Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCFinancial_Report.xls
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR4.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR7.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR2.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR1.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR9.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR8.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR3.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR6.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR5.htm
EX-32.1 - EXHIBIT 32.1 - GREENWAY MEDICAL TECHNOLOGIES INCex32-1.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR22.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR14.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR11.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR10.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR31.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR36.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR20.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR13.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR19.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR27.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR28.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR16.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR35.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR17.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR33.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR26.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR18.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR34.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR21.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR29.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR23.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR30.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR25.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR24.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR15.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR32.htm
XML - IDEA: XBRL DOCUMENT - GREENWAY MEDICAL TECHNOLOGIES INCR12.htm
EX-31.1 - EXHIBIT 31.1 - GREENWAY MEDICAL TECHNOLOGIES INCex31-1.htm
EX-31.2 - EXHIBIT 31.2 - GREENWAY MEDICAL TECHNOLOGIES INCex31-2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
Form 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to             
 
Commission File Number 001-35413
 
 
GREENWAY MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
   
Delaware
58-2412516
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer
Identification No.)
121 Greenway Boulevard
Carrollton, GA
30117
(Address of Principal Executive Offices)
(Zip Code)
 
(770) 836-3100
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
       
Large Accelerated Filer
o
Accelerated Filer
o
       
Non-Accelerated Filer
x  (Do not check if a smaller reporting company)
Smaller Reporting Company
o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o    No x
 
There were 29,564,394 shares of the registrant’s common stock outstanding as of November 5, 2012.
 


 
 
 

 
 
 
 
 
GREENWAY MEDICAL TECHNOLOGIES, INC.
 
FORM 10-Q
 
For The Quarterly Period Ended September 30, 2012
 
INDEX
       
PART I.  FINANCIAL INFORMATION
     
 [Update page #’s]
 
1
       
   
4
       
 
9
       
 
15
       
 
15
 
PART II.  OTHER INFORMATION
       
 
15
       
 
15
       
 
15
       
 
16
       
 
16
       
 
16
       
 
16
       
 
17
 
 
 

 
 
 
ITEM  1.
FINANCIAL STATEMENTS.
 
Greenway Medical Technologies, Inc.
Condensed Balance Sheets
(Amounts in thousands)
(Unaudited)
 
             
   
September 30,
   
June 30,
 
   
2012
   
2012
 
Assets
           
             
Current assets:
           
                 
Cash and cash equivalents
 
$
4,975
   
$
5,585
 
Short-term investments
   
29,656
     
29,350
 
Accounts receivable, net of $794 and $720 allowance for doubtful accounts at September 30, 2012 and June 30, 2012, respectively
   
24,282
     
28,875
 
Inventory
   
463
     
281
 
Prepaids and other current assets
   
3,029
     
3,001
 
Deferred tax assets
   
1,679
     
1,699
 
Total current assets
   
64,084
     
68,791
 
                 
Property and equipment, net
   
21,989
     
20,340
 
Software development cost, net
   
18,997
     
17,156
 
Acquired intangibles, net
   
479
     
510
 
Deferred tax assets - noncurrent
   
25,866
     
25,846
 
Goodwill
   
440
     
440
 
Other assets
   
468
     
40
 
Total assets
 
$
132,323
   
$
133,123
 
                 
Liabilities and shareholders’ equity
               
                 
Current liabilities:
               
                 
Accounts payable
 
$
11,735
   
$
12,436
 
Accrued liabilities
   
7,520
     
9,533
 
Deferred revenue
   
11,650
     
12,192
 
Total current liabilities
   
30,905
     
34,161
 
Obligation for purchased technology
   
-
     
116
 
Commitments and contingencies (Note 11)
               
Shareholders’ equity:
               
Common stock
   
3
     
3
 
Additional paid-in capital
   
240,121
     
237,558
 
Accumulated deficit
   
(138,706
)
   
(138,715
)
Total shareholders’ equity
   
101,418
     
98,846
 
Total liabilities and shareholders’ equity
 
$
132,323
   
$
133,123
 
 
The accompanying notes are an integral part of these condensed financial statements
 
 
1

 
 
Greenway Medical Technologies, Inc.
Condensed Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
 
   
Three Months Ended September 30,
 
   
2012
   
2011
 
             
Revenue:
           
System sales
 
$
9,035
   
$
6,648
 
Training and consulting services
   
6,863
     
6,603
 
Support services
   
10,292
     
7,056
 
Electronic data interchange and business services
   
6,584
     
5,343
 
Total revenue
   
32,774
     
25,650
 
Cost of revenue:
               
System sales
   
3,007
     
1,847
 
Training and consulting services
   
4,602
     
4,431
 
Support services
   
3,125
     
2,257
 
Electronic data interchange and business services
   
4,194
     
3,821
 
Total cost of revenue
   
14,928
     
12,356
 
Gross profit
   
17,846
     
13,294
 
Operating expenses:
               
Sales, general and administrative
   
13,324
     
10,678
 
Research and development
   
4,772
     
3,165
 
Total operating expenses
   
18,096
     
13,843
 
Operating income (loss)
   
(250
)    
(549
)
Interest income, net
   
289
     
9
 
Other (expense), net
   
(24
)    
(38
Income (loss) before provision for income taxes
   
15
     
(596
Provision (benefit) for income taxes
   
7
     
(190
Net income (loss)
   
8
     
(406
)
Preferred stock dividends and accretion
   
-
     
(9,376
Income (loss) available to common shareholders
 
$
8
   
$
(9,782
                 
Per share data:
               
Net income (loss) per share available to common shareholders:
               
Basic
 
$
0.00
   
$
(0.84
                 
Diluted
 
$
0.00
   
$
(0.84
                 
Weighted average number of common shares outstanding
               
Basic
   
29,295
     
11,686
 
                 
Diluted
   
30,603
     
11,686
 
 
The accompanying notes are an integral part of these condensed financial statements
 
 
2

 
 
Greenway Medical Technologies, Inc.
Condensed Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
   
Three Months Ended September 30,
 
   
2012
   
2011
 
             
Cash flows from operating activities:
           
Net income (loss)
 
$
8
   
$
(406
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
         
Gain on the sale of property and equipment
   
-
     
(2
Net stock compensation expense
   
1,099
     
1,057
 
Deferred income tax provision (benefit)
   
-
     
(227
Depreciation and amortization
   
1,784
     
460
 
Provision for bad debts
   
345
     
256
 
Changes in current assets and liabilities:
               
Accounts receivable
   
4,248
     
1,029
 
Inventory
   
(183
)    
(165
Prepaids and other assets
   
(456
)    
(967
Accounts payable and accrued liabilities
   
(3,940
   
(593
Deferred revenue
   
(542
   
       369
 
Net cash provided by operating activities
   
2,363
     
811
 
Cash flows from investing activities:
               
(Purchase) sale of short-term investments, net
   
(306
)
   
2,706
 
Purchases of property and equipment
   
(1,252
)
   
(769
Capitalized software development cost
   
(2,856
)
   
(3,041
Net cash used in investing activities
   
(4,414
)
   
(1,104
Cash flows from financing activities:
               
Payments on obligation for acquired technology
   
(23
)
   
(39
Proceeds from exercise of stock options and warrants
   
1,464
     
161
 
Net cash provided by financing activities
   
1,441
     
122
 
Net decrease in cash and cash equivalents
   
(610
)
   
(171
)
Cash and cash equivalents at beginning of period
   
5,585
     
5,722
 
Cash and cash equivalents at end of period
 
$
4,975
   
$
5,551
 
Supplemental cash flow information:
               
Cash paid for interest
 
$
5
   
$
   
Cash paid for taxes
 
$
7
   
$
75
 
                 
 
The accompanying notes are an integral part of these condensed financial statements
 
 
3

 
 
Greenway Medical Technologies, Inc.
 
Note 1—Basis of Presentation and Description of Company
We prepared the accompanying interim condensed financial statements in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. We believe these condensed financial statements reflect all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation. Operating results for the three months ended September 30, 2012, are not necessarily indicative of the results that may be expected for our fiscal year ending June 30, 2013. For more information regarding our results of operations and financial position, refer to the financial statements and footnotes included in our Form 10-K for our fiscal year ended June 30, 2012, on file with the Securities and Exchange Commission (“SEC”).
 
As appropriate to the context, “Greenway”, the “Company”, and “we”, “us” and “our” are used interchangeably to refer to Greenway Medical Technologies, Inc., originally incorporated in Georgia in 1998. In connection with our recently completed initial public offering (“IPO”), we reincorporated in Delaware on February 7, 2012. We develop, market and sell an integrated suite of healthcare technology solutions, including practice management and electronic medical record software applications for physician practices, clinics and other providers in ambulatory settings throughout the United States.
 
Note 2—Accounting Policies and New Accounting Standards
Our accounting policies are consistent with those described in our Significant Accounting Policies for our fiscal year ended June 30, 2012, in our Form 10-K filed with the SEC.
 
New Accounting Standards - In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU represents the converged guidance of the FASB and the International Accounting Standards Board on fair value measurement. These amendments have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The common requirements are expected to result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments are to be applied prospectively and are effective for fiscal years beginning after December 15, 2011. Adoption of these amendments did not have a material impact on the Company’s financial statements.
 
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. The amendments to the Codification in this ASU allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011 ASU 2011-12 was issued to defer the effective date relating to these reclassification adjustments requirements. Other provisions of ASU 2011-05 are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2011. Adoption of these provisions did not have a material impact on the Company’s financial statements.
 
In September 2011, the FASB issued 2011-08, Intangibles - Goodwill and Other (Topic 350), Testing Goodwill for Impairment. The Board decided to simplify how companies are required to test goodwill for impairment. Companies now have the option to first assess qualitative factors to determine whether it is more likely than not (likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If after considering the totality of events and circumstances a company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it will not have to perform the two-step impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of ASU 2011-08 did not have a material impact on our financial statements.
 
On July 27, 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under U.S. GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. Adoption of these provisions is not expected to have a material impact on the Company’s financial statements.
 
 
4

 
 
3 - Investments
Short-term investments consist of mutual funds, money market funds and U.S. agency and corporate bonds with original maturities greater than three months and remaining maturities of less than one year. Investments are also made in corporate bonds with original maturities of greater than one year but maximum remaining maturities of 18 months; these investments are also included in short-term investments since the Company’s intent is to convert them into cash as may be necessary to meet liquidity needs. At September 30, 2012, all of the Company’s investments were classified as available-for-sale and are reported at fair value with any changes in market value reported as a part of comprehensive income. As of September 30, 2012, gross accumulated unrealized gains and losses for these investments were not material. Fair value is based on the Level 1 or 2 criteria of the fair value hierarchy specified in ASC 820-10, Fair Value Measurements and Disclosures.
   
Investments at fair value consisted of the following:
 
   
September 30,
   
June 30,
 
Available-for-sale securities (in thousands)
 
2012
   
2012
 
Mutual funds
 
$
27,791
   
$
26,875
 
U.S. agency bonds
   
1,825
     
2,071
 
Corporate bonds
   
-
     
359
 
Money market funds
   
40
     
45
 
Total
 
$
29,656
   
$
29,350
 
 
4 - Property and Equipment and Other Intangible Assets
Property and equipment consists of (in thousands):
 
   
Estimated
 
September 30,
   
June 30,
 
   
useful lives
 
2012
   
2012
 
           
Land
 
 
$
1,172
   
$
1,172
 
Building
 
39 years
   
4,433
     
4,433
 
Leasehold improvements
 
Lesser of lease term or 7 years
   
304
     
304
 
Equipment
 
3 years
   
1,390
     
1,390
 
Furniture and fixtures
 
5 years
   
3,410
     
3,366
 
Purchased software
 
3 years
   
3,133
     
3,056
 
Acquired technology
 
3 years
   
3,894
     
3,894
 
         
17,736
     
17,615
 
Less - Accumulated depreciation
       
(7,235
)    
(6,509
)
         
10,501
     
11,106
 
Construction in progress
       
11,488
     
9,234
 
Total
     
$
21,989
   
$
20,340
 
 
Acquired Technology and Other Assets - In September 2010, the Company acquired certain technology and intellectual property in exchange for cash and 50,000 shares of common stock. The $600,000 cash portion of the purchase price is payable over three years in variable amounts based on sales of the Company’s product offering into which the technology is incorporated. The fair value of the aggregate consideration was estimated at $974,000 and allocated in its entirety to acquired technology estimated to have a useful life of three years. Amortization is charged to cost of goods sold and totaled $86,000 and $88,000 for the three months ended September 30, 2012 and 2011, respectively. The purchase agreement provided for a potential reduction of this cash portion of the purchase price when and if an initial public offering of the Company’s common stock were to be completed. Accordingly, in connection with our offering completed in February 2012, the carrying value of this obligation was reduced by approximately $100,000.
 
In October 2011, we acquired certain technology and other assets of Cy Solutions which we believe has facilitated our penetration of the Federally Qualified Health Center (FQHC) market. Total consideration was $4.0 million which includes approximately $1.0 million contingent on attainment of certain performance objectives. The estimated $954,000 fair value of the contingent consideration is included in other liabilities. Based on an independent valuation, the estimated value of total consideration was allocated to acquired intangibles and other assets as follows:
         
Assets Acquired
 
Estimated
Fair Value 
(in thousands)
 
Estimated Useful Life
         
Developed Technology
  $ 2,920  
3 years
           
Customer Relationships
    530  
5 years
           
Non-competition Agreements
    64  
3-5 years
           
Goodwill
    440  
Indefinite
           
Total fair value of consideration
  $ 3,954    
 
Amortization of acquired technology is charged to cost of systems sold and totaled $243,000 for the three months ended September 30, 2012.  Amortization of other acquired intangibles totaled $31,000 for the three months ended September 30, 2012.  No amortization was recorded for acquired technology or other intangibles for the three months ended September 30, 2011.
 
 
5

 
   
Software Development Costs – We apply the provisions of ASC 985-20, Software, Costs of Computer Software to be Sold, Leased or Marketed, which requires the capitalization of costs incurred in connection with the research and development of new software products and enhancements to existing software products once technological feasibility is established.  Such costs are amortized on a straight-line basis over the estimated economic life of the related product, which is typically three years.  The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors including, but not limited to, anticipated future gross product revenue, estimated economic life, and changes in technology.  Capitalized software development costs approximated $2.9 million and $3.0 million during the three months ended September 30, 2012 and 2011, respectively.  Amortization of capitalized software development costs approximated $1.0 million and $63,000, respectively, for the three months ended September 30, 2012 and 2011.
 
Construction of New Facilities and Real Estate Tax Incentive Transaction - In December 2011, we entered into a sale-leaseback transaction pursuant to which we sold certain land and a building under development as our new administrative headquarters located in Carrollton, Georgia. The transaction contemplates an ultimate total purchase price of approximately $12.0 million and in December, approximately $1.0 million already incurred for the project, was received in cash and was simultaneously invested and is subject to an Industrial Revenue Bonds (IRB’s) financing agreement. As development of the project progresses, the balance of approximately $11.0 million contemplated under this agreement will be paid from our resources, then sold and proceeds reinvested in in a similar fashion. This agreement is intended to permit counties to attract business investment by offering property tax incentives. In accordance with Georgia law, we entered into this sale-leaseback agreement with Carroll County (the “County”) and acquired an Industrial Development Revenue Bond. The arrangement is structured so that our lease payments to the County equal and offset the County’s bond payments to the Company. The Bond is non-recourse to the County, our lease payments are pledged to secure repayment of the Bond, and the lease and bond provide for the legal right of offset. Consequently, the investment and lease obligation related to this arrangement have been offset in our balance sheet. The agreement has a maximum expiration date of 2021. If we had not entered into this transaction, property tax payments would have been higher. We can reacquire such property and terminate the agreement at a nominal price of $10. The subject property is included in property and equipment - construction in progress in our balance sheet as of September 30, 2012.
 
5 - Transactions with Related Parties
Effective July 1, 2000, the Company entered into an agreement to lease the corporate office from Green Family Real Estate, LLC, an entity controlled by the Company’s Chairman, for approximately $20,000 per month, plus annual adjustments for inflation, until June 30, 2015 (see Note 11).
 
In 2000, the Company entered into an agreement to rent on an hourly basis an airplane from Greenway Air, LLC, an entity controlled by the Company’s Chairman. Expenses incurred related to this agreement were approximately $18,000 and $5,000 for the three months ended September 30, 2012 and 2011, respectively.  In March 2002, the Company purchased a 1% interest in Greenway Air, LLC, for $12,500 and in September 2012 paid $427,000 to purchase an additional 15.75% interest. This investment is recorded at cost in the accompanying balance sheets.
 
The Company has considered applicable guidance regarding variable interest entities and has determined that neither of these arrangements is such an entity.
 
The Company has two institutional shareholders who, as of September 30, 2012, collectively owned approximately 44% (25% for one investor and 19% for the other) of the Company’s common stock. One representative of each of these institutional shareholders sits on the Company’s Board of Directors. Given this substantial ownership position, these shareholders are able individually, and collectively, to exercise substantial influence over the affairs of the Company.
 
6 - Credit Facility
In March 2011, the Company closed on a new loan agreement with a two-year term. This facility provides financing up to $5.0 million, based on eligible receivables, with interest at LIBOR plus 275 basis points, is secured by a pledge of the Company’s assets and contains customary provisions regarding covenants including a prohibition on payment of cash dividends. There were no amounts outstanding on the credit facility at September 30, 2012, and the full amount of the facility was available.
 
7 - Shareholders’ Equity
On February 1, 2012, our registration statement on Form S-1 (No. 333-175619) was declared effective, and on February 7, 2012, we consummated the IPO consisting of the sale of 7,666,667 shares of our common stock at a price of $10.00 per share, including 6,388,833 shares (including the underwriters’ exercise of their over-allotment option to purchase an addition 1,000,000 shares) issued and sold by us.  Following the sale of the shares in connection with the closing of the IPO, the offering terminated. As a result of the offering, including the underwriters’ over-allotment option, we received total net proceeds of approximately $56.4 million, after deducting total expenses of $7.5 million, consisting of underwriting discounts and commissions of $4.5 million and offering-related expenses of approximately $3.0 million.
 
We used a portion of the net proceeds from the IPO to pay $23.3 million cash to holders of our outstanding preferred stock concurrently with the conversion of such shares into shares of common stock in connection with the closing of the IPO. Certain holders of our outstanding preferred stock who received cash payments included certain executive officers and directors. We intend to use the remaining proceeds to finance the construction of new facilities to accommodate the growth of our business (approximately $12.0 million), as well as for working capital and general corporate purposes, which may include financing our growth, developing new technology solutions and services, and funding capital expenditures, acquisitions and investments. The Company currently does not have any pending material acquisitions. We did not receive any proceeds from the sale of shares by the selling stockholders. There has been no material change in the use of proceeds from the IPO as described in the Prospectus under “Use of Proceeds”.
 
As indicated above, in connection with the IPO all of the convertible preferred stock outstanding automatically converted into shares of common stock. Concurrent with the IPO, the Company increased the authorized common stock and modified the par value to $0.0001 per share.
 
 
6

 
 
Stock authorized, issued and outstanding, after effect of the foregoing, is summarized (in thousands) as follows:
 
 
    September 30, 2012     June 30, 2012  
   
Common Stock
   
Preferred
   
Common Stock
   
Preferred
 
                         
Authorized
   
80,000
     
20,000
     
80,000
     
20,000
 
Issued
   
29,420
     
-
     
29,122
     
-
 
Outstanding
   
29,420
     
-
     
29,122
     
-
 
 
Stock Options - On November 16, 2011, we adopted, and on December 16, 2011, we received shareholder approval of the Greenway Medical Technologies, Inc. 2011 Stock Plan (the “2011 Plan”) which provides for issuance of equity awards for up to 3.0 million shares of our common stock. Effective with the completion of our IPO, equity awards will occur only under the 2011 Plan. For the three months ended September 30, 2012 and 2011, respectively, options for 884,900 and 296,151 shares of our common stock were granted under our applicable plans. We also have options granted, fully-vested and outstanding under our 1999 and 2004 Stock Plan. At September 30, 2012, approximately 4.0 million options were outstanding; no further grants will be made under either of these prior plans. We expense stock compensation costs in the cost of sales and selling, general and administrative expense line items of our Condensed Statements of Operations over the vesting periods of each grant. For each of the three months ended September 30, 2012 and 2011 we expensed $1.1 million in connection with outstanding option awards. As of September 30, 2012, there was $13.5 million of total unrecognized compensation cost related to non-vested awards granted under the various Plans. This cost is expected to be recognized over a period of 2.2 years.
 
8 - Fair Value of Financial Instruments
The book values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values, principally because of the short-term maturities of these instruments. As provided by their terms, the Company’s Series A and Series B Convertible Preferred Stock issuances were carried at estimated fair value based on the greater of a) liquidation preference including accrued dividends or b) fair value of these instruments largely based on independent appraisals. 
 
The Company applies ASC 820, Fair Value Measurements and Disclosures, with respect to fair value of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis and (b) all financial assets and liabilities. The Company applies the aspects of ASC 820 relative to nonfinancial assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis but elects not to apply the fair value option.
 
ASC 820 prioritizes the inputs used in measuring fair value as follows: Level 1 — Quoted market prices in active markets for identical assets or liabilities; Level 2 — Observable inputs other than those included in Level 1 (for example, quoted market prices for similar assets in active markets or quoted market prices for identical assets in inactive markets); and Level 3 — Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating the value of the asset.
 
The Company’s financial instruments measured at fair value as of September 30, 2012, and June 30, 2012, consisted of (in thousands): 
 
 
Balance Sheet
 
Fair Value Hierarchy Category
 
 
Classification
 
Level 1
   
Level 2
   
Level 3
 
At September30, 2012:
                         
Available-for-sale equity securities
Short-term investments
$
40
   
$
29,616
     
 
                           
At June 30, 2012:
                         
Available-for-sale equity securities
Short-term investments
$
45
   
$
29,305
     
 
 
9 - Income Taxes
As of September 30, 2012, the Company had gross net operating losses (NOLs) of approximately $73 million. These NOLs will be available to offset any future taxable income and will begin to expire in 2021. The Company has also generated research credit carryforwards of approximately $3.3 million. For the three months ended September 30, 2012 and 2011, the effective rate was 47% and (32%), respectively. The effective tax rate for these periods reflects the effect of miscellaneous payments to various state jurisdictions which were expensed during the periods.
 
As of September 30, 2012, the Company had no unrecognized tax benefits. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when and if incurred. The Company had no interest or penalties related to unrecognized tax benefits accrued as of September 30, 2012. The Company does not anticipate that the amount of the unrecognized benefit will significantly increase within the next 12 months. However, net operating loss and research credit carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by tax authorities.

 
7

 
 
10 - Net Income (Loss) Per Share Available to Common Shareholders
Basic earnings per share available to common shareholders is computed by dividing income (loss) available to common shareholders by the sum of the weighted average number of common shares outstanding during the period. Income (loss) available to common shareholders reflects accretion of preferred stock dividends, preferred stock issue cost and adjustment to recognize the estimated fair value of the put feature ascribed to these securities (Notes 7 and 8). Diluted income per share gives effect to all potentially dilutive common share equivalents outstanding during the period. Such potentially dilutive common share equivalents included Series A and B Preferred Stock fully converted into common shares as of September 30, 2012, but convertible into 8.8 million shares of common for the three months ended September 30, 2011; outstanding warrants exercisable for common shares totaling 121,000 at September 30, 2012, and 293,000 at September 30, 2011; and stock options outstanding for 1.3 and 1.6 million shares of common for the three months ended September 30, 2012 and 2011, respectively. The dilutive effect of outstanding stock options and warrants is computed using the treasury stock method. The computation of diluted income (loss) per share does not assume conversion, exercise, or contingent exercise of securities that would have an anti-dilutive effect on earnings. In as much as inclusion of any or all of the potentially dilutive common share equivalents is anti-dilutive for the three months ended September 30, 2011; presentation of (loss) per share available to common shareholders — basic and diluted are the same for this period.
 
11 - Leases and Other Commitments
As discussed in Note 5, the Company leases office space from related parties under operating leases through 2015. Rental expense for all building and equipment leases totaled approximately $407,000 and $211,000 for the three months ended September 30, 2012 and 2011, respectively.  The Company has entered into contracts for development of new facilities to accommodate its growth. The project is expected to be completed by the end of fiscal 2013 and is estimated to cost approximately $12.0 million, which will be funded from existing resources and available credit.
 
12 - Segment Information
The Company complies with ASC Topic 280, Segment Reporting. ASC 280, which is based on a management approach to segment reporting and requires that the Company disclose information about the business components (operating segments) as utilized to make operating decisions and assess performance. The objective of this guidance is to help financial statement users understand the Company’s performance, assess prospects for future cash flows and judge the entity as a whole. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. The Company manages its resources and assesses its performance on an enterprise-wide basis. The Company does report revenue according to the nature of the products and services provided to its customers; providers in various settings within the ambulatory sector of the domestic healthcare market who share similar economic characteristics.
 
 
8

 
 
 
This Form 10-Q, contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Part I, Item 2—”Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A—”Risk Factors,” but appear throughout this Form 10-Q. Forward-looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality, volatility of our common stock, financial condition or other future financial or business performance, strategies, expectations, or business prospects, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition.
 
Forward-looking statements can be identified by the use of words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Form 10-Q and in our other SEC filings, including our Annual Report on Form 10-K filed with the SEC on September 24, 2012.  Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. We operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial position or results of operations.  All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
 
Business overview
 
We are a leading provider of integrated information technology solutions and managed business services to ambulatory healthcare providers throughout the United States. At the core of our suite of solutions and services is PrimeSUITE, our award-winning, fully-integrated EHR, PM and interoperability solution. PrimeSUITE integrates clinical, financial and administrative data in a single database to enable comprehensive views of patient records and efficient workflow throughout each patient encounter, reduce clinical and administrative errors, and allow for the seamless exchange of data between our customers and the broader healthcare community. We augment our solutions by offering managed business services such as clinically-driven revenue cycle and EHR-enabled research services. By integrating clinical, financial and administrative data processes, our solutions and services allow providers to deliver advanced care and improve their efficiency and profitability.
 
Our technology solutions and services are designed to address the needs of providers in all ambulatory settings: independent physician practices, group practices, hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic centers, federally-qualified health centers (“FQHCs”), community health centers (“CHCs”), accountable care communities (“ACCs”) and accountable care organizations (“ACOs”), and integrated delivery networks (“IDNs”). Our single database technology platform, which reflects over 13 years of development, is scalable to serve the needs of ambulatory providers of any size. As providers’ needs evolve, our platform allows for the efficient development and integration of new solutions, which we refer to as our innovation platform. Our solutions are available on either a cloud-based or premise-based model.
 
The ambulatory EHR market has historically been underpenetrated and installed systems have been underutilized. Adoption of these technologies has been low for several reasons, including providers’ resistance to making the required investment as well as concerns that electronic records would disrupt clinical and administrative workflows. Adoption of EHR solutions is accelerating as more providers realize the possible return on investment from adoption of solutions such as PrimeSUITE. Government initiatives and legislation have provided financial incentives and implementation support for ambulatory providers to adopt EHR solutions.
 
In order for us to continue to deliver on this commitment to our providers we are committed to investing in our innovation platform and managed business services to address the trends and challenges we believe will affect our providers now and in the future. We will invest in the development of new products and enhancements to existing products that we believe present opportunities for substantial efficiencies to ourselves and our providers’ businesses. In responding to the acceleration of EHR adoption, government regulations such as the HITECH Act and ARRA, and other market trends such as increasing consumerism, the shift to quality-based reimbursement and the focus on improving the coordination of care among providers, we also face the following opportunities, challenges and risks, which could impact our business:
 
  
  ●
Maintaining Adequate Capacity to Satisfy Potential Increased Demand. We have taken steps to position ourselves to take advantage of expected increased demand by increasing our direct sales force, enhancing our relationships with strategic alliance partners with established sales forces and increasing our systems installation capacity by utilizing third-party training and implementation specialists certified in PrimeSUITE deployment. While we believe these steps are sufficient to satisfy expected demand, additional investments and steps may be required.
 
 
9

 
 
 
  ●
Ensuring Continued Certification of Our Solutions. In order to qualify for government incentives for EHR adoption, our solutions must continue to meet various and changing requirements for product certification and must enable our providers to achieve “meaningful use” as defined by existing and new regulations. We will continue to invest significant resources to ensure compliance of our solutions and to train and consult with our providers to enable them to navigate “meaningful use” regulations. Our ability to achieve certification under applicable standards from time to time and the length and cost of related solutions development and enhancement could materially impact our ability to take advantage of increased demand and require larger research and development investments than anticipated.
 
 
  ●
Ensuring Our Ability to Address Emerging Demand Trends. Trends toward community-based purchasing decisions where individuals, hospitals, health systems and IDNs subsidize the purchase of EHR solutions for their affiliated physicians in order to expand connectivity within their provider community, and government-funded providers and initiatives, such as RECs, to encourage and support the implementation of EHR, could result in longer sales cycles and installation periods. This may also increase the need for additional training and implementation specialists because of the size and complexity of those sales. As a result, while we expect these trends to result in increased demand for our solutions and managed business services, they may require additional investment by us and may have unintended or unexpected consequences that could impact our business.
 
 
  ●
Demand by Smaller Providers Could Accelerate Transition to Subscription Pricing Model. The adoption of EHR by the large untapped market of smaller provider customers and their greater need to minimize capital outlays could accelerate adoption of subscription-based arrangements as opposed to perpetual licensing arrangements. While additional subscription arrangements will result in increased recurring revenue over a longer period of time than we have achieved historically, near-term revenue would be reduced as a result while costs associated with these sales would still be expensed currently.
 
 
  ●
Uncertain Impact of Recent Legislation. Recently enacted public laws reforming the U.S. healthcare system may impact our business. The Patient Protection and Affordable Care Act (“PPACA”) and The Health Care and Education and Reconciliation Act of 2010 (the “Reconciliation Act”), which amends the PPACA (collectively the “Health Reform Laws”), were signed into law in March 2010. The Health Reform Laws contain various provisions that may impact the Company and our customers. Some of these provisions may have a positive impact, by expanding the use of electronic health records in certain federal programs, for example, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including the Company.
 
Sources of Revenue and Expenses
 
Revenue
 
We derive our revenue primarily from sales of our PrimeSUITE platform of proprietary solutions, related hardware and professional services to providers in ambulatory settings.  Currently, a sizable percentage of our solution sales are made as perpetual licenses to our customers; however, our software is currently available in a cloud-based or a premise-based model.
 
We classify our revenue as: (1) Systems Sales, (2) Training and Consulting Services, (3) Support Services, and (4) Electronic Data Interchange and Business Services. Systems Sales are products comprised of software licenses, primarily PrimeSUITE, and related hardware and third-party software. Training and Consulting Services include implementation, training and consulting associated with Systems Sales. Support Services includes solutions we offer on a per user or transaction basis, such as PrimeSUITE and PrimeEXCHANGE services for connectivity to third-parties and third-party database charges. Electronic Data Interchange and Business Services include third-party charges for patient claims, statements and eligibility, and clinically-driven RCM and EHR-enabled research services.
 
As our installed customer base continues to grow, we anticipate that Support Services and Electronic Data Interchange and Business Services, which are recurring in nature, will expand as a percentage of our total revenue. Historically, we have experienced moderate seasonality to our annual revenue with the smallest percentage of sales typically occurring in our first fiscal quarter due primarily to provider purchasing patterns. See “Results of Operations” for more information.
 
 
10

 
 
Cost of Revenue.
 
Cost of revenue for Systems Sales consists primarily of third-party hardware and software costs and amortization of capitalized software development costs and acquired technology. Cost of revenue for Training and Consulting Services consists primarily of compensation (including stock-based compensation) and benefits of our billable professionals and fees to third-party specialists for deployment, implementation and training, and travel costs. Cost of revenue for Support Services consists primarily of compensation (including stock-based compensation) and benefits of support specialists, and fees to third-parties for database services and services from our managed services partners. Cost of revenue for Electronic Data Interchange consists primarily of fees to third-parties for processing claims, statements and eligibility requests; cost of revenue for Business Services consists primarily of compensation (including stock-based compensation) and benefits of personnel who deliver our revenue cycle management services and various third-party costs associated with our EHR-enabled clinical research services. As higher-margin recurring revenue increases as a percentage of total revenue, we believe overall gross margin will also increase over time.
 
Sales, General and Administrative Expenses
 
Sales, general and administrative (“SG&A”) expenses consist primarily of compensation (including stock-based compensation) and benefits, commissions, travel, professional fees, advertising and other administrative and general expenses, including depreciation and amortization of equipment and leasehold improvements, for the Company’s sales and marketing functions; executive offices, administration, human resources, corporate information technology support, legal, finance and accounting, and other corporate services. We intend to invest in our infrastructure as appropriate to expand our market share and accommodate our growing customer base. We expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs and compliance costs under the Sarbanes-Oxley Act and the requirements of our listing exchange. As a result, we expect SG&A expenses to increase as we grow, but remain relatively constant as a percentage of revenue and ultimately decline as we achieve leverage from our infrastructure investments.
 
Research and Development Expenses
 
Research and development expenses consist primarily of compensation (including stock-based compensation) and benefits, third-party contractor costs and other facility and administrative costs, including depreciation of equipment directly related to development of new products and upgrading and enhancing existing products. In accordance with GAAP, research and development costs related to new application development and enhancements to existing products are expensed until technological feasibility is established. Once technological feasibility is established such costs are capitalized until the product or enhancement is ready for market, at which point capitalization ceases. We capitalize research and development costs under these criteria including the compensation-related costs of personnel and related third-party contractors working directly on specific projects. We intend to invest in our innovation platform to maintain cutting-edge technology for the benefit of our customers as well as to meet evolving requirements of the market, including certifications and standards.
 
Provision for Income Taxes
 
In preparing our financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities.
 
 
11

 
 
Results of Operations
 
The following table sets forth revenue and cost of revenue by category for the three and nine months ended September 30, 2012, as compared to the comparable periods of the prior year:
 
   
Three Months Ended September 30,
   
Change
 
   
2012
   
2011
   
Increase (Decrease)
 
   
Amount (000’s)
   
Percentage
   
Amount (000’s)
   
Percentage
   
Amount (000’s)
   
Percentage
 
Revenue:
                                   
System sales
 
$
9,035
     
28
%
 
$
6,648
     
26
%
 
$
2,387
     
36
%
Training and consulting services
   
6,863
     
21
%
   
6,603
     
26
%
   
260
     
4
%
Support services
   
10,292
     
31
%
   
7,056
     
27
%
   
3,236
     
46
%
Electronic data interchange and business services
   
6,584
     
20
%
   
5,343
     
21
%
   
1,241
     
23
%
Total revenue
   
32,774
     
100
%
   
25,650
     
100
%
   
7,124
     
28
%
Cost of revenue:
                                               
System sales
   
3,007
     
33
%
   
1,847
     
28
%
   
1,160
     
63
%
Training and consulting services
   
4,602
     
67
%
   
4,431
     
67
%
   
171
     
4
%
Support services
   
3,125
     
30
%
   
2,257
     
32
%
   
868
     
38
%
Electronic data interchange and business services
   
4,194
     
64
%
   
3,821
     
72
%
   
373
     
10
%
Total cost of revenue
   
14,928
     
46
%
   
12,356
     
48
%
   
2,572
     
21
%
 
            Revenue. Total revenue was $32.8 million for the three months ended September 30, 2012, compared to $25.7 million for the three months ended September 30, 2011, an increase of $7.1 million or 28%. Systems sales grew by 36% and accounted for $2.4 million or 34% of total revenue growth during the period. Training and consulting services grew by 4% and accounted for $260,000 or 4% of total revenue growth during the period. Support services and electronic data interchange and business services grew 46% and 23%, respectively, during the period, accounting for the remaining 62% of growth in total revenue.
 
 Systems sales, including training and consulting services, are one-time in nature and the substantial growth is attributable to our increased share in a growing market and is reflective of an increase in both the number and size of transactions completed in the current quarter and the year to date. The current quarter compared with the preceding quarter reflects the impact of some seasonality regarding purchasing patterns of customers that is typically experienced in our first fiscal quarter. Support services, electronic data interchange and business services are recurring and growth in this revenue is largely attributable to our growing customer base. Our ability to sell additional products and services to our existing customer base also benefitted revenue growth in the three months ended September 30, 2012, compared to the same period of the prior year.
 
Cost of Revenue. Total cost of revenue was $14.9 million for the three months ended September 30, 2012, compared to $12.4 million for the three months ended September 30, 2011, an increase of $2.6 million or 21%. Cost of systems sales increased by 63% and accounted for $1.2 million or 45% of the total increase in cost of revenue during the period. Cost of training and consulting services increased by 4% and accounted for $171,000 or 7% of the total increase in cost of revenue during the period. Cost of support services and electronic data interchange and business services increased 38% and 10%, respectively, during the period, accounting for the remaining 48% of the increase in total cost of revenue. On an overall basis, gross profit margins were 54% for the three months ended September 30, 2012, as compared to 52% for the same period of the prior year. This improvement in the quarter is a combination of factors; margins improved due to sales mix with higher-margin systems sales and support services revenue contributing almost 79% of the total increase in revenue for the period. Benefits were also attained by the improved margin profiles of support services and electronic data interchange and business services. Improved support services margins are attributable to customers’ adoption of higher-margin innovations and to improvements in margin profiles of various services that involve third parties. These beneficial effects were partly offset by $1.2 million in increased amortization of software development costs and recently-acquired technology.
 
 
12

 
 
Sales, General and Administrative. Total SG&A expenses were $13.3 million for the three months ended September 30, 2012, compared to $10.7 million for the three months ended September 30, 2011, an increase of $2.6 million or 25%. Growth in SG&A is largely a result of the required infrastructure to support the overall growth in the business. We have increased headcount and related costs and other investments in sales, marketing and advertising which we believe positions us to capture increased market share in what we believe will be an expanding market over the next several years. Additionally, implementation of our long-term equity incentive plan increased stock-based compensation $629,000 for the three months ended September 30, 2012 as compared to the year-ago period. Further, growth in our headcount and professional services related to implementation of a new suite of business tools has increased SG&A costs for subscription to these services. As a percentage of revenue, SG&A was 41% for the three months ended September 30, 2012, compared to 42% for the three months ended September 30, 2011. As indicated by this comparison, we believe that investments in our growth and related infrastructure can be leveraged to maintain our sales growth in future years without a proportionate increase in cost.
 
Research and Development Expenses. Research and development expenses were $4.8 million for the three months ended September 30, 2012, compared to $3.2 million for the three months ended September 30, 2011, an increase of $1.6 million or 51%. The increases are largely related to compensation, benefits and related costs for additional headcount and to increased professional fees for projects outsourced to third parties, offset in part by a reduction in stock-based compensation costs. Our innovation platform requires continuing investment in research and development, which evolves to meet the needs of our customers, our market and industry regulators. In addition to research and development to support our innovation platform, we develop new products and enhance functionality of existing products. These application development costs are capitalized once technological feasibility is attained and capitalization ceases once the technology is available for market. Capitalized software development costs were approximately $2.9 million and $3.0 million for the three months ended September 30, 2012 and 2011, respectively. Amortization of capitalized software development costs totaled approximately $1.0 million and $63,000 for the three months ended September 30, 2012 and 2011, respectively.
 
        Interest and Other Expenses. Interest income, net of interest expense, was approximately $289,000 for the three months ended September 30, 2012, compared to net interest expense of $(9,000) for the three months ended September 30, 2011.  The change in net interest is related principally to funds available to invest, which increased substantially in February 2012 when net proceeds of our IPO were received. Investment yields owing to market conditions have been flat to declining from 2011.
 
Other income (expense) net, principally bank fees, was approximately $(24,000) and $(38,000) for the three months ended September 30, 2012 and 2011, respectively.
 
       Income Taxes. The Company has available net operating losses and credits for research and development to offset taxable income and tax expense. These and other temporary differences result in net deferred tax assets. The tax provision for the current quarter and the tax benefit for the 2011 quarter are effective tax rates of 47% and 32%, respectively, which reflect expensing payments made to various state jurisdictions for prior periods.
 
Liquidity and Capital Resources
 
Our principal capital requirements are to fund operations. We have typically funded our capital needs from operating cash flow augmented by proceeds from the exercise of warrants in connection with the 2009 completion of a tender offer made by our institutional investors and the recently completed initial public offering of our common stock. We also repaid all outstanding indebtedness and, in March 2011, entered into a new loan agreement with Bank of America, N.A. This facility provides financing up to $5.0 million (based on eligible receivables) with interest at LIBOR plus 275 basis points, is secured by a pledge of the Company’s assets and contains customary provisions regarding covenants. The financial covenants require us to maintain a leverage ratio not exceeding 2:1 and an EBITDA to interest expense ratio of at least 3:1. At September 30, 2012, we were in compliance with these covenants and there were no amounts outstanding on the credit facility.
 
We are not a capital-intensive business. Our capital expenditures heretofore have comprised technology, fixtures and equipment to accommodate our growth and we acquired and renovated a building placed into service in 2011. Additionally, we capitalize the application development costs for new technology and enhancements to our innovation platform. Funding for all of these expenditures came from existing resources. We are completing construction of new facilities to accommodate the growth of our business. We estimate this facility will cost approximately $12.0 million and will be completed by the end of fiscal 2013. We believe that our current cash, short-term investments and funds available under our credit facility or, if required, other financing combined with our anticipated cash flow from operations and the proceeds of our recently-completed initial public offering will be sufficient to meet our working capital and capital expenditure needs for the next 12 months and for a reasonable period thereafter.
 
 
13

 
 
Cash Flow Summary
 
Cash and cash equivalents were $5.0 million at September 30, 2012, as compared with $5.6 million at June 30, 2012. As of September 30, 2012, and June 30, 2012, we also had $29.7 and $29.4 million, respectively, in short-term investments classified as available for sale.
 
Operating Activities
 
Cash provided by operating activities was $2.4 million for the three months ended September 30, 2012, comprised primarily of net stock compensation expense of $1.1 million, depreciation and amortization of $1.8 million and provision for bad debts of $345,000 combined with net income of $8,000. Net changes in working capital required $873,000 cash from operations, attributable principally to a $4.2 million decrease in accounts receivable offset by a $3.9 million decrease in accounts payable and accrued liabilities, a $542,000 decrease in deferred revenue, and increases in inventory, prepaids and other assets of $639,000.
 
Cash provided by operating activities was $811,000 for the three months ended September 30, 2011, comprised primarily of $406,000 net loss and a $227,000 deferred tax benefit offset by $1.1 million net stock compensation expense, $460,000 depreciation and amortization and $256,000 provision for bad debts. Net changes in working capital required $327,000 from cash provided by operating activities including $1.1 million from increased inventory, prepaids and other assets, $593,000 million decreased accounts payable and accrued liabilities offset by $1.0 million in decreased accounts receivables and $369,000 in decreased deferred revenue.
 
Investing Activities
 
As of September 30, 2012, we had net short-term investments of $29.7 million. Our policy is to invest only in fixed income instruments denominated and payable in U.S. dollars, including obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers’ acceptances, corporate bonds of U.S. companies, municipal securities and asset backed securities. We do not invest in auction rate securities, futures contracts, or hedging instruments. Securities of a single issuer valued at cost at the time of purchase should not exceed 10% of the market value of the portfolio but securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. The final maturity of each security within the portfolio should not exceed 24 months.
 
For the three months ended September 30, 2012, we used $4.4 million of cash for investing activities consisting of $306,000 in net purchases of short-term investments, $1.3 million for purchases of property and equipment including in-progress construction of our new facilities, and $2.9 million for capitalized software development of our innovation platform.
 
Net cash used in investing activities for the three months ended September 30, 2011, was $1.1 million including $769,000 for purchases of property and equipment and $3.0 million for capitalized software development offset by net $2.7 million net sales of short-term investments.
 
Financing Activities
 
For the three months ended September 30, 2012, we had cash provided from financing activities of $1.4 million principally proceeds from exercise of options and warrants. For the three months ended September 30, 2011, we paid $39,000 on obligation for acquired technology and had net proceeds of $161,000 from exercise of options and warrants.
 
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which were prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to revenue recognition, accounting for software development costs, stock-based compensation and the accounting for income taxes.
 
The detailed Significant Accounting Policies are included in Note 2 to the Audited Financial Statements for the fiscal year ended June 30, 2012 included in our Annual Report on Form 10-K, and there have been no changes in those policies since that filing.
 
 
14

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

        Our operations consist of research and development and sales activities in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets.
 
 
Evaluation of Disclosure Controls and Procedures
 
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e), as of the end of the period covered by this Quarterly Report on Form 10-Q pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective in providing reasonable assurance that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all error and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2012, which were identified in connection with management’s evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II
OTHER INFORMATION
 
ITEM  1.
 
We are not aware of any legal proceedings or claims that we believe may have, individually or in the aggregate, a material adverse effect on our business, financial condition, operating results, cash flow or liquidity.
 
ITEM  1A
 
There have been no material changes in the risks facing the Company as described in the Company's Annual Report on Form 10-K for the year  ended June  30, 2012.
 
 
None.
 
 
15

 
 
 
None.
 
 
None.
 
ITEM  5.
 
As previously disclosed, we are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”.  We have decided to take advantage of certain of those exemptions including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes−Oxley Act of 2002 and exemptions from the requirements of holding a non−binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.  Management will be required to provide its assessment of the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ended June 30, 2013. In addition, we will be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no longer an “emerging growth company”. 
 
ITEM 6.
 
Exhibit 10.1*
Form of 2013 Incentive Bonus Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on September 28, 2012)
   
Exhibit 31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
Exhibit 31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
Exhibit 101
Interactive Data File**
 _________________________________
*Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.
 
** Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these Sections.
 
 
16

 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
November 9, 2012
GREENWAY MEDICAL TECHNOLOGIES, INC.
 
       
 
By:
/s/ Wyche T. Green, III  
   
Wyche T. Green, III
President and Chief Executive Officer
(Principal Executive Officer)
 
       
  By: /s/ James A. Cochran  
    James A. Cochran
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
17