~~Table~~UNITED ofSTATES ~~Contents~~

~~UNITED~~SECURITIES ~~STATES~~AND EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE~~20549 ~~COMMISSION~~

~~Washington,~~FORM ~~D.C.~~10-Q ~~20549~~

~~FORM~~(Mark ~~10-Q~~One)

~~(Mark~~x ~~One~~QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

xFor ~~QUARTERLY~~the ~~REPORT~~quarterly ~~PURSUANT~~period TOended ~~SECTION~~December 1331, or2004 ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~or ~~the quarterly period ended December 31, 2003~~

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

¨For ~~TRANSITION~~the ~~REPORT~~transition ~~PURSUANT~~period ~~OF SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~from to

~~For~~Commission ~~the~~File ~~transition~~Number: ~~period~~000-50082 ~~from to~~

~~Commission~~IMPAC ~~File~~MEDICAL ~~Number:~~SYSTEMS, ~~000-50082~~INC.

IMPAC MEDICAL SYSTEMS, INC.

Delaware

94-3109238

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

~~100~~(Address ~~West~~of ~~Evelyn Avenue,~~principle ~~Mountain~~executive ~~View,~~offices) ~~California 94041~~

(~~Address of principle executive offices~~650) 623-8800

(~~650)~~Registrant’s ~~623-8800~~telephone number, including area code)

(~~Registrant’s~~Former ~~telephone~~name, ~~number~~former address and former fiscal year, ~~including~~if ~~area~~changed ~~code~~since last report)

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

Indicate by ~~check~~checkmark ~~mark~~ whether the registrant ~~(1)~~is ~~has~~an ~~filed~~accelerated ~~all~~filer ~~reports~~(as ~~required~~defined toin beRule 12b-2 ~~filed by Section 13 or 15(d)~~ of the ~~Securities~~ Exchange Act ~~of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports~~)~~, and (2) has been subject to such filing requirements for the past 90 days~~. x ¨ Yes x¨ No

~~Indicate~~APPLICABLE byONLY ~~checkmark~~TO ~~whether~~ISSUERS ~~the~~INVOLVED ~~registrant~~IN isBANKRUPTCY ~~an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No~~

~~APPLICABLE~~PROCEEDINGS ~~ONLY~~DURING TOTHE ~~ISSUERS~~PRECEDING ~~INVOLVED~~FIVE INYEARS: ~~BANKRUPTCY~~

~~PROCEEDINGS~~Indicate ~~DURING~~by ~~THE~~check ~~PRECEDING~~mark ~~FIVE~~whether ~~YEARS:~~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. ¨

~~Indicate~~APPLICABLE byONLY ~~check~~TO ~~mark~~CORPORATE ~~whether~~ISSUERS: 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~~Indicate ~~ONLY~~the TOnumber ~~CORPORATE~~of ~~ISSUERS:~~shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

~~Indicate~~Common ~~the number of shares~~ Stock outstanding ofas ~~each~~ of ~~the~~February ~~issuer’s classes~~4, ~~of common stock~~2005 9,950,318 ~~as of the latest practicable date.~~

~~Common~~ TABLE ~~Stock~~OF ~~Outstanding~~CONTENTS ~~as of April 12 , 2004 9,878,019~~




		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets as of December 31, 2004 and September 30, 2004	1

	Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2004 and 2003	2

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2004 and 2003	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Submission of Matters to a Vote of Security Holders	17

Item 5.	Other Information	17

Item 6.	Exhibits	17

Signatures		19

Safe Harbor ~~TABLE~~Statement OFunder ~~CONTENTS~~the Private Securities Litigation Reform Act of 1995.

The ~~PART~~statements Icontained in this Form 10-Q that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, including statements regarding the Company’s expectations, beliefs, hopes, intentions or strategies regarding the future. ~~FINANCIAL~~ ~~INFORMATION~~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, outstanding securities litigation and other factors and risks discussed in our Form 10-K for the fiscal year ended September 30, 2004 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Factors Affecting Financial Performance” and other reports filed by the Company from time to time with the Securities and Exchange Commission.

		Page
Item 1.	Condensed Consolidated Financial Statements (unaudited)	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	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 2.	Changes in Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Submission of Matter to a Vote of Securities Holders	24
Item 5.	Other Information	25
Item 6.	Exhibits and Reports on Form 8-K	25
Signatures		26

PART I. FINANCIAL INF ORMATION

~~Safe~~Item ~~Harbor~~1. Fina ~~Statement~~ncial ~~under~~Statements ~~the Private Securities Litigation Reform Act of 1995.~~

~~The~~IMPAC ~~statements contained in this Form 10-Q that are not purely~~MEDICAL ~~historical are forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934~~SYSTEMS, ~~including statements regarding the Company’s expectations, beliefs, hopes, intentions or strategies regarding the future~~INC. ~~Forward~~ ~~looking~~AND ~~statements~~SUBSIDIARIES include statements regarding the Company’s business strategy, timing of, and plans for, the introduction of new products and enhancements, future sales, market growth and direction, competition, market share, revenue growth, operating margins and profitability. All forward looking statements included in this document are based upon information available to the Company as of the date hereof, and the Company assumes no obligation to update any such forward looking statement. Actual results could differ materially from the Company’s current expectations. Factors that could cause or contribute to such differences include the Company’s ability to expand outside the radiation oncology market or expand into international markets, lost sales or lower sales prices due to competitive pressures, ability to integrate its products successfully with related products and systems in the medical services industry, reliance on distributors and manufacturers of oncology equipment to market its products, and other factors and risks discussed in the Company’s Form 10-K/A dated April 16, 2004 and other reports filed by the Company from time to time with the Securities and Exchange Commission.

iCONDENS ED CONSOLIDATED BALANCE SHEETS

~~Table~~(Unaudited) ~~of Contents~~

PART I. FINANCIAL INFORMATION


	December 31, 2004			September 30, 2004
(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	52,227		$	54,605
Available-for-sale securities		1,115			115
Accounts receivable, net		18,999			16,850
Unbilled accounts receivable		645			696
Inventories		105			115
Deferred income taxes, net		7,630			7,630
Prepaid expenses and other current assets		5,195			4,879

Total current assets		85,916			84,890
Available-for-sale securities		6,163			3,574
Property and equipment, net		4,362			4,367
Deferred income taxes		1,247			1,247
Goodwill		15,509			15,509
Other intangible assets, net		7,111			7,692
Other assets		491			481

Total assets	$	120,799		$	117,760

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	475		$	334
Accrued liabilities		3,682			4,128
Income taxes payable		2,485			3,082
Deferred revenue		45,385			41,023
Customer deposits, current		10,214			10,655

Total current liabilities		62,241			59,222
Customer deposits, net of current portion		302			302
Deferred revenue, net of current portion		78			74

Total liabilities		62,621			59,598

Stockholders’ equity:
Preferred stock		—			—
Common stock		10			10
Additional paid-in capital		50,503			50,431
Accumulated other comprehensive loss		(36	)		(19	)
Retained earnings		7,701			7,740

Total stockholders’ equity		58,178			58,162

Total liabilities and stockholders’ equity	$	120,799		$	117,760

The accompanying ~~Item~~notes 1.are ~~Condensed~~an ~~Consolidated~~integral ~~Financial~~part ~~Statements~~of ~~(unaudited)~~these condensed consolidated financial statements.

~~IMPAC~~1 ~~MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~CONDENSED~~IMPAC ~~CONSOLIDATED~~MEDICAL ~~BALANCE~~SYSTEMS, ~~SHEETS~~INC. AND SUBSIDIARIES

~~(unaudited)~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)	December 31,2003			September 30,2003
Assets				Restated (See Note 1)
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		6,966			6,334
Prepaid expenses and other current assets		4,905			4,667
Total current assets		71,006			88,537
Available-for-sale securities		3,765			2,719
Property and equipment, net		3,820			3,573
Deferred income taxes		1,116			1,137
Goodwill		13,760			654
Other intangible assets, net		9,436			918
Other assets		459			459
Total assets	$	103,362		$	97,997
Liabilities, Common Stock Subject to Rescission Rights and Stockholders’ Equity
Current liabilities:
Customer deposits	$	10,679		$	10,900
Accounts payable		427			864
Accrued liabilities		2,951			4,758
Income taxes payable		2,820			2,353
Deferred revenue		32,694			27,079
Capital lease obligations		157			74
Total current liabilities		49,728			46,028
Customer deposits, net of current portion		232			232
Capital lease obligations, net of current portion		21			41
Total liabilities		49,981			46,301
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		4,496			3,812
Total stockholders’ equity		53,381			51,598
Total liabilities, common stock subject to rescission rights and stockholders’ equity	$	103,362		$	97,997

(Unaudited)

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


	Three Months Ended December 31,
	2004			2003
(In thousands, except per share data)
Net sales:
Software license and other, net	$	8,842		$	9,225
Maintenance and services		8,556			6,207

Total net sales		17,398			15,432

Cost of sales:
Software license and other, net		4,168			2,991
Maintenance and services		2,350			2,203
Amortization of purchased technology		382			69

Total cost of sales		6,900			5,263

Gross profit		10,498			10,169

Operating expenses:
Research and development		3,344			2,431
Sales and marketing		5,176			4,052
General and administrative		2,175			1,128
Amortization of intangible assets		199			51
Write-off of purchased in-process research and development		—			557

Total operating expenses		10,894			8,219

Operating income (loss)		(396	)		1,950
Interest expense		—			(3	)
Interest and other income		337			148

Income (loss) before benefit (provision) from income taxes		(59	)		2,095
Benefit (provision) from income taxes		20			(691	)

Net income (loss)	$	(39	)	$	1,404

Net income (loss) per common share:
Basic	$	(0.00	)	$	0.14

Diluted	$	(0.00	)	$	0.14

Weighted-average shares used in computing net income (loss) per common share:
Basic		9,933			9,758

Diluted		9,933			10,240

1The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Table~~2 ~~of Contents~~

IMPAC MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OFO F ~~OPERATIONS~~CASH FLOWS

(~~unaudited~~Unaudited)

	Three Months EndedDecember 31,
	2003			2002
	2004			2003
(In thousands, except per share amounts)				Restated(See Note 1)
(In thousands)
Sales:
Cash flows from operating activities:
Software license and other, net	$	8,338		$	6,707
Net income (loss)	$	(39	)	$	1,404
Maintenance and services		6,053			4,453
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Total net sales		14,391			11,160
Depreciation and amortization of property and equipment		556			438
Cost of sales:
Amortization of intangible assets		581			120
Software license and other, net		2,930			1,994
Accretion of available-for-sale securities		30			34
Maintenance and services		2,203			1,701
Write-off of purchased in-process research and development		—			557
Total cost of sales		5,133			3,695
Provision for doubtful accounts		25			32
Gross profit		9,258			7,465
Deferred income taxes		—			(343	)
Operating expenses:
Changes in assets and liabilities, net of effects of acquisitions:
Research and development		2,431			2,112
Accounts receivable		(2,174	)		(1,391	)
Sales and marketing		4,008			3,161
Unbilled accounts receivable		52			—
General and administrative		1,235			1,111
Inventories		9			(3	)
Amortization of intangible assets		120			102
Prepaid expenses and other current assets		(316	)		(117	)
Write-off of purchased in process research and development		557			—
Other assets		(11	)		37
Total operating expenses		8,351			6,486
Customer deposits		(441	)		(221	)
Operating income		907			979
Accounts payable		137			(544	)
Interest expense		(3	)		(6	)
Accrued liabilities		(440	)		(1,810	)
Interest and other income		148			83
Income tax payable/refund receivable		(595	)		503
Income before provision for income taxes		1,052			1,056
Deferred revenue		4,382			965
Provision for income taxes		(368	)		(369	)
Net cash provided by (used in) operating activities		1,756			(339	)
Net income		684			687
Cash flows from investing activities:
Accretion of redeemable convertible preferred stock		—			(2,229	)
Acquisition of property and equipment		(551	)		(372	)
Net income (loss) available to common stockholders	$	684		$	(1,542	)
Payments for the acquisition of Tamtron and MRS product lines		—			(22,430	)
Net income (loss) per common share:
Purchases of available-for-sale securities		(3,634	)		(1,076	)
Basic	$	0.07		$	(0.21	)
Proceeds from maturities of available-for-sale securities		—			1,450
Diluted	$	0.07		$	(0.21	)
Net cash used in investing activities		(4,185	)		(22,428	)
Weighted-average shares used in computing net income (loss) per common share:
Cash flows from financing activities:
Basic		9,758			7,469
Principal payments on capital leases		—			(18	)
Diluted		10,240			7,469
Proceeds from the issuance of common stock, net		72			1,019
Net cash provided by financing activities		72			1,001
Net decrease in cash and cash equivalents		(2,357	)		(21,766	)
Effect of exchange rates on cash		(21	)		7
Cash and cash equivalents at beginning of period		54,605			57,979
Cash and cash equivalents at end of period	$	52,227		$	36,220

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

~~Table~~IMPAC ofMEDICAL ~~Contents~~SYSTEMS, INC. AND SUBSIDIARIES

~~IMPAC~~NOTES ~~MEDICAL~~TO ~~SYSTEMS,~~CONDENSED ~~INC.~~CONSO LIDATED ~~AND~~FINANCIAL ~~SUBSIDIARIES~~STATEMENTS

~~CONDENSED~~(unaudited) ~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited)~~NOTE 1—Basis of Presentation

	Three Months EndedDecember 31,
	2003			2002
(In thousands)				Restated(See Note 1)
Cash flows from operating activities:
Net income	$	684		$	687
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
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		(222	)		614
Other assets		37			(71	)
Customer deposits		(221	)		214
Accounts payable		(437	)		(5	)
Accrued liabilities		(1,810	)		(1,142	)
Income tax payable/refund receivable		468			(1,130	)
Deferred revenue		2,006			1,904
Deferred income taxes		(631	)		—
Net cash used in operating activities		(373	)		(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		(17,675	)		(7,648	)
Proceeds from sales of available-for-sale securities		9,246			46
Proceeds from maturities of available-for-sale securities		8,835			7,764
Net cash used in investing activities		(22,396	)		(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		9			(15	)
Net increase (decrease) in cash and cash equivalents		(21,768	)		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 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, 2004 are not necessarily indicative of the results that may be expected for the year ending September 30, 2005, or for any future period. The balance sheet at September 30, 2004 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements and notes should be read in conjunction with the financial statements and notes thereto for the year ended September 30, 2004 included in the Company’s Form 10-K for the fiscal year ended September 30, 2004 filed December 14, 2004.

~~The~~NOTE ~~accompanying notes~~2—Significant ~~are~~Accounting anPolicies ~~integral part of these condensed consolidated financial statements.~~

3The Company’s significant accounting policies are disclosed in the Company’s Form 10-K filed on December 14, 2004 for the year ended September 30, 2004.

~~Table~~Inventories ~~of Contents~~

~~IMPAC~~Inventories ~~MEDICAL~~are ~~SYSTEMS~~stated at the lower of cost (determined on a first-in, ~~INC~~first-out basis) or market. ~~AND~~As ~~SUBSIDIARIES~~of December 31, 2004 and September 30, 2004, inventories were comprised entirely of finished goods.

~~NOTES~~Goodwill TOand ~~CONDENSED~~other ~~CONSOLIDATED~~intangible ~~FINANCIAL~~assets ~~STATEMENTS~~

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 (~~unaudited~~“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, 2003 and 2004. The annual goodwill impairment test was completed during the first quarter of fiscal 2005 and 2004, and did not result in any impairment of recorded goodwill.

~~NOTE~~Revenue ~~1—Basis~~recognition ~~of Presentation~~

The ~~accompanying~~Company’s ~~unaudited~~revenue ~~condensed~~is ~~consolidated~~derived ~~financial~~primarily ~~statements~~from oftwo ~~IMPAC~~sources: ~~Medical Systems, Inc. and its subsidiaries~~ (~~the “Company”~~i) ~~have been~~software ~~prepared~~license inrevenue ~~accordance~~from ~~with~~sales ~~accounting principles generally accepted in the United States of America for interim financial information and pursuant~~ to ~~the~~distributors ~~instructions to Form 10-Q~~ and ~~Article~~end 10users ~~of Regulation S-X of the Securities~~ and ~~Exchange~~ Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (~~consisting of normal recurring adjustments~~ii) ~~considered~~maintenance 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 at and ~~for~~services ~~the~~revenue ~~fiscal~~from ~~years~~providing ~~ended~~software ~~September 30~~support, ~~2003,~~education ~~2002, 2001~~ and ~~2000,~~consulting ~~including~~services ~~the quarter ended December 31, 2002,~~ to ~~shift~~end ~~some previously recognized revenues to later quarters or to defer recorded revenues and recognize them in periods subsequent to September 30, 2003~~users. The ~~balance~~Company ~~sheet~~typically atrequires ~~September~~deposits ~~30,~~upon ~~2003 has been derived from~~ the ~~audited~~receipt ~~consolidated financial statements, as restated, but does not include all~~ of ~~the~~a ~~information~~signed purchase and ~~footnotes~~license ~~required~~agreement, bywhich ~~accounting~~are ~~principles~~classified ~~generally accepted in the United States of America for complete financial statements. These financial statements and notes should be~~as ~~read~~customer indeposit ~~conjunction~~liabilities ~~with~~on the ~~financial statements and notes thereto for the year ended September 30, 2003 included in the~~ Company’s ~~Annual~~consolidated ~~Report~~balance ~~on Form 10-K/A filed April 16, 2004~~sheet.

~~NOTE~~The Company accounts for sales of software and maintenance revenue under the provisions of Statement of Position 97-2~~—Public~~, ~~Offerings~~(“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.”

~~Initial~~The ~~Public~~Company ~~Offering~~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.

OnThe ~~November~~fee ~~20,~~for ~~2002,~~multiple ~~the~~element ~~Company~~arrangements ~~completed~~is anallocated ~~initial~~to ~~public~~each ~~offering~~element inof ~~which~~the itarrangement, ~~sold~~such 1as maintenance and support services,~~875,000~~ ~~shares~~based ofon ~~common~~the ~~stock~~relative atfair ~~$15~~values of the elements.00 ~~per~~The ~~share~~Company ~~for~~determines ~~net~~the ~~cash proceeds~~fair value of ~~approximately~~each ~~$24,300,000,~~element ~~net~~in ofmultiple ~~underwriting~~element ~~discounts~~arrangements based on VSOE for each element, ~~commissions~~which ~~and~~is ~~other~~based ~~offering~~on ~~costs.~~the ~~Upon~~price charged when the ~~closing~~same element is sold separately. If VSOE of the ~~offering,~~fair value of all undelivered elements exists but VSOE of the ~~Company’s~~fair ~~outstanding~~value ~~shares~~does ofnot ~~redeemable~~exist ~~convertible~~for ~~preferred~~one ~~stock~~or ~~automatically converted~~more ~~into~~delivered 1elements,~~238,390~~ ~~shares~~then ofrevenue ~~common~~is ~~stock~~recognized using the residual method. InUnder ~~addition~~the toresidual method, the ~~shares~~fair ~~sold~~value byof the ~~Company,~~undelivered anelements ~~additional~~is ~~312,500~~deferred ~~shares~~and ~~were~~the remaining ~~sold~~portion byof ~~selling~~the ~~stockholders~~arrangement onfee ~~the~~is ~~date~~recognized as revenue. If VSOE of the ~~offering~~fair ~~and~~value ~~328~~does not exist for all undelivered elements,~~125~~ ~~shares~~revenue ~~were~~is ~~sold~~deferred byuntil ~~selling~~VSOE ~~stockholders~~of inthe fair value exists for all undelivered elements, the elements for which ~~exercise~~VSOE of the ~~underwriters~~fair ~~over-allotment~~value ~~option~~does ~~during~~not ~~December~~exist ~~2002.~~have ~~The~~been ~~Company~~delivered ~~did~~or the elements for which VSOE of the fair value does not ~~receive~~exist ~~any~~(a) ~~proceeds~~have been deleted from the ~~sale~~contract ofor ~~shares~~(b) bythere ~~the~~is ~~selling~~competent ~~stockholders~~evidence orthat allows for the ~~exercise~~reasonable ofjudgment that it is remote that the ~~over-allotment~~customer ~~option~~will request delivery.

~~Secondary~~The ~~Offering~~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.

OnFor ~~May~~direct ~~12,~~software ~~2003,~~sales ~~the~~licensed ~~Company~~on ~~completed~~ a ~~secondary~~term ~~offering~~basis, inthe ~~which~~initial itterm ~~sold~~lasts ~~200,000~~from ~~shares~~three ofto ~~common~~five ~~stock~~years atwith ~~$19.00~~annual ~~per~~renewals ~~share~~after ~~for~~the ~~net~~initial ~~cash~~term. ~~proceeds~~The ofcustomer ~~approximately~~pays ~~$3,200,000,~~a ~~net~~deposit oftypically ~~underwriting~~equal ~~discounts,~~to ~~commissions~~the ~~and~~initial ~~other~~annual ~~offering~~fee ~~costs.~~upon Insigning ~~addition to~~ the ~~shares~~license ~~sold~~agreement, byand the Company, ~~2,178,223~~invoices ~~shares were sold by selling stockholders on~~ the ~~date~~customer offor ~~the~~subsequent ~~offering~~annual ~~and~~fees ~~356,733~~60 ~~shares~~days before ~~were sold by selling stockholders in~~ the ~~exercise~~anniversary date of the ~~underwriters’~~signed ~~over-allotment option during May 2003~~agreement. The Company ~~did~~recognizes ~~not~~revenue ~~receive~~for ~~any~~the ~~proceeds~~annual ~~from~~fees ~~the~~under ~~sale~~these ofterm ~~shares by~~license agreements ratably over the ~~selling~~applicable ~~stockholders~~twelve-month orperiod. ~~from~~The ~~the~~annual ~~exercise~~fee ofincludes ~~the~~maintenance ~~over-allotment~~and ~~option~~support.

~~NOTE~~The ~~3—Significant~~Company ~~Accounting~~recognizes ~~Policies~~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.

~~The~~Due ~~Company’s~~to ~~significant accounting policies are disclosed in~~ the ~~Company’s~~significant ~~Form~~implementation ~~10-K/A~~and ~~filed~~customization onefforts ~~April~~essential ~~16,~~to ~~2004 for~~ the functionality ~~year ended September 30, 2003. With the exception~~ of the ~~new~~related ~~significant accounting policy for revenue recognition for pathology information management systems set forth below~~products, the Company’s ~~significant~~recognizes ~~accounting~~the ~~policies~~license ~~have~~and ~~not materially changed as of December 31, 2003.~~

~~Inventories~~4

~~Inventories~~ professional ~~are~~consulting ~~stated~~services atgenerated through the ~~lower~~sale of ~~cost~~pathology ~~(determined~~management oninformation asystems ~~first~~using the percentage-inof-completion method using labor hours incurred as prescribed by SOP No. 81-1, ~~first~~“Accounting for Performance of Construction-~~out~~Type ~~basis)~~and orCertain ~~market~~Product-Type Contracts.” AsThe ofprogress ~~December~~toward ~~31,~~completion ~~2003~~is ~~and~~measured ~~September~~based ~~30,~~on ~~2003~~labor hours incurred as compared to total estimated ~~inventory~~hours isto ~~comprised~~complete. ~~entirely~~The ofCompany ~~finished~~accounts ~~goods~~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.

4The 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 this agreement, 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.

~~Table~~Accounting offor ~~Contents~~stock-based compensation

~~IMPAC~~The ~~SYSTEMS~~Company uses the intrinsic value method of APB Opinion No. 25 (“APB No. 25”), ~~INC~~“Accounting for Stock Issued to Employees,” in accounting for its employee stock options, and presents disclosure of pro forma information required under Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. ~~AND~~123, ~~SUBSIDIARIES~~“Accounting for Stock-Based Compensation” (“SFAS No. 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123” (“SFAS No. 148”). No compensation expense is included in the net income as reported during the three months ended December 31, 2004 and 2003.

~~NOTES~~Had TOcompensation ~~CONDENSED~~costs ~~CONSOLIDATED~~been ~~FINANCIAL~~determined ~~STATEMENTS—~~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 (~~Continued~~loss) and pro forma net income (loss) per common share, basic and diluted, would have been as follows (in thousands, except per share data):

(unaudited)


	Three Months Ended December 31,
	2004			2003
Net income (loss) as reported	$	(39	)	$	1,404
Less stock-based compensation cost under a fair value method		(200	)		(274	)

Pro forma net income (loss)	$	(239	)	$	1,130

Net income (loss) per common share, basic
As reported	$	(0.00	)	$	0.14

Pro forma	$	(0.02	)	$	0.12

Net income (loss) per common share, diluted
As reported	$	(0.00	)	$	0.14

Pro forma	$	(0.02	)	$	0.11

~~Goodwill~~The ~~and~~determination ~~other~~of ~~intangible~~fair ~~assets~~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.

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~~comprehensive ~~Assets,”~~income ~~which establishes financial accounting and reporting for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17~~ (~~“APB No. 17”~~loss)~~, “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~~Comprehensive ~~convertible~~income ~~preferred~~(loss) ~~stock~~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 (loss) that were excluded from the net income (loss). Total comprehensive income (loss) for the three months ended December 31, 2004 and 2003 is presented in the following table (in thousands):

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.


	Three Months Ended December 31,
	2004			2003
Net income (loss)	$	(39	)	$	1,404
Other comprehensive income:
Change in unrealized gain (loss) on securities		(15	)		(25	)
Foreign currency translation adjustment		(2	)		8

Comprehensive income (loss)	$	(56	)	$	1,387

~~Revenue~~Net ~~recognition~~income (loss) per common share

~~The~~Basic ~~Company’s~~net ~~revenue~~income ~~is derived primarily from two sources:~~ (iloss) ~~software~~per ~~license~~common ~~revenue,~~share ~~from~~is ~~sales~~computed toby ~~distributors~~dividing ~~and~~net income ~~end users, and~~ (iiloss) ~~maintenance~~ ~~and~~by ~~services~~the ~~revenue~~weighted-average ~~from~~number ~~providing~~of ~~software~~vested ~~support,~~common ~~education~~shares ~~and~~outstanding ~~consulting~~for ~~services~~the ~~to end users~~period. ~~The~~Diluted ~~Company~~net ~~typically~~income ~~requires~~(loss) ~~deposits~~per ~~upon~~common ~~the~~share ~~receipt~~is ofcomputed agiving ~~signed~~effect ~~purchase~~to ~~and~~all ~~license~~potentially ~~agreement,~~dilutive ~~which~~common ~~are~~stock ~~classified as customer deposit liabilities on the Company’s consolidated balance sheet~~equivalents.

~~The~~5 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 101 “Revenue Recognition.”

~~The~~A ~~fee~~reconciliation ~~for multiple-element arrangements is allocated to each element~~ of the ~~arrangement,~~denominator ~~such~~used asin ~~maintenance~~basic and ~~support~~diluted ~~services,~~net ~~based~~income on(loss) ~~the~~per ~~relative fair~~common ~~values~~share offollows ~~the elements. The Company determines the fair value of each element~~ (in ~~multi-element arrangements based on vendor-specific objective evidence for each element which is based on the price charged when the same element is sold separately~~thousands). If evidence of fair value of all undelivered elements exists but evidence 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.~~


	Three Months Ended December 31,
	2004	2003
Weighted average shares used in computing basic net income per common share	9,933	9,758
Dilutive effect of options to purchase shares and employee stock purchase plan	—	482

Weighted-average shares used in computing diluted net income per common share	9,933	10,240

~~Table~~At December 31, 2004 and 2003, options to purchase approximately 501,000 and 90,000 shares of ~~Contents~~common stock, respectively, were excluded from the computation of diluted net income (loss) per common share as their effect is antidilutive.

~~IMPAC~~Recent ~~SYSTEMS,~~accounting ~~INC.~~pronouncements ~~AND SUBSIDIARIES~~

~~NOTES~~FASB TOStaff ~~CONDENSED~~Position ~~CONSOLIDATED~~(“FSP”) ~~FINANCIAL~~No. ~~STATEMENTS—~~109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (~~Continued~~“FSP 109-2”), provides guidance under SFAS No. 109, Accounting for Income Taxes, with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Creation Act”) on enterprises’ income tax expense and deferred tax liability. The Jobs Creation Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company has not yet completed its evaluation on the impact of the repatriation provisions. Accordingly, as provided for in FSP 109-2, the Company has not adjusted its tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Creation Act.

~~(unaudited)~~In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 is effective for nonmonetary asset exchanges beginning in the Company’s fourth quarter of fiscal year 2005. The Company does not believe the adoption of SFAS No. 153 will have a material effect on its consolidated financial position, results of operations or cash flows.

~~The~~In ~~Company~~December ~~recognizes~~2004, ~~revenue~~the ~~from~~FASB issued SFAS No. 123R, Share-Based Payment, which replaced SFAS No. 123 and superseded APB 25. SFAS No. 123R addresses the ~~sale~~accounting offor ~~software~~share-based ~~licenses~~payment ~~when~~transactions ~~persuasive~~in ~~evidence~~which ofa ancompany receives employee services in exchange for either ~~arrangement~~equity ~~exists,~~instruments of the ~~product~~company ~~has~~or ~~been~~liabilities ~~accepted,~~that are based on the ~~fee~~fair isvalue ~~fixed~~of the company’s equity instruments or ~~determinable,~~that ~~and~~may ~~collection~~be ofsettled by the ~~resulting~~issuance ~~receivable~~of issuch ~~probable~~equity instruments. ~~Acceptance~~Under ~~generally~~SFAS ~~occurs~~No. ~~after~~123R, companies will no longer be able to account for share-based compensation transactions using the ~~product~~intrinsic ~~has~~method ~~been~~in ~~installed,~~accordance ~~training~~with ~~has~~APB ~~occurred~~25 but will be required to account for such transactions using a fair-value method and recognize the ~~product~~expense is in ~~clinical~~the ~~use~~consolidated atstatement ~~the~~of earnings. ~~customer~~SFAS ~~site~~No. ~~For~~123R ~~distributor~~is ~~related~~effective ~~transactions,~~beginning ~~acceptance~~in ~~occurs~~the ~~with~~Company’s ~~delivery~~fourth quarter of ~~software~~fiscal ~~registration~~year ~~keys~~2005 and allows, but does not require, companies to restate the ~~distributor~~full fiscal year of 2005 to reflect the impact of expensing share-based payments under SFAS No. 123R. The Company has not yet determined which fair-value method and transitional provision it will follow. The impact on the Company’s ~~order~~consolidated ~~fulfillment~~financial ~~department~~statements of applying the Black-Scholes option valuation method of accounting for stock options is disclosed in the Accounting for Stock-Based Compensation section above.

~~The~~NOTE ~~first~~3 ~~year~~– ofOther ~~maintenance~~Intangible ~~and~~Assets 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 recognize that portion over the remaining term of the included maintenance and support period. Fair value of services, such as training or consulting, are 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 contract 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~~following ~~pays~~table areflects ~~deposit typically equal to~~ the ~~initial~~gross ~~annual~~carrying ~~fee~~amount ~~upon signing the license agreement,~~ and ~~the~~accumulated ~~Company~~amortization ~~invoices the customer for subsequent annual fees 60 days before the anniversary date~~ of the ~~signed agreement. The~~ Company’s ~~recognizes~~intangible ~~revenue~~assets ~~for~~on the ~~annual~~consolidated ~~fees~~balance ~~under~~sheets ~~these~~as ~~term~~follows ~~license~~(in ~~agreements~~thousands): ~~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.


	December 31, 2004			September 30, 2004
Technology	$	9,398		$	9,398
Customer base		3,388			3,388
Non-compete		260			260
Trade name		469			469

		13,515			13,515
Accumulated amortization		(6,404	)		(5,823	)

Total other intangible assets, net	$	7,111		$	7,692

InAmortization ~~December~~expense ~~2003,~~for ~~the Company added a pathology information management system~~those tointangible ~~its suite of product offerings with the acquisition of certain~~ assets ofstill ~~Tamtron~~required ~~Corporation~~to ~~from~~be ~~IMPATH~~amortized ~~Inc.~~under ~~(see~~SFAS ~~Note 6)~~No. ~~Pathology~~142 ~~information~~was ~~management~~$581,000 ~~systems involve significant implementation~~ and ~~customization efforts essential to the functionality of the related products. Accordingly~~$120,000 ~~the Company recognizes the license~~ and ~~professional~~for ~~consulting services generated through~~ the ~~sale~~three ofmonths ~~pathology~~ended ~~management~~December ~~information systems using the percentage-of-completion method using labor hours incurred as prescribed by SOP No. 81-1~~31, ~~“Accounting~~2004 ~~for Performance of Construction-Type~~ and ~~Certain~~2003, ~~Product-Type Contracts~~respectively.” The ~~progress~~Company ~~toward~~estimates ~~completion~~amortization isexpense ~~measured based~~ on ~~labor~~a ~~hours~~straight-line ~~incurred~~basis ~~as compared~~ to ~~total estimated~~be ~~hours~~$1,744,000 ~~to complete. The Company accounts~~ for ~~a change in estimate in~~ the ~~period~~remainder ~~the~~of ~~change~~fiscal ~~was identified~~2005. ~~Provisions~~For ~~for~~fiscal ~~estimated~~years ~~contract~~2006 ~~losses~~through ~~are~~2011, ~~recognized in~~ the ~~period~~Company inestimates ~~which~~amortization ~~the~~expense ~~loss~~of ~~becomes~~$1,797,000, ~~probable~~$1,410,000, ~~and~~$1,410,000, ~~can~~$468,000, be$141,000 ~~reasonably~~and ~~estimated~~$28,000, respectively.

~~The~~NOTE ~~Company~~4 ~~has~~– ~~also~~Commitments 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.

6Operating leases

~~Table~~The ofCompany ~~Contents~~leases its facilities and premises under noncancelable operating leases, which expire between October 2004 and March 2007. The leases in Mountain View, California and in Cambridge, Massachusetts have options to extend the leases for additional terms ranging from two to five years. Under these agreements, the Company is responsible for certain maintenance costs, taxes and insurance expenses. The Company also leases premises in various locations on a month to month basis.

~~IMPAC~~6 ~~SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES~~In TOaddition, ~~CONDENSED~~the ~~CONSOLIDATED~~Company ~~FINANCIAL~~leases ~~STATEMENTS—~~three automobiles and office equipment under operating leases with expiration dates through July 2007, each having purchase options at the end of the lease term. At December 31, 2004, aggregate future minimum payments under noncancelable operating leases are as follows (~~Continued~~in thousands):

(unaudited)


Fiscal Year
Remainder of 2005	$	2,351
2006		2,753
2007		1,115

	$	6,219

~~Accounting~~In July 2002, the Company entered into service agreements for ~~stock~~telecommunications services through 2007. The services contracted for include wireless, frame-~~based~~relay, ~~compensation~~voice/data and internet transport services. In September 2004, the Company entered into a distribution agreement with Advizor Solutions to provide third party analysis products. At December 31, 2004, total future minimum obligations under these agreements are as follows (in thousands):

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


Fiscal Year
Remainder of 2005	$	670
2006		870
2007		561

	$	2,101

~~The~~Capital ~~Company~~lease ~~uses the intrinsic value method of APB Opinion No.~~obligations 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 loss attributable to common stockholders as reported during the three months ended December 31, 2003 and 2002.

~~Had~~During ~~compensation~~2000, ~~costs been determined based upon~~ the ~~fair~~Company ~~value~~acquired atoffice ~~the~~furniture ~~grant date, consistent with the methodology prescribed~~ under ~~SFAS~~a ~~No.~~capital ~~123, the~~lease. ~~Company’s total stock-based compensation cost~~Payments, ~~pro~~comprising ~~forma~~both ~~net~~principal ~~income (loss) available for common stockholders~~ and ~~pro~~interest, ~~forma~~were ~~net~~due ~~income~~in ~~(loss)~~sixty ~~per~~equal ~~common~~monthly ~~share,~~installments ~~basic~~through ~~and~~March ~~diluted,~~2005. ~~would~~The ~~have~~Company ~~been~~paid asthe ~~follows~~capital (lease in ~~thousands,~~full ~~except~~during ~~per~~fiscal ~~share~~year ~~data):~~ 2004.

	Three Months Ended December 31,
	2003			2002
				Restated (See Note 1)
Net income (loss) available for common stockholders as reported	$	684		$	(1,542	)
Deduct: Stock-based employee compensation determined under a fair value based method		(274	)		(67	)
Pro forma net income (loss) available for common stockholders	$	410		$	(1,609	)
Net income (loss) per common share, basic
As reported	$	0.07		$	(0.21	)
Pro forma	$	0.04		$	(0.22	)
Net income (loss) per common share, diluted
As reported	$	0.07		$	(0.21	)
Pro forma	$	0.04		$	(0.22	)

In connection with the Tamtron/MRS acquisition in December 2003, the Company assumed several capital lease obligation liabilities. The Company paid all acquired capital leases off in full during fiscal year 2004.

~~The~~Royalties ~~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~~software ~~dividends.~~development Noagreement ~~options were granted during the three months ended December 31, 2003 and 2002.~~

~~Other~~The Company has ~~comprehensive~~contracted ~~income~~with ~~(loss)~~third parties to supply data used in conjunction with the Company’s products. These contracts provide for payment of royalties ranging from 1.0% to 5.0% of future net sales from certain products.

~~Comprehensive~~Legal ~~income~~proceedings (loss) generally represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. The Company’s unrealized gains and losses on available-for-sale

7Purported Shareholder Class Action Lawsuits

~~Table~~The following three putative securities class actions that were filed after the Company’s March 1, 2004 announcement of ~~Contents~~its intent to restate its financial statements for fiscal years 2000 through 2003 have been voluntarily dismissed by the plaintiffs that filed the actions.

On September 8, 2004, an alleged shareholder of the Company filed a putative securities class action lawsuit in the United States District Court for the Northern District of California. See Operating Engineers Construction Industry and Miscellaneous Pension Fund (Local 66 — Pittsburgh), on Behalf of Itself and All Others Similarly Situated v. IMPAC ~~SYSTEMS~~Medical Systems, ~~INC~~Inc., ~~AND~~Joseph ~~SUBSIDIARIES~~K. Jachinowski and Kendra A. Borrego (the “Operating Engineers action”). The lawsuit alleged, among other things, that during the period from November 20, 2002 to May 13, 2004 (the “class period”), the Company falsely reported its results for fiscal years 2000 to 2003 through improper revenue recognition, and thereby artificially inflated the price of the Company’s stock. The plaintiff purported to have brought this lawsuit as a class action on behalf of all persons who purchased the Company’s securities on the open market during the class period.

~~NOTES~~On TOSeptember ~~CONDENSED~~14, ~~CONSOLIDATED~~2004, ~~FINANCIAL~~two ~~STATEMENTS—~~individuals filed a second purported securities class action lawsuit in the United States District Court for the Northern District of California that was substantively identical to the one filed on September 8, 2004. See Alan Lerner and Marvin Rogers, on Behalf of Themselves and All Others Similarly Situated v. IMPAC Medical Systems, Inc., Joseph K. Jachinowski and Kendra A. Borrego (~~Continued~~the “Lerner action”). The second lawsuit alleged the same claims against the same defendants on behalf of the same purported class of shareholders (those who purchased the Company’s securities on the open market during the period from November 20, 2002 to May 13, 2004) as the earlier-filed lawsuit.

On September 21, 2004, another individual filed a third putative securities class action lawsuit in the United States District Court for the Northern District of California. See John Maras, Individually and On Behalf of All Others Similarly Situated v. IMPAC Medical Systems, Inc., Joseph Jachinowski, Kendra Borrego, David Auerbach, and James Hoey (~~unaudited~~the “Maras action”). This lawsuit alleged the same claims under the federal securities laws as the two earlier-filed lawsuits, and named as defendants, in addition to the Company and the two executives named in the two earlier-filed lawsuits, two other executive officers of the Company. This lawsuit alleged the same class period as the two earlier-filed actions (i.e., November 20, 2002 to May 13, 2004), and likewise alleged that during the class period the Company overstated its financial results for fiscal years 2000 to 2003 through improper revenue recognition, allegedly resulting in artificial inflation of the price of the Company’s stock during the class period. This action further alleged that each of the four individual defendants sold shares of the Company’s stock during the class period while in possession of material nonpublic information.

~~securities~~On ~~and~~January ~~cumulative~~11, ~~translation~~2005, the ~~adjustments~~plaintiff ~~represent~~in the ~~components~~Maras action filed a notice of ~~comprehensive~~voluntary ~~loss~~dismissal ~~that~~of ~~were~~his ~~excluded~~complaint. ~~from~~In view of this notice of voluntary dismissal, the ~~net~~Court ~~loss~~on ~~attributable~~January 12, 2005, entered an order directing the clerk of the court to ~~common~~close the case file ~~stockholders~~and terminate all motions. ~~Total~~On ~~comprehensive~~January ~~income~~24, ~~(loss)~~2005, ~~for~~the plaintiff in the ~~three~~Operating ~~months~~Engineers ~~ended~~action, ~~December~~and 31the plaintiffs in the Lerner action, ~~2003~~filed ~~and~~a ~~2002~~notice of voluntary dismissal of their respective complaints. On January 26, isthe ~~presented~~Court entered an order in each of these cases directing the ~~following~~clerk ~~table~~to ~~(in~~close ~~thousands):~~the case file and terminate all motions.

	Three Months Ended December 31,
	2003			2002
				Restated (See Note 1)
Net income (loss) available to common stockholders	$	684		$	(1,542	)
Other comprehensive income (loss):
Change in unrealized gain (loss) on securities		(24	)		5
Foreign currency translation adjustments		6			(6	)
Comprehensive income (loss)	$	666		$	(1,543	)

Indemnification agreements

~~Net~~The ~~income~~Company enters ~~(loss)~~into standard indemnification arrangements in its ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the ~~per~~indemnified ~~common~~party, ~~share~~generally its business partners or customers, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its products. The term of these indemnification agreements is generally perpetual anytime after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.

~~Basic~~7 net income (loss) per common share is computed by dividing net income (loss) available for common stockholders by the weighted-average number of vested common shares outstanding for the period. Diluted net income (loss) per common share is computed giving effect to all potential dilutive common stock, including options and redeemable convertible preferred stock.

AThe ~~reconciliation~~Company ofhas entered into indemnification agreements with its directors and officers that may require the ~~numerator~~Company: to indemnify its directors and ~~denominator~~officers ~~used~~against inliabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature; to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified; and to make good faith determination whether or not it is practicable for the ~~basic~~Company to obtain directors’ and ~~diluted~~officers’ ~~net~~insurance. ~~loss~~The ~~per~~Company ~~share~~currently ~~follows~~has directors’ ~~(in~~and ~~thousands):~~officers’ insurance.

	Three Months EndedDecember 31,
	2003		2002
			Restated (See Note 1)
Numerator
Net income	$	684	$	687
Accretion of redeemable convertible preferred stock		—		(2,229	)
Net income (loss) available to common stockholders	$	684	$	(1,542	)
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

NOTE 5 – Subsequent Events

~~The~~Acquisition ~~following outstanding~~of ~~options and redeemable convertible preferred stock were excluded from~~ the ~~computation~~Company ofby ~~diluted~~Elekta ~~net~~AB ~~loss per share as their effect is antidilutive:~~

	Three Months Ended December 31,
	2003	2002
	(in thousands)
Options to purchase common stock	90	626

Elekta AB (“Elekta”) and the Company announced an agreement on January 18, 2005, under which Elekta will acquire the Company. The acquisition will enable Elekta, a world leading supplier of advanced clinical solutions for high precision radiation treatment of cancer and for non- or minimally invasive treatment of brain disorders, to offer customers a new, broad array of health care information products for clinical, administrative, outcomes and decision support purposes.

8Under the terms of the agreement, Elekta will pay $24.00 in cash for each share of the Company’s common stock outstanding, which represents a premium of 22% over the Company’s closing price on January 14, 2005, and equates to a diluted equity value of approximately $250 million and an enterprise value of approximately $190 million. The merger is contingent upon approval of the transaction by the Company’s stockholders, receipt of Hart-Scott-Rodino regulatory approval and other customary closing conditions. The Company’s board of directors has approved the acquisition and recommends that stockholders vote in favor of the transaction. The Company intends to hold a special stockholders meeting to approve the merger in mid-April 2005 and to close the transaction shortly thereafter. Major stockholders of the Company, together holding approximately 33 percent of the Company’s shares, have entered into agreements with Elekta to vote their shares in favor of the transaction.

~~Table~~Legal ofproceedings ~~Contents~~

On January 21, 2005, an alleged holder of IMPAC ~~SYSTEMS~~common stock filed a purported class action lawsuit, ~~INC~~“Stakely v. ~~AND~~IMPAC ~~SUBSIDIARIES~~Medical Systems, Inc., et al.” in California Superior Court for the County of Santa Clara. The complaint names as defendants IMPAC and each member of our board of directors. The complaint alleges that, in pursuing the merger with Elekta and approving the merger agreement, the directors violated their fiduciary duties to the holders of IMPAC common stock by, among other things, failing to implement a process designed to maximize stockholder value, engaging in self-dealing and securing benefits for certain officers and directors of IMPAC at the expense of the plaintiffs and other stockholders. The complaint seeks a preliminary and permanent injunction to enjoin the company from consummating the merger, as well as attorneys’ fees and other remedies.

~~NOTES~~8 ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(unaudited)~~Item 2. M anagement’s Discussion and Analysis of Financial Condition and Results of Operations

~~Recent~~The ~~accounting~~following ~~pronouncements~~discussion should be read in conjunction with our consolidated financial statements and the related notes appearing in our Form 10-K for the fiscal year ended September 30, 2004 filed December 14, 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.

InOverview 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.

InWe ~~May~~provide ~~2003,~~information ~~the~~technology ~~EITF~~systems ~~reached a~~for ~~consensus~~cancer ~~on EITF Issue No~~care. ~~03-05,~~Our ~~“Applicability~~systems ofprovide ~~AICPA~~electronic ~~Statement~~medical ~~of Position 97-2~~record, ~~Software Revenue Recognition~~imaging, tolaboratory ~~Non-Software Deliverables in Arrangements Containing More-Than-Incidental Software”. EITF No. 03-05 addresses the~~information ~~applicability~~management, ofdecision ~~Statement~~support, ofscheduling ~~Position No. 97-2 regarding software~~ and ~~non-software~~billing ~~deliverables~~applications in aan ~~multiple~~integrated ~~element~~platform ~~arrangement, giving consideration~~ to ~~whether~~manage the ~~deliverables~~complexities ~~are~~of ~~essential~~cancer tocare, ~~the~~from ~~functionality~~detection ~~of one another~~ and ~~whether~~diagnosis ~~the whole~~through ~~arrangement~~treatment ~~falls~~and ~~within SOP 97~~follow-~~2 as a result~~up. ~~EITF~~We ~~Issue~~were ~~No.~~founded ~~03-05~~in is1990, ~~effective~~and ~~for~~our ~~interim~~growth ~~periods~~has ~~beginning~~been primarily ~~after August 13~~organic, ~~2003.~~supplemented ~~The~~by ~~adoption~~several ofproduct ~~EITF Issue No. 03-05 did not have a material impact on the Company’s financial position~~ and ~~results~~small ofcompany ~~operations~~acquisitions.

~~NOTE~~Acquisition ~~4—Commitments~~of IMPAC by Elekta AB

~~Facilities~~Elekta AB (“Elekta”) and IMPAC Medical Systems, Inc. announced on January 18, 2005 an agreement under which Elekta will acquire IMPAC. The acquisition will enable Elekta, a world leading supplier of advanced clinical solutions for high precision radiation treatment of cancer and for non- or minimally invasive treatment of brain disorders, to offer customers a new, broad array of health care information products for clinical, administrative, outcomes and decision support purposes.

InUnder ~~addition~~the toterms ~~facility~~of ~~leases~~the ~~listed~~agreement, inElekta ~~our~~will ~~Form~~pay ~~10-K/A~~$24.00 ~~filed~~in oncash ~~April~~for ~~16,~~each ~~2004,~~share onof ~~December~~IMPAC ~~23,~~common ~~2003~~stock outstanding, which represents a premium of 22 percent over the ~~Company~~IMPAC ~~acquired~~closing ~~certain~~price ~~assets~~on January 14, 2005, and ~~assumed~~equates ~~certain~~to ~~liabilities~~a diluted equity value of ~~Tamtron~~approximately ~~Corporation~~$250 million and ~~Medical~~an ~~Registry~~enterprise ~~Services,~~value ~~Inc.~~of ~~(see~~approximately ~~Note 6)~~$190 million. InThe ~~connection~~merger ~~with~~is ~~this~~contingent ~~asset~~upon ~~purchase,~~approval of the ~~Company~~transaction ~~assumed~~by ~~lease~~IMPAC’s ~~agreements~~stockholders, ~~for facilities~~receipt inof ~~San~~Hart-Scott-Rodino ~~Jose,~~regulatory ~~California~~approval and ~~Hackensack,~~other ~~New~~customary ~~Jersey~~closing ~~from~~conditions. ~~December~~IMPAC’s ~~23,~~board ~~2003~~of ~~forward.~~directors ~~The~~has ~~leases~~approved ~~expire~~the inacquisition and ~~March~~recommends ~~2004~~that ~~and~~stockholders ~~July~~vote ~~2005,~~in ~~respectively~~favor of the transaction. ~~Total~~IMPAC ~~minimum~~intends ~~future~~to ~~payments,~~hold ~~payable~~a inspecial ~~monthly~~stockholders ~~installments,~~meeting ~~due~~to ~~under~~approve the ~~lease~~merger ~~agreements as~~in ~~assumed~~mid-April ~~amounted~~and to ~~$212,653.~~close ~~Total~~the ~~minimum~~transaction ~~future~~shortly ~~operating~~thereafter. ~~and~~Major ~~facility~~stockholders ~~lease~~of ~~payments~~IMPAC, ~~inclusive~~together ofholding approximately ~~amounts~~33 ~~assumed~~percent inof the ~~Tamtron/MRS~~company’s ~~Acquisition~~shares, ~~payable~~have inentered ~~monthly~~into ~~installments,~~agreements ~~amounted~~with Elekta to ~~$8.8~~vote ~~million~~their asshares ofin ~~December~~favor ~~31,~~of ~~2003~~the transaction.

~~NOTE~~Recent ~~5—Common~~Factors ~~Stock~~Affecting ~~Subject~~Business ~~to Rescission Rights~~

~~Prior~~Although toour ~~the~~revenues ~~effectiveness~~in offiscal ~~the~~2004 ~~Company’s~~increased ~~registration~~over ~~statement~~fiscal ~~for its initial public offering~~2003, ~~an officer of~~ the ~~Company~~growth ~~sent~~rate anin ~~email~~our tocore 15oncology ~~friends whom he had designated as potential purchasers~~ point-of-care ~~common~~business, ~~stock~~which inconstitutes ~~a directed share program in connection with~~ the ~~initial~~majority ~~public~~of ~~offering. The email was not~~our ~~accompanied~~non-recurring byrevenue, aslowed. ~~preliminary~~We ~~prospectus~~initially ~~and~~noted ~~may have constituted~~ a ~~prospectus~~softening ~~that did not meet the requirements~~ of ~~the~~backlog ~~Securities~~in ~~Act of 1933. If~~ the ~~email~~first ~~did~~quarter ~~constitute a violation~~ of ~~the~~fiscal ~~Securities~~2004, ~~Act of 1933~~which, ~~the~~at ~~recipients of~~ the ~~letter who purchased common stock in the Company’s initial public offering could have had the right~~time, ~~for~~was awithin ~~period~~historical ofnorms. ~~one year from the date of their purchase of common stock~~However, tobookings ~~obtain recovery of the consideration paid~~ in ~~connection~~our ~~with~~core ~~their~~business ~~purchase of~~remained ~~common~~soft ~~stock.~~throughout ~~For~~2004 ~~one~~and ~~year following~~ the ~~initial~~softness continued ~~public~~in ~~offering,~~ the ~~Company~~first ~~classified~~quarter ~~a total~~ of ~~6,500~~fiscal ~~shares~~2005. ~~issued~~We ~~with~~believe ~~rescission~~several ~~rights~~factors ~~outside~~contributed ofto ~~stockholders’~~this ~~equity,~~softness. ~~as the~~

9First, on the radiation oncology front, all three linear accelerator manufacturers have introduced “next generation” devices which have new operator front-ends and require new integration strategies. This has created uncertainty in the marketplace as customers are not fully aware of the connectivity options and the device manufacturers have used it as a means to confuse the marketplace and bundle their proprietary solutions. We have begun testing our interfaces to the new devices in the first quarter of fiscal 2005 and will continue those activities throughout the next few months. Second, we are also facing increasing pressure from competitors who have bundled deals where the software component is being offered at significant discounts as we have seen price shifting from the software to the hardware components putting us at a pricing disadvantage. Third, the second quarter of fiscal 2004 also witnessed a consolidation of oncology software players with two independent medical oncology IT players being acquired by cancer related companies. Fourth, Medicare reimbursement policies also continue to damper oncology IT spending. Decreased reimbursements in the radiation oncology segment and anticipated reductions in the medical oncology segment led to delays in purchasing as facilities re-examine their budgets and return on investment expectations. Fifth, over the last several quarters our accounting restatements had an effect on bookings as some of our competitors used the event to sell against us. We completed our financial restatement in the first quarter of fiscal 2005. Finally, if our new installation backlog continues to contract, we will have less installation scheduling flexibility, which will expose our revenue stream to quarterly fluctuations if customers are not willing to take installation due to, for example, construction or equipment delays.

~~Table~~Net ofSales ~~Contents~~and Revenue Recognition

~~IMPAC~~We ~~SYSTEMS~~sell our products directly throughout the world and primarily in North America, ~~INC~~Europe and the Pacific Rim countries. ~~AND~~In ~~SUBSIDIARIES~~addition, we use non-exclusive distributors to augment our direct sales efforts. Sales through our primary distributor, Siemens Medical Systems, Inc., represented 10.2% of our total net sales in the three months ended December 31, 2004 and 7.1% for the same period in fiscal 2004. Distributor sales as a percentage of net sales have increased over the past year as their demand for information technology products has grown. 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 7.4% of our net sales in the three months ended December 31, 2004 and 2.1% of our net sales for the same period in fiscal 2004. International sales as a percentage of net sales have increased over the past year as the demand of our information systems have grown due to our international expansion and international distributor sales have increased.

~~NOTES~~We TOlicense ~~CONDENSED~~point-of-care ~~CONSOLIDATED~~and ~~FINANCIAL~~registry ~~STATEMENTS—(Continued)~~software products. Our point-of-care products are comprised of modules that process administrative, clinical, imaging and therapy delivery information. Our registry products aggregate data on patient outcomes for regulatory and corporate reporting purposes. Currently, a majority of our point-of-care software is licensed on a perpetual basis, and a majority of our registry sales are licensed on a term basis.

~~(unaudited)~~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.

~~redemption~~The ~~features~~decision ~~were~~to ~~not~~implement, ~~within~~replace, ~~the~~expand ~~control~~or ofsubstantially ~~the~~modify ~~Company.~~an information ~~Any~~system ~~possible~~is ~~rescission~~a ~~rights~~significant ~~would~~commitment ~~have~~for ~~lapsed~~healthcare inorganizations. ~~November~~In ~~2003~~addition, ~~and~~our systems typically require significant capital expenditures by the 6customer. Consequently,~~500~~ ~~shares~~we ~~were~~experience long sales and implementation cycles. The sales ~~reclassified~~cycle for our systems ranges from nine to ~~stockholder’s~~twenty-four ~~equity~~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 greater than the typical implementation cycle of three to nine months.

~~NOTE~~We ~~6—Acquisitions~~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 our Form 10-K for the fiscal year ended September 30, 2004 filed December 14, 2004.

On9 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.

~~The~~We ~~acquisition~~record ~~of assets~~orders ~~and~~for ~~liabilities~~products licensed on a perpetual basis upon the receipt of ~~Tamtron~~a ~~and~~signed ~~MRS~~purchase ~~was~~and ~~accounted~~license ~~for~~agreement, purchase inorder, ~~accordance~~and ~~with~~a ~~SFAS~~substantial Nodeposit. ~~141~~We ~~“Business~~record ~~Combinations”~~orders ~~using~~for ~~the~~products ~~purchase~~licensed ~~method~~on ofa ~~accounting~~term ~~and,~~basis ~~accordingly,~~upon ~~the~~receipt ~~results~~ of ~~operations~~a ofsigned ~~Tamtron~~purchase and ~~MRS~~license ~~were~~agreement, ~~included~~purchase inorder ~~the Company’s~~and ~~consolidated~~a ~~financial~~deposit ~~statements~~typically ~~subsequent~~equal to ~~December~~the ~~23,~~first ~~2003~~year’s fees. ~~The~~All ~~purchase~~contract deposits ~~price~~are ~~was~~held ~~allocated~~as toa liability on the ~~net~~condensed ~~tangible~~consolidated balance sheet until products are delivered and ~~identifiable~~accepted ~~intangible~~as ~~assets~~outlined ~~acquired~~in the terms and conditions set forth in the ~~liabilities~~purchase ~~assumed~~and ~~based~~license onagreement. ~~their~~Maintenance ~~estimated~~and ~~fair~~support ~~values~~is atrecorded as deferred revenue upon the invoice date ofand ~~acquisition~~held as ~~determined~~a bycurrent ~~management~~liability on the balance sheet. ~~The~~Under ~~excess~~the terms of the original purchase ~~price~~and ~~over~~license ~~the~~agreement, ~~fair~~maintenance ~~value~~and ofsupport ~~the~~automatically ~~net~~renews ~~identifiable~~on ~~assets~~an ~~was~~annual ~~allocated~~basis tounless ~~goodwill~~the customer provides a written cancellation. ~~The~~We ~~purchase~~recognize ~~price~~revenue ~~was~~from ~~allocated~~these assales ~~follows~~ratably ~~(in~~over ~~thousands):~~the underlying maintenance period.

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

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.

~~The~~Our ~~Company~~sales arrangements with customers frequently cover multiple products and services. Our revenue is ~~amortizing~~ ~~developed/core~~subject ~~technology~~to SOP 97-2, ~~the~~as ~~customer~~further ~~base~~discussed ~~and~~in ~~tradename~~Note on2 ato ~~straight~~our ~~line~~condensed ~~basis~~consolidated ~~over~~financial statements. In approximately two-thirds toof ~~five~~our ~~years~~arrangements, ~~five~~our tocustomers ~~seven~~request ~~years~~delivery and ~~two~~installation toof ~~six~~our ~~years~~software products in one phase, ~~respectively.~~and Inwe ~~accordance~~generally ~~with~~can ~~SFAS~~recognize ~~No.~~revenue ~~142,~~when nothe ~~amortization~~software ~~has~~products have been ~~recorded~~installed onand ~~the goodwill.~~accepted Asby aour ~~result~~customers. In the balance of ~~these~~our ~~acquisitions~~arrangements, ~~the~~our ~~Company~~customers ~~expects~~request tothat ~~recognize~~delivery ~~amortization~~and ~~expense~~installation of $1our software products be delivered in multiple phases.5 ~~million~~Such ~~during~~multiple ~~the~~phased ~~remainder~~installations ofmay ~~fiscal~~be ~~year~~requested, ~~2004.~~for ~~The~~example, ~~Company~~when ~~expects~~the tocustomer ~~recognize~~has ~~amortization~~not ~~expense~~installed medical ofdevices $2with which our software will interact.0 ~~million~~In those instances, $1revenue for the entire arrangement generally cannot be recognized until the last software product is installed and accepted.6 ~~million~~In a few instances, ~~$1.4~~the customer may never ~~million,~~request $1delivery of all the software products included in the arrangement.4 ~~million~~In ~~and~~those ~~$638~~instances,~~000~~ ~~during~~revenue ~~fiscal~~from ~~years~~the ~~2005,~~arrangement ~~2006~~is recognized at the time we make the judgment, ~~2007~~based on sufficient competent evidence, ~~2008~~that ~~and~~it ~~thereafter~~is remote that the customer will request delivery of the remaining undelivered software products, ~~respectively~~i.e., when they have been constructively cancelled.

~~The~~We ~~fair~~recognize ~~value~~revenue ofonce ~~the~~software ~~identifiable~~products ~~assets,~~outlined ~~including~~in the ~~portion~~related ~~of the~~ purchase ~~price~~and ~~attributed~~license toagreement ~~the~~have ~~developed/core~~been ~~technology~~installed, ~~acquired~~accepted ~~in-process research~~ and ~~development,~~in ~~the~~clinical ~~customer~~use ~~base~~at ~~and~~ the ~~tradename~~customer ~~was determined by management~~site. When ~~The~~a ~~income~~customer ~~approach~~accepts ~~was~~only ~~used~~a tosubset ~~value~~of ~~developed/core~~the ~~technology,~~products ~~acquired~~outlined in~~-process~~ ~~research~~a ~~and~~multiple ~~development,~~element ~~the~~purchase ~~customer~~and ~~base~~license agreement and ~~the~~we ~~tradename,~~have ~~which includes~~not anestablished ~~analysis~~vendor ofspecific ~~the~~objective ~~completion costs~~evidence, ~~cash~~or ~~flows~~VSOE, ~~other~~of ~~required~~the ~~assets~~fair ~~and~~value ~~risk~~of ~~associated~~the ~~with~~undelivered ~~achieving~~elements, ~~such~~we ~~cash~~invoice the ~~flows.~~customer ~~Gross~~for ~~margins~~the ~~were~~accepted ~~estimated~~products toand berecord ~~stable~~the ~~and~~transaction ~~operating~~as ~~expense~~deferred ~~ratios~~software ~~were~~license ~~estimated~~revenue. toWe ~~slightly~~recognize ~~improve~~the ~~over~~deferred ~~the years.~~revenue ~~The~~when ~~present~~all ~~value~~elements ofin ~~the~~a ~~cash~~multiple ~~flows~~element ~~for~~arrangement ~~MRS~~are ~~was~~accepted, ~~calculated~~VSOE ~~with~~of athe ~~discount~~fair ~~rate~~value ofis ~~15%~~established ~~for~~on the remaining ~~developed/core~~undelivered ~~technology~~elements, ~~customer~~or ~~base~~the ~~and~~undelivered ~~tradename,~~elements ~~and~~for ~~20%~~which ~~for~~VSOE of the ~~in-process~~fair ~~research~~value ~~and~~does ~~development.~~not ~~The~~exist ~~present~~have ~~value~~been offormally ~~the~~or ~~cash~~constructively ~~flows for~~canceled, ~~Tamtron~~whichever ~~was~~occurs ~~calculated~~first. ~~with~~We arecognize ~~discount~~revenues ~~rate~~on ofsales ~~15%~~arrangements ~~for~~with ~~the~~undelivered ~~developed/core~~products that ~~technology~~have ~~and~~been ~~customer~~constructively ~~base,~~canceled ~~17.5%~~at ~~for~~ the ~~tradename~~date ~~and~~when ~~20%~~we ~~for~~have ~~the~~sufficient ~~in-process~~competent ~~research~~evidence ~~and~~of ~~development~~that cancellation.

10The 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 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.

~~Table~~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 ~~Contents~~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.

~~IMPAC~~We ~~SYSTEMS~~recognize revenue from third-party products and related configuration and installation services sold with our licensed software upon acceptance by the customer. We recognize revenue from third-party products sold separately from our licensed software upon delivery. Third-party products represented 3.0% of our total net sales in the three months ended December 31, ~~INC~~2004 and 4.3% ~~AND~~for ~~SUBSIDIARIES~~the same period in fiscal 2004. The decrease in third-party sales as a percentage of net sales is attributable to a lower growth rate in our third-party product sales.

~~NOTES~~We TOrecognize ~~CONDENSED~~distributor ~~CONSOLIDATED~~related ~~FINANCIAL~~revenues ~~STATEMENTS—(Continued)~~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.

~~(unaudited)~~Due to the significant implementation and customization efforts essential to the functionality of the related products, 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.

~~The~~Costs ~~in-process research~~ and ~~development~~Expenses 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~~A oflarge ~~approximately~~part ~~$13.1~~of ~~million~~our ~~represented~~company ~~the~~cost ~~excess~~structure ofis ~~the purchase~~driven ~~price~~by ~~over~~ the ~~fair~~number ~~value~~ of ~~the~~employees ~~net tangible~~ and ~~identifiable~~related ~~intangible~~benefit ~~assets~~and ~~acquired~~facility costs. ~~The~~As ~~Company~~a ~~believes~~result, ~~that~~a ~~its~~significant ~~existing~~amount ~~registry product offering along with the assets~~ of ~~MRS~~strategic ~~positions it as a leader in the market for data~~and ~~aggregation~~fiscal ofplanning ~~cancer~~is ~~care~~focused ~~information.~~on ~~The~~this ~~Company~~area, ~~also~~so ~~believes~~we ~~that~~can ~~the~~develop ~~addition~~internal ofresources ~~assets~~at ~~from Tamtron in the area of pathology information systems creates~~ a ~~more~~controlled ~~relevant~~ and ~~comprehensive~~sustainable ~~product offering to its customers~~rate. ~~The~~Since ~~combination~~revenue ~~of both~~recognition ~~acquisitions~~happens ~~allows~~subsequent ~~the Company~~ to ~~better~~all ~~achieve~~implementation ~~its~~and ~~goal~~training toactivities, ~~provide~~we aincur ~~total solution that manages~~ the ~~complexity~~costs of ~~cancer~~labor, ~~care~~travel ~~throughout~~and some ~~the~~third-party ~~spectrum~~product ofexpenses ~~detection,~~in ~~diagnosis, treatment and follow-up~~advance.

~~Pro~~Cost ~~Forma~~of ~~Financial~~sales ~~Information~~consists primarily of:

~~The~~• ~~following~~labor ~~pro~~costs ~~forma~~relating ~~financial~~to ~~information is based on~~ the ~~respective historical~~implementation, ~~financial statements of the Company~~installation, ~~Tamtron~~training and ~~MRS.~~application ~~The~~support ~~pro forma financial information reflects the consolidated results~~ of ~~operations~~our ~~as if the acquisitions~~ point-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 form data excludes non~~-~~recurring~~care ~~charges, such as in-process research~~ and ~~development~~registry 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). software;

	Three Months EndedDecember 31,
	2003		2002
Net sales	$	17,206	$	13,605
Net income available for common stockholders	$	4,655	$	579
Net income per common share,
Basic	$	0.48	$	0.08
Diluted	$	0.45	$	0.08
Weighted-average shares used in computing net income per common share:
Basic		9,758		7,469
Diluted		10,240		7,469

•

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

~~NOTE~~• ~~7—Subsequent~~direct ~~Events~~ expenses related to the purchase, shipment, installation and configuration of third-party hardware and software sold with our point-of-care software;

In• ~~January~~continuing ~~2004,~~engineering ~~the~~expenses ~~Company~~related ~~established~~to athe ~~wholly-owned subsidiary~~maintenance inof ~~Australia,~~existing ~~IMPAC~~released ~~Medical Systems Pty Ltd.~~ software;

~~In March~~• ~~2004,~~overhead ~~the~~attributed ~~Company entered into a lease agreement~~ to ~~lease~~our ~~new~~client ~~office~~services ~~space~~personnel; ~~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.~~ and

11• amortization of purchased technology.

~~Table~~10 ~~of Contents~~

System installations require several phases of implementation in the process of accepting product delivery and have led ~~Item~~to 2our development of a highly specialized client service organization. ~~Management’s~~ ~~Discussion~~All new orders require multiple site visits from our personnel to properly install, configure and ~~Analysis~~train customer personnel. In transactions where we are required to defer the recognition of ~~Financial~~software ~~Condition~~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 ~~Results~~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 ~~Operations~~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.

~~The~~Research ~~following~~and ~~discussion~~development ~~should~~expenses beinclude ~~read~~costs inassociated ~~conjunction~~ with ~~our consolidated financial statements and~~ the ~~related notes appearing in our Form 10-K/A for the fiscal year ended September 30~~design, ~~2003.~~development ~~Our discussion contains forward-looking statements based upon current expectations that involve risks~~ and ~~uncertainties,~~testing ~~such~~of as our ~~plans, objectives, expectations and intentions~~products. ~~Actual~~These ~~results~~costs ~~and the~~consist ~~timing~~primarily 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.~~

~~The~~• ~~Management’s~~salaries ~~Discussion~~ and ~~Analysis~~related ofdevelopment ~~Financial~~personnel Condition and Results of Operations presented below reflects the effects of the restatement of our condensed consolidated balance sheet as of December 31, 2002 and the condensed consolidated statement of operations and statement of cash flows for the three months ended December 31, 2002. See Note 8 to the condensed consolidated financial statements for further discussion of this matter. expenses;

~~Overview~~• software license and support fees associated with development tools;

We• ~~provide~~travel ~~information~~expenses ~~technology~~incurred ~~systems~~to ~~for~~test ~~cancer~~products ~~care. Our systems provide electronic medical record, imaging, decision support, scheduling, laboratory management and billing applications~~ in ~~an integrated platform to manage~~ the ~~complexities~~customer ofenvironment; ~~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~~overhead attributed to our development and ~~Revenue~~test ~~Recognition~~engineering personnel.

We ~~sell~~currently ~~our products~~expense ~~directly~~all ~~throughout~~research ~~the world~~ and ~~primarily~~development incosts ~~North~~as ~~America,~~incurred. ~~Europe~~Our research and ~~the~~development ~~Pacific~~efforts ~~Rim~~are ~~countries.~~periodically Insubject ~~addition,~~to wesignificant ~~use~~ non-~~exclusive~~recurring ~~distributors~~costs ~~to augment our direct sales efforts. Sales through our primary distributor, Siemens Medical~~that ~~Systems,~~can ~~Inc.,~~cause ~~represented~~fluctuations ~~7.3%~~in of our ~~total~~quarterly ~~net~~research ~~sales in the three months ended December 31, 2003~~ and ~~10.3%~~development ~~for~~expense ~~the same period in 2002~~trends. ~~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~~expect ~~signed~~that ~~agreements~~research ~~with other distributors, which have not yet generated sales. Revenues from the sale of our products~~ and ~~services~~development ~~outside~~expenses ~~the~~will ~~United~~increase ~~States accounted for 4.5% of our net sales~~ in ~~the~~absolute ~~three~~dollars ~~months ended December 31, 2003 and 6.2% of our net sales~~ for the ~~same~~foreseeable ~~period~~future ~~in 2002. The decline in international sales~~ as awe ~~percentage~~continue ~~of net sales is primarily attributable~~ to ainvest ~~higher growth rate~~ in ~~our~~product ~~domestic sales~~development.

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

~~Our~~• ~~focus~~salaries, ~~with~~commissions ~~regard to software licensing~~ and ~~maintenance~~related ~~and~~travel ~~support~~expenses ~~service~~for ispersonnel toengaged ~~provide flexibility~~ in ~~the~~sales ~~structure~~ and ~~pricing of our product offerings to meet~~ the ~~unique~~contracts ~~functional~~administration 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. process;

~~The~~• ~~decision~~salaries toand ~~implement,~~related ~~replace~~product marketing, ~~expand~~marketing ~~or substantially modify an information system is a significant commitment for healthcare organizations. In addition~~communications, ~~our~~media ~~systems~~services ~~typically~~and ~~require~~business ~~significant~~development ~~capital~~personnel expenses;

12• expenses related to marketing programs, public relations, trade shows, advertising and related communications; and

~~Table~~• ofoverhead ~~Contents~~attributed to our sales and marketing personnel.

~~expenditures~~We byhave ~~the~~recently ~~customer.~~expanded ~~Consequently~~our sales force, wemade ~~experience~~significant ~~long~~investments ~~sales~~in ~~and~~marketing ~~implementation~~communications ~~cycles.~~and ~~The~~increased ~~sales~~trade ~~cycle~~show ~~for~~activities ~~our~~to ~~systems~~enhance ~~ranges~~market ~~from~~awareness ~~six~~of toour ~~twenty-four~~products. ~~months~~We orexpect ~~more~~that ~~from~~sales ~~initial~~and ~~contact~~marketing toexpenses ~~contract~~will ~~execution.~~increase ~~Our~~in ~~implementation~~absolute ~~cycle~~dollars ~~generally~~for ~~ranges~~the ~~from~~foreseeable ~~three~~future toas ~~nine~~we ~~months~~continue ~~from~~to ~~contract~~expand ~~execution~~our tosales ~~completion~~and ofmarketing ~~implementation~~capabilities. In ~~addition~~transactions towhere ~~the~~we ~~core~~are ~~system,~~required ~~approximately~~to ~~one third~~defer ofthe ~~our~~recognition ~~customers~~of software ~~purchase~~license ~~additional~~revenue, ~~product modules along with~~ the ~~core~~associated ~~system~~incremental ~~that~~direct ~~they~~commission ~~intend~~expense tois ~~implement~~recorded ~~over~~as a ~~period~~prepaid ofexpense ~~time~~until ~~beyond~~ the ~~typical~~associated ~~implementation~~revenue ~~cycle~~is ~~of three to nine months~~recognized.

WeGeneral ~~have experienced significant variations in revenues~~ and ~~operating~~administrative ~~results from~~expenses ~~quarter~~primarily toconsist ~~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~~salaries ~~orders for products licensed on a perpetual basis upon the receipt of a signed purchase~~ and ~~license~~related ~~agreement~~administrative, ~~purchase order~~finance, ~~and~~human aresources, ~~substantial deposit. We record orders for products licensed on a term basis upon receipt of a signed purchase and license agreement~~regulatory, ~~purchase~~information ~~order~~services and aexecutive ~~deposit~~personnel typically equal to the first year’s fees. All contract deposits are held as a liability as outlined in the terms and conditions set forth in the purchase and license agreement. Maintenance and support is recorded as deferred revenue upon the invoice date and held as a current liability on the balance sheet. Under the terms of the original purchase and license agreement, maintenance and support automatically renews on an annual basis unless the customer provides a written cancellation. We recognize revenue from these sales ratably over the underlying maintenance period. expenses;

~~For~~• ~~direct~~other ~~software~~significant ~~sales~~expenses ~~licensed~~relate onto afacilities, ~~perpetual basis~~recruiting, weexternal ~~include~~accounting ~~one year of maintenance~~ and ~~support~~legal ~~as part of the purchase price. Standard annual fees for maintenance~~ and ~~support~~regulatory ~~after the first year equal 12% of the then current list price unless the customer negotiates other terms or service levels.~~ fees;

We• ~~recognize~~general ~~revenue~~corporate ~~once~~expenses; ~~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 canceled, whichever occurs first.

~~The~~• ~~first~~overhead ~~year~~attributed 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 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~~general ~~to recognize the related revenue, it is not be necessary to defer 12% of the list price~~ and ~~recognize~~administrative ~~that portion over the included maintenance and support period as the first year maintenance and support obligation is no longer applicable~~personnel. ~~In these cases, 12% of the license purchase price is classified as maintenance and services revenue at the time of revenue recognition.~~

~~For~~A ~~direct~~significant ~~software~~portion ~~sales~~of ~~licensed~~facility, oninfrastructure aand ~~term~~maintenance ~~basis,~~costs ~~the~~are ~~initial~~allocated ~~term~~as ~~lasts~~overhead ~~from three~~ to ~~five~~other ~~years~~functions ~~with~~based ~~annual~~on ~~renewals~~distribution ~~after~~of ~~the~~headcount. ~~initial~~We ~~term.~~expect ~~The~~that our ~~customer~~general ~~pays~~and aadministrative ~~deposit~~expenses ~~typically~~will ~~equal~~increase toif ~~the~~we ~~initial~~continue ~~annual~~as ~~fee upon~~a ~~signing~~public company.

13Depreciation and Amortization

~~Table~~Our property and equipment is recorded at our cost minus accumulated depreciation and amortization. We depreciate the costs of ~~Contents~~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 nine 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.

~~the~~11 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.

WeResults recognize revenue from third-party products and related configuration and installation services sold with our licensed software upon acceptance by the customer. We recognize revenue from third-party products sold separately from our licensed software upon delivery. Third-party products represented 4.6% of ~~our~~Operations total net sales in the three months ended December 31, 2003 and 4.3% for the same period in 2002. The increase in third party sales as a percentage of net sales is attributable to a higher growth rate in our third party product sales.

WeThe ~~recognize~~following ~~distributor~~table ~~related~~sets ~~revenues~~forth ~~upon~~certain ~~the~~operating ~~receipt~~data ofas a ~~completed~~percentage purchase order and the related customer information needed to generate software registration keys, which allow us to distribute the software to the end user and satisfy our regulatory information tracking requirements. We provide maintenance and support to our distributor. The cost of ~~the first~~net ~~year’s~~sales ~~support is included in the fee. Renewal support is purchased~~ for ~~5% of~~ the ~~transfer~~periods ~~price~~indicated: 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.


	Three Months Ended December 31,
	2004		2003
Sales:
Software license and other, net	50.8	%	59.8	%
Maintenance and services	49.2		40.2

Total net sales	100.0		100.0

Cost of sales:
Software license and other, net	24.0		19.4
Maintenance and services	13.5		14.3
Amortization of purchased technology	2.2		0.4

Total cost of sales	39.7		34.1

Gross profit	60.3		65.9

Operating expenses:
Research and development	19.2		15.8
Sales and marketing	29.8		26.3
General and administrative	12.5		7.3
Amortization of intangible assets	1.1		0.3
In-process research and development write-off	—		3.6

Total operating expenses	62.6		53.3

Operating income (loss)	(2.3	)	12.6
Interest and other income, net	2.0		1.0

Income (loss) before benefit (provision) from income taxes	(0.3	)	13.6
Benefit (provision) from income taxes	0.1		(4.5	)

Net income (loss)	(0.2	)%	9.1	%

~~Costs~~Comparison of Three Months Ended December 31, 2004 and ~~Expenses~~2003

ANet ~~large~~Sales. ~~part~~Net ofsales ~~our~~increased ~~company~~12.7% ~~cost~~to $17.4 ~~structure~~million isin ~~driven by~~ the ~~number~~three ~~of employees~~months ~~and~~ended ~~all~~December ~~related~~31, ~~benefit~~2004 ~~and~~from ~~facility costs~~$15.4 Asmillion afor ~~result,~~the asame ~~significant~~period ~~amount~~in ~~of strategic and~~ fiscal ~~planning~~2004 isincluding ~~focused~~$3.3 onmillion ~~this~~related ~~area,~~to sothe weacquisition ~~can~~of ~~develop~~certain ~~internal~~assets ~~resources at a controlled~~ and ~~sustainable~~certain ~~rate.~~liabilities ~~Since~~of ~~revenue~~Tamtron ~~recognition~~Corporation (“Tamtron”) ~~happens~~and ~~subsequent~~Medical toRegistry ~~all~~Services, ~~implementation~~Inc. ~~and training activities~~(“MRS”), ~~we incur~~ the ~~costs~~PowerPath® ofpathology information ~~labor,~~management ~~travel~~ and ~~some~~cancer ~~third~~registry ~~party~~information ~~product~~system ~~expenses~~businesses inof ~~advance~~IMPATH Inc.

~~Cost~~Net software sales decreased 4.2% to $8.8 million in the three months ended December 31, 2004 from $9.2 million for the same period in fiscal 2004. The decline is a result of decreased sales ~~consists~~of ~~primarily~~new systems in oncology of: $1.9 million, decreased sales of additional products to existing customers of $564,000 and imaging systems of $332,000, partially offset by increased sales of registry systems of $1.3 million and pathology lab systems of $1.1 million. We deferred a net $2.3 million of software license revenue in the three months ended December 31, 2004 as compared to $162,000 for the same period in fiscal 2004.

•Maintenance ~~labor~~and ~~costs~~services ~~relating~~sales increased 37.8% to $8.6 million for the ~~implementation,~~three ~~installation~~months ended December 31, 2004 from $6.2 million for the same period in fiscal 2004. Maintenance and support contracts accounted for $2.2 million of the total $2.4 million increase with the remaining portion attributed to increased non-contract training and ~~application~~support. The acquired pathology line of business contributed $891,000 of the total increase in maintenance and services. Our continued high customer retention on maintenance and support contracts, general price increases, deferral of installed and accepted software license revenue, and expansion of our ~~point-~~service offerings all contributed to the growth of~~-care~~ maintenance and ~~registry~~services ~~software;~~as a percentage of net sales.

•Cost ~~travel~~of ~~expenses~~Sales. ~~incurred~~Total cost of sales increased 31.1% to $6.9 million for the three months ended December 31, 2004 from $5.3 million for the same period in fiscal 2004. Our gross margin decreased to 60.3% for the ~~installation~~three ~~and~~months ~~training~~ended December of31, ~~our~~2004 ~~point-of-care~~from ~~software;~~65.9% for the same period in fiscal 2004.

•Cost ~~direct~~of sales relating to net software sales increased 39.4% to $4.2 million for the three months ended December 31, 2004 from $3.0 million for the same period in fiscal 2004. Our gross margin associated with net software sales decreased to 52.9% for the three months ended December 31, 2004 compared to 67.6% for the same period in fiscal 2004. The increase in expenses was related to ~~the~~$772,000 ~~purchase~~in employee costs for additional and acquired employees, ~~shipment~~$303,000 ~~installation~~in supplies and ~~configuration~~materials, of$67,000 ~~third-party~~in ~~hardware~~travel costs, $18,000 in implementation costs and ~~software~~$18,000 ~~sold~~in telecommunication costs. The decline in the gross margin associated with ~~our~~net ~~point-~~software sales related to fewer than projected implementations of~~-care~~ ~~software;~~new oncology systems as a result of flat order volume and a higher percentage of revenue deferrals compared to the same period in fiscal 2004.

•Cost ~~continuing~~of ~~engineering~~sales relating to maintenance and services increased 6.7% to $2.4 million for the three months ended December 31, 2004 from $2.2 million for the same period in fiscal 2004. Our gross margin associated with maintenance and services increased to 72.5% for the three months ended December 31, 2004 from 64.5% for the same period in fiscal 2004. The increase in expenses of $147,000 was primarily related to ~~the~~increased employee related expenses. An increase in net sales of maintenance and services due to continued customer post-contract support renewals and revenue of ~~existing~~the ~~released~~acquired ~~software;~~product lines for the three months ended December 31, 2004 contributed to the improvement in our gross margin associated with maintenance and services.

•In ~~overhead~~addition, ~~attributed~~due to ~~our~~the ~~client~~acquisition ~~services~~of ~~personnel~~MRS and Tamtron, amortization expense associated with purchased technology increased to $382,000 for the three months ended December 31, 2004 from $69,000 for the same period in fiscal 2004.

~~System~~Research ~~installations~~and ~~require~~Development. ~~several~~Research ~~phases~~and ofdevelopment ~~implementation~~expenses inincreased ~~the~~37.6% ~~process~~to of$3.3 ~~accepting~~million ~~product~~for ~~delivery~~the ~~and~~three ~~have~~months ~~led~~ended toDecember ~~our development of a highly~~31, ~~specialized~~2004 ~~client~~from ~~service organization~~$2.4 ~~All~~million ~~new~~for ~~orders~~the ~~require~~same ~~multiple~~period ~~site~~in ~~visits~~fiscal ~~from~~2004. ~~our~~As ~~personnel~~a topercentage ~~properly~~of ~~install~~total net sales, ~~configure~~research and ~~train~~development ~~customer~~expenses ~~personnel.~~increased ~~In transactions where we are required~~ to ~~defer~~19.2% for the ~~recognition~~three ofmonths ~~software~~ended ~~license revenue~~December 31, ~~the~~2004 ~~associated incremental direct~~

1412

~~Table~~ from 15.8% for the same period in fiscal 2004. Additional engineering headcount and the associated personnel expenses accounted for $891,000 and travel expenses accounted for $18,000 of ~~Contents~~the total increase in expenses. The increase as a percentage of total net sales in the three months ended December 31, 2004 was primarily due to increased engineering headcount associated with the acquired product lines in December 2003 and lower net sales.

Sales and Marketing. Sales ~~travel~~and marketing expenses ~~are~~increased ~~recorded~~27.7% asto a$5.2 ~~prepaid~~million ~~expense~~for ~~until~~ the ~~associated~~three ~~revenue~~months isended ~~recognized~~December 31, 2004 from $4.1 ~~Several~~million ~~point-of-care~~for ~~products~~the ~~are~~same ~~used~~period ~~with~~in ~~various third-party~~fiscal ~~hardware~~2004. ~~and~~As ~~software~~a ~~products~~percentage ~~that~~of ~~are~~total ~~also~~net ~~sold~~sales, sales and ~~configured~~marketing ~~during~~expenses ~~the~~increased ~~implementation~~to ~~process~~29.8% ~~After~~for the three ~~initial~~months ~~implementation~~ended ~~process~~December 31, ~~our~~2004 ~~application~~from ~~support~~26.3% ~~staff~~for ~~provides~~the ~~phone~~same ~~support~~period ~~and~~in ~~any~~fiscal ~~applicable system updates~~2004. ~~A substantial~~The ~~percentage~~increase ofin ~~engineering~~expenses ~~costs~~in ~~are~~absolute ~~allocated~~dollars related to ~~client~~$930,000 ~~services~~in ~~due~~employee torelated ~~continuing~~expenses, ~~engineering~~$309,000 ~~efforts~~in ~~related~~travel toexpenses, ~~the~~$99,000 ~~support~~in outside services, $56,000 in supplies and ~~enhancement~~materials and $36,000 in telecommunication costs partially offset by a reduction in commissions of ~~our~~$236,000, ~~products.~~sponsorships ~~Historically~~of $44,000 ~~cost~~and advertising of ~~sales~~$22,000. ~~has~~The ~~increased~~increase atas ~~approximately~~a ~~the~~percentage ~~same~~of ~~rate~~total as net sales. ~~However,~~in asthe ~~newly~~three ~~developed~~months ~~products~~ended December ~~and~~31, ~~acquired~~2004 ~~product~~was ~~lines~~primarily ~~are~~due ~~released~~ to the ~~customers,~~expansion ~~additional~~and ~~investments~~specialization inof ~~client~~our ~~service~~domestic ~~staff~~and ~~could~~international ~~cause~~sales ~~gross~~force ~~margins~~and tolower ~~fluctuate~~net sales.

~~Research~~General and ~~development~~Administrative. General and administrative expenses ~~include~~increased ~~costs~~92.8% ~~associated~~to ~~with~~$2.2 million for the ~~design~~three months ended December 31, 2004 from $1.1 million for ~~development~~the ~~and~~same ~~testing~~period in fiscal 2004. As a percentage of ~~our~~total ~~products~~net sales, general and administrative expenses increased to 12.5% ~~These~~for ~~costs~~the ~~consist~~three months ended December 31, 2004 from 7.3% for the same period in fiscal 2004. The increase in absolute dollars and as a percentage of total net sales in the three months ended December 31, 2004 was primarily due to increases in accounting and legal fees of: $658,000 primarily related to our annual audit, restatement of our financial statements and negotiation of the proposed merger with Elekta, business insurance premiums of $133,000 for our directors and officers insurance renewal, outside services of $63,000, regulatory expenses of $46,000, employee related expense of $45,000, rent expense of $39,000 and other various net operational expenses of $52,000.

•Amortization ~~salaries~~of Intangible Assets. Amortization expense increased to $199,000 for the three months ended December 31, 2004 from $51,000 for the same period in fiscal 2004. Our acquisition of substantially all of the assets of Tamtron and ~~related~~MRS ~~development~~in ~~personnel~~December ~~expenses;~~2003 increased amortization expense as it relates to customer base and trade name.

•In-Process Research and Development. During the three months ended December 31, 2004, we did not have any transactions that required an in-process research and development write-off. 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 ~~license~~products and ~~support~~we ~~fees~~believed ~~associated~~there ~~with~~was sufficient risk in completing the technology to qualify the in-process research and development ~~tools;~~write-off.

•Operating ~~travel~~Income ~~expenses~~(Loss). ~~incurred~~Operating loss was $396,000 for the three months ended December 31, 2004 compared to ~~test~~operating ~~products~~income of $2.0 million for the same period in fiscal 2004. Operating income decreased significantly due to fewer than projected implementations of new oncology systems as a result of flat order volume, higher amortization of intangible assets related to the December ~~customer~~2003 ~~environment;~~asset purchases and additional fees associated with the annual audit, restatement of our financial statements and merger related expenses.

•Interest ~~overhead~~and ~~attributed~~Other Income (Expense), Net. Interest and other income, net increased 132.4% to $337,000 for the three months ended December 31, 2004 from $145,000 for the same period in fiscal 2004. The increase was primarily related to a $148,000 settlement we received from a stockholder that had engaged in an inadvertent Section 16 matching transaction in our ~~development~~stock. The remaining increase was related to the investment of excess operating cash in available-for-sale securities and ~~test~~improved ~~engineering~~interest ~~personnel~~rates compared to the same period in fiscal 2004.

WeIncome ~~currently~~Taxes. ~~expense~~Our ~~all~~effective ~~research~~tax ~~and~~rate ~~development~~increased ~~costs~~to ~~as incurred~~34.0% ~~Our~~during ~~research~~the ~~and~~three ~~development~~months ~~efforts~~ended ~~are~~December ~~periodically~~31, ~~subject~~2004 tofrom ~~significant non-recurring~~33.0% ~~costs~~during ~~that~~the ~~can~~same ~~cause~~period ~~fluctuations~~ in ~~our~~fiscal ~~quarterly~~2004 ~~research~~due ~~and~~to ~~development~~a reduction ~~expense~~of ~~trends. We expect that~~ research and development ~~expenses~~tax ~~will increase in absolute dollars for the foreseeable future as we continue to invest in product development~~credits.

~~Sales~~Backlog ~~and marketing expenses primarily consist of:~~

•Our ~~salaries~~backlog is comprised of customer deposits, ~~commissions~~deferred software license revenue, other deferred revenue and ~~related~~unearned ~~travel~~revenue. ~~expenses~~Customer ~~for~~deposits ~~personnel~~represent ~~engaged~~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 ~~sales~~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 ~~contracts~~remaining ~~administration~~portion ~~process;~~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 the fair value exists for all undelivered elements, the elements for which VSOE of the fair value does not exist have been delivered or the elements for which VSOE of the 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 ~~salaries~~components ~~and~~of ~~related~~backlog ~~product~~as ~~marketing,~~of ~~marketing~~December ~~communications~~31, ~~media~~2004 ~~services~~and 2003 and ~~business~~September ~~development~~30, ~~personnel~~2004 ~~expenses;~~are as follows (amounts in thousands):

• expenses related to marketing programs, public relations, trade shows, advertising and related communications; and


	December 31,				September 30,
	2004		2003		2004
Customer deposits	$	10,516	$	10,875	$	10,957
Deferred software license revenue		19,509		15,061		17,234
Other deferred revenue		25,954		17,065		23,863
Unearned revenue		31,491		26,027		31,326

Total backlog	$	87,470	$	69,028	$	83,380

•Total ~~overhead~~backlog ~~attributed~~increased 26.7% to $87.5 million at December 31, 2004 from $69.0 million at December 31, 2003, and total backlog increased 4.9%, or $4.1 million, from $83.4 million at September 30, 2004. During the three months ended December 31, 2004, bookings in our ~~sales~~domestic core oncology point-of-care business were flat. We initially noted a softening of backlog in the three months ended December 31, 2003; however, at that time the amount was within historical norms and ~~marketing~~we ~~personnel~~expected our typical second quarter upswing. Bookings remained soft during the balance of fiscal 2004, and they continued that trend in the three months ended December 31, 2004. Of the total $87.5 million of backlog at December 31, 2004, we expect to recognize approximately $82.7 million of our backlog during the twelve months following December 31, 2004 with the remaining portion to be completed in subsequent periods. However, 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.

We13 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~~Deferred revenue increased $13.4 million to $45.5 million at December 31, 2004 from $32.1 million at December 31, 2003. Of the $13.4 million increase, deferred oncology software license revenue and ~~administrative~~the ~~expenses~~related ~~primarily~~deferred ~~consist~~maintenance and support contributed $5.6 million. The remaining $7.8 million increase relates to other deferred revenue of: $4.7 million in post contract maintenance and support for oncology products, $1.4 million of pathology license revenue, $977,000 in registry term licenses and $717,000 in post-contract maintenance and support for pathology products.

•Seasonality ~~salaries and related administrative, finance, human resources, regulatory, information services and executive personnel expenses;~~

•Historically, ~~other~~we ~~significant~~have ~~expenses~~experienced ~~relate~~a toseasonal ~~facilities,~~pattern ~~recruiting~~in our revenues, ~~external~~with ~~accounting~~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 ~~legal~~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 ~~regulatory~~predictable ~~fees;~~seasonal pattern.

•In ~~general~~addition, ~~corporate~~the ~~expenses;~~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 ~~overhead attributed to our general~~ and ~~administrative~~Capital ~~personnel.~~Resources

AWe ~~significant~~have ~~portion~~financed our operations since inception primarily through cash from operating activities, a $4.0 million private placement of ~~facility~~equity in 1996, ~~infrastructure~~net ~~and~~proceeds ~~maintenance~~of ~~costs~~$24.4 ~~are~~million ~~allocated~~from asour ~~overhead~~initial topublic ~~other~~offering ~~functions~~of ~~based~~common onstock ~~distribution~~in November 2002 and net proceeds of ~~headcount~~$3. We2 ~~expect~~million ~~that~~from our ~~general~~secondary public offering of common stock in May 2003. Cash, cash equivalents and ~~administrative~~available-for-sale ~~expenses~~securities ~~will~~were ~~increase~~$59.5 asmillion aat ~~public~~December ~~company~~31, 2004 compared to $45.6 million at December 31, 2003.

15During the three months ended December 31, 2004, net cash provided by operating activities was $1.8 million compared to $339,000 of net cash used in operating activities for the same period in fiscal 2004. In the three months ended December 31, 2004, cash provided by operations was primarily attributable to net income (loss) after adjustment for the non-cash charges relating to depreciation and amortization, an increase in deferred revenue, an increase in accounts payable and a decrease in unbilled accounts receivable partially offset by increases in accounts receivable, prepaid expenses and other current assets and a decrease in accrued liabilities, income taxes payable and customer deposits. 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 $557,000 write-off of acquired in-process research and development and an increase in deferred revenue. As discussed in the Backlog section, bookings in our core oncology point-of-care business have unexpectedly flattened over the last year. As a result, the subsequent impact of flattened orders may effect the historical trend of operating cash in subsequent quarters.

~~Table~~In determining average days’ sales outstanding and accounts receivable turnover, we use our gross annual invoicing and gross accounts receivable balances in each calculation as we believe this provides a more conservative and relevant measurement basis due to the significance of ~~Contents~~our deferred revenue. Our accounts receivable turnover decreased to 4.0 for the three months ended December 31, 2004 from 4.2 for the same period in fiscal 2004. Our days’ sales outstanding at December 31, 2004 increased to 88 from 86 at December 31, 2003. We have added collections personnel during the last quarter, and we continue our efforts to improve collections by 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 recognized as a receivable or revenue until it is due and payable.

~~Depreciation~~Net cash used in investing activities was $4.2 million for the three months ended December 31, 2004 and ~~Amortization~~$22.4 million for the same period in fiscal 2004. During the three months ended December 31, 2004, cash used in investing activities related to the purchase of available-for-sales securities of $3.6 million with excess operating cash and the acquisition of $551,000 of capital equipment. 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.

~~Our~~Net ~~property~~cash ~~and~~provided ~~equipment~~by isfinancing ~~recorded~~activities atwas ~~our~~$72,000 ~~cost~~for ~~minus accumulated depreciation and amortization. We depreciate~~ the ~~costs of~~three ~~our~~months ~~tangible~~ended ~~capital~~December ~~assets~~31, ~~on a straight-line basis over the estimated economic life of the asset~~2004, ~~which~~compared ~~is generally three~~ to ~~seven years~~$1.0 ~~Acquisition~~million ~~related~~for ~~intangible assets have historically been amortized based upon~~ the ~~estimated~~same ~~economic life,~~period ~~which~~in isfiscal ~~generally two to six years~~2004. ~~Leasehold~~Cash provided ~~improvements~~by ~~and~~financing ~~equipment~~activities ~~purchased~~during ~~through a capital lease are amortized over~~ the ~~life~~three ofmonths ~~the~~ended ~~related~~December ~~asset or the lease term~~31, if2004 ~~shorter. If we sell or retire an asset, the cost~~ and ~~accumulated depreciation~~2003 iscan ~~removed~~be ~~from~~attributed ~~the~~primarily ~~balance~~to ~~sheet and~~ the ~~appropriate~~issuance ~~gain~~of orcommon ~~loss is recorded~~stock. ~~We expense repair and maintenance costs as incurred.~~

~~Accretion~~The following table describes our commitments to settle contractual obligations in cash not recorded on the balance sheet as of ~~Redeemable~~December ~~Convertible~~31, ~~Preferred~~2004 ~~Stock~~(in thousands). The telecommunications contracts with AT&T and others include wireless, frame-relay, voice/data and internet transport services.

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


Fiscal Year	Operating Leases		Telecommunications Contracts and Other		Total Future Obligations
Less than one year (before 9/30/2005)	$	2,351	$	670	$	3,021
One to three years (10/1/2005–9/30/2008)		3,868		1,431		5,299

Total	$	6,219	$	2,101	$	8,320

~~Results~~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 available funds and cash generated from operations will be sufficient to meet our operating requirements, assuming no change in the operations of ~~Operations~~our business, for at least the next 18 months.

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

	Percentage of Net Sales Three Months EndedDecember 31,
	2003		2002
			Restated
			(See Note 1)
Sales:
Software license and other, net	57.9	%	60.1	%
Maintenance and services	42.1		39.9
Total net sales	100.0		100.0
Cost of sales:
Software license and other, net	20.4		17.9
Maintenance and services	15.3		15.2
Total cost of sales	35.7		33.1
Gross profit	64.3		66.9
Operating expenses:
Research and development	16.9		18.9
Sales and marketing	27.8		28.3
General and administrative	8.6		10.0
Amortization of intangible assets	0.8		0.9
Write-off of purchased research and development	3.9		—
Total operating expenses	58.0		58.1
Operating income	6.3		8.8
Interest and other income, net	1.0		0.7
Income before provision for income taxes	7.3		9.5
Provision for income taxes	(2.5	)	(3.3	)
Net income	4.8	%	6.2	%

FASB Staff Position (“FSP”) No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (“FSP 109-2”), provides guidance under SFAS No. 109, Accounting for Income Taxes, with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Creation Act”) on enterprises’ income tax expense and deferred tax liability. The Jobs Creation Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. We have not yet completed our evaluation on the impact of the repatriation provisions. Accordingly, as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Creation Act.

1614

~~Table~~In December 2004, the FASB issued SFAS No. 153, Exchanges of ~~Contents~~Nonmonetary Assets, an amendment of APB Opinion No. 29. SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS No. 153 is effective for nonmonetary asset exchanges beginning in our fourth quarter of fiscal year 2005. We do not believe the adoption of SFAS No. 153 will have a material effect on our consolidated financial position, results of operations or cash flows.

~~Three~~In ~~Months~~December ~~Ended~~2004, ~~December~~the 31FASB issued SFAS No. 123R, ~~2003~~Share-Based ~~Compared~~Payment, which replaced SFAS No. 123 and superseded APB 25. SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under SFAS No. 123R, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with ~~Three~~APB ~~Months~~25 ~~Ended~~but ~~December~~will 31be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of earnings. SFAS No. 123R is effective beginning in the Company’s fourth quarter of fiscal year 2005 and allows, ~~2002~~but does not require, companies to restate the full fiscal year of 2005 to reflect the impact of expensing share-based payments under SFAS No. 123R. We have not yet determined which fair-value method and transitional provision we will follow. The impact on our consolidated financial statements of applying the Black-Scholes option valuation method of accounting for stock options is disclosed in the Accounting for Stock-Based Compensation section in Note 2 of the notes to the condensed consolidated financial statements.

~~Net~~Risk ~~Sales.~~Factors ~~Net~~Affecting ~~sales~~Financial ~~increased~~Performance 29.0% to $14.4 million in the three months ended December 31, 2003 from $11.2 million for the same period in 2002. Net software related sales increased 24.3% to $8.3 million in the three months ended December 31, 2003 from $6.7 million for the same period in 2002. Sales of new products to existing customers in oncology accounted for $988,000 of the $1.6 million increase, sales of new products in oncology to new customers accounted for $500,000, and net sales from imaging, laboratory, urology and registry accounted for $142,000 in the three months ended December 31, 2003, of which $78,000 was related to the registry product acquisition. Maintenance and services increased 35.9% to $6.1 million for the three months ended December 31, 2003 from $4.5 million for the same period in 2002. Maintenance and support contracts contributed primarily to the $1.6 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~~This ofForm ~~Sales.~~10-Q contains ~~Total~~forward-looking ~~cost~~statements ofthat ~~sales~~involve ~~increased~~risks ~~38.9%~~and ~~to $5.1 million for the three months ended December 31~~uncertainties, ~~2003~~including ~~from~~statements ~~$3.7~~relating ~~million~~to ~~for~~Elekta’s ~~the~~proposed ~~same~~acquisition ~~period~~of ~~in 2002~~IMPAC. Our ~~gross~~actual ~~margin~~results ~~decreased~~could todiffer ~~64.3%~~materially ~~for~~from ~~the~~those ~~three~~anticipated ~~months~~in ~~ended~~these ~~December~~forward-looking statements ~~31,~~as ~~2003~~a ~~from~~result ~~66.9%~~of ~~for~~factors ~~the~~both ~~same period~~ in ~~2002.~~and ~~Cost~~out of ~~sales~~our ~~relating~~control, toincluding ~~net software sales increased 46.9% to $3.0 million for~~ the ~~three~~risks ~~months~~faced ~~ended~~by ~~December~~us ~~31,~~described ~~2003~~below ~~from~~and ~~$2.0~~elsewhere ~~million~~in ~~for~~this ~~the~~Form ~~same~~10-Q ~~period~~and in ~~2002.~~our ~~Our~~Form ~~gross~~10-K ~~margin associated with net software sales decreased to 64.9%~~ for the ~~three~~fiscal ~~months~~year ended ~~December~~September 3130, ~~2003 from 70~~2004.3% ~~for~~Potential ~~the~~risks ~~same~~and ~~period~~uncertainties regarding inthe ~~2002.~~acquisition ~~The increase in expenses related to $623~~include,~~000~~ inamong ~~employee costs~~others, ~~$227,000~~the inrequirement ~~supplies~~that ~~and~~IMPAC’s ~~materials,~~stockholders ~~$56,000~~must inapprove ~~implementation~~the ~~costs~~transaction, ~~and~~the ~~$40,000~~required inreceipt ~~travel.~~of ~~The~~necessary ~~decline~~regulatory inapprovals, ~~gross~~including ~~margin~~from ~~associated~~the ~~with~~SEC ~~net software~~and ~~sales~~under ~~relates~~applicable toantitrust ~~our~~laws, ~~need~~other conditions to ~~invest~~the ~~early~~closing inof the ~~fiscal~~merger, ~~year~~the onpossibility ~~resources~~ that ~~will~~the ~~provide~~transaction ~~implementation~~will ~~capacity~~not toclose ~~meet~~or that the ~~demand~~closing ~~for~~may ~~projected~~be ~~new~~delayed, ~~systems~~and ~~during~~ the ~~remainder~~effect of ~~fiscal~~the ~~year~~announcement ~~2004.~~of ~~In addition,~~ the ~~$623,000~~merger ~~increase~~on ~~in employee~~IMPAC’s ~~related~~customer ~~costs included $77~~relationships,~~000~~ ~~associated~~operating ~~with~~results ~~employees~~and ~~acquired~~business generally, ~~upon~~including the ~~closing~~ability ofto ~~the~~retain ~~Tamtron~~key ~~and MRS asset purchases on December 23, 2003 (the “Tamtron/MRS Acquisition”)~~employees.

~~Cost~~You ofshould ~~sales relating to maintenance and services increased 29.5% to $2.2~~carefully ~~million~~consider ~~for~~ the ~~three~~risks ~~months~~described ~~ended December 31, 2003 from $1.7 million for the same period~~ in ~~2002.~~this ~~Our~~Form ~~gross~~10-Q ~~margin associated with maintenance~~ and ~~services~~in ~~increased~~our toForm ~~63.6%~~10-K for the ~~three~~fiscal ~~months~~year ended ~~December~~September 3130, ~~2003 from 61~~2004.8% ~~for~~In ~~the same period in 2002. The increase in expenses was related to $312~~addition,~~000~~ inthese ~~continuing~~risks ~~engineering~~are ~~costs~~not ~~and~~the ~~$234,000~~only inones ~~employee~~facing ~~related costs offset by reductions of $26,000 in travel expense, $9,000 in telephone expense and $8,000 in supplies and materials~~us. We ~~continued~~have toonly ~~invest~~described inthe ~~our~~risks ~~support~~we ~~organization,~~consider ~~but at a more conservative rate and operational efficiencies contributed~~ to be the ~~increase~~most ~~in our gross margin associated with maintenance and services~~material. ~~In addition~~ However, ~~the~~there ~~$234,000~~may ~~increase in~~be ~~employee~~additional ~~related~~risks ~~costs~~that ~~included~~are ~~$15,000~~viewed ~~associated~~by ~~with~~us ~~employees acquired~~ as ~~part~~not ofmaterial ~~the~~or ~~Tamtron/MRS~~are ~~Acquisition.~~not ~~During~~presently ~~the~~known ~~three months ended December 31, 2003, we deferred $116,000 in direct incremental travel expenses associated with software installation and training trips compared~~ to ~~$46,000 during the same period in fiscal 2002~~us. ~~We expect to recognize the deferred travel expenses once the associated product revenues are recognized.~~

~~Research~~If ~~and~~any ~~Development.~~of ~~Research~~the ~~and~~events ~~development~~described ~~expenses~~below ~~increased 15.1%~~were to ~~$2.4~~occur, ~~million~~our ~~for~~business, ~~the three months ended December 31~~prospects, ~~2003~~financial ~~from~~condition ~~$2.1~~and/or ~~million~~results ~~for~~of ~~the~~operations ~~same~~could ~~period~~be inmaterially ~~2002~~adversely affected. AsWhen awe ~~percentage~~say ofbelow ~~total~~that ~~net~~something ~~sales,~~could ~~research~~or ~~and~~will ~~development~~have a ~~expenses~~material ~~decreased~~adverse toeffect ~~16.9%~~on ~~for~~us, ~~the~~we ~~three~~mean ~~months~~that ~~ended~~it ~~December~~could ~~31,~~or ~~2003 from~~will ~~18.9%~~have ~~for~~one ~~the~~or ~~same~~more ~~period~~of inthese ~~2002~~effects. ~~Additional~~In ~~engineering~~any ~~headcount~~such ~~and the associated personnel expenses of $348~~case,~~000~~ ~~were~~ the ~~primary~~price ~~factors for the increase, offset by reductions~~ of ~~$18,000~~our incommon ~~telephone~~stock ~~expense~~could ~~and $12~~decline,~~000~~ ~~in supplies~~ and ~~materials.~~ ~~The~~you ~~decrease~~could aslose aall ~~percentage~~or part of ~~total~~your ~~net~~investment ~~sales~~ in ~~the~~our ~~three months ended December 31, 2003 was due to increased net sales relative to research and development expenses~~company. ~~The $348,000 increase in employee related costs included $58,000 associated with employees acquired as part of the Tamtron/MRS Acquisition.~~

~~Sales~~Item ~~and Marketing. Sales and marketing expenses increased 26.8% to $4.0 million for the three months ended December 31, 2003 from $~~3.2 ~~million~~Quantitative ~~for the same period in 2002. As a percentage of total net sales, sales~~ and ~~marketing~~Qualitative ~~expenses~~Disclosures ~~decreased~~About toMarket ~~27.8% for the three months ended December 31, 2003 as compared to~~ Risk

17The 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.

~~Table~~We have been exposed to interest rate risk as it applies to our limited use of ~~Contents~~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 consolidated 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.

~~28.3%~~We ~~for~~have operated mainly in the ~~same~~United ~~period~~States inand ~~2002.~~greater ~~The~~than ~~increase~~99% inof ~~absolute~~our ~~dollars~~sales ~~related~~were tomade ~~$626,000~~in U.S. dollars in ~~employee~~each ~~related~~of ~~costs,~~the ~~$114,000~~three inmonths ~~travel,~~ended ~~$62~~December 31,~~000~~ in2004 ~~outside~~and 2003. ~~services~~Accordingly, ~~$53,000~~we inhave ~~advertising,~~not ~~$53~~had any material exposure to foreign currency rate fluctuations. Currently,~~000~~ all of our international distributors denominate all transactions in ~~sponsorships,~~U.S. ~~$24~~dollars. However,~~000~~ inas ~~trade~~we ~~shows~~sell ~~and~~to ~~$17,000~~customers in ~~supplies~~the United Kingdom and ~~materials,~~Europe through ~~offset~~our byrecently ~~reductions~~formed UK subsidiary a majority of ~~$99,000~~those insales ~~commissions~~may ~~and~~be ~~$2,000~~denominated in ~~telephone~~euros ~~costs~~or pounds sterling. The ~~$626~~functional currency of our new UK subsidiary is pounds sterling. Thus,~~000~~ ~~increase~~exchange inrate ~~employee~~fluctuations ~~related~~between ~~costs~~the euro and pounds ~~included~~sterling ~~$51,000~~will ~~associated~~be ~~with~~recognized ~~employees~~in ~~acquired~~the statements of operations as ~~part~~these offoreign ~~the~~denominated ~~Tamtron/MRS~~sales ~~Acquisition~~are remeasured by our UK subsidiary. ~~During~~As ~~the~~exchange ~~three~~rate ~~months~~fluctuations ~~ended~~occur ~~December~~between ~~31,~~pounds ~~2003,~~sterling weand ~~deferred~~the ~~$51~~U.S. dollar,~~000~~ inthese ~~direct~~fluctuations ~~incremental~~will ~~commission~~be ~~expenses~~recorded as ~~compared~~cumulative totranslation ~~$12,000~~adjustments ~~during~~within ~~the~~stockholders’ ~~same~~equity ~~period~~as ~~in fiscal~~a ~~2002.~~component Weof ~~expect~~accumulated toother ~~recognize~~comprehensive ~~the~~income ~~deferred~~(loss) ~~commission~~as ~~expenses~~our ~~once~~UK ~~the~~subsidiary ~~associated~~is ~~product~~translated ~~revenues~~into ~~are~~U.S. ~~recognized~~dollars for consolidation purposes.

~~General~~Item ~~and Administrative~~4. ~~General~~Controls ~~and administrative expenses increased 11.2% to $1.2 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 8.6% for the three months ended December 31, 2003 from 10.0% for the same period in 2002. The increase in absolute dollars ~~was~~nd ~~primarily~~Procedures ~~due to increases in professional fees of $118,000 and maintenance costs of $48,000 offset by reductions of business insurance costs of $41,000.~~

~~Amortization of Intangible Assets~~a. ~~Amortization~~Evaluation ~~expenses~~Of ~~increased 17.6% to $120,000 for the three months ended December 31, 2003 from $102,000 for~~Disclosure ~~the~~Controls ~~same~~And ~~period in 2002~~Procedures. ~~The Tamtron/MRS Acquisition in December 2003 increased amortization expense of developed/core technology, customer base and trade names.~~

~~In-Process~~Joseph ~~Research~~Jachinowski, ~~and~~our ~~Development.~~Chief ~~During~~Executive ~~the~~Officer, and ~~three~~Kendra ~~months~~Borrego, ~~ended~~our ~~December~~Chief ~~31,~~Financial ~~2002~~Officer, weconducted ~~recorded~~an aevaluation ~~write-off~~of the effectiveness of ~~in-process~~ ~~research~~IMPAC’s disclosure controls and ~~development~~procedures (as defined in Rule 13a-15(e) under the ~~amount~~Securities Exchange Act of ~~$557~~1934,~~000~~ ~~due~~as toamended) anas ~~analysis~~of ~~allocating~~December ~~the~~31, 2004. ~~purchase~~Based ~~price~~on ~~paid~~their ~~for~~evaluation, ~~certain~~they ~~intellectual~~each ~~property~~found inthe ~~that~~Company’s ~~period.~~disclosure ~~Both~~controls ~~Tamtron~~ and ~~MRS~~procedures were inadequate ~~the~~to ~~process~~ensure ofthat ~~adding~~information ~~new~~required ~~functionality~~ to ~~their~~be ~~lines of~~disclosed ~~software~~in ~~products~~the ~~and~~reports wethat ~~believed~~IMPAC ~~there~~files ~~was~~and ~~sufficient~~submits ~~risk~~under inthe ~~completing~~Exchange ~~the~~Act ~~technology~~is torecorded, processed, ~~qualify~~summarized ~~the~~and ~~in-process~~reported ~~research~~as and ~~development~~when ~~$557~~required,~~000~~ ~~write-off.~~and ~~During~~that ~~the~~information ~~three~~required ~~months~~to ~~ended~~be ~~December~~disclosed ~~31,~~is ~~2002,~~accumulated weand ~~did~~communicated ~~not~~to ~~have~~them ~~any~~as ~~transactions~~appropriate ~~that~~ to allow timely decisions regarding required andisclosure, ~~in-process~~except ~~research~~as ~~and~~set ~~development~~forth ~~write-off~~below.

~~Operating~~During ~~Income.~~the ~~Operating~~April ~~income~~2004 ~~decreased~~restatement, ~~7.4%~~our toindependent ~~$907~~auditors at the time,~~000~~ PricewaterhouseCoopers ~~for~~LLP, advised management and the ~~three~~Audit ~~months~~Committee ~~ended~~that ~~December~~it ~~31,~~noted ~~2003~~certain ~~from~~matters ~~$979,000~~regarding ~~for~~software ~~the~~revenue ~~same~~recognition ~~period~~practices induring ~~2002.~~the ~~Operating~~periods ~~income~~under ~~primarily~~review ~~decreased~~that ~~due~~it considered to ~~the~~be ~~in-process~~material ~~technology~~weaknesses. ~~write~~As ~~off~~part of the ~~$557~~initial restatement,~~000~~ ~~related~~we toconducted an extensive internal review of our ~~asset~~revenue ~~purchase~~recognition practices for all periods for which financial statements are included in ~~December~~this ~~2003~~report. Among other things, this involved the review of each of the over 1,500 customer contracts entered into since October 1, 1999.

~~Interest~~As ~~and~~part ~~Other~~of ~~Income,~~our disclosure ~~Net.~~controls ~~Interest~~ and ~~other~~procedures ~~income,~~over ~~net~~the ~~increased~~selection ~~88.3%~~and toapplication ~~$145~~of accounting principles,~~000~~ ~~for~~in ~~the~~particular ~~three~~software ~~months~~revenue ~~ended~~recognition ~~December~~under 31SOP 97-2, ~~2003~~our ~~from~~accounting ~~$77,000~~officers ~~for~~independently ~~the~~reviewed ~~same~~SOP ~~period~~97-2 intogether ~~2002.~~with ~~The~~other ~~increase~~accounting literature, isconsulted ~~related~~with toour ~~higher~~independent ~~interest~~auditing ~~income~~firm ~~from increased~~regarding ~~cash~~revenue recognition and ~~cash~~accounting ~~equivalents~~developments, ~~investments~~attended incontinuing ~~short~~education courses for the accounting profession and ~~long-term~~reviewed ~~marketable~~various ~~securities~~accounting ~~resulting~~journals ~~from~~and ~~higher~~other ~~cash~~literature with ~~balances~~respect ~~for~~to the ~~2003~~existence ~~period~~of new accounting pronouncements and their application to IMPAC.

~~Income~~These ~~Taxes.~~controls ~~Our~~and ~~effective~~procedures ~~tax~~were ~~rate~~found ~~increased~~to ~~slightly~~be todeficient ~~35.0%~~in ~~for~~identifying the ~~three~~accounting ~~months~~issues ~~ended~~which ~~December~~were ~~31,~~the ~~2003~~subject ~~from~~of 34the two restatements.9% ~~during~~Specifically, the ~~same~~controls ~~period~~and procedures did not result in ~~fiscal~~ ~~2002.~~(i) ~~The~~our ~~provision~~proper understanding ~~for~~of ~~income~~the ~~taxes~~application ~~remained~~of ~~relatively~~SOP ~~constant~~97-2 atfor ~~$368~~multiple element contracts,~~000~~ ~~for~~(ii) the ~~three~~identification ~~months~~of ~~ended~~an ~~December~~improper ~~31,~~usage ~~2003~~of ~~compared~~a toretroactive ~~$369,000~~acceptance ~~for~~clause resulting in revenue being recognized in the ~~same~~incorrect period inand ~~fiscal~~(iii) ~~2003~~the deferral of 12% of the current list price of the software rather than 12% of the net purchase price.

~~Accretion~~In ofresponse ~~Redeemable~~to ~~Convertible~~the ~~Preferred~~matters ~~Stock. Historically~~identified, ~~each~~we ~~reporting~~have ~~period,~~taken ~~the~~steps ~~carrying~~to ~~value~~strengthen ofcontrol ~~the redeemable~~processes ~~convertible~~and ~~preferred~~procedures ~~stock~~to ~~was increased by periodic accretions~~identify, ~~using~~rectify ~~the~~and ~~effective~~prevent ~~interest method, so that~~ the ~~carrying~~recurrence ~~amount~~of ~~would equal~~ the ~~redemption~~circumstances ~~value~~that atresulted ~~the~~in ~~redemption~~our ~~date.~~determination ~~These~~to ~~increases~~restate ~~were~~prior ~~effected through charges~~period ~~against~~financial ~~retained earnings~~statements. ~~During~~In addition to the ~~three~~changes ~~months~~in ~~ended~~internal ~~December~~control ~~31,~~listed ~~2002~~below, we ~~recorded~~intend ~~accretion~~to ~~charges~~correct ~~of $2.2 million, representing~~ the ~~increase~~identified inweaknesses ~~the redemption value of the Series A redeemable convertible preferred stock~~ in ~~the period after~~ our ~~fiscal~~disclosure ~~year~~controls ~~end~~ and ~~immediately~~procedures ~~leading~~that upled to the ~~initial~~restatement ~~public~~by ~~offering.~~taking ~~Upon~~ the ~~closing~~following ~~of our initial public offering in November 2002~~steps, ~~all~~among ~~shares of our redeemable convertible preferred stock automatically converted into an equal number of~~others: ~~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.~~

18• Continuing to search for additional in-house finance personnel with extensive software revenue recognition experience, including the application of SOP 97-2.

~~Table~~15 ~~of Contents~~

~~Backlog~~• Conducting and continuing to develop the internal training program for affected employees on applicable policies and procedures and sending finance personnel to external training and continuing education programs.

~~Our~~• ~~backlog~~Supplementing ~~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 recognition. ~~Deferred~~policy ~~software~~to ~~license~~include ~~revenue represents the revenues on installed, accepted and invoiced products that we cannot yet recognize because the products installed were only~~ a ~~subset~~clearly ofunderstandable ~~the~~summary ~~products outlined in a multiple element arrangement for which we do not have VSOE~~ of ~~the~~key ~~fair value on all of the undelivered~~ elements. ~~The amounts classified as deferred software license revenue will be recognized as revenue once we establish VSOE~~ of the ~~fair~~policy ~~value~~to ofbetter ~~the~~ensure ~~fair~~broader ~~value~~understanding ~~on the remaining undelivered elements, the remaining elements for which VSOE does not exist have been installed and accepted or the remaining elements for which VSOE~~ of the ~~fair~~policy ~~value~~among does not exist have been canceled from the arrangement, whichever occurs first. 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~~personnel.

~~The~~• ~~components~~Continuing ofto ~~backlog~~refine asthe review of ~~December~~documentation 31of revenue transactions prior to recognizing revenue, ~~2003~~including ~~and~~how ~~2002~~each ~~are~~of asthe ~~follows~~ four criteria for revenue recognition (~~amounts~~i.e. inpersuasive ~~thousands~~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.

	December 31,
	2003		2002
Customer deposits	$	10,911	$	10,135
Deferred software license revenue		14,482		9,229
Other deferred revenue		18,212		10,735
Unearned revenue		26,027		21,724
Total backlog	$	69,632	$	51,823

•

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.

OfWe ~~the~~believe ~~total~~changes ~~$69.6 million~~to our system of internal ~~backlog~~controls atand ~~December~~our ~~31,~~disclosure ~~2003,~~controls weand ~~expect~~procedures will be adequate to ~~recognize~~provide ~~approximately~~reasonable ~~$62.6~~assurance ~~million~~that ofthe ~~our~~objectives ~~backlog~~of ~~during~~these ~~the~~control ~~twelve~~systems ~~months~~will ~~following~~be ~~December~~met. 31However, ~~2003~~because ~~with~~of the ~~remaining~~inherent ~~portion~~limitations toin beall ~~completed~~control insystems, ~~subsequent~~no evaluation ~~periods.~~of Wecontrols ~~cannot~~can ~~assure~~provide ~~you~~ absolute assurance that ~~contracts~~all ~~included~~control inissues, ~~backlog~~if ~~will~~any, ~~generate~~within the ~~specified~~Company ~~revenues~~have orbeen detected. These inherent limitations include the realities that ~~these~~judgments ~~revenues~~in ~~will~~decision-making can be ~~fully~~faulty, ~~recognized~~and ~~within~~that ~~the~~breakdowns ~~specified~~can occur ~~time~~because ~~periods~~of simple error or mistake.

~~Deferred revenue increased $12~~b.7 ~~million~~Changes to $32.7 million for the twelve months ended December 31, 2003 from $20.0 million at December 31, 2002. Of the $12.7 million increase, deferred software license revenue and the related deferred maintenance and support contributed $6.5 million. This increase was comprised of $3.8 million of new installations in ~~oncology,~~Internal $2Controls.~~2 million in imaging systems and~~ ~~$381,000 in new products to existing customers. The remaining $6.2 million was associated with other deferred revenue related to term licenses and post contract maintenance and support.~~

~~Seasonality~~None.

We16 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~~PART ~~than~~II. ~~average~~OTHER ~~time~~INFORMATION ~~period, could generate a large increase in revenue and net income for any given quarter or fiscal year, which may prove unusual when~~

19 Item 1. Legal Proceedings

~~Table~~Purported Shareholder ofClass ~~Contents~~Action Lawsuit Relating to Merger with Elekta

On ~~compared~~January to21, ~~changes~~2005, inan ~~revenue~~alleged ~~and~~holder ~~net~~of ~~income~~IMPAC incommon ~~other~~stock ~~periods~~filed a purported class action lawsuit, “Stakely v. ~~Furthermore~~IMPAC Medical Systems, weInc., ~~typically~~et ~~experience~~al.” ~~long~~in ~~sales~~California ~~cycles~~Superior Court for ~~new~~the ~~customers,~~County ~~which~~of ~~may~~Santa ~~extend over~~Clara. ~~several~~The ~~quarters~~complaint ~~before~~names aas defendants ~~sale~~IMPAC isand ~~consummated~~each ~~and~~member aof ~~customer~~our ~~implementation~~board ~~occurs~~of directors. AsThe acomplaint ~~result~~alleges that, wein ~~believe~~pursuing ~~that~~the ~~quarterly~~merger ~~results~~with Elekta and approving the merger agreement, the directors violated their fiduciary duties to the holders of ~~operations~~IMPAC ~~will~~common ~~continue~~stock by, among other things, failing to ~~fluctuate~~implement a process designed to maximize stockholder value, engaging in self-dealing and ~~that~~securing ~~quarterly~~benefits ~~results~~for ~~may~~certain ~~not~~officers beand ~~indicative~~directors of ~~future~~IMPAC ~~periods.~~at ~~The timing~~the expense of ~~revenues~~the isplaintiffs ~~influenced~~and byother stockholders. The complaint seeks a ~~number~~preliminary ofand ~~factors,~~permanent ~~including~~injunction to enjoin the ~~timing~~company offrom ~~individual~~consummating ~~orders~~the merger, ~~customer~~as ~~implementations~~well ~~and~~as ~~seasonal~~attorneys’ ~~customer~~fees ~~buying~~and ~~patterns~~other remedies.

~~Liquidity~~Purported ~~and~~Shareholder ~~Capital~~Class ~~Resources~~Action Lawsuits Relating to Restatement Announcement

WeThe ~~have~~following ~~financed~~three ~~our~~putative ~~operations~~securities ~~since~~class ~~inception~~actions ~~primarily~~that ~~through~~were ~~cash~~filed ~~from~~after ~~operating~~the ~~activities,~~Company’s aMarch ~~$4.0~~1, ~~million~~2004, ~~private~~announcement ~~placement~~ of ~~equity~~its inintent ~~1996, net~~to ~~proceeds~~restate ofits ~~$24.4~~financial ~~million~~statements ~~from~~for ~~our~~fiscal ~~initial~~years ~~public~~2000 ~~offering~~through ~~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,~~have ~~cash~~been ~~equivalents~~voluntarily ~~and~~dismissed ~~available-for-sale~~by ~~securities were~~the ~~$45.6~~plaintiffs ~~million~~that atfiled ~~December~~the ~~31, 2003~~actions.

~~During~~On ~~the~~September ~~three months ended December 31~~8, ~~2003~~2004, ~~net~~an ~~cash~~alleged ~~used~~shareholder inof ~~operating~~the ~~activities~~Company ~~was~~filed ~~$373,000~~a ~~compared~~putative tosecurities ~~net~~class ~~cash~~action ~~used~~lawsuit in ~~operating~~the ~~activities~~United ofStates ~~$915,000~~District Court for the ~~same~~Northern ~~period~~District of ~~in 2002~~California. ~~Cash~~See ~~used~~Operating inEngineers ~~operations~~Construction ~~during~~Industry ~~the~~and ~~three~~Miscellaneous ~~months~~Pension ~~ended~~Fund ~~December~~(Local ~~31,~~66 ~~2003~~— ~~was primarily~~Pittsburgh), ~~attributable~~on toBehalf anof ~~increase~~Itself ~~in deferred income taxes~~ and ~~accounts~~All ~~receivable~~Others ~~and~~Similarly aSituated ~~decrease in accrued liabilities~~v. ~~These~~IMPAC ~~uses~~Medical ofSystems, ~~cash~~Inc., ~~were~~Joseph ~~partially~~K. ~~offset~~Jachinowski byand ~~net~~Kendra ~~income~~A. Borrego ~~after~~(the ~~non-cash~~“Operating ~~adjustments~~Engineers ~~for~~action”). ~~depreciation~~The ~~and~~lawsuit ~~amortization and the $577~~alleged,~~000~~ ~~write-off~~among ofother ~~acquired~~things, ~~in-process~~that ~~research~~during ~~and~~the ~~development~~period ~~and~~from anNovember ~~increase~~20, in2002 ~~deferred~~to ~~revenue.~~May ~~Cash~~13, ~~used~~2004 in(the ~~operations~~“class ~~during~~period”), the ~~three~~Company ~~months~~falsely ~~ended~~reported ~~December~~its ~~31,~~results ~~2002~~for fiscal ~~was~~years ~~primarily~~2000 ~~attributable~~ to an2003 ~~increase~~through inimproper ~~the~~revenue ~~accounts~~recognition, ~~receivable balance~~ and tothereby ~~decreases~~artificially ininflated the ~~accrued~~price ~~liabilities~~of ~~and~~the ~~income~~Company’s ~~taxes payable balances~~stock. ~~These~~The ~~uses~~plaintiff ofpurported ~~cash~~to ~~were~~have ~~partially~~brought ~~offset~~this bylawsuit ~~net~~as ~~income~~a ~~after~~class ~~non-cash~~action ~~adjustments~~on ~~for~~behalf ~~depreciation~~of ~~and~~all ~~amortization,~~persons awho ~~decrease in~~ purchased the ~~prepaid~~Company’s ~~expenses~~securities ~~and~~on ~~other current~~the ~~assets~~open ~~balance~~market ~~and~~during anthe ~~increase~~class ~~in deferred revenues~~period.

InOn September ~~determining~~14, ~~average days sales outstanding and accounts receivable turnover~~2004, wetwo ~~use~~individuals ~~our~~filed ~~gross annual invoicing in each calculation as we believe this provides~~ a ~~more~~second ~~relevant~~purported ~~measurement~~securities ~~basis~~class ~~due~~action tolawsuit ~~the~~in ~~significance of our deferred revenue. Our accounts receivable turnover decreased to 4.2 for~~ the ~~three~~United ~~months~~States ~~ended~~District ~~December~~Court ~~31, 2003 from 4.9~~ for the ~~same~~Northern ~~period~~District inof ~~2002.~~California ~~Our~~that ~~days~~was ~~sales~~substantively ~~outstanding~~identical ~~at December 31, 2003 increased~~ to 85the ~~from~~one 73filed aton ~~December~~September 318, ~~2002~~2004. ~~The increase~~See inAlan ~~days~~Lerner ~~sales~~and ~~outstanding~~Marvin isRogers, ~~due~~on toBehalf ~~the~~of ~~accounts~~Themselves ~~receivable balances we acquired from Tamtron~~ and ~~MRS~~All inOthers ~~late~~Similarly ~~December~~Situated ~~2003~~v. ~~Had~~IMPAC weMedical ~~not~~Systems, ~~acquired the approximately $2~~Inc.~~5 million in additional accounts receivable at the end of the quarter~~, ~~our~~Joseph ~~days sales~~K. ~~outstanding~~Jachinowski ~~would~~and ~~have~~Kendra ~~decreased slightly to 72~~A. ~~Generally,~~Borrego (the ~~first~~“Lerner ~~quarter of our fiscal year experiences slower cash collections due to the seasonal impact of holidays in November and December~~action”). WeThe ~~continue~~second ~~our~~lawsuit ~~efforts~~alleged ~~to improve~~the ~~collections~~same byclaims ~~maintaining~~against ~~appropriate~~the ~~staffing~~same ~~levels,~~defendants ~~formalizing~~on ~~escalation~~behalf ~~procedures, and improving internal communications. Revenue is only recognized when all~~ of the ~~criteria~~same ~~for~~purported ~~revenue~~class ~~recognition~~of ~~have~~shareholders ~~been~~(those ~~met~~who ~~which~~purchased isthe ~~upon~~Company’s ~~acceptance~~securities ~~and invoicing~~on of the ~~final~~open ~~balance~~market ofduring the ~~fee~~period ~~unless~~from ~~the~~November ~~invoice~~20, ~~has~~2002 ~~payment terms extending longer than 60 days. Any invoice that has payment terms longer than 60 days is considered~~ to ~~have~~May ~~extended~~13, ~~payment~~2004) ~~terms and is not be recognized~~ as ~~a receivable~~the ~~or revenue until it is due and payable~~earlier-filed lawsuit.

~~Net~~On ~~cash~~September 21, 2004, another individual filed a third putative ~~used~~securities class action lawsuit in ~~investing~~the ~~activities~~United ~~was~~States ~~$22.4~~District ~~million~~Court for the ~~three~~Northern ~~months~~District ~~ended~~of ~~December~~California. 31See John Maras, ~~2003~~Individually and ~~$403~~On Behalf of All Others Similarly Situated v. IMPAC Medical Systems,~~000~~ ~~for~~Inc., ~~the~~Joseph ~~same~~Jachinowski, ~~period~~Kendra Borrego, inDavid ~~2002~~Auerbach, and James Hoey (the “Maras action”). ~~During~~This lawsuit alleged the ~~three~~same ~~months~~claims ~~ended~~under ~~December~~the ~~31,~~federal ~~2003~~securities laws as the two earlier-filed lawsuits, ~~cash~~and ~~used~~named as defendants, in ~~investing~~addition ~~activities~~to ~~primarily~~the ~~related~~Company toand the ~~Tamtron/MRS~~two ~~Acquisition~~executives ~~Total~~named ~~cash~~in ~~outlays~~the ~~for~~two ~~this~~earlier-filed ~~acquisition~~lawsuits, ~~amounted~~two toother ~~approximately~~executive ~~$22~~officers of the Company.4 ~~million,~~This ~~including~~lawsuit ~~acquisition~~alleged ~~costs.~~the ~~During~~same class period as the ~~three~~two ~~months~~earlier-filed ~~ended~~actions ~~December~~(i.e., 31November 20, 2002 to May 13, ~~cash~~2004), ~~used~~and inlikewise ~~investing~~alleged that ~~activities~~during ~~primarily~~the ~~related~~class toperiod the ~~purchase~~ ofCompany ~~$565~~overstated its financial results for fiscal years 2000 to 2003 through improper revenue recognition,~~000~~ allegedly resulting in artificial inflation of ~~capital~~the ~~equipment~~price toof ~~support~~the ~~ongoing~~Company’s ~~operations~~stock ~~offset~~during bythe ~~net~~class period. ~~proceeds~~This ~~from~~action ~~sales~~further ~~and~~alleged ~~maturities~~that each of ~~available-for-sale~~the ~~securities~~four individual defendants sold shares of ~~$162,000~~the Company’s stock during the class period while in possession of material nonpublic information.

~~Net~~On ~~cash~~January ~~provided~~11, by2005, ~~financing~~the ~~activities~~plaintiff ~~was~~in $1the Maras action filed a notice of voluntary dismissal of his complaint.0 ~~million~~In ~~for~~view of this notice of voluntary dismissal, the ~~three~~Court ~~months~~on ~~ended~~January ~~December~~12, 312005, ~~2003~~entered ~~and~~an ~~$24.5~~order ~~million for~~directing the ~~same~~clerk ~~period~~of inthe ~~2002~~court to close the case file and terminate all motions. ~~Cash~~On ~~provided~~January by24, ~~financing~~2005, ~~activities~~the ~~during~~plaintiff in the Operating ~~three~~Engineers ~~months~~action, ~~ended~~and ~~December~~the 31plaintiffs in the Lerner action, ~~2003~~filed ~~primarily~~a ~~related~~notice toof ~~net~~voluntary ~~proceeds~~dismissal of $1their respective complaints.0 ~~million~~On ~~received~~January ~~from~~26, ~~common~~the ~~stock~~Court entered an order in each of these cases directing the clerk to close the case file and terminate all motions.

20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Table~~Not ofApplicable. ~~Contents~~

~~issuances.~~Item ~~Cash provided by financing activities during the three months ended December 31, 2002 primarily related to net proceeds of $24~~3.4 ~~million~~Defaults ~~received in~~Upon ~~our~~Senior ~~initial~~Securities ~~public offering during November 2002.~~

~~In fiscal~~Not ~~2000, we entered a capital lease for the purchase of furniture for our corporate headquarters~~Applicable. 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~~ Item ~~following~~4. ~~table~~Submission ~~describes~~of ~~our~~Matters ~~commitments~~ to ~~settle contractual~~a ~~obligations~~Vote ~~in cash not recorded on the balance sheet as~~ of ~~December~~Security ~~31,~~Holders ~~2003. The telecommunications contracts with AT&T include wireless, frame-relay, voice/data and internet transport services.~~

Fiscal Year	PropertyLeases	OperatingLeases	TelecommunicationsContracts	Total FutureObligations
Remaining period in fiscal year 2004	2,183,000	37,000	1,140,000	3,360,000
Fiscal year 2005	2,799,000	27,000	1,299,000	4,125,000
Fiscal year 2006	2,520,000	6,000	1,200,000	3,726,000
Fiscal year 2007	1,011,000	—	930,000	1,941,000

Not Applicable

~~We expect to increase~~ ~~capital~~Item ~~expenditures consistent with our anticipated growth in infrastructure and personnel~~5. WeOther ~~also~~Information 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.

~~Recent~~Not ~~Accounting Pronouncements~~ applicable.

~~In January 2003, the Financial Accounting Standards Board (“FASB”)~~ ~~issued~~Item ~~FIN 46, “Consolidation of Variable Interest Entities”, an Interpretation of ARB 51, which subsequently has been revised by FIN 46-R~~6. ~~The~~Exhibits 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 did not have a material impact on our financial position and results of operations.


2.1		Agreement and Plan of Merger Among Elekta AB (Publ), Erbium Acquisition Corporation and IMPAC Medical Systems, Inc., dated as of January 17, 2005 (incorporated by reference from Exhibit 2.1 to IMPAC’s Form 8-K filed January 19, 2005).

10.1		Severance Agreement between IMPAC Medical Systems, Inc. and Kendra Borrego, dated as of January 17, 2005 (incorporated by reference from Exhibit 10.1 to IMPAC’s Form 8-K filed January 19, 2005).

10.2		Elekta Sales Consultancy Agreement, dated October 5, 2004 between IMPAC and Elekta Limited.*

31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14(b).

31.2		Certification of Principal Financial Officer Pursuant to Rule 13a-14(b).

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.

2117



32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

99.1		Form of Stockholder Agreement entered into by and among Elekta AB (publ), Erbium Acquisition Corporation and IMPAC Medical Systems, Inc. (incorporated by reference from Exhibit 99.2 to IMPAC’s Form 8-K filed January 19, 2005).

~~Item~~* 3Confidential treatment requested as to certain portions of this Exhibit. ~~Quantitative~~Omitted ~~and~~portions ~~Qualitative~~have ~~Disclosures~~been ~~About~~filed ~~Market~~separately ~~Risk~~with the Securities and Exchange Commission.

~~The~~18 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~~SIGNATURES 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.

WePursuant ~~have~~to ~~operated mainly in~~ the ~~United~~requirements ~~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~~Securities ~~fluctuations.~~Act ~~Currently, all~~ of ~~our international distributors denominate all transactions in U.S. dollars. However~~1934, ~~as we sell to customers in~~ the ~~United~~registrant ~~Kingdom~~has ~~and~~duly ~~Europe~~caused ~~through~~this ~~our~~report ~~recently~~to ~~formed UK subsidiary a majority of those sales may~~ be ~~denominated~~signed inon ~~euros~~its orbehalf 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.~~undersigned ~~dollar,~~thereunder ~~these~~duly 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 Uauthorized.S. ~~dollars for consolidation purposes.~~

~~Item~~IMPAC 4MEDICAL SYSTEMS, INC. ~~Controls~~Registrant Dated: February 9, 2005 /s/ JOSEPH K. JACHINOWSKI Joseph K. Jachinowski Chairman of the Board, President and ~~Procedures~~Chief Executive Officer /s/ KENDRA A. BORREGO Kendra A. Borrego Chief Financial Officer

a.19 ~~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.

During the course of this evaluation, our management 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 recognized revenues to later quarters or to defer recorded revenues and recognize them in periods subsequent to September 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 restatement, our independent auditors, 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 restatement. 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.

• 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 Matter 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 VotesWithheld
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.

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 report on Form 8-K was 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.

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. Registrant

Dated: April 16, 2003 /s/ JOSEPH K. JACHINOWSKI Joseph K. Jachinowski Chairman of the Board, President and Chief Executive Officer

/s/ KENDRA A. BORREGO Kendra A. Borrego Chief Financial Officer

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