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.

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.

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

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.

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.

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.

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)
. . .