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2010-03-31
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2010-09-30
iso4217:USD
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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1. Summary of Significant Accounting Policies</b>
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<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Principles of Consolidation. </i></b>The consolidated financial statements include the accounts of Quality
Systems, Inc. and its wholly-owned subsidiaries, which consists of NextGen Healthcare Information
Systems (“NextGen”), Lackland Acquisition II, LLC dba Healthcare Strategic Initiatives (“HSI”),
Practice Management Partners, Inc. (“PMP”), NextGen Inpatient Solutions, LLC (“Sphere”), and Opus
Healthcare Solutions, Inc. (“Opus”) (collectively, the “Company”). All intercompany accounts and
transactions have been eliminated.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Business Segments. </i></b>The Company has prepared operating segment information in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280,
<i>Segment Reporting, </i>or ASC 280, which requires that companies disclose “operating segments” based on
the manner in which management disaggregates the Company’s operations for making internal operating
decisions. See Note 11.
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<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Basis of Presentation. </i></b>The accompanying unaudited consolidated financial statements as of
September 30, 2010 and for the three and six months ended September 30, 2010 and 2009, have been
prepared in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X, and
therefore do not include all information and notes which would be presented were such consolidated
financial statements prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements presented in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2010. Amounts related to disclosures of
March 31, 2010 balances within these interim consolidated financial statements were derived from
the aforementioned Form 10-K. In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments which are necessary for a fair presentation of the
results of operations and cash flows for the periods presented. The results of operations for such
interim periods are not necessarily indicative of results of operations to be expected for the full
year.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">Certain prior period amounts have been reclassified to conform with fiscal year 2011 presentation.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">References to amounts in the consolidated financial statement sections are in thousands, except
shares and per share data, unless otherwise specified.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Revenue Recognition</i></b><b>. </b>The Company recognizes revenue for system sales pursuant to FASB ASC Topic
985-605, <i>Software, Revenue Recognition</i>, or ASC 985-605. The Company generates revenue from the
sale of licensing rights to its software products directly to end-users and value-added resellers,
or VARs. The Company also generates revenue from sales of hardware and third party software,
implementation, training, Electronic Data Interchange (“EDI”), post-contract support (maintenance),
and other services, including revenue cycle management (“RCM”), performed for customers who license
its products.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">A typical system contract contains multiple elements of the above items. FASB ASC Topic
985-605-25, <i>Software, Revenue Recognition, Multiple Elements, </i>or ASC 985-605-25, requires revenue
earned on software arrangements involving multiple elements to be allocated to each element based
on the relative fair values of those elements. The fair value of an element must be based on
vendor-specific objective evidence (“VSOE”). The Company limits its assessment of VSOE for each
element to either the price charged when the same element is sold separately or the price
established by management having the relevant authority to do so, for an element not yet sold
separately. VSOE calculations are updated and reviewed quarterly or annually depending on the
nature of the product or service. The Company has established VSOE for the related undelivered
elements based on the bell-shaped curve method. Maintenance VSOE for the Company’s largest
customers is based on stated renewal rates only if the rate is determined to be substantive and
falls within the Company’s customary pricing practices.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">When evidence of fair value exists for the delivered and undelivered elements of a transaction,
then discounts for individual elements are aggregated and the total discount is allocated to the
individual elements in proportion to the elements’ fair value relative to the total contract fair
value.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">When evidence of fair value exists for the undelivered elements only, the residual method, provided
for under ASC 985-605, is used. Under the residual method, the Company defers revenue related to
the undelivered elements in a system sale based on VSOE of fair value of each of the undelivered
elements, and allocates the remainder of the contract price net of all discounts to revenue
recognized from the delivered elements. If VSOE of fair value of any undelivered element does not
exist, all revenue is deferred until VSOE of fair value of the undelivered element is established
or the element has been delivered.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company bills for the entire system sales contract amount upon contract execution except for
maintenance which is billed separately. Amounts billed in excess of the amounts contractually due
are recorded in accounts receivable as advance billings. Amounts are contractually due when
services are performed or in accordance with contractually specified payment dates. Provided the
fees are fixed or determinable and collection is considered probable, revenue from licensing rights
and sales of hardware and third party software is generally recognized upon physical or electronic
shipment and transfer of title. In certain transactions where collections risk is high, the cash
basis method is used to recognize revenue. If the fee is not fixed or determinable, then the
revenue recognized in each period (subject to application of other revenue recognition criteria)
will be the lesser of the aggregate of amounts due and payable or the amount of the arrangement fee
that would have been
recognized if the fees were being recognized using the residual method. Fees which are considered
fixed or determinable at the inception of the Company’s arrangements must include the following
characteristics:
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<td>The fee must be negotiated at the outset of an arrangement, and generally be based
on the specific volume of products to be delivered without being subject to change based on
variable pricing mechanisms such as the number of units copied or distributed or the expected
number of users.</td>
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<td>Payment terms must not be considered extended. If a significant portion of the
fee is due more than 12 months after delivery or after the expiration of the license, the fee
is presumed not fixed or determinable.</td>
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<div align="left" style="font-size: 10pt; margin-top: 6pt">Revenue from implementation and training services is recognized as the corresponding services are
performed. Maintenance revenue is recognized ratably over the contractual maintenance period.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Contract accounting is applied where services include significant software modification,
development or customization. In such instances, the arrangement fee is accounted for in
accordance with FASB ASC Topic 605-35, <i>Revenue Recognition, Construction-Type and Production-Type
Contracts, </i>or ASC 605-35. Pursuant to ASC 605-35, the Company uses the percentage of completion
method provided all of the following conditions exist:
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<td>the contract includes provisions that clearly specify the enforceable rights regarding
goods or services to be provided and received by the parties, the consideration to be
exchanged, and the manner and terms of settlement;</td>
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<td>the customer can be expected to satisfy its obligations under the contract;</td>
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<td>the Company can be expected to perform its contractual obligations; and</td>
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<td>reliable estimates of progress towards completion can be made.</td>
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<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company measures completion using labor input hours. Costs of providing services, including
services accounted for in accordance with ASC 605-35, are expensed as incurred.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">If a situation occurs in which a contract is so short term that the financial statements would not
vary materially from using the percentage-of-completion method or in which the Company is unable to
make reliable estimates of progress of completion of the contract, the completed contract method is
utilized.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">Product returns are estimated in accordance with FASB ASC Topic 605-15, <i>Revenue Recognition,
Products, </i>or ASC 605-15. The Company also ensures that the other criteria in ASC 605-15 have been
met prior to recognition of revenue:
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<td>the price is fixed or determinable;</td>
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<td>the customer is obligated to pay and there are no contingencies surrounding the
obligation or the payment;</td>
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<td>the customer’s obligation would not change in the event of theft or damage to the
product;</td>
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<td>the customer has economic substance;</td>
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<td>the amount of returns can be reasonably estimated; and</td>
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<td>the Company does not have significant obligations for future performance in order
to bring about resale of the product by the customer.</td>
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<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has historically offered short-term rights of return in certain sales arrangements. If
the Company is able to estimate returns for these types of arrangements, revenue is recognized, net
of an allowance for returns, and these arrangements are recorded in the consolidated financial
statements. If the Company is unable to estimate returns for these types of arrangements, revenue
is not recognized in the consolidated financial statements until the rights of return expire.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Revenue related to sales arrangements that include the right to use software stored on the
Company’s hardware is accounted for under FASB ASC Topic 985-605-05, <i>Software, Revenue Recognition</i>,
<i>Hosting Arrangements, </i>or ASC 985-605-05, which requires that for software licenses and related
implementation services to continue to fall under ASC 985-605-05, the customer must have the
contractual right to take possession of the software without incurring a significant penalty and it
must be feasible for the customer to either host the software themselves or through another third
party. If an arrangement is not deemed to be accounted for under ASC 985-605-05, the entire
arrangement is accounted for as a service contract in accordance with ASC 985-605-25. In that
instance, the entire arrangement would be recognized during the period that the hosting services
are being performed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">From time to time, the Company offers future purchase discounts on its products and services as
part of its sales arrangements. Pursuant to FASB ASC Topic 985-605-55, <i>Software, Revenue
Recognition, Flowchart of Revenue Recognition on Software Arrangements</i>, or <font style="white-space: nowrap">ASC 985-605-55,</font> such
discounts that are incremental to the range of discounts reflected in the pricing of the other
elements of the arrangement, that are incremental to the range of discounts typically given in
comparable transactions, and that are significant, are treated as an additional element of the
contract to be deferred. Amounts deferred related to future purchase options are not recognized
until either the customer exercises the discount offer or the offer expires.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">RCM service revenue is derived from services fees, which include amounts charged for ongoing
billing and other related services, and are generally billed to the customer as a percentage of
total collections. The Company does not recognize revenue for services fees until these
collections are made, as the services fees are not fixed or determinable until such time.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">Revenue is divided into two categories, “system sales” and “maintenance, EDI, RCM and other
services.” Revenue in the system sales category includes software license fees, third party
hardware and software, and implementation and training services related to purchase of the
Company’s software systems. Revenue in the maintenance, EDI, RCM and other services category
includes maintenance, EDI, RCM services, follow on training and implementation services, annual
third party license fees, hosting services and other services revenue.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Cash and Cash Equivalents. </i></b>Cash and cash equivalents generally consist of cash, money market funds
and short-term U.S. Treasury securities with original maturities of less than 90 days. The money
market fund in which the Company holds a portion of its cash invests in only investment grade money
market instruments from a variety of industries, and therefore bears relatively low market risk.
The average maturity of the investments owned by the money market fund is approximately two months.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Restricted Cash. </i></b>Restricted cash consists of cash which is being held by HSI acting as agent for
the disbursement of certain state social services programs. The Company records an offsetting
“Care Services liability” (see also Note 3) when it initially receives such cash from the
government social service programs and relieves both restricted cash and the Care Services
liability when amounts are disbursed. HSI earns an administrative fee which is based on a
percentage of funds disbursed on behalf of certain government social service programs.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Marketable Securities and ARS Put Option Rights</i></b><i>. </i>Marketable securities are recorded at fair value,
based on quoted market rates or valuation analysis when appropriate.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Previously, the Company held investments in tax exempt municipal Auction Rate Securities (“ARS”),
which were classified as either current or non-current marketable securities depending on the
liquidity and timing of expected realization of such securities. The ARS were rated by one or more
national rating agencies and had contractual terms of up to 30 years, but generally had interest
rate reset dates that occurred every 7, 28 or 35 days. Despite the underlying long-term maturity
of ARS, such securities were priced and subsequently traded as short-term investments because of
the interest rate reset feature. If there were insufficient buyers, the auction is said to “fail”
and the holders were unable to liquidate the investments through auction. A failed auction did not
result in a default of the debt instrument. Under their respective terms, the securities continued
to accrue interest and be auctioned until the auction succeeded, the issuer called the securities
or the securities matured. In February 2008, the Company began to experience failed auctions on
its ARS.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company’s ARS were held by UBS Financial Services Inc. (“UBS”). On November 13, 2008, the
Company entered into an Auction Rate Security Rights Agreement (the “Rights Agreement”) with UBS,
whereby the Company accepted UBS’s offer to purchase the Company’s ARS investments at any time
during the period of June 30, 2010 through July 2, 2012. As a result, the Company had obtained an
asset, ARS put option rights, whereby the Company had a right to “put” the ARS back to UBS.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Prior to signing the Rights Agreement, the Company had asserted that it had the intent and ability
to hold these securities until anticipated recovery and classified its ARS as held for sale
securities. By accepting the Rights Agreement, the Company could no longer assert that it has the
intent to hold the auction rate securities until anticipated recovery and consequently elected to
reclassify its investments in ARS as trading securities, as defined by FASB ASC Topic 320,
<i>Investments — Debt and Equity Securities, </i>or ASC 320, on the date of Company’s acceptance of the
Rights Agreement. As trading securities, the ARS were carried at fair value with changes recorded
through earnings.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">To determine the estimated fair values of the ARS, factors including credit quality, assumptions
about the likelihood of redemption, observable market data such as yields or spreads of fixed rate
municipal bonds and other trading instruments issued by the same or comparable issuers, were
considered. The Company had valued the ARS as the approximate midpoint between various fair
values, measured as the difference between the par value of the ARS and the fair value of the
securities, discounted by the credit risk of the broker and other factors such as the Company’s
historical experience to sell ARS at par.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As the Company was permitted to put the ARS back to UBS at par value, the Company accounted for the
ARS put option right as a separate asset that was measured at its fair value with changes recorded
through earnings. The Company had valued the ARS put option right as the approximate midpoint
between various fair values, measured as the difference between the par value of the ARS and the
fair value of the securities, discounted by the credit risk of the broker and other factors such as
the Company’s historical experience to sell ARS at par.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On June 30, 2010, the earliest date allowable under the Rights Agreement, the Company exercised its
ARS put option rights and put its ARS back to UBS. The ARS were sold and settled on July 1, 2010
at 100% of the $7,700 par value.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Allowance for Doubtful Accounts. </i></b>The Company provides credit terms typically ranging from thirty
days to less than twelve months for most system and maintenance contract sales and generally does
not require collateral. The Company performs credit evaluations of its customers and maintains
reserves for estimated credit losses. Reserves for potential credit losses are determined by
establishing both specific and general reserves. Specific reserves are based on management’s
estimate of the probability of collection for certain troubled accounts. General reserves are
established based on the Company’s historical experience of bad debt expense and the aging of the
Company’s accounts receivable balances, net of deferred revenue and specifically reserved accounts.
Accounts are written off as uncollectible only after the Company has expended extensive collection
efforts.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Included in accounts receivable are amounts related to maintenance and services which were billed,
but which had not yet been rendered as of the end of the period. Undelivered maintenance and
services are included as a component of deferred revenue (see also Note 3).
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<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Software Development Costs. </i></b>Development costs incurred in the research and development of new
software products and enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility is established,
any additional development costs are capitalized in accordance with FASB ASC Topic 985-20,
<i>Software, Costs of Computer Software to be Sold, Leased or Marketed, </i>or ASC 985-20. Such
capitalized costs are amortized on a straight-line basis over the estimated economic life of the
related product, which is typically three years. The Company provides support services on the
current and prior two versions of its software. Management performs an annual review of the
estimated economic life and the recoverability of such capitalized software costs. If a
determination is made that capitalized amounts are not recoverable based on the estimated cash
flows to be generated from the applicable software, any remaining capitalized amounts are written
off.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Goodwill. </i></b>Goodwill is related to NextGen and the HSI, PMP, Sphere, and Opus acquisitions, which
closed on May 20, 2008, October 28, 2008, August 12, 2009, and February 10, 2010, respectively (see
Notes 4 and 5). In accordance with FASB ASC Topic 350-20, <i>Intangibles — Goodwill and Other,
Goodwill</i>, or ASC 350-20, the Company tests goodwill for impairment annually at the end of its first
fiscal quarter, referred to as the annual test date. The Company will also test for impairment
between annual test dates if an event occurs or circumstances change that would indicate the
carrying amount may be impaired. Impairment testing for goodwill is performed at a reporting-unit
level, which is defined as an operating segment or one level below and operating segment (referred
to as a component). A component of an operating segment is a reporting unit if the component
constitutes a business for which discrete financial information is available and segment management
regularly reviews the operating results of that component.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has determined that NextGen, HSI, and PMP each qualify as a separate reporting unit
level while Sphere and Opus are aggregated as one reporting unit at which goodwill impairment
testing is performed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">An impairment loss would generally be recognized when the carrying amount of the reporting unit’s
net assets exceeds the estimated fair value of the reporting unit. Based on its analysis, the
Company has determined that there was no risk of impairment to its goodwill as of September 30,
2010. See also Note 5.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Intangible Assets. </i></b>Intangible assets consist of capitalized software costs, customer
relationships, trade names and certain intellectual property. Intangible assets related to
customer relationships, trade names, and software technology arose in connection with the
acquisition of HSI, PMP, Sphere, and Opus. These intangible assets were recorded at fair value and
are stated net of accumulated amortization. Intangible assets are amortized over their remaining
estimated useful lives, ranging from 3 to 9 years. The Company’s amortization policy for
intangible assets is based on the principles in FASB ASC Topic 350-30, <i>Intangibles — Goodwill and
Other, General Intangibles Other than Goodwill</i>, or ASC 350-30, which requires that the amortization
of intangible assets reflect the pattern that the economic benefits of the intangible assets are
consumed.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Income Taxes. </i></b>The Company accounts for income taxes in accordance with FASB ASC Topic 740, <i>Income
Taxes, </i>or ASC 740<b>. </b>Income taxes are provided based on current taxable income and the future tax
consequences of temporary differences between the basis of assets and liabilities for financial and
tax reporting. The deferred income tax assets and liabilities represent the future state and
federal tax return consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred income taxes are also
recognized for operating losses that are available to offset future taxable income and tax credits
that are available to offset future income taxes. At each reporting period, management assesses
the realizable value of deferred tax assets based on, among other things, estimates of future
taxable income, and adjusts the related valuation allowance as necessary. Management makes a
number of assumptions and estimates in determining the appropriate amount of expense to record for
income taxes. These assumptions and estimates consider the taxing jurisdiction in which the
Company operates as well as current tax regulations. Accruals are established for estimates of tax
effects for certain transactions and future projected profitability of the Company’s businesses
based on management’s interpretation of existing facts and circumstances.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Self-Insurance Liabilities. </i></b>Effective January 1, 2010, the Company became self-insured with
respect to healthcare claims, subject to stop-loss limits. The Company accrues for estimated
self-insurance costs and uninsured exposures based on claims filed and an estimate of claims
incurred but not reported as of each balance sheet date. However, it is possible that recorded
accruals may not be adequate to cover the future payment of claims. Adjustments, if any, to
estimated accruals resulting from ultimate claim payments will be reflected in earnings during the
periods in which such adjustments are determined. Periodically, the Company reevaluates the
adequacy of the accruals by comparing amounts accrued on the balance sheets for anticipated losses
to an updated actuarial loss forecasts and third party claim administrator loss estimates and makes
adjustments to the accruals as needed. The self-insurance accrual is included in other current
liabilities. If any of the factors that contribute to the overall cost of insurance claims were to
change, the actual amount incurred for the self-insurance liabilities would be directly affected.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Share-Based Compensation. </i></b>FASB ASC Topic 718 <i>Compensation — Stock Compensation, </i>or ASC 718,
requires companies to estimate the fair value of share-based payment awards on the date of grant
using an option-pricing model. Expected term is estimated using historical exercise experience.
Volatility is estimated by using the weighted-average historical volatility of the Company’s Common
Stock, which approximates expected volatility. The risk free rate is the implied yield available
on the U.S Treasury zero-coupon issues with remaining terms equal to the expected term. The
expected dividend yield is the average dividend rate during a period equal to the expected term of
the option. Those inputs are then entered into the Black Scholes model to determine the estimated
fair value. The value of the portion of the award that is ultimately expected to vest is
recognized ratably as expense over the requisite service period in the Company’s consolidated
statements of income.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Share-based compensation is adjusted on a quarterly basis for changes to estimated forfeitures
based on a review of historical forfeiture activity. To the extent that actual forfeitures differ,
or are expected to differ, from the estimate, share-based compensation expense is adjusted
accordingly. The effect of the forfeiture adjustments for the three and six months ended September
30, 2010 and 2009 was not significant.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">The following table shows total share-based compensation expense included in the consolidated
statements of income for the three and six months ended September 30, 2010 and 2009.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended September 30,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Costs and expenses:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Cost of revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">69</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">137</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">27</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Research and development costs
</div></td>
<td> </td>
<td> </td>
<td align="right">44</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">72</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">37</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Selling, general and administrative
</div></td>
<td> </td>
<td> </td>
<td align="right">686</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">825</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,655</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,255</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total share-based compensation
</div></td>
<td> </td>
<td> </td>
<td align="right">799</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">857</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,864</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,319</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Amounts capitalized in software development costs
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(10</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(25</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Amounts charged against earnings, before income
tax benefit
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">798</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">847</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,862</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,294</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Related
income tax benefit (1)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(315</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(273</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(663</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(411</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Decrease in
net income (1)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">483</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">574</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,199</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">883</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt; font-size: 1pt"> 
</div>
<div style="font-size: 1pt; margin-left: 0%; width: 13%; align: left; border-bottom: 1pt solid #000000">
</div>
<div style="margin-top: 3pt; font-size: 1pt"> 
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: transparent; text-align: left">
<tr>
<td width="2%"></td>
<td width="1%"></td>
<td width="97%"></td>
</tr>
<tr>
<td align="right" valign="top">
(1) </td>
<td></td>
<td valign="bottom">The prior period presentation has been
changed to conform with current period presentation.</td>
</tr>
</table>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Newly Adopted Accounting Standards</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In January 2010, the FASB issued Accounting Standards Update, or ASU, 2010-06, <i>Fair Value
Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements, </i>or
ASU 2010-06, to require additional disclosures about recurring or nonrecurring fair value
measurements, including significant transfers into and out of Level 1 and Level 2 fair value
measurements and information on purchases, sales, issuances, and settlements on a gross basis in
the reconciliation of Level 3 fair value measurements. The standard also clarifies existing
disclosures about the level of disaggregation, valuation techniques and inputs to fair value
measurements. The provisions of ASU 2010-06 are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the Level 3 reconciliation disclosures that are
effective for fiscal years beginning after December 15, 2010, and for interim periods within those
fiscal years. The Company adopted the provisions of ASU 2010-06 regarding Level 1 and Level 2 fair
value measurements during the quarter ended June 30, 2010. As the Company did not have any
transfers between Level 1 and Level 2 fair value measurement, the adoption of this standard did not
have a material effect on the Company’s consolidated financial statements. The Company does not
expect the future adoption of the provisions for Level 3 reconciliation to have a significant
impact on its consolidated financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Recently Issued Accounting Standards</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In September 2009, the FASB reached a consensus on ASU 2009-13, <i>Revenue Recognition (Topic 605) —
Multiple-Deliverable Revenue Arrangements</i>, or ASU 2009-13, and ASU 2009-14, <i>Software (Topic 985) —
Certain Revenue Arrangements That Include Software Elements, </i>or ASU 2009-14. ASU 2009-13 modifies
the requirements that must be met for an entity to recognize revenue from the sale of a delivered
item that is part of a multiple-element arrangement when other items have not yet been delivered.
ASU 2009-13 eliminates the requirement that all undelivered elements must have either: (a) VSOE or
(b) third-party evidence, or TPE, before an entity can recognize the portion of an overall
arrangement consideration that is attributable to items that already have been delivered. In the
absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered
elements in a multiple-element arrangement, entities will be required to estimate the selling
prices of those elements. Overall arrangement consideration will be allocated to each element
(both delivered and undelivered items) based on their relative selling prices, regardless of
whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated
selling price. The residual method of allocating arrangement consideration has been eliminated.
ASU 2009-14 modifies the software revenue recognition guidance to exclude from its scope tangible
products that contain both software and non-software components that function together to deliver a
product’s essential functionality. These new updates are effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The Company is currently evaluating the impact that the adoption of these
ASUs will have on its consolidated financial statements.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 2 - us-gaap:FairValueMeasurementInputsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>2. Fair Value Measurements</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company applies ASC 820 with respect to fair value measurements of (a) nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the Company’s consolidated financial
statements on a recurring basis (at least annually) and (b) all financial assets and liabilities.
As defined by ASC 820, fair value is the price that would be received to sell an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. The
Company estimates fair value utilizing market data or assumptions that market participants would
use in pricing the asset or liability in a current transaction, including assumptions about risk and the risks inherent in the inputs to the valuation
technique. ASC 820 prioritizes the inputs used in measuring fair value into the following
hierarchy (with Level 1 as the highest priority):
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">Level 1 </td>
<td width="1%"> </td>
<td>Quoted market prices in active markets for identical assets or liabilities;</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">Level 2 </td>
<td width="1%"> </td>
<td>Observable inputs other than those included in Level 1 (for example, quoted prices for similar assets in active markets
or quoted prices for identical assets in inactive markets); and</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">Level 3 </td>
<td width="1%"> </td>
<td>Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating the value of the asset.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Recurring Fair Value Measurements</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The fair value hierarchy requires the use of observable market data when available. The financial
assets and liabilities are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The Company’s assessment of the significance of a
particular input to the fair value measurement requires judgment and may affect the valuation of
fair value assets and liabilities and their placement within the fair value hierarchy levels. The
following tables sets forth by level within the fair value hierarchy the Company’s financial assets
and liabilities that were accounted for at fair value on a recurring basis at September 30, 2010
and March 31, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Quoted Prices</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">in Active</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Significant</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Markets for</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Other</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Balance at</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Identical</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Observable</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unobservable</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Assets</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Inputs</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Inputs</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 1)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 2)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 3)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">106,852</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">106,852</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Restricted cash
</div></td>
<td> </td>
<td> </td>
<td align="right">2,114</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,114</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">108,966</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">108,966</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Quoted Prices</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">in Active</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Significant</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Markets for</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Other</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Balance at</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Identical</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Observable</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unobservable</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Assets</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Inputs</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Inputs</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 1)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 2)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 3)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">84,611</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">84,611</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Restricted cash
</div></td>
<td> </td>
<td> </td>
<td align="right">2,339</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,339</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Marketable securities (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">7,158</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,158</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">ARS put option rights (2)
</div></td>
<td> </td>
<td> </td>
<td align="right">548</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">548</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">94,656</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">86,950</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,706</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(1)</td>
<td> </td>
<td>Marketable securities consist of ARS.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(2)</td>
<td> </td>
<td>ARS put option rights are included in other current assets.</td>
</tr>
</table>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On June 30, 2010, the earliest date allowable under the Rights Agreement, the Company exercised
its ARS put option rights and put its ARS back to UBS, resulting in a net loss of $6, which is
included in other income (expense) for the six months ended September 30, 2010. The ARS were sold
and settled on July 1, 2010 at 100% of the $7,700 par value. The Company recorded unpaid interest
of $83 from the ARS for the six months ended September 30, 2010. The Company has no outstanding
ARS or ARS put option rights at September 30, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents activity in the Company’s assets measured at fair value using
significant unobservable inputs (Level 3), as defined by ASC 820, as of and for the six months
ended September 30, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at March 31, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,706</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Transfer in/(out) of Level 3
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Proceeds from sale (at par)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,700</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Recognized loss
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at September 30, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Non-Recurring Fair Value Measurements</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has certain assets, including inventories, tangible fixed assets, goodwill and other
intangible assets, which are measured at fair value on a non-recurring basis and are adjusted to
fair value only when the carrying values are more than the fair values. The categorization of the
framework used to price the assets is considered a Level 3, due to the subjective nature of the
unobservable inputs used to determine the fair value. During the six months ended September 30,
2010, there were no adjustments to fair value of such assets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Fair Value of Financial Instruments</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The estimated fair value of financial instruments is determined using the best available market
information and appropriate valuation methodologies. However, considerable judgment is necessary
in interpreting market data to develop the estimates of fair value. Accordingly, the estimates
presented are not necessarily indicative of the amounts that the Company could realize in a current
market exchange, or the value that ultimately will be realized upon maturity or disposition. The
use of different market assumptions may have a material effect on the estimated fair value amounts.
The Company’s financial instruments, other than those presented in the disclosures above, include
cash and cash equivalents, accounts receivables, accounts payable, and accrued liabilities. The
carrying value of these assets and liabilities approximates fair value because of the short-term
nature of these instruments.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - qsii:CompositionOfCertainFinancialStatementCaptionsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>3. Composition of Certain Financial Statement Captions</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Accounts receivable include amounts related to maintenance and services that were billed but not
yet rendered at each period end. Undelivered maintenance and services are included as a component
of the deferred revenue balance.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accounts receivable, excluding undelivered software,
maintenance and services
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">78,632</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">72,500</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Undelivered software, maintenance and implementation
services billed in advance, included in deferred revenue
</div></td>
<td> </td>
<td> </td>
<td align="right">39,940</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">39,447</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accounts receivable, gross
</div></td>
<td> </td>
<td> </td>
<td align="right">118,572</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">111,947</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Allowance for doubtful accounts
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6,066</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,489</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accounts receivable, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">112,506</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">107,458</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Inventories are summarized as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Computer systems and components, net of reserve for
obsolescence of $237
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,474</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,322</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Miscellaneous parts and supplies
</div></td>
<td> </td>
<td> </td>
<td align="right">9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Inventories, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,483</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,340</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Equipment and improvements are summarized as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Computer and electronic test equipment
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">20,530</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,599</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Furniture and fixtures
</div></td>
<td> </td>
<td> </td>
<td align="right">5,383</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,136</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Leasehold improvements
</div></td>
<td> </td>
<td> </td>
<td align="right">2,057</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,969</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right">27,970</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">25,704</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accumulated depreciation and amortization
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(19,242</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(17,272</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Equipment and improvements, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">8,728</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,432</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">Current and non-current deferred revenue are summarized as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Maintenance
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">11,500</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13,242</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Implementation services
</div></td>
<td> </td>
<td> </td>
<td align="right">42,805</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,137</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Annual license services
</div></td>
<td> </td>
<td> </td>
<td align="right">7,394</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,214</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Undelivered software and other
</div></td>
<td> </td>
<td> </td>
<td align="right">4,038</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,516</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Deferred revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">65,737</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">64,109</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Deferred revenue, net of current
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">797</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">474</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Accrued compensation and related benefits are summarized as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Payroll, bonus and commission
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,107</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,185</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Vacation
</div></td>
<td> </td>
<td> </td>
<td align="right">4,881</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,766</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accrued compensation and related benefits
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,988</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,951</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Other current liabilities are summarized as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Contingent consideration related to acquisition
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,876</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,275</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Users Group Meeting (UGM) deposits
</div></td>
<td> </td>
<td> </td>
<td align="right">2,461</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Care services liabilities
</div></td>
<td> </td>
<td> </td>
<td align="right">2,113</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,336</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued EDI expense
</div></td>
<td> </td>
<td> </td>
<td align="right">2,077</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued royalties
</div></td>
<td> </td>
<td> </td>
<td align="right">897</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">926</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Customer deposits
</div></td>
<td> </td>
<td> </td>
<td align="right">913</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,036</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Sales tax payable
</div></td>
<td> </td>
<td> </td>
<td align="right">557</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">506</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Outside commission payable
</div></td>
<td> </td>
<td> </td>
<td align="right">535</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">468</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Professional services
</div></td>
<td> </td>
<td> </td>
<td align="right">472</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">391</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred rent
</div></td>
<td> </td>
<td> </td>
<td align="right">734</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">641</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Self insurance reserve
</div></td>
<td> </td>
<td> </td>
<td align="right">444</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">516</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other accrued expenses
</div></td>
<td> </td>
<td> </td>
<td align="right">2,947</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,117</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other current liabilities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">19,026</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">16,220</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 4 - us-gaap:BusinessCombinationDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>4. Business Combinations</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On February 10, 2010, the Company acquired Opus, a provider of clinical information systems to the
small hospital inpatient market, and on August 12, 2009, the Company acquired Sphere, a provider of
financial information systems to the small hospital inpatient market.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company accounted for these acquisitions as a purchase business combination as defined in FASB
ASC Topic 805, <i>Business Combinations</i>, or ASC 805. Under the acquisition method of accounting, the
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date. The fair value of the assets
acquired and liabilities assumed represent management’s estimate of fair value. For additional
disclosures regarding the Opus and Sphere acquisitions, refer to Note 5, “Business Combinations,”
in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:ScheduleOfGoodwillTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>5. Goodwill</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In accordance with ASC 350-20, the Company does not amortize goodwill as the goodwill has been
determined to have an indefinite useful life.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Goodwill consists of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">NextGen Division
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Opus Healthcare Solutions, Inc.
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">13,005</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13,005</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">NextGen
Inpatient Solutions, LLC
</div></td>
<td> </td>
<td> </td>
<td align="right">1,020</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,020</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">NextGen Healthcare Information Systems, Inc.
</div></td>
<td> </td>
<td> </td>
<td align="right">1,840</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,840</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total NextGen Division goodwill
</div></td>
<td> </td>
<td> </td>
<td align="right">15,865</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,865</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Practice Solutions Division
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Practice Management Partners, Inc.
</div></td>
<td> </td>
<td> </td>
<td align="right">19,485</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19,485</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Healthcare Strategic Initiatives
</div></td>
<td> </td>
<td> </td>
<td align="right">10,839</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,839</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total Practice Solutions Division goodwill
</div></td>
<td> </td>
<td> </td>
<td align="right">30,324</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">30,324</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total goodwill
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">46,189</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">46,189</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 6 - us-gaap:IntangibleAssetsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>6. Intangible Assets</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company had the following intangible assets, other than capitalized software development costs,
with determinable lives as of September 30, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Customer</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Software</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Relationships</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Trade Name</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Technology</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Gross carrying amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">10,206</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">637</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,119</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">22,962</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accumulated amortization
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,069</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(349</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(994</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,412</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Net intangible assets
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,137</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">288</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,125</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,550</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Activity related to the intangible assets for the six months ended September 30, 2010 is as
follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Customer</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Software</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Relationships</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Trade Name</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Technology</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance as of April 1, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,849</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">368</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,928</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">20,145</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Amortization (1)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(712</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(80</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(803</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,595</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance as of September 30, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,137</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">288</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,125</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,550</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(1)</td>
<td> </td>
<td>Amortization of the customer relationships and trade name intangible assets is included
in operating expenses and amortization of the software technology intangible assets is included in cost of revenue for software, hardware and supplies.</td>
</tr>
</table>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The following table represents the remaining estimated amortization of intangible assets with
determinable lives as of September 30, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">For the year ended March 31,
2011 (remaining six months)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,660</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td> </td>
<td align="right">3,320</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td> </td>
<td align="right">3,184</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td> </td>
<td align="right">3,055</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2015 and beyond
</div></td>
<td> </td>
<td> </td>
<td align="right">7,331</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">18,550</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:ResearchDevelopmentAndComputerSoftwareDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>7. Capitalized Software Costs</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company had the following amounts related to capitalized software development costs:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Gross carrying amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">47,135</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">41,429</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accumulated amortization
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(33,336</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(29,883</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Net capitalized software costs
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">13,799</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,546</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Activity related to net capitalized software costs for the six months ended September 30, 2010 is
as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance as of April 1, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">11,546</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Capitalized
</div></td>
<td> </td>
<td> </td>
<td align="right">5,706</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Amortization
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,453</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance as of September 30, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">13,799</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The following table represents the remaining estimated amortization of capitalized software costs
as of September 30, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">For the year ended March 31,
2011 (remaining six months)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,490</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td> </td>
<td align="right">5,554</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td> </td>
<td align="right">3,622</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td> </td>
<td align="right">1,133</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">13,799</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>8. Share-Based Awards</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Employee Stock Option Plans</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In September 1998, the Company’s shareholders approved a stock option plan (the “1998 Plan”) under
which 4,000,000 shares of Common Stock were reserved for the issuance of options. The 1998 Plan
provides that employees, directors and consultants of the Company may, at the discretion of the
Board of Directors or a duly designated compensation committee, be granted options to purchase
shares of Common Stock. The exercise price of each option granted was determined by the Board of
Directors at the date of grant, and options under the 1998 Plan expire no later than ten years from
the grant date. Options granted will generally become exercisable in accordance with the terms of
the agreement pursuant to which they were granted. Certain option grants to directors became
exercisable three months from the date of grant. Upon an acquisition of the Company by merger or
asset sale, each outstanding option may be subject to accelerated vesting under certain
circumstances. The 1998 Plan terminated on December 31, 2007. As of September 30, 2010, there
were 281,834 outstanding options related to this Plan.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In October 2005, the Company’s shareholders approved a stock option and incentive plan (the “2005
Plan”) under which 2,400,000 shares of Common Stock were reserved for the issuance of awards,
including stock options, incentive stock options and non-qualified stock options, stock
appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance
shares, performance units (including performance options) and other share-based awards. The 2005
Plan provides that employees, directors and consultants of the Company may, at the discretion of
the Board of Directors or a duly designated compensation committee, be granted awards to acquire
shares of Common Stock. The exercise price of each option award shall be determined by the Board
of Directors at the date of grant in accordance with the terms of the 2005 Plan, and under the 2005
Plan awards expire no later than ten years from the grant date. Options granted will generally
become exercisable in accordance with the terms of the agreement pursuant to which they were
granted. Upon an acquisition of the Company by merger or asset sale, each outstanding option may
be subject to accelerated vesting under certain circumstances. The 2005 Plan terminates on May 25,
2015, unless terminated earlier by the Board of Directors. As of September 30, 2010, there were
502,852 outstanding options and 1,780,394 shares available for future grant related to this Plan.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">Activity of all stock option plans during the six months ended September 30, 2010 is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Weighted-</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Weighted-</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Average</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Average</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Aggregate</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Exercise</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Remaining</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Intrinsic</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Number of</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Price</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Contractual</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Value</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">per Share</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Life (years)</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">(in thousands)</td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, April 1, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">871,963</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">43.15</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.5</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">15,945</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">45,000</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">56.95</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7.7</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Exercised
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(75,548</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">37.34</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.6</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">2,189</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Forfeited/Canceled
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(56,729</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">56.00</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6.6</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, September 30, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">784,686</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">43.58</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.2</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">17,836</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Vested and expected to vest, September 30, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">768,603</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">43.42</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.1</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">17,591</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercisable, September 30, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">311,122</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">33.39</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.1</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">10,243</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company utilized the Black-Scholes valuation model for estimating the fair value of share-based
compensation after the adoption of ASC 718 with the following assumptions:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Six Months</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Six Months</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Ended</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Ended</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">September 30,</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">September 30,</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2009</td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected life
</div></td>
<td> </td>
<td colspan="3" align="center">4.2 years</td>
<td> </td>
<td colspan="3" align="center">4.4 years</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected volatility
</div></td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">44.3% - 44.7%</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">47.7% - 48.7%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected dividends
</div></td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">2.1% - 2.2%</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">1.9% - 2.3%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free rate
</div></td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">1.6% - 2.1%</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">2.4% - 2.5%</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average grant date fair value of stock options granted during the six months ended
September 30, 2010 was $18.22 per share. The expected dividend yield is the average dividend rate
during a period equal to the expected life of the option.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">During the six months ended September 30, 2010 and 2009, 45,000 and 30,000 options were granted,
respectively, under the 2005 Plan. The Company issues new shares to satisfy option exercises.
Based on historical experience of option cancellations, the Company has estimated an annualized
forfeiture rate of 2.4% for employee options and 0.0% for director options. Forfeiture rates will
be adjusted over the requisite service period when actual forfeitures differ, or are expected to
differ, from the estimate.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On August 3, 2010, the Board of Directors granted a total of 5,000 options under the Company’s 2005
Plan to a selected employee at an exercise price equal to the market price of the Company’s Common
Stock on the date of grant ($55.24 per share). The options vest in five equal annual installments
beginning August 3, 2011 and expire on August 3, 2018.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On June 4, 2010, the Board of Directors granted a total of 25,000 options under the Company’s 2005
Plan to selected employees at an exercise price equal to the market price of the Company’s Common
Stock on the date of grant ($56.29 per share). The options vest in five equal annual installments
beginning June 4, 2011 and expire on June 4, 2018.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On June 2, 2010, the Board of Directors granted a total of 15,000 options under the Company’s 2005
Plan to a selected employee at an exercise price equal to the market price of the Company’s Common
Stock on the date of grant ($58.62 per share). The options vest in five equal annual installments
beginning June 2, 2011 and expire on June 2, 2018.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Performance-Based Awards</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On May 26, 2010, the Board of Directors approved its fiscal 2011 equity incentive program for
certain employees to be awarded options to purchase the Company’s Common Stock. The maximum number
of options available under the equity incentive program plan is 280,000, of which 115,000 are
reserved for the Company’s Named Executive Officers and 165,000 for non-executive employees of the
Company. Under the program, executives are eligible to receive options based on meeting certain
target increases in earnings per share performance and revenue growth during fiscal year 2011.
Under the program, the non-executive employees are eligible to receive options based on satisfying
certain management established criteria and recommendations of senior management. The options
shall be issued pursuant to one of the Company’s shareholder approved option plans, have an
exercise price equal to the closing price of the Company’s shares on the date of grant, a term of
eight years, and vesting in five equal annual installments commencing one year following the date
of grant.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Compensation expense associated with the performance based awards under the Company’s 2011
incentive plan are initially based on the number of options expected to vest after assessing the
probability that certain performance criteria will be met. Cumulative adjustments are recorded
quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions.
The Company utilized the Black-Scholes option valuation model and recorded stock compensation
expense related to the performance based awards of approximately $128 during the six months ended
September 30, 2010 using the following assumptions:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Six Months</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Ended</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">September 30,</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2010</td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected life
</div></td>
<td> </td>
<td colspan="3" align="center">4.2 years</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected volatility
</div></td>
<td> </td>
<td colspan="3" align="center">44.4%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected dividends
</div></td>
<td> </td>
<td colspan="3" align="center">2.1%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free rate
</div></td>
<td> </td>
<td colspan="3" align="center">1.8%</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Non-vested stock option award activity, including employee stock options and performance-based
awards, for the six months ended September 30, 2010, is summarized as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Weighted-</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Average</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Non-Vested</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Grant-Date</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Number of</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Fair Value</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">per Share</td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, April 1, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">610,836</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">15.26</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">45,000</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">18.22</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Vested
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(125,543</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">12.01</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Forfeited/Canceled
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(56,729</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">19.13</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, September 30, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">473,564</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">15.93</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As of September 30, 2010, $5,822 of total unrecognized compensation costs related to stock options
is expected to be recognized over a weighted-average period of 5.5 years. This amount does not
include the cost of new options that may be granted in future periods or any changes in the
Company’s forfeiture percentage. The total fair value of options vested during the six months
ended September 30, 2010 and 2009 was $1,508 and $1,457, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Restricted Stock Units</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On May 27, 2009, the Board of Directors approved its Outside Director Compensation Plan, whereby
each non-employee Director is to be awarded shares of restricted stock units upon election or
re-election to the Board. The restricted stock units are awarded under the 2005 Plan. Such
restricted stock units vest in two equal, annual installments on the first and second anniversaries
of the grant date and are nontransferable for one year following vesting. Upon each vesting of the
award, one share of Common Stock shall be issued for each restricted stock unit. The
weighted-average grant date fair value of $54.26 for the restricted stock units was estimated using
the market price of its Common Stock on the date of grant. The fair value of these restricted
stock units is amortized on a straight-line basis over the vesting period.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">As of September 30, 2010, 17,146 restricted stock units were issued and approximately $220 of
compensation expense was recorded under this Plan during the six months ended September 30, 2010.
Restricted stock units award activity for the six months ended September 30, 2010, is summarized as
follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Weighted-</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Average</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Grant-Date</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Number of</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3">Fair Value</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">per Share</td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, April 1, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">8,000</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">53.86</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">9,146</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">54.62</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Vested
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">(5,698</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">54.43</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, September 30, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">11,448</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">54.18</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As of September 30, 2010, $574 of total unrecognized compensation costs related to restricted stock
units is expected to be recognized over a weighted-average period of 1.6 years. This amount does
not include the cost of new restricted stock units that may be granted in future periods.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>9. Income Taxes</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The provision for income taxes for the six months ended September 30, 2010 was approximately
$14,576 as compared to approximately $12,964 for the year ago period. The effective tax rates for
the six months ended September 30, 2010 and 2009 were 36.4% and 36.9%, respectively. The provision
for income taxes for the six months ended September 30, 2010 differs from the combined statutory
rates primarily due to the impact of varying state income tax rates, tax-exempt interest income,
the qualified production activities deduction and state research and development tax credits. The
effective rate for the six months ended September 30, 2010 decreased from the prior year primarily
due to fluctuations in the state effective tax rate and increased benefits from the qualified
production activities deduction, offset by the expiration of the federal research and development
tax credit statute, which occurred at the end of the fourth quarter of fiscal year 2010 and
therefore was not included in the provision for the six months ended September 30, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Uncertain tax positions</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As of September 30, 2010, the Company has provided a liability of $659 for unrecognized tax
benefits related to various federal and state income tax matters. If recognized, $659 would impact
the Company’s effective tax rate. The reserve for the six months ended September 30, 2010
increased from the year ago period by $602 due to the addition of prior year tax positions of
acquired companies.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company’s income tax returns filed for tax years 2006 through 2008 and 2005 through 2008 are
subject to examination by the federal and state taxing authorities, respectively. The Company is
currently not under examination by the Internal Revenue Service or any state income tax authority.
The Company does not anticipate that total unrecognized tax benefits will significantly change due
to the settlement of audits or the expiration of statute of limitations within the next twelve
months.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 10 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>10. Earnings Per Share</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Basic net income per share is based upon the weighted-average shares of Common Stock outstanding.
Diluted net income per share is based on the assumption that the Company’s outstanding options are
included in the calculation of diluted earnings per share, except when their effect would be
anti-dilutive. Dilution is computed by applying the treasury stock method. Under this method,
options are assumed to be exercised at the beginning of the period (or at the time of issuance, if
later), and as if funds obtained thereby were used to purchase Common Stock at the average market
price during the period. The following table reconciles the weighted-average shares outstanding
for basic and diluted net income per share for the periods indicated (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended September 30,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">13,430</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,820</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">25,522</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">22,166</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Basic net income per share:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Weighted-average shares outstanding — Basic
</div></td>
<td> </td>
<td> </td>
<td align="right">28,935</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,597</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,915</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,545</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Basic net income per common share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.46</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.41</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.88</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.78</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">13,430</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,820</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">25,522</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">22,166</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diluted net income per share:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Weighted-average shares outstanding — Basic
</div></td>
<td> </td>
<td> </td>
<td align="right">28,935</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,597</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,915</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,545</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Effect of potentially dilutive securities
</div></td>
<td> </td>
<td> </td>
<td align="right">143</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">145</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">151</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">172</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Weighted-average shares outstanding — Diluted
</div></td>
<td> </td>
<td> </td>
<td align="right">29,078</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,742</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,066</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,717</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Diluted net income per common share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.46</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.41</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.88</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.77</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The computation of diluted net income per share does not include 284,000 and 268,000 options for
the three and six months ended September 30, 2010, respectively, because their inclusion would have
an anti-dilutive effect on net income per share.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The computation of diluted net income per share does not include 60,000 options for both the three
and six months ended September 30, 2009, because their inclusion would have an anti-dilutive effect
on net income per share.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 11 - us-gaap:SegmentReportingDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>11. Operating Segment Information</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has prepared operating segment information in accordance with ASC 280 to report
components that are evaluated regularly by its chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As a result of certain organizational changes during fiscal year 2010, the composition of the
Company’s NextGen Division was revised to exclude the former NextGen Practice Solutions unit and
the Company’s RCM entities (HSI and PMP), both of which are now administered and aggregated in the
Company’s Practice Solutions Division. Following the reorganization, the Company operates three
reportable operating segments (not including Corporate), comprised of the NextGen Division, the QSI
Dental Division and the Practice Solutions Division.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Prior period segment results were revised to reflect this reorganization for the Company’s NextGen
Division and Practice Solution Division. The results of operations related to the HSI and PMP
acquisitions are included in the Practice Solutions Division. The results of operations related to
the Opus and Sphere acquisitions are included in the NextGen Division.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The QSI Dental Division, co-located with the Company’s Corporate Headquarters in Irvine,
California, currently focuses on developing, marketing and supporting software suites sold to
dental and certain niche medical practices. In addition, the Division supports a number of medical
clients that utilize the Division’s UNIX<sup style="font-size: 85%; vertical-align: text-top">®</sup> based medical practice management software
product.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The NextGen Division, with headquarters in Horsham, Pennsylvania, and significant locations in
Atlanta, Georgia and Austin, Texas, focuses principally on developing and marketing products and
services for medical practices.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Practice Solutions Division, with locations in St. Louis, Missouri and Hunt Valley, Maryland,
focuses primarily on providing physician practices with RCM services, primarily billing and
collection services for medical practices. This Division combines a web-delivered SaaS model and
the NextGen<sup style="font-size: 85%; vertical-align: text-top">epm</sup> software platform to execute its service offerings.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The three Divisions operate largely as stand-alone operations, with each Division maintaining its
own distinct product lines, product platforms, development, implementation and support teams, sales
staffing and branding. The three Divisions share the resources of the Company’s “corporate office”
which includes a variety of accounting and other administrative functions. Additionally, there are
a small but growing number of clients who are simultaneously utilizing software or services from
more than one of its three Divisions.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">The accounting policies of the Company’s operating segments are the same as those described in Note
1 of our Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,”
except that the disaggregated financial results of the segments reflect allocation of certain
functional expense categories consistent with the basis and manner in which Company management
internally disaggregates financial information for the purpose of assisting in making internal
operating decisions. Certain corporate overhead costs, such as executive and accounting department
personnel-related expenses, are not allocated to the individual segments by management.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Operating segment data is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended September 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended September 30,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenue:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">QSI Dental Division
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,646</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,250</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9,998</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,106</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">NextGen Division
</div></td>
<td> </td>
<td> </td>
<td align="right">64,758</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">56,327</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">130,588</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">108,757</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Practice Solutions Division
</div></td>
<td> </td>
<td> </td>
<td align="right">12,053</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,121</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23,798</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,473</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Consolidated revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">81,457</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">71,698</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">164,384</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">138,336</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">QSI Dental Division
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">967</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">901</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,558</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,565</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">NextGen Division
</div></td>
<td> </td>
<td> </td>
<td align="right">23,945</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20,545</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">46,734</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">39,639</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Practice Solutions Division
</div></td>
<td> </td>
<td> </td>
<td align="right">1,277</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,252</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,464</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,537</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Unallocated corporate expense
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5,366</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,085</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(10,906</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,806</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Consolidated operating income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">20,823</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,613</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">39,850</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">34,935</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Management evaluates performance based on stand-alone segment operating income. Because the
Company does not evaluate performance based on return on assets at the operating segment level,
assets are not tracked internally by segment. Therefore, segment asset information is not
presented.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">All of the recorded goodwill at September 30, 2010 relates to the Company’s NextGen Division and
Practice Solutions Division. As a result of the reorganization discussed above, the goodwill
relating to the fiscal year 2009 acquisitions of HSI and PMP is now recorded in the Practice
Solutions Division. The goodwill relating to the acquisitions of Opus and Sphere is recorded in
the NextGen Division.
</div>
</div>
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<!-- Begin Block Tagged Note 12 - us-gaap:ConcentrationRiskDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>12. Concentration of Credit Risk</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company had cash deposits at U.S. banks and financial institutions which exceeded federally
insured limits at September 30, 2010. The Company is exposed to credit loss for amounts in excess
of insured limits in the event of non-performance by the institutions; however, the Company does
not anticipate non-performance by these institutions.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 13 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>13. Commitments, Guarantees and Contingencies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Commitments and Guarantees</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Software license agreements in both the QSI and NextGen Divisions include a performance guarantee
that the Company’s software products will substantially operate as described in the applicable
program documentation for a period of 365 days after delivery. To date, the Company has not
incurred any significant costs associated with its performance guarantee or other related
warranties and does not expect to incur significant warranty costs in the future. Therefore, no
accrual has been made for potential costs associated with these warranties. Certain arrangements
also include performance guarantees related to response time, availability for operational use, and
other performance-related guarantees. Certain arrangements also include penalties in the form of
maintenance credits should the performance of the software fail to meet the performance guarantees.
To date, the Company has not incurred any significant costs associated with these warranties and
does not expect to incur significant warranty costs in the future. Therefore, no accrual has been
made for potential costs associated with these warranties.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has historically offered short-term rights of return in certain sales arrangements. If
the Company is able to estimate returns for these types of arrangements and all other criteria for
revenue recognition have been met, revenue is recognized and these arrangements are recorded in the
consolidated financial statements. If the Company is unable to estimate returns for these types of
arrangements, revenue is not recognized in the consolidated financial statements until the rights
of return expire, provided also, that all other criteria of revenue recognition have been met.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company’s standard sales agreements in the NextGen Division contain an indemnification
provision pursuant to which it shall indemnify, hold harmless, and reimburse the indemnified party
for losses suffered or incurred by the indemnified party in connection with any United States
patent, any copyright or other intellectual property infringement claim by any third party with
respect to its software. The QSI Dental Division arrangements occasionally utilize this type of
language as well. As the Company has not incurred any significant costs to defend lawsuits or
settle claims related to these indemnification agreements, the Company believes that its estimated
exposure on these agreements is currently minimal. Accordingly, the Company has no liabilities
recorded for these indemnification obligations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has entered into marketing assistance agreements with existing users of the Company’s
products which provide the opportunity for those users to earn commissions if they host specific
site visits upon the Company’s request for prospective customers that directly result in a purchase
of the Company’s software by the visiting prospects. Amounts earned by existing users under this
program are treated as a selling expense in the period when earned.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Litigation</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has experienced legal claims by parties asserting that it has infringed their
intellectual property rights. The Company believes that these claims are without merit and intends
to defend against them vigorously; however, the Company could incur substantial costs and diversion
of management resources defending any infringement claim — even if it is ultimately successful in
the defense of such matter. Litigation is inherently uncertain and always difficult to predict.
The Company refers you to the discussion of infringement and litigation risks in the Risk Factors
section of the Company’s Annual Report on Form 10-K.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 14 - us-gaap:ScheduleOfSubsequentEventsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>14. Subsequent Events</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On October 25, 2010, the Board of Directors approved a quarterly cash dividend of $0.30 per share
on the Company’s outstanding shares of Common Stock, payable to shareholders of record as of
December 17, 2010 with an expected distribution date on or about January 5, 2011.
</div>
</div>
false
--03-31
Q2
2011
2010-09-30
10-Q
0000708818
28956944
Yes
Large Accelerated Filer
1168507000
QUALITY SYSTEMS, INC
No
No
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