Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(Dollar amounts in thousands)

Overview

Allscripts Healthcare Solutions is a leading provider of clinical software and information solutions for physicians. Our key offerings fall into three business segments. Our software and services segment is comprised primarily of our TouchWorksTM software business. TouchWorks is a modular electronic medical record (mEMRTM) designed to enhance physician productivity using a wireless handheld device, Tablet PC, or desktop workstation to automate the most common physician activities. Our information services segment is comprised primarily of our Physicians InteractiveTM (PI) business. PI links physicians with pharmaceutical companies and medical suppliers using interactive education sessions to provide product information to the physician. Finally, our prepackaged medications segment is comprised of our Allscripts DirectTM business. Allscripts Direct provides point-of-care medication, and medical supply management solutions for physicians.

From our inception in 1986 through 1996, we focused almost exclusively on the sale of prepackaged medications to physicians, in particular those with a high percentage of fee-for-service patients. The advent of managed prescription benefit programs required providers to obtain reimbursement for medications dispensed from managed care organizations rather than directly from their patients. This new reimbursement methodology made it more difficult for our physician customers to dispense medications to their patient base.

In 1997, under the direction of a new executive management team, we focused our efforts on the information aspects of medication management, including the development of technology tools necessary for electronic prescribing, routing of prescription information and submission of medication claims for managed care reimbursement. In January 1998, we introduced the first version of our TouchScript software that fully incorporated these features. At the same time, we redirected our sales and marketing efforts away from our traditional fee-for-service customer base to physicians who have a large percentage of managed care patients. We recognized that there was a larger market opportunity among physicians whose patients are covered by managed care plans because the portion of prescriptions covered by managed care plans was increasing relative to the portion of fee-for-service prescriptions. Further, we believed and continue to believe that our technology provides a competitive advantage where more patients' pres criptions are covered by managed care plans because our products streamline the process by which physicians, managed care organizations and patients interact.

In 1999, we acquired Telemed Corp. and its Physicians Interactive business. Physicians Interactive has evolved into a leading provider of medication product information to physicians using interactive education sessions via the Internet.

To expand our technology-focused solutions, in May 2000, we acquired MasterChart, Inc., a software developer providing dictation, integration and patient record technology, and Medifor, Inc., a provider of electronic patient education. In addition, in January 2001, we acquired Channelhealth Incorporated, a software developer providing modular software for physicians to access medical information and manage clinical workflow. The integration of the technology obtained in these acquisitions along with our electronic prescribing technology formed the core of our TouchWorks software.

We provide three key product and service offerings, each of which focus on the physician. Allscripts Direct provides medication management solutions for physicians. TouchWorks provides software that automates the most common physician activities. Physicians Interactive provides interactive educational opportunities for the physician. We believe that TouchWorks and Physicians Interactive represent our largest potential for growth.

In July 2001, we announced and began implementation of a restructuring plan to realign our organization; prioritize our initiatives around the high-growth areas of our business; focus on profitability; reduce operating expenses; improve efficiencies in light of the aforementioned acquisitions; and focus sales and service efforts on larger physician practices, academic medical centers, and integrated delivery networks. The restructuring plan included workforce and overhead reduction, and the termination of certain strategic agreements and unprofitable customer contracts. As a result of the restructuring plan, we recorded restructuring and other charges of $4,370 and $4,266, respectively, during the third quarter of 2001. In addition, certain events and changes in circumstances caused us to conduct a review of the carrying value of our goodwill and purchased intangible assets. These events included the restructuring plan, the business climate, which generated valuation declines of enterprises in our ind ustry, and the failure of certain assets to generate the cash flows that were projected at the time of acquisition. As a result of this review, we recorded an asset impairment charge of $354,984 during 2001.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
(Dollar amounts in thousands)

We currently organize our business around the three aforementioned segments: prepackaged medications; software and related services; and information services. The prepackaged medications segment derives its revenue from the repackaging, sale, and distribution of medications and medical supplies. The software and related services derives its revenue from the sale and service of software that provides point-of-care decision support solutions and the resale of related hardware. The information services segment primarily derives its revenue from the sale of interactive physician education sessions.

The composition of our revenue is as follows (unaudited):

Cost of revenue for the prepackaged medications segment consists primarily of the cost of the prepackaged medications, the salaries, bonuses and benefits for the repackaging personnel, shipping costs, repackaging facility and other costs. Cost of revenue for the software and related services segment consists primarily of the salaries, bonuses and benefits of our billable professionals, third party software costs, hardware cost, capitalized software amortization and other direct engagement costs. Cost of revenue for the information services segment consists primarily of salaries, bonuses and benefits of our program management and program development personnel, costs to recruit physicians and other program management costs.

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

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Prepackaged Medications

Prepackaged medications revenue decreased by 2.9%, or $361, from $12,479 for the three months ended March 31, 2002 to $12,118 for the same period in 2003. The decrease reflects a decrease in the volume of prepackaged medications sold, partially offset by an increase in the average selling prices of medications sold, due primarily to general price inflation.

Gross profit for prepackaged medications for the three months ended March 31, 2003 increased by 18.6%, or $418, from $2,251 in 2002 to $2,669 in 2003. Gross profit as a percentage of revenue for the three months ended March 31, 2003 was 22.0% compared with 18.0% for the same period in 2002. The increase for both gross profit and gross profit as a percentage of revenue was primarily due to more favorable buying arrangements with suppliers.

Operating expenses for prepackaged medications for the three months ended March 31, 2003 increased by 19.9%, or $86, from $432 in 2002 to $518 in 2003. The increase was primarily due to increased sales and service expenditures.

Software and Related Services

Software and related services revenue for the three months ended March 31, 2003 increased by 30.6%, or $1,357, from $4,439 in 2002 to $5,796 in 2003. The increase reflects an increase in sales and services of our integrated content and clinical workflow products.

Gross profit for software and related services increased by 324.1%, or $1,734, from $535 in the first quarter of 2002 to $2,269 in the first quarter of 2003. Gross profit as a percentage of revenue increased to 39.1% in the first quarter of 2003 from 12.1% in the same period in 2002. The increase in both gross profit and gross profit as a percentage of revenue resulted from the increase in revenue while simultaneously reducing our costs of implementation, training, and support by realizing improved efficiencies in those processes.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
(Dollar amounts in thousands)

Operating expenses for software and related services for the three months ended March 31, 2003 decreased by 19.7%, or $1,021, from $5,176 in 2002 to $4,155 in 2003. Operating expenses were lower as a result of workforce reductions that were aimed at improving efficiencies in light of acquisitions made during 2001 and 2000, and our decision to focus sales and service efforts on larger physician practices. During the three months ended March 31, 2003 and 2002, we capitalized $224 and $106, respectively, of software development costs pursuant to SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed."

Information Services

Information services revenue increased by 14.1%, or $261, from $1,855 in the first quarter of 2002 to $2,116 in 2003. The increase in information services revenue reflects an increase in the number of interactive physician education programs sold and completed.

Gross profit for information services for the three months ended March 31, 2003 increased 20.7%, or $214, from $1,036 in 2002 to $1,250 in 2003. Gross profit as a percentage of revenue increased to 59.1% for the first quarter of 2003 from 55.8% in the same period in 2002. The increase for both gross profit and gross profit as a percentage of revenue was due to improved efficiencies in the program development and physician recruitment processes.

Operating expenses for information services for the three months ended March 31, 2003 decreased by 12.3%, or $85, from $693 in 2002 to $608 in 2003. The decrease was primarily due to reduced marketing efforts in emerging markets.

Unallocated Corporate Expenses

Unallocated corporate expenses for the three months ended March 31, 2003 decreased by 20.1%, or $857, from $4,262 in 2002 to $3,405 in 2003. The decrease was a result of workforce reductions that were aimed at improving efficiencies in light of acquisitions made during 2001 and 2000, lower facility-related costs in 2003, and a lower provision for doubtful accounts in 2003 due to a decrease in accounts receivable.

Interest and Other Income

Interest and other income for the three months ended March 31, 2003 was $392 as compared to $717 for the same period in the prior year. The decrease is primarily due to lower interest income related to a lower average cash and marketable securities balance and a decrease in the average interest rates earned on our investments during 2003.

Liquidity and Capital Resources

At March 31, 2003, our principal sources of liquidity consisted of $18,234 of cash and cash equivalents and $48,398 of marketable securities for a total of $66,632 in cash, cash equivalents and marketable securities. At March 31, 2003, we had working capital of $31,079 and an accumulated deficit of $555,645.

Net cash provided by operating activities was $1,960 for the three months ended March 31, 2003. Accounts receivable decreased by $2,542 during the three months ended March 31, 2003, primarily due to strong collections. Accrued compensation decreased by $1,531 during the three months ended March 31, 2003, as a result of the payment during the quarter of 2002 annual compensation commitments. Accounts payable increased by $1,214 during the three months ended March 31, 2003, as a result of timing related to payments to large suppliers and leveraging favorable payment terms. The net loss for the quarter of $2,106 was partially offset by non-cash charges of $1,546. All other operating activities contributed $295 to the cash provided by operations.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
(Dollar amounts in thousands)

Net cash used in investing activities was $912 for the three months ended March 31, 2003. Cash used in investing activities resulted primarily from net purchases of marketable securities of $432. In addition, we capitalized software and website development costs of $259. Also, capital expenditures were $221 for the three months ended March 31, 2003 as a result of capital outlays to support the future growth of our business. Currently, we have no material commitments for capital expenditures, although we anticipate ongoing capital expenditures in the range of $250 to $500 per quarter in the ordinary course of business.

The following table summarizes our contractual obligations at March 31, 2003, and the effect such obligations are expected to have on our liquidity and cash in future periods:

We believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet the anticipated cash needs of our current business for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. We will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies, which might impact our liquidity requirements or cause us to issue additional equity or debt securities. There can be no assurance that financing will be available in the amounts or on terms acceptable to us, if at all.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
(Dollar amounts in thousands)

A full discussion of all critical accounting policies is included in the Management's Discussion and Analysis Section of our Annual Report on Form 10-K for the year ended December 31, 2002.

Safe Harbor For Forward-Looking Statements

This report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements," and statements we or our representatives make may contain forward-looking statements that involve risks and uncertainties. We develop forward-looking statements by combining currently available information with our beliefs and assumptions. These statements often contain words like believe, expect, anticipate, intend, contemplate, seek, plan, estimate or similar expressions. Forward-looking statements do not guarantee future performance. Recognize these statements for what they are and do not rely upon them as facts.

Forward-looking statements involve risks, uncertainties and assumptions, including, but not limited to, those discussed in this report. We make these statements under the protection afforded them by Section 21E of the Securities Exchange Act of 1934. Because we cannot predict all of the risks and uncertainties that may affect us, or control the ones we do predict, our actual results may be materially different from the results we express in our forward-looking statements. Unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For a more complete discussion of the risks, uncertainties and assumptions that may affect us, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2003, we did not own any derivative instruments, but we were exposed to market risks, primarily due to changes in U.S. interest rates. As of March 31, 2003, we had cash, cash equivalents and marketable securities in financial instruments of $66,632. Maturities range from less than one month to approximately 29 years, but average less than two years. Declines in interest rates over time will reduce our interest income from our investments. Based upon our balance of cash, cash equivalents and marketable securities as of March 31, 2003, a decrease in interest rates of 1.0% would cause a corresponding decrease in our annual interest income of approximately $666.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date of this quarterly report on Form 10-Q (the "Evaluation Date"). Based on their review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us and our consolidated subsidiaries has been made known to them in a timely manner, particularly during the period in which this quarterly report on Form 10-Q was being prepared, and that no changes are required at this time.

(b) Changes in Internal Controls

There have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the Evaluation Date, or any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions have been taken.

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PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

(A) Exhibits -- See Index to Exhibits.

(B) Reports on Form 8-K.

None

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SIGNATURES

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

                                                                         ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
  (Registrant)

                        By:      /s/ William J. Davis
                                      William J. Davis
                                              Chief Financial Officer
                                              (Duly Authorized Officer and
                                               Principal Financial Officer)

Date: May 9, 2003

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Certification of Chief Executive Officer

I, Glen E. Tullman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allscripts Healthcare Solutions, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 9, 2003                                                        /s/ Glen E. Tullman        
                                                                                                Chief Execut ive Officer

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Certification of Chief Financial Officer

I, William J. Davis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allscripts Healthcare Solutions, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 9, 2003                                                        /s/ William J. Davis         
                                                                                                Chief Fina ncial Officer

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INDEX TO EXHIBITS

16