Merger Agreement

On October 10, 2008, Allscripts-Misys Healthcare Solutions, Inc. ("Allscripts" or the "Company") completed the transactions (the "Transactions") contemplated by the Agreement and Plan of Merger dated as of March 17, 2008 by and among Misys plc, ("Misys"), Allscripts, Misys Healthcare Systems ("MHS") and Patriot Merger Company, LLC ("Patriot") which consisted of (i) the cash payment by an affiliate of Misys of approximately $330,000 and (ii) the merger of Patriot with and into MHS, with MHS being the surviving company. As a result of the completion of the Transactions, MHS became a wholly-owned subsidiary of Allscripts and Misys obtained a controlling interest in Allscripts. In connection with the closing of the Transactions, Allscripts issued an aggregate of 82,886 shares of its common stock to two subsidiaries of Misys, which as of the closing of the Transactions, represent approximately 56.8% of the number of outstanding shares of Allscripts common stock. Management believes that the Transactions will enhance Allscripts' position in the overall healthcare information technology sector and create an industry leader in the EHR and PM markets.

Basis of Presentation

Results of operations for the three and six months ended November 30, 2008 include the results of operations of MHS for the full quarter and six months ended November 30, 2008 and legacy Allscripts only for the period from the completion of the Transactions on October 10, 2008 through November 30, 2008. Since the Transactions constitute a reverse acquisition for accounting purposes, the pre-acquisition combined financial statements of MHS are treated as the historical financial statements of Allscripts. Results of operations for the three and six months ended November 30, 2007 are the results of operations of MHS only.

Overview

Allscripts is a leading provider of clinical software, connectivity and information solutions that physicians and home healthcare providers use to improve the quality of healthcare. Our businesses provide innovative solutions that inform physicians with just right, just in time information, connect physicians to each other and to the entire community of care, and transform healthcare, improving both the quality and efficiency of care. We provide various clinical software applications, including Electronic Health Records (EHR), practice management, electronic prescribing, Emergency Department Information System (EDIS), hospital care management and document imaging solutions. We report our financial results utilizing three business segments:
clinical solutions segment, health solutions segment, and the prepackaged medications segment.

The clinical solutions segment includes both our Enterprise business for large physician practices and our Professional business for smaller or independent physician practices, providing such practices with clinical and practice management software solutions and related services. Our award-winning EHR solutions are designed to enhance physician productivity using tablet PCs, wireless handheld devices or desktop workstations for the purpose of automating the most common physician activities, including prescribing, dictating, ordering lab tests and viewing results, documenting clinical encounters and capturing charges, among others. Our practice management solutions combine scheduling and financial management tools in a single package with functionality including rules-based appointment scheduling, multi-resource and recurring appointment features, referral and eligibility indicators, and appointment and claims management.

Our Enterprise business has the functionality to handle the complexities of large physician practice groups with 25 or more physicians. For physician practice groups with fewer than 25 physicians that are seeking an EHR, a practice management system, or a combined EHR and practice management solution, we offer solutions from our Professional business, including HealthMatics EHR, Ntierprise Practice Management, HealthMatics Office, which combines the two offerings into one complete solution for clinical and back-office automation, and MyWay. During fiscal year 2008, MHS introduced its MyWay solution, which is an integrated EHR and PM solution designed for smaller practices. The MyWay solution is built on a unified database, which makes administering the clinical and business aspects of a practice seamless. As well as being offered on a perpetual license basis, the MyWay solution is available on a hosted basis, which is attractive to smaller practices due to the lower up-front investment required. The MyWay solution is a powerful tool for practices that includes functionality such as offline synchronization, adaptive learning, intelligent navigation, template-free charting and easy customization.

The health solutions segment provides home health providers with clinical and practice management solutions and related services and provides hospitals with emergency department, care management and discharge planning software. Health solutions include software, related installation and training services, and the resale of related hardware. The health solution provided to home health providers is an integrated system that combines business, clinical, and scheduling features into a single package, providing home health, hospice, and private duty organizations with a user friendly product that enables staff to work more effectively both inside and outside the office. The health solution also effectively manages patient care and clerical and financial functions and assists various organizations to automate virtually all of their processes, from record keeping, to scheduling, to statistical reporting. Our health solution offerings for hospitals that are seeking EDIS and care management solutions include HealthMatics ED, EmSTAT and Canopy. HealthMatics ED electronically streamlines processes for large hospital Emergency Departments, including tracking, triage, nurse and physician charting, disposition and reporting. EmSTAT offers similar functionality for streamlining the Emergency Department care process in small hospitals. Canopy is a Web-based solution that streamlines and speeds the patient care management process by automating utilization, case, discharge and quality management processes relating to patient hospital visits.

Our prepackaged medications segment provides point-of-care medication management and medical supply services and solutions for physicians and other healthcare providers.

Cost of revenue for Allscripts' clinical solutions segment consists primarily of salaries, bonuses and benefits of Allscripts billable professionals, third-party software costs, hardware costs, third-party transaction processing costs, amortization of proprietary technology acquired under purchase accounting, depreciation and amortization and other direct engagement costs. Cost of revenue for Allscripts' health solutions segment consists primarily of salaries, bonuses and benefits of Allscripts billable professionals, third-party software costs, hardware costs, depreciation and amortization and other direct engagement costs. Cost of revenue for the prepackaged medications segment consists primarily of the cost of the medications, cost of salaries, bonuses and benefits for repackaging personnel, shipping costs, repackaging facility costs and other costs.

Selling, general and administrative expenses consist primarily of salaries, bonuses and benefits for management and support personnel, commissions, facilities costs, depreciation and amortization, general operating expenses, non-capitalizable product development expenses and selling and marketing expenses. Selling, general and administrative expenses for each segment consist of expenses directly related to that segment.

Research and development expenses consist primarily of salaries, bonuses and benefits, third party contractor costs and other costs directly related to development of new products and upgrading and enhancing existing products.

Amortization of intangibles consists of amortization of customer relationships, trade names and other intangibles acquired under purchase accounting related to the Allscripts, Medic, Payerpath and Amicore acquisitions.

Interest expense consists primarily of interest on the 3.5% Senior convertible debentures, interest on capital leases and interest expense on Allscripts' Credit Facility. Interest income and other consists primarily of interest earned on cash and marketable securities.

Results of Operations

Results of operations for the three and six months ended November 30, 2008 includes the results of operations of MHS for the full quarter and six months ended November 30, 2008 and legacy Allscripts only for the period from the closing of the Transactions on October 10, 2008 through November 30, 2008. Results of operations for the three and six months ended November 30, 2007 are the results of operations of MHS only. As a result, revenue and operating expenses for the quarter ended November 30, 2008 increased substantially.

Overview of results

Consolidated revenue grew 33.4%, from $96,386 during the three months ended November 30, 2007 to $128,613 during the same period in fiscal 2009. Consolidated revenue grew 16.8%, from $189,603 during the six months ended November 30, 2007 to $221,402 during the same period in fiscal 2009. The increase in both the three and six month periods for fiscal 2009 is primarily due to the inclusion of revenue contributed by legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through November 30, 2008, an increase in maintenance revenue due to the growth in our customer base and due to an increase in sales orders for our homecare products in fiscal 2009 as compared to same period in fiscal 2008.

Gross margin for the three months ended November 30, 2008 increased $12,883, or 23.9%, from $53,879 for the three months ended November 30, 2007 to $66,762 in the comparable fiscal 2009 period. Gross margin for the six months ended November 30, 2008 increased $13,159, or 12.7%, from $103,598 for the six months ended November 30, 2007 to $116,757 in the comparable fiscal 2009 period. Gross margin as a percentage of revenue for both the three and six month periods in fiscal 2009 and fiscal 2008 were 51.9%, 52.7% and 55.9% and 54.6%, respectively. The increase in gross margin for both the three and six month periods in fiscal 2009 is primarily due to the legacy Allscripts margin contribution and the decrease in gross margin as a percentage of revenue for both periods in fiscal 2009 compared to the same periods in fiscal 2008 is primarily due to the margin mix associated with legacy Allscripts.

Segment Operations

Clinical Solutions



                                                       Three Months Ended     Six Months Ended
                                                          November 30,          November 30,
                                                        2008        2007       2008      2007
                                                                     (Unaudited)
Revenue:
System sales                                            $17,117    $13,352    $26,611   $24,965
Professional services                                     9,935      6,524     15,682    12,348
Maintenance                                              40,761     31,372     73,076    62,563
Transaction processing and other                         39,525     36,299     75,230    72,644

Total clinical solutions revenue                        107,338     87,547    190,599   172,520

Total cost of revenue                                    53,068     40,443     93,178    81,810

Gross profit                                             54,270     47,104     97,421    90,710
Selling, general and administrative expenses             31,983     27,436     57,727    63,333

Income from operations                                  $22,287    $19,668    $39,694   $27,377

Three and Six Months Ended November 30, 2008 Compared to Three and Six Months Ended November 30, 2007

Revenue

Total clinical solutions revenue for the three months ended November 30, 2008 increased $19,791, or 22.6%, from $87,547 during the three months ended November 30, 2007 to $107,338 in the comparable period in fiscal 2009. Revenue from the clinical solutions segment for the six months ended November 30, 2008 increased $18,079, or 10.5%, from $172,520 during the six months ended November 30, 2007 to $190,599 during the same period in fiscal 2009. The revenue increase for both the three and six month periods in fiscal 2009 is primarily due to the clinical revenue contributed by legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through November 30, 2008. Revenue increases in both periods were also partially due to an increase in maintenance revenue as well as an increase in transaction processing and other revenue related to organic growth as legacy MHS continues to penetrate its existing customer base with its Payerpath solution. This increase was partially offset by a decrease in system sales and professional services as a result of a decline in legacy MHS orders for EHR and PM products in the second quarter and first half of fiscal 2009 versus the comparable period in fiscal 2008.

Cost of Revenue

Gross margin for the three months ended November 30, 2008 increased $7,166, or 15.2%, from $47,104 for the three months ended November 30, 2007 to $54,270 in the comparable fiscal 2009 period. Gross margin for the six months ended November 30, 2008 increased $6,711, or 7.4%, from $90,710 for the six months ended November 30, 2007 to $97,421 in the comparable fiscal 2009 period. The increase in gross margin for both comparative periods is primarily due to the clinical margin contributed by legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through November 30, 2008. Gross margin as a percentage of revenue for both the three and six month periods in fiscal 2009 and fiscal 2008 were 50.6%, 51.1% and 53.8% and 52.6%, respectively. The decrease in gross margin as a percentage of revenue for both the three and six month periods in fiscal 2009 is primarily due to an increase in amortization cost associated with acquired technology related to the Transactions.

Selling, General and Administrative

Selling, general and administrative costs for the three months ended November 30, 2008 increased $4,547, or 16.6%, from $27,436 during the three months ended November 30, 2007 to $31,983 in the comparable period in fiscal 2009. Selling, general and administrative costs for the six months ended November 30, 2008 decreased $5,606, or 8.9%, from $63,333 during the six months ended November 30, 2007 to $57,727 in the comparable period in fiscal 2009. The increase in costs for the second quarter of fiscal 2009 was primarily due to costs incurred by Allscripts during the period from the closing of the Transactions on October 10, 2008 through November 30, 2008, partially offset by lower third party spending on development and due to a decline in costs in fiscal 2009 related to salary from lower headcount, lower incentive and stock compensation, lower rent and phone expenses due to cost reduction strategies implemented in 2008, and lower discretionary marketing spend.

The decrease in costs for the six months ended November 30, 2008 was primarily due to a decline in costs related to salary from lower headcount, lower incentive and stock compensation, lower rent and phone expenses due to cost reduction strategies implemented in 2008 and lower discretionary marketing spend. Also contributing to the decrease was a reduction in spending on development. These decreases were partially offset by an increase in costs incurred by Allscripts during the period from the closing of the Transactions on October 10, 2008 through November 30, 2008.

Health Solutions



                                                        Three Months Ended      Six Months Ended
                                                           November 30,           November 30,
                                                        2008         2007        2008       2007
                                                                      (Unaudited)
Revenue:
System sales                                             $3,644       $3,340     $7,180    $6,299
Professional services                                     1,847        1,339      3,506     2,686
Maintenance                                               5,973        3,912     10,293     7,612
Transaction processing and other                          5,111          248      5,124       486

Total health solutions revenue                           16,575        8,839     26,103    17,083

Total cost of revenue                                     4,879        2,064      7,563     4,195

Gross profit                                             11,696        6,775     18,540    12,888
Selling, general and administrative expenses              6,033        3,713     10,228     6,875

Income from operations                                   $5,663       $3,062     $8,312    $6,013

Revenue

Total health solutions revenue for the three months ended November 30, 2008 increased $7,736, or 87.5%, from $8,839 during the three months ended November 30, 2007 to $16,575 in the comparable period in fiscal 2009. Revenue from the health solutions segment for the six months ended November 30, 2008 increased $9,020, or 52.8%, from $17,083 during the six months ended November 30, 2007 to $26,103 during the same period in fiscal 2009. The revenue increase for both the three and six month periods in fiscal 2009 is primarily due to the health solutions revenue contributed by legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through November 30, 2008. In addition, the increase is due to higher orders for our homecare product in fiscal 2009 as compared to same period in fiscal 2008 and due to an increase in related maintenance revenue as a result of a larger customer base.

Cost of Revenue

Gross margin for the three months ended November 30, 2008 increased $4,921, or 72.6%, from $6,775 for the three months ended November 30, 2007 to $11,696 in the comparable fiscal 2009 period. Gross margin for the six months ended November 30, 2008 increased $5,652, or 43.9%, from $12,888 for the six months ended November 30, 2007 to $18,540 in the comparable fiscal 2009 period. Gross margin as a percentage of revenue for both the three and six month periods in fiscal 2009 and fiscal 2008 were 70.6%, 71.0% and 76.6% and 75.4%, respectively. The increase in gross margin for both the three and six month periods in fiscal 2009 is primarily due to the legacy Allscripts margin contribution and the decrease in gross margin as a percentage of revenue for both periods in fiscal 2009 compared to the same periods in fiscal 2008 is due to the margin mix associated with legacy Allscripts.

Selling, General and Administrative

Selling, general and administrative costs for the three months ended November 30, 2008 increased $2,320, or 62.5%, from $3,713 during the three months ended November 30, 2007 to $6,033 in the comparable period in fiscal 2009. Selling, general and administrative costs for the six months ended November 30, 2008 increased $3,353, or 48.8%, from $6,875 during the six months ended November 30, 2007 to $10,228 in the comparable period in fiscal 2009. The increase in costs for the three and six months ended November 30, 2008 is primarily due to costs incurred by Allscripts during the period from the closing of the Transactions on October 10, 2008 through November 30, 2008 and due an overall increase in selling, general and administrative costs, primarily related to the addition of headcount to accommodate growth in the health solutions segment.

Prepackaged Medications



                                                         Three Months Ended      Six Months Ended
                                                            November 30,           November 30,
                                                         2008           2007      2008         2007
                                                                       (Unaudited)
Revenue
Prepackaged medications                                   $4,700          $-      $4,700        $-

Total Prepackaged medications revenue                      4,700           -       4,700         -

Total cost of revenue                                      3,904           -       3,904         -

Gross profit                                                 796           -         796         -
Selling general and administrative expenses                  878           -         878         -

Loss from operations                                        ($82 )        $-        ($82 )      $-

Revenue

The prepackaged medications segment was acquired in conjunction with the Transactions on October 10, 2008 and its results are included in three and six months ended November 30, 2008. Prepackaged medications revenue was approximately $4,700 for the period from the closing of the Transactions on October 10, 2008 through November 30, 2008.

Cost of Revenue

Gross margin and gross margin as a percentage of revenue was $796 and 16.9% for the three and six months ended November 30, 2008.

Selling, general and administrative costs

Selling, general and administrative costs for the prepackaged medications segment were approximately $878 for the three and six months ended November 30, 2008 and represents costs incurred from the closing of the Transactions on October 10, 2008 through November 30, 2008.

Unallocated Corporate Expenses

Unallocated corporate expenses for the three months ended November 30, 2008 increased by $23,536, from $13,866 during the three months ended November 30, 2007 to $37,402 in the comparable period in fiscal 2009. Unallocated corporate expenses for the six months ended November 30, 2008 increased by $22,315 from $26,192 in the first six months of fiscal 2008 to $48,507 in the same period in fiscal 2009. Unallocated corporate expenses includes amortization of intangible assets with the exception of the amortization of acquired technology which is included in cost of revenue. The increase in unallocated corporate expense for the three and six month periods in fiscal 2009 is primarily due to merger and integration related costs in connection with the Transactions of approximately $22,100 and $23,800, respectively. In addition, the three and six month periods in fiscal 2008 included one-time severance and reorganization costs of approximately $1,900 and $4,900, respectively. Excluding these one-time related costs in both fiscal 2009 and 2008, unallocated corporate expenses would have been approximately $15,302 and $11,966 for the three months ended November 30, 2008 and 2007, respectively; and $24,707 and $21,292 for the six months ended November 30, 2008 and 2007, respectively. These increases in both periods in fiscal 2009 are primarily due to corporate costs incurred related to the Transactions and the impairment charge of $14,076 related to the investment in iMedica, partially offset by cost benefits received in fiscal 2009 for cost reduction strategies that were implemented at the end of fiscal 2008.

Amortization of Intangibles

Amortization of intangibles for the three months ended November 30, 2008 decreased $4,218, or 77.1%, from $5,474 during the three months ended November 30, 2007 to $1,256 in the comparable period in fiscal 2009. Amortization of intangibles for the six months ended November 30, 2008 decreased $9,505, or 86.8%, from $10,948 during the six months ended November 30, 2007 to $1,443 in the comparable period in fiscal 2009. The decrease in both the three and six month periods ended November 30, 2008 is primarily due to the Medic customer relationship intangible asset becoming fully amortized during the beginning of fiscal 2009 versus a full period of amortization in the comparable period in fiscal 2008. This decrease was partially offset by the intangible amortization recorded in conjunction with the Transactions for the period from the closing of the Transactions on October 10, 2008 through November 30, 2008.

Interest Expense and Interest Income and Other, Net

Interest expense for the three months ended November 30, 2008 increased $571, from $57 during the three months ended November 30, 2007 to $628 in the comparable period in fiscal 2009. Interest expense for the six months ended November 30, 2008 increased $560, from $130 during the three months ended November 30, 2007 to $690 in the comparable period in fiscal 2009. The increase in interest expense for both the three and six month periods ended November 30, 2008 was primarily due to interest expense related to the 3.5% senior convertible debentures as well as interest on the Credit Facility.

Interest income and other, net, for the three months ended November 30, 2008 increased $262, from $22 during the three months ended November 30, 2007 to $284 in the comparable period in fiscal 2009. Interest income and other, net, for the six months ended November 30, 2008 increased $252, from $33 during the six months ended November 30, 2007 to $285 in the comparable period in fiscal 2009. Interest income and other consists primarily of interest earned on Allscripts' cash and marketable securities balances. The increase in interest income and other during the first half of fiscal 2009 was primarily due to an increase in the cash and marketable securities balance related to the completion of the Transactions on October 10, 2008.

Income Tax Expense

Allscripts recorded an income tax benefit of $3,913 and $399 for the three and six months ended November 30, 2008, respectively. Income tax expense of $3,373 and $2,714 was recorded for the three and six months ended November 30, 2007, respectively. The income tax benefits recorded for the three and six months ended November 30, 2008 is due to the Company being in a net loss position which resulted from merger related integration costs incurred as a result of the Transactions.

Liquidity and Capital Resources

As of November 30, 2008 and May 31, 2008, our principal sources of liquidity consisted of cash, cash equivalents and marketable securities of $77,119 and $325, respectively. The increase in our cash balance is reflective of the following:

Operating activities

During the six months ended November 30, 2008 we used $12,467 in net cash from operations, compared to cash generated of $1,332 from operations in the same period in fiscal 2008. This net decrease in cash from operations of $13,799 was due primarily to the Company generating a net loss of $589 for the first half of fiscal 2009 compared to net income generated of $4,387 for same period in fiscal 2008. In addition, a decline from operating assets and liabilities of $10,756 also contributed to the cash used which was due to heavier use of cash in trade receivables, prepaid and other current assets and accrued compensation and benefits, partially offset by improvements in cash from accounts payable and . . .