Edgar Filing: GREENWAY MEDICAL TECHNOLOGIES INC

t73419_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended March 31, 2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35413

GREENWAY MEDICAL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


Delaware	58-2412516
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
121 Greenway Boulevard Carrollton, GA	30117
(Address of Principal Executive Offices)	(Zip Code)

(770) 836-3100

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer	o	Accelerated Filer	o

Non-Accelerated Filer	x (Do not check if a smaller reporting company)	Smaller Reporting Company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

There were 29,077,612 shares of the registrant’s common stock outstanding as of May 7, 2012.

GREENWAY MEDICAL TECHNOLOGIES, INC.

FORM 10-Q

For The Quarterly Period Ended March 31, 2012

INDEX


PART I. FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements (unaudited)	1

	Notes to Condensed Financial Statements (unaudited)	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	15

Item 1A.	Risk Factors	15

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15

Item 3.	Defaults Upon Senior Securities	16

Item 4.	Mine Safety Disclosures	16

Item 5.	Other Information	16

Item 6.	Exhibits	16

Signatures		17

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

Greenway Medical Technologies, Inc.

Condensed Balance Sheets

(Amounts in thousands, except share amounts and per share data)

(Unaudited)


	March 31,			June 30,
	2012			2011

Assets
Current assets:
Cash and cash equivalents	$	5,060		$	5,722
Short-term investments		31,324			10,447
Accounts receivable, net of $719 and $585 allowance for doubtful accounts at March 31, 2012 and June 30, 2011 (unaudited), respectively		23,399			18,112
Inventory		582			460
Prepaids and other current assets		3,137			1,705
Deferred tax assets		1,822			476
Total current assets		65,324			36,922
Property and equipment, net		17,079			9,632
Acquired intangibles, net		542			-
Software development cost, net		14,624			6,811
Deferred tax assets - noncurrent		26,898			28,751
Goodwill		440			-
Other assets		40			40
Total assets	$	124,947		$	82,156

Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	10,958		$	7,902
Accrued liabilities		8,786			5,900
Deferred revenue		9,507			8,672
Total current liabilities		29,251			22,474
Obligation for purchased technology		138			349
Commitments and contingencies (Note 11)
Convertible preferred stock, at fair value
Series A - Issued and outstanding 3,333,333 shares at June 30, 2011 (cumulative liquidation preference $35,073)		-			75,634
Series B - Issued and outstanding 4,631,579 shares at June 30, 2011 (cumulative liquidation preference $31,425)		-			83,183
Shareholders’ equity (deficit):
Common stock		3			11,498
Additional paid-in capital		236,474			59,038
Accumulated deficit		(140,919	)		(170,020	)
Total shareholders’ equity (deficit)		95,558			(99,484	)
Total liabilities, convertible preferred stock and shareholders’ equity (deficit)	$	124,947		$	82,156

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

Greenway Medical Technologies, Inc.

Condensed Statements of Operations

(Amounts in thousands, except share amounts and per share data)

(Unaudited)

	Three Months Ended					Nine Months Ended
	March 31,		March 31,			March 31,			March 31,
	2012		2011			2012			2011

Revenue:
System sales	$	10,271	$	6,727		$	26,125		$	19,782
Training and consulting services		7,643		4,434			20,547			12,201
Support services		8,741		5,802			23,508			16,011
Electronic data interchange and business services		6,210		4,639			17,458			12,438
Total revenue		32,865		21,602			87,638			60,432
Cost of revenue:
System sales		2,558		1,587			7,166			5,199
Training and consulting services		5,355		3,386			14,347			9,472
Support services		2,691		1,846			7,620			4,750
Electronic data interchange and business services		4,226		3,162			12,201			8,786
Total cost of revenue		14,830		9,981			41,334			28,207
Gross profit		18,035		11,621			46,304			32,225
Operating expenses:
Sales, general and administrative		11,802		9,623			33,962			27,145
Research and development		4,021		2,285			11,029			5,628
Total operating expenses		15,823		11,908			44,991			32,773
Operating income (loss)		2,212		(287	)		1,313			(548	)
Interest income (expense), net		50		8			42			33
Other (expense), net		65		(22	)		(22	)		(52	)
Income (loss) before provision for income taxes		2,327		(301	)		1,333			(567	)
Provision (benefit) for income taxes		948		(30,975	)		628			(30,944	)
Net income		1,379		30,674			705			30,377
Preferred stock dividends and accretion		-		(13,232	)		28,395			(39,728	)
Income (loss) available to common shareholders	$	1,379	$	17,442		$	29,100		$	(9,351	)

Per share data:
Net income (loss) per share available to common shareholders:
Basic	$	0.06	$	1.50		$	1.89		$	(0.81	)

Diluted	$	0.06	$	1.46		$	0.04		$	(0.81	)

Weighted average number of common shares outstanding
Basic		22,859,440		11,606,520			15,410,220			11,561,887

Diluted		24,130,778		21,073,852			16,738,678			11,561,887

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

Greenway Medical Technologies, Inc.

Condensed Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Nine Months Ended
	March 31,			March 31,
	2012			2011

Cash flows from operating activities:
Net income	$	705		$	30,377
Adjustments to reconcile net income to net cash provided by operating activities:
Net stock compensation expense		1,831			1,340
Deferred income tax provision (benefit)		507			(31,000	)
Depreciation and amortization		2,928			635
Provision for bad debts		1,017			538
Reduction in obligation for acquired technology		(100	)		-
Changes in current assets and liabilities:
Accounts receivable		(6,304	)		(1,626	)
Inventory		(122	)		(260	)
Prepaids and other current assets		(1,432	)		(425	)
Accounts payable and accrued liabilities		4,988			1,275
Deferred revenue		835			3,562
Net cash provided by operating activities		4,853			4,416
Cash flows from investing activities:
Purchase of short-term investments		(26,566	)		(10,507	)
Sales of short-term investments		5,689			-
Purchases of property and equipment		(6,250	)		(2,660	)
Business combination to acquire technology and other assets		(3,000	)		-
Capitalized software development cost		(8,966	)		(3,295	)
Net cash used in investing activities		(39,093	)		(16,462	)
Cash flows from financing activities:
Payments on capital leases		-			(12	)
Payments on obligation for acquired technology		(111	)		-
Proceeds from exercise of stock options and warrants		611			418
Payments in connection with preferred stock conversion		(23,300	)		-
Sale of common stock, net of issue costs and expenses		56,378			-
Net cash provided by financing activities		33,578			406
Net decrease in cash and cash equivalents		(662	)		(11,640	)
Cash and cash equivalents at beginning of period		5,722			19,179
Cash and cash equivalents at end of period	$	5,060		$	7,539
Supplemental cash flow information:
Cash paid for interest	$	4		$	9
Cash paid for taxes	$	120		$	300

Non-cash investing and financing activities:
Conversion of preferred stock	$	135,517		$	-
Common stock and obligations for future payments at fair value, given in exchange for acquisition of technology	$	954		$	860
Reduction in obligation for acquired technology	$	100		$	-

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

Greenway Medical Technologies, Inc.

Notes to Condensed Financial Statements (Unaudited)

Note 1—Basis of Presentation and Description of Company

We prepared the accompanying interim condensed financial statements in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. We believe these condensed financial statements reflect all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation. Operating results for the three and nine months ended March 31, 2012, are not necessarily indicative of the results that may be expected for our fiscal year ending June 30, 2012. For more information regarding our results of operations and financial position, refer to the financial statements and footnotes included in our prospectus filed pursuant to Rule 424(b) on February 2, 2012, with the Securities and Exchange Commission (“SEC”).

As appropriate to the context, “Greenway”, the “Company”, and “we”, “us” and “our” are used interchangeably to refer to Greenway Medical Technologies, Inc., originally incorporated in Georgia in 1998. In connection with our recently completed initial public offering (“IPO”), we reincorporated in Delaware on February 7, 2012. We develop, market and sell an integrated suite of healthcare technology solutions, including practice management and electronic medical record software applications for physician practices, clinics and other providers in ambulatory settings throughout the United States.

Note 2—Accounting Policies and New Accounting Standards

Our accounting policies are consistent with those described in our Significant Accounting Policies for our fiscal year ended June 30, 2011, in our prospectus filed pursuant to Rule 424(b) on February 2, 2012, (the “Prospectus”) with the SEC.

New Accounting Standards - In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU represents the converged guidance of the FASB and the International Accounting Standards Board on fair value measurement. These amendments have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The common requirements are expected to result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments are to be applied prospectively and are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt these provisions in the first quarter of Fiscal 2013. Adoption of these provisions is not expected to have a material impact on the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. The amendments to the Codification in this ASU allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011 ASU 2011-12 was issued to defer the effective date relating to these reclassification adjustments requirements. Other provisions of ASU 2011-05 are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2011. The Company plans to adopt these provisions in the first quarter of Fiscal 2013. Adoption of these provisions is not expected to have a material impact on the Company’s financial statements.

In September 2011, the FASB issued 2011-08, Intangibles - Goodwill and Other (Topic 350), Testing Goodwill for Impairment. The Board decided to simplify how companies are required to test goodwill for impairment. Companies now have the option to first assess qualitative factors to determine whether it is more likely than not (likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If after considering the totality of events and circumstances a company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it will not have to perform the two-step impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. If a company has not yet issued their financial statements for the most recent annual or interim period, the company may choose to perform the qualitative assessment. ASU 2011-08 will be effective for our fiscal year ending June 30, 2013, and we are currently evaluating the impact on our financial statements.

3 - Investments

Short-term investments consist of mutual funds, money market funds and U.S. agency and corporate bonds with original maturities greater than three months and remaining maturities of less than one year. Investments are also made in corporate bonds with original maturities of greater than one year but maximum remaining maturities of 18 months; these investments are also included in short-term investments since the Company’s intent is to convert them into cash as may be necessary to meet liquidity needs. At March 31, 2012, all of the Company’s investments were classified as available-for-sale and are reported at fair value with any changes in market value reported as a part of comprehensive income. As of March 31, 2012, gross accumulated unrealized gains and losses for these investments were immaterial. Fair value is based on the Level 1 or 2 criteria of the fair value hierarchy specified in ASC 820-10, Fair Value Measurements and Disclosures.

Investments at fair value consisted of the following:

	March 31,		June 30,
Available-for-sale securities (in thousands)	2012		2011
Mutual funds	$	27,838	$	-
Corporate bonds		3,415		4,452
U.S. agency bonds		-		1,413
Money market funds		71		4,582
Total	$	31,324	$	10,447

4 - Property and Equipment and Other Intangible Assets

Property and equipment consists of:

	Estimated	March 31,			June 30,
	useful lives	2012			2011
		(in thousands)
Land	—	$	1,171		$	1,088
Building	39 years		4,433			4,433
Leasehold improvements	Lesser of lease term or 7 years		304			291
Equipment	3 years		1,312			2,753
Furniture and fixtures	5 years		3,191			1,230
Purchased software	3 years		3,052			1,315
Acquired technology	3 years		3,894			974
			17,357			12,084
Less - Accumulated depreciation			(5,793	)		(4,070	)
			11,564			8,014
Construction in progress			5,515			1,618
Total		$	17,079		$	9,632

Acquired Technology and Other Assets - In September 2010, the Company acquired certain technology and intellectual property in exchange for cash and 50,000 shares of common stock. The $600,000 cash portion of the purchase price is payable over three years in variable amounts based on sales of the Company’s product offering into which the technology is incorporated. The fair value of the aggregate consideration was estimated at $974,000 and allocated in its entirety to acquired technology estimated to have a useful life of three years. Amortization is charged to cost of goods sold and totaled $105,000 and $291,000, and $86,000 and $115,000 during the three and nine months ended March 31, 2012 and 2011, respectively. The purchase agreement provided for a potential reduction of this cash portion of the purchase price when and if an initial public offering of the Company’s common stock were to be completed. Accordingly, in connection with our offering completed in February, this obligation was reduced by approximately $100,000 which is reflected in other income in the accompanying financial statements.

In October 2011, we acquired certain technology and other assets of Cy Solutions which we believe will facilitate our penetration of the Federally Qualified Health Center (FQHC) market. Total consideration was $4 million which includes $1 million contingent on attainment of certain performance objectives. The estimated $954,000 fair value of the contingent consideration is included in other liabilities. Based on an independent valuation, the estimated value of total consideration was allocated to acquired intangibles and other assets as follows:


Assets Acquired	Estimated Fair Value (in thousands)		Estimated Useful Life

Developed Technology	$	2,920	3 years

Customer Relationships		530	5 years

Non-competition Agreements		64	3-5 years

Goodwill		440	Indefinite

Total fair value of consideration	$	3,954

Software Development Costs – We apply the provisions of ASC 985-20, Software, Costs of Computer Software to be Sold, Leased or Marketed, which requires the capitalization of costs incurred in connection with the research and development of new software products and enhancements to existing software products once technological feasibility is established. Such costs are amortized on a straight-line basis over the estimated economic life of the related product, which is typically three years. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors including, but not limited to, anticipated future gross product revenue, estimated economic life, and changes in technology. Capitalized software development costs approximated $3.1 million and $9 million and $2.5 million and $3.3 million during the three and nine months ended March 31, 2012 and 2011, respectively. Amortization of capitalized software development costs approximated $595,000 and $1.1 million, respectively, for the three and nine months ended March 31, 2012 and de minimis for the comparable periods of fiscal 2011.

Construction of New Facilities and Real Estate Tax Incentive Transaction - In December 2011, we entered into a sale-leaseback transaction pursuant to which we sold certain land and a building under development as our new administrative headquarters located in Carrollton, Georgia. The transaction contemplates an ultimate total purchase price of $12 million and in December, approximately $1 million already incurred for the project was received in cash and was simultaneously invested and is subject to a revenue bond financing agreement (the “Bond”). As development of the project progresses, the balance of $11 million contemplated under this agreement will be paid from our resources, then sold and proceeds reinvested in in a similar fashion. This agreement, in accordance with Georgia law, is intended to permit counties to attract business investment by offering property tax incentives. The arrangement is structured so that our lease payments to the County equal and offset the County’s bond payments to the Company. The Bond is non-recourse to the County, our lease payments are pledged to secure repayment of the Bond, and the lease and Bond provide for the legal right of offset. Consequently, the investment and lease obligation related to this arrangement have been offset in our balance sheet. The agreement has a maximum expiration date of 2021. If we had not entered into this transaction, property tax payments would have been higher. We can reacquire such property and terminate the agreement at a nominal price of ten dollars. The subject property was included in property and equipment - construction in progress in our balance sheet as of March 31, 2012.

5 - Transactions with Related Parties

Effective July 1, 2000, the Company entered into an agreement to lease the corporate office from Green Family Real Estate, LLC, an entity controlled by the Company’s Chairman, for approximately $20,000 per month, plus annual adjustments for inflation, until June 30, 2015 (see Note 11).

In 2000, the Company entered into an agreement to rent on an hourly basis an airplane from Greenway Air, LLC, an entity controlled by the Company’s Chairman. Expenses incurred related to this agreement were approximately $8,000 and $33,000 for the three and nine months ended March 31, 2012, and $24,000 and $58,000 for the three and nine months ended March 31, 2011. In March 2002, the Company purchased a 1% interest in Greenway Air, LLC, for $12,500. This investment is recorded at cost in the accompanying balance sheets.

The Company has considered applicable guidance regarding variable interest entities and has determined that neither of these arrangements is such an entity.

The Company has two institutional shareholders who, as of December 31, 2011, owned Series A and Series B Convertible Preferred Stock (Note 7) and shares of common stock. All outstanding preferred stock automatically converted into common stock in connection with the closing of our initial public offering. As of the closing of our initial public offering, February 7, 2012, these shareholders collectively owned approximately 44% (25% for one investor and 19% for the other) of the Company’s common stock. One representative of each of these institutional shareholders sits on the Company’s Board of Directors. Given this substantial ownership position, these shareholders are able individually, and collectively, to exercise substantial influence over the affairs of the Company.

In April 2011, the Company purchased three commercial lots totaling approximately six acres which are being used to build new facilities to accommodate its growth. The property was purchased from the Company’s Chairman pursuant to authorization from the Board of Directors. Aggregate consideration was approximately $483,000 and was based on an independent appraisal.

6 - Credit Facility

In March 2011, the Company closed on a new loan agreement with a two-year term. This facility provides financing up to $5,000,000, based on eligible receivables, with interest at LIBOR plus 275 basis points, is secured by a pledge of the Company’s assets and contains customary provisions regarding covenants including a prohibition on payment of cash dividends. There were no amounts outstanding on the credit facility at March 31, 2012, and the full amount of the facility was available.

7 - Shareholders’ Equity (Deficit)

On February 1, 2012, our registration statement on Form S-1 (No. 333-175619) was declared effective for our initial public offering (the “IPO”), and on February 7, 2012, we consummated the IPO consisting of the sale of 7,666,667 shares of our common stock at a price of $10.00 per share, including 6,388,833 shares (including the underwriters’ exercise of their over-allotment option to purchase an addition 1,000,000 shares) issued and sold by us. Following the sale of the shares in connection with the closing of the IPO, the offering terminated. As a result of the offering, including the underwriters’ over-allotment option, we received total net proceeds of approximately $56.4 million, after deducting total expenses of $7.5 million, consisting of underwriting discounts and commissions of $4.5 million and offering-related expenses of approximately $3.0 million.

As indicated above, in connection with the IPO all of the convertible preferred stock outstanding automatically converted into shares of common stock as follows:

(1)

3,333,333 shares of Series A Convertible Preferred Stock converted into 4,210,533 shares of common stock based on application of the conversion ratio of 1.2631: 1;

(2)

4,631,579 shares of Series B Convertible Preferred Stock converted into a like number of shares of common stock based on a conversion ratio of 1: 1;

(3)

in connection with the conversion of our convertible preferred stock, a mandatory cash payment of up to $42 million was due the holders thereof based on $4.75 per equivalent common share upon conversion; this amount was satisfied by (a) a payment of $23.3 million made to certain holders and (b) issuance of 1,870,124 shares of our common stock to those holders electing to receive common stock at the $10 IPO price in lieu of cash.

Concurrent with the IPO, the Company increased the authorized common stock and modified the par value to $0.0001 per share.

The amount of stock authorized, issued and outstanding, after effect of the foregoing, is summarized as follows:

	March 31, 2012				June 30, 2011
	Common Stock		Preferred		Common Stock		Series A Preferred		Series B Preferred

Authorized		80,000,000		20,000,000		25,000,000		3,458,333		4,631,579
Issued		29,064,886		-		11,676,562		3,333,333		4,631,579
Outstanding		29,064,886		-		11,676,562		3,333,333		4,631,579

Stock Options - On November 16, 2011, we adopted, and on December 16, 2011, we received shareholder approval of the Greenway Medical Technologies, Inc. 2011 Stock Plan (the “2011 Plan”) which provides for issuance of equity awards for up to 3,000,000 shares of our common stock. Effective with completion of our initial public offering, equity awards will occur only under the 2011 Plan. For the three and nine months ended March 31, 2012, respectively, options for 3,750 and 334,454 shares of our common stock were granted under our applicable plans. We also have options granted, fully-vested and outstanding under our 1999 Stock Plan. At March 31, 2012, 2,967,451 options were outstanding; no further grants will be made under either of these prior plans. We expense stock compensation costs in the cost of sales and selling, general and administrative expense line items of our Condensed Statements of Operations over the vesting periods of each grant. For the three and nine months ended March 31, 2012, we expensed $344,000 and $1.8 million, respectively, and for the three and nine months ended March 31, 2011, we expensed $506,000 and $1.3 million, respectively, in connection with outstanding option awards. As of March 31, 2012, there was $3.1 million of total unrecognized compensation cost related to non-vested awards granted under the 2004 Stock Plan. This cost is expected to be recognized over a period of 3.5 years.

8 - Fair Value of Financial Instruments

The book values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values, principally because of the short-term maturities of these instruments. As provided by their terms, the Company’s Series A and Series B Convertible Preferred Stock issuances were carried at estimated fair value based on the greater of a) liquidation preference including accrued dividends or b) fair value of these instruments largely bases on independent appraisals.

The Company applies ASC 820, Fair Value Measurements and Disclosures, with respect to fair value of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis and (b) all financial assets and liabilities. The Company applies the aspects of ASC 820 relative to nonfinancial assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis but elects not to apply the fair value option.

ASC 820 prioritizes the inputs used in measuring fair value as follows: Level 1 — Quoted market prices in active markets for identical assets or liabilities; Level 2 — Observable inputs other than those included in Level 1 (for example, quoted market prices for similar assets in active markets or quoted market prices for identical assets in inactive markets); and Level 3 — Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating the value of the asset.

The Company’s financial instruments measured at fair value as of March 31, 2012, and June 30, 2011, consisted of:

	Balance Sheet	Fair Value Hierarchy Category
(Amounts in thousands)	Classification	Level 1		Level 2		Level 3
At March 31, 2012:
Available-for-sale equity securities	Short-term investments	$	27,909	$	3,415		—
Series A convertible preferred stock	Temporary equity		—		—	$	—
Series B convertible preferred stock	Temporary equity		—		—	$	—

At June 30, 2011:
Available-for-sale equity securities	Short-term investments	$	4,582	$	5,865		—
Series A convertible preferred stock	Temporary equity		—		—	$	75,634
Series B convertible preferred stock	Temporary equity		—		—	$	83,183

9 - Income Taxes

As of March 31, 2012, the Company had gross net operating losses (NOLs) of approximately $77 million. These NOLs will be available to offset any future taxable income and will begin to expire in 2020. The Company has also generated research credit carryforwards of approximately $2.4 million. The Company estimates its annual effective tax rate for 2012 at approximately 40%. For the three and nine months ended March 31, 2012, the effective rate was 41% and 47% respectively. The effective tax rate for these periods reflect the effect of miscellaneous payments to various state jurisdictions which were expensed during the periods.

As of March 31, 2012, the Company had no unrecognized tax benefits. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when and if incurred. The Company had no interest or penalties related to unrecognized tax benefits accrued as of March 31, 2012. The Company does not anticipate that the amount of the unrecognized benefit will significantly increase within the next 12 months. The Company is no longer subject to U.S. federal income or state tax return examinations by tax authorities for tax years before 2007. However, net operating loss carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by tax authorities.

At March 31, 2011, the Company determined that it would be more likely than not that the cumulative net operating loss and other deferred tax benefits would be recoverable. Accordingly, net deferred tax assets of approximately $31.0 million were recorded on the Company’s balance sheet as of that date with a corresponding $31.0 million income tax benefit recorded in the statement of operations. This determination was based on our evaluation of positive and negative evidence as set forth in our annual financial statements for the year ended June 30, 2011, included in our Prospectus.

The determination of when to adjust the valuation allowance requires significant judgment on the part of management. Although realization is not assured, management concluded that it is more likely than not that the deferred tax assets at March 31, 2011, will be realized in the ordinary course of operations. Therefore a valuation allowance was determined to be unnecessary. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if actual future earnings are lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

10 - Net Income (Loss) Per Share Available to Common Shareholders

Basic earnings per share available to common shareholders is computed by dividing income (loss) available to common shareholders by the sum of the weighted average number of common shares outstanding during the period. Income (loss) available to common shareholders reflects accretion of preferred stock dividends, preferred stock issue cost and adjustment to recognize the estimated fair value of the put feature ascribed to these securities (Notes 7 and 8). Diluted income per share gives effect to all potentially dilutive common share equivalents outstanding during the period. Such potentially dilutive common share equivalents included Series A and B Preferred Stock fully converted into common shares as of March 31, 2012, but convertible into 8.8 million shares of common for each of the three and nine months ended March 31, 2011; outstanding warrants exercisable for common shares totaling 121,000 at March 31, 2012, and 293,000 at March 31, 2011; and stock options outstanding for 3.0 and 2.7 million shares of common for each of the three and nine months ended March 31, 2012 and 2011, respectively. The dilutive effect of outstanding stock options and warrants is computed using the treasury stock method. The computation of diluted income (loss) per share does not assume conversion, exercise, or contingent exercise of securities that would have an anti-dilutive effect on earnings. In as much as inclusion of any or all of the potentially dilutive common share equivalents is anti-dilutive for the nine months ended March 31, 2011; presentation of (loss) per share available to common shareholders — basic and diluted are the same for this period.

11 - Leases and Other Commitments

As discussed in Note 5, the Company leases office space from related parties under operating leases through 2015. Rental expense for all building and equipment leases totaled approximately $421,000 and $876,000 for the three and nine months ended March 31, 2012, and $207,000 and $550,000 for the three and nine months ended March 31, 2011, respectively. The Company has entered into contracts for development of new facilities to accommodate its growth. The project is expected to be completed by the end of fiscal 2013 and is estimated to cost approximately $12,000,000 which will be funded from existing resources and available credit.

12 - Segment Information

The Company complies with ASC Topic 280, Segment Reporting. ASC 280, which is based on a management approach to segment reporting and requires that the Company disclose information about the business components (operating segments) as utilized to make operating decisions and assess performance. The objective of this guidance is to help financial statement users understand the Company’s performance, assess prospects for future cash flows and judge the entity as a whole. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. The Company manages its resources and assesses its performance on an enterprise-wide basis. The Company does report revenue according to the nature of the products and services provided to its customers; providers in various settings within the ambulatory sector of the domestic healthcare market who share similar economic characteristics.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

Forward-looking statements can be identified by the use of words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Form 10-Q and in our other SEC filings, including our prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the SEC on February 2, 2012 (the “Prospectus”). Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. We operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial position or results of operations. All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

Business overview

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

Our technology solutions and services are designed to address the needs of providers in all ambulatory settings: independent physician practices, group practices, hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic centers, federally-qualified health centers (“FQHCs”), community health centers (“CHCs”), accountable care communities (“ACCs”) and accountable care organizations (“ACOs”), and integrated delivery networks (“IDNs”). Our single database technology platform, which reflects over 12 years of development, is scalable to serve the needs of ambulatory providers of any size. As providers’ needs evolve, our platform allows for the efficient development and integration of new solutions, which we refer to as our innovation platform. Our solutions are available on either a cloud-based or premise-based model.

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

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

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

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

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

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

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

Sources of Revenue and Expenses

Revenue

We derive our revenue primarily from sales of our PrimeSUITE platform of proprietary solutions, related hardware and professional services to providers in ambulatory settings. Currently, a sizable percentage of our solution sales are made as perpetual licenses to our customers; however, our software is currently available in a cloud-based or a premise-based model.

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

As our installed customer base continues to grow, we anticipate that Support Services and Electronic Data Interchange and Business Services, which are recurring in nature, will expand as a percentage of our total revenue. Historically, we have experienced moderate seasonality to our annual revenue with the smallest percentage of sales typically occurring in our first fiscal quarter due primarily to provider purchasing patterns. See “Results of Operations” for more information.

Cost of Revenue.

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

Sales, General and Administrative Expenses

Sales, general and administrative (“SG&A”) expenses consist primarily of compensation (including stock-based compensation) and benefits, commissions, travel, professional fees, advertising and other administrative and general expenses, including depreciation and amortization of equipment and leasehold improvements, for the Company’s sales and marketing functions; executive offices, administration, human resources, corporate information technology support, legal, finance and accounting, and other corporate services. We intend to invest in our infrastructure as appropriate to expand our market share and accommodate our growing customer base. We expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs and compliance costs in connection with Section 404 of the Sarbanes-Oxley Act. As a result, we expect SG&A expenses to increase as we grow, but remain relatively constant as a percentage of revenue and ultimately decline as we achieve leverage from our infrastructure investments.

Research and Development Expenses

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

Provision for Income Taxes

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

Results of Operations

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

	Three Months Ended March 31,										Change
	2012					2011					Increase (Decrease)
	Amount (000’s)		Percentage			Amount (000’s)		Percentage			Amount (000’s)		Percentage
Revenue:
System sales	$	10,271		31	%	$	6,727		31	%	$	3,544		53	%
Training and consulting services		7,643		23	%		4,434		21	%		3,209		72	%
Support services		8,741		27	%		5,802		27	%		2,939		51	%
Electronic data interchange and business services		6,210		19	%		4,639		21	%		1,571		34	%
Total revenue		32,865		100	%		21,602		100	%		11,263		52	%
Cost of revenue:
System sales		2,558		25	%		1,587		24	%		971		61	%
Training and consulting services		5,355		70	%		3,386		76	%		1,969		58	%
Support services		2,691		31	%		1,846		32	%		845		46	%
Electronic data interchange and business services		4,226		68	%		3,162		68	%		1,064		34	%
Total cost of revenue		14,830		45	%		9,981		46	%		4,849		49	%

	Nine Months Ended March 31,										Change
	2012					2011					Increase (Decrease)
	Amount (000’s)		Percentage			Amount (000’s)		Percentage			Amount (000’s)		Percentage
Revenue:
System sales	$	26,125		30	%	$	19,782		33	%	$	6,343		32	%
Training and consulting services		20,547		23	%		12,201		20	%		8,346		68	%
Support services		23,508		27	%		16,011		26	%		7,497		47	%
Electronic data interchange and business services		17,458		20	%		12,438		21	%		5,020		40	%
Total revenue		87,638		100	%		60,432		100	%		27,206		45	%
Cost of revenue:
System sales		7,166		27	%		5,199		26	%		1,967		38	%
Training and consulting services		14,347		70	%		9,472		78	%		4,875		51	%
Support services		7,620		32	%		4,750		30	%		2,870		60	%
Electronic data interchange and business services		12,201		70	%		8,786		71	%		3,415		39	%
Total cost of revenue		41,334		47	%		28,207		47	%		13,127		47	%

Revenue. Total revenue was $32.9 million for the three months ended March 31, 2012, compared to $21.6 million for the three months ended March 31, 2011, an increase of $11.3 million or 52%. Systems sales grew by 53% and accounted for $3.5 million or 31% of total revenue growth during the period. Training and consulting services grew by 72% and accounted for $3.2 million or 29% of total revenue growth during the period. Support services and electronic data interchange and business services grew 51% and 34%, respectively, during the period, accounting for the remaining 40% of growth in total revenue.

Total revenue for the nine months ended March 31, 2012, was $87.6 million, an increase of $27.2 million or 45% over the same period of fiscal 2011. For the nine months ended March 31, 2012, systems sales grew 32%, training and consulting services grew 68%, support services grew 47% and electronic data interchange and business services grew 40%.

Systems sales, including training and consulting services, are one-time in nature and the substantial growth is attributable to our increased share in a growing market and is reflective of an increase in both the number and size of transactions completed in the current quarter and the year to date. Additionally, the current quarter increase reflects the impact of some seasonality regarding purchasing patterns of customers that is typically experienced in our third and fourth fiscal quarters. The significant growth in training and consulting services revenue is also reflective of these same factors, demand for additional training to facilitate meeting meaningful use requirements and our success in expanding our resources to implement a greater number of systems in the three and nine months ended March 31, 2012, as compared to the same periods of fiscal 2011. Support services, electronic data interchange and business services are recurring and growth in this revenue is largely attributable to our growing customer base. Our ability to sell additional products and services to our existing customer base also benefitted revenue growth in the three and nine months ended March 31, 2012, compared to the same periods of the prior year.

Cost of Revenue. Total cost of revenue was $14.9 million for the three months ended March 31, 2012, compared to $10.0 million for the three months ended March 31, 2011, an increase of $4.9 million or 49%. Cost of systems sales increased by 61% and accounted for $1.0 million or 20% of the total increase in cost of revenue during the period. Cost of training and consulting services increased by 58% and accounted for $2.0 million or 40% of the total increase in cost of revenue during the period. Cost of support services and electronic data interchange and business services increased 46% and 34%, respectively, during the period, accounting for the remaining 40% of the increase in total cost of revenue. On an overall basis, gross profit margins were 55% for the three months ended March 31, 2012, as compared to 54% for the same period of the prior year. This improvement in the quarter is a combination of factors; margins improved due to sales mix with higher-margin systems sales and support services revenue contributing almost 60% of the total increase in revenue for the period. Benefits were also attained by the improved margin profiles of training and consulting services and support services. Improved training and consulting services margins resulted from more efficient use of contract resources in 2012 and the fact that costs incurred in the prior period for training our customers on meaningful use were not repeated at the same level. Improved support services margins are attributable to customers’ adoption of higher-margin innovations and to improvements in margin profiles of various other services that involve third parties. These beneficial effects were partly offset by $826,000 in increased amortization of recently-acquired technology and software development cost as innovations were made available to market. Overall gross profit margins for the nine months ended March 31, 2012, were comparable to the year-ago period but also included the effect of $1.7 million increased amortization of acquired technology and software development costs.

Sales, General and Administrative. Total SG&A expenses were $11.8 million for the three months ended March 31, 2012, compared to $9.6 million for the three months ended March 31, 2011, an increase of $2.2 million or 23%. For the nine months ended March 31, 2012, SG&A expenses were $33.9 million, a $6.8 million increase or 25% compared to $27.1 million for the comparable period of fiscal 2011. Growth in SG&A is largely a result of the required infrastructure to support the overall growth in the business. We have increased headcount and other investments in sales, marketing and advertising which we believe positions us to capture increased market share in what we believe will be an expanding market over the next several years. Additionally, growth in our headcount and professional services related to implementation of a new suite of business tools has increased SG&A costs for subscription to these services. As a percentage of revenue, SG&A was 36% and 39%, respectively, for the three and nine months ended March 31, 2012, compared to 45% for each of the comparable prior periods. As indicated by this comparison, we believe that investments in our growth and related infrastructure can be leveraged to maintain our sales growth in future years without a proportionate increase in cost.

Research and Development Expenses. Research and development expenses were $4.0 million for the three months ended March 31, 2012, compared to $2.3 million for the three months ended March 31, 2011, an increase of $1.7 million or 74%. For the nine months ended March 31, 2012, research and development expenses were $11.0 million as compared to $5.6 million for the prior year’s comparable period, an increase of $5.4 million or 96%. For both the quarter and year to date, the increases are largely related to compensation, benefits and related costs for additional headcount and to increased professional fees for projects outsourced to third parties. Our innovation platform requires continuing investment in research and development, which evolves to meet the needs of our customers, our market and industry regulators. In addition to research and development to support our innovation platform, we develop new products and enhance functionality of existing products. These application development costs are capitalized once technological feasibility is attained and capitalization ceases once the technology is available for market. Capitalized software development costs were approximately $3.1 million and $9.0 million for the three and nine months ended March 31, 2012, and $2.5 million and $3.3 million for the three and nine months ended March 31, 2011. Amortization of capitalized software development costs totaled $595,000 and $1.2 million for the three and nine months ended March 31, 2012, and were negligible in the comparable prior periods.

Interest and Other Expenses. Interest income, net of interest expense, was approximately $50,000 and $42,000 for the three and nine months ended March 31, 2012, and $8,000 and $33,000, net interest income for the three and nine months ended March 31, 2011. The change in net interest is related principally to funds available to invest, which decreased from March 31, 2011, to February of 2012 when net proceeds of our offering were received, and yields owing to market conditions which have been flat to declining from 2011.

Other income (expense), net was approximately $65,000 and $(22,000) for the three and nine months ended March 31, 2012, and $(22,000) and $(52,000) for the three and nine months ended March 31, 2011. Other expense is principally bank fees which in the quarter ended March 31, 2012, were offset by other income recognized from a reduction in obligation for acquired technology.

Income Taxes. The Company has available net operating losses and credits for research and development to offset taxable income and tax expense. These and other temporary differences result in net deferred tax assets. The Company estimated a provision for deferred income taxes at an effective tax rate of 40% for the results of the three months ended March 31, 2012. The Company estimates its annual effective tax rate for 2012 to approximate 40%. The current quarter’s provision also reflects expensing payments to various state jurisdictions for prior periods. As of March 31, 2011, the Company reversed the full amount of the valuation allowance previously applied to its net deferred tax assets. The resulting benefit was approximately $31 million. Therefore, effective tax rate for the three and nine months of fiscal 2011 was not meaningful.

Liquidity and Capital Resources

Our principal capital requirements are to fund operations. Since 2007, we have funded our capital needs from operating cash flow augmented recently by proceeds from exercise of warrants in connection with the 2009 completion of a tender offer made by our institutional investors and our recently completed initial public offering of our common stock. We also repaid all outstanding indebtedness and, in March 2011, entered into a new loan agreement with Bank of America, N.A. This facility provides financing up to $5 million (based on eligible receivables) with interest at LIBOR plus 275 basis points, is secured by a pledge of the Company’s assets and contains customary provisions regarding covenants. The financial covenants require us to maintain a leverage ratio not exceeding 2:1 and an EBITDA to interest expense ratio of at least 3:1. At March 31, 2012, we were in compliance with these covenants and there were no amounts outstanding on the credit facility.

We are not a capital-intensive business. Our capital expenditures heretofore have comprised technology, fixtures and equipment to accommodate our growth and we acquired and renovated a building placed into service in 2011. Additionally, we capitalize the application development costs for new technology and enhancements to our innovation platform. Funding for all of these expenditures came from existing resources. We are in the initial stages of building new facilities to accommodate the growth of our business. We estimate this facility will cost approximately $12 million and will require approximately eight more months to complete. We believe that our current cash, short-term investments and funds available under our credit facility or, if required, other financing combined with our anticipated cash flow from operations and the proceeds of our recently-completed initial public offering will be sufficient to meet our working capital and capital expenditure needs for the next 12 months and for a reasonable period thereafter.

Cash Flow Summary

Cash and cash equivalents were $5.0 million at March 31, 2012, as compared with $5.7 million at June 30, 2011. As of March 31, 2012, and June 30, 2011, we also had $31.3 and $10.4 million, respectively, in short-term investments classified as available for sale.

Operating Activities

Cash provided by operating activities was $4.9 million for the nine months ended March 31, 2012, comprised primarily of $705,000 net income, increased by $507,000 provision for deferred income taxes, net stock compensation expense of $1.8 million, depreciation and amortization of $2.9 million and provision for bad debts of $1.0 million. Net changes in working capital required $2.0 million cash from operations, attributable principally to a $6.3 million increase in accounts receivable, a $1.4 million increase in prepaids, inventory and other current assets offset by $5.0 million increase in accounts payable and accrued liabilities and $835,000 increase in deferred revenue.

Cash provided by operating activities was $4.4 million for the nine months ended March 31, 2011, comprised primarily of $30.4 million net income offset by $31.0 million deferred tax benefit, $1.3 million net stock compensation expense, $635,000 depreciation and amortization and $538,000 provision for bad debts. Net changes in working capital contributed $2.5 million to cash provided by operating activities including $3.6 million from increased deferred revenue, $1.3 million increased accounts payable and accrued liabilities offset by $2.3 million in increased accounts receivables, inventory, prepaids and other current assets.

Investing Activities

During the year ended June 30, 2011, we began investing surplus cash resources which were recently augmented by net proceeds of our offering completed in February 2012. As of March 31, 2012, we had net short-term investments of $31.3 million. Our policy is to invest only in fixed income instruments denominated and payable in U.S. dollars, including obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers’ acceptances, corporate bonds of U.S. companies, municipal securities and asset backed securities. We do not invest in auction rate securities, futures contracts, or hedging instruments. Securities of a single issuer valued at cost at the time of purchase should not exceed 10% of the market value of the portfolio but securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. The final maturity of each security within the portfolio should not exceed 24 months.

For the nine months ended March 31, 2012, we used $39.1 million of cash for investing activities consisting of $26.6 million in purchases of short-term investments, $6.2 million for purchases of property and equipment including in-progress construction of our new facilities, $3.0 million cash paid for acquired technology and investment of $9.0 million for capitalized software development of our innovation platform, offset by $5.7 million from sales of short-term investments.

Net cash used in investing activities for the nine months ended March 31, 2011, was $16.5 million including $10.5 million in purchases of short-term investments, $2.7 million for purchases of property and equipment and $3.3 million for capitalized software development.

Financing Activities

For the nine months ended March 31, 2012, we had cash provided from financing activities of $33.6 million consisting of proceeds of $56.4 million, net of issue costs and expenses, from sale of common stock in our public offering. We paid $23.3 million to holders of our preferred stock which was all converted to common in conjunction with the offering. We also had proceeds of $611,000 from exercise of stock options and warrants and paid $111,000 on an obligation for acquired technology. For the nine months ended March 31, 2011, we paid $12,000 on capital leases and had net proceeds of $418,000 from exercise of options and warrants.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which were prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to revenue recognition, accounting for software development costs, stock-based compensation and the accounting for income taxes.

The detailed Significant Accounting Policies are included in Note 2 to the Audited Financial Statements for the fiscal year ended June 30, 2011 included in the Prospectus, and there have been no changes in those policies since that filing.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, our investments include money market funds, high quality debt securities and similar investments. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short-term securities and maintain average portfolio duration of approximately one year.

Our operations consist of research and development and sales activities in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e), as of the end of the period covered by this Quarterly Report on Form 10-Q pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective in providing reasonable assurance that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all error and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2012, which were identified in connection with management’s evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

We are not aware of any legal proceedings or claims that we believe may have, individually or in the aggregate, a material adverse effect on our business, financial condition, operating results, cash flow or liquidity.

ITEM 1A.

RISK FACTORS.

Risk factors that affect our business and financial results are discussed under the heading “Risk Factors” in our Prospectus. Those Risk Factors are incorporated herein by reference. There have been no material changes to the disclosures relating to this item from those set forth in the Prospectus.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the period ending March 31, 2012, a holder of a Company warrant exercised its right to purchase an aggregate of 157,895 shares of our common stock. The exercise price was $4.75 per common share for a total of $750,000. The warrant holder was also entitled to receive, at the time of exercise of the warrant, an additional payment of $750,000 in connection with the conversion of our preferred stock which occurred in connection with our initial public offering. The total exercise price and this additional payment were offset. In addition, during this period we issued an aggregate of 5,500 shares of our common stock upon the exercise of stock options for aggregate cash proceeds of $32,375. These securities were issued either under a compensatory benefit plan in reliance upon the exemption from registration requirements or Rule 701 of the Securities Act of 1933, as amended or in reliance on the exemption provided by Section 4(2) of the Securities Act. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. All instruments representing the issued securities described above included appropriate legends setting forth that the securities have not been registered and the applicable restrictions on transfer.

On February 1, 2012, our registration statement on Form S-1 (No. 333-175619) was declared effective for our initial public offering (the “IPO”), and on February 7, 2012 we consummated the IPO consisting of the sale of 7,666,667 shares of our common stock at a price of $10.00 per share, including 6,388,833 shares (including the underwriters’ exercise of their over-allotment option to purchase an addition 1,000,000 shares) issued and sold by us. The underwriters of the offering were J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, William Blair & Company, L.L.C., Piper Jaffray & Co., and Raymond James & Associates, Inc. Following the sale of the shares in connection with the closing of the IPO, the offering terminated. As a result of the offering, including the underwriters’ over-allotment option, we received total net proceeds of approximately $56.4 million, after deducting total expenses of $7.5 million, consisting of underwriting discounts and commissions of $4.5 million and offering-related expenses of approximately $3.0 million. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates other than the payment of certain legal expenses on behalf of our selling stockholders.

We used a portion of the net proceeds from the IPO to pay $23.3 million consisting of a cash payment to holders of our outstanding preferred stock concurrently with the conversion of such shares into shares of common stock upon the closing of the IPO. Certain holders of our outstanding preferred stock who received cash payments include: W. Thomas Green, Jr., Chairman of the Board; Thomas T. Richards, a Director of the Company; Wyche T. Green, III, the Company’s President, Chief Executive Officer and Directors; Gregory H. Schulenburg, the Company’s Executive Vice President and Chief Operating Officer; Pamlico Capital II, L.P., owner of over ten percent of the Company’s common stock and an affiliate of Director Neal Morrison; and Investor Group L.P. and Investor Growth Capital Limited, which together own over ten percent of the Company’s common stock and are affiliates of Director Noah Walley.We intend to use the remaining proceeds to finance the construction of new facilities to accommodate the growth of our business (approximately $12.0 million), as well as for working capital and general corporate purposes, which may include financing our growth, developing new technology solutions and services, and funding capital expenditures, acquisitions and investments. The Company currently does not have any pending material acquisitions. We did not receive any proceeds from the sale of shares by the selling stockholders. There has been no material change in the use of proceeds from the IPO as described in the Prospectus under “Use of Proceeds”.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURES.

None.

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6.

EXHIBITS

Exhibit 10.1*	Form of 2012 Incentive Bonus Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 5, 2012)

Exhibit 10.2	Form of Greenway Medical Technologies, Inc. 2011 Stock Plan Stock Option Award Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on March 5, 2012)

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101	Interactive Data File**

_________________________________

*Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.

** Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these Sections.

SIGNATURES

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

May 10, 2012	GREENWAY MEDICAL TECHNOLOGIES, INC.

	By:	/s/ Wyche T. Green, III
		Wyche T. Green, III President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ James A. Cochran
		James A. Cochran Chief Financial Officer (Principal Financial and Accounting Officer)