UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K/A

(Amendment No.1)

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 27, 2016

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

(Exact name of Registrant as Specified in Its Charter)

 

 

222 Merchandise Mart Plaza, Suite 2024,

Chicago, Illinois 60654

(Address of Principal Executive Offices)  (Zip Code)

Registrant’s Telephone Number, Including Area Code: (312) 506-1200

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

 

 

 

 

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Explanatory Note

On November 1, 2016, Allscripts Healthcare Solutions, Inc., a Delaware corporation (“Allscripts”), filed a Current Report on Form 8-K (the “Initial Report”) to report that on October 27, 2016, Netsmart, Inc., a Delaware corporation (“Netsmart”) completed the acquisition of HealthMEDX, LLC, a Delaware limited liability company (“HealthMEDX”), for a purchase price of $36,295,000, subject to customary adjustments for net debt, working capital and transaction expenses. The HealthMEDX unitholders are also entitled to earn up to an additional $3,500,000 based on HealthMEDX achieving certain revenue milestones in 2017, all on the terms and conditions set forth in the definitive agreement regarding the acquisition. The purchase price was paid in cash and funded with borrowings under Netsmart’s existing credit facilities. HealthMEDX is a provider of electronic medical record solutions for long-term and post-acute care including: continuing care retirement communities, assisted living, independent living, skilled nursing and home care providers. As previously disclosed, in March 2016, Allscripts, and GI Netsmart Holdings LLC, a Delaware limited liability company, formed a joint business entity, Nathan Holding LLC (“Nathan”) which in April 2016 acquired Netsmart and combined Netsmart with Allscripts’ Homecare business.

We applied the consolidation rules pursuant to ASC 810 - Consolidation, and concluded that Netsmart, LLC has the power to direct the activities of HealthMEDX that most significantly impact its economic performance as it acquired 100% of HealthMEDX voting units. Therefore, we will account for Netsmart’s investment in HealthMEDX on a consolidated basis and the financial results of HealthMEDX will be consolidated with Netsmart’s as of October 27, 2016. As previously disclosed, we account for our investment in Nathan on a consolidated basis and as of April 19, 2016 the financial results of Nathan (including Netsmart) are consolidated with Allscripts’ financial results. This Form 8-K/A amends the Initial Report to include the historical audited financial statements of HealthMEDX and the unaudited pro forma condensed combined financial information required by Items 9.01(a) and 9.01(b) of Form 8-K that were excluded from the Initial Report in reliance on the instructions to such items. This Form 8-K/A should be read in conjunction with the Initial Report.

The audited balance sheet of HealthMEDX, LLC as of December 31, 2015 and the related audited statements of operations, members’ equity and cash flows for the year ended December 31, 2015, including the notes thereto and the report of the independent auditors thereon, are filed as Exhibit 99.1 to this current report on Form 8-K/A.

The unaudited interim financial statements of HealthMEDX, LLC as of and for the three and nine months ended September 30, 2016 and 2015, including the notes thereto, are filed as Exhibit 99.2 to this current report on Form 8-K/A.

The unaudited pro forma condensed consolidated financial information of Allscripts Healthcare Solutions, Inc. which reflects the acquisitions of Netsmart, Inc. and HealthMEDX, LLC is attached hereto as Exhibit 99.3 to this current report on Form 8-K/A.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

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EXHIBIT INDEX

 

 

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Exhibit 23.1

 

Consent of Independent Accountants

The Board of Directors

Allscripts Healthcare Solutions, Inc.

 

We consent to the incorporation by reference in the registration statements on Forms S-8 (No. 333-37238, No. 333-90129, No. 333-104416, No. 333-59212, No. 333-135282, No. 333-141600, No. 333-154775, No. 333-167846, No. 333-175053, No. 333-175819, No. 333-188902 and No. 333-196415) and Form S-3 (No. 333-188901) of Allscripts Healthcare Solutions, Inc. of our report dated April 8, 2016 on our audit of the financial statements of HealthMEDX, LLC as of and for the year ended December 31, 2015, which report appears in the Form 8‑K/A of Allscripts Healthcare Solutions, Inc. filed with the SEC on January 11, 2017.

 

Kansas City, Missouri

January 11, 2017

 

Exhibit 99.1

HealthMEDX, LLC

Auditor’s Report and Financial Statements

December 31, 2015

 

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HealthMEDX, LLC

December 31, 2015

Contents

 

 

 

 

 

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Independent Auditor’s Report

Board of Directors

HealthMEDX, LLC

Ozark, Missouri

We have audited the accompanying financial statements of HealthMEDX, LLC, (the Company) which comprise the balance sheet as of December 31, 2015, and the related statements of operations, members’ equity and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.  The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.  Accordingly, we express no such opinion.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HealthMEDX, LLC as of December 31, 2015, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Kansas City, Missouri

April 8, 2016

 

 

 

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HealthMEDX, LLC

Balance Sheet

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements

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HealthMEDX, LLC

Statement of Operations

Year Ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements

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HealthMEDX, LLC

Statement of Members’ Equity

Year Ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements

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HealthMEDX, LLC

Statement of Cash Flows

Year Ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements

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HealthMEDX, LLC

Notes to Financial Statements

December 31, 2015

 

Nature of Operations

HealthMEDX, LLC (the Company) was formed in 2011 to acquire substantially all of the assets and liabilities of HealthMEDX, Inc., the predecessor company.  The Company earns revenues predominately from sales of subscriptions, perpetual licenses and related maintenance to software products and solutions and from providing related implementation, training and other consulting services for long-term care, home health, hospice and rehabilitation organizations.  The Company’s proprietary software, HealthMEDX Vision, provides a comprehensive solution to automate customer relationship management and clinical electronic health records.  The Company is headquartered in Ozark, Missouri.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.  At December 31, 2015, cash equivalents consisted primarily of a money market account.

At December 31, 2015, the Company’s cash accounts exceeded federally insured limits by approximately $3,912,000.

The Company’s cash accounts were secured by short-term equities and bonds of $3,595,000 at December 31, 2015.

Accounts Receivable

Accounts receivable are stated at the amount billed to customers plus any accrued and unpaid interest.  The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions.  Accounts receivable are ordinarily due 30 days after the issuance of the invoice.  Accounts past due more than 120 days are considered delinquent.  Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.  Accounts receivable are presented net of amounts remitted to third-party vendors.  The amount related to third-party receivables totaled approximately $225,000 at December 31, 2015.

Property and Equipment

Property and equipment acquisitions are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization is charged to expense on the straight-line basis over the estimated useful life of each asset.  Assets under capital lease obligations and leasehold improvements are amortized over the shorter of the lease term or their respective estimated useful lives.

The estimated useful lives for each major depreciable classification of property and equipment are as follows:

 

 

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Software Development Costs

In accordance with the provisions of Accounting Standards Codification (ASC) 985, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, costs incurred internally in creating computer software products are expensed in the period incurred until technological feasibility has been established which is typically evidenced by a working model.  Thereafter and until general release, the Company uses professional judgment to capitalize applicable software development costs.  Amortization of capitalized software development costs commences upon commercial release of the products at the greater of the ratio of current product revenue to the total of current and anticipated product revenue or on a straight-line basis over the estimated economic life of the software, which the Company has determined to be three years.

Goodwill

The Company applies the accounting alternative provided in ASU 2014-02, Intangibles – Goodwill and Other (Topic 350):  Accounting for Goodwill.  Under this alternative, goodwill is amortized on a straight-line basis over ten years.  The Company evaluates the recoverability of the carrying value of goodwill at the entity level whenever events or circumstances indicate the carrying amount may not be recoverable.

In the instance of a triggering event requiring the Company to test goodwill for impairment, the Company has the option first to perform a qualitative assessment to determine whether it is more likely than not that goodwill is impaired or the entity can bypass the qualitative assessment and proceed directly to the quantitative test by comparing the carrying amount, including goodwill, of the entity with its fair value.  The goodwill impairment loss, if any, is measured as the amount by which the carrying amount of an entity, including goodwill, exceeds its fair value.  Subsequent increases in goodwill value are not recognized in the financial statements.

Intangible Assets

Intangible assets are being amortized on the straight-line basis over periods ranging from three to fifteen years.  Such assets are periodically evaluated as to the recoverability of their carrying values.

Long-lived Asset Impairment

The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable.  If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

No asset impairment was recognized during the year ended December 31, 2015.

Income Taxes

The Company is not directly subject to income taxes under the provisions of the Internal Revenue Code and applicable state laws.  Therefore, taxable income or loss is reported to the individual members for inclusion in their respective tax returns and no provision for federal and state income taxes has been included in the accompanying financial statements.

Revenue Recognition

Revenues are derived primarily from the sale of software licenses, subscriptions and related services, support and maintenance.

The Company accounts for multiple-element arrangements in accordance with industry-specific accounting guidance for software and software-related transactions.  Revenue on arrangements that include multiple elements such as software and services is allocated to each element based on the relative selling price of each element.  Each element’s allocated revenue is recognized when the revenue recognition criteria for that element have been met.  Selling price is generally determined by vendor-specific objective evidence (VSOE), which is based on the price charged when each element is sold separately.  When VSOE is not available for an element of the arrangement, selling price is generally determined using third-party evidence (TPE), which is based on the price charged by a competitor for a largely interchangeable product in a standalone sale to a similarly situated customer.  When neither VSOE or TPE are available for non-software elements, management will determine its best estimate of the selling price of the element.

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The Company recognizes revenue in accordance with the provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and which were subsequently incorporated into ASC Topic 985.  Amounts relating to completed contracts not yet billed are classified as unbilled revenue.  Billings on uncompleted contracts are classified as deferred revenue.  ASC 985 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements.

For software elements, the Company utilizes the residual method prescribed in ASC 985 to allocate revenue to each element based on its respective fair value, with the fair value for undelivered elements determined by the price charged when that element is sold separately.  Under the residual method, the amount of revenue allocated to the delivered items equals the total consideration less the aggregate fair value of the undelivered items.  If evidence of the fair value cannot be established for the undelivered elements of a license agreement, the entire amount of revenue under the arrangement is deferred until these elements have been delivered or objective evidence of the fair value of the undelivered elements can be established.

The Company provides implementation services that are deemed not to be essential to the functionality of the software.  Fair value is determined based on the hourly rates when similar services are sold apart from a software license.  Accordingly, these services are considered delivered and recognizable as they are performed as allowed by ASC 985.

Revenue from ongoing software support and maintenance is recognized ratably over the contracted maintenance term.  Fair value is determined based on renewal rates in the contract.  Revenue on custom programming is recognized as performed.

The application of this revenue recognition guidance considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable.

Research and Development

Research and development costs are expensed as incurred.  During the year ended December 31, 2015, the Company incurred approximately $1,767,000 of research and development costs.

Equity Award Plan

At December 31, 2015, the Company has a share-based employee compensation plan, which is described more fully in Note 7.

Taxes Collected from Customers and Remitted to Governmental Authorities

Taxes collected from customers and remitted to governmental authorities are presented in the accompanying statement of operations on a net basis.

Subsequent Events

Subsequent events have been evaluated through the date of the Independent Auditor’s Report, which is the date the financial statements were available to be issued.

Property and equipment consists of the following at December 31, 2015:

 

 

Depreciation and amortization expense for the year ended December 31, 2015 was approximately $987,000.

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The carrying basis and accumulated amortization of recognized intangible assets at December 31, 2015 were:

 

 

Amortization expense for the year ended December 31, 2015 was approximately $7,427,000.  This included amortization of a discount of deferred revenue relating to value assigned to customers acquired from the predecessor company.  Estimated amortization expense for each of the following five years and thereafter is:

 

 

The weighted average of the remaining useful life of the above intangible assets was 8.26 years at December 31, 2015.

The changes in the gross carrying amount of goodwill for the year ended December 31, 2015 were:

 

 

In 2015, the Company determined goodwill had been impaired and recorded a non-cash charge of $23,367,000.

Nonrecurring Fair Value Measurement

Fair value is the defined price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value measurements must be classified within a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities

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The 2015 goodwill impairment is the Company’s only fair value measurement recognized in the accompanying balance sheet on a nonrecurring basis.  The valuation for the fair value of goodwill is completed by the Vice President of Finance through the use of an independent valuation firm.  Valuations and significant inputs developed by the independent valuation firm are reviewed by the Vice President of Finance for accuracy and reasonableness compared to the changes in management’s assumptions since the Company was acquired on December 9, 2011.  These changes, using the Level 3 inputs as described above, related to increased market pressures resulting in reduced revenues and bookings experience by the Company, as well as other factors.  The valuation also considered operating profits and cash flows that were lower than expected in 2015.  The fair value of the business was estimated using the present value of expected future cash flows.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements at December 31, 2015.

 

 

Notes payable, including the note with related party further discussed in Note 8, at December 31, 2015 consists of the following:

 

 

The note payable to ACD Holdings, Inc. is expressly subordinated to any indebtedness (senior indebtedness) of the Company except for indebtedness from related parties, capital leases and other specific instruments.  This subordination results in the deferral of required principal payments on the note payable until the senior indebtedness is paid in full or in the event of Company liquidation.  When under subordination to senior indebtedness, interest is payable quarterly at the default rate of the senior indebtedness but not to exceed 7.5%.

On March 11, 2016, the Company entered into a revolving line of credit with bank for the use of proceeds up to $5,000,000.  Interest is payable at a variable rate based on the sum of prime rate, applicable LIBOR index and applicable margin but not less than 2.5%.  The revolving line matures on March 11, 2018.

The note payable to ACD Holdings, Inc. is subordinated to the revolving line senior indebtedness resulting in the classification of note payable as long-term.  All accrued and outstanding interest remains currently payable by December 31, 2016.

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Aggregate annual maturities of long-term debt and payments on capital lease obligations at December 31, 2015 are:

 

 

Property and equipment include the following property under capital lease:

 

 

In addition to the office space discussed in Note 8, the Company leases office facilities under long-term, noncancelable operating leases.  The majority of these leases contain renewal options.

Future minimum lease payments, including the related-party lease discussed in Note 8, for each of the next three years as of December 31, 2015 were:

 

 

In addition to base rentals, the Company is generally responsible for its proportionate share of utilities, property taxes and maintenance.  Total rent expense was approximately $552,000 for the year ended December 31, 2015.

The Company maintains an employee retirement plan under which employees may defer a portion of their annual compensation, pursuant to Section 401(k) of the Internal Revenue Code.  The Company matches employee contributions up to 50% of elective deferrals, limited to $1,200 per year.  Contributions to the plan charged to expense were $83,579 for the year ended December 31, 2015.

On December 9, 2011, the Company started an incentive equity plan (the Plan), which as amended, permits the grant of 122,654 Common Units to employees or other individuals providing services to the Company.  Upon the issuance of any Common Units through the Plan, management specifies a distribution threshold which is at least equal to the minimum amount determined by management to be necessary to cause the Units to constitute a profits interest.  Awards generally vest over five years and are intended to entitle the recipient to a distribution of the Company’s profits accrued after the date of issuance.  A total of 106,570 Units were granted as of December 31, 2015.  The Company accounts for this plan under the provisions of Accounting Standards Codification (ASC) Topic 718.  No fair value disclosures with respect to equity awards are presented because, in the opinion of management, such values do not have a material effect.

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The Company leases an office space from an entity controlled by the former owners, including a current executive of the Company.  The lease expires in 2018.  Total rental payments made to this affiliated entity were $225,600 during 2015.

The Company has a note payable with the same affiliated entity noted above.  The note is more fully explained in Note 4.  Accrued interest payable of $1,029,177 is included in current liabilities at December 31, 2015.  All accrued and outstanding interest is payable in December 2016.

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations.  Those matters include the following:

General Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business.  It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, results of operations and cash flows of the Company.

Other Estimates

The Company has other significant estimates for the allowance for doubtful accounts and impairment of intangible assets, both of which are described in Note 1.  Events could occur that would change these estimates materially in the near term.

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Exhibit 99.2

HealthMEDX, LLC

Financial Statements

For the Three and Nine Month Period Ended September 30, 2016

(Unaudited)

 

 

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HealthMEDX, LLC

Contents

 

 

 

 

 

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HealthMEDX, LLC

Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements

1

 

 

 

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HealthMEDX, LLC

Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements

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HealthMEDX, LLC

Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements

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HealthMEDX, LLC

Notes to Financial Statements (Unaudited)

September 30, 2016

 

Nature of Operations

HealthMEDX, LLC (the “Company”) was formed in 2011 to acquire substantially all of the assets and liabilities of HealthMEDX, Inc., the predecessor company.  The Company earns revenues predominately from sales of subscriptions, perpetual licenses and related maintenance to software products and solutions and from providing related implementation, training and other consulting services for long-term care, home health, hospice and rehabilitation organizations.  The Company’s proprietary software, HealthMEDX Vision, provides a comprehensive solution to automate customer relationship management and clinical electronic health records.  The Company is headquartered in Ozark, Missouri.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Unaudited Interim Financial Information

The unaudited interim financial statements as of and for the three and nine months ended September 30, 2016 and 2015 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim financial statements are unaudited and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the consolidated financial statements for the periods presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting, although the Company believes that the disclosures made are adequate to make that information not misleading. These unaudited interim financial statements should be read in conjunction with the financial statements and related notes for the year ended December 31, 2015.

Significant Accounting Policies

There have been no changes to our significant accounting policies from those disclosed in our financial statements and related notes for the year ended December 31, 2015.

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The carrying basis and accumulated amortization of recognized intangible assets at September 30, 2016 and December 31, 2015 were:

 

 

Amortization expense for the three and nine months ended September 30, 2016 was $937,488 and $2,834,821, respectively. Amortization expense for the three and nine months ended September 30, 2015 was $2,006,883 and $6,034,096, respectively. This included amortization of a discount of deferred revenue relating to value assigned to customers acquired from the predecessor company.  Estimated amortization expense for each of the following five years and thereafter is:

 

 

Notes payable, including the note with related party further discussed in Note 5, at September 30, 2016 and December 31, 2015 consists of the following:

 

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The note payable to ACD Holdings, Inc. is expressly subordinated to any indebtedness (senior indebtedness) of the Company except for indebtedness from related parties, capital leases and other specific instruments.  This subordination results in the deferral of required principal payments on the note payable until the senior indebtedness is paid in full or in the event of Company liquidation.  When under subordination to senior indebtedness, interest is payable quarterly at the default rate of the senior indebtedness but not to exceed 7.5%.

On March 11, 2016, the Company entered into a revolving line of credit with bank for the use of proceeds up to $5,000,000.  Interest is payable at a variable rate based on the sum of prime rate, applicable LIBOR index and applicable margin but not less than 2.5%.  The revolving line matures on March 11, 2018.

The note payable to ACD Holdings, Inc. is subordinated to the revolving line senior indebtedness resulting in the classification of note payable as long-term.  All accrued and outstanding interest remains currently payable by September 30, 2016.

Aggregate annual maturities of long-term debt and payments on capital lease obligations at September 30, 2016 are:

 

 

Property and equipment include the following property under capital lease:

 

On December 9, 2011, the Company started an incentive equity plan (the Plan), which as amended, permits the grant of 122,654 Common Units to employees or other individuals providing services to the Company.  Upon the issuance of any Common Units through the Plan, management specifies a distribution threshold which is at least equal to the minimum amount determined by management to be necessary to cause the Units to constitute a profits interest.  Awards generally vest over five years and are intended to entitle the recipient to a distribution of the Company’s profits accrued after the date of issuance.  A total of 98,325 Units were granted as of September 30, 2016.  The Company accounts for this plan under the provisions of Accounting Standards Codification (ASC) Topic 718.  No fair value disclosures with respect to equity awards are presented because, in the opinion of management, such values do not have a material effect.

The Company leases an office space from an entity controlled by the former owners, including a current executive of the Company.  The lease expires in 2018.  Total rental payments made to this affiliated entity were $56,400 and $169,200 for both the three and nine months ended September 30, 2016 and 2015, respectively.

The Company has a note payable with the same affiliated entity noted above.  The note is more fully explained in Note 3.  Accrued interest payable of $231,715 and $1,029,177 is included in current liabilities at September 30, 2016 and December 31, 2015, respectively.  All accrued and outstanding interest is payable in December 2016.

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On October 27, 2016, the Company was acquired by Netsmart, Inc., a Delaware corporation (“Netsmart”) for a purchase price of $36,295,000, subject to customary adjustments for net debt, working capital and transaction expenses. The Company unitholders are also entitled to earn up to an additional $3,500,000 based on the Company achieving certain revenue milestones in 2017, all on the terms and conditions set forth in the definitive agreement regarding the acquisition.

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Exhibit 99.3

Allscripts Healthcare Solutions, Inc.

Unaudited Pro Forma Condensed Combined Financial Information

We derived the following unaudited pro forma condensed combined financial information by applying pro forma adjustments attributable to the HealthMEDX, LLC (“HealthMEDX”) acquisition to our historical condensed consolidated financial statements and the HealthMEDX financial statements included in this Form 8-K/A. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the HealthMEDX acquisition as if it had occurred on September 30, 2016. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the interim nine-month period ended September 30, 2016, give effect to the HealthMEDX acquisition as if it had occurred on January 1, 2015.

We also acquired Netsmart, Inc. (“Netsmart”) on April 19, 2016. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the interim nine-month period ended September 30, 2016, also give effect to the Netsmart acquisition as if it had occurred on January 1, 2015 by applying pro forma adjustments attributable to the Netsmart acquisition to our historical condensed consolidated financial statements and the Netsmart financial statements included in this Form 8-K/A. The unaudited pro forma condensed combined statement of operations for the interim nine-month period ended September 30, 2016 include Netsmart’s historical results for the period from January 1, 2016 to April 19, 2016. The pro forma adjustments attributable to the Netsmart acquisition have been updated to include measurement period adjustments recorded subsequent to the filing of Form 8-K/A on July 5, 2016, which contained pro-forma disclosure for the Netsmart acquisition completed on April 19, 2016. Such subsequent adjustments are disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016.

We describe the assumptions underlying the pro forma adjustments in the accompanying notes to unaudited pro forma condensed combined financial information, which should be read in conjunction with the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial information is for illustrative and informational purposes only and should not be considered indicative of the results that would have been achieved had the transactions been consummated on the dates or for the periods indicated and do not purport to represent consolidated balance sheet data or statement of operations data or other financial data as of any future date or any future period.

The unaudited pro forma condensed combined financial information should be read in conjunction with our historical consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2015 and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016. The unaudited pro forma condensed combined financial information should also be read in conjunction with the historical financial statements of Netsmart for the year ended December 31, 2015 and the interim historical unaudited financial statements of Netsmart for the quarterly period ended March 31, 2016, as well as the pro-forma disclosure for the Netsmart acquisition completed on April 19, 2016, in each case included in our Current Report on Form 8-K/A filed on July 5, 2016, and subsequent measurement period adjustments to such pro forma adjustments disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016. The unaudited pro forma condensed combined financial information should also be read in conjunction with the historical financial statements of HealthMEDX for the year ended December 31, 2015 and the interim historical unaudited financial statements of HealthMEDX for the nine-month period ended September 30, 2016, both of which are included in this Form 8-K/A.

 

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Allscripts Healthcare Solutions, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2016

(In thousands)

 

 

 

 

 

 

 

 

See Notes to Unaudited Pro Forma Condensed Combined Financial Information

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Allscripts Healthcare Solutions, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year ended December 31, 2015

(In thousands, except per share data)

 

 

 

 

See Notes to Unaudited Pro Forma Condensed Combined Financial Information

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Allscripts Healthcare Solutions, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months ended September 30, 2016

(In thousands, except per share data)

 

 

 

 

See Notes to Unaudited Pro Forma Condensed Combined Financial Information

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Allscripts Healthcare Solutions, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(In thousands)

1. Basis of Pro Forma Presentation

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Netsmart and HealthMEDX acquisitions, (2) factually supportable, and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the acquisitions.

Both the Netsmart and HealthMEDX acquisitions are being accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805, Business Combinations. As the acquirer for accounting purposes, we have estimated the fair value of Netsmart’s and HealthMEDX’s assets acquired and liabilities assumed. The unaudited pro forma condensed combined financial statements reflect our preliminary estimates of the allocation of the purchase price of Netsmart and HealthMEDX and other pro forma adjustments, as described below, which are based on available information and certain assumptions which we believe are reasonable but subject to change. We are in the process of completing our assessment of fair values for identifiable tangible and intangible assets, and liabilities assumed; therefore, the values set forth below are subject to adjustment during the measurement period for such activities as estimating the useful lives of long-lived assets and finite lived intangibles and finalizing the valuation of certain tangible assets and liabilities. In our opinion, all adjustments that are necessary to fairly present the pro forma information have been made.

The unaudited pro forma condensed combined financial statements do not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions, or other restructurings that could result from the Netsmart and HealthMEDX acquisitions.

2. Aggregate Purchase Price

The acquisition of HealthMEDX by Netsmart was completed for an aggregate consideration of $39 million as shown in the table below. The purchase price was funded by incremental term loan under Netsmart’s existing credit facility and a contingent consideration payable to former HealthMEDX owners. The Netsmart term loan is non-recourse to Allscripts and its wholly-owned subsidiaries.

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3. Preliminary Aggregate Purchase Price Allocation

We have performed a preliminary valuation analysis as of the acquisition date of October 27, 2016 of the fair value of HealthMEDX’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:

 

 

4. Pro Forma Adjustments

The following table summarizes the changes in the estimated Netsmart depreciation expense:

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Estimated future amortization expenses for the HealthMEDX definite-lived intangible assets is as follows:

 

The following table summarizes the estimated fair values of Netsmart’s’s identifiable intangible assets and their estimated useful lives:

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Estimated future amortization expenses for the Netsmart definite-lived intangible assets is as follows:

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The net increase to interest expense resulting from interest on the new debt incurred to finance the acquisition of Netsmart and the amortization of related debt issuance costs is as follows:

 

A 0.125% change in the variable interest rates of the additional borrowings by Allscripts and Netsmart would result in a $0.5 million and $0.4 million approximate change in net income for the year ended December 31, 2015 and the interim nine-month period ended September 30, 2016, respectively.

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