UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended DecemberMay 31, 20072009

or

Commission File Number 000-32085

ALLSCRIPTSALLSCRIPTS-MISYS HEALTHCARE SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

222 Merchandise Mart Plaza, Suite 2024, Chicago, IL 60654

(Address of principal executive offices and zip code)

(866) 358-6869

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15(d) of the Exchange Act.    Yes  ¨    No  x

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 twelve 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

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 definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant based upon the closing sale price of the Common Stock on JuneNovember 30, 2007,2008, the last business day of the registrant’s most recently completed second fiscal quarter, as reported by Nasdaq National Market, was approximately $1,416,900,000.$479,442,000.

The number of outstanding shares of the registrant’s Common Stock as of February 15, 2008July 17, 2009 was 56,908,319.142,344,140.

Documents Incorporated by Reference: Portions of the Proxy Statement for the 20082009 annual stockholders’ meeting are incorporated by reference into Part III.

ALLSCRIPTSALLSCRIPTS-MISYS HEALTHCARE SOLUTIONS, INC.

TABLE OF CONTENTS TO

20072009 ANNUAL REPORT ON FORM 10-K

AllscriptsAllscripts-Misys Healthcare Solutions, Inc. was incorporated in the state of Delaware. In this report, “we,” “us,” “our” and “Allscripts” refer to AllscriptsAllscripts-Misys Healthcare Solutions, Inc. and its wholly owned subsidiaries as of DecemberMay 31, 2007,2009, unless the context indicates otherwise. Our trademarks or service marks include Allscripts with logo^®, EmSTAT™, Physician Relationship Management Platform™, HealthMatics^®, Impact.MD^®, Physicians Interactive^®, TouchChart™, TouchScript^®, TouchWorks^®, NEPSI^SM, Canopy^®, MyWay™, and eRx NOW™. Other trademarks, service marks and trade names referred to in this report, or documents incorporated or incorporated by reference herein or therein, are the property of their respective owners.

Safe Harbor for Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties, including those discussed under the caption “Risk Factors.” We develop forward-looking statements by combining currently available information with our beliefs and assumptions. These statements relate to future events, including our future performance, and management’s expectations, beliefs. intentions, plans or projections relating to the future and some of these statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “anticipate,” “intend,” “contemplate,” “seek,” “plan,” “estimate,” “will,” “may,” “should” and the negative or other variations of those terms or comparable terminology or by discussion of strategy, plans or intentions. As a result, actual results may vary materially from those anticipated by the forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: the volume and timing of

systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; competitive pressures including product offerings, pricing and promotional activities; our ability to establish and maintain strategic relationships; undetected errors or similar problems in our software products; compliance with existing laws, regulations and industry initiatives and future changes in laws or regulations in the healthcare industry; possible regulation of the Company’s software by the U.S. Food and Drug Administration; the possibility of product-related liabilities; our ability to attract and retain qualified personnel; our ability to identify and complete acquisitions, manage our growth and integrate acquisitions; the ability to recognize the benefits of the merger with Misys Healthcare Systems, LLC (“MHS”); the integration of MHS with the Company and the possible disruption of current plans and operations as a result thereof; the implementation and speed of acceptance of the electronic record provisions of the American Recovery and Reinvestment Act of 2009; maintaining our intellectual property rights and litigation involving intellectual property rights; risks related to third-party suppliers; our ability to obtain, use or successfully integrate third-party licensed technology; breach of our security by third parties; and the risk factors detailed from time to time in our reports filed with the Securities and Exchange Commission

Forward-looking statements do not guarantee future performance, which may be materially different from that expressed in, or implied by, any such statements. You should not rely upon these statements as facts.

We make these statements under the protection afforded by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because we cannot predict all of the risks and uncertainties that may affect us, or control the ones we do predict, these risks and uncertainties can cause our results to differ materially from the results we express in our forward-looking statements. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise.

PART I

Item 1. Business

Company Overview

Allscripts (the trade name of Allscripts-Misys Healthcare Solutions, Inc.) is a leading provider of clinical software, connectivityservices, information and informationconnectivity solutions that empower physicians useand other healthcare providers to improve the quality of healthcare.deliver best-in-class patient safety, clinical outcomes and financial results. 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. The software and related services segment of our business providesWe provide various clinical software solutions,applications, including electronic health record (“EHR”), electronic prescribing (“e-prescribing”)Electronic Health Records (EHR), practice management, emergency department information system (“EDIS”), hospital carerevenue cycled management, solutions, and document imaging solutions. Our informationclearinghouse services, segment, through our Physicians Interactive business unit, provides clinical education and information solutions for physicians and patients. The prepackaged medications segment of our business provides prepackaged medication fulfillment solutions, which includes both medications and software for dispensing and inventory control.

On December 31, 2007, we acquired Extended Careelectronic prescribing, Emergency Department Information Network, Inc. (“ECIN”)System (EDIS), a privately held company and leading provider of hospital care management and discharge planning software. management solutions, document imaging solutions, and a variety of solutions for home care and other post-acute facilities.

On October 10, 2008, we 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 $330,000,000 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 approximately 82,886,000 shares of its common stock to two subsidiaries of Misys, which as of the closing of the Transactions, represented approximately 56.8% of the number of outstanding shares of Allscripts common stock.

The ECINTransactions constitute a reverse acquisition combinesfor accounting purposes. Results of operations for the year ended May 31, 2009 include the results of operations of legacy MHS for the full year ended May 31, 2009 and the results of operations of legacy Allscripts from the completion of the Transactions on October 10, 2008 through May 31, 2009. As such, the pre-acquisition combined financial statements of MHS are treated as our historical financial statements. Results of operations for the years ended May 31, 2008 and 2007 are the results of operations of MHS only.

We have reported our financial results utilizing three business segments: clinical solutions, health solutions and prepackaged medications. However, on March 16, 2009, we disposed of our prepackaged medications business and, as a result, will, in respect of future periods, report financial results in our two industry leadersremaining segments, clinical solutions and health solutions.

Our clinical solutions segment includes both our Enterprise business for large physician practices and Integrated Delivery Networks, 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 revenue cycle 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 electronic prescribing solutions include a Web-based stand-alone solution offered free-of-charge to any licensed prescriber, and solutions that are integrated into each of our EHRs. And our Web-based suite of revenue cycle management and clearinghouse services solutions—available on a stand-alone basis or integrated into our practice management solutions—address every step in the reimbursement cycle for healthcare organizations, clearinghouses and payers.

Our health system solutions segment provides offerings for hospitals that are seeking Emergency Department Information System (EDIS) and care management solutions, as well as post-acute facilities such as home health providers, hospices and enablesskilled nursing facilities. Allscripts to connect another key component ofED (formerly HealthMatics ED) is an EDIS that electronically streamlines processes for large hospital Emergency Departments, including tracking, triage, nurse and physician charting, disposition and reporting. EmSTAT, a legacy EDIS product, offers similar functionality for streamlining the healthcare delivery system—Emergency Department care process in small hospitals. Allscripts Care Management (formerly Canopy and ECIN) is a Web-based solution that streamlines and speeds the exchange of patient information between hospital case managers, physicians outside the hospital, and the growing number of post-acute care facilities nationwide. ECIN’s web-based “software as a service” solutions automate and streamline the entire care management process in hospitals, from admission throughby automating utilization, case, discharge resulting in increased productivity, improvedand quality management processes relating to patient throughputhospital visits. Allscripts Post Acute solutions include: Referral Management, Referral Management Plus, Allscripts Mobile and better outcomes. ECIN has a client base of more than 500 hospitals and nearly 5,500 post-acute care facilities—nursing homes, assisted living and other facilities to whom hospitals refer patients in need of long-term care or short-term residential-based rehabilitation. Along with Allscripts existing Canopy care management solution,Core System Integration. These solutions streamline the acquisition gives us one of the largest installed basestransition of care management clients in the nation, with nearly 700 combinedprocess between hospitals as well as one of the largest networks ofand post-acute care facilities. Both care management solutions are deployed usingOur solution for home health providers is an application service provider (ASP) model designed for rapid implementationintegrated system that combines business, clinical, and scheduling features into a single package, providing home health, hospice, and private duty organizations with minimal use of hospital IT support staff.

Clinical Solutions

EHR/Practice Management Physician Practice Solutions. EHR solutions automatea user friendly product that enables staff to work more effectively both inside and outside the collection and management of clinical data, allowing physician practice groups to enter, organize, and effectively utilize secure patient chart information at the point of care. EHR solutions also streamline practice-wide clinical workflow and communication and help physicians manage lab orders, results and other data. EHR solutions can improve healthcare quality and reduce costs by preventing medical errors, reducing paperwork and reducing administrative inefficiencies. Practice management systems automate administrative workflow, including scheduling, patient billing and collection and claims management. Practice management systems improve the efficiency of operations within a physician practice, particularly the financial aspects of the practice related to billing and reimbursement.

Hospital Emergency Department Solutions. Hospital emergency department information systems automate emergency room processes, including patient registration, triage, tracking and reporting. Hospital emergency department information systems enable hospitals to better manage patient flow and emergency department activity.

Hospital Care Management Solutions. Hospital care management programs automate processes related to case management, quality management and utilization management. Care management programs help hospitals manage length of stay, billing and claims processing, and patient care resources. The benefits of these solutions

to hospitals include enhanced financial performance and improved patient outcomes. We believe there is relatively low penetration of care management solutions in the hospital market, and that there is a significant opportunity for us to penetrate this market. Another key element of the care management process is arranging for the transfer of patients to post-acute facilities. We believe that there is a significant opportunity for our ECIN clinical information solutions within this market, in part because the federal government and other stakeholders are moving towards requiring the automation of Medicare patient information exchanged between hospitals and the providers to whom they refer discharged patients.

Physicians Interactive

Clinical education and information solutions programs link physicians with pharmaceutical companies, medical product suppliers and health plans through e-mail, surveys, and online interactive programs. These web-based programs, often referred to as e-Detailing, use interactive sessions to provide product information and clinical education to physicians. Pharmaceutical companies leverage e-Detailing to assist in the marketing and sales efforts for their products. We believe that there is a significant opportunity for our clinical education and information solutions within this market. We believe that one of the drivers in this market is the growing need for pharmaceutical companies to communicate with physicians in more efficient and cost-effective ways. As more physicians access online resources, we believe that pharmaceutical companies are increasingly seeking to communicate with physicians directly through this highly effective channel. Our physicians interactive business unit offers electronic marketing and educational programs to pharmaceutical companies, and delivers these programs to a network of physicians nationwide through an interactive web-based platform.

Medication Solutions

The market for the sale of prepackaged medications to physicians for on-site dispensing includes medications distributed for occupational health, workers compensation, urgent care and bariatric facilities. On-site dispensing offers provider organizations an opportunity to improve financial performance by adding an incremental source of revenue and reducing expenses related to prescription transmission, billing and processing. From a patient perspective, the dispensing of medications at the point of care provide an increased level of convenience, privacy and treatment compliance, whether in the physician’s office, at a clinic or at the patient’s place of employment.office.

Our Competitive Strengths

We believe that the following competitive strengths are the keys to our success:

First-Class Technologies That Enable Industry-Leading Solutions

We have been an innovator in the development and adoption of clinical and health solutions. We believe our clinical and health solutions provide the following advantages:

A Comprehensive Portfolio

For physicians not yet ready for an EHR our portfolio includes stand-alone, Web-based electronic prescribing (free of certain ofcharge), document management, and revenue cycle management. For physicians who already utilize an EHR and practice management system who are ready to “Connect to Health,” our solutions enablesportfolio includes connections to other physicians, to start withour Emergency Department and Care Management solutions and to post-acute providers and third-party hospital inpatient information systems. We also offer add-ons to the toolsEHR that solve their most pressing needsenable physicians to more easily enroll patients in clinical trials, automate the process of reporting quality outcomes to government and provides an opportunityprivate “pay for a rapid return on investment.performance” programs, and connect to communities of healthcare organizations such as regional Health Information Exchanges.

Significant Installed Base

Over 40,000Approximately 160,000 physicians, 800 hospitals and thousands more healthcare professionals in over 4,000 clinicsnearly 8,000 post-acute facilities nationwide utilize Allscripts’ solutions to automate and 700 hospitals nationwide have selected our EHRconnect their clinical and hospital-based solutions.business operations. Our significant installed base, including some of the country’s most prestigious medical groups and hospitals, in the nation, serves as a reference source for our prospective clients who are interested in purchasing our solutions.

Large Base of Physician Practice Clients Without an EHR

With the combination Allscripts and Misys Healthcare, the combined Company acquired approximately 110,000 physician users of legacy Misys practice management solutions, approximately 90,000 of whom have yet to make an EHR or hospitalbuying decision. We believe these physician practices are most likely to turn to Allscripts, the company that already manages their financial back office operations, when they go looking for an EHR solution.

Breadth of Product and Service Offering

We are a leading providerAllscripts offers an Electronic Health Record for every segment of clinical software, connectivitythe physician market, from solo physician practices to the largest academic medical groups and information solutions that physicians use to improveIDNs. Besides the delivery and quality of healthcare. OurEHR, our suite of clinical and health software solutions includes electronic health records, e-prescribing, and personal health records, encompassing virtually all of the most common functions performed by a physician at the point of care. Our product offerings also include an integrated practice management, solutionrevenue cycle management for physician groups, as well as EDIS for hospitalgroups; emergency departments, anddepartment information systems, care management and discharge management solutions for hospitals; and a variety of solutions to help home care and post-acute facilities such as skilled nursing hospitals.

Sales and Marketing

We have experienced sales executives with extensive industry expertise. In the clinical solutions business unit, weWe primarily sell directly to our customers through our sales force. We also have targeted direct sales forces for our physicians interactive and our medication services business units. As of December 31, 2007,June 30, 2009, we employed 146more than 363 full-time sales and marketing employees. In addition to our direct sales force we also have established reseller relationships and strategic partners, such as Henry Schein, Inc. and Medfusion, which also sell our products.

Products and Services

Clinical Solutions

Our clinical solutions business unitsWe provide the following clinical and health software solutions:

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. TouchWorks has the functionality to handle the complexities of large physician practices, while also addressing the needs of mid-sized physician practice groups. Our Touchworks EHR is certified by CCHIT.

Physicians Interactive

Our physicians interactive business unit provides the following key solutions:

Medication Services

Our medication services business unit provides point-of-care medication management and medical supply solutions for physicians and other healthcare providers. With approximately 9,000 physician customers nationwide, our solutions enable physician groups, including occupational health, workers compensation, urgent care and bariatric facilities, to dispense medications at the point of care. Our medication repackaging solutions offer provider organizations an opportunity to improve financial performance by adding an incremental source of revenue and reducing expenses related to prescription transmission, billing and processing. From a patient perspective, our medication repackaging solutions provide an increased level of convenience, privacy and treatment compliance.

Research and Development

As of December 31, 2007,June 30, 2009, we had 209358 full time employees in research and development. In addition, through our shared services agreement with Misys and on a third-party consulting basis we engage the services of approximately 67200 additional dedicated development professionals in India. The primary purposes of our research and development groups are to develop new features and enhancements to our respective solutions, ensure that our solutions comply with continually evolving regulatory requirements and create additional opportunities to connect our systems to the healthcare community.

For the yearyears ended DecemberMay 31, 2009, 2008, and 2007, we spent approximately 12%10%, 10%, and 11%, respectively, of our software and services revenue on related research and product development. Our clinical and health solutions business unit capitalizessegments capitalize software development costs incurred from the time technological feasibility of the software is established until the software is available for general release. Non-capitalizable research and development costs and other computer software maintenance costs related to software development are expensed as incurred.

Industry and Competition

The market for our products and services is fragmented, intensely competitive and is characterized by rapidly evolving industrytechnology and product standards, technology and user needs and the frequent introduction of new products and services. Some of our competitors may be more established, benefit from greater name recognition and have

substantially greater financial, technical, and marketing resources than us. We compete on the basis of several factors, including:

Clinical Solutions

Our industry is intensely competitive and rapidly evolving in terms of both technology and product standards. There are numerous companies that offer EHR and practice management products and the marketplace remains fragmented. We face competition from several types of organizations, including providers of practice management solutions, electronic prescribing solutions, ambulatory and acute EHR solutions, hospital EDIS and enterprise-wide applicationcare management solutions, and post-acute discharge management solutions.

Our keyprincipal existing competitors in the EHRphysician healthcare information systems and practice management marketsservices market include Athenahealth Inc.

, Cerner Corporation, eClinicalWorks Inc., Eclipsys Corp, Epic Systems Corporation, GE, Emdeon Business Services LLC, Aprima Medical Software (formerly iMedica Corporation,Corporation), McKesson Corporation, Misys Healthcare Systems, Picis, Inc., Quality Systems,Inc., Sage Software, Inc., The Trizetto Group, Inc., and Wellsoft Corporation.

Our keyprincipal existing competitors in the EDIShospital and post-acute healthcare information systems and services market include MedHost, Meditech, Picis and WellSoft. In the care management market, primary competitors includeEclipsys Corp, eDischarge, Maxsys Ltd., MedHost, Meditech, Midas+, Picis, ProviderLink and ProviderLink.WellSoft.

New safe harborsRecent Industry Developments

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (the “ARRA”), which provides financial incentives to physicians who adopt and use Electronic Health Record technology to improve both the federal Anti-Kickback Statutequality and corresponding exceptionscost-effectiveness of patient care. Studies demonstrate that effective use of Electronic Health Records reduces medical errors, improves clinical quality and leads to the federal Stark law may alter the competitive landscape, as such new safe harborsbetter patient outcomes by enabling real-time access to patient records, medical information and exceptions allow hospitals and certain other donors to donate certain items and services used in electronic prescription systemsbest practices, and electronic connectivity to all healthcare stakeholders, including patients.

In addition to its other components focused on economic stimulus, the law provides approximately $19 billion in health records systems. These new safe harborsinformation technology funding. The total includes $2 billion in discretionary funds and exceptions are intended$17 billion for investments and incentives through Medicare and Medicaid to accelerateensure widespread adoption and use of interoperable healthcare IT systems such as the adoption of electronic prescription systems and electronic health records systems, and therefore provide new and attractive opportunities for us to work with hospitals and other donorsElectronic Health Record. Physicians who wish to provide our clinical solutions to physicians. At the same time, such safe harbors and exceptions may result in increased competition from providers of acute EHR solutions, whose hospital customers may seek to donate their existing acute EHR solutions to physicians for use in ambulatory settings. However, as of December 31, 2007, we have not experiencedadopted certified Electronic Health Record systems by 2014 will have their Medicare reimbursements reduced by up to 3 percent beginning in 2015.

With the stimulus, the Centers for Medicare and Medicaid Services (CMS) will pay physicians between $44,000 and $64,000 over five years, beginning in 2011, for deploying and using a certified Electronic Health Record to care for patients. The stimulus package is expected to ignite significant competition from acute EHR solutions, as physician groups seemjob growth in the information technology sector and, according to prefer an EHR designed specifically fora Congressional Budget Office review of the ambulatory market.

Physicians Interactive

We compete with several typeslegislation’s impact, drive up to 90 percent of organizations, including clinical information and education providers, such as disease state management companies, full service e-marketing companies, companies who provide e-Detailing software, andUS physicians to adopt Electronic Health Records in the in-house efforts of our clients, including health plans, pharmacy benefit managers and pharmaceutical companies. Our key competitors include Aptilon Inc., Dendrite International, Inc., Lathian Systems, Inc., Quintiles Transnational Corp. Ventiv Health, Inc. and WebMD Corporation.

Medication Services

Our competitors include other medication repackaging service and bulk pharmaceutical distributors. Our key competitors in this segment include Cardinal Health, Inc., Dispensing Solutions, Inc., DRx (a wholly owned subsidiary of Purkinje, Inc.), McKesson Corporation, PD-Rx Pharmaceuticals, Inc., Pharmapac, Physicians Total Care, Inc., Southwood Pharmaceuticals, Inc. and various other regional distributors.next decade.

Strategic Alliances

Our key strategic relationships include the following:

solutions to physicians and their patients, with a focus on secure patient portals and personal health records, connecting patients to selected information about their physician’s practice, including information from Allscripts’ electronic health record, e-prescribing and practice management solutions.

Employees

As of December 31, 2007,June 30, 2009, we employed 1,1552,369 persons on a full-time basis, including 236820 in customer service and support, 146363 in sales and marketing, 57 in production and warehousing, 209358 in product development, 333493 in product deployment, and 174335 in general and administrative. In addition, through our shared services agreement with Misys and on a third-party consulting basis we engage the services of approximately 200 dedicated development professionals in India. None of our employees is covered by a collective bargaining agreement or is represented by a labor union.

Backlog

At December 31, 2007 and 2006, our aggregate backlog for our software and information services segments totaled approximately $275 million and $211 million, respectively. Approximately $97 million to $102 million of our ending 2007 backlog is not expected to be realized during 2008. Our backlog information excludes our prepackaged medications segment due to the short-term nature of a prepackaged medication order and also excludes contracted maintenance beyond a twelve month horizon.

Financial Information About Segments

Financial information about our three segments is described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Available Information

Our website address is www.allscripts.com. Information on our website is not incorporated by reference herein. Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and any amendments to those reports, as well as Section 16 reports filed by our insiders, are available free of charge on our website as soon as reasonably practicable after we file the reports with, or furnish the reports to, the Securities and Exchange Commission.

Item 1A. Risk Factors

You should carefully consider the risks and uncertainties described below and other information in this report. These are not the only risks and uncertainties that we face. Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial may also harm our business operations. If any of these risks or uncertainties occurs, it could have a material adverse effect on our business.

Risks Related to Our Business

If physicians and hospitals do not accept our products and services, or delay in deciding whether to purchase our products and services, our business, financial condition and results of operations will be adversely affected.

Our business model depends on our ability to sell our products and services. Acceptance of our products and services requires physicians and hospitals to adopt different behavior patterns and new methods of conducting business and exchanging information. We cannot assure you that physicians and hospitals will integrate our products and services into their workflow or that participants in the healthcare market will accept our products and services as a replacement for traditional methods of conducting healthcare transactions. Achieving market acceptance for our products and services will require substantial sales and marketing efforts and the expenditure of significant financial and other resources to create awareness and demand by participants in the healthcare industry.

If we fail to achieve broad acceptance of our products and services by physicians, hospitals and other healthcare industry participants or if we fail to position our services as a preferred method for information management and pharmaceutical healthcare delivery, our business, financial condition and results of operations will be adversely affected.

We may not see the benefits of government programs initiated to counter the effects of the current economic situation.

While government programs initiated to counter the effects of the current economic situation include expenditures to stimulate business and improve efficiency within the health care sector, we cannot assure you that we will receive any of those funds. For example, the recent passage of the ARRA of 2009 and Health Information Technology for Economic and Clinical Health Act, or HITECH Act, authorizes approximately $19 billion in expenditures, including discretionary funding, to further adoption of electronic health records. Although we believe that our service offerings will meet the requirements of the HITECH Act in order for our clients to qualify for reimbursement for implementing and using our services, there can be no certainty that any of the planned reimbursements, if made, will be made in regard to our services. We also cannot predict the speed at which physicians will adopt electronic health record systems in response to such government incentives, whether physicians will select our products and services or whether physicians will implement an electronic health record system at all. Any delay in the purchase and implementation of electronic health records systems by physicians in response to government programs, or the failure of physicians to purchase an electronic record system, could have an adverse effect on our business, financial condition and results of operations.

Our failure to compete successfully could cause our revenue or market share to decline.

The market for our products and services is intensely competitive and is characterized by rapidly evolving technology and product standards, technology and user needs and the frequent introduction of new products and services. Some of our competitors may be more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than us. Moreover, we expect that competition will continue to increase as a result of consolidation in both the information technology and healthcare industries. If one or more of our competitors or potential competitors were to merge or partner with one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We compete on the basis of several factors, including:

Our clinical solutions business unit’s principal competitors include Athenahealth Inc., Cerner Corporation, eClinicalWorks Inc., Eclipsys Corp. Epic Systems Corporation, Emdeon Business Services LLC, GE, Aprima Medical Software (formerly iMedica Corporation), McKesson Corporation, Quality Systems, Inc., Sage Software, Inc., The Trizetto Group, Inc., and Wellsoft Corporation.

Our key competitors in the EDIS market include MedHost, Meditech, Picis and WellSoft. In the care management market, primary competitors include eDischarge, Maxsys Ltd., Meditech, Midas+ and ProviderLink.

There can be no assurance that we will be able to compete successfully against current and future competitors or that the competitive pressures that we face will not materially adversely affect our business, financial condition and results of operations.

If we are unable to successfully integrate businesses we acquire, our ability to expand our product and service offerings and our customer base may be limited.

In order to expand our product and service offerings and grow our business by reaching new customers, we may continue to acquire businesses that we believe are complementary. The successful integration of acquired businesses, including ECIN and A4,Misys Healthcare, is critical to our success. Such acquisitions, including both the ECIN and A4Misys Healthcare acquisitions, involve numerous risks, including difficulties in the assimilation of the operations, services, products and personnel of the acquired company, the diversion of management’s attention from other business concerns, entry into markets in which we have little or no direct prior experience, the potential loss of the acquired company’s key employees and our inability to maintain the goodwill of the acquired businesses. If we fail to successfully integrate acquired businesses or fail to implement our business strategies with respect to these acquisitions, we may not be able to achieve projected results or support the amount of consideration paid for such acquired businesses.

Given that as a result of the Misys Healthcare transaction we have significantly more sales, assets and employees than prior to completion thereof, the Misys Healthcare integration process is significantly larger in scope and, as a result, presents greater risks. Our management will be required to devote a significant amount of time and attention to the process of integrating the operations of Allscripts and Misys Healthcare. There is a significant degree of difficulty and management involvement inherent in that process. In addition to the difficulties noted above, these include:

The successful implementation of our acquisition strategy depends on our ability to identify suitable acquisition candidates, acquire companies on acceptable terms, integrate their operations and technology successfully with our own and maintain the goodwill of the acquired business. We are unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisition will be completed. Moreover, in pursuing acquisition opportunities, we may compete for acquisition targets with other companies with similar growth strategies. Some of these competitors may be larger and have greater financial resources than we have. Competition for these acquisition targets could also result in increased prices of acquisition targets.

Our businessThe anticipated benefits from the Misys Healthcare transaction may not be realized.

The Misys Healthcare transaction was completed with the expectation that it would result in various benefits, including, among other things, revenue synergies, cost savings and operating efficiencies. Although we expect to achieve these anticipated benefits, no assurance can be given that they will actually be harmed if we are unableachieved and achieving such benefits is subject to enter into and maintain relationships with IDX customers.

In 2001, we entered into a 10-year strategic alliance agreement with IDX pursuant to which we and IDX agreed to coordinate product development and align our respective marketing processes. Under this agreement,number of uncertainties. Additionally, the elimination of duplicative costs

IDX had granted usmay not be possible or may take longer than anticipated and the exclusive right to market, sell, license and distribute ambulatory point-of-care and clinical EHR solutions to IDX customers. On January 4, 2006, IDX was acquiredbenefits from the transaction may be offset by GE and on January 18, 2006, we, IDX and GE amended and restated our strategic alliance agreement. Under this amended agreement, the exclusivity provisions of the original agreement were modified such that,costs incurred or delays in addition to our solutions, GE may market its Centricity electronic health record ambulatory solution to IDX customers. These exclusivity provisions expired on July 18, 2007 and IDX is no longer required to market our solutions to its customers. We have historically generated a significant portion of our bookings from IDX customers.integrating Misys Healthcare. If we are unablefail to compete effectively againstrealize the Centricity product or are otherwise unable to maintain sales to IDX customers atanticipated benefits from the levels we have historically experienced, our revenues may decrease andacquisition, our results of operations may be significantly harmed.

Under the amended agreement, we and IDX will continue to cooperate with respect to installation and implementation of one another’s products for common IDX and Allscripts customers and in the provision of customer support services to ensure that such products remain interoperable. If the amended agreement is terminated for any reason, or if IDX and GE were to fail to fulfill their obligations under the amended agreement, we would lose the benefits of the amended agreement, which could harm our business, financial condition and results of operations.

We also have a cross license and software maintenance agreement with IDX pursuant to which we granted IDX a non-exclusive, non-cancelable and non-terminable license to use, market and sublicense certain of our software combined with IDX products, and IDX granted us a non-exclusive, non-cancelable and non-terminable license to use, market and sublicense certain IDX software for use with our products. If the amended agreement is terminated, we will not have access to certain IDX software, harming our ability to integrate our services with IDX systems and provide real-time data synchronization. This may make our systems less desirable to IDX customers and could harm our business, financial condition and results of operations.adversely affected.

It is difficult to predict the sales cycle and implementation schedule for our healthcare software solutions and physician education services.solutions.

The duration of the sales cycle and implementation schedule for our healthcare software solutions and physician education services depends on a number of factors, including the nature and size of the potential customer and the extent of the commitment being made by the potential customer, which is difficult to predict. Our sales and marketing efforts with respect to hospitals and large healthcare organizations generally involve a lengthy sales cycle due to these organizations’ complex decision-making processes. Additionally, in light of increased government involvement in healthcare, and related changes in the operating environment for healthcare organizations, our current and potential customers may react by curtailing or deferring investments, including those for our services. If potential customers take longer than we expect to decide whether to purchase our solutions, our selling expenses could increase and our revenues could decrease, which could harm our business, financial condition and results of operations. If customers take longer than we expect to implement our solutions, our recognition of related revenue would be delayed, which would adversely affect our business, financial condition and results of operations.

Our future success depends upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet our customers’ requirements.

We will need to expand our operations if we successfully achieve market acceptance for our products and services. We cannot be certain that our systems, procedures, controls and existing space will be adequate to support expansion of our operations. Our future operating results will depend on the ability of our officers and key employees to manage changing business conditions and to implement and improve our technical, administrative, financial control and reporting systems. We may not be able to expand and upgrade our systems and infrastructure to accommodate these increases. Difficulties in managing any future growth could have a significant negative impact on our business, financial condition and results of operations because we may incur unexpected expenses and be unable to meet our customers’ requirements.

Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees we need to support our business.

Our ability to provide high-quality services to our clients depends in large part upon our employees’ experience and expertise. We must attract and retain highly qualified personnel with a deep understanding of the healthcare and healthcare information technology industries. We compete with a number of companies for experienced personnel and many of these companies, including clients and competitors, have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training our employees, which increases their value to clients and competitors who may seek to recruit them and increases the costs of replacing them. If we fail to retain our employees, the quality of our services could diminish and this could have a material adverse effect on our business, financial condition and results of operations.

If we lose the services of our key personnel, we may be unable to replace them, and our business, financial condition and results of operations could be adversely affected.

Our success largely depends on the continued skills, experience, efforts and policies of our management and other key personnel and our ability to continue to attract, motivate and retain highly qualified employees. In particular, the services of Glen E. Tullman, our Chairman and Chief Executive Officer, are integral to the execution of our business strategy. If one or more of our key employees leaves our employment, we will have to find a replacement with the combination of skills and attributes necessary to execute our strategy. Because competition

for skilled employees is intense, and the process of finding qualified individuals can be lengthy and expensive, we believe that the loss of the services of key personnel could adversely affect our business, financial condition and results of operations. We cannot assure you that we will continue to retain such personnel. We do not maintain keyman insurance for any of our key employees.

If we are unable to successfully introduce new products or services or fail to keep pace with advances in technology, our business, financial condition and results of operations will be adversely affected.

The successful implementation of our business model depends on our ability to adapt to evolving technologies and industry standards and introduce new products and services. We cannot assure you that we will be able to introduce new products on schedule, or at all, or that such products will achieve market acceptance. Moreover, competitors may develop competitive products that could adversely affect our results of operations. A failure by us to introduce planned products or other new products or to introduce these products on schedule could have an adverse effect on our business, financial condition and results of operations.

If we cannot adapt to changing technologies, our products and services may become obsolete, and our business could suffer. Because the Internet and healthcare information markets are characterized by rapid technological change, we may be unable to anticipate changes in our current and potential customers’ requirements that could make our existing technology obsolete. Our success will depend, in part, on our ability to continue to enhance our existing products and services, develop new technology that addresses the increasingly sophisticated and varied needs of our prospective customers, license leading technologies and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our proprietary technology entails significant technical and business risks. We may not be successful in using new technologies effectively or adapting our proprietary technology to evolving customer requirements or emerging industry standards, and, as a result, our business could suffer.

Our business depends in part on and will continue to depend in part on our ability to establish and maintain additional strategic relationships.

To be successful, we must continue to maintain our existing strategic relationships and establish additional strategic relationships with leaders in a number of healthcare and healthcare information technology industry segments. This is critical to our success because we believe that these relationships contribute towards our ability to:

Entering into strategic relationships is complicated because strategic partners may decide to compete with us in some or all of our markets. In addition, we may not be able to maintain or establish relationships with key participants in the healthcare industry if we conduct business with their competitors. We depend, in part, on our strategic partners’ ability to generate increased acceptance and use of our products and services. If we lose any of these strategic relationships or fail to establish additional relationships, or if our strategic relationships fail to benefit us as expected, we may not be able to execute our business plan, and our business, financial condition and results of operations may suffer.

Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of indebtedness and increased amortization expense.

Future acquisitions may result in potentially dilutive issuances of equity securities. In addition, future acquisitions may result in the incurrence of debt, the assumption of known and unknown liabilities, the write off

of software development costs and the amortization of expenses related to intangible assets, all of which could have an adverse effect on our business, financial condition and results of operations. We have taken, and, if an impairment occurs, could take, charges against earnings in connection with acquisitions.

If our products fail to perform properly due to undetected errors or similar problems, our business could suffer.

Complex software such as ours often contains undetected defects or errors. It is possible that such errors may be found after introduction of new software or enhancements to existing software. We continually introduce new solutions and enhancements to our solutions, and, despite testing by us, it is possible that errors might occur in our software. If we detect any errors before we introduce a solution, we might have to delay deployment for an extended period of time while we address the problem. If we do not discover software errors that affect our new or current solutions or enhancements until after they are deployed, we would need to provide enhancements to correct such errors. Errors in our software could result in:

Furthermore, our customers might use our software together with products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our solution development efforts, impact our reputation and cause significant customer relations problems.

Our future success depends upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet our customers’ requirements.

We will need to expand our operations if we successfully achieve market acceptance for our products and services. We cannot be certain that our systems, procedures, controls and existing space will be adequate to support expansion of our operations. Our future operating results will depend on the ability of our officers and key employees to manage changing business conditions and to implement and improve our technical,

administrative, financial control and reporting systems. We may not be able to expand and upgrade our systems and infrastructure to accommodate these increases. Difficulties in managing any future growth could have a significant negative impact on our business, financial condition and results of operations because we may incur unexpected expenses and be unable to meet our customers’ requirements.

Our failure to compete successfully could cause our revenue or market share to decline.

The market for our products and services is fragmented, intensely competitive and is characterized by rapidly evolving industry standards, technology and user needs and the frequent introduction of new products and services. Some of our competitors may be more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than us. Moreover, we expect that competition will continue to increase as a result of consolidation in both the information technology and healthcare industries. If one or more of our competitors or potential competitors were to merge or partner with one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We compete on the basis of several factors, including:

Our clinical solutions business unit’s principal competitors include Athenahealth Inc., Cerner Corporation, eClinicalWorks Inc., Eclipsys Corp. Epic Systems Corporation, GE, iMedica Corporation, McKesson Corporation, Misys Healthcare Systems, Picis, Inc., Quality Systems, Inc., Sage Software, Inc., The Trizetto Group, Inc., and Wellsoft Corporation.

Our key competitors in the EDIS market include MedHost, Meditech, Picis and WellSoft. In the care management market, primary competitors include eDischarge, Maxsys Ltd., Meditech, Midas+ and ProviderLink.

Our physicians interactive business unit’s principal competitors include Aptilon Inc., Dendrite International, Inc., Lathian Systems, Inc., Quintiles Transnational Corp. Ventiv Health, Inc. and WebMD Corporation. We also face competition from clinical information and education providers, such as disease state management companies, full service e-marketing companies, companies who provide electronic detailing software, and the in-house efforts of our clients, including health plans, pharmacy benefit managers, and pharmaceutical companies.

Our medication services business unit’s principal competitors include Cardinal Health, Inc., Dispensing Solutions, Inc. DRx (a wholly owned subsidiary of Purkinje, Inc.), McKesson Corporation, PD-Rx Pharmaceuticals, Inc., Pharmapac, Physicians Total Care, Inc., Southwood Pharmaceuticals, Inc. and various other regional distributors. We also face competition from providers of other medication repackaging service and bulk pharmaceutical distributors.

There can be no assurance that we will be able to compete successfully against current and future competitors or that the competitive pressures that we face will not materially adversely affect our business, financial condition and results of operations.

Our business depends on our intellectual property rights, and if we are unable to protect them, our competitive position may suffer.

Our business plan is predicated on our proprietary systems and technology and physician education products. Accordingly, protecting our intellectual property rights is critical to our continued success and our ability to maintain our competitive position. We protect our proprietary rights through a combination of

trademark, trade secret and copyright law, confidentiality agreements and technical measures. We generally do not have any patents on our technology. We generally enter into non-disclosure agreements with our employees and consultants and limit access to our trade secrets and technology. We cannot assure you that the steps we have taken will prevent misappropriation of our technology. Misappropriation of our intellectual property would have an adverse effect on our competitive position. In addition, we may have to engage in litigation in the future to enforce or protect our intellectual property rights or to defend against claims of invalidity, and we may incur substantial costs and the diversion of management’s time and attention as a result.

If we are deemed to infringe on the proprietary rights of third parties, we could incur unanticipated expense and be prevented from providing our products and services.

We are and may continue to be subject to intellectual property infringement claims as the number of our competitors grows and our applications’ functionality overlaps with competitive products. We do not believe that we have infringed or are infringing on any proprietary rights of third parties. However, claims are occasionally asserted against us, and we cannot assure you that infringement claims will not be asserted against us in the

future. Also, we cannot assure you that any such claims will be unsuccessful. We could incur substantial costs and diversion of management resources defending any infringement claims. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products or services will be available on commercially reasonable terms, or at all.

Factors beyond our control could cause interruptions in our operations, which would adversely affect our reputation in the marketplace and our business, financial condition and results of operations.

To succeed, we must be able to operate our systems without interruption. Certain of our communications and information services are provided through our third-party service providers. Our operations are vulnerable to interruption by damage from a variety of sources, many of which are not within our control, including without limitation: (1) power loss and telecommunications failures; (2) software and hardware errors, failures or crashes; (3) computer viruses and similar disruptive problems; and (4) fire, flood and other natural disasters.

Any significant interruptions in our services would damage our reputation in the marketplace and have a negative impact on our business, financial condition and results of operations.

We may be liable for use of data we provide.

We provide data for use by healthcare providers in treating patients. Third-party contractors provide us with most of this data. If this data is incorrect or incomplete, adverse consequences, including death, may occur and give rise to product liability and other claims against us. In addition, certain of our solutions provide applications that relate to patient clinical information, and a court or government agency may take the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third party site that a consumer accesses through our websites, exposes us to personal injury liability, or other liability for wrongful delivery or handling of healthcare services or erroneous health information. While we maintain product liability insurance coverage in an amount that we believe is sufficient for our business, we cannot assure you that this coverage will prove to be adequate or will continue to be available on acceptable terms, if at all. A claim brought against us that is uninsured or under-insured could harm our business, financial condition and results of operations. Even unsuccessful claims could result in substantial costs and diversion of management resources.

If our security is breached, we could be subject to liability, and customers could be deterred from using our services.

The difficulty of securely transmitting confidential information over the Internet has been a significant barrier to engaging in sensitive communications over the Internet. Our business relies on using the Internet to

transmit confidential information. We believe that any well-publicized compromise of Internet security may deter people from using the Internet for these purposes and from using our system to conduct transactions that involve transmitting confidential healthcare information.

It is also possible that third parties could penetrate our network security or otherwise misappropriate patient information and other data. If this happens, our operations could be interrupted, and we could be subject to possible liability and regulatory action. We may need to devote significant financial and other resources to protect against security breaches or to alleviate problems caused by breaches. We could face financial loss, litigation and other liabilities to the extent that our activities or the activities of third-party contractors involve the storage and transmission of confidential information like patient records or credit information.

If we are unable to obtain additional financing for our future needs, our ability to respond to competitive pressures may be impaired and our business, financial condition and results of operations could be adversely affected.

We cannot be certain that additional financing will be available to us on favorable terms, or at all. If adequate financing is not available or is not available on acceptable terms, our ability to fund our expansion, take advantage of potential acquisition opportunities, develop or enhance services or products, or respond to competitive pressures would be significantly limited.

If our content and service providers fail to perform adequately, our reputation in the marketplace and our business, financial condition and results of operations could be adversely affected.

We depend on independent content and service providers for many of the benefits we provide through our clinical software and our physician education applications and services, including the maintenance of managed care pharmacy guidelines, drug interaction reviews and the routing of transaction data to third-party payers. If our services are interrupted as a result of any problems with our providers, our reputation in the marketplace could be damaged, which would have an adverse effect on our business, financial condition and results of operations. We may have no means of replacing content or services on a timely basis or at all if they are inadequate or in the event of a service interruption or failure.

We also rely on independent content providers for the majority of the clinical, educational and other healthcare information that we provide. In addition, we depend on our content providers to deliver high quality content from reliable sources and to continually upgrade their content in response to demand and evolving healthcare industry trends. If these parties fail to develop and maintain high quality, attractive content, the value of our brand and our business, financial condition and results of operations could be impaired.

If we are forced to reduce our prices, our business, financial condition and results of operations could suffer.

We may be subject to pricing pressures with respect to our future sales arising from various sources, including practices of managed care organizations, Internet pharmacies, including those operating in Canada and other countries outside the United States, and government action affecting pharmaceutical reimbursement under Medicare.Medicare, Medicaid and other government health programs. Our customers and the other entities with which we have a business relationship are affected by changes in statutes, regulations and limitations in governmental spending for Medicare, Medicaid and Medicaidother programs. Recent government actions and future legislative and administrative changes could limit government spending for the Medicare and Medicaid programs, limit payments to hospitals and other providers, and increase emphasis on competition, impose price controls and create other programs that potentially could have an adverse effect on our customers and the other entities with which we have a business relationship. If our pricing experiences significant downward pressure, our business will be less profitable and our results of operations would be adversely affected. In addition, because cash from sales funds some of our working capital requirements, reduced profitability could require us to raise additional capital sooner than we would otherwise need.

If we are unable to maintain existing relationships and create new relationships with managed care payers, our business, financial condition and results of operations will be adversely affected.

We rely on managed care organizations to reimburse our physician customers for prescription medications dispensed in their offices. While many of the leading managed care payers and pharmacy benefit managers currently reimburse our physicians for in-office dispensing, none of these payers is under a long-term obligation to do so. If we are unable to increase the number of managed care payers that reimburse for in-office dispensing, or if some or all of the payers who currently reimburse physicians decline to do so in the future, utilization of our products and services would decrease and, therefore, our business, financial condition and results of operations will be adversely affected.

If we incur costs exceeding our insurance coverage in lawsuits pending against us or that are brought against us in the future, it could adversely affect our business, financial condition and results of operations.

We are a defendant in lawsuits arising in the ordinary course of business. In the event we are found liable in any lawsuits filed against us, and if our insurance coverage were not available or inadequate to satisfy these liabilities, it could have an adverse effect on our business, financial condition and results of operations.

If our principal supplier of medications fails or is unable to perform its contract with us, we may be unable to meet our commitments to our customers.

We currently purchase a majority of the medications that we repackage from AmerisourceBergen. If we do not meet certain minimum purchasing requirements, AmerisourceBergen may increase the prices that we pay under this agreement, in which case we would have the option to terminate the agreement. Although we believe that there are a number of other sources of supply of medications, if AmerisourceBergen fails or is unable to perform under our agreement, particularly at certain critical times during the year, we may be unable to meet our commitments to our customers, and our relationships with our customers could suffer.

Our failure to license and integrate third-party technologies could harm our business.

We depend upon licenses for some of the technology used in our solutions from third-party vendors, including Microsoft and Aprima Medical Software, and intend to continue licensing technologies from third parties. These technologies might not continue to be available to us on commercially reasonable terms or at all.

Most of these licenses can be renewed only by mutual consent and may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. Our inability to obtain any of these licenses could delay development until equivalent technology can be identified, licensed and integrated, which would harm our business, financial condition and results of operations.

Most of our third-party licenses are non-exclusive and our competitors may obtain the right to use any of the technology covered by these licenses and use the technology to compete directly with us. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. In addition, if our vendors choose to discontinue support of the licensed technology in the future or are unsuccessful in their continued research and development efforts, we might not be able to modify or adapt our own solutions.

If we do not maintain and expand our business with our existing customers, our business, financial condition and results of operations could be adversely affected.

Our business model depends on the success of our efforts to sell additional products and services to our existing customers. For example,customers, including the sale of our EHR products to legacy MHS’ practice management customer base. Additionally, certain of our clinical solutions business unit customers initially purchase one or a limited number of our modules. These customers might choose not to expand their use of or purchase additional modules. In addition,Also, as we deploy new applications and features for our existing solutions or introduce new solutions and services, our current customers could choose not to purchase these new offerings. If we fail to generate additional business from our current customers, our revenue could grow at a slower rate or even decrease.

Restrictions on our ability to issue equity awards to employees may make it more difficult for us to retain or attract key employees.

Pursuant to the relationship agreement between us and Misys (the “Relationship Agreement”), we are subject to restrictions and conditions on the issuance of equity awards to our employees. As a result, it may be more difficult for us to retain key employees or attract new employees. Our results of operations and financial condition may be adversely affected as a result thereof.

Potential subsidy of services similar to ours may reduce client demand.

Recently, entities such as the Massachusetts Healthcare Consortium have offered to subsidize adoption by physicians of electronic health record technology. In addition, federal regulations have been changed to permit such subsidy from additional sources subject to certain limitations, and the current administration has passed legislation, called the HITECH Act, that will provide federal support for EMR initiatives. To the extent that we do not qualify or participate in such subsidy programs, demand for our services may be reduced, which may decrease our revenues.

We rely on Misys for the provision of certain corporate services.

Pursuant to our Shared Services Agreement with Misys, Misys provides us with services including: (1) human resource functions such as administration, selection of benefit plans and designing employee survey and training programs, (2) management services, (3) procurement services such as travel arrangements, disaster recovery and vendor management, (4) research and development services such as software development, (5) access to information technology, telephony, facilities and other related services at Misys’ customer support center located in Manila, The Philippines; and (6) information system services such as planning, support and database administration. Prior to the closing of the Transaction, we did not rely on a third party for such services. If Misys fails to provide these services as required under the Shared Services Agreement or if the Shared Services Agreement were terminated for any reason, we might incur significant costs to obtain replacement

services and the provision of products and services to our clients may be interrupted. As a result, our results of operations and financial condition may be adversely affected as a result thereof.

Risks Related to Our Industry

We are subject to a number of existing laws, regulations and industry initiatives, non-compliance with certain of which could shut down our operations or otherwise adversely affect our business, financial condition and results of operations, and we are susceptible to a changing regulatory environment.

As a participant in the healthcare industry, our operations and relationships, and those of our customers, are regulated by a number of federal, state and local governmental entities. The impact of this on us is direct, to the extent we are ourselves subject to these laws and regulations, and is also indirect in that, in a number of situations, even though we may not be directly regulated by specific healthcare laws and regulations, our products must be capable of being used by our customers in a manner that complies with those laws and regulations. Inability of our customers to do so could affect the marketability of our products or our compliance with our customer contracts, or even expose us to direct liability on a theory that we had assisted our customers in a violation of healthcare laws or regulations. Because our business relationships with physicians are unique, and the healthcare technology industry as a whole is relatively young, the application of many state and federal regulations to our business operations and to our customers is uncertain. Indeed, there are federal and state fraud and abuse laws, including anti-kickback laws and limitations on physician referrals, and laws related to distribution and marketing, including off-label promotion of prescription drugs that may be directly or indirectly applicable to our operations and relationships or the business practices of our customers. It is possible that a review of our business practices or those of our customers by courts or regulatory authorities could result in a determination that could adversely affect us. In addition, the healthcare regulatory environment may change in a way that restricts our existing operations or our growth. The healthcare industry is expected to continue to undergo significant changes for the foreseeable future, which could have an adverse effect on our business, financial condition and results of operations. We cannot predict the effect of possible future legislation and regulation.

Specific risks include, but are not limited to, risks relating to:

care payers, and health care clearinghouses.” Generally, the HIPAA standards directly affect Covered Entities. We have reviewed our activities and believe that we are a Covered Entity to the extent that we maintain a “group health plan” for the benefit of our employees. Such a plan, even if not a separate legal entity from us as its sponsor, is included in the HIPAA definition of Covered Entities. We have taken steps we believe to be appropriate and required to bring our group health plan into compliance with HIPAA. We do not believe that we are a Covered Entity as a health care provider or as a health care clearinghouse; however, the definition of a health care clearinghouse is broad and we cannot offer any assurance that we could not be considered a health care clearinghouse under HIPAA or that, if we are determined to be a healthcare clearinghouse, the consequences would not be adverse to our business, financial condition and results of operations. In addition, the Privacy and Security Standards affect third parties that create, access, or receive Protected Health Information in order to perform a function or activity on behalf of a Covered Entity. Such third parties are called “Business Associates.” Covered Entities must have a written “Business Associate Agreement” with such third parties, containing specified written satisfactory assurances, consistent with the Privacy and Security standards, that the third party will safeguard Protected Health Information that it creates or accesses and will fulfill other material obligations to support the Covered Entity’s own HIPAA compliance.

to our other business functions, we do not believe we are a Covered Entity as a health care provider or as a health care clearinghouse; however, the definition of a health care clearinghouse is broad and we cannot offer any assurance that we could not be considered a health care clearinghouse under HIPAA or that, if we are determined to be a healthcare clearinghouse, the consequences would not be adverse to our business, financial condition and results of operations. In addition, certain provisions of the Privacy and Security Standards apply to third parties that create, access, or receive Protected Health Information in order to perform a function or activity on behalf of a Covered Entity. Such third parties are called “Business Associates.” In addition, Covered Entities must have a written “Business Associate Agreement” with such third parties, containing specified written satisfactory assurances, consistent with the Privacy and Security Standards, that the third party will safeguard Protected Health Information that it creates or accesses and will fulfill other material obligations. Most of our customers are Covered Entities, and we function in many of our relationships as a Business Associate of those customers. We would face liability under our Business Associate Agreements and HIPAA if we do not comply with our Business Associate obligations and applicable provisions of the Privacy Standards, the Security Standards and HITECH Act. The penalties for a violation of HIPAA are significant and could have an adverse impact upon our business, financial condition and results of operations, if such penalties ever were imposed. Additionally, Covered Entities that are providers are required to adopt a unique standard National Provider Identifier (NPI) for use in filing and processing health care claims and other transactions. Subject to the discussion set forth above, we believe that the principal effects of HIPAA are, first, to require that our systems be capable of being operated by us and our customers in a manner that is compliant with the various HIPAA standards and, second, to require us to enter into and comply with Business Associate Agreements with our Covered Entity customers. For most Covered Entities, the deadlines for compliance with the Privacy Standards and the Transaction Standards occurred in 2003. Covered Entities, with the exception of small health plans (as that term is defined by the Privacy Standards), were required to be in compliance with the Security Standards by April 20, 2005 and to use NPIs in standard transactions no later than the compliance dates, which was May 23, 2007, for all but small health plans, and May 23, 2008 for small health plans. We have policies and procedures that we believe comply with our Business Associate obligations. In addition, the federal agencies with enforcement authority have taken the position that a Covered Entity can be subject to HIPAA civil penalties and sanctions for a breach of a Business Associate Agreement. The penalties for a violation of HIPAA by a Covered Entity are significant and could have an adverse impact upon our business, financial condition and results of operations, if such penalties ever were imposed. Additionally, Covered Entities will be required to adopt a unique standard National Provider Identifier (NPI) for use in filing and processing health care claims and other transactions. Subject to the discussion set forth above, we believe that the principal effects of HIPAA are, first, to require that our systems be capable of being operated by our customers in a manner that is compliant with the various HIPAA standards and, second, to require us to enter into and comply with Business Associate Agreements with our Covered Entity customers. For most Covered Entities, the deadlines for compliance with the Privacy Standards and the Transaction Standards occurred in 2003. Covered Entities, with the exception of small health plans (as that term is defined by the Privacy Standards), were required to be in compliance with the Security Standards by April 20, 2005 and to use NPIs in standard transactions no later than the compliance dates, which was May 23, 2007 for all but small health plans and is one year later for small health plans. We have policies and procedures that we believe assure compliance with all federal and state confidentiality requirements for the handling of Protected Health Information that we receive and with our obligations under Business Associate Agreements. In particular, we believe that our systems and products are capable of being used by our customers in compliance with the Transaction Standards and Security Standards and are, or will be, capable of being used by or for our customers in compliance with the Transaction Standards and Security Standards and are capable of being used by or for our customers in compliance with the NPI requirements. If, however, we do not follow those procedures and policies, or they are not sufficient to prevent the unauthorized disclosure of Protected Health Information, we could be subject to liability, fines and lawsuits, termination of our customer contracts or our operations could be shut down. Moreover, because all HIPAA Standards are subject to change or interpretation and because certain other HIPAA Standards, not discussed above, are not yet published, we cannot predict the full future impact of HIPAA on our business and operations. In the event that the HIPAA standards and compliance requirements change or are interpreted in a way that requires any material change to the way in which we do business, our business, financial condition and results of operations could be adversely affected. Additionally, certain state laws are not preempted by HIPAA and may impose independent obligations upon our customers or us. Additional legislation governing the acquisition, storage and transmission or other dissemination of health record information and other personal information, including social security numbers, has been proposed at both the state and federal level. Such legislation may require holders of such information to implement additional security, reporting or other measures that may require substantial expenditures and may impose liability for a failure to comply with such requirements. In many cases, such proposed state legislation includes provisions that are not preempted by HIPAA. There can be no assurance that changes to state or federal laws will not materially restrict the ability of providers to submit information from patient records using our products and services.

e-prescribing for controlled substances and certain other drugs. Given the rapid growth of electronic transactions in healthcare, and particularly the growth of the Internet, we expect the remaining states to directly address these areas with regulation in the near future. In addition, on November 7, 2005, the Department of Health and Human Services published its final “E-Prescribing and the Prescription Drug Program” regulations (E-Prescribing Regulations). These regulations are required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) and became effective beginning on January 1, 2006. The E-Prescribing Regulations consist of detailed standards and requirements, in addition to the HIPAA standards discussed above, for prescription and other information transmitted electronically in connection with a drug benefit covered by the MMA’s Prescription Drug Benefit. These standards cover not only transactions between prescribers and dispensers for prescriptions but also electronic eligibility and benefits inquiries and drug formulary and benefit coverage information. The standards apply to prescription drug plans participating in the MMA’s Prescription Drug Benefit. Other rules governing e-prescribing apply to other areas of Medicare and to Medicaid. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) authorized a new and separate incentive program for individual eligible professionals who are successful electronic prescribers as defined by MIPPA. This new incentive is separate from and is in addition to the quality reporting incentive program authorized by Division B of the Tax Relief and Health Care Act of 2006—Medicare Improvements and Extension Act of 2006 and known as the Physician Quality Reporting Initiative (PQRI). Eligible professionals do not need to participate in PQRI to participate in the E-Prescribing Incentive Program. For the 2009 e-prescribing reporting year, to be a successful e-prescriber and to receive an incentive payment, an individual eligible professional must report one e- prescribing measure in at least 50% of the cases in which the measure is reportable by the eligible professional during 2009. There is no sign-up or pre- registration to participate in the E-Prescribing Incentive Program. However, there are certain limitations for participation. First, eligible professionals must have and use a qualified e-prescribing system. Second, at least 10% of eligible professionals’ Medicare Part B covered services must be made up of codes that appear in the denominator of the e-prescribing measure. Furthermore, beginning January 1, 2009, eligible professionals can participate by reporting on their adoption and use of an e-prescribing system by submitting claims information on one e-prescribing measure on their Medicare Part B claims. To the extent that these new initiatives and regulations foster the accelerated adoption of e-prescribing, our business could benefit. But, as we note below, there is no assurance that these government-sponsored efforts will succeed in spurring greater adoption of e-prescribing. Moreover, regulations in this area impose certain requirements which can be burdensome and they are evolving and subject to change at any moment, meaning that any potential benefits may be reversed by a newly-promulgated regulation that adversely affects our business model. Aspects of our clinical products are affected by such regulation because of the need of our customers to comply, as discussed above. Compliance with these regulations could be burdensome, time-consuming and expensive. We also could become subject to future legislation and regulations concerning the development and marketing of healthcare software systems. For example, regulatory authorities such as the U.S. Department of Health and Human Services’ Center for Medicare and Medicaid Services may impose functionality standards with regard to electronic prescribing and EHR technologies. These could increase the cost and time necessary to market new services and could affect us in other respects not presently foreseeable.

follow those procedures and policies, or they are not sufficient to prevent inaccurate claims from being submitted, we could be subject to liability. As discussed above, the HIPAA Transaction Standards and the HIPAA Security Standards also affect our claims transmission services, since those services must be structured and provided in a way that supports our customers’ HIPAA compliance obligations. Furthermore, to the extent that there is some type of security breach it could have a material adverse effect.

designed to govern the manufacture, rather than the repackaging, of drugs, we face legal uncertainty concerning the application of some aspects of these regulations and of the standards that the FDA will enforce. Ifrules—since we do not maintain all necessary licenses, or the FDA decidesextend credit to substantially modify the manner in which it has historically enforced its good manufacturing practice regulations against drug repackagers or the FDA or DEA finds any violations during one of their periodic inspections, customers—we do handle patient data that, if improperly disclosed, could be subject to liability, and our operations could be shut down. In addition to registration/licensure and “good manufacturing practices” compliance issues, federal and certain state laws require recordkeeping and a drug pedigree when a company is involvedused in the distribution of prescription drugs. Under the pedigree requirements, each person who is engaged in the wholesale distribution of a prescription drug in interstate commerce, who is not the manufacturer or an authorized distributor of record for that drug, must provide to the person who receives the drug, a pedigree for that drug. A drug pedigree is a statement of origin that identifies each prior sale, purchase, or trade of a drug. State laws in this area are not consistent with respect to their requirements, and thus the company needs to carefully monitor legal developments in this area. To the extent we are found to violate any applicable federal or state law related to drug pedigree requirements, any such violation could adversely affect our business.

products or services to such customer or entity, were found to have knowingly participated in such activities, we could be subject to sanction or liability under such laws, including civil and/or criminal penalties, as well as exclusion from government health programs. As a result of exclusion from government health programs, neither products nor services could be provided to any beneficiaries of any federal healthcare program.identity theft.

Increased government involvement in healthcare could adversely affect our business.

U.S. healthcare system reform under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, and other initiatives at both the federal and state level, could increase government involvement in healthcare, lower reimbursement rates and otherwise change the business environment of our customers and the

other entities with which we have a business relationship. While no federal price controls are included in the Medicare Prescription Drug, Improvement and Modernization Act, any legislation that reduces physician incentives to dispense medications in their offices could adversely affect physician acceptance of our products. We cannot predict whether or when future healthcare reform initiatives at the federal or state level or other initiatives affecting our business will be proposed, enacted or implemented or what impact those initiatives may have on our business, financial condition or results of operations. Our customers and the other entities with which we have a business relationship could react to these initiatives and the uncertainty surrounding these proposals by curtailing or deferring investments, including those for our products and services. Additionally, the government has signaled increased enforcement activity targeting healthcare fraud and abuse, which could adversely impact our business, either directly or directly. To the extent that our customers, most of whom are providers, may be affected by this increased enforcement environment, our business could correspondingly be affected. Additionally, government regulation could alter the clinical workflow of physicians, hospitals and other healthcare participants, thereby limiting the utility of our products and services to existing and potential customers and curtailing broad acceptance of our products and services. Further examples of government involvement could include requiring the standardization of technology relating to EHR’s, providing customers with incentives to adopt EHR solutions or developing a low-cost government sponsored EHR solution, such as VistA-Office EHR. Additionally, new safe harbors to the federal Anti-Kickback Statute and corresponding exceptions to the federal Stark law may alter the competitive landscape, as such new safe harbors and exceptions allow hospitals and certain other donors to donate certain items and services used in electronic prescription systems and electronic health records systems. These new safe harbors and exceptions are intended to accelerate the adoption of electronic prescription systems and electronic health records systems, and therefore provide new and attractive opportunities for us to work with hospitals and other donors who wish to provide our clinical solutions to physicians. At the same time, such safe harbors and exceptions may result in increased competition from providers of acute EHR solutions, whose hospital customers may seek to donate their existing acute EHR solutions to physicians for use in ambulatory settings. In addition, the federal government and state governments, including Florida, have imposed or may in the future impose pedigree requirements for pharmaceutical distribution. Our medications business is required to comply with any current regulations relating to pharmaceutical distribution and will be required to comply with any future regulations and such compliance may impose additional costs on our business.

If the electronic healthcare information market fails to develop as quickly as expected, our business, financial condition and results of operations will be adversely affected.

The electronic healthcare information market is in the early stages of development and is rapidly evolving. A number of market entrants have introduced or developed products and services that are competitive with one or more components of the solutions we offer. We expect that additional companies will continue to enter this market.market, especially in response to recent government subsidies. In new and rapidly evolving industries, there is significant uncertainty and risk as to the demand for, and market acceptance of, recently introduced products and services. Because the markets for our products and services are new and evolving, we are not able to predict the size and growth rate of the markets with any certainty. We cannot assure you that markets for our products and services will develop or that, if they do, they will be strong and continue to grow at a sufficient pace. If markets fail to develop, develop more slowly than expected or become saturated with competitors, our business, financial condition and results of operations will be adversely affected.

Consolidation in the healthcare industry could adversely affect our business, financial condition and results of operations.

Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with greater market power. As provider networks and managed care organizations consolidate, thus decreasing the number of market participants, competition to provide products and services like ours will become more intense, and the importance of establishing relationships with key industry participants will become greater. These industry participants may try to use their market power to negotiate price reductions for our products and services. Further, consolidation of management and billing services through integrated delivery systems may decrease demand for our products. If we were forced to reduce our prices, our business would become less profitable unless we were able to achieve corresponding reductions in our expenses.

Risks Related to Our Common Stock

BecauseMisys has the voting power to block our future business combinations.

Under our amended and restated charter and by-laws, approval of certain featuresactions by stockholders requires a majority of our outstanding 3.50% convertible senior debentures and anti-takeover provisions under Delaware law and in our organizational documents, a takeover of Allscripts may be difficult, and could prevent investors from obtaining an optimal price for ourthe shares of common stock present in person and entitled to vote on the matter except as otherwise required by Delaware law. Because of the size of Misys’ interest in us, Misys has the ability to control or significantly influence the outcome of all matters submitted to a stockholder vote, subject to the voting agreements contained in the eventRelationship Agreement. The interests of a takeover.

We are required to increase the conversion rate onMisys may differ from those of other holders of our 3.50% convertible senior debentures that are convertedcommon stock in connection with certain change of controlmaterial respects. For example, Misys may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, occur onin its judgment, could enhance its investment, even though such transactions might involve risks to other holders of our common stock, or priorvice versa. Additionally, Misys may determine that the disposition of some or all of its interests in us would be beneficial to July 15, 2009, which effectively increasesMisys at a time when such disposition could be detrimental to the costother holders of a takeover of the company.our common stock. In addition, in the event ofit will likely be impracticable (as long as Misys retains a change of control of the company, subject to certain exceptions, holders of the debentures have the right to require us to repurchase in cash all or any portion of their debentures. These features may in certain circumstances make more difficult or discourage such a takeover. Additionally, certain provisions of Delaware law and our amended and restated certificate of incorporation, as amended, and by-laws could have the effect of making it more difficultmajority ownership stake) for a third party to acquire us through a merger or similar business combination without Misys’ approval.

Misys has the right to appoint a majority of discouragingour directors.

Pursuant to the Relationship Agreement, Misys has the right to nominate six of our ten directors, as well as the Chairman of the Board. Misys’ rights to nominate a third party from attempting to acquire, control of us. These provisions:

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could have the effect of delaying or preventing a change in control of us.

Future sales of our common stock in the public market could adversely affect the trading price of our common stock that we may issue and our ability to raise funds in new securities offerings.

Future sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. As of February 15, 2008,July 17, 2009, we had approximately:

In connection with our acquisition strategy, we may issue shares of our common stock as consideration in other acquisition transactions. We cannot predict the effect, if any, that future sales of shares of common stock or the availability of shares of common stock for future sale will have on the trading price of our common stock.

OurWe have called for redemption as of August 5, 2009 our outstanding 3.50% convertible senior debentures. It is anticipated that holders of our outstanding 3.50% convertible senior debentures are convertible atwill exercise their right to convert the option of the holdersdebentures into shares of our common stock subject to the certain conditions set forth in the indenture governing these debentures. Any shares of common stock issued on conversion of these debentures and subsequently sold willrather than be freely tradable in the public markets without restriction. In addition, we will be required to repurchase these debentures following certain change in control events relating to us, and the holders of these debentures will have the option to require us to purchase all or a portion of their debentures on July 15, 2009, July 15, 2014 and July 15, 2019.redeemed. The conversion of these debentures into common stock or the issuance of common stock to pay the purchase price of any such debentures couldwould result in the issuance of a substantial number ofapproximately 2,450,746 shares of our common stock and, substantial dilution tothereby dilute our existing stockholders.

Our issuance of preferred stock could adversely affect holders of our common stock and discourage a takeover.

Our Board of Directors is authorized to issue up to 1,000,000 shares of preferred stock without any action on the part of our stockholders. Our Board of Directors also has the power, without stockholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights (except that shares of preferred stock may not have more than one vote per share), dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms. In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock that is convertible into our common stock at greater than a one-to-one ratio, the voting and other rights of the holders of our common stock or the market price of our common stock could be adversely affected. In addition, the ability of our Board of Directors to issue shares of preferred stock without any action on the part of our stockholders may impede a takeover of us and prevent a transaction favorable to the holders of our common stock.

Our goodwill, which increased as a result of the Misys Healthcare transaction, could become impaired and adversely affect our net worth and the market value of our common stock.

Under the purchase method of accounting, our assets and liabilities were recorded, as of completion of the Misys Healthcare transactions, at their respective fair values and added to those of Misys Healthcare, which are carried at their book values. The purchase price for the Misys Healthcare transaction was allocated to legacy Allscripts’ tangible assets and liabilities and identifiable intangible assets, based on their fair values as of the date of completion of the Merger. The excess of $336,025,000 of such price over those fair values has been recorded as goodwill. Goodwill and other acquired intangibles expected to contribute indefinitely to our cash flows are not amortized, but must be evaluated by management at least annually for impairment. To the extent the value of goodwill or intangibles becomes impaired, we may be required to incur material charges relating to such impairment. Such a potential impairment charge could have a material impact on our operating results.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business and the trading price of our common stock.

If we failCommencing in the fiscal year ending May 31, 2010, Allscripts must include legacy Misys Healthcare in its system and process evaluation and testing of internal control over financial reporting to maintainallow management and our independent registered certified public accounting firm to report on the adequacyeffectiveness of our internal controls,control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. The Securities and Exchange Commission granted us relief from including legacy Misys Healthcare in accordancesuch evaluation and testing for our fiscal year ended May 31, 2009. Prior to the completion of the Transactions, Misys Healthcare had not performed the system and process evaluation and testing of its internal control over financial reporting. This testing, or the subsequent testing by our independent registered certified public accounting firm, may reveal deficiencies in the combined entity’s internal control over financial reporting that are deemed to be material weaknesses. Moreover, if the combined entity is not able to comply with the requirements of Section 404 ofin a timely manner, or if it or its independent registered certified public accounting firm identifies deficiencies in the Sarbanes-Oxley Act of 2002 and as such standards are modified, supplemented or amended

from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effectivecombined Allscripts-Misys’ internal control over financial reporting in accordance with Section 404 ofthat are deemed to be material weaknesses, the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain an effective internal control environment could have an adverse effect on themarket price of our common stock.stock could decline and we could be subject to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.

The market price of our common stock has been and may continue to be volatile.

The market price of our common stock is volatile and could fluctuate significantly in response to the factors described above and other factors, many of which are beyond our control, including:

In addition, the stock markets, especially the Nasdaq National Market, have experienced extreme price and volume fluctuations that have affected the market prices of equity securities of many technology companies and Internet-related companies in particular. These fluctuations have often been unrelated or disproportionate to operating performance. These broad market factors may materially affect the trading price of our common stock. General economic, political and market conditions such as recessions and interest rate fluctuations may also have an adverse effect on the market price of our common stock. Volatility in the market price for our common stock may result in the filing of securities class action litigation.

Our quarterly operating results may vary.

Our quarterly operating results have varied in the past, and we expect that our quarterly operating results will continue to vary in future periods depending on a number of factors, some of which we have no control over, including customers’ budgetary constraints and internal acceptance procedures, seasonal variances in demand for our products and services, the sales, service and implementation cycles for our clinical software products, and physician education products and services, potential downturns in the healthcare market and in economic conditions generally, and other factors described in this “Risk Factors” section. For instance, all other factors aside, sales of our prepackaged medications have historically been highest in the third and fourth quarters. Sales of our software products have also historically been highest in the fourth quarter.

We base our expense levels in part upon our expectations concerning future revenue, and these expense levels are relatively fixed in the short term. If we have lower revenue than expected, we may not be able to reduce our spending in the short term in response. Any shortfall in revenue would have a direct impact on our results of operations. In addition, our product sales cycle for larger sales is lengthy and unpredictable, making it difficult to estimate our future bookings for any given period. If we do not achieve projected booking targets for a given period, securities analysts may change their recommendations on our common stock. For these and other reasons, we may not meet the earnings estimates of securities analysts or investors, and our stock price could suffer.

Conversion of the 3.50% convertible senior debentures will dilute the ownership interest of our stockholders, including holders who had previously converted their debentures.

The conversion of some or all of our 3.50% convertible senior debentures will dilute the ownership interests of our stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the debentures may encourage short selling by market participants because the conversion of the debentures could depress the price of our common stock.

If we fail to comply with financial covenants under the Credit Facility, entered into in connection with the ECIN acquisition, our results of operation and financial condition could be adversely affected.

Our Credit Facility, entered into in connection with the ECIN acquisitionas hereinafter defined, contains certain financial covenants, including interest coverage and total leverage ratios. If we fail to comply with these covenants, an event of default may occur, resulting in, among other things, the requirement to immediately repay all outstanding amounts owed thereunder, which could have an adverse effect on our results of operation, financial condition or the price of our common stock.

We rely on exceptions from certain corporate governance and other requirements under the rules of Nasdaq.

We qualify for exceptions from certain corporate governance and other requirements of the rules of Nasdaq. Pursuant to these exceptions, we have elected not to comply with certain corporate governance requirements of Nasdaq, including the requirements (i) that a majority of our board of directors consist of independent directors, (ii) that we have a nominating/corporate governance committee that is composed entirely of independent directors and (iii) that we have a compensation committee that is composed entirely of independent directors. Accordingly, our stockholders do not have the same protections afforded to equityholders of entities that are subject to all of the corporate governance requirements of Nasdaq.

Sales of our common stock by Misys may negatively affect the market price of our common stock.

While the shares of our common stock owned by Misys are not registered and are subject to transfer restrictions, sales of a large number of such shares, or even the perception that these sales may occur, could cause a decline in the market price of our common stock. Furthermore, pursuant to the Relationship Agreement, we have an obligation to negotiate in good faith to grant Misys customary registration rights, thereby facilitating such sales.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters is located in Chicago, Illinois and consists of approximately 25,500 square feet and includes corporate administration, finance, legal, education, and some sales and marketing personnel. The corporate headquarters lease expires in July 2015.

Our repackaging and operating facilities are located in Libertyville, Illinois, in approximately 62,000 square feet of space under a lease that expires in June 2009 and we are temporarily utilizing approximately 17,700 square feet of space in Libertyville under a lease that expires March 2008. We lease an additional 4,000 square feetthe following properties as of space of repackagingMay 31, 2009:

Our facilities in Grayslake, Illinois, under a lease that expires in June 2009. We also maintain offices forhouse various sales, marketing, operationsdata processing, technology functions, certain ancillary functions, and development efforts in Louisville, Kentucky, with approximately 11,300 square feet under a lease that expires in July 2017; in Burlington, Vermont, with approximately 31,500 square feet under a lease that expires in December 2014; and in Honolulu, HI with approximately 2,000 square feet under a lease that expires November 2010.

As a result of the A4 acquisition on March 2, 2006, we own the former corporate headquarters of A4 in Cary, North Carolina, consisting of approximately 55,000 square feet. We also lease approximately 10,200 square feet of office space in Cary, North Carolina expiring February 2012; an approximately 7,400 square foot warehouse facility in Morrisville, North Carolina, which expires in September 2010; approximately 1,800 square feet of office space in Austin, Texas under a lease that expires in January 2011; approximately 1,800 square feet of office space in Round Rock, Texas under a lease that expires in October 2010; and approximately 15,200 square feet of office space in Nashua, New Hampshire under a lease that expires in October 2008.other back-office functions. We believe that our facilities are adequate, suitable lease space will continue to be available for our current operations.needs.

As a result of the ECIN acquisition on December 31, 2007, we lease approximately 13,600 square feet of office space in Chicago, Illinois consisting of administration, implementation and sales and marketing personnel. The ECIN Chicago lease expires October 31, 2013.

Item 3. Legal Proceedings

We are from time to time involved in litigation incidental to our respective businesses. WeOther than as noted below, we are not currently involved in any litigation in which we believe an adverse outcome would have a material adverse effect on our business, financial condition, results of operations or prospects.

On September 15, 2008, Allscripts received notice that LaSalle Bank N.A., solely in its capacity as indenture trustee (“LaSalle”), filed a complaint in the Supreme Court of the State of New York, County of New York, on behalf of the holders of Allscripts’ 3.50% Convertible Senior Debentures Due 2024 seeking payment of the “Additional Shares” (as defined in the Indenture dated as of July 6, 2004 between LaSalle and Allscripts) in connection with the Transactions. On October 29, 2008, Allscripts filed a motion to dismiss the complaint. On March 30, 2009, the court granted Allscripts’ motion to dismiss in part and denied the motion in part. On July 21, 2009, the remaining count of LaSalle’s claim was dismissed.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

(Dollar and share amounts in thousands, except per share amounts)

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Public Market for Common Stock

Our common stock is quoted on the Nasdaq National Market under the symbol “MDRX.” The following table sets forth, for the periods indicated, the high and low closing prices per share of the common stock of AllscriptsAllscripts-Misys Healthcare Solutions, Inc. for the applicable periods as reported on the Nasdaq National Market. For periods prior to October 10, 2008, the information below relates to legacy Allscripts Healthcare Solutions, Inc. Our fiscal year changed effective on October 10, 2008, and as a result, the table below reflects such change starting in the second fiscal quarter of our new fiscal year 2009.

We had 142,397, 57,428, and 56,918 common shares issued and outstanding at May 31, 2009, September 30, 2008, and December 31, 2007, respectively. On February 15, 2008,July 17, 2009, we had approximately 540475 common stock holders of record and approximately 26,000 beneficial ownersrecord. On October 17, 2008, the Company paid a special cash dividend of common stock. We$5.23 per share in connection with the Transactions. Other than this special cash dividend, we have never declared or paid cash dividends on our common stock. We currently intend to retain all available cash to finance our operations and do not intend to declare or pay cash dividends on our shares of common stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, current and anticipated cash needs, contractual restrictions, restrictions imposed by applicable law and other factors that our Board of Directors deems relevant.

On February 10, 2009, the Company announced that its Board of Directors approved a stock repurchase program under which the Company may purchase up to $150,000 of its common stock over two years. Repurchases may be made pursuant to Rule 10b5-1 or 10b-18 of the Securities Exchange Act of 1934, as amended. Repurchases also have been made from Misys pursuant to the Stock Repurchase Agreement, dated as of February 10, 2009 (the “Misys Repurchase Agreement”), by and among Misys, Misys Patriot Ltd., Misys Patriot US Holdings LLC and Allscripts. The aggregate amount of shares purchased pursuant to the repurchase plan, whether pursuant to any 10b5-1 plan, Rule 10b-18 or the Misys Repurchase Agreement, will not exceed the lesser of $150,000 (including commissions) or 15,000 shares. During the yearquarter ended DecemberMay 31, 2007, we2009, the Company repurchased 124 shares of common stock upon employee vesting of restricted stock awards for $716, which was based upon the closing stock price on each respective vesting date. Also, we repurchased 1,250and cancelled 2,349 shares of common stock from IDX on March 9, 2006 for $21,078, which was based on 95%the open market and 3,075 shares of the February 22, 2006 public offering price for our common stock from Misys. In total through May 31, 2009, the Company has repurchased 5,424 shares of $17.75.common stock at an average price (excluding commissions) of $9.50 per share for an aggregate purchase price of $51,547. The remaining authorized amount for stock repurchase under the program is approximately $98,453, which program will terminate on February 10, 2011.

Period		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Average Price Per Share		Total Dollar Value Purchased To-Date		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
3/1/09—3/31/09		857		$9.22		$7,904		$142,096
4/1/09—4/30/09		4,078		$9.28		$45,741		$104,259
5/1/09—5/31/09		489		$11.87		$51,547		$98,453

Performance Graph

The following graph below compares the cumulative 5-year60-month total return provided to stockholders on Allscriptsof holders of Allscripts-Misys Healthcare Solutions, Inc.’s common stock relative towith the cumulative total returns of the NASDAQ Composite index and the NASDAQ Health Services index. AnThe graph tracks the performance of a $100 investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on 12/(with the reinvestment of all dividends) from 5/31/2002 and its relative performance is tracked through 12/2004 to 5/31/2007.2009.

Cumulative Total Return

The information in this “Performance Graph” section shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934.

Item 6. Selected Financial Data

The selected consolidated financial data shown below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report. The consolidated statements of operations data for the three years ended DecemberMay 31, 2007, 20062009, 2008 and 20052007 and the consolidated balance sheet data at DecemberMay 31, 20072009 and 20062008 are derived from the consolidated financial statements audited by Grant ThorntonPricewaterhouseCoopers LLP, which are included elsewhere in this report. The consolidated statements of operations data for the years ended DecemberMay 31, 20042006 and 20032005 and the balance sheet data at DecemberMay 31, 2005, 20042007, 2006 and 20032005 are derived from audited financial statements that are not included in this report. The historical results are not necessarily indicative of results to be expected for any future period.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollar and share amounts in thousands, except per share amounts)

The following discussion and analysis should be read together with “Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this report. This discussion contains certain forward-looking statements that involve risks, uncertainties and assumptions. You should read the cautionary statements made in this report as applying to related forward-looking statements wherever they appear in this report. Our actual results may be materially different from the results we discuss in the forward-looking statements due to certain factors, including those discussed in “Risk Factors” and other sections of this report.

Overview

AllscriptsMerger 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 to Allscripts 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. 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, represented approximately 56.8% of the number of outstanding shares of Allscripts common stock.

Basis of Presentation

The Transactions constitute a reverse acquisition for accounting purposes. Results of operations for the year ended May 31, 2009 include the results of operations of legacy MHS for the full year ended May 31, 2009 and the results of operations of legacy Allscripts from the completion of the Transactions on October 10, 2008 through May 31, 2009. As such, the pre-acquisition combined financial statements of MHS are treated as the historical financial statements of Allscripts. Results of operations for the years ended May 31, 2008 and 2007 are the results of operations of legacy MHS only.

Business Overview

Allscripts (the trade name of Allscripts-Misys Healthcare Solutions, Inc.) is a leading provider of clinical software, connectivityservices, information and informationconnectivity solutions that empower physicians useand other healthcare providers to improve the quality of healthcare.deliver best-in-class patient safety, clinical outcomes and financial results. 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 RecordRecords (EHR), practice management, revenue cycle management, clearinghouse services, electronic prescribing, Emergency Department Information System (EDIS), hospital care management and discharge management solutions, document imaging solutions, through our clinical solutions businesses. Additionally, we provide clinical education and informationa variety of solutions for physicianshome care and patients through our physicians interactive business unit, along with physician-patient connectivity solutions through our partnership with Medem.other post-acute facilities. We also provide prepackaged medication fulfillment services through our medication services business unit.

We reporthave reported our financial results utilizing three business segments: software and related services segment; information services segment;clinical solutions, health solutions and prepackaged medications. However, on March 16, 2009, we disposed of our prepackaged medications segment. The softwarebusiness and, related services segment consistsas a result, will, in respect of clinical software solutions offered byfuture periods, report financial results in our two remaining segments, clinical solutions and hospitalhealth solutions.

Our clinical solutions businesses,segment includes both our Enterprise business for large physician practices and Integrated Delivery Networks, and our Professional business for smaller or independent physician practices, providing such as HealthMatics, TouchWorks, TouchScript, Canopy, EmStat, Healthmatics EDpractices with clinical and ECIN offerings. TouchWorks Electronic Health Record is anpractice management software solutions and related services. Our award-winning EHR solutionsolutions are designed to enhance physician productivity using Tablettablet 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. TouchWorks Practice Management combinesOur practice management solutions combine scheduling and financial revenue cycle

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. TouchWorks EHROur electronic prescribing solutions include a Web-based stand-alone solution offered free-of-charge to any licensed prescriber, and TouchWorks PM, which are both offered individually and as a combined solution, have the functionality to handle the complexities of large physician practice groups with 25 or more physicians.

For physician practice groups with fewer than 25 physicianssolutions that are seeking an EHR,integrated into each of our EHRs. And our Web-based suite of revenue cycle management and clearinghouse services solutions – available on a stand-alone basis or integrated into our practice management system, or a combined EHRsolutions – address every step in the reimbursement cycle for healthcare organizations, clearinghouses and practice management solution, we offer our HealthMatics EHR, Ntierprise Practice Management and HealthMatics Office, which combines the two offerings into one complete solution for clinical and back-office automation.

TouchScript is an e-prescribing solution that physicians can access via the Internet to quickly, safely and securely prescribe medications, check for drug interactions, access medication histories, review drug reference information, and send prescriptions directly to a pharmacy or mail order facility. TouchScript can be a starting point for medical groups to seamlessly transition over time to a complete EHR. Another e-prescribing offering, eRx NOW, is an easy-to-use, web-based solution that is safe, secure, requires no downloading and no new hardware. eRx NOW is accessible by Internet on computers, handheld devices and cell phones and is offered free of charge to every prescriber in America via the National ePrescribing Patient Safety Initiative, a collaborative initiative introduced and led by us to enhance patient safety and reduce preventable medication errors.payers.

Our health system solutions segment provides offerings for hospitals that are seeking EDISEmergency Department Information System (EDIS) and care management solutions, includeas well as post-acute facilities such as home health providers, hospices and skilled nursing facilities. Allscripts ED (formerly HealthMatics ED, EmSTAT and Canopy. HealthMatics EDED) is an EDIS that electronically streamlines processes for large hospital Emergency Departments, including tracking, triage, nurse and physician charting, disposition and reporting.

EmSTAT, a legacy EDIS product, offers similar functionality for streamlining the Emergency Department care process in small hospitals. Allscripts Care Management (formerly Canopy and ECIN) 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. On December 31, 2007, we acquired Extended Care Information Network, Inc. (“ECIN”),Allscripts Post Acute solutions include: Referral Management, Referral Management Plus, Allscripts Mobile and Core System Integration. These solutions streamline the transition of care process between hospitals and post-acute care facilities. Our solution for home health providers is an integrated system that combines business, clinical, and scheduling features into a provider of hospital care managementsingle package, providing home health, hospice, and discharge planning software. ECIN’s web-based solutions include Utilization Management, Discharge Planning and Case Management systems that assist hospitals in streamlining case management workflow, increasing productivity, improving patient throughput and reducing length of stay.

In our information services segment, our key product offerings are Physicians Interactive and Physician Relationship Management Platform (“PRMP”). Physicians Interactive is a web-based solution that connects physicians with pharmaceutical companies, medical device manufacturers and biotech companies. One element of this solution, often referred to as e-Detailing, uses interactive sessions to provide clinical education and information to physicians about medical products and disease states, which promotes more informed decision-making, increased efficiency and ultimately higher quality patient care. Other elements of the Physicians Interactive offerings include e-surveys, clinical updates, resource centers, key opinion leader materials and other physician relationship management services. PRMP provides pharmaceutical companiesprivate duty organizations with a turnkey systemuser friendly product that enables staff to build anwork more effectively both inside and outside the office.

We believe the combination of President Obama’s leadership and vision, the standards provided by the Certification Commission for Healthcare Information Technology (CCHIT), and federal incentives that exist today for e-prescribing and pay-for-quality initiatives, will quickly make Electronic Health Records as common as practice management systems in all provider offices. We believe the Stimulus provided by the American Recovery and Reinvestment Act of 2009 will be the single biggest driver of healthcare IT adoption in our industry’s history since the requirement of electronic dialogue and manage ongoing relationships with physicians. The PRMP incorporates a full suite of online tools, including campaign management, physician communication and education and sample and rep requests, as well as e-Detailing opportunities.

Finally, our prepackaged medications segment is comprised of our medication services business unit. This business unit provides point-of-care medication management and medical supply services and solutions for physicians and other healthcare providers.claims submissions.

The composition of our revenue by segment is as follows:

Cost of revenue for the software and related servicesAllscripts’ clinical solutions segment consists primarily of salaries, bonuses and benefits of ourAllscripts billable professionals, third-party software costs, hardware costs, capitalizedthird-party transaction processing costs, amortization of acquired proprietary technology, 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. CostIn addition, the cost of revenue for all segments include certain services performed by Misys under a Shared Services Agreement (see footnote 14 to the information services segment consists primarily of salaries, bonuses and benefits of our program management and program development personnel, third-party program development costs, costs to recruit physicians and other program management costs.consolidated financial statements).

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. Expenses forIn addition, selling, general and administrative expenses include certain services performed by Misys under a Shared Services Agreement (see footnote 14 to the year ended December 31, 2006 include non-recurringconsolidated financial statements).

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 A4 acquisition.

Interest expense consists primarily of interest on our 3.50% Senior Convertible Debentures due 2024 (the “Debentures”), interest on capital leases and interest expense on our Second Amended and Restated Credit Agreement (the “Credit Facility”). Interest income and other consists primarily of interest earned on cash and marketable securities.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Management bases its estimates and judgments on historical experience and on various other factors that are believed 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. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

Revenue from software licensing arrangements, whererepresents the service element is considered essential to the functionality of the other elements of the arrangement, is accounted for under American Institute of Certified Public Accountants Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type Contracts and Certain Production-Type Contracts.” Allscripts recognizes such revenue on an input basis using actual hours worked as a percentage of total expected hours required by the arrangement, provided that the fee is fixed and determinable and collection of the receivable is probable. If any such software licensing arrangement is deemed to have extended payment terms, revenue is recognized using the input method but is limited to the amounts due and payable. Maintenance and support revenue from software licensing arrangements is recognized over the term of the applicable support agreement based on vendor-specific objective evidence of fair value of consideration received or receivable from clients for goods and services provided by the Company. Revenue from System Sales includes software and related hardware. Revenue from Professional Services includes implementation, training and consulting services. Revenue from Maintenance includes customer support and maintenance services. Revenue from Transaction Processing and support revenue, which is generally based upon contractual renewal rates.Other includes Electronic Data Interchange (“EDI”) services. Revenue from prepackaged medications includes the sale of medications and pharmaceutical products.

Revenue from software licensing arrangements where the service element is not considered essential to the functionality of the other elements of the arrangement is accounted for under SOP 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Such revenue is recognized upon shipment of the software or as services are performed, provided that persuasive evidence of an arrangement exists, fees are considered fixed and determinable, and collection of the receivable is considered probable. The revenue recognized for each separate element of a multiple-element software contract is based upon vendor-specific objective evidence of fair value, which is based upon the price the customer is required to pay when the element is sold separately.separately or renewed. For agreements that are deemed to have extended payment terms, revenue recognition is limited to amounts due and payable.

Revenue from Allscripts’ sales of pharmaceutical products, net of provisions for estimated returns,software licensing arrangements, where the service element is recognized upon shipmentconsidered essential to the functionality of the pharmaceutical products,other elements of the point at whicharrangement, is accounted for under American Institute of Certified Public Accountants Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type Contracts and Certain Production-Type Contracts, as referenced in SOP 97-2.” Allscripts recognizes revenue on an input basis using actual hours worked as a percentage of total expected hours required by the customer takes ownershiparrangement, provided that the fee is fixed and assumes risk of loss, when no performance obligations remaindeterminable and collection of the receivable is probable. Allscripts offers customersMaintenance and support from these agreements is recognized over the right to return pharmaceutical products under various policies and estimates and maintains reserves for product returnsterm of the support agreement based on historical experience followingvendor-specific objective evidence of fair value of the provisionsmaintenance revenue, which is generally based upon contractual renewal rates. For agreements that are deemed to have extended payment terms, revenue is recognized using the input method but is limited to the amounts due and payable.

Revenue from certain value-added reseller (“VAR”) relationships in which software is directly sold to VARs is recognized upon delivery of FAS No. 48, “Revenue Recognition When Right of Return Exists.”the software in accordance with SOP 97-2 assuming all other revenue recognition criteria have been met. Revenue recognition is deferred until the software is delivered to the ultimate end user if the written and implied arrangement terms do not satisfy the criteria for revenue recognition.

Certain of Allscripts’our customer arrangements in its information services segment encompass multiple deliverables. Allscripts accountsWe account for these arrangements in accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). If the deliverables meet the separation criteria in EITF 00-21, the deliverables are separated into separate units of accounting, and revenue is allocated to the deliverables based on their relative fair values. The criteria specified in EITF 00-21 are that the delivered item has value to the customer on a stand-alone basis, there is objective and reliable evidence of the fair value of the undelivered item, and if the arrangement includes a general right of return

relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. Applicable revenue recognition criteria isare considered separately for each separate unit of accounting.

Management applies judgment to ensure appropriate application of EITF 00-21, including value allocation among multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements and timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as separate units of accounting, revenue recognition is evaluated for the combined deliverables as a separatesingle unit of accounting revenue from all deliverables is treated as one accounting unit and recognized on a straight-line basis overgenerally the termrecognition pattern of the arrangement.final deliverable will dictate the revenue recognition pattern for the single, combined unit of accounting. Changes in circumstances and customer data may affect management’s analysis of EITF 00-21 criteria, which may cause Allscripts to adjust upward or downward the amount of revenue recognized under the arrangement.

In accordance with EITF issued ConsensusEmerging Issues Task Force Issue Number 01-14, “IncomeIncome Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’“Out-of-Pocket” Expenses Incurred” (“EITF 01-14”), the Company records reimbursements for out-of-pocket expenses incurred as revenue includes reimbursable expenses charged to Allscripts’ clients.in the statement of operations.

Maintenance fees are recognized ratably over the period of the contract based on vendor specific objective evidence of fair value based upon contractual renewal rates. Revenue from EDI services is recognized as services are provided and is determined based on the volume of transactions processed. Revenue from the sale of prepackaged medications, net of provisions for estimated returns, is recognized upon shipment of the pharmaceutical products, the point at which the customer takes ownership and assumes risk of loss, when no performance obligations remain and collection of the receivable is probable. Allscripts offers the right of return on pharmaceutical products under various policies and estimates and maintains reserves for product returns based on historical experience following the provisions of FAS No. 48, “Revenue Recognition When Right of Return Exists.”

Allowance for Doubtful Accounts Receivable

We rely on estimates to determine our bad debt expense and the adequacy of our allowance for doubtful accounts. These estimates are based on our historical experience and the industry in which we operate. If the

financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and related bad debt expense may be required.

Inventories

We adjust the value of our inventory downward for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Investment in Medem

Allscripts holds an investment in Medem totaling $2,900$1,419 as of DecemberMay 31, 2007.2009. The investment has been accounted for under the cost basis of accounting and is recorded in other assets in the consolidated balance sheet. The fair value of the investment is dependent upon the actual and forecast financial performance of Medem, its market indicators of value, and the volatility inherent in the external markets for this type of investment. In assessing potential impairment of the investment, we consider these factors, as well as the forecasted financial performance of Medem, liquidation preference value of the stock that we hold, and estimated potential for investment recovery. If any of these factors indicate that the investment has become other-than-temporarily impaired, we may have to record an impairment charge.

On May 28, 2007, During the fourth quarter of fiscal year 2009 Allscripts entered into an Option Purchase Agreement (the “Option Agreement”) withrecorded a $1,800 impairment charge on its investment in Medem. Pursuant to the Option Agreement, Allscripts sold to Medem the irrevocable three-year option held by Allscripts for a total purchase price of $2,592. The fair value of the three-year option was estimated at approximately $200 at the time of investment on August 18, 2004. The sale of the option resulted in a gain of approximately $2,392 and is recorded in Allscripts’ operating results for the year ended December 31, 2007.

Goodwill and Intangible Assets

We evaluate the value of intangible assets based upon the present value of the future economic benefits expected to be derived from the assets. We assess the impairment of the identifiable intangibles and goodwill annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. If we determine that the value of the intangible assets and goodwill may not be recoverable from future cash flows, a write-down of the value of the asset may be required.

We estimate the useful lives of our intangible assets and amortize the value over that estimated life. If the actual useful life is shorter than our estimated useful life, we will amortize the remaining book value over the remaining useful life or the asset may be deemed to be impaired and, accordingly, a write-down of the value of the asset may be required.

During the third quarter of 2007, we made an immaterial adjustment to the value recorded for the A4 acquisition. We originally based our valuation of the Allscripts shares issued to A4 shareholders on the average closing price of the stock of Allscripts on March 2, 2006, the date of the consummation of the A4 acquisition. In conformity with SFAS 141 and EITF 99-12, we have adjusted the total purchase price to reflect the average closing price of our stock for the five trading days commencing two trading days before, and ending two trading days after, the date of the first public announcement of the A4 acquisition on January 19, 2006. This change in valuation resulted in a decrease in goodwill and additional paid in capital of $9,520.

Software Capitalization

The carrying value of capitalized software is dependent upon the ability to recover its value through future revenue from the sale of the software. If we determine in the future that the value of the capitalized software could not be recovered, a write-down of the value of the capitalized software to its recoverable value may be required.

We estimate the useful life of our capitalized software and amortize the value over that estimated life. If the actual useful life is shorter than our estimated useful life, we will amortize the remaining book value over the remaining useful life or the asset may be deemed to be impaired and, accordingly, a write-down of the value of the asset may be required.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.

In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. In accordance with FIN 48, “Accounting for Uncertainty in Income

Taxes—an Interpretation of FASB Statement No. 109”, we recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes may be required. If we ultimately determine that payment of these amounts is unnecessary, then we reverse the liability and recognizes a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained if challenged by the taxing authorities. To the extent we prevail in matters for which liabilities have been established, or are required to pay amounts in excess of our liabilities, our effective tax rate in a given period may be materially affected. An unfavorable tax settlement would require cash payments and may result in an increase in our effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution. We report interest and penalties related to uncertain income tax positions as income taxes.

As of December 31, 2007 and 2006, we recognized a net deferred tax asset of $10,471 and $23,522, respectively. Net deferred tax assets are primarily comprised of net deductible temporary differences and net operating loss carryforwards that are available to reduce taxable income in future periods. As of December 31, 2007 and 2006, we consider it more likely than not that we will have taxable income in the future to allow us to realize our deferred tax assets. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of ongoing tax planning strategies.

Results of Operations

The following table shows, for the periods indicated, our results of operations expressed as a percentage of our revenue:

Overview of Consolidated Results

Fiscal Year Ended DecemberMay 31, 20072009 Compared to Fiscal Year Ended DecemberMay 31, 20062008

Software and Related ServicesRevenue

Software and related servicesConsolidated revenue forincreased $164,668, or 42.9%, from $383,771 during the year ended DecemberMay 31, 2007 increased 28.3%, or $49,170, from $173,503 in 20062008 to $222,673 in 2007.$548,439 during fiscal year 2009. The increase is attributable to a fullfor fiscal year effect of A4 in 2007, an increase in revenue recorded for add-on software sales to existing customers, an increase in related support and maintenance revenue due to the increase in our installed customer base and an increase in hardware revenue, offset by a decrease in software and implementation services revenue accounted for under percentage of completion. The decrease in software and implementation services revenue2009 is primarily due to slower than expected deployment schedulesthe inclusion of TouchWorks version 11.0, which management believes will continue into 2008.

Gross profit for software and related servicesrevenue contributed by legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through May 31, 2009, respectively.

Excluding the revenue contributed by legacy Allscripts, the legacy MHS revenue declined in fiscal year ended December 31, 2007 increased 23.9%, or $24,655,2009 as compared to fiscal year 2008. This decline was concentrated in systems sales and professional services in the legacy MHS clinical solutions segment and was as a direct result of a shift of new sales orders away from $103,152the legacy MHS products to the legacy Allscripts products where similar products existed in 2006 to $127,807both legacy businesses. This shift was expected by management and is part of the overall integration strategy for the clinical solutions segment. Partially offsetting this decline in 2007. Thesystems sales and services revenue was an increase in gross profit is primarilylegacy MHS clinical solutions maintenance revenue as a result of add-on softwarecontinued growth in the customer base and annual price increases on existing contracts as well as modest growth in transaction services revenue. The net decline in revenue in the legacy MHS clinical solutions business was partially offset by revenue growth in the legacy

Health solutions segment which experienced modest system sales and professional services revenue growth due to existing customers and an increase in support andorders as well as growth in maintenance revenue which are traditionally higher-margin products. as a result of continued growth in the customer base and annual price increases on existing contracts.

Gross profitMargin

Consolidated gross margin for software and related servicesfiscal year 2009 increased $85,250, or 41.2%, from $206,901 for fiscal year 2008 to $292,151 in the fiscal year 2009. Consolidated gross margin as a percentage of revenue decreased from 59.5%for fiscal year 2009 and fiscal year 2008 was 53.3% and 53.9%, respectively. The increase in 2006gross margin in fiscal year 2009 is primarily due to 57.4%the legacy Allscripts gross margin contribution which was not present in 2007. Allscripts’fiscal year 2008. The decrease in gross profitmargin as a percentage of revenue has been adversely impactedin fiscal year 2009 is primarily due to the contribution of gross profit from the A4 product line, which tends to have lower margins than our traditional overalllegacy Allscripts software and related services, which has lower margins than legacy MHS software and related services.

Operating Income

Consolidated operating income increased $5,703, or 14.2%, from $40,231 during fiscal year 2008 to $45,934 in fiscal year 2009. The increase in operating income for fiscal year 2009 is primarily due to the legacy Allscripts gross margin contribution which was not present in fiscal year 2008. In addition to the impact of the addition of legacy Allscripts in fiscal year 2009, contributing to the increase in operating income was the result of a decrease in the amortization of intangibles as a result of certain legacy MHS intangibles which became fully amortized in fiscal year 2008 and due to lower research and development costs resulting from an increase in software development eligible for capitalization related primarily to development on our MyWay product lines,as well as a reduction in third-party spending on other legacy MHS software products. These cost savings were partially offset by higher selling, general and administrative costs related to the impairment of our investment in iMedica, higher severance costs, and an increase in third party costs related to the integration of the businesses after the closing of the Transactions.

Fiscal Year Ended May 31, 2008 Compared to Fiscal Year Ended May 31, 2007

Revenue

Revenue for the fiscal year ended May 31, 2008 increased $4,078, or 1.1%, from $379,693 for the fiscal year ended May 31, 2007. The increase in revenue during all twelve monthsfiscal year 2008 was driven by the health solutions segment, partially offset by a decline in revenue in the clinical solutions segment. Revenue in the health solutions segment for the fiscal year ended May 31, 2008 increased $7,890, or 28.2%, to $35,880 from $27,990 in fiscal year 2007. This revenue growth was as a result of increased orders in fiscal year 2008 as well as an increase in revenue recorded under the percentage of completion method on contracts that were signed prior to fiscal year 2008. Also contributing to the increase was higher maintenance revenue as a result of a higher customer base. Revenue in the clinical solutions segment for the fiscal year ended May 31, 2008 decreased $3,812, or 1.1%, to $347,891 from $351,703 in fiscal 2007. This decline in revenue was concentrated in system sales and professional services and was as a result of a decline in orders for EMR and PM products in fiscal 2008 versus the comparable period in fiscal 2007. This decline was partially offset by an increase in maintenance revenue related to a growing customer base as well as an increase in transaction processing and other revenue related to organic growth as the company continued to penetrate its existing customer base with its Payerpath solution.

Gross Margin

Gross margin for the fiscal year ended May 31, 2008 increased $16,336, or 8.6%, to $206,901 from $190,565 for the fiscal year ended May 31, 2007. This increase in gross margin was primarily driven by the clinical solutions segment. The improvement in gross margin from clinical solutions system sales was primarily due to more favorable pricing for hardware and third party royalties as a result of a cost savings program initiated during fiscal year 2008. Gross margin also improved in the health solutions segment and was driven by improved utilization of billable professional services staff.

Operating Income

Operating income increased 550%, from $6,192 during the fiscal year ended May 31, 2007 to $40,231 during the fiscal year ended May 31, 2008. The increase in operating income is primarily attributable to the increase in gross margin totaling $16,336, a decrease in selling, general and administrative expenses of $3,535, a decrease in research and development expenses of $3,096, and a decrease in amortization of intangibles totaling $11,072.

The decrease in selling, general and administrative expenses during the fiscal year ended May 31, 2008 was primarily due to a decline in the clinical solutions segment related to salary and travel savings from lower headcount, lower rent and phone expenses due to cost reduction strategies implemented in fiscal year 2008. Also contributing to the decrease was lower discretionary marketing spend. These decreases were partially offset by higher stock based compensation costs, legal fees and bad debt expense. The cost savings in the clinical solutions segment were partially offset by the health solutions segment which had an increase in selling, general and administrative expenses, primarily related to the addition of headcount to accommodate growth. The cost savings in the clinical solutions segment were further offset by amounts included in selling, general and administrative expenses for costs incurred in fiscal year 2008 that were not allocated to a segment including severance costs related to executive turnover and downsizing, fees paid to strategy consultants and an increase in costs allocated from Misys. The severance costs totaled $4,505 and were related to headcount reductions resulting from a functional reorganization as well as an effort to reduce costs. The severance pertained to the elimination of approximately 130 positions. Savings from the headcount reductions were partially offset in fiscal year 2008 and were largely offset in fiscal year 2009 due to hiring for new positions created as part of the reorganization effort.

For the fiscal year ended May 31, 2008, the decrease in research and development costs was concentrated in the clinical solutions segment and is primarily the result of the termination of a development project in late fiscal year 2007 after management determined that it was in the best interest of the company to explore alternatives to developing the product in-house. Accordingly, significant third party costs incurred during fiscal year 2007 did not recur in fiscal year 2008.

Amortization of intangibles includes amortization of customer relationships and trade name intangibles acquired in the Medic, Payerpath and Amicore acquisitions. Amortization expense declined during fiscal year 2008 as the Medic customer relationships asset became fully amortized during fiscal year 2008 versus a full period of amortization in the comparable period in fiscal year 2007.

Segment Operations

Fiscal Year Ended May 31, 2009 Compared to Fiscal Year Ended May 31, 2008

Clinical Solutions

Revenue

Total clinical solutions revenue for fiscal year 2009 increased $109,511, or 31.5%, from $347,891 during the fiscal year ended May 31, 2008 to $457,402 in fiscal year 2009. The revenue increase in fiscal year 2009 is primarily due to the clinical solutions revenue contributed by legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through May 31, 2009. Excluding the revenue contributed by legacy Allscripts, the legacy MHS revenue declined in fiscal year 2009 as compared to only ten monthsfiscal year 2008. This decline was concentrated in 2006. In addition,systems sales and professional services in the legacy MHS clinical solutions segment and was as a direct result of a shift of new sales orders away from the legacy MHS products to the legacy Allscripts products where similar products existed in both legacy businesses. This shift was expected by management and is part of the overall integration strategy for the clinical solutions segment. Partially offsetting this decline in systems sales and services revenue was an increase in legacy MHS clinical solutions maintenance revenue as a result of continued growth in the customer base and annual price increases on existing contracts as well as modest growth in transaction services revenue.

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 fiscal year 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 and related funding requirements and also due to the challenging economic conditions in fiscal 2009 which motivated customers and prospective customers to defer capital investments, conserve cash and move towards software subscription arrangements versus traditional licensing arrangements.

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 continue to have an adverse affect on our results of operations into our fiscal year 2010.

Gross Margin

Gross margin for the fiscal year 2009 increased $55,166, or 30.7%, from $179,799 in fiscal year 2008 to $234,965 in fiscal year 2009. The increase in gross profitmargin is primarily due to the clinical solutions margin contributed by legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through May 31, 2009. Gross margin as a percentage of revenue was negatively affected by pricing pressures51.4% and 51.7% for fiscal year 2009 and fiscal year 2008, respectively. The slight decrease in the HealthMatics business driven by competitors and by the incremental deployment effort related to TouchWorks version 11.0 software that was experienced during the second half of 2007 when compared to the same period of 2006.

Operating expenses for software and related services for the year ended December 31, 2007 increased $13,833 from $49,054 in 2006 to $62,887 in 2007. Assuming the A4 acquisition was consummated on January 1, 2006, the total operating expense incurred during 2006 would have been $69,173 or $53,973 when excluding acquisition-related expenses which includes certain bonuses, resulting in a year-over-year increase of $8,914. The increase in operating expenses during the full twelve months of 2007 compared to the same period in 2006 is primarily the result of an increase of approximately $10,700 in compensation-related costs, as well as an increase in travel and

marketing expenses as our existing and prospective customer base continues to grow. These increases in operating costs for 2007 reflect the overall growth experienced in the software and services business and also reflect increased headcount during 2007. A total of $2,042 and $1,093 was recorded for stock-based compensation in 2007 and 2006, respectively.

We had capitalized software costs of $13,338 in 2007 and $7,446 for the same period in 2006, which was capitalized pursuant to Statement of Financial Accounting Standard “SFAS” No. 86, “Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed” in our software and related services segment. The increase in capitalized software is largely attributed to the development of TouchWorks version 11.0, which launched in June 2007, TouchWorks version 11.1, third party contracted clinical content development of approximately $5,200, the inclusion of approximately $1,400 of capitalized software related to our A4 businesses and upgrades to our e-prescribing software when compared to the year ended December 31, 2006. The amortization expense for capitalized software that has been generally released as of December 31, 2007 is expected to be approximately $5,800, $5,000, $3,000, $1,200, and $0 for the five years ended December 31, 2012, respectively.

Prepackaged Medications

Prepackaged medications revenue for the year ended December 31, 2007 increased $271, from $43,688 in 2006 to $43,959 in 2007. The increase is due to an increase in prepackaged medications revenue of approximately $331, driven primarily by new business, offset somewhat by management’s focus in reducing lower-margin revenue from wholesaler customers. Total medication units shipped in 2007 increased slightly from approximately 2.4 million units shipped in 2006 compared to approximately 2.6 million units shipped in 2007.

Gross profit for prepackaged medications for the year ended December 31, 2007 decreased 5.9%, or $440, from $7,425 in 2006 to $6,985 in 2007. Gross profitgross margin as a percentage of revenue decreased from 17.0% in 2006 to 15.9% in 2007. The decrease in gross profit is due to an increase in compensation of approximately $300 and an increase in medication material costs due to the sale of more generic than brand medications. The decrease in gross profit as a percentage of revenuefor fiscal year 2009 is primarily due to an increase in headcount additions as certain revenue-producing headcount were reclassifiedamortization cost associated with acquired technology related to the Transactions.

Selling, General and Administrative

Selling, general and administrative costs for fiscal year 2009 increased $3,173, or 3.7%, from operating expenses$85,461 during fiscal year 2008 to cost$88,634 fiscal year 2009. The increase during fiscal year 2009 was primarily a result of revenue in 2007.

Operating expenses for prepackaged medicationsthe inclusion of legacy Allscripts for the period from the closing of the Transactions on October 10, 2008 through May 31, 2009. The impact of the addition of costs related to legacy Allscripts was partially offset by the impact in fiscal year 2009 of cost reduction strategies implemented within legacy MHS in fiscal year 2008.

Research and Development

Research and development costs for the fiscal year ended DecemberMay 31, 20072009 decreased $6,562, or 19.1%, from $34,341 during fiscal year 2008 to $27,779 in fiscal 2009. The decrease is primarily driven by an increase in the level of costs recorded as capitalized software on the balance sheet and amortized over their expected useful lives versus being expensed as incurred. This shift was driven by the closing of the Transactions on October 10, 2008, which resulted in an increase in projects undertaken that qualified for capitalization.

Health Solutions

Revenue

Total health solutions revenue for fiscal year 2009 increased slightly by $135,$40,736, or 113.5%, from $3,124$35,880 during fiscal year 2008 to $76,616 fiscal year 2009. The revenue increase in 2006 to $3,259 in 2007. The increasefiscal year 2009 is primarily due to anthe health solutions revenue contributed by legacy Allscripts from the closing of the Transactions on October 10, 2008 through May 31, 2009. Excluding the impact on revenue contributed by legacy Allscripts, the increase of approximately $131 in sales commissions andrevenue was related to legacy MHS health solutions which experienced an increase in compensation expense of $321system sales and professional services revenue due to increased headcount, offset byan increase in orders as well as growth in maintenance revenue primarily as a decreaseresult of $366continued growth in bad debt expense, primarily relating to one wholesalerthe customer in 2006.base and annual price increases on existing contracts.

Information ServicesGross Margin

Information services revenueGross margin for thefiscal year ended December 31, 20072009 increased 41.7%, or $4,498,$27,193, from $10,778$27,102 in 2006fiscal year 2008 to $15,276$54,295 in 2007. This improvement is primarily attributed to the recognition of a full twelve months of revenue related to the development and hosting of several PRMP solutions during thefiscal year ended December 31, 2007. We recognized a partial year of revenue for these PRMP solutions in 2006 due to the timing of contract signings in 2006. Revenue from e-Detailing sessions remained consistent on a year-over-year basis.

2009. Gross profit for information services increased 4.8%, or $260, from $5,361 in 2006 to $5,621 in 2007. Gross profitmargin as a percentage of revenue decreased from 49.7% in 2006 to 36.8% in 2007.for fiscal year 2009 and 2008 was 70.9% and 75.5%, respectively. The decrease in gross profitmargin as a percentage of revenue for fiscal year 2009 is primarilyattributable to the margin mix associated with the legacy Allscripts products which have margins that tend to be lower than legacy MHS and due to an increase in amortization cost associated with acquired technology related to the number of hosted PRMP solutions, which is traditionally a lower-margin product than our e-Detailing solution.Transactions.

Operating expensesSelling, General and Administrative

Selling, general and administrative costs for information services decreased $82,fiscal year 2009 increased $5,215 or 45.9%, from $4,016$11,354 in 2006fiscal year 2008 to $3,934$16,569 in 2007.fiscal year 2009. The decreaseincrease in costs for fiscal year 2009 is primarily due to a decrease in compensation related chargescosts incurred by legacy Allscripts for the period from the closing of $141 caused by a decrease in headcountthe Transactions on October 10, 2008 through May 31, 2009 and is slightly offset bydue an overall increase in depreciation expense.selling, general and administrative costs, primarily related to the addition of headcount to accommodate growth in the health solutions segment.

Research and Development

Research and development costs for fiscal year 2009 increased $3,570, from $3,443 during fiscal year 2008 to $7,013 in fiscal year 2009. The increase in fiscal year 2009 is primarily due to the additional research and development costs contributed by legacy Allscripts from the closing of the Transactions on October 10, 2008 through May 31, 2009.

Prepackaged Medications

The prepackaged medications business was deemed to be acquired for accounting purposes in conjunction with the Transactions on October 10, 2008 and its results are included in fiscal year 2009 from October 10, 2008 through March 16, 2009, the date on which Allscripts completed the sale to A-S Medication Solutions LLC (“A-S”) of certain assets comprising the prepackaged medications business pursuant to an Asset Purchase Agreement (the “Meds Agreement”).

Under terms of the Meds Agreement, Allscripts received a total of $8,000 in cash consideration during fiscal year 2009. In addition, Allscripts entered into a Marketing Agreement with A-S on March 16, 2009 which provides that Allscripts will earn annual fees for providing various marketing services of $3,600 per year over the five year term for a total of approximately $18,000. Allscripts has continuing obligations requiring substantive performance under the Marketing Agreement, including the use of the Allscripts tradename, promotion of the products and service offerings of A-S with existing and future Allscripts’ customers, participation in the development and promotion of joint marketing materials, sharing of certain customer and sales lead information, and other related marketing service obligations. For the first year, fees are payable monthly beginning on June 30, 2009, thereafter, fees are payable on an annual basis on each anniversary date of the commencement of marketing activities under the Marketing Agreement. The Marketing Agreement contains a provision that could result in a reduction of annual fees not to exceed $1,200 per year if a material adverse change in law, as defined, results in a significant reduction in prepackaged medications customer revenues related to the Meds Agreement, as defined. At the March 16, 2009 closing, Allscripts entered into a services agreement pursuant to which it agreed to provide certain transition services to A-S until December 31, 2009. The sale of the prepackaged medication business resulted in a loss of approximately $1,588 which has been recorded in unallocated corporate expenses for fiscal year 2009.

Prepackaged medications revenue was approximately $14,421 for fiscal year 2009 which represents the period from the closing of the Transactions on October 10, 2008 through March 16, 2009, the closing on the sale of the prepackaged medications business. Gross margin and gross margin as a percentage of revenue was $2,891 and 20.0% for fiscal year 2009.

Selling, general and administrative costs for the prepackaged medications business were approximately $1,770 for the period from the closing of the Transactions on October 10, 2008 through March 16, 2009, the closing on the sale of the prepackaged medications business.

Unallocated Corporate Expenses

Unallocated corporate expenses for thefiscal year ended December 31, 20072009 increased by $2,346$72,178, from $39,876$20,751 in 2006fiscal year 2008 to $42,222$92,929 in 2007.fiscal year 2009. The increase in 2007 primarily relates to anunallocated corporate expense for fiscal year 2009 includes merger and integration related costs of approximately $39,900 which were incurred in connection with the Transactions. Excluding these one-time related costs in fiscal 2009, unallocated corporate expenses would have been approximately $53,029 for fiscal year 2009. This increase in depreciation expense related to our new general ledger system which was placed into service during the second quarter of 2007, but absent in the comparable period of 2006, as well as an increase in our facilities costs as we expanded our corporate facilities. Operating expenses for 2006 included $1,021 in non-recurring integration costs related to the A4 acquisition that was recognized in the first quarter of 2006. Amortization of intangibles increased by $364, from $10,272 in 2006 to $10,636 in 2007. This increasefiscal year 2009 is primarily due to acquisition-relatedcorporate costs incurred related to the Transactions, 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 fiscal year 2009 decreased $4,436, from $11,320 during fiscal year 2008 to $6,884 in fiscal year 2009. The decrease in fiscal year 2009 is primarily due to the Medic customer relationship intangible asset becoming fully amortized during fiscal year 2008. The decrease was partially offset by the intangible amortization recorded in conjunction with the Transactions for our Julythe period from the closing of the Transactions on October 10, 2007 acquisition of Source Medical Solutions, Inc. in which we recorded approximately $345 of amortization during 2007.2008 through May 31, 2009.

Interest Expense and Interest Income and Interest ExpenseOther, Net

Interest expense for fiscal year 2009 increased $1,866, from $296 in fiscal year 2008 to $2,162 during fiscal year 2009. The increase in fiscal 2009 is primarily due to interest expense related to legacy Allscripts 3.50% Senior Convertible Debentures due 2024 (the “Debentures”) as well as interest on the Credit Facility (as defined below).

On February 10, 2009 Allscripts entered into a Second Amended and Restated Credit Agreement (the “Credit Facility”) which provides for a total unsecured commitment of $125,000, an increase of $50,000 from the First Amendment to Credit Facility, and matures on August 15, 2012.

On November 7, 2008, Allscripts launched an offer to purchase for cash all of the $27,868 of Debentures then outstanding at a purchase price equal to 100% of the principal amount of the Debentures being repurchased ($1,000 per each $1,000 principal amount outstanding) plus any accrued and unpaid interest, pursuant to the terms of the indenture governing the Debentures. The offer to purchase the outstanding Debentures expired on December 9, 2008, with $8,164 of the $27,868 outstanding Debentures being repurchased for cash during the quarter ended February 28, 2009, which resulted in a decrease in interest expense on the Debentures.

Interest income and other, net, for fiscal year 2009 increased $407, from $219 during fiscal year 2008 to $626 during fiscal year 2009. Interest income for 2007 increased 25.2%, or $798, from $3,163 in 2006 to $3,961 in 2007.and other consists primarily of interest earned on Allscripts’ cash and marketable securities balances. The increase in interest income and other in fiscal 2009 is attributedprimarily due to an increase in the average cash and marketable securities balances during 2007 when compared to 2006. The cash and marketable securities balances were lower in 2006 duebalance related to the timingcompletion of the A4 acquisition and the repurchase of 1,250 shares of Allscripts common stock from IDX, a subsidiary of GE. Interest expense remained constant during 2007 and 2006 at $3,715 and $3,712, respectively.Transactions on October 10, 2008.

Income taxesTax Expense

We adopted FASB Interpretation No. 48 (“FIN 48”), AccountingAllscripts recorded an income tax provision of $18,376 and $14,755 for Uncertaintyfiscal year 2009 and 2008, respectively, which reflects an effective tax rate of 41.4% and 36.7% for fiscal year 2009 and 2008, respectively. The increase in Income Taxes, on January 1, 2007. Asthe effective rate during fiscal 2009 is due to state tax increases in certain states, primarily in Texas, and due to a decrease in the IRC Section 199 deduction as a result of the implementationavailability of FIN 48, we recorded an approximate $273 increase in the liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007 balance of goodwill in relation to the A4 acquisition on March 2, 2006. As of December 31, 2007, the gross amount of unrecognized tax benefits was $6,400, of which $6,400 was recorded as a reduction to certain tax carryovers. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $4,600. All remaining amounts would be adjustments to goodwill.

We also recognized accrued interest and penalties related to unrecognized tax benefits in income tax expense and have also accrued amounts as adjustments to goodwill. We had approximately $1,300 in interest and penalties related to unrecognized tax benefits accrued as of December 31, 2007. It is unlikely that the balance of the unrecognized tax benefits will change in any material amount in the next 12 months.

During the first quarter of 2006, management reversed $61,284 of its net operating loss valuation allowance against goodwill in purchase accounting for the A4 acquisition in 2006. In connection with the reversal of its valuation allowance in purchase accounting, we wrote off approximately $5,656 of net operating losses (“NOL”) pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the future utilization of net operating losses.

A tax provision of $10,186 and $7,424 were recorded for the years ended December 31, 2007 and 2006, respectively. The 2007 tax provision includes the benefit of approximately $2,089 in Federal research and development tax credits relating to a study performed on tax years 1998 through 2007 which principally reduced the effective tax rate from 38.4% in 2006 to 33.1% in 2007.NOL carryforwards.

Fiscal Year Ended DecemberMay 31, 20062008 Compared to Fiscal Year Ended DecemberMay 31, 20052007

Software and Related ServicesClinical Solutions

Software and related services revenueRevenue

Revenue for the year ended Decemberfiscal May 31, 2006 increased 166.2%2008 decreased $3,812, or 1.1%, or $108,337,to $347,891 from $65,166$351,703 in 2005 to $173,503 in 2006. Of the increase, a total of $78,444 is attributed to revenue generated by A4 since the March 2, 2006 acquisition. The remaining increase of $29,893 or 45.9% is attributable to an increasefiscal 2007. This decline in revenue recorded for softwarewas concentrated in system sales and implementationprofessional services accounted for under percentage of completion, add-on software sales to existing customers, an increase in related support and maintenance revenue due to the increase in our installed customer base and an increase in hardware revenue.

Gross profit for software and related services for the year ended December 31, 2006 increased 147.6%, or $61,493, from $41,659 in 2005 to $103,152 in 2006. The increase in gross profit is primarilywas as a result of an increasea decline in revenue recordedorders for softwareEMR and implementation services accounted for under percentage of completion, add-on software sales to existing customers, an increasePM products in support and maintenance revenue andfiscal year 2008 versus the contribution of gross profit from A4 since the date of acquisition. Gross profit for software and related services as a percentage of revenue decreased from 63.9% in 2005 to 59.5% in 2006. Allscripts’ gross profit as a percentage of revenue was adversely impacted in 2006 due to the contribution of gross profit from the A4 product line, which tends to have lower margins than our traditional overall software and related services product lines. In addition, the gross margin was negatively affected by an increase of approximately $6,600 in lower-margin hardware revenue in 2006, which included one large hardware transaction for $2,000 with a customer in the third quarter of 2006.

Operating expenses for software and related services for the year ended December 31, 2006 increased $25,800 from $23,254 in 2005 to $49,054 in 2006. Of the increase, a total of $18,938 is attributed to A4 operating expenses since the March 2, 2006 acquisition, which includes $247 of stock-based compensation. The remaining increase of $6,862 is primarily the result of an increase of approximately $3,157 in compensation related costs, an increase of $1,173 in commissions, $812 in bad debt expense, $534 in travel related costs, and $846 in stock-based compensation. These increases in operating costs for 2006 reflect the overall growth experienced in the software and services business and also reflect an increase of approximately 36 headcount additions during 2006. A total of $1,093 and $0 was recorded for stock-based compensation in 2006 and 2005, respectively.

We had capitalized software costs of $7,446 in 2006 and $2,796 for the samecomparable period in 2005, which was capitalized pursuant to Statement of Financial Accounting Standard “SFAS” No. 86, “Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed” in our software and related services segment. The increase in capitalized software is largely attributed to the development of TouchWorks version 11 and upgrades to our e-prescribing software.

Prepackaged Medications

Prepackaged medications revenue for thefiscal year ended December 31, 2006 decreased 4.2%, or $1,921, from $45,609 in 2005 to $43,688 in 2006. The decrease is primarily due to management’s focus in reducing lower-margin revenue from wholesaler customers, which decreased from approximately $13,202 in 2005 to approximately $9,523 in 2006.2007. This $3,679 decrease in wholesaler revenuedecline was partially offset by an increase in prepackaged medicationsmaintenance revenue related to a growing customer base as well as an increase in transaction processing and other revenue related to organic growth as the Company continued to penetrate its existing customer base with its Payerpath solution.

Gross Margin

Gross margin for the fiscal year ended May 31, 2008 increased $9,236, or 5.4%, to $179,799 from $170,563 for the fiscal year ended May 31, 2007. The improvement was primarily due to more favorable pricing for hardware and third party royalties as a result of approximately $1,758, whicha cost savings program initiated during fiscal year 2008.

Selling, General and Administrative

Selling, general and administrative expenses decreased $14,859, or 14.8%, to $85,461 for the fiscal year ended May 31, 2008 from $100,320 for the fiscal year ended May 31, 2007. The decrease in selling, general and administrative expenses during fiscal 2008 was primarily attributable to lower salary and travel expenses resulting from lower headcount and lower rent and phone expenses due to cost reduction strategies implemented in fiscal 2008. Also contributing to the decrease was lower discretionary marketing spend. These decreases were partially offset by higher stock based compensation costs, legal fees and bad debt expense.

Research and Development

Research and development costs for the fiscal year ended May 31, 2008 decreased $3,707, or 9.7%, from $38,048 for the fiscal year ended May 31, 2007 to $34,341 in fiscal 2008. The decrease is primarily the result of the termination of a development project in late fiscal year 2007 after management determined that it was in the best interest of the company to explore alternatives to developing the product in-house. Accordingly, significant third party costs incurred during fiscal year 2007 did not recur in fiscal year 2008.

Health Solutions

Revenue

Revenue for the fiscal year ended May 31, 2008 increased $7,890, or 28.2%, to $35,880 from $27,990 in fiscal year 2007. This revenue growth was as a result of increased orders in fiscal year 2008 as well as an increase in revenue recorded under the percentage of completion method on contracts that were signed prior to fiscal 2008. Also contributing to the increase was higher maintenance revenue as a result of a higher customer base.

Gross Margin

Gross margin for the fiscal year ended May 31, 2008 increased $7,100, or 35.5%, to $27,102 from $20,002 for the fiscal year ended May 31, 2007. This increase was primarily driven by new businessimproved utilization of billable professional services staff.

Selling, General and an overall increase in average selling price of approximately 5% on a year-over-year basis. Total medication units shipped in 2006Administrative

Selling, general and 2005 remained relatively consistent at 2.4 million units.

Gross profit for prepackaged medicationsadministrative costs for the fiscal year ended DecemberMay 31, 2006 decreased 1.8%2008 increased $2,532, or 28.7%, or $138, from $7,563 in 2005 to $7,425 in 2006. Gross profit as a percentage of revenue increased from 16.6% in 2005 to 17.0% in 2006. The decrease in gross profit is due to the decrease in revenue as noted and the increase in gross profit as a percentage of revenue is due to management’s focus on decreasing lower-margin sales to wholesaler customers.

Operating expenses for prepackaged medications$8,822 for the fiscal year ended DecemberMay 31, 2006 increased $1,298, from $1,8262007 to $11,354 in 2005 to $3,124 in 2006.fiscal 2008. The increase iswas primarily due to an increase in bad debt expense of approximately $875 primarily relating to one wholesaler customer, an increase of approximately $114 in sales commissions, and the remaining increase of $309 represents increased cost for compensation related costs, travel and entertainment expenses, and sales tax related matters.

Information Services

Information services revenue for the year ended December 31, 2006 increased 10.1%, or $989, from $9,789 in 2005 to $10,778 in 2006. This improvement is primarily attributed to the increase in revenue related to the addition of headcount to accommodate growth in the health solutions segment.

Research and Development

Research and development and hosting of several PRMP solutions in 2006, when compared to the same period in 2005. Revenue from e-Detailing sessions remained consistent on a year-over-year basis.

Gross profit for information services decreased 5.2%, or $292, from $5,653 in 2005 to $5,361 in 2006. Gross profit as a percentage of revenue decreased from 57.7% in 2005 to 49.7% in 2006. The decreases in both gross profit and gross profit as a percentage of revenue in 2006 are primarily due to the recognition of non-recurring program early termination fees during 2005, which compares to lower termination fees in 2006. We also recognized a lower e-Detail program certificate reward redemption rate in 2005, which resulted in lower cost of revenue when compared to the same period in 2006.

Operating expenses for information services increased 38.0%, or $1,106, from $2,910 in 2005 to $4,016 in 2006. The increase is primarily due to an increase of approximately $460 in compensation related costs due to headcount additions primarily for the platform business, an increase of approximately $213 in sales commissions, a charge of approximately $180 in stock-based compensation costs and an increase in various other operating costs of $253 in 2006. There was no stock-based compensation in 2005.fiscal year ended May 31, 2008 increased $611, or 21.6%, to $3,443 from $2,832 for the fiscal year ended May 31, 2007 related to ongoing development on the health solutions product line.

Unallocated Corporate Expenses

Unallocated corporate expenses for the fiscal year ended DecemberMay 31, 20062008 increased $22,214,by $8,792 from $17,662$11,959 during the fiscal year ended May 31, 2007 to $20,751 in 2005 to $39,876 in 2006.fiscal year 2008. The increase in 2006 primarily relates to $8,229 in A4 unallocated corporate expenses, $8,573 in increased intangible asset amortization relating to the A4 acquisition and an increase of approximately $815 in corporate salaries and bonus expense. There was a net increase of $450 in stock-based compensation primarily due to the forfeiture rate adjustment

expense includes severance costs related to the accelerated option vesting during the fourth quarter of 2005. In addition, the increase in corporate costs in 2006 reflects an increase of $811 in facilities expense resulting from expansion of our corporate officeexecutive turnover and downsizing, fees paid to strategy consultants and an increase in consultingcosts allocated from Misys plc. The severance costs totaled $4,505 and were related coststo headcount reductions resulting from a functional reorganization as well as an effort to reduce costs. The severance pertained to the elimination of $975approximately 130 positions. Savings from the headcount reductions were partially offset in fiscal year 2008 and were largely offset in fiscal year 2009 due to hiring for new positions created as part of the reorganization effort.

Amortization of Intangibles

Amortization of intangibles for the improvementfiscal year ended May 31, 2008 decreased $11,072, or 49.4%, to $11,320 from $22,392 for the fiscal year ended May 31, 2007. Amortization of our information systemsintangibles includes amortization of customer relationships and other related projects. Operating expenses for 2006 included $1,021 in non-recurring integration costs related to the A4 acquisition that was recognizedtrade name intangibles acquired in the first quarterMedic, Payerpath and Amicore acquisitions. Amortization expense declined during fiscal year 2008 as the Medic customer relationships asset became fully amortized during fiscal year 2008 versus a full period of 2006.

Interest Income

Interest income for 2006 decreased 19.9%, or $820, from $4,128amortization in 2005 to $3,308the comparable period in 2006. The decrease in interest income is attributed to a decrease in overall cash and marketable securities resulting from the A4 acquisition and the repurchase of 1,250 shares of Allscripts common stock from IDX, a subsidiary of GE, partially offset by cash generated from operations and an increase in interest rates during 2006.fiscal year 2007.

Interest Expense and Interest Income and Other, Net

Interest expense for 2006the year ended May 31, 2008 increased 5.6%$24, or 8.8%, or $196,to $296 from $3,516 in 2005 to $3,712 in 2006.$272 for the year ended May 31, 2007. Interest expense consists of interest on a line of credit as well as interest on capital leases. The increase isin interest expense was primarily related to a higher average balance outstanding on the line of credit during 2008.

Interest income and other, net, for the year ended May 31, 2008 increased $125, or 133.0%, to $219 from $94 for the year ended May 31, 2007. Interest income and other consists primarily of interest earned on cash balances. The increase in interest income and other in 2008 was primarily due to the receipt of interest expense incurred onfrom the $3,400 secured promissory note assumed in the A4 acquisition.Internal Revenue Service related to an income tax refund.

Income TaxesTax Expense

As a resultIncome tax expense of the A4 acquisition in March 2006, management determined under the provisions of SFAS 109, “Accounting for Income Taxes”, that it is more likely than not that Allscripts will generate adequate taxable income for the foreseeable future to realize its deferred tax assets. Accordingly, management reversed all of its $61,284 valuation allowance against goodwill in purchase accounting for the A4 acquisition. In connection with the reversal of its valuation allowance in purchase accounting, approximately $5,656 of net operating losses were written-off pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the future utilization of net operating losses. A tax provision of $7,424$14,755 and $0 were$2,160 was recorded for the yearsyear ended DecemberMay 31, 20062008 and 2005,2007, respectively, resulting in an effective tax rate of 36.7% and 35.9%, respectively. AsThe higher effective tax rate was primarily the result of December 31, 2006a lower available research and 2005, the valuation allowance was $0 and $61,284, respectively.development credit in 2008 as compared to 2007.

Selected Quarterly Operating Results

The following table shows our quarterly unaudited consolidated financial information for the eight quarters ended DecemberMay 31, 2007.2009. We have prepared this information on the same basis as the annual information presented in other sections of this report. In management’s opinion, this information reflects all adjustments, all of which are of a normal recurring nature that are necessary for a fair presentation of the results for these periods. The operating results for any quarter should not be relied upon to predict the results for any subsequent period or for the entire fiscal year. You should be aware of possible variances in our future quarterly results. See “Risk Factors—Risks Related to Our Stock—Our quarterly operating results may vary.”