ACQUISITIONS

On September 9, 2016, the Company acquired substantially all of the assets and assumed certain liabilities of HS Infusion Holdings, Inc. (“Home Solutions”) and its subsidiaries (the “Transaction”) pursuant to an Asset Purchase Agreement dated June 11, 2016 (as amended, the “Home Solutions Agreement”), by and among Home Solutions, a Delaware corporation, certain subsidiaries of Home Solutions, the Company and HomeChoice Partners, Inc., a Delaware corporation. Home Solutions, a privately held company, provides home infusion and home nursing products and services to patients suffering from chronic and acute medical conditions.

The aggregate consideration paid by the Company in the Transaction was equal to (i) $67.5 million in cash (the “Cash Consideration); plus (ii) (a) 3,750,000 shares of Company common stock (the “Transaction Closing Equity Consideration”) and (b) the right to receive contingent equity securities of the Company, in the form of restricted shares of Company common stock (the “RSUs”), issuable in two tranches, Tranche A and Tranche B, with different vesting conditions (collectively, the “Contingent Shares”). The number of shares of Company common stock in Tranche A will be approximately 3.1 million . The number of shares of Company common stock in Tranche B will be approximately 4.0 million. Upon close of the Transaction the RSUs had no intrinsic value, but are reported in our consolidated financial statements at their estimated fair value at the date of issuance.

The following table sets forth the consideration transferred in connection with the acquisition of Home Solutions as of September 9, 2016 (in thousands):



Cash	$	67,516
Equity issued at closing	9,938
Capital lease obligation assumed	301
Fair value of contingent consideration	15,812
Total consideration	$	93,567

The following table sets forth the preliminary estimate of fair value of the assets acquired and liabilities assumed upon acquisition of Home Solutions (in thousands):



Accounts receivable	$	13,056
Inventories	3,199
Prepaids and other assets	852
Total current assets	$	17,107
Property and equipment	3,807
Goodwill	64,342
Payor contracts	19,600
Certificates of need	3,920
Trade name	900
Other long-term assets	891
Total Assets	$	110,567
Accounts payable	11,872
Accrued liabilities	5,128
Total liabilities	$	17,000
Net assets acquired	$	93,567

The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of the goodwill represents the value the Company expects to be created by combining the operations of the companies, including the ability to cross-sell its services on a national basis with an expanded footprint in home infusion and the opportunity to focus on higher margin therapies.

In accordance with ASC Topic 805 Business Combinations (“ASC 805”), the allocation of the purchase price is subject to adjustment during the measurement period after the closing date (September 9, 2016) when additional information on assets and liability valuations becomes available. Due to the proximity of the closing date to quarter-end, the Company has not finalized its valuation of certain assets and liabilities recorded pursuant to the acquisition including intangible assets and contingent consideration. Thus, the provisional measurements recorded are subject to change. Any changes will be recorded as adjustments to the fair value of the assets and liabilities with residual amounts allocated to goodwill.

Under the Home Solutions Agreement, the Company did not purchase, among other things, (a) any accounts receivable associated with governmental payors. However, the Home Solutions Agreement stipulates that collections of government receivables, as of the first anniversary of the closing date, in an amount less than the amount estimated as government receivables in the Closing Certificate, must be paid to the seller. As a result, a contingent liability of $2.0 million, representative of the fair value of the estimated uncollectible accounts, is reflected in the Unaudited Balance Sheet as of September 30, 2016.

The Company has consolidated the results of Home Solutions for the period of control within its financial results for the quarter. Inclusion of Home Solutions’ operating results within the Company’s Unaudited Consolidated Statements of Operations contributed $6.0 million in revenue, $2.3 million in gross profit, and $0.7 million in net income for the quarter ended September 30, 2016.

Pro Forma Impact of Acquisition

The following table sets forth the unaudited pro forma combined results of operations as if the acquisition of Home Solutions had occurred at the beginning of the periods presented. Adjustments made to the financial information give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. The pro forma financial information does not reflect revenue opportunities and cost savings that the Company expects to realize as a result of the acquisition of Home Solutions. The pro forma financial information includes acquisition related charges incurred prior to September 30, 2016, and does not reflect estimates of charges related to the integration activity or exit costs that may be incurred by BioScrip in connection with the acquisition in future periods.



	Three Months Ended September 30,						Nine Months Ended September 30,
Pro forma impact of acquisition:	2016			2015			2016			2015
Revenues	$	249,139		$	274,462		$	778,944		$	818,931
Gross profit	$	69,270		$	72,718		$	213,668		$	216,934
Gross profit percentage	27.8		%	26.5		%	27.4		%	26.5		%
Loss from continuing operations, net of income taxes	$	(16,379	)	$	(30,778	)	$	(45,489	)	$	(307,278	)
Basic loss per share from continuing operations	$	(0.14	)	$	(0.45	)	$	(0.53	)	$	(4.47	)
Diluted loss per share from continuing operations	$	(0.14	)	$	(0.45	)	$	(0.53	)	$	(4.47	)

The pro forma results for the three and nine month periods ended September 30, 2016 include $4.7 million and $7.6 million of acquisition related expenses incurred, respectively.