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 nine months ended February 28, 2009 include the results of operations of legacy MHS for the full quarter and nine months ended February 28, 2009. The results of operations of legacy Allscripts are included for the full quarter ended February 28, 2009 and from the completion of the Transactions on October 10, 2008 through February 28, 2009 for the nine months ended February 28, 2009. 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 nine months ended February 29, 2008 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.

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. On March 16, 2009, Allscripts completed the sale to A-S Medication Solutions LLC ("A-S"), of certain assets comprising of our prepackaged medications business.

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 nine months ended February 28, 2009 include the results of operations of legacy MHS for the full quarter and nine months ended February 28, 2009. The results of operations of legacy Allscripts are included for the full quarter ended February 28, 2009 and from the completion of the Transactions on October 10, 2008 through February 28, 2009 for the nine months ended February 28, 2009. 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 nine months ended February 29, 2008 are the results of operations of MHS only. As a result, revenue and operating expenses for the quarter and nine months ended February 28, 2009 increased substantially.

Overview of Consolidated Results

Revenue

Consolidated revenue increased 65.4%, from $97,119 during the three months ended February 29, 2008 to $160,703 during the same period in fiscal 2009. Consolidated revenue increased 33.3%, from $286,722 during the nine months ended February 29, 2008 to $382,105 during the same period in fiscal 2009. The increase in both the three and nine month periods for fiscal 2009 is primarily due to the inclusion of revenue contributed by legacy Allscripts for the full fiscal quarter and for the period from the closing of the Transactions on October 10, 2008 through February 29, 2008, respectively.

Total software and related services revenue for the three months ended February 28, 2009 increased $55,130, or 56.8%, from $97,119 during the three months ended February 29, 2008 to $152,249 in the comparable period in fiscal 2009. Total software and related services revenue for the nine months ended February 28, 2009 increased $82,229, or 28.7%, from $286,722 during the nine months ended February 29, 2008 to $368,951 during the same period in fiscal 2009. The revenue increase for both the three and nine month periods in fiscal 2009 is primarily due to the software and related services revenue contributed by Allscripts for the full fiscal quarter ending February 28, 2009 and for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009, respectively.

Our software and related services revenue was negatively affected during the three and nine month periods ended February 28, 2009 due to a decrease in new software orders that management believes resulted from a delay in our customers and prospective customers purchasing process due to the uncertainty around the American Recovery and Reinvestment Act of 2009 ("stimulus bill") and also due to the current challenging economic conditions which continue to motivate customers and prospective customers to defer capital investments, conserve cash and recently has caused a trend in which our customers are moving towards software subscription arrangements versus traditional licensing that results in less upfront revenue recognition. We believe that the continuation of these challenging economic conditions and uncertainty around the stimulus bill and the related customer and prospective customer reactions may have an adverse affect on our results of operations for the remainder of fiscal 2009 and into the fiscal 2010 period.

Gross Margin

Consolidated gross margin for the three months ended February 28, 2009 increased $30,898, or 59.0%, from $52,383 for the three months ended February 29, 2008 to $83,281 in the comparable fiscal 2009 period. Gross margin for the nine months ended February 28, 2009 increased $44,057, or 28.2%, from $155,981 for the nine months ended February 29, 2008 to $200,038 in the comparable fiscal 2009 period. Consolidated gross margin as a percentage of revenue for the three and nine months ended February 28, 2009 were 51.8% and 52.4%, respectively. Consolidated gross margin as a percentage of revenue for the three and nine months ended February 29, 2008 were 53.9% and 54.4%, respectively. The increase in gross margin for both the three and nine month periods in fiscal 2009 is primarily due to the legacy Allscripts gross margin contribution which was not present in the comparable fiscal 2008 period. 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 contribution of gross profit from the legacy Allscripts software and services product line, which historically tends to have lower margins than our traditional legacy MHS overall software and related services product lines.

Operating Income

Consolidated operating income increased 38.8%, from $16,417 during the three months ended February 29, 2008 to $22,787 during the same period in fiscal 2009. The increase in the three month period for fiscal 2009 is primarily due to the legacy Allscripts gross margin contribution which was not present in the comparable fiscal 2008 period, offset by an increase of $20,607 in selling, general, and administrative expenses primarily due to legacy Allscripts, including approximately $3,500 in deal related costs, an increase of $2,692 in amortization of intangibles related to acquired Allscripts intangible assets, and due to an increase of approximately $1,229 in research and development activities relating to new software products.

Consolidated operating income decreased 6.0%, from $23,615 during the nine months ended February 29, 2008 to $22,204 during the same period in fiscal 2009. The decrease in the nine month period for fiscal 2009 is primarily due to the legacy Allscripts gross margin contribution which was not present in the comparable fiscal 2008 period and a benefit relating to a decrease in amortization of intangibles of $6,813, which was offset by an increase of $51,764 in selling, general, and administrative expenses primarily due to legacy Allscripts, including approximately $32,700 in merger, integration, and severance related costs in connection with the Transactions, and due to an increase of approximately $517 in research and development activities.

Segment Operations

Clinical Solutions



                                                        Three Months Ended       Nine Months Ended
                                                       February 28 and 29,      February 28 and 29,
                                                           respectively             respectively
                                                        2009         2008        2009         2008
                                                                        (Unaudited)
Revenue:
System sales                                            $23,976      $14,114     $50,587      $39,079
Professional services                                    13,823        6,254      29,505       18,602
Maintenance                                              47,924       31,455     121,000       94,018
Transaction processing and other                         43,484       36,007     118,714      108,651

Total clinical solutions revenue                        129,207       87,830     319,806      260,350

Total cost of revenue                                    63,699       42,602     156,877      124,412

Gross profit                                             65,508       45,228     162,929      135,938
Selling, general and administrative expenses             31,518       28,438      89,244       92,914

Income from operations                                  $33,990      $16,790     $73,685      $43,024

Three and Nine Months Ended February 28, 2009 Compared to Three and Nine Months Ended February 29, 2008

Revenue

Total clinical solutions revenue for the three months ended February 28, 2009 increased $41,377, or 47.1%, from $87,830 during the three months ended February 29, 2008 to $129,207 in the comparable period in fiscal 2009. Revenue from the clinical solutions segment for the nine months ended February 28, 2009 increased $59,456, or 22.8%, from $260,350 during the nine months ended February 29, 2008 to $319,806 during the same period in fiscal 2009. The revenue increase for both the three and nine month periods in fiscal 2009 is primarily due to the clinical revenue contributed by Allscripts for the full fiscal quarter ending February 28, 2009 and for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009, respectively.

Our revenue from system sales and professional services from our Enterprise and Professional businesses that make up our clinical solutions segment were negatively affected during the three and nine month periods ended February 28, 2009 due to a decrease in new software orders that management believes resulted from a delay in our customers and prospective customers purchasing process due to the uncertainty around the stimulus bill funding requirements and also due to the current challenging economic conditions which continue to motivate customers and prospective customers to defer capital investments, conserve cash and tend to move towards software subscription arrangements versus traditional licensing. This negative impact on our revenues during fiscal 2009 was partially offset by an increase in maintenance revenue from our Professional business primarily due to the continued penetration of the legacy MHS existing customer base with its Payerpath solution and an increase in maintenance revenue from our Enterprise businesses as a result of an increase in our installed customer base and due to maintenance pricing increase that became effective in January 2009.

We believe that the continuation of these challenging economic conditions and uncertainty around the stimulus bill and the related customer and prospective customer reactions may have an adverse affect on our results of operations for the remainder of fiscal 2009 and into our fiscal 2010 period.

Cost of Revenue

Gross margin for the three months ended February 28, 2009 increased $20,280, or 44.8%, from $45,228 for the three months ended February 29, 2008 to $65,508 in the comparable fiscal 2009 period. Gross margin for the nine months ended February 28, 2009 increased $26,991, or 19.9%, from $135,938 for the nine months ended February 29, 2008 to $162,929 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 full fiscal quarter ended February 28, 2009 and for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009, respectively. Gross margin as a percentage of revenue for both the three and nine month periods in fiscal 2009 and fiscal 2008 were 50.7%, 50.9% and 51.5% and 52.2%, respectively. The decreases in gross margin as a percentage of revenue for both the three and nine month periods in fiscal 2009 are 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 February 28, 2009 increased $3,080, or 10.8%, from $28,438 during the three months ended February 29, 2008 to $31,518 in the comparable period in fiscal 2009. Selling, general and administrative costs for the nine months ended February 28, 2009 decreased $3,670, or 3.9%, from $92,914 during the nine months ended February 29, 2008 to $89,244 in the comparable period in fiscal 2009. The increase in costs for the quarter ended February 28, 2009 was primarily due to costs incurred by the legacy Allscripts business, 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 due to lower discretionary marketing and travel related spending during fiscal 2009.

The decrease in costs for the nine months ended February 28, 2009 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 and travel related spending during fiscal 2009. 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 February 28, 2009.

Health Solutions



                                                     Three Months Ended       Nine Months Ended
                                                    February 28 and 29,      February 28 and 29,
                                                        respectively             respectively
                                                     2009         2008        2009         2008
                                                                     (Unaudited)
Revenue:
System sales                                          $3,399       $3,792     $10,579      $10,091
Professional services                                  2,105        1,150       5,611        3,836
Maintenance                                            8,175        4,090      18,468       11,702
Transaction processing and other                       9,363          257      14,487          743

Total health solutions revenue                        23,042        9,289      49,145       26,372

Total cost of revenue                                  7,057        2,134      14,620        6,329

Gross profit                                          15,985        7,155      34,525       20,043
Selling, general and administrative expenses           7,070        3,831      17,298       10,706

Income from operations                                $8,915       $3,324     $17,227       $9,337

Revenue

Total health solutions revenue for the three months ended February 28, 2009 increased $13,753, or 148.1%, from $9,289 during the three months ended February 29, 2008 to $23,042 in the comparable period in fiscal 2009. Revenue from the health solutions segment for the nine months ended February 28, 2009 increased $22,773, or 86.4%, from $26,372 during the nine months ended February 29, 2008 to $49,145 during the same period in fiscal 2009. The revenue increase for both the three and nine month periods in fiscal 2009 is primarily due to the health solutions revenue contributed by legacy Allscripts for the full fiscal quarter and for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009, respectively. In addition, the increase in revenue for both three and nine month periods reflects an increase in support and maintenance revenue due to growth in our home health customer base, partially offset by a decrease in software revenue and services on a year-over-year basis due to the deferral of revenue for certain customers due to contractual billing terms.

Cost of Revenue

Gross margin for the three months ended February 28, 2009 increased $8,830, from $7,155 for the three months ended February 29, 2008 to $15,985 in the comparable fiscal 2009 period. Gross margin for the nine months ended February 28, 2009 increased $14,482, or 72.3%, from $20,043 for the nine months ended February 29, 2008 to $34,525 in the comparable fiscal 2009 period. Gross margin as a percentage of revenue for both the three and nine month periods in fiscal 2009 and fiscal 2008 were 69.4%, 70.3% and 77.0% and 76.0%, respectively. The increase in gross margin for both the three and nine month periods in fiscal 2009 is primarily due to the health solutions revenue contributed by legacy Allscripts for the full fiscal quarter ended February 28, 2009 and for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009, respectively. The decrease in gross margin as a percentage of revenue for both periods is attributable to the margin mix associated with the legacy Allscripts products which tend to be lower than legacy MHS and 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 February 28, 2009 increased $3,239, or 84.5%, from $3,831 during the three months ended February 29, 2008 to $7,070 in the comparable period in fiscal 2009. Selling, general and administrative costs for the nine months ended February 28, 2009 increased $6,592, or 61.6%, from $10,706 during the nine months ended February 29, 2008 to $17,298 in the comparable period in fiscal 2009. The increase in costs for the three and nine months ended February 28, 2009 is primarily due to costs incurred by legacy Allscripts for the full fiscal quarter and for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009, respectively, 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 Segment



                                                     Three Months Ended        Nine Months Ended
                                                    February 28 and 29,       February 28 and 29,
                                                        respectively             respectively
                                                      2009         2008         2009         2008
                                                                     (Unaudited)
Total prepackaged medications revenue                   $8,454        $-         $13,154        $-

Total prepackaged medications cost of revenue            6,666         -          10,570         -

Gross profit                                             1,788         -           2,584         -
Selling, general and administrative expenses               823         -           1,702         -

Income from operations                                    $965        $-            $882        $-

The Medications Services business was acquired in conjunction with the Transactions on October 10, 2008 and its results are included in three and nine months ended February 28, 2009. Medications services revenue was approximately $8,454 for the three months ended February 28, 2009 and $13,154 for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009. Gross margin and gross margin as a percentage of revenue was $1,788 and 21.1% for the three months ended February 28, 2009 and $2,584 and 19.6% for the nine months ended February 28, 2009. The improvement in gross margin as a percentage of revenue during the three months ended February 28, 2009 is primarily due to a medications price increase that became effective in January 2009.

Selling, general and administrative costs for the Medications Services business were approximately $823 for the three months ended February 28, 2009 and $1,702 for the period from the closing of the Transactions on October 10, 2008 through February 28, 2009. The three month period ended November 30, 2008 included approximately $400 of bad debt expense that did not reoccur during the three months ended February 28, 2009.

On March 16, 2009, Allscripts completed the sale to A-S Medication Solutions LLC ("A-S") of certain assets comprising of our prepackaged medications business pursuant to an Asset Purchase Agreement (the "Meds Agreement").

Under terms of the Meds Agreement, Allscripts will receive a total of $8,000 in cash consideration during its fourth quarter of fiscal 2009. In addition, . . .