management has twice
determined to restate our consolidated financial statements as of and for the years ended September 30, 2000, 2001, 2002 and 2003, to shift some previously deferred or recognized revenues earlier or later quarters or to defer recorded revenues and
recognize them in periods subsequent to December 31, 2003.



In connection with
restating our financial statements as provided in this report, our Chief Executive Officer and Chief Financial Officer, with the participation of other management, re-evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report and as of the date of this report. During the prior restatement in April 2004, our independent auditors at the time, PricewaterhouseCoopers LLP, advised management and the Audit Committee that it noted
certain matters regarding software revenue recognition practices during the periods under review that it considered to be material weaknesses. As part of the re-evaluation, we have conducted an extensive internal review of our revenue recognition
practices for all periods for which financial statements are included in this report. Among other things, this involved the review of each of the over 1,500 customer contracts entered into since October 1, 1999.



Based on the re-evaluation by our Chief Executive Officer and Chief Financial Officer, they
concluded that, as of the end of the period covered by this report, there were deficiencies in our disclosure controls and procedures.



As part of our disclosure controls and procedures over the selection and application of accounting principles, in particular software revenue recognition under SOP 97-2,
our accounting officers independently reviewed SOP 97-2 together with other accounting literature, consulted with our independent auditing firm regarding revenue recognition and accounting developments, attended continuing education courses for the
accounting profession and reviewed various accounting journals and other literature with respect to the existence of new accounting pronouncements and their application to IMPAC.



These controls and procedures were found to be deficient in identifying the accounting issues which are the subject of the two restatements.
Specifically, the controls and procedures did not result in (i) our proper understanding of the application of SOP 97-2 for multiple element contracts, (ii) the identification of an improper usage of a retroactive acceptance clause resulting in
revenue being recognized in the incorrect period and (iii) the deferral of 12% of the current list price of the software rather than 12% of the net purchase price.



In response to the matters identified, we have taken steps to strengthen control processes and procedures to identify, rectify and prevent
the recurrence of the circumstances that resulted in our determination to restate prior period financial statements. We intend to correct the identified weaknesses in our disclosure controls and procedures that led to the restatement by taking the
following steps, among others:



| |  | Initiating a search for an in-house finance person with extensive software revenue recognition experience, including the application of SOP 97-2.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Establishing a procedure for conducting internal training sessions for affected employees on applicable policies and procedures and providing opportunities for accounting personnel
to attend external training and continuing education programs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Supplementing our revenue recognition policy to include a clearly understandable summary of key elements of the policy to better ensure broader understanding of the policy among our
personnel.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Documenting the review of revenue transactions prior to recognizing revenue, including how each of the four criteria for revenue recognition (i.e. persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable) has been met, and requiring that this documentation be reviewed and approved by a responsible person prior to recording revenue.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Establishing procedures to perform an on-going analysis of the VSOE of maintenance to support the fair value of maintenance to be used in deferring the fair value from multiple
element arrangements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Corresponding with accounting professionals, including but not limited to our independent auditing firm, to ascertain any changes in application of Generally Accepted Accounting
Principles (GAAP)
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Reviewing the Financial Accounting Standards Boards (FASB) and American Institute of Certified Public Accountants websites and any available information to acknowledge,
review and interpret any applicable accounting changes, including changes relating to software revenue recognition.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe these changes to our system of internal controls and our disclosure controls and procedures will be adequate to provide reasonable assurance that the
objectives of these control systems will be met. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.



b. Changes in Internal Controls.



There were none.



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. As discussed in Note 6 to the condensed consolidated financial statements, we acquired certain
assets and assumed certain liabilities of Tamtron Corporation and Medical Registry Services, Inc. from IMPATH Inc. We used approximately $22.4 million of the funds received in our public offerings to finance this acquisition.



We intend to use the remaining net proceeds of the offering for working capital and to expand
our business generally.



Item 3. Defaults Upon Senior Securities



Not
Applicable.



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



The Company held its annual meeting of stockholders on February 17, 2004. At the annual meeting, the following matters were voted upon:



1.Election of Directors: Election of the following directors to serve for a term ending upon the 2007 annual meeting of stockholders
or when their successors are elected and qualified:



|                        |  |                |  |                     
|----------------------- |  | -------------- |  | --------------------
|Nominee                 |  | Total VotesFor |  | Total Votes Withheld
|James P. Hoey           |  | 8,048,869      |  | 944,927             
|Dr. Christopher M. Rose |  | 8,620,487      |  | 373,309             



Joseph K. Jachinowski and Gregory M.
Avis continue to serve the Company for a term ending upon the 2005 annual meeting of stockholders or when their successors are elected and qualified, and David A. Auerbach, Dr. Robert J. Becker and Gregory T. Schiffman continue to serve the Company
for a term ending upon the 2006 annual meeting of stockholders or when their successors are elected and qualified.



2.Amendment to 2002 Stock Plan: Approval of an amendment and restatement of the IMPAC Medical Systems, Inc. 2002 Stock Plan to allow for grants of stock
appreciation rights and stock units.



|          |  |           |  |         |  |        
|--------- |  | --------- |  | ------- |  | -------
|For       |  | Against   |  | Abstain |  | No Vote
|6,184,299 |  | 2,278,492 |  | 725     |  | 530,280



Item 5. Other Information



None.



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Item 6. Exhibits and Reports on Form 8-K



(a)
Exhibits



|     |  |                                                                                                                                                                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Asset Purchase Agreement, dated as of November 24, 2003, by and among Tamtron Corporation, Medical Registry Services, Inc., and IMPAC Medical Systems, Inc. (Incorporated by reference from
Exhibit No. 99.2 to IMPACs Form 8-K filed November 25, 2003.)
|     | 
|31.1 |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|     | 
|31.2 |  | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|     | 
|32.1 |  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                          
|     | 
|32.2 |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                          



(b) Reports on Form 8-K



The following reports on Form 8-K were filed during the three month period
ended December 31, 2003:



| |  | Form 8-K filed November 25, 2003 relating to the execution of a definitive asset purchase agreement to acquire substantially all of the assets and certain liabilities of Tamtron
Corporation and Medical Registry Services, Inc.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Form 8-K filed December 23, 2003 relating to the U.S. Bankruptcy Courts approval of the sale to IMPAC of substantially all of the assets and certain liabilities of Tamtron and
MRS and the subsequent completion of the acquisition.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
following report on Form 8-K was furnished during the three month period ended December 31, 2003:



| |  | Form 8-K filed October 30, 2003 relating to our earnings release for the quarter and fiscal year ended September 30, 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: November 19, 2004/s/ JOSEPH K. JACHINOWSKIJoseph K. JachinowskiChairman of the Board, President andChief Executive Officer/s/ KENDRA A. BORREGOKendra A. BorregoChief Financial Officer