Amicas (AMCS) 10-Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

OR

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 000-25311

AMICAS, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 59-2248411
(I.R.S. Employer
Identification No.)

20 Guest Street, Boston MA 02135
(Address of principal executive offices, including zip code)

(617) 779-7878
(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.Yesþ     Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).Yeso     Noo

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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filero Accelerated filerþ Non-accelerated filero
(Do not check if a smaller reporting company) Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso     Noþ

As of November 5, 2009 there were 35,913,828 shares of the registrant’s common stock, $.001 par value, outstanding.

AMICAS, Inc.

Form 10-Q

INDEX

	Page
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets — September 30, 2009 and December 31, 2008		3
Condensed Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2009 and 2008		4
Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2009 and 2008		5
Notes to Condensed Consolidated Financial Statements — September 30, 2009		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures about Market Risk		31
Item 4. Controls and Procedures		33
Part II. Other Information
Item 1. Legal Proceedings		33
Item 1A. Risk Factors		33
Item 2. Unregistered Sales of Equity Securities and use of proceeds		35
Item 6. Exhibits		36
Signatures		36
EX-31.1
EX-31.2
EX-32.1

For further information, refer to the AMICAS, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission on March 13, 2009.

AMICAS, AMICAS PACS, AMICAS RIS, AMICAS Financials, AMICAS Documents, AMICAS Dashboards, AMICAS Watch, AMICAS Reach, AMICAS RadStream, RealTime Worklist, Halo Viewer, and Cashfinder Worklist are trademarks, service marks or registered trademarks and service marks of AMICAS, Inc. All other trademarks and company names mentioned are the property of their respective owners.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)

	September 30,			December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	7,988		$	7,366
Marketable securities		32,193			47,627
Accounts receivable, net of allowances of $663 and $158, respectively		21,582			10,224
Inventories, net		2,387			—
Prepaid expenses and other current assets		6,751			2,261
Total current assets		70,901			67,478
Property and equipment, less accumulated depreciation and amortization of $6,962 and $7,495, respectively		8,771			965
Goodwill		1,138			—
Acquired/developed software, less accumulated amortization of $12,267 and $10,195, respectively		8,735			5,805
Other intangible assets, less accumulated amortization of $1,019 and $2,144, respectively		5,881			1,256
Other assets		3,373			1,594
Total Assets	$	98,799		$	77,098
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	9,411		$	4,156
Accrued employee compensation and benefits		4,783			1,611
Leases payable, current portion		20			—
Deferred revenue		30,729			14,657
Total current liabilities		44,943			20,424
Deferred revenue, long term portion		1,299			—
Other long term liabilities		469			—
Unrecognized tax benefits		206			1,379
Commitments and contingencies
Stockholders’ equity:
Preferred stock $.001 par value; 2,000,000 shares authorized; none issued		—			—
Common stock $.001 par value, 200,000,000 shares authorized, 52,266,867 and 51,473,965 issued, respectively		52			51
Additional paid-in capital		233,769			230,905
Accumulated other comprehensive income		40			100
Accumulated deficit		(134,626	)		(128,549	)
Treasury stock, at cost, 16,357,854 and 16,270,088 shares, respectively		(47,353	)		(47,212	)
Total stockholders’ equity		51,882			55,295
Total Liabilities and Stockholders’ Equity	$	98,799		$	77,098

See Accompanying Notes to Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Revenues
Maintenance and services	$	21,174		$	9,616		$	50,454		$	29,921
Software licenses and system sales		6,022			2,682			11,507			8,740
Total revenues		27,196			12,298			61,961			38,661
Costs and expenses
Cost of revenues:
Maintenance and services		9,101			4,634			22,716			13,707
Software licenses and system sales		4,191			1,067			7,696			3,948
Amortization of software		750			571			2,071			1,632
Total cost of revenues		14,042			6,272			32,483			19,287
Gross profit		13,154			6,025			29,478			19,374
Selling, general and administrative		7,198			4,971			19,478			15,426
Research and development		4,143			2,153			11,041			6,599
Acquisition related and integration costs		806			—			2,451			—
Restructuring costs		446			—			3,919			—
Amortization of intangibles		172			107			375			320
Total operating expenses		12,765			7,231			37,264			22,345
Operating income (loss)		389			(1,206	)		(7,786	)		(2,972	)
Interest income		120			420			670			1,781
Other income (expense)		(8	)		—			(2	)		—
Loss on sale of investments		—			—			—			(31	)
Income (loss) before provision for income taxes		501			(786	)		(7,118	)		(1,222	)
(Benefit from) provision for income taxes		(1,174	)		23			(1,041	)		151
Net income (loss)	$	1,675		$	(809	)	$	(6,077	)	$	(1,373	)
Income (loss) per share
Basic:	$	0.05		$	(0.02	)	$	(0.17	)	$	(0.03	)
Diluted:	$	0.05		$	(0.02	)	$	(0.17	)	$	(0.03	)
Weighted average number of shares outstanding
Basic		35,511			36,004			35,313			39,976
Diluted		37,166			36,004			35,313			39,976

See Accompanying Notes to Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

	Nine Months Ended
	September 30,
	2009			2008
Operating activities
Net loss	$	(6,077	)	$	(1,373	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization		2,225			835
Provisions for bad debts		153			70
Loss on disposal of fixed assets		752			6
Amortization of software		2,071			1,632
Non-cash stock compensation expense		1,465			1,057
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable		370			40
Inventories, prepaid expenses and other		(540	)		103
Accounts payable, accrued expenses and accrued employee compensation and benefits		(1,943	)		(119	)
Deferred revenue		7,200			852
Other long term liabilities		469			—
Unrecognized tax benefits		(1,173	)		76
Cash provided by operating activities		4,972			3,179
Investing activities
Business acquisition, net of cash acquired		(20,698	)		—
Purchases of property and equipment		(279	)		(589	)
Purchases of held-to-maturity securities		(53,772	)		(220,708	)
Maturities of held-to-maturity securities		126,833			212,945
Purchases of available-for-sale securities		(106,335	)		(17,590	)
Sales of available-for-sale securities		48,641			53,625
Cash (used in) provided by investing activities		(5,610	)		27,683
Financing activities
Repurchases of common stock		(141	)		(24,479	)
Exercise of stock options		1,435			325
Cash provided by (used in) financing activities		1,294			(24,154	)
Increase in cash and cash equivalents		622			6,708
Cash and cash equivalents at beginning of period		7,366			8,536
Cash and cash equivalents at end of period	$	7,988		$	15,244
Supplemental disclosure of cash paid during the period for:
Income taxes, net of refunds	$	—		$	116
Non-cash investing activities:
Unrealized gain on available-for-sale securities	$	66		$	26

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Notes to Condensed Consolidated Financial Statements

A. Business

          AMICAS, Inc. (“we,” “us,” “our,” “AMICAS” or the “Company”), AMICAS, Inc. is a leading independent provider of imaging IT solutions. AMICAS offers the a comprehensive suite of image and information management solutions — from radiology picture archiving systems (“PACS”) to cardiology PACS, from radiology information systems to cardiovascular information systems, from business intelligence tools to enterprise content management tools, from revenue cycle management solutions to teleradiology solutions. AMICAS provides a complete, end-to-end solution for imaging centers, ambulatory care facilities, and radiology practices. Hospitals are provided with a comprehensive image management solution for cardiology and radiology that complements existing electronic medical record (“EMR”) strategies to enhance clinical, operational, and administrative functions.

B. Summary of Significant Accounting Policies

Basis of Presentation

          The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to U.S. Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included in the accompanying unaudited financial statements. Operating results for the three and nine-month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2009. These interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Principles of Consolidation

          The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Emageon Inc since the acquisition on April 2, 2009. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

          The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Subsequent Events

          We evaluated all subsequent events that occurred after the balance sheet date through the date and time our financial statements were issued on November 9, 2009.

Revenue Recognition

          The Company recognizes revenue in accordance with FASB ASC 605 —Revenue Recognition (originally issued as Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2 with Respect to Certain Transactions,” SOP 81-1 “Accounting for Performance of Construction Type and Certain Performance Type Contracts”, the Securities and Exchange Commission’s Staff

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Accounting Bulletin 104, “Revenue Recognition in Financial Statements” and EITF 01-14, “Income Statement Characterization of Reimbursements for ‘Out-of-Pocket’ Expenses Incurred”). Revenue from software licenses and system (computer hardware) sales are recognized upon execution of the sales contract and delivery of the software (off-the-shelf application software) and/or hardware unless the contract contains acceptance provisions. In all cases, however, the fee must be fixed or determinable, collection of any related receivable must be considered probable, and no significant post-contract obligations of the Company can be remaining. Otherwise, recognition of revenue from the sale is deferred until all of the requirements for revenue recognition have been satisfied. Maintenance fees for routine client support and unspecified product updates are recognized ratably over the term of the maintenance arrangement.

          The Company reviews all contracts that contain non-standard payment terms. For these contracts the Company reviews customer credit history to determine probability of collection and to determine whether or not the Company has a history of granting post contract concessions. When there is a history of successfully collecting payments from a customer without making post contract concessions, revenue is recognized upon delivery. In instances where there is not an established payment history and/or if the payment terms are in excess of twelve months revenue is recognized as payments become due and payable. License and service arrangements generally do not require significant customization or modification of software products to meet specific customer needs. In those limited instances that do require significant modification, including significant changes to software products’ source code or where there are acceptance criteria or milestone payments, recognition of software license revenue is deferred. In instances where it is determined that services are essential to the functionality of the software and there are no acceptance provisions, service revenues and software license and systems revenues are recognized using the percentage of completion method.

          Most of the Company’s sales and licensing contracts involve multiple elements, in which case the total value of the customer arrangement is allocated to each element based on the vendor specific objective evidence, or VSOE, of the fair value of the respective elements. The residual method is used to determine revenue recognition with respect to a multiple-element arrangement when VSOE of fair value exists for all of the undelivered elements (e.g., implementation, training and maintenance services) but does not exist for one or more of the delivered elements of the contract (e.g., computer software or hardware). VSOE of fair value is determined based upon the price charged when the same element is sold separately. If VSOE of fair value cannot be established for the undelivered element(s) of an arrangement, the total value of the customer arrangement is deferred until the undelivered element(s) is delivered or until VSOE of its fair value is established. The Company accounts for certain third-party hardware/software and third-party hardware/software maintenance as separate units of accounting as the items to be purchased are “off-the-shelf” and can be sold separately on a standalone basis.

          Contracts and arrangements with customers may include acceptance provisions, which would give the customer the right to accept or reject the product after it is shipped. If an acceptance provision is included, revenue is recognized upon the customer’s acceptance of the product, which occurs upon the earlier receipt of a written customer acceptance or expiration of the acceptance period. The timing of customer acceptances could materially affect the results of operations during a given period.

          Revenue is recognized using contract accounting if payment of the software license fees is dependent upon the performance of consulting services or the consulting services are otherwise essential to the functionality of the licensed software. In these instances the Company allocates the contract value to services (maintenance and services revenues) based on list price, which is consistent with VSOE for such services, and the residual to product (software licenses and systems sales) in the Consolidated Statement of Operations. In instances where VSOE of fair value of services has not been established the software license revenue is deferred until the services are completed. Percentage-of-completion is determined by comparing the labor hours incurred to date to the estimated total labor hours required to complete the project. Labor hours are considered to be the most reliable, available measure of progress on these projects. Adjustments to estimates to complete are made in the periods in which facts resulting in a change become known. When the estimate indicates that a loss will be incurred, such

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loss is recorded in the period in which it is identified. When reliable estimates can not be made, revenue is recognized upon completion. Significant judgments and estimates are involved in determining the percent complete of each contract. Different assumptions could yield materially different results. Delays in the implementation process could negatively affect operations in a given period by increasing volatility in revenue recognition.

          Recognition of revenues in conformity with generally accepted accounting principles requires management to make judgments that affect the timing and amount of reported revenues.

Cash Equivalents and Marketable Securities

          Cash equivalents consist primarily of money market funds and are carried at fair value, which approximates cost.

          Marketable securities consist of high quality debt instruments, primarily U.S. government, municipal and corporate obligations. Investments in corporate obligations are classified as held-to-maturity, as AMICAS has the intent and ability to hold them to maturity. Held-to-maturity marketable securities are reported at amortized cost. Investments in municipal obligations are classified as available-for-sale and are reported at fair value with unrealized gains and losses reported as other comprehensive income. Current marketable securities include held-to-maturity investments with remaining maturities of less than one year as of the balance sheet date and available-for-sale investments that may be sold in the current period or used in current operations.

     As of September 30, 2009, marketable securities consisted of the following, in thousands:

	September 30, 2009
			Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Available-for-sale:
State and municipal obligations	$	22,220	$	38	$	(3	)	$	22,255
Federal agency		4,489		17		(19	)		4,487
Total	$	26,709	$	55	$	(22	)	$	26,742

	September 30, 2009
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Held-to-maturity:
Commercial paper	$	5,451	$	1	$	(1	)	$	5,451
Total	$	5,451	$	1	$	(1	)	$	5,451

     Available for sale securities were recorded at fair value of $26.8 million as of September 30, 2009 and held to maturity securities were recorded at amortized cost of $5.4 million, resulting in total marketable securities of $32.2 million.

The contractual maturities of our available-for-sale state and municipal obligations and federal agency securities are as follows:

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	September
	30, 2009
Contractual maturities of available-for-sale securities
Due within one year	$	2,888
Due between one to five years		6,979
Due between five to ten years		1,200
Due after 10 years		15,675
Total	$	26,742

     All of our held to maturity securities mature within one year and accordingly are classified as short-term in the accompanying balance sheets.

Inventories

          Inventories are stated at the lower of cost or market (net realizable value) using the specific identification and first-in, first-out methods and include materials, labor and manufacturing overhead. The Company periodically reviews its quantities of inventories on hand and compares these amounts to expected usage of each particular product or product line. The Company records a charge to cost of revenue for the amount required to reduce the carrying value of inventories to estimated net realizable value. Costs of purchased third-party hardware and software associated with the Company’s customer contracts are included as inventories in the Company’s consolidated balance sheets and charged to cost of system sales when the Company receives customer acceptance and all other relevant revenue recognition criteria are met. A summary of inventories is as follows:

	September		December 31,
	30, 2009		2008
Third-party components	$	1,123	$	—
Work-in-process		209		—
Completed systems		1,055		—
	-
Total inventories	$	2,387	$	—

Share-Based Payments

          The Company follows the guidance in FASB ASC 718 —Compensation(originally issued as SFAS 123(R), “Share Based Payment”). The Company utilizes the Black-Scholes valuation model for estimating the fair value of stock-based compensation. Under the guidance of FASB ASC 718, the Company recorded $527,000 and $438,000 of stock-based compensation expense in its unaudited condensed consolidated statements of operations for the three months ended September 30, 2009 and September 30, 2008, respectively. During the nine months ended September 30, 2009 and September 30, 2008, the Company recorded stock-based compensation expense of $1,465,000 and $1,057,000, respectively.

          For the three and nine months ended September 30, 2009 and September 30, 2008, the Company used the following assumptions:

	Stock Option Plans						Stock Option Plans
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Average risk-free interest rate		2.40	%		3.23	%		2.02	%		2.85	%
Expected dividend yield		—			—			—			—
Expected stock price volatility		55.1	%		46.9	%		51.0% - 55.1	%		43.6% - 46.9	%
Weighted average expected life (in years)		5.0			5.0			5.3			5.8
Weighted average fair value	$	1.94		$	1.18		$	1.01		$	1.15

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          During the nine months ended September 30, 2009 and 2008, the weighted average fair value of the right to purchase shares under the employee stock purchase plan was $1.17 and $0.91 per share, respectively, using the following assumptions:

	Stock Purchase Plan
	Period ended September 30,
	2009			2008
Average risk-free interest rate		0.28	%		1.88	%
Expected dividend yield		—			—
Expected stock price volatility		72.2	%		33.9	%
Weighted average expected life (in years)		0.5			0.5
Weighted average fair value	$	1.17		$	0.91

          The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility for option plans is based on the historical volatility of the Company’s common stock over a four-year period which reflects the Company’s expectations of future volatility. Expected volatility for the stock purchase plan is based on six months which reflects the offering period of the plan. The risk-free interest rate is derived from U.S. Treasury rates during the period, which approximate the rate in effect at the time of the grant. The expected life calculation is based on the observed and expected time to post-vesting exercise and forfeitures of options by the Company’s employees.

          Based on historical experience of option pre-vesting cancellations, the Company has assumed an annualized forfeiture rate of 6.8% for its options. The Company will record additional expense if the actual forfeiture rate is lower than the Company estimated, and will record a recovery of prior expense if the actual forfeiture is higher than the Company estimated.

          The unamortized fair value of stock options as of September 30, 2009 and September 30, 2008 was $2.6 million and $2.3 million, respectively, which is expected to be recognized over the weighted average remaining period of 2.0 years and 2.4 years, respectively.

     The following table summarizes activity under all of the Company’s stock option plans for the nine months ended September 30, 2009 (in thousands, except for per share and contractual term amounts):

									Weighted
							Weighted		Average
							Average		Remaining
	Shares						Exercise		Contractual		Aggregate
	Available for			Number			Price per		Term		Intrinsic
	Grant (2)			Outstanding			Share		(years)		Value (1)
Balance at December 31, 2008		3,720			8,309		$	2.89		5.03	$	233
Options granted		(1,389	)		1,332			2.09
Options exercised		—			(591	)		2.05
Options cancelled/forfeited		88			(179	)		4.94
Balance at September 30, 2009		2,419			8,871			2.78		5.8	$	9,494
Exercisable, September 30, 2009					5,445		$	3.12		4.2	$	4,813

(1)	The aggregate intrinsic value set forth in this table was calculated based on the positive difference between the closing market value of the Company’s common stock on December 31, 2008 or September 30, 2009 and the exercise price of the underlying options.
(2)	Shares available for grant include restricted stock grants which are issued from the 2006 Stock Incentive Plan.

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Net Income (Loss) Per Share

          Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect, if any, of potential common shares, which consists of shares issuable upon exercise of outstanding in-the-money stock options. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except for per share amounts):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
Numerator — (loss) income:
Net income (loss)	$	1,675	$	(809	)	$	(6,077	)	$	(1,373	)
Denominator:
Basic weighted average shares outstanding		35,511		36,004			35,313			39,976
Effect of dilutive securities		1,655		—			—			—
Diluted weighted average shares outstanding		37,166		36,004			35,313			39,976
Basic EPS:	$	0.05	$	(0.02	)	$	(0.17	)	$	(0.03	)
Diluted EPS:	$	0.05	$	(0.02	)	$	(0.17	)	$	(0.03	)

          Stock options to purchase approximately 0.8 million shares, 2.9 million shares, 2.7 million shares and 3.3 million shares of the Company’s common stock were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2009 and 2008, respectively, because their effect would have been anti-dilutive. However, these options could be dilutive in the future.

Comprehensive Income (Loss)

          Comprehensive income (loss) is a measure of all changes in equity of an enterprise that results from recognized transactions and other economic events of a period other than transactions with owners in their capacity as owners. Comprehensive income (loss) for the nine months ended September 30, 2009 and 2008 consists of net income (loss) and net unrealized gains (losses) on marketable securities. The components of comprehensive income (loss) are as follows (in thousands):

	Nine Months Ended
	September 30,
	2009			2008
Net loss	$	(6,077	)	$	(1,373	)
Net unrealized gain (loss) on marketable securities		66			26
Foreign currency gain (loss)		6			—
Total comprehensive loss	$	(6,005	)	$	(1,347	)

C. Equity Transactions

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Restricted Stock

          As of September 30, 2009, an aggregate of 152,624 shares of restricted stock had been granted to the Company’s non-employee directors. The restrictions lapse after the service period which is the earlier of one year from the date of grant or the date the director completes a full term as a director. The fair value of restricted stock awards is based on the closing market price of the Company’s common stock on the date of award and is amortized on a straight-line basis over the service period. Approximately $115,000 is expected to be recognized over the remaining weighted-average amortization period of nine months when the restrictions lapse.

          During the quarter ended September 30, 2009, the Company recognized $37,000 in stock-based compensation expense which is included in general and administrative expense in the accompanying consolidated statement of operations related to unvested restricted stock. The intrinsic value of the restricted stock outstanding at September 30, 2009 was $218,000.

          A summary of the Company’s restricted stock activity and related information for the quarter ended September 30, 2009 is as follows:

				Weighted
	Shares of			Average
	Restricted			Grant Date
	Stock			Fair Value
Restricted at December 31, 2008		36,269		$	2.79
Granted		60,690			2.62
Unrestricted		(36,269	)		2.79
Restricted at September 30, 2009		60,690		$	2.62

Repurchase of Common Stock

          On November 3, 2008, the Company’s Board of Directors approved the Company’s repurchase of shares of common stock having an aggregate value of up to $5 million. The Company has repurchased 280,903 shares of stock under a Rule 10b5-1 trading plan. During the three months ended September 30, 2009, the Company did not repurchase any shares of stock.

D. Commitments and Contingencies

Commitments

          The Company leases office and research facilities and other equipment under various agreements that expire in 2009, 2010, 2012, and 2013.

Future minimum lease payments under all operating leases with original non-cancelable terms in excess of one year are as follows:

	Operating
Year	lease payments
	(in thousands)
2009	$	653
2010		2,051
2011		1,838
2012		1,570
2013		231
Thereafter		—
Total	$	6,343

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The Company also occupies the following properties:

Boston, Massachusetts: The Company leases 27,081 square feet of space for its corporate headquarters. The Company renewed the lease effective January 11, 2008 with a base rent of $65,446 per month which increases by $1.00 per square foot annually over the lease term of five years. The lease will expire on January 11, 2013.

Daytona Beach, Florida: 35,655 square feet of leased space for a customer support facility at a monthly cost of $25,500. The lease will expire in April, 2012. The monthly rent increases by $1,000 per month in the second year and an additional $500 per month in the third year.

Hartland, Wisconsin: 2,400 square feet of leased office space at a monthly cost of $2,000, for research and development under a lease expiring in April 2010. The Company also owns 79,500 square feet of office and manufacturing space, including approximately 13 acres of land.

Ottawa, Ontario: 6,000 square feet of leased office space for a customer support facility at a monthly cost of $10,720 under a lease that expires in December 2013.

Birmingham, Alabama: 43,500 square feet of leased office space, at a monthly cost of $67,075, under a lease that expires in March 2010. During the third quarter of 2009, the Company completed the exit of the facility. The Company has a liability of $0.7 million associated with the lease costs of the vacated space recorded as of September 30, 2009.

Winter Park, Florida: 2,000 square feet of leased office space at a monthly cost of $2,882 per month under a lease that expires in October 2010. The Company has vacated this space and relocated the employees to the Daytona Beach, Florida office during the second quarter of 2009. The Company has recorded a liability of approximately $46,000 associated with the lease costs of the vacated space as of September 30, 2009.

Madison, Wisconsin: In connection with the acquisition of Emageon (see Note H), the Company acquired an existing lease obligation which extends through January, 2013. The facility has been subleased to another entity. The net lease obligation has been accrued and at September 30, 2009 the accrued liability was $0.4 million.

Employee Savings Plan

          In connection with the Company’s employee savings plans, the Company has committed to contribute to such plans during the 2009 plan year. The matching contribution for the remainder of 2009 is estimated to be approximately $0.3 million and will be made in cash.

Contingencies

          From time to time, in the normal course of business, various claims are made against the Company. There are no material proceedings to which the Company is a party, and management is unaware of any material contemplated actions against the Company.

          As permitted under Delaware law, the Company’s By-Laws provide for the Company to indemnify its officers and directors for certain events or actions occurring while the officer or director is or was serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under this indemnification provision is unlimited; however, the Company has director and officer insurance that enable the Company to recover a portion of any future amounts paid. Given the insurance coverage in effect, the Company believes the estimated fair value of these indemnification provisions is minimal.

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The Company had no liabilities recorded for these provisions as of September 30, 2009.

          The Company generally includes intellectual property indemnification provisions in its software license agreements. Pursuant to these provisions, the Company holds harmless and agrees to defend the indemnified party, generally its business partners and customers, in connection with certain patent, copyright, trademark and trade secret infringement claims by third parties with respect to the Company’s products. The term of the indemnification provisions varies and may be perpetual. In the event an infringement claim against the Company or an indemnified party is made, generally the Company, in its sole discretion, will agree to do one of the following: (i) procure for the indemnified party the right to continue use of the software, (ii) provide a modification to the software so that its use becomes noninfringing; (iii) replace the software with noninfringing software which is substantially similar in functionality and performance; or (iv) refund all or the residual value of the software license fees paid by the indemnified party for the infringing software. The Company believes the estimated fair value of these intellectual property indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of September 30, 2009.

Guarantees

          The Company has identified the guarantee described below as disclosable in accordance with FASB ASC 460 —Guarantees(originally issued as FASB Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34”).

          During the second quarter of 2009, in connection with the financing arrangement of a customer, the Company provided a guarantee to the lender on behalf of the customer. The Company has recorded a liability as deferred revenue for this guarantee which represented approximately $1.0 million at September 30, 2009. Revenue will be recognized as the guarantee is reduced.

E. Income Tax

     Provision

          In the three and nine months ended September 30, 2009, the Company recorded an income tax benefit of $1,174,000 and $1,041,000 as compared to an income tax provision of $23,000 and $151,000 in the three and nine months ended September 30, 2008. The income tax benefit for the three and nine months ended September 30, 2009 is due to the net tax benefit related to uncertain tax positions. The tax provisions for the three and nine months ended September 30, 2008 are primarily due to the effect of state tax liabilities and interest on liabilities recorded in accordance with FASB ASC 740 —Income Taxes(now including Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109”).

     Uncertain tax positions

          At September 30, 2009, the total amount of gross unrecognized tax benefits was $150,000 as compared to the December 31, 2008, total amount of $1.1 million. During the three months ended September 30, 2009, a net tax benefit of approximately $950,000 was recognized as a result of the expiration of the statute of limitations for certain tax positions related to the 2005 tax year. The Company also recorded a net tax benefit of approximately $270,000 related to accrued interest on those tax positions for which the statute of limitations has expired.

          The tax years 1997 through 2007 remain open to examination by major taxing jurisdictions to which the Company is subject as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service (“IRS”) or state tax authorities if they have or will be used in a future period. As of January 1, 2008, the Company had accrued $162,500 of interest and penalties related to uncertain tax positions. As of September, 2009, the total amount of accrued interest and penalties is $50,000. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.

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F. Acquired Developed Software

          In 2007, the Company paid $2.3 million to acquire certain ownership rights to a practice management software application that the Company now markets as AMICAS Financials. AMICAS Financials became commercially available in April 2008, at which point the Company began amortization of this capitalized cost over the software applications estimated life of approximately seven years. The Company did not capitalize any internal costs prior to commercial availability as such amounts were immaterial.

G. Fair Value Measurements

          Effective January 1, 2008, the Company adopted the guidance in FASB ASC 820 —Fair Value Measurements and Disclosures(originally issued as Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. FASB ASC 820 clarifies that fair value is an exit price, representing the amount that would be received pursuant to the sale of an asset or paid pursuant to the transfer a liability in an orderly transaction between market participants. It also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

          FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

          A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

          The financial assets of the Company measured at fair value on a recurring basis are cash equivalents and short term investments. The Company’s cash equivalents and short term investments are generally classified within level 1 or level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

          The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities and most money market securities. Such instruments are generally classified within level 1 of the fair value hierarchy.

          The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-

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grade corporate bonds, and state and municipal obligations. Such instruments are generally classified within level 2 of the fair value hierarchy.

          The following table sets forth the Company’s cash and cash equivalents and marketable securities which are measured at fair value on a recurring basis by level within the fair value hierarchy.

	Fair value measurements using						Assets at
	Level 1		Level 2		Level 3		Fair Value
Cash and cash equivalents	$	7,988	$	—	$	—	$	7,988
Commercial paper		5,451		—		—		5,451
Federal agency obligations				4,487				4,487
State and municipal obligations		—		22,255		—		22,255
Total	$	13,439	$	26,742	$	—	$	40,181

Items Measured in Fair Value on a Nonrecurring Basis

          Certain assets, including our goodwill, are measured at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired. We did not record any impairment charges for these assets during the three and nine months ended September 30, 2009.

H. Acquisition of Emageon

          On April 2, 2009 the Company completed the acquisition of Emageon Inc. AMICAS acquired 88% of the outstanding shares of Emageon Inc. via tender offer, another 2% of the shares were acquired via exercise by the Company of its “top-up” option, and the acquisition was then completed via statutory short-form merger. As a result of the acquisition the Company’s combined solution suite will include radiology PACS, cardiology PACS, radiology information systems, cardiology information systems, revenue cycle management systems, referring physician tools, business intelligence tools, and electronic medical record-enabling enterprise content management capabilities.

          The goodwill of $1,138 arising from the acquisition consists largely of synergies, the trained and assembled workforce, and economies of scale from combining the operations of Emageon and AMICAS. None of the goodwill will be deductible for tax purposes.

          The consolidated statement of operations for the nine months ended September 30, 2009 includes the operating results of Emageon from the date of acquisition. These results include $23,908 of revenues for the period April 2, 2009 through September 30, 2009.

          The fair value of consideration transferred as of the acquisition date was $39,043 which was paid in cash. The following table summarizes the preliminary amounts of the assets acquired and liabilities assumed recognized at April 2, 2009, the acquisition date.

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Identifiable assets acquired and liabilities assumed	Amount
Cash	$	18,345
Accounts receivable, net		11,881
Inventories, net		2,005
Prepaid expenses and other current assets		4,339
Land		800
Buildings & improvements		4,260
Machinery & equipment		5,063
Restricted cash and other noncurrent assets		1,812
Identifiable intangible assets		10,000
Deferred revenue liability		(10,171	)
Accounts payable		(7,963	)
Accrued payroll and related costs		(2,191	)
Other long term liabilities		(275	)
Goodwill		1,138
	$	39,043

          The fair value of the financial assets acquired includes $11,881 of accounts receivable. The gross amount due from customers is $12,281, of which $400 is expected to be uncollectible.

Pro Forma Financial Results

          The following table presents pro forma condensed consolidated financial results from operations as if the acquisition described above had been completed at the beginning of each period presented:

	Nine Months Ended
	September 30,
	(in thousands)
	2009		2008
Pro forma revenue	$	78,989	$	91,991
Pro forma net income (loss)		299		(37,828	)
Pro forma loss per share
Basic:	$	0.01	$	(0.91	)
Diluted:	$	0.01	$	(0.91	)
Weighted average number of shares outstanding
Basic		35,313		39,976
Diluted		35,946		39,976

          These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as the adjustment of depreciation and amortization as if the acquisition occurred at the beginning of the fiscal year, the elimination of strategic alternatives expenses related to the acquisition of Emageon and the reduction of interest income to reflect the use of cash as if the acquisition occurred at the beginning of the period. They have not been adjusted for the effect of costs or synergies that

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would have been expected to result from the integration of the Company and Emageon or for costs that are not expected to recur as a result of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at the beginning of each period presented, or of future results of the consolidated entities.

I. Goodwill and Acquired Intangible Assets

Intangible assets as of September 30, 2009 consisted of the following:

	Gross							Weighted
	Carrying		Accumulated					Average
	Value		Amortization			Net Value		Useful Life
								(in years)
Intangible assets subject to amortization:
Technology	$	5,002	$	(357	)	$	4,645		7
Customer Related Assets		4,100		(228	)		3,872		9
Non-Compete Agreements		500		(28	)		472		9
Trademarks & Trade Names		400		(25	)		375		8
Total	$	10,002	$	(638	)	$	9,364
Intangible assets not subject to amortization:
Goodwill		1,138		—			1,138

          Of the acquired intangible assets listed above, none have explicit renewal or extension terms; however customer related assets and technology have implicit renewal terms.

          The acquired technology was valued using a relief from royalty method. Implicit in this method is the assumption that each year a percentage of existing customers will elect to renew their support and maintenance contracts. The weighted average estimated remaining useful life for the developed technology as of the acquisition date was approximately seven years.

          The acquired customer related assets were valued using an income approach. Implicit in projected revenues used in the income approach is the assumption that each year a percentage of existing customers will continue to generate sales. An attrition rate was applied to existing customer revenue based on historical experience. The weighted average remaining economic life of the customer related assets as of the acquisition date was approximately nine years.

The estimated future amortization expense of purchased intangible assets as of September 30, 2009 was as follows:

Fiscal Year	Amount
2009 (remaining three months)	$	319
2010		1,275
2011		1,276
2012		1,275
2013		1,276
Thereafter		3,943
Total	$	9,364

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J. Restructuring and Related Costs

          During the second quarter of 2009, subsequent to the acquisition of Emageon, the Company initiated actions to consolidate the facilities, reduce personnel expenses and dispose of excess assets including leasehold improvements in certain facilities.

Facility

          Facility costs represent the closure and downsizing costs of facilities that were consolidated or eliminated due to the restructurings. Closure and downsizing costs include payments required under lease contracts, less any applicable sublease income after the properties were abandoned. To determine the lease loss portion of the closure costs, certain estimates were made related to: (1) the time period over which the relevant building would remain vacant, (2) sublease terms and (3) sublease rates, including common area charges.

Severance

          Severance and employment-related charges consist primarily of severance payments, health benefits, and other termination costs.

Other

          Other charges consist of costs related to equipment relocation and storage charges.

          A restructuring initiative was implemented by the Company during the second quarter of fiscal 2009. Restructuring and related expense during the second quarter of 2009 totaled $3.5 million, which included $0.7 million in excess facilities charges, $2.1 million in severance and termination costs, and $0.6 million in disposal of leasehold improvements, furniture and equipment in the sites exited under the restructuring and $0.1 million of other equipment relocation and storage charges.

          In the third quarter of 2009, the Company incurred additional restructuring charges totaling $0.5 million, which included $0.2 million of excess facilities charges and $0.3 million of severance and termination costs. The associated restructuring expense for excess facilities was recorded in the second quarter of 2009 upon their respective “cease-use” dates in accordance with FASB ASC 420 —Exit or Disposal Cost Obligations(originally issued as FAS 146 “Accounting for Costs Associated with Exit or Disposal Activities “).

The following table summarizes the accrued restructuring liabilities thru September 30, 2009 (in thousands).

							Total
	Facilities			Severance			Accrual
Accrued as of June 30, 2009	$	719		$	636		$	1,355
Paid		(198	)		(457	)
Accrued		231			266
Accrued as of September 30, 2009	$	752		$	445		$	1,197

Future payments are as follows:

	Facilities		Severance		Total
2009	$	247	$	445	$	692
2010		326				326
2011		80				80
2012		82				82
2013		40				40
		775	$	445	$	1,220
Future accretion						(23	)
Total accrued					$	1,197

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K. Recent Accounting Pronouncements

Adopted Accounting Pronouncements

          Effective July 1, 2009, the Company adopted The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC 105). This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became nonauthoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on the Company’s consolidated financial statements.

          Effective June 30, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (OTTI) for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have any impact on the Company’s consolidated financial statements.

          Effective June 30, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have any impact on the Company’s consolidated financial statements.

          Effective January 1, 2009, the Company adopted an accounting standard update regarding the determination of the useful life of intangible assets. As codified in ASC 350-30-35, this update amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (as currently codified

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under ASC 850). The update also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have any impact on the Company’s consolidated financial statements.

          In February 2008, the FASB issued an accounting standard update that delayed the effective date of fair value measurements accounting for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. These include goodwill and other non-amortizable intangible assets. The Company adopted this accounting standard update effective January 1, 2009. The adoption of this update to non-financial assets and liabilities, as codified in ASC 820-10, did not have any impact on the Company’s consolidated financial statements.

          Effective January 1, 2009, the Company adopted a new accounting standard update regarding business combinations. As codified under ASC 805, this update requires an entity to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. The adoption did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements

          In September 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its consolidated financial statements.

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

Forward-Looking Statements

          Our disclosure and analysis in this Quarterly Report on Form 10-Q contains forward-looking statements that set forth anticipated results based on management’s plans and assumptions. From time to time, we may also provide forward-looking statements in other materials that we release to the public as well as oral forward-looking statements. Forward-looking statements discuss our strategy, expected future financial position, results of operations, cash flows, financing plans, intellectual property, competitive position, and plans and objectives of management. We often use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “might” and similar expressions to identify forward-looking statements. Additionally, forward-looking statements include those relating to future actions, prospective products, future performance, financing needs, liquidity, sales efforts, expenses, interest rates and the outcome of contingencies, such as legal proceedings, and financial results.

          We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected by our forward-looking statements. You should bear this in mind as you consider forward-looking statements.

          We undertake no obligation to publicly update forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses in Item 1A- Risk Factors of Part II. These are important factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should understand that the discussion in Item 1A does not include all potential risks or uncertainties.

Overview

          AMICAS, Inc. (we,” “us,” “our,” “AMICAS” or the “Company”) is the leading independent provider of imaging IT solutions to the healthcare industry. AMICAS offers a comprehensive suite of image and information management solutions — from radiology PACS to cardiology PACS, from radiology information systems to cardiovascular information systems, from business intelligence tools to enterprise content management tools, from revenue cycle management solutions to teleradiology solutions. AMICAS provides a complete, end-to-end solution for imaging centers, ambulatory care facilities, and radiology practices. Hospitals are provided with a comprehensive image management solution for cardiology and radiology that complements existing EMR strategies to enhance clinical, operational, and administrative functions.

          Our solutions are designed to drive productivity and quality improvements for image-intensive specialties across the continuum of care. AMICAS solutions are installed at thousands of facilities across the United States — ranging from the largest integrated delivery networks (IDN’s) to the smallest imaging centers.

          We are focused on two primary markets: ambulatory imaging businesses and acute care facilities. Acute care facilities consist primarily of integrated delivery networks (“IDN’s”) and hospitals. In the acute care market, we are focused on delivering workflow support for image-intensive departments, including radiology and cardiology. We also provide vendor-neutral enterprise imaging infrastructure that serves as the imaging component of the provider’s electronic medical record (“EMR”). Our revenues in this market consist of software license fees and systems, services, and maintenance fees.

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          The ambulatory imaging market is composed of radiology groups, teleradiology businesses, imaging centers, multi-specialty groups and billing services. In the ambulatory imaging market, we are focused on delivering a complete end-to-end automation solution for the provider. The end-to-end solution is modular and customers can purchase one component or several and add enhancements over time. Our revenues in this market consist of software license fees and systems, services, maintenance fees, and Electronic Data Interchange (“EDI”) revenues.

          In fiscal year 2008 and in 2009, there has been a trend towards large multi-site customers in the ambulatory market. This trend has also prompted a shift from payment of the license fee in advance to multi-year payment arrangements where payments occur ratably over time. We believe that this shift is due to the need for radiology groups to reduce their up-front capital expenditures as compared to those typically required in a traditional software sale. We believe this trend has had a negative impact on our revenues because the revenues are being recognized over extended periods. Software discounts have remained relatively constant during 2009; however, continued economic uncertainty could both impact the level of discounts as well as delay capital purchasing decisions. Revenues in the acute care market consist primarily of software licenses and the associated maintenance and services. We believe the acute care market continues to be driven by the replacement market for existing PACS systems, especially to reduce total cost of ownership and reduce overhead costs. We believe the replacement market represents an attractive opportunity for our solution to improve return on investment and lower costs. However, continued economic uncertainty could cause potential customers to delay or eliminate replacement initiatives and the related capital expenditures when they have an existing system.

          On April 2, 2009 we completed the acquisition of Emageon Inc., a leading provider of technology solutions for hospitals and healthcare networks. Under the terms of the merger agreement, AMICAS acquired all of the outstanding shares of Emageon common stock for $1.82 per share in cash, for a total of approximately $39.0 million.

Critical Accounting Policies

          The discussion and analysis of our financial condition and results of operations are based on our financial statements and accompanying notes, which we believe have been prepared in conformity with generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to revenue recognition, allowances for future returns, discounts and bad debts, tangible and intangible assets, deferred costs, income taxes, restructurings, commitments, contingencies, claims and litigation. We base our judgments and estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, our actual results could differ from those estimates.

          Management believes the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of its consolidated financial statements.

• Revenue Recognition.

• Accounts Receivable.

• Long-lived Assets.

• Goodwill Assets and Business Combinations.

• Income Taxes.

• Share-Based Payment.

• Inventory.

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          These policies are unchanged from those used to prepare the 2008 annual consolidated financial statements except for inventory, which we discuss in Note B. We discuss our critical accounting policies in Item 7 under the heading “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting Pronouncements

          See Note K to the Condensed Consolidated Financial Statements.

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Results of Continuing Operations

Revenues

	Three Months Ended September 30,											Nine Months Ended September 30,
	(In thousands except percentage)											(In thousands except percentage)
						Change											Change
	2009			Change		(%)			2008			2009			Change		(%)			2008
Maintenance and services	$	21,174		$	11,558		120.2	%	$	9,616		$	50,454		$	20,533		68.6	%	$	29,921
Percentage of total revenues		77.9	%							78.2	%		81.4	%							77.4	%
Software licenses and system sales	$	6,022		$	3,340		124.5	%	$	2,682		$	11,507		$	2,767		31.7	%	$	8,740
Percentage of total revenues		22.1	%							21.8	%		18.6	%							22.6	%
Total revenues	$	27,196		$	14,898		121.1	%	$	12,298		$	61,961		$	23,300		60.3	%	$	38,661

          The Company has two primary revenue-generating areas: software license fees and system revenues, and maintenance and services revenues. Software license fees and system revenues are derived from the sale of software product licenses and computer hardware. Maintenance and services revenues come from providing ongoing product support, implementation, training and EDI services.

Maintenance and services revenues

          There are three primary components of maintenance and services revenues: (1) software and hardware maintenance, (2) EDI revenues, and (3) professional service revenues.

          Maintenance and services revenues grew 120.2% or $11.6 million in the third quarter of 2009 as compared to the third quarter of 2008. The components of the change are as follows:

• Software and hardware maintenance revenues increased approximately $10.0 million in the third quarter of 2009 as compared to the third quarter of 2008. The primary driver of the increase was $7.3 million of software and hardware maintenance revenues due to the acquisition of Emageon. The additional increase was the result of approximately $1.4 million of organic growth due to continued increases in the size of our installed customer base. The growth in our installed customer base is dependent on our ability to sell software licenses and systems, and to maintain our existing installed base through product updates and ongoing customer support and maintenance.

• Professional services revenues increased by approximately $1.6 million in the third quarter of 2009 as compared to the third quarter of 2008. Service revenues increased $0.9 million due to the acquisition of Emageon, and an increase of $0.6 million in service revenues as compared to the third quarter of 2008. The increase in service revenues was due to the recognition of services revenues that had been previously deferred for product acceptance and/or payment terms combined with new service revenue associated with new customer installations.

          Maintenance and services revenues grew 68.6% or $20.5 million in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. The components of the change are as follows:

• Software and hardware maintenance revenues increased approximately $18.8 million in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. The primary driver of the increase was $16.5 million due to the acquisition of Emageon. The

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remaining increase of $2.3 million is due to organic growth in our installed customer base. The growth in our installed customer base is dependent on our ability to sell software licenses and systems sales and to maintain our existing installed base through product updates and ongoing customer support and maintenance.

•

Professional service revenues increased by approximately $1.7 million in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. Service revenues increased $2.1 million due to the acquisition of Emageon, offset by a $0.4 million decrease in service revenues as compared to the nine months ended September 30, 2008. The year to date decrease in service revenues is primarily due to delays in revenue recognition in the first half of 2009.

Software license and systems revenues

          Software license and system revenues increased 124.5% or $3.3 million in the third quarter of 2009 as compared to the third quarter of 2008. The increase in software license and systems revenues was due to an increase of $3.4 million of additional revenues from our acquisition of Emageon offset by a decrease of $0.1 million in software license and systems revenues versus 2008. The decrease of $0.1 million was primarily attributable to the effect of extended payment terms, which increases the time it takes to convert the software license and systems orders to revenue, In general, the recognition of software license and systems revenues under generally accepted accounting principles can depend on product mix (i.e. whether systems or software are being sold), and whether there are changes in the prevailing terms (such as payment terms) under which our sales are concluded, all of which may vary over time and from quarter to quarter.

          Software license and system revenues increased 31.7% or $2.8 million in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. The increase in software license and systems revenues was due to an increase of $5.0 million of additional revenues from our acquisition of Emageon offset by a decrease of $2.2 million versus the nine months ended September 30, 2008. The decrease of $2.2 million was primarily attributable to the effect of extended payment terms, which increases the time it takes to convert the software license and systems orders to revenue and the effect of a large system sale that occurred in the first quarter of 2008. In general, the recognition of software license and systems revenues under generally accepted accounting principles can depend on product mix (i.e. whether systems or software are being sold), and whether there are changes in the prevailing terms (such as payment terms) under which our sales are concluded, all of which may vary over time and from quarter to quarter.

          We believe our customers and potential customers continue to look for automation solutions as they try to grow their businesses. Underlying this trend is the public demand for non-invasive diagnostic procedures and a public interest in health and fitness which we believe will continue to drive growth in the imaging industry. Competition in the imaging market will continue to drive the need for the next generation imaging systems. We believe these trends support our end-to-end strategy and are consistent with our goal to approach the market with our end-to-end products. However we believe that there will continue to be intense competition in this market.

          Quarterly and annual revenues and related operating results are highly dependent on the volume and timing of the signing of license agreements and product deliveries during each quarter, which are very difficult to forecast. A significant portion of our quarterly sales of software product licenses and computer hardware is concluded in the last month of each quarter, generally with a concentration of our quarterly revenues earned in the final ten business days of that month. Also, our projections for revenues and operating results include significant sales of new product and service offerings for which the market demand and customer satisfaction may not yet be known. Due to these and other factors, our revenues and operating results are very difficult to forecast.

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Cost of revenues

	Three Months Ended September 30,											Nine Months Ended September 30,
	(In thousands except percentage)											(In thousands except percentage)
						Change											Change
	2009			Change		(%)			2008			2009			Change		(%)			2008
Maintenance and services	$	9,101		$	4,467		96.4	%	$	4,634		$	22,716		$	9,009		65.7	%	$	13,707
Percentage of maintenance and services revenues		43.0	%							48.2	%		45.0	%							45.8	%
Software licenses and hardware sales	$	4,191		$	3,124		292.8	%	$	1,067		$	7,696		$	3,748		94.9	%	$	3,948
Percentage of software licenses and hardware sales		69.6	%							39.8	%		66.9	%							45.2	%
Amortization of capitalized software	$	750		$	179		31.3	%	$	571		$	2,071		$	439		26.9	%	$	1,632
Percentage of software licenses and hardware sales		12.5	%							21.3	%		18.0	%							18.7	%
Total cost of revenues	$	14,042		$	7,770		123.9	%	$	6,272		$	32,483		$	13,196		68.4	%	$	19,287

Cost of maintenance and services revenues

          Cost of maintenance and services revenues primarily consists of the cost of EDI insurance claims processing, outsourced hardware maintenance, EDI billing and statement printing services, postage, third party consultants and personnel salaries, benefits and other allocated indirect costs related to the delivery of services and support.

          Cost of maintenance and services revenue for the third quarter of 2009 increased $4.5 million or 96.4% versus the third quarter of 2008. The primary driver of this increase is related to the revenue increase from the acquisition of Emageon with the balance of the increase related to the increase of $1.4 million maintenance revenue in the third quarter of 2009 versus the third quarter of 2008.

          Cost of maintenance and services revenue for the nine months ended September 30, 2009 increased $9.0 million or 65.7% versus nine months ended September 30, 2008. The primary driver of the increase is related to the revenue increase from the acquisition of Emageon. The remainder of the increase is due to the increase in maintenance revenue for the nine months ended September 30, 2009 versus the nine months ended September 30, 2008.

Cost of software license and hardware revenues

          Cost of software license and system revenues consists primarily of costs incurred to purchase computer hardware, third-party software and other items for resale in connection with sales of new systems and software.

          Cost of software licenses and system sales increased $3.1 million or 292.8% in the third quarter of 2009, versus the third quarter of 2008. The increase in cost of software licenses and hardware sales is related to the increase in third party software and hardware revenue.

          Cost of software licenses and hardware sales increased $3.7 million or 94.9% for the nine months ended September 30, 2009, versus the nine months ended September 30, 2008. The increase in the cost of software license and systems revenues was directly related to the increase in third party software and hardware revenue.

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Amortization of capitalized software

          Capitalized software represents purchased and acquired software which is amortized to cost of sales.

          Amortization of capitalized software increased by $179,000 or 31.3% in the third quarter of 2009 versus the third quarter of 2008. The increase is amortization was due to the acquisition of additional technology assets as part of the acquisition of Emageon.

          Amortization of capitalized software increased by $439,000 or 26.9% for the nine months ended September 30, 2009 versus nine months ended September 30, 2008. The increase in amortization was due to the acquisition of additional technology assets as part of the acquisition of Emageon and the amortization of the AMICAS Financials software application.

Operating expenses

	Three Months Ended September 30,											Nine Months Ended September 30,
	(In thousands except percentage)											(In thousands except percentage)
						Change											Change
	2009			Change		(%)			2008			2009			Change		(%)			2008
Selling, general and administrative	$	7,198		$	2,227		44.8	%	$	4,971		$	19,478		$	4,052		26.3	%	$	15,426
Percentage of total revenues		26.5	%							40.4	%		31.4	%							39.9	%
Research and development	$	4,143		$	1,990		92.4	%	$	2,153		$	11,041		$	4,442		67.3	%	$	6,599
Percentage of total revenues		15.2	%							17.5	%		17.8	%							17.1	%
Amortization of intangible assets	$	172		$	65		60.7	%	$	107		$	375		$	55		17.2	%	$	320
Percentage of total revenues		0.6	%							0.9	%		0.6	%							0.8	%
Restructuring costs	$	446		$	446		—		$	—		$	3,919		$	3,919		—		$	—
Percentage of total revenues		1.6	%							0.0	%		6.3	%							0.0	%
Acquisition related and integration costs	$	806		$	806		—		$	—		$	2,451		$	2,451		—		$	—
Percentage of total revenues		3.0	%							0.0	%		4.0	%							0.0	%

Selling, general and administrative

          Selling, general and administrative expenses include fixed and variable compensation and benefits of all personnel (other than research and development and services personnel), facilities, travel, communications, bad debt, legal, marketing, insurance and other administrative expenses.

          Selling, general and administrative expenses increased from $5.0 million for the three months ended September 30, 2008 to $7.2 million for the same period in 2009. This increase is primarily the result of increased sales and marketing, and administrative headcount and expenses related to the acquisition of Emageon, combined with higher commissions.

          Selling, general and administrative expenses increased from $15.4 million in the nine months ended September 30, 2008 to $19.5 million in the nine months ended September 30, 2009. This increase was primarily the result of increased sales, marketing and administrative headcount, and expenses related to the acquisition of Emageon, combined with higher commissions.

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Research and development

          Research and development expense of $4.1 million in the three months ended September 30, 2009 represents an increase of approximately $1.9 million from $2.2 million for the same period in 2008. This increase was primarily the result of increased headcount and related expenses to support development related to the acquisition of Emageon.

          For the nine months ended September 30, 2009, research and development expense increased to $11.0 million from $6.6 million for the same period in 2008. This increase was primarily the result of increased third party R&D spend, headcount and related expenses to support development related to the acquisition of Emageon.

Amortization

          Amortization increased from $107,000 in the three months ended September 30, 2008 to $172,000 in the three months ended September 30, 2009. The increase is due to the increased amortization resulting from intangible assets acquired that were acquired as part of the acquisition of Emageon.

          Amortization increased from $320,000 in the nine months ended September 30, 2008 to $375,000 in the nine months ended September��30, 2009. The increase is due to an increase in amortization related to the intangible assets that were acquired as part of the acquisition of Emageon offset by a decrease in the amortization of an intangible asset that became fully amortized in November, 2008.

Restructuring costs

          We incurred additional restructuring costs of $0.5 million related to our acquisition of Emageon during the third quarter of 2009, which included $0.2 million in excess facilities charges, $0.3 million in severance and termination costs. Our total restructuring costs of $3.9 million through the third quarter of 2009 include $0.9 million in excess facilities charges, $2.4 million in severance and termination costs, and $0.6 million in disposal of leasehold improvements, furniture and equipment in the sites exited under the restructuring, and $0.1 million of other equipment relocation and storage charges. We expect to incur additional restructuring costs in the remainder of the fiscal year.

Acquisition related and integration costs

          We incurred approximately $0.8 and $2.5 million in acquisition related and integration costs related to our acquisition of Emageon Inc, during the three and nine months ended September 30, 2009, respectively. These costs consisted primarily of legal, accounting, and fees for consulting services. We expect to incur additional integration costs in the remainder of the current fiscal year.

Interest Income

	Three Months Ended September 30,											Nine Months Ended September 30,
	(In thousands except percentage)											(In thousands except percentage)
							Change											Change
	2009			Change			(%)			2008		2009			Change			(%)			2008
Interest income	$	120		$	(300	)		(71.4	)%	$	420	$	670		$	(1,111	)		(62.4	)%	$	1,781
Other income	$	(8	)	$	(8	)		—		$	—	$	(2	)	$	(2	)		—		$	—
Loss on sale of investment	$	—		$	—			—		$	—	$	—		$	(31	)		-100.0	%	$	31

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          The decrease of approximately $300,000 and $1.1 million in interest income for the three and nine months ended September 30, 2009, respectively, was due to both lower yields and lower investment balances in our investment portfolio as compared to the same periods in 2008.

          We sold an investment during the first quarter of 2008 that resulted in a loss of approximately $31,000. We do not expect to realize significant investment losses in our portfolio in the remainder of 2009.

Provision for income taxes

          In the three and nine months ended September 30, 2009, we recorded an income tax benefit of $1,174,000 and $1,041,000, as compared to income tax provisions of $23,000 and $151,000, respectively, in the three and nine months ended September 30, 2008. The income tax provision in the three and nine months ended September 30, 2008 is primarily due to the effect of state tax liabilities and interest on uncertain tax positions. The income tax benefit for the three and nine months ended September 30, 2009 primarily results from the reversal of unrecognized tax benefits due to the expiration of the statute of limitations for certain tax positions related to the 2005 tax year.

Liquidity and Capital Resources

          To date, we have financed our business through cash flows from operations, and proceeds from the issuance of common stock. Based upon our current working capital position current operating plans expected business conditions, and our acquisition of Emageon Inc. on April 2, 2009, we expect that our cash, cash equivalents and cash flow from operations will be sufficient to fund our working capital needs over the twelve months from September 30, 2009. In addition, at this point in time, our liquidity has not been materially impacted by the disruption in the capital and credit markets and we do not expect that it will be materially impacted in the near future. We will continue to closely monitor our liquidity and the capital and credit markets. However, we cannot predict with any certainty the impact to us of any further disruption in the credit environment.

          Our cash, cash equivalents and marketable securities balance was $40.2 million as of September 30, 2009, as compared to $55.0 million as of December 31, 2008. In April of 2009, we utilized approximately $39.0 million and acquired $18.3 million of cash in the acquisition of Emageon Inc.

          Cash provided by operating activities for the nine months ended September 30, 2009 was $5.0 million as compared to $3.2 million in the same period in 2008. The increase in cash provided by operating activities was due to the increase in deferred revenue, offset by decreases in prepaid expenses and accounts payable. The increase in deferred revenue was primarily attributable to payments from customers where we have been unable to recognize revenue as well as the fair value of acquired deferred revenue from Emageon Inc. We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, specifically the timing of when we recognize revenue, our accounts receivable collections and the timing of other payments and acquisition and restructuring costs associated with our acquisition of Emageon Inc.

          Cash used in investing activities for the nine months ended September 30, 2009 was $5.6 million, as compared to $27.7 million of cash provided in the same period in 2008. We used approximately $20.7 million of cash in the acquisition of Emageon Inc., offset by an increase of $15.4 million from the sale of marketable securities

          Cash provided by financing activities for the nine months ended June 30, 2009 was approximately $1.3 million, consisting of $1.4 million generated in connection with the exercise of stock options, and $141,000 used to repurchase common stock, as compared to $24.2 million of cash used in the same period in 2008. Cash used in 2008 was primarily to repurchase common stock.

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          The following table summarizes, as of September 30, 2009, the general timing of future payments under our lease agreements and capital lease agreements, that include noncancellable terms, and other long-term contractual obligations:

			October 1,
			2009 to
			December 31,
	Total		2009		2010		2011		2012		2013		Thereafter
			(dollars in thousands)
Operating Leases	$	6,343	$	653	$	2,051	$	1,838	$	1,570	$	231	$	—
Capital Leases		18		9		9		—		—		—		—
Other Commitments		1,451		1,355		96		—		—		—		—
Total	$	7,812	$	2,017	$	2,156	$	1,838	$	1,570	$	231	$	—

          We describe our properties in Note D, Commitments and Contingencies.

          In connection with our employee savings plans, we are committed to contribute to the plans during the 2009 plan year. The matching contribution for 2009 is estimated to be approximately $0.3 million and will be made in cash.

          We anticipate capital expenditures of approximately $0.5 million for the remainder of 2009.

          To date, the overall impact of inflation on us has not been material.

          From time to time, in the normal course of business, various claims are made against us. There are no material proceedings to which we are a party, and management is unaware of any material contemplated actions against us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We believe we are not subject to material foreign currency exchange rate fluctuations, as substantially all of our sales and expenses are domestic and therefore are denominated in the U.S. dollar. We do not hold derivative securities and have not entered into contracts embedded with derivative instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars or warrants, either to hedge existing risks or for speculative purposes.

     As of September 30, 2009, we held approximately $8.0 million in cash and cash equivalents and $32.2 million in marketable securities. Cash equivalents are carried at fair value, which approximates cost. Held-to-maturity securities are reported at amortized cost. Available-for-sale securities are reported at fair value with unrealized gains and losses reported as other comprehensive income.

     We are exposed to market risk, including changes in interest rates affecting the return on our investments. We have established procedures to manage our exposure to fluctuations in interest rates.

     The assets and liabilities of the Company’s Canadian subsidiary, whose cash flows are primarily in local currency, have been translated into U.S. dollars using current exchange rates at each balance sheet date. The operating results of this subsidiary have been translated at average exchange rates that prevailed during each reporting period. Adjustments resulting from translation of foreign currency financial statements are reflected as accumulated other comprehensive income in the consolidated balance sheets. Exchange gains and losses resulting

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from foreign currency transactions (transactions denominated in a currency other than that of the entity’s functional currency), excluding long-term intercompany receivables and investments, are included in operations in the period in which they occur. Foreign currency translation and exchange gains and losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

     Exposure to market rate risk for changes in interest rates relates to our investment in marketable securities of $32.2 million at September 30, 2009. We have not used derivative financial instruments in our investment portfolio. We place our investments with high-quality issuers and have policies limiting, among other things, the amount of credit exposure to any one issuer. We seek to limit default risk by purchasing only investment-grade securities. We manage potential losses in fair value by investing in relatively short term investments, thereby allowing us to hold our investments to maturity. Our investments have an average remaining maturity of approximately four months and are primarily fixed-rate debt instruments. Based on a hypothetical 10% adverse movement in interest rates, the potential losses in future earnings and cash flows are estimated to be $13,000.

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Item 4. Controls and Procedures

          Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2009, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, as of such date, were effective at the reasonable assurance level.

          Management’s report on internal controls over financial reporting as of December 31, 2008, was included in our Annual Report on Form 10-K for the year-end December 31, 2008. In the report, management concluded that, as of December 31, 2008, our internal control over financial reporting was effective.

          There has been no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

          From time to time, in the normal course of business, we are involved with disputes and there are various claims made against us. There are no material proceedings to which we are a party, and management is unaware of any material contemplated actions against us. During the third quarter, a judgment was awarded against the Company in an amount not considered material. The Company believes that a substantial portion of the damage award was allowed in error, and we intend to vigorously pursue our rights of appeal. If our appeal is unsuccessful, our payment in full of the damages awarded to date would not have a material adverse impact on our financial condition or results of operation.

Item 1A. Risk Factors

Risk Factors

          Our risk factors are described in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2008 and Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC for the quarters ending March 31, 2009 and Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC for the quarter ended June 30, 2009. There have been no material changes in the risks affecting AMICAS since the filing of our Form 10-K with the exception of the following risk factors.

The U.S. government is considering healthcare reform legislation, which may have a negative impact on

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our business. Among other things, proposed reductions in Medicare and Medicaid reimbursement rates for imaging procedures could negatively affect revenues of our hospital and imaging clinic customers, which could reduce our customers’ ability to purchase our software and services.

          The current administration is considering far-reaching healthcare legislation that could have a negative impact on our business. While the outcome and impact of this legislative process is difficult to predict, one specific recommendation being made by the Medicare Payment Advisory Commission (MedPAC) would increase the scanner utilization rates used by Medicare and Medicaid as a factor in determining technical reimbursement rates. They currently use a 50% utilization rate factor in the reimbursement formula, and MEDPAC has recommended increasing this factor to 90% utilization, or an increase of 80%, as part of the healthcare reform act currently under consideration in Congress. This change in the utilization rate has the potential to dramatically decrease technical reimbursements for radiology procedures, and could have a particularly negative impact on hospitals and imaging clinics in rural regions of the country where utilization rates are naturally lower. A second piece of legislation under consideration would change the Medicare Physician Fee Schedule, caused by changes being considered to the Sustainable Growth Rate (SGR). The changes being considered have the potential to negatively impact the professional component of reimbursement. Either of these changes could result in a reduction in software and service procurement of our customers, and have a material adverse effect on our revenues and operating results.

We may experience an increased demand for talent in our market, and it may become increasingly difficult to attract and retain qualified people

          Recent and expected healthcare reform and government stimulus legislation may stimulate greater demand for personnel skilled in creating and delivering solutions in the electronic medical records and related markets. As such, AMICAS and other companies in our market space may experience a significant increase in the demand for and compensation payable to qualified healthcare IT personnel in areas such as sales, implementation, and training, and we may encounter greater difficulty in attracting and retaining qualified employees in these areas.

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ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c)Issuer Repurchases of Equity Securities

On November 3, 2008, our Board of Directors approved our repurchase of shares of our common stock having an aggregate value of up to $5 million. As of September 30, 2009, we have repurchased 280,903 shares of stock under a Rule 10b5-1 trading plan. We did not repurchase any shares of stock in the quarter ended September 30, 2009.

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Item 6. Exhibits

(a) Exhibits

Exhibit No.	Description
3.2	By-Law Amendment adopted on May 12, 2009 (incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K filed on May 15, 2009 (Commission File No. 000-25311)).
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

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 on this 9th day of November, 2009.

AMICAS, Inc.
By:	/s/ Kevin C. Burns
	Kevin C. Burns
	Senior Vice President and Chief Financial Officer
By:	/s/ Stephen N. Kahane M.D., M.S.
	Stephen N. Kahane M.D., M.S.
	Chief Executive Officer

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