================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark one)
[X]     ANNUAL REPORT  PURSUANT TO SECTION  13  OR  15(D)  OF  THE  SECURITIES
        EXCHANGE ACT OF 1934 FOR  THE  FISCAL  YEAR  ENDED  DECEMBER  31, 1999

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________TO________.


                                    COMMISSION FILE NUMBER 0-22212


                            ONHEALTH NETWORK COMPANY
             (Exact name of registrant as specified in its charter)

            WASHINGTON                               41-1686038
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
   incorporation or organization)

                          808 HOWELL STREET, SUITE 400
                            SEATTLE, WASHINGTON 98101
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (206) 583-0100

--------------------------------------------------------------------------------


Securities registered pursuant to Section 12(b) of the Act:
                                                          NONE
Securities registered pursuant to Section 12(g) of the Act:
                                               Common Stock, $0.01 par value

     Indicate by a 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  12 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 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 the
Form 10-K. [X ]

Aggregate market value of voting stock held by non-affiliates of the registrant
as of March 22, 2000: $135,025,374

Number of shares outstanding of the registrant's class of common stock as of
March 22, 2000:  24,004,511

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                                TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----
                                     PART I
      ITEM 1.  Business...................................................... 3
      ITEM 2.  Properties....................................................17
      ITEM 3.  Legal Proceedings.............................................17
      ITEM 4.  Submission Of Matters To A Vote Of Security Holders...........17


                                     PART II
      ITEM 5.  Market For Registrant's Common Equity And Related
               Stockholder Matters...........................................18
      ITEM 6.  Selected Financial Data.......................................19
      ITEM 7.  Management's Discussion And Analysis Of Financial
               Condition And Results Of Operations...........................19
      ITEM 7A. Quantitative And Qualitative Disclosures About
               Market Risk...................................................23
      ITEM 8.  Financial Statements And Supplementary Data...................23
      ITEM 9.  Changes In And Disagreements With Accountants On
               Accounting And Financial Disclosure...........................23


                                    PART III
      ITEM 10. Directors And Executive Officers of Registrant................24
      ITEM 11. Executive Compensation........................................25
      ITEM 12. Security Ownership Of Certain Beneficial Owners
               And Management................................................29
      ITEM 13. Certain Relationships And Related Transactions................30


                                     PART IV
      ITEM 14. Exhibits, Financial Statement Schedules And Reports
               On Form 8-K...................................................31
      SIGNATURES.............................................................34


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<PAGE>


                                     PART I

ITEM 1.  BUSINESS

FORWARD-LOOKING STATEMENTS

This  Annual  Report  on Form  10-K and the  documents  incorporated  herein  by
reference  contain  forward-looking  statements  based on current  expectations,
estimates and projections about the Company's industry, management's beliefs and
certain  assumptions made by management.  All statements,  trends,  analyses and
other  information  contained  in this  report  relative to trends in net sales,
gross margin, anticipated expense levels and liquidity and capital resources, as
well  as  other  statements  including,  but  not  limited  to,  words  such  as
"anticipate,"  believe,"  "plan,"  "estimate,"  "expect,"  "seek," "intend," and
other  forward-looking  statements are not guarantees of future  performance and
are subject to certain  risks and  uncertainties  that are difficult to predict.
Accordingly,  actual  results may differ  materially  from those  anticipated or
expressed  in  such  statements.  Particular  attention  should  be  paid to the
cautionary  statements  involving the Company's limited operating  history,  the
unpredictability  of its future revenues,  the unpredictable and evolving nature
of  its  business  model,  the  intensely   competitive  nature  of  the  online
environment,  risks  associated with capacity  constraints and the management of
Company growth.  Except as required by law, the Company undertakes no obligation
to update any forward-looking statement, whether as a result of new information,
future events or otherwise.


GENERAL

OnHealth Network Company  ("OnHealth" or the "Company") is a leading independent
source of original, informative, timely and trusted consumer-oriented health and
wellness   information,   products   and  services  on  the  Web.  Our  website,
onhealth.com,  is a consumer-focused  online health destination dedicated to the
management of personal and family health and well-being.  Our staff of full-time
editors and  writers as well as a  constituency  of external  health and medical
writers and  contributors,  enable us to update our website  daily with original
health-related  features.  By  providing  users with a broad  range of  original
in-depth reporting, substantive resources and references, community discussions,
direct access to experts,  interactive tools and exclusive  Personal Health Info
Tracker  search  capabilities,  onhealth.com  combines  the strength of credible
journalism with the power of online interactivity.

The Company was  founded in August 1990 in the State of  Minnesota.  The Company
went public in 1993 as IVI Publishing,  Inc. Until January 1998, its traditional
line of business had been CD-ROM development,  production and distribution.  The
best known title, "Mayo Clinic Ultimate Medical Guide",  along with other CD-ROM
works,  has been  distributed  through  retail and  computer OEM  channels.  The
Company's predecessor was also a supplier of video, animation and graphic assets
to  America's  Health  Network,  a health  and  medical  cable TV  channel,  and
published  a book  version of its  CD-ROM,  "Taking  Control of Your  Health" in
conjunction with Time Life Medical.

The  Company's  first foray onto the  Internet was a Web site,  O@sis,  which it
developed on a joint venture basis with the Mayo Foundation in July 1996. Due to
philosophical  differences  regarding the strategic  direction of the site, full
ownership of O@sis was later transferred to the Mayo Foundation with the Company
receiving a $2.7 million termination settlement and the return of IVI Publishing
Inc. stock held by Mayo in 1997. The Company's  current  relationship  with Mayo
consists  of  a  content  contract  and  certain  agreements  concerning  CD-ROM
properties.

We  launched  our  website in July 1998.  Internet  Profile  Corporation  (IPRO)
reported  that  OnHealth's  page views grew 1007% to 21,694,000 in December 1999
from  1,959,000  in  December  1998.   According  to  IPRO,  in  December  1999,
onhealth.com attracted 5,166,000 visitors, an increase of 712% from our December
1998 visits,  which ranks  onhealth.com as the most  trafficked  consumer health
content  website in December  1999. We have  launched a coordinated  traditional
media  advertising  and public  relations  campaign  designed to build our brand
through the use of television,  radio, outdoor,  print and online media. We also
distribute in excess of 100,000 daily and weekly broadcast e-mails to registered
users who have requested our Daily Briefing,  Weekly  Newsletter and Health Info
Tracker.  This private and personalized  e-mail allows our users to stay current
on the health-related  subjects most important to themselves and their families.
To  date,  we have  developed  distribution  partnerships  and  content  sharing
relationships  resulting in over 600 websites that drive traffic to our website.
We intend to aggressively expand our content and distribution  partnerships with
both online and traditional  media partners that can direct  additional users to
our website.

We provide an  independent  voice and serve as a trusted  consumer  advocate for
health-related  issues.  We  believe  this  will  allow us to build a loyal  and
dedicated  audience  that will fuel  multiple  revenue  opportunities.  While we
believe the demographics of our users are highly  attractive to advertisers,  we
are  developing  our website to generate  revenue  opportunities  from  multiple
sources, including  advertising/sponsorships,  e-commerce transactions,  premium
services  and  content  syndication.  We have a  shopping  area  on our  website
designed  to offer our users a wide  variety  of health  and  wellness  products
including  prescription and  over-the-counter  drugs,  vitamins,  herbs,  books,
magazines, foods, home products and gifts.


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On September 9, 1999,  the Company  acquired  all of the  outstanding  shares of
common stock of BabyData.com  Inc., a premier Web site for pregnant  couples and
those trying to conceive.

On November 30, 1999, the Company acquired Health Decisions International,  LLC.
Health  Decisions,  which was a privately held company prior to the acquisition,
develops,  provides and supports a broad range of personal  health  information,
referral and nurse counseling  services.  The five key target audiences for such
services in the healthcare market are consumers,  payers,  employers,  providers
and pharmaceutical  companies.  Health Decisions provides a wide range of demand
management tools that include symptom assessment, triage, provider selection and
referral, individualized self-care, and preventative counseling for its clients'
members.

On  February  15,  2000,  Healtheon/WebMD  agreed to  acquire  OnHealth  Network
Company. Under the terms of the agreement, shareholders of OnHealth stock are to
receive  .189435  shares  of  Healtheon/WebMD  Common  Stock  for each  share of
OnHealth  stock.  Closing of the  transaction,  which will be accounted for as a
purchase transaction, is expected in the second quarter of this year, subject to
regulatory approval,  including the effectiveness of a joint  registration/proxy
statement  on Form S-4 to be filed with the SEC,  and  certain  other  customary
conditions.   Following  the  closing,   OnHealth  will  become  a  wholly-owned
subsidiary of Healtheon/WEBMD  and the common stock of OnHealth will cease to be
publicly traded.


INDUSTRY OVERVIEW

We  believe  that  the  aging of the U.S.  population,  the rise of  restrictive
managed care  programs and the emergence of the Internet have combined to create
substantial demand for resources and communities that enable consumers to better
understand and control the decisions that affect their personal health.

The  Internet is emerging  as an  important  alternative  to  traditional  media
enabling  millions of consumers  to seek  information,  communicate  and conduct
commerce.  According to Cyber  Dialogue,  an industry  research firm, the online
population  in the United  States is expected to grow 11% annually  from 1999 to
2005,  from 65 million  users to 122 million  users.  The Internet is empowering
consumers by providing immediate, low cost access to highly topical, interactive
content and communities.  In addition,  the Internet is enabling advertisers and
online merchants to inexpensively reach vast, yet highly targeted audiences, and
to measure in real-time the  effectiveness  of their  programs.  We believe that
healthcare  industry  constituents  will  benefit  from  the  Internet's  unique
attributes  as an  open,  low-cost,  flexible  technology  for the  exchange  of
information and for commerce.

The  healthcare  industry  is the single  largest  segment of the U.S.  economy,
representing  approximately  $1.2 trillion in spending or 14% of the U.S.  gross
domestic  product.  Over the past decade,  the  healthcare  industry has changed
radically as employers seeking to reduce their healthcare costs have turned from
indemnity  insurance to managed health plans.  Approximately 180 million people,
or 90% of the insured U.S.  population,  are now subject to some form of managed
care. We believe that consumers  increasingly  question the motivations of their
caregivers  and are more inclined to take an active role in the  decisions  that
affect their health and wellness as well as that of their families.

Consumers  are  seeking  more  information  in order to  actively  manage  their
personal  health  and  wellness.  However,  traditional  sources  of  healthcare
information,    such   as   print    publications,    are   often    voluminous,
reference-oriented  and outdated  while other media,  including  television  and
radio,  lack the  analysis  and  insight  consumers  demand.  As a result,  many
consumers are turning to the Internet to obtain health information. According to
CyberDialogue, during 1999, approximately 32 million adults in the United States
searched  online for health and medical  information.  Cyber Dialogue  estimates
that  approximately  70%  of  the  persons  searching  for  health  and  medical
information  online  believe the Internet  empowers them by providing  them with
information  before and after they go to a doctor's office.  Cyber Dialogue also
estimates  that in the year  2005,  the  number of adults in the  United  States
searching for online health and medical  information  will grow to approximately
86 million.

Industry  research  has  indicated  that  women  tend  to  be  the  health  care
decision-makers within their households and therefore are the primary seekers of
health and wellness information.  Internet use among women has increased rapidly
in recent years (from 5% of all users in early 1994 to an  estimated  51% by the
end of 1999).  These trends are of particular  importance to  advertisers  since
women are estimated to have disproportionate  control or influence over consumer
spending  in the United  States.  Spending on  advertising  targeted to women is
generally  considered to represent the largest single category of advertising in
the United States.  According to industry  experts,  women control 66% of family
healthcare  expenditures,  make 75% of all  healthcare  decisions and control or
influence over 80% of all purchase  decisions.  In addition,  industry  research
indicates  that women spend less time than men surfing the  Internet and tend to
spend more time visiting destinations that meet their needs.

There are currently  over 15,000  websites  providing  health  information.  The
quality and breadth of these  websites  varies widely and to date no clear brand
has emerged as the  leading  provider  of trusted  consumer-oriented  health and
wellness information on the Internet. Most of these websites do little more than
repurpose and repackage  non-proprietary  content without tailoring such content
for the consumer and providing context,  insight or analysis.  Many offer little


                                       4
<PAGE>

disclosure  about  their  affiliations,  the  sources of their  information  and
potential conflicts of interest.  Additionally,  many health websites are poorly
designed,  difficult to navigate and do not understand the needs of women as the
principle gatekeepers of the healthcare dollar. Accordingly, we believe there is
a substantial  and growing unmet need for a well-known,  trusted,  comprehensive
health-related  website that addresses  consumers'  health needs  accurately and
intelligently while providing a satisfying  consumer  experience.  Moreover,  we
believe  that  such a website  will have the  ability  to  generate  significant
revenue from a variety of sources, including advertising and commerce.


ONHEALTH'S STRATEGY

Our goal is to  become  the  premier  source  of  consumer-oriented  health  and
wellness  information  and services on the  Internet.  We intend to achieve this
goal by implementing the following strategies:

Leverage and Enhance Our Expansive  Proprietary Health Content.  We believe that
the breadth,  depth and quality of the  proprietary  health  content we provide,
together  with  the  fact  that  our  content  is  tailored  for  the  consumer,
substantially differentiates onhealth.com from other health information websites
and  represents a  competitive  advantage.  We will  aggressively  add reference
material,  condition center partners,  applications,  tools and  personalization
functionality.  In addition,  we have partnered  exclusively in certain  disease
areas with best-of-breed  content partners including the Cleveland Clinic,  Beth
Israel Deaconess Cancer Center, the Mount Sinai  Cardiovascular  Institute,  the
Scripps Clinic and the  International  Diabetes  Center.  Our content,  which is
archived and searchable,  ranges from clinical medicine to alternative  medicine
and from  reference  material to  journalistic  exploration  of relevant  health
topics. We provide multiple perspectives on health topics. We intend to continue
to  differentiate  OnHealth by expanding and enhancing our proprietary  consumer
health content.

Expand the services that are offered to our Consumers.  We will continue to look
for  opportunities to satisfy the personalized  information and program needs of
our consumer. With the acquisition of Health Decisions we have added a team that
is  experienced  at  offering  high-touch  personal  customer  support.  We will
continue to offer a host of  specialized  consumer  services that will be easily
integrated into the current  OnHealth  offering.  These programs are tailored to
take into  consideration  combinations  of health  issues and  practical  living
situations faced by real people.  The services  ultimately create a more skilled
and knowledgeable  consumer capable of better self care. Among the services is a
triage  system  utilizing a 24-hour,  seven days a week,  telephone-based  nurse
counseling service that individually  assists users with evaluating symptoms and
helps develop  options for immediate and  long-term  personal care  programs;  a
decision  support system to help consumers better evaluate  potential  treatment
options  (e.g.  surgery,  therapy or  medication);  lifestyle  and personal care
management  services to support the self-management of everything from a chronic
condition to developing  strategies  for attaining a healthier  lifestyle.  Also
included in Health  Decision  services are self-care  books,  audio libraries of
pre-recorded  medical topics,  additional  analytical and risk assessment tools,
and  pharmaceutical  support services to increase patient compliance and improve
customer satisfaction and retention.

Provide Consumers with a Compelling Health Experience.  We are highly focused on
providing consumers who visit our website with a compelling  experience that not
only  addresses  their initial  needs,  but also gives them multiple  reasons to
spend  more time at and  return  more  often to our  website.  Accordingly,  our
website is designed for easy  navigation and is intended to be both  informative
and engaging.  Our experienced  creative team understands the  multi-dimensional
nature of publishing on the Internet.  The team is adept at mixing  information,
images, interactive tools, personalization and rich media.

Establish  Onhealth.com as the Premier Brand for Health and Wellness Information
on the Internet. We intend to establish onhealth.com as the premier health brand
that  consumers  associate  with  trustworthiness  and view as  their  one-stop,
complete resource for health and wellness  information on the Internet.  To this
end, we have launched a coordinated  advertising and public  relations  campaign
using  television,  radio,  outdoor,  print and  online  media.  We plan to also
continue to expand our distribution agreements with search engines,  portals and
Internet  service  providers.  Currently,  over 600  websites  drive  traffic to
onhealth.com, including Ask Jeeves, About.com, Microsoft's Hot Mail Web Courier,
Yahoo and AOL's Digital City's  Network.  Our management  team is experienced at
building consumer brands for Internet and traditional media companies  including
MSNBC, The Discovery Channel,  ABCNEWS.com,  Starwave/ESPN Internet Ventures and
Conde Nast Publications.

Capitalize on Revenue Generating Opportunities. We intend to leverage the growth
in our consumer base by exploiting  opportunities  to develop  multiple  revenue
streams including advertising/sponsorship,  e-commerce /transaction, syndication
of content and subscription to premium  services.  In the first quarter of 1999,
we  launched  a health  products  shopping  area on our  website  and we plan to
continue  to expand  our  relationships  with  leading  web  e-tailers  to offer
consumers a full range of health and wellness  related  products  and  services.
Unlike  many  of our  competitors,  we  have  an  opportunity  to  leverage  our
proprietary  content and  interactive  tools through  syndication  to provide an
additional  revenue stream. We also believe that health consumers are interested
in premium  subscription  offerings such as personalized  smoking  cessation and
dietary programs, personalized health and condition reports and direct access to
leading medical experts. By pursuing diversified revenue opportunities,  we seek
to reduce our dependence on and exposure to any single revenue stream.


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Engage in Selective  Acquisitions  and Strategic  Partnerships.  We believe that
there will be significant consolidation in the online health category. We have a
focused business  development  effort, and are seeking acquisition and strategic
partnership opportunities. We are continually evaluating strategic relationships
with various  distribution  and media outlets that can serve to drive traffic to
our website and/or increase  opportunities to generate  e-commerce  /transaction
revenue. We intend to pursue acquisitions that have the potential to augment our
current operations in six primary categories:  content, applications,  products,
revenue, traffic and intellectual capital/people.


THE  ONHEALTH WEBSITE


Onhealth.com  provides  timely and relevant  coverage of health news and issues,
substantive resources and references,  community  discussions,  direct access to
experts, interactive tools and exclusive Health Info Tracker search capabilities
to enable  consumers to actively  manage the health and well-being of themselves
and their  families.  On our website,  consumers will find complete  coverage of
important   health  issues  and  broad  database   reference   materials  in  an
interactive, visually pleasing and personalized format.

On March 22, 2000, OnHealth debuted a redesigned site. The redesign replaces the
old channels (News and Reports,  Medical  Centers,  Ask Our Experts,  etc.) with
seven new topic-specific  channels.  The new format mirrors consumers'  evolving
e-health  interests and needs while providing a cleaner platform for easy access
to the site's broad spectrum of newly expanded healthcare information,  services
and solutions.

Each OnHealth Channel is a creatively-programmed symphony of content, tools, and
services  and offers  daily news,  polls,  in-depth  reports and deep  reference
material,  resident expert columnists,  interactive tools, personalized classes,
live events,  community boards, and "inline  commerce".  Aimed at presenting the
best  and most  current  information  and  solutions  to  users,  highlights  of
OnHealth's new channels include:

           o      Diseases & Conditions--Offering the latest, medically reviewed
                  details on diseases  and  conditions,  this  channel  provides
                  needed  resources  on  illnesses  that most  concern  OnHealth
                  users.  Web-exclusive  reports from the  publishers of the New
                  England Journal of Medicine,  disease-specific  message boards
                  with  regular  weekly  appearances  by  Diseases &  Conditions
                  columnist Dr. Robert Jandl,  and extensive  archives  leave no
                  question  unanswered.  Unique  reference  tools  such  as  the
                  "Symptom  Checker," which helps users evaluate their symptoms,
                  "Medicine  Checker,"  which  alerts  users to  dangerous  drug
                  interactions   and  clinical   trial  listings  aid  users  in
                  evaluating and treating sickness.

           o      Women--Catering  to  over  70%  of  OnHealth's  audience,  the
                  Women's  Channel focuses on the physical,  mental,  emotional,
                  and  spiritual  health  of  its  largest   audience   segment.
                  Gynecological   concerns  as  well  as   conditions   such  as
                  depression and eating disorders that disproportionately affect
                  women anchor the section. The section's resident  gynecologist
                  expert is Dr. Yvonne S. Thornton, associate clinical professor
                  of obstetrics and gynecology at Columbia University College of
                  Physicians  and  Surgeons  and  author of  "Woman to Woman:  A
                  Leading Gynecologist Tells You All You Need to Know About Your
                  Body  and Your  Health."  Important  services  such as "Find a
                  Mammography  Clinic"  are  located in the  Women's  Channel as
                  well.

           o      Family--The  Family Channel features daily family health news,
                  polls,  in-depth  reports,  and  a  twice-weekly  relationship
                  advice column from the mother-son  team of Dan Savage and Judy
                  Sobiesk. Complementing its main index page, the Family Channel
                  is subdivided  into three  sub-channels:  Men,  Children,  and
                  60-Plus.

           o      Baby--The  Baby  Channel is divided  into three  sub-channels:
                  Fertility,  Pregnancy and Newborn Health.  Like other OnHealth
                  channels,   the  Baby  Channel  will  feature  in-depth  news,
                  features,  reference  material  and polls.  In  addition,  the
                  Channel  provides  Pregnancy and Fertility and Newborn message
                  boards with regular weekly appearances by  fertility/pregnancy
                  expert Dr. Amos Grunebaum,  as well as pregnancy and ovulation
                  calendars.  Highlights in the  sub-channels  include a special
                  "Nine Months"  feature  series,  a newborn  basics section and
                  "Find a Fertility Clinic."

           o      Food and Fitness--Catering to the busy lifestyle of its users,
                  OnHealth's Food and Fitness Channel  includes a host of unique
                  services. "The Diet and Fitness Journal" and "A Healthier You"
                  segment with a personal  trainer and dietician are designed to
                  help  users  develop  good  health  habits.  Breast  self-exam
                  instructions and a Healthy  Holidays  Calculator are just some
                  of the channel's  reference  tools that aim to improve  users'
                  well being.  Liz  Applegate,  Ph.D.,  a nationally  recognized
                  nutrition  expert  is the  resident  columnist.  Coming  soon:
                  "Recipe  for  Health,"  OnHealth's  new weekly  column by Jane
                  Kirby,  registered  dietician and owner of the Vermont Cooking


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                  School  (April 14); and "Cooking  with  OnHealth," a series of
                  10-minute videos on nutritious and delicious meals (July).

           o      Lifestyle--OnHealth's  Lifestyle  Channel is about "balance of
                  life"   issues,    from   managing   stress   to   maintaining
                  relationships.  Special  appearances from expert columnists on
                  "Sex  Matters"  with  certified  sex  therapist  Louanne  Cole
                  Weston, Ph.D. and "OnHealth University," tailored classes with
                  OnHealth's  Life  Coach  Cheryl   Richardson,   enrich  users'
                  attitudes and daily viewpoints.

           o      Alternative  Health--The  Alternative  Channel  seeks to find,
                  analyze, and disseminate the best available  information about
                  the uses and  misuses  of each  popular  alternative  therapy.
                  Unique  reference  tools such as the "Herbal Index," a new and
                  comprehensive  guide to herbs, and  "Symptom-to-Herb  Checker"
                  which  recommends  herbal  remedies,  take the  confusion  and
                  mystery out of alternative medicine.


Content

Onhealth.com  draws its  information  from an array of  medical  and  healthcare
resources.  Although  we are  committed  to  delivering  high  quality  original
content,  in order to  continue  to provide  our users with the  richest  health
information  solution,  we also  partner  with a  number  of  organizations  and
entities to supply content to the website.

Original Journalism and Live Produced Events

We have assembled a staff of eleven medical and health editors,  journalists and
producers.  Our senior editors have, on average,  12 years of medical and health
editorial and reporting  experience from such outlets as Consumer  Reports,  San
Jose Mercury News,  ABCNEWS.com,  Mosby Medical  Publishing  and the  Associated
Press.  In  addition,  we also rely on  external  writers and  contributors  who
provide  content to the website.  Our  editorial  staff has assembled a panel of
doctors who review and update our medical reference material.

Medical Center Content Exclusive to OnHealth

We have established exclusive partnerships with leading medical institutions for
extensive,  condition-specific  reference information and support for particular
activities  such  as  live  surgeries.   We  believe  the  collection  of  these
institutions creates a powerful and unique network with considerable opportunity
for  additional  activities  and  content.  Partnering  with  many  institutions
underscores   OnHealth's   commitment   to  providing   multiples   sources  and
perspectives from credible parties.

We have chosen to partner with the following institutions for their expertise in
research, clinical work and patient education:

      o  Cleveland Clinic
      o  Beth Israel Deaconess Cancer Center
      o  Mount Sinai Cardiovascular Institute
      o  Scripps Clinic
      o  International Diabetes Center

Third-Party Journalism and Licensed News Feeds and Features

We receive  exclusive  online  monthly  reports  from  HealthNews,  published by
Massachusetts  Medical  Society,  publishers  of  the  New  England  Journal  of
Medicine.  In addition,  we supplement our exclusive  content with licensed news
and features from Reuters and other wire services.

OnHealth.com Traffic

We  launched  our  website in July 1998.  Internet  Profile  Corporation  (IPRO)
reported  that  OnHealth's  page views grew 1007% to 21,694,000 in December 1999
from  1,959,000  in  December  1998.   According  to  IPRO,  in  December  1999,
onhealth.com attracted 5,166,000 visitors, an increase of 712% from our December
1998 visits,  which ranks  onhealth.com as the most  trafficked  consumer health
content  website in December  1999. We have  launched a coordinated  traditional
media  advertising and public relations  campaign designed to build the OnHealth
brand through the use of television,  radio, outdoor,  print and other media. We
also  distribute  in excess of  100,000  daily and weekly  broadcast  e-mails to
registered  users who have requested our Daily Briefing,  Weekly  Newsletter and
Home Delivery newsletter.  This private and personalized e-mail allows our users
to stay current on the health-related  subjects most important to themselves and
their families.



                                       7
<PAGE>

Distribution

To  date,  we have  developed  distribution  partnerships  and  content  sharing
relationships  resulting  in more than 600  websites  that drive  traffic to our
website.   We  intend  to  aggressively  expand  our  content  and  distribution
partnerships  with both online and  traditional  media  partners that can direct
additional  users to our website,  thereby  creating  opportunities  to generate
multiple revenue streams.  We have and will continue to enter into  distribution
agreements  with leading  search  engine and portal  companies;  major  Internet
access providers;  community,  news,  information and other specialty  websites;
media   companies;   promotional   programs;   other   traditional   media;  and
corporate/HMOs. By increasing our brand exposure and traffic through significant
distribution  agreements,  we believe we will  increase  our  attractiveness  to
advertisers  as an  effective  means  of  advertising  both  health-related  and
non-health-related products. All of such relationships provide for a direct link
to our  website  either by  clicking on our logo or by clicking on a headline or
article  that then links back to our  website.  Headline  links and articles are
dynamically  served and automatically  updated,  allowing  affiliate websites to
feature fresh,  professional  content while  allowing us to reach  desirable new
audiences,  build our brand,  and drive traffic to our website.  A sample of our
current  distribution   relationships  include  AOL's  Digital  City's  Network,
MyWay.com,   Snap.com,  Yahoo!,  Microsoft's  HotMail  Webcourier,   iSyndicate,
MindSpring, Motorola's iKno!, Online Benefits, Real Networks, About.com, Advance
Internet,  Inc. (affiliate of Advance  Publications,  Inc.), Ask Jeeves,  Better
Homes and Gardens, Comcast Online Communications;  Comcast@home;  inyourtown.com
and weather.com.

Branding

Our objective is to create the premier consumer health and wellness brand on the
Internet. While there has been a proliferation of health-related websites on the
Internet,  we believe that no single  participant  has  developed a  preeminent,
recognizable  brand  with  online  consumers.  We have  launched  a  coordinated
traditional  media  advertising and public relations  campaign designed to build
the OnHealth  brand through the use of  television,  radio,  outdoor,  print and
online media.

Our management team has a proven track record of developing content and building
leading  consumer  brands at Internet and  traditional  media  companies such as
MSNBC, The Discovery Channel,  ABCNEWS.com,  Starwave/ESPN Internet Ventures and
Conde Nast Publications.  We believe that the strength of our management team is
a key  factor  that  differentiates  us from many of the other  Internet  health
companies.

Revenue Model

We  intend  to  leverage  the  growth  in  our  consumer   base  by   exploiting
opportunities    to    develop     multiple     revenue    streams     including
advertising/sponsorship,  e-commerce/transaction  and syndication of content and
interactive  tools.  In the first quarter of 1999, we launched a health products
shopping area at our website and we plan to continue to expand our relationships
with  leading web  e-tailers to offer  consumers a full range of  health-related
products and services. Unlike many of our competitors, we have an opportunity to
leverage our proprietary  content and interactive  tools through  syndication to
provide an additional  revenue stream. We also believe that health consumers are
interested  in  premium  subscription  offerings  such as  personalized  smoking
cessation and dietary  programs,  personalized  health and condition reports and
direct  access to leading  medical  experts.  By  pursuing  diversified  revenue
opportunities,  we seek to reduce our  dependence  on and exposure to any single
revenue stream.

Advertising/Sponsorship Sales

Advertising  on the  Internet is rapidly  becoming a viable  commercial  medium.
According to Jupiter  Communications,  online advertising dollars for the health
space is  forecast  to grow from $100  million  in 1999 to a  still-modest  $700
million by 2004. We believe the  demographics of our audience and our ability to
target  specific users of our website are  attractive to healthcare  advertisers
and  non-healthcare  advertisers.  We  believe  we have  been  able to  create a
differentiated   and  productive   advertising   environment  by  providing  the
following:

      o  targeted programs to reach the most desirable consumers;
      o  a wide variety and depth of sponsorship areas;
      o  long-term exclusive relationships for  highly prized condition-specific
         content;
      o  creative, beyond-banner programs  that appeal to more aggressive
         advertisers; and
      o  personalization  and key word targets that provide flexible cross-site
         delivery.

Our consumer-oriented  content provides attractive audiences for both healthcare
and non-healthcare  advertisers.  In  addition  to  covering  a  broad  range of
wellness editorial (fitness, nutrition, stress reduction, pregnancy, childbirth,
sexual health, health for seniors, alternative medicine, herbs and vitamins), we
are developing a number of pre-packaged  health-related sponsorship packages for
non-endemic  advertisers  in areas that could include  healthy  eating,  healthy
travel,  healthy pet,  fiscally  fit,  auto safety,  Y2K baby,  fitness file and
holiday packages.

A partial list of healthcare  advertisers we have attracted includes:  Johnson &
Johnson,    AstraZeneca    Pharmaceuticals,    SmithKline    Beecham,    Pfizer,
Schering-Plough,  Glaxo  Wellcome,  Eli Lilly,  Merck,  Butler  Dental,  Biogen,
Hoechst  Marion  Roussel,  Amgen,  Drugstore.com,  Nutrisystem  and SelfCare.  A
partial list of the non-healthcare  advertisers we have attracted includes: IBM,
Kellogg's, Ford, Talkway, Call Connect.com, GM Buypower, GM Goodwrench, Pontiac,


                                       8
<PAGE>

Buick LeSabre, Procter & Gamble, AIG, American Express,  Ameritrade,  JC Penney,
Infantime,Women.com,  Lifewise  Family  Financial  Services,  ESPN,  Disney  and
Microsoft.

E-commerce

Transactions.  Our model for  e-commerce  is to generate  revenue by focusing on
three  areas:  fees for  guaranteed  impressions,  exclusivity  fees and revenue
sharing.  We believe our shopping  channel has many advantages for the consumer,
including:

      o   Information from our articles,  databases,  experts and community, all
          from one location,  so that consumers can learn to manage their health
          and use that information to make better-informed purchases of products
          and services.

      o   OnHealth  TimeSavers  enable  consumers  to read  about,  discuss  and
          purchase various products. Every day, consumers can get information on
          timely  subjects,  share ideas with others and buy the  products  they
          need to help maintain their good health.

      o   Carefully  selected online retailers who offer the best combination of
          products and services,  customer  service,  reliable and secure online
          transaction capability and competitive prices.


We have partnered with  drugstore.com  as our exclusive  online  drugstore.  Our
partnership with VitaminShoppe as our exclusive vitamins and herbs merchant will
terminate on March 30, 2000 and our relationship  with SelfCare as our exclusive
merchant  in the  Holistic  Woman  section  will  terminate  at the  same  time.
Recently,  we have added  Nutrisystem as our exclusive partner within the weight
management  area.  Sports  Authority,  our exclusive  partner within the fitness
section  will lose  exclusivity  at the end of March 2000.  In addition to these
partner  relationships,  we have established  various  affiliate  relationships.
Under the terms of the agreements governing affiliate relationships, we share in
the revenue from  purchases  made by consumers  directed to the partner  website
from our website.  Affiliate  merchants  include  Amazon.com,  American Greeting
Cards Online, ProFlowers, Whole Foods Market, greenmarketplace.com and enews.com
to name a few.

In the near term, we  anticipate  that there will be  approximately  fourteen to
sixteen  total  categories in our shopping  channel,  all  representing  healthy
living extensions.  Examples of additional  categories to be added could include
cooking  supplies,  healthy pets and music. We also plan to add an assortment of
gift baskets  pertaining  to health and life events,  such as sending a child to
college or having a baby.

Longer-term  shopping  channel plans include  offering  e-commerce  products and
services  that have an  interconnection  to our  audience  and  subject  matter,
through strategic  relationships with various e-commerce websites and e-commerce
providers.  Products  are expected to include  medical/health-related  supplies,
everyday health and wellness essentials,  baby products,  beauty products,  home
and garden,  music, videos and financial services. We plan to continue to deepen
the level and types of services we offer based on consumer  needs and  requests,
including special commerce events,  customized  discounts on health products and
more  time-  saving  buying   opportunities   focused  on  wellness  and  health
management.

Recently, we introduced Nurse Connect, OnHealth's first premium service. This is
the  first   installment   of  OnHealth's   integration   of  Health   Decisions
International  (HDI), which was acquired by OnHealth in November 1999. This is a
call-in  service  that enables  consumers to consult with a registered  nurse on
health  issues.  The service is scheduled to be web-enabled by the end of second
quarter.  We intend to  introduce  additional  premium  services  in the  second
quarter of 2000. Possible examples of paid subscription services include smoking
cessation, weight loss, stress management and pre-natal care programs.

Syndication Opportunities

We believe that our original content and interactive tools can be leveraged into
a broader revenue  platform.  Syndication of content and interactive tools is an
important  additional  revenue  opportunity  that is a natural  extension of our
strategy and branding program.  Since we own a significant amount of our content
and  interactive  tools,  we can  offer a range of  syndication  programs,  from
providing  licensees with the ability to host our content and interactive  tools
themselves, to building custom co-branded environments for them. We believe that
syndication  opportunities  exist domestically and  internationally,  online and
offline, with hospitals,  pharmacy benefit management  companies,  corporations,
health  maintenance  organizations and associations,  and international  general
interest and consumer and professional health portals among others.

Technology and Systems

The OnHealth  website uses hardware  technologies  from,  among others,  Compaq,
Intergraph,  F5 and Cisco.  The site uses software from  Microsoft,  Netgravity,
Buzz, and eShare. Exodus IT-class colocation facilities provide a secure, highly
available,  high bandwidth environment for our production,  staging, and testing
servers.  Exodus provides  redundant OC-3 and OC-12 backbone  connections to the
Internet and uninterruptible power supplies with diesel generator backup, housed
in a  copper-lined,  earthquake-resistant  building  located  in south  Seattle.
Direct connections to the hosting facility via redundant T1 lines allow our main
office to reliably connect to the production environment and the Internet.



                                       9
<PAGE>

All  mission-critical  database  servers are designed to be redundant and employ
warm-backup  technology  to  minimize  downtime  and  maximize  data  integrity.
Multiple   web  servers  and   advertising   servers  are  utilized  to  provide
high-availability.  Traffic is balanced  between all available  servers  through
load  balancing  hardware.   System  health  is  monitored  by  realtime  server
monitoring hardware and software.

We believe that the onhealth.com  online services  environment has been designed
to be a stable and scaleable solution sufficient for our foreseeable needs.

Competition

The editorial  environment in interactive  media is new, highly  competitive and
rapidly evolving.  Since the Internet's commercialization  in the mid 1990s, the
number of  websites on the  Internet  competing  for  consumers'  attention  and
spending has proliferated  with no substantial  barriers to entry, and we expect
that competition will continue to intensify.

Our website competes directly for advertisers,  users,  e-commerce customers and
merchants,  distribution  and  syndication  partners and other  affiliates  with
numerous Internet and non-Internet businesses, including:

      o   health-related online services or websites targeted at consumers, such
          as accenthealth.com,  ahn.com,  americasdoctor.com,  betterhealth.com,
          drkoop.com,     drweil.com,     healthcentral.com,     healthgate.com,
          intelihealth.com,  mayohealth.org,  mediconsult.com,  thriveonline.com
          and webmd.com;

      o   online and Internet portal companies,  such as America Online,  Inc.,
          Lycos  Corporation,  Microsoft  Network,  Excite,  Inc., Infoseek
          Corporation, and Yahoo! Inc.;

      o   electronic   merchants  and   conventional   retailers   that  provide
          healthcare  goods and services  competitive  to those  available  from
          links on our website;

      o   hospitals,  HMOs, managed care organizations,  insurance companies and
          other   healthcare   providers  and  payors  which  offer   healthcare
          information through the Internet; and

      o   other consumer  affinity groups,  such as the American  Association of
          Retired  Persons,  SeniorNet  and  ThirdAge  Media,  Inc.  which offer
          healthcare-related content to specific demographic groups.

We believe that the principal  competitive  factors in attracting  and retaining
users is the depth,  breadth and  timeliness  of  content,  the ability to offer
compelling and relevant content and brand  recognition.  Other important factors
in attracting and retaining users include ease of use, service quality and cost.
In  addition,  we also  compete  with  traditional  media,  including  print and
television  for  users  and  advertising  dollars.  Our  known  and  prospective
competitors are often significantly larger and better financed than us and maybe
better able to afford a more intense competitive  environment than OnHealth. The
Internet is highly  competitive  and changing  rapidly,  and we may not have the
resources to compete adequately.

Intellectual Property

We regard our copyrights,  service marks, trademarks, trade secrets, proprietary
technology and similar intellectual  property as critical to our success, and we
rely on  trademarks,  copyrights,  and trade secrets to protect our  proprietary
rights.  While  we try to  assure  that the  quality  of the  OnHealth  brand is
maintained  through such actions,  there can be no assurance  that steps we have
taken and continue to take to protect our proprietary rights will be adequate or
that third parties will not infringe on our intellectual  property. In addition,
there can be no assurance that third parties will not assert infringement claims
against us which,  even if not  meritorious,  could result in the expenditure of
substantial resources and management effort. Much of our website relies on owned
or  licensed  intellectual  property  and we cannot be sure that such rights are
protected from the use of others, including potential competitors.

Employees

As of December  31,  1999,  we employed  101 people on a full-time  basis and 24
people on a part-time  basis.  When  conditions  demand it, we also use contract
workers in  addition  to our  part-time  employees.  None of our  employees  are
represented by a labor union and we consider our relationship with our employees
to be good. We believe that some measure of our future success is dependent upon
attracting and retaining  qualified  employees,  and competition for hiring such
employees is intense.


FACTORS THAT MAY AFFECT FUTURE RESULTS

In  addition  to other  information  in this  Annual  Report on Form  10-K,  the
following factors should be considered in evaluating the condition and prospects
of the Company.  These  factors may have a  significant  impact on the Company's
future operating results.


                                       10
<PAGE>

Reliance on External  Financing.  We completed two private  placements of common
stock during the year. The first was completed in January 1999 for $14.3 million
and the second in November 1999 for $14.7 million. In addition,  we raised $20.7
million in a secondary  public  offering in September 1999. In February 2000, we
agreed to merge with  Healtheon/WEBMD.  In connection with the merger agreement,
Healtheon/WEBMD  has agreed to lend the  Company up to $30  million  for working
capital  needs.  We believe  our cash and cash  equivalents,  including  the $30
million lending  commitment by  Healtheon/WEBMD,  will be sufficient to fund our
operations  through  December 31, 2000.  We expect a  significant use of cash in
2000,  as a result of the  expansion  plans  for the  OnHealth  network  and our
marketing and distribution relationships.  We are exploring and will continue to
explore  external  financing  to ensure  continued  operations.  There can be no
assurance that additional  capital, on a debt or equity basis, will be found, or
if found that it will be on economically  viable terms. If additional  funds are
raised  through  the  issuance of equity or  convertible  debt  securities,  the
percentage  ownership  of our  shareholders  will be reduced,  shareholders  may
experience additional dilution and such securities may have rights,  preferences
or privileges senior to those of the holders of common stock.

Limited Operating History and Accumulated Deficit;  Continuing Operating Losses.
Since our inception, we have incurred significant losses and negative cash flow,
and as of December 31, 1999, had an accumulated deficit of approximately  $136.8
million.  We have not  achieved  profitability  and expect to  continue to incur
operating  losses for the  foreseeable  future as we fund  operating and capital
expenditures  in areas such as  expansion  of our  network,  advertising,  brand
promotion,   content   development,   sales   and   marketing,   and   operating
infrastructure.  Our business  model assumes that consumers will be attracted to
and  use  healthcare   information   and  related   content   available  on  our
Internet-based  consumer  healthcare  network that will,  in turn,  allow us the
opportunity to sell advertising designed to reach those consumers.  Our business
model also assumes that those consumers will access  important  healthcare needs
through  electronic  commerce  using  our  website  and  that  local  healthcare
organizations will affiliate with us. This business model is not yet proven, and
we cannot assure you that we will ever achieve or sustain  profitability or that
our operating losses will not increase in the future.

Pending Merger with  Healtheon/WebMD.  The merger agreement with Healtheon/WebMD
provides  that  during  the period  from  signing  until  closing we are able to
operate  our  business,  with  certain  exceptions,  in the  ordinary  course of
business.  If the proposed merger is terminated,  however,  for whatever reason,
our business would be disrupted.  During the interim period between  signing and
closing,  for example,  our advertisers  may not want to renew their  agreements
with us and instead  wait until after the closing to deal with  Healtheon/WebMD.
As a result,  if the merger were to be abandoned for whatever  reason,  it could
adversely affect our business, results of operations and financial condition. In
addition, if the proposed merger is terminated, we would be required to pay back
any  amounts  loaned to us by  Healtheon/WebMD,  in  connection  with the merger
agreement, on or by February 15, 2001.

Acceptance by Consumers and The Healthcare Industry.  To be successful,  we must
attract  to our  network  a  significant  number of  consumers  as well as other
participants  in the  healthcare  industry.  To date,  consumers  have generally
looked to  healthcare  professionals  as their  principal  source for health and
wellness  information.  Our  business  model  assumes  that  consumers  will use
healthcare  information  available on our network,  that  consumers  will access
important  healthcare needs through electronic  commerce using our website,  and
that local healthcare  organizations will affiliate with us. This business model
is not yet proven,  and if we are unable to successfully  implement our business
model, our business will be materially adversely affected.

Reliance on Advertising  Revenues in an Immature  Advertising Market. Our future
is highly  dependent on increased use of the Internet as an advertising  medium.
We expect to derive a  substantial  amount of our revenue from  advertising  and
sponsorships.  The Internet advertising market is new, extremely competitive and
rapidly  evolving,  and we cannot yet predict its  effectiveness  as compared to
traditional  media  advertising.  As a result,  demand and market acceptance for
Internet advertising  solutions are uncertain.  Most of our current or potential
advertising customers have little or no experience advertising over the Internet
and have  allocated  only a limited  portion  of their  advertising  budgets  to
Internet  advertising.  The adoption of Internet  advertising,  particularly  by
those  entities  that  have  historically  relied  upon  traditional  media  for
advertising,  requires  the  acceptance  of a new  way of  conducting  business,
exchanging information and advertising products and services. Such customers may
find Internet  advertising to be less effective for promoting their products and
services  relative to traditional  advertising  media. We cannot assure you that
the  market  for  Internet   advertising  will  continue  to  emerge  or  become
sustainable. If the market for Internet advertising fails to develop or develops
more slowly than we expect,  then our  ability to generate  advertising  revenue
would be materially adversely affected. To date,  advertisers have not, by their
actions,  shown that they believe in the  Internet as a  legitimate  advertising
medium.

Advertising rates quoted by different  vendors vary widely,  making it difficult
for us to project future levels of  advertising  revenue.  Internet  advertising
rates are based in part on third-party  estimates of an  individual's  use of an
Internet website. These estimates of use are referred to as "impressions".  Such
estimates are often based on sampling  techniques or other  imprecise  measures,
and may materially differ from our own estimates.  We do not know if advertisers
will  accept  ours or other  parties'  measurements  of  impressions.  Since the
Internet advertising industry is in its infancy,  universally accepted standards
measuring the effectiveness of a particular Internet advertisement have not been
established  or widely  embraced.  Our  advertising  revenue  could be adversely
affected if we are unable to adapt to new forms of Internet advertising.


                                       11
<PAGE>

Moreover,   filter  software  programs  are  available  that  limit  or  prevent
advertising  from being  delivered to an Internet  user's  computer.  Widespread
adoption or  increased  use of such  software  by users or the  adoption of such
software by certain  internet  access  providers  could have a material  adverse
effect upon the  viability of  advertising  on the internet and on our business,
results of operations and financial condition.

Need to Upgrade our Website and Add to Existing  Distribution  Relationships  to
Remain  Competitive.   In  order  to  remain  competitive  with  other  Internet
companies,  including the numerous other Internet  health-related  websites,  we
must  continue  to enhance and improve  the  responsiveness,  functionality  and
features of our website and develop other products and services. In addition, we
plan to enter into relationships with additional distributors who will enable us
to drive more traffic to our website.  Such  undertakings  are  expensive and we
cannot  assure  you that we will be  successful  at  upgrading  our  website  or
increasing the strength of our distribution relationships.

Short Term Nature of  Advertising  Contracts;  Guarantee  of Minimum  Impression
Levels. The majority of our advertising  contracts have been for terms averaging
three months in length, with relatively few longer-term  advertising  contracts.
We cannot  assure you that our  current  advertisers  will  continue to purchase
advertisements on our website. In addition,  our advertising contracts typically
guarantee the  advertiser a minimum  number of  impressions.  To the extent that
minimum impression levels are not achieved for any reason, we may be required to
make good or provide additional  impressions after the contract term.  Providing
additional  impressions  may adversely  affect the  availability  of advertising
inventory.  This  may,  in turn,  adversely  affect  our  business,  results  of
operations and financial condition.

Need to Enhance and Develop Onhealth.com to Remain Competitive.  To successfully
compete in the Internet health field, we must continue to improve the product we
offer and increase  the number of people  using our  website.  To do so, we will
have to  significantly  increase  our  operating  expenses  to:

      o  develop  new distribution channels;
      o  fund greater levels of research and development;
      o  add editorial content;
      o  increase our sales and marketing operations;
      o  broaden our customer  support  capabilities;  and
      o  establish  brand  identity and strategic alliances.

Such planned expansions,  however,  will require substantial  capital. We cannot
guarantee that such capital will be available,  or if available,  that the terms
on which  such  capital  is  available  will be  acceptable  to us.  If we raise
additional cash through the issuance of equity or convertible debt securities:

      o  the percentage ownership of our shareholders will be reduced;
      o  shareholders may experience  additional dilution upon the conversion of
         any such debt securities; and
      o  such securities may have rights, preferences or privileges senior to
         those of the holders of common stock.

Failure to Achieve Brand Identity.  In order to expand our audience of users and
increase our online  traffic,  we must  establish,  maintain and  strengthen our
brand. For us to be successful in establishing our brand, we believe  healthcare
consumers  must perceive us as a trusted source of healthcare  information,  and
advertisers  and merchants must perceive us as an effective  marketing and sales
channel for their  products  and  services.  Our  business  could be  materially
adversely  affected if our marketing  efforts are not productive or if we cannot
strengthen our brand.

In addition, to remain competitive with other Internet companies,  including the
numerous other Internet health-related websites, we must continue to enhance and
improve  the  responsiveness,  functionality  and  features  of our  website and
develop  other  products  and  services.  This will  require us to:

      o  develop or license  increasingly  complex  technology;  and
      o  create  an  easy  to use and functional e-commerce component to our
         website.

We may not  succeed in  developing  or  introducing  such  features,  functions,
products  and  services  in order  to  attract  consumers.  Such  failure  would
adversely affect our business, results of operations and financial condition.

Unpredictability of Future Revenue Streams;  Potential Fluctuations in Quarterly
Results.  Our revenue and operating results may vary  significantly from quarter
to quarter due to a number of factors,  not all of which are in our control.  If
we have a shortfall in revenue in relation to our  expenses,  or if our expenses
precede  increased  revenue,  then our results of operations would be materially
adversely  affected.  This would  likely  affect the market  price of our common
stock  in a manner that may be unrelated to our long-term operating performance.
Important factors which could cause our results to fluctuate materially include:

      o  our ability to attract and retain users;
      o  our ability to attract and retain advertisers and sponsors;
      o  our  ability to  attract  and retain  customers  and  maintain customer
         satisfaction  for our  existing  and future  product offerings;
      o  new Internet websites, services or products introduced by us or our
         competitors;
      o  the level of Internet and other online services usage;


                                       12
<PAGE>

      o  our  ability to upgrade  and develop our systems  and  infrastructure
         and  attract new  personnel  in a timely and  effective manner;
      o  our ability to successfully integrate operations and technologies from
         any  acquisitions,  joint ventures or other business  combinations  or
         investments; and
      o  technical difficulties or system downtime affecting the operation of
         our website.

In addition, as our market develops,  seasonal and cyclical patterns may emerge.
These patterns may affect our revenue.  We cannot yet predict to what extent our
operations  will prove to be  seasonal.  Due to the factors  noted above and the
other risks discussed in this section, you should not rely on quarter-to-quarter
comparisons of our results of operations as indicators of future performance. It
is possible that in some future  periods our operating  results may be below the
expectations of public market analysts and investors.  In this event,  the price
of our common stock may underperform or decrease.

Dependence on Third-Party Relationships. In order to expand our network, we have
entered  into a number of  strategic  relationships  that involve the payment of
funds for  prominent or exclusive  carriage of our  healthcare  information  and
services.  These transactions are premised on the assumption that the traffic we
obtain from these  arrangements  will permit us to earn revenue in excess of the
payments  made to partners.  This  assumption  is not yet proven,  and if we are
unsuccessful in generating sufficient resources to offset these expenditures, we
will likely be unable to operate our business. We have entered into distribution
relationships  with several  companies,  and we intend to enter into  additional
relationships in the future. Most of these distribution  relationships are short
term in nature  and may not be renewed or may be  canceled  by our  distribution
partner. Although we view our distribution  relationships as a key factor in our
overall  business  strategy,  our  distribution  partners  may  not  view  their
relationships  with us as  significant  to their  business,  and they may  later
decide to end their  commitment to us or even decide to compete directly with us
in the future.  We cannot guarantee that any  distribution  partner will perform
its  obligations  as  agreed  or  contemplated  or  that  we  would  be  able to
specifically  enforce any  distribution  agreement.  Our  arrangements  with our
distribution   partners   generally  do  not   establish   minimum   performance
requirements,  but instead  rely on the  voluntary  efforts of our  distribution
partners.  Therefore,  we cannot  guarantee  that  these  relationships  will be
successful.

Most of our arrangements with third-party Internet websites:

      o  do not require future minimum commitments to use our services;
      o  are not exclusive; and
      o  are short-term or may be terminated at the convenience of the other
         party.

In addition,  we do not have agreements with many website operators that provide
links to  onhealth.com,  and those operators with which we do may terminate such
links at any time without  notice.  As a result,  we cannot  assure you that our
existing  relationships will result in sustained  business  relationships or the
generation  of  significant  revenue  for  us.  Failure  of one or  more  of our
strategic  relationships to achieve or maintain market  acceptance or commercial
success or the  termination of one or more  successful  strategic  relationships
could have a material  adverse effect on our business,  results of operation and
financial condition.

Competition.  The number of Internet websites offering users healthcare content,
products and services is vast and  increasing at a rapid rate.  These  companies
compete  with us for  users,  advertisers,  e-commerce  transactions  and  other
sources  of online  revenue.  In  addition,  traditional  media  and  healthcare
providers  compete for consumers'  attention both through  traditional  means as
well as through  new  Internet  initiatives.  We believe  that  competition  for
healthcare  consumers  will  continue to increase as the Internet  develops as a
communication and commercial medium.

There are a number of competitors delivering online health content who will also
seek advertising  revenue, and it is likely that more competitors will emerge in
the near  future.  Such  competitors  include,  among  others:  WebMD/Healtheon,
drkoop.com,  Mediconsult,  Medscape and InteliHealth.  Many of these competitors
have more cash available to spend, longer operating histories and stronger brand
recognition than we do. Some have internal  distribution or other  opportunities
to support  their  business that we neither have nor are able to replicate for a
reasonable  investment.  As expressed above, we believe that the number of other
health care Internet companies that rely on Internet-based  advertising  revenue
will  increase  substantially  in the future.  Accordingly,  we will likely face
increased   competition,   resulting  in  increased  pricing  pressures  on  our
advertising rates, which could have a material adverse effect on our business.

We believe that the principal competitive factors in attracting advertisers to
our website include:

      o  the amount of traffic on our website;
      o  brand recognition;
      o  customer service;
      o  the demographics of our user base;
      o  our ability to offer targeted audiences; and
      o  the overall cost effectiveness of the advertising medium we offer.

Dependence on Key  Personnel.  Our  development  and operation is  substantially
dependent on the services of our President and Chief Executive  Officer,  Robert
N. Goodman,  and on our Executive  Vice President and General  Manager,  Rebecca
Farwell.  If we lost the  services  of either Mr.  Goodman or Ms.  Farwell,  our
business would be severely affected.  Our ability to execute our growth plan and
be  successful  also depends on our  continuing  ability to attract,  retain and

                                       13
<PAGE>

motivate other highly skilled employees. As we continue to grow, we will need to
hire additional  personnel in all operational  areas.  Competition for personnel
throughout the Internet industry is intense.  We may be unable to retain our key
employees or attract,  assimilate or retain other highly qualified  employees in
the future. We have from time to time in the past experienced,  and we expect to
continue to experience in the future,  difficulty in hiring and retaining highly
skilled  employees  with  appropriate  qualifications.  If we do not  succeed in
attracting new personnel or retaining and motivating our current personnel,  our
business will be adversely affected.

Reliance on Intellectual  Property and Proprietary Rights. We regard much of our
website and its  technology as  proprietary  and try to protect it by relying on
trademarks,  copyrights  and trade secret laws. In  connection  with our license
agreements with third parties,  we seek to control access to and distribution of
our technology,  documentation and other proprietary information.  Even with all
of these  precautions,  it could be possible  for someone else to either copy or
otherwise obtain and use our proprietary  information  without our authorization
or to develop similar technology independently.  Effective trademark,  copyright
and trade secret  protection  may not be available in every country in which our
services are made available through the Internet,  and policing unauthorized use
of our  proprietary  information is difficult and  expensive.  We cannot be sure
that the steps we have taken will prevent  misappropriation  of our  proprietary
information.  Such misappropriation  could have a material adverse effect on our
business.  In the  future,  we may  need to go to court to  either  enforce  our
intellectual  property rights,  to protect our trade secrets or to determine the
validity and scope of the proprietary  rights of others.  Such litigation  might
result in substantial costs and diversion of resources and management attention.
We currently license from third parties certain  technologies  incorporated into
onhealth.com.  As we continue to introduce  new services  that  incorporate  new
technologies,  we may be required to license additional  technology from others.
We cannot be sure that these third-party technology licenses will continue to be
available on commercially reasonable terms, if at all.

Liability  for  Information  Retrieved  from or  Transmitted  over the Internet;
Liability for Products  Sold over the Internet.  Because any of the materials on
our website may be downloaded  or viewed,  and such  materials  could be sent to
others,  we could be sued for:

      o  defamation;
      o  negligence;
      o  copyright  or trademark  infringement;
      o  medical  malpractice or personal injury;  or
      o  other theories based on the nature and content of such materials.

We could also be exposed to liability  with respect to  third-party  information
that may be accessible:

      o  through  our  website,  or
      o  through  content  and materials that may be posted by our users on
         discussion boards that we offer.

Such claims might  include,  that by directly or indirectly  providing  links to
websites  operated by third  parties,  we are liable for  copyright or trademark
infringement  or other  wrongful  actions by such  third  parties  through  such
websites.  It is also possible that, if any third-party  information provided on
our website  contains  errors,  third parties  could make claims  against us for
losses they incur relying on such information.  Insurance may not be adequate to
cover any such  potential  liabilities.  Even if such  claims  do not  result in
liability,  we could incur  significant  costs in  investigating  and  defending
against such claims.

In addition, patients who file lawsuits against doctors often name as defendants
all persons or companies  with any  relationship  to the  doctors.  As a result,
patients may file  lawsuits  against us based on advice  rendered by  physicians
through our website.  In  addition,  a court or  government  agency may take the
position that our delivery of health information,  or information delivered by a
third-party website that a consumer accesses through our website,  exposes us to
malpractice  or  other  personal  injury  liability  for  wrongful  delivery  of
healthcare services or erroneous health  information.  We cannot assure you that
the amount of insurance we maintain with  insurance  carriers will be sufficient
to cover all of the losses we might incur from these  claims and legal  actions.
In addition, insurance for some risks is difficult,  impossible or too costly to
obtain, and as a result, we may not be able to purchase insurance for some types
of risks.

Risks Related To System  Operation.  All companies that rely on the Internet are
dependent upon the continuous, reliable and secure operation of Internet servers
and related  hardware and software.  If that service is  interrupted,  consumers
would be  inconvenienced  and  commercial  clients  would  suffer from a loss in
advertising or transaction delivery.  This would result in a revenue loss to us.
Even though our  computer and  communications  hardware  are  protected  through
physical and software safeguards, they are still vulnerable to fire, earthquake,
flood, power loss,  telecommunications  failures, physical or software break-ins
and similar  events.  We do not have a complete  back-up for all of our computer
and  telecommunications  facilities  and  do  not  carry  business  interruption
insurance to protect us in the event of a catastrophe.  Such an event could lead
to significant negative impacts on our business. We also depend on third parties
to provide  users with web browsers and Internet and online  services  necessary
for access to our  website.  In the past,  users have  occasionally  experienced
difficulties with Internet and online services due to system failures, including
failures unrelated to our systems.  Any sustained  disruption in Internet access
provided by third parties could have a material adverse effect on our business.


                                       14
<PAGE>

We retain confidential  customer information in our database.  Therefore,  it is
critical that our facilities and infrastructure  remain secure and are perceived
by consumers to be secure.  Despite the implementation of security measures, our
infrastructure  may be  vulnerable  to  physical  break-ins,  computer  viruses,
programming  errors or similar disruptive  problems.  A material security breach
could damage our reputation or result in liability to us.

Management  of  Potential   Growth.   We  have  experienced  and  are  currently
experiencing a period of  significant  growth.  This growth has placed,  and the
future  growth we  anticipate  in our  operations  will  continue  to  place,  a
significant  strain on our  resources.  As part of this growth,  we will have to
implement new  operational  and financial  systems and  procedures and controls,
expand,  train and manage our employee  base,  and maintain  close  coordination
among our technical, accounting, finance, marketing, sales and editorial staffs.
If we are unable to manage  our growth  effectively,  our  business,  results of
operations and financial condition could be adversely affected. In addition, all
of the members of our senior  management  joined us in late 1997,  1998 or 1999.
Thus, we have a very new management  team that has not worked  together for very
long.  We  cannot  assure  you that  our  management  team  will be able to work
together effectively or successfully manage our growth.

Reliance On External  Content.  While we produce much of the  editorial  content
found on our  website,  some of our  content is  licensed  from  third  parties.
Accordingly,  we rely on the expertise,  technical capability,  name recognition
and willingness to syndicate content for branding and distribution of others. As
health-related  content grows on the web,  there will be increasing  competition
for the best health  information  suppliers.  This may result in certain content
becoming  unavailable or in significantly higher content prices. Such an outcome
could make our  website  less  attractive  or useful for a user and could have a
material adverse effect on our business and financial performance.

Governmental  Regulation and Legal Issues.  Because of the increasing use of the
Internet as a communication  and commercial  medium,  the government has adopted
and may adopt  additional  laws and  regulations  with  respect to the  Internet
covering such areas as:

      o  user privacy,
      o  pricing,
      o  content,
      o  taxation,
      o  copyright protection, and
      o  the distribution of health care products or advice over the Internet.

Since we operate a healthcare network over the Internet, our business is subject
to government regulation  specifically relating to medical devices, the practice
of medicine and pharmacology, healthcare regulation, insurance and other matters
unique to the healthcare  area. Laws and regulations have been or may be adopted
with  respect to the  provision  of  healthcare-related  products  and  services
online,  covering  areas such as:

      o  the regulation  of medical  devices;
      o  the practice of medicine and pharmacology  and the sale of controlled
         products such as pharmaceuticals online;
      o  the regulation of government and third-party cost reimbursement; and
      o  the regulation of insurance sales.

FDA Regulation of Medical Devices.  Some computer  applications and software are
considered  medical  devices and are subject to  regulation by the United States
Food and Drug Administration. We do not believe that our current applications or
services will be regulated by the FDA;  however,  our  applications and services
may  become  subject  to  FDA  regulation.   Additionally,  we  may  expand  our
application and service  offerings into areas that subject us to FDA regulation.
We have no  experience  in  complying  with FDA  regulations.  We  believe  that
complying with FDA regulations would be time consuming, burdensome and expensive
and could delay or prevent our introduction of new applications or services.

Regulation  of the  Practice  of  Medicine  and  Pharmacology.  The  practice of
medicine and pharmacology requires licensing under applicable state law. We have
endeavored  to  structure  our  website  and  affiliate  relationships  to avoid
violation of state licensing requirements,  but a state regulatory authority may
at some point allege that some portion of our business  violates these statutes.
Any such allegation  could result in a material  adverse effect on our business.
Further,  any liability based on a determination that we engaged in the practice
of medicine  without a license may be excluded from coverage  under the terms of
our current general liability insurance policy.

Federal and State Healthcare Regulation. We earn a service fee when users on our
website purchase  prescription  pharmacy products from certain of our e-commerce
partners.  Federal and state  anti-kickback  laws prohibit granting or receiving
referral  fees  in  connection   with  sales  of  pharmacy   products  that  are
reimbursable   under   federal   Medicare  and   Medicaid   programs  and  other
reimbursement   programs.   Although   there  is   uncertainty   regarding   the
applicability  of these  regulations  to our  e-commerce  revenue  strategy,  we
believe that the service fees we receive  from our  e-commerce  partners are for
the primary  purpose of  marketing  and do not  constitute  payments  that would
violate  federal or state  "anti-kickback"  laws.  However,  if our program were
deemed to be  inconsistent  with federal or state law, we could face criminal or
civil  penalties.  Further,  we would  be  required  either  not to  accept  any
transactions  that   are  subject  to  reimbursement   under  federal  or  state
healthcare  programs  or to  restructure  our  compensation  to comply  with any
applicable  anti-kickback  laws or  regulations.  In  addition,  similar laws in
several  states  apply  not  only  to  government   reimbursement  but  also  to

                                       15
<PAGE>

reimbursement by private insurers.  If our activities were deemed to violate any
of these laws or  regulations,  it could cause a material  adverse affect on our
business, results of operations and financial condition.

Internet Capacity  Constraints.  Our success will depend upon the ability of the
communications  industry to provide Internet access and carry Internet  traffic.
The Internet may not prove to be a viable commercial medium because of:

      o  inadequate  development  of the  necessary  infrastructure  such as a
         reliable network  backbone
      o  timely development of complementary products such as high speed modems;
      o  delays in the development or adoption of new standards and protocols
         required to handle increased levels of Internet activity
      o  increased government regulation

If the Internet  continues  to  experience  significant  growth in the number of
users and the level of use, then the Internet  infrastructure may not be able to
continue to support the  demands  placed on it,  which may impair the ability of
consumers  to access  our  website  and could  hinder our  ability  to  generate
advertising revenue.

Security  Risks.  Experienced  programmers or hackers could attempt to penetrate
our  network  security.  Because a hacker who is able to  penetrate  our network
security could misappropriate  proprietary information or cause interruptions in
our products and services, we may be required to expend capital and resources to
protect against or to alleviate problems caused by such parties. In addition, we
may not have a timely  remedy  against  a hacker  who is able to  penetrate  our
network  security.  Such  purposeful  security  breaches  could  have a material
adverse effect on our business,  results of operations and financial  condition.
In addition, the inadvertent transmission of computer viruses could expose us to
a risk of loss or litigation and potential liability.

Stock Price Volatility.  The stock market has experienced  significant price and
trading  volume  fluctuations,  and the market prices of  technology  companies,
particularly   Internet-related   companies,   have  been  extremely   volatile.
Exceptional  share price and trading  volume  changes  have  accompanied  recent
public  offerings  by Internet  companies  in the first days and weeks after the
securities were released for public trading. Investors may not be able to resell
their  shares  at or above  the  initial  public  offering  price.  In the past,
following  periods  of  volatility  in the  market  price of a public  company's
securities, securities class action litigation has often been instituted against
that company.  Such litigation could result in substantial costs and a diversion
of management's attention and resources.

Impact  of  General  Economic   Conditions.   Time  spent  on  the  Internet  by
individuals,   purchases  of  new   computers   and   purchases  of   membership
subscriptions to Internet websites are typically discretionary for consumers and
may be  particularly  affected  by adverse  trends in the general  economy.  The
success of our  operations  depends to a significant  extent upon  discretionary
consumer spending,  including economic conditions  affecting disposable consumer
income such as employment,  wages and salaries,  business  conditions,  interest
rates,  availability of credit and taxation. In addition,  our business strategy
relies on advertising by, and agreements  with,  other Internet  companies.  Any
significant deterioration in general economic conditions that adversely affected
these companies could also have a material adverse effect on our business.

Dividends.  We intend  to retain  all of our  earnings,  if any,  for use in the
business and do not  anticipate  paying any cash  dividends  in the  foreseeable
future.

OTHER

Product Development, Editorial and Design
In  1999,  1998,  and  1997,  product  development   expenses  were  $7,660,000,
$4,511,000,  and  $6,784,000,   respectively.  In  addition,  in  1997,  product
development,  editorial  and  design  expenses  paid for by third  parties  were
$682,000 and $1,204,000, respectively.

Protection of Proprietary Rights
We regard the  software we own as  proprietary  and rely upon a  combination  of
copyrights,   trade  secret  laws,   employee  and  third-party   non-disclosure
agreements and other methods to protect our  intellectual  property.  We believe
that copyright  protection for our intellectual  property is less significant to
our success than factors such as the  knowledge,  ability and  experience of our
personnel,  and the  quality of our new  product  development  and  distribution
efforts.

Backlog
We had no significant backlog at fiscal year end of 1999, 1998, or 1997.

Major Customers
No customer represented more than 10% of net revenue for the year ended December
31, 1999. Three customers represent 40%, 16% and 13% of net revenue for the year
ended December 31, 1998; one customer represents 12% of net revenue for the year
ended December 31, 1997.  The revenue recorded from the customer that represents

                                       16
<PAGE>

40% of the net  revenue in 1998 was the result of a  $603,000  payment  received
from the customer related to minimum sales requirements from a terminated CD-ROM
distribution agreement.

ITEM 2.         PROPERTIES

We lease  approximately 7,000 square feet of space where our principal executive
and administrative offices are located at 808 Howell Street, Suite 400, Seattle,
Washington   98101.   The  lease   expires  June  30,  2003.  We  also  maintain
approximately  1,500 square feet of office space in Seattle that is subleased on
a month-to-month  basis. In September 1999 we leased 8,250 square feet of office
space located at 536 Broadway,  New York, New York.  This lease expires  October
31, 2004.

ITEM 3.         LEGAL PROCEEDINGS

From time to time,  we have been  involved  in legal  proceedings  in the normal
course of our operations.  Other than as described below, we are not currently a
party to any pending or, to our knowledge, threatened legal proceedings in which
an adverse decision could have a material impact on our results of operations or
financial position.

In October 1999, the Company  received a subpoena duces tecum by the Division of
Enforcement,  Pacific Regional Office of the Securities and Exchange  Commission
("SEC") requesting certain documents from the Company pursuant to a formal order
of private  investigation  in connection  with possible  federal  securities law
violations.  The Company intends to cooperate fully with the request.  As stated
by the SEC in the letter accompanying the subpoena, "[t]he investigation and the
subpoena do not mean that we have  concluded  that you or anyone else has broken
the law. Also, the  investigation  does not mean that we have a negative opinion
of any person, entity or security".

The SEC  investigation  is still in  process.  Until  the SEC  investigation  is
completed,  the  Company  could,  among  other  things,  be  required  to record
additional stock-based compensation charges and could be required to pay a fine.
The Company is unable to assess the likely outcome of this matter.  As a result,
there can be no  assurance  that  this  investigation  will not have a  material
adverse affect on the Company's financial position or results of operations.

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of 1999.


                                       17
<PAGE>


                                     PART II

ITEM 5.         MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                                           MATTERS

The  Company's  Common Stock was  initially  offered to the public on October 6,
1993 under the symbol  "IVIP".  Starting  June 17,  1998,  the Common  Stock was
quoted  under the symbol  "ONHN"on  the Nasdaq  SmallCap  Market  system.  Since
September 1, 1999 the Common Stock has been quoted on the Nasdaq National Market
System.

The following table sets forth the high and low bid quotations for the Company's
Common  Stock  as  reported  by  Nasdaq  for the  last two  fiscal  years.  Such
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark down or
commission and may not necessarily represent actual transactions.

                                             HIGH               LOW
                                           ---------         ---------
                         1999
                ------------------------
                Fourth Quarter             $ 14             $ 5 3/4
                Third Quarter                12 5/8           5 23/32
                Second Quarter               22 3/4           8 1/4
                First Quarter                21 7/8           4 5/8

                         1998
                ------------------------
                Fourth Quarter             $  6 5/8         $ 2 3/16
                Third Quarter                11 3/8           3 5/8
                Second Quarter                8 5/8           4 7/8
                First Quarter                 6               2 5/8


At March 21, 2000,  based on  information  received from the Company's  transfer
agent on the Company's common stock, there were approximately 199 record holders
of the Company's Common Stock, excluding shareholders whose stock is held either
in nominee name and/or street name brokerage accounts.

The Company has never  declared or paid any cash  dividends  on its Common Stock
and does not intend to pay dividends on its Common Stock in the near future.  To
date, the Company has incurred losses and presently expects to retain its future
anticipated  earnings to finance  development  of and expansion of its business.
The payment by the  Company of  dividends,  if any,  on its Common  Stock in the
future is subject to the discretion of the Board of Directors and will depend on
the Company's  earnings,  financial  condition,  capital  requirements and other
relevant factors.

RECENT SALES OF UNREGISTERED SECURITIES

During  January 1999,  the Company  completed a $14,278,000  private  placement,
which resulted in the issuance of 2,596,000 shares of the Company's common stock
at $5.50 per share. As an issuance to sophisticated  investors not involving any
public offering, the sale of the shares of common stock was exempt under Section
4(2) of the Securities Act and Regulation D thereunder.

In February and March 1999, the Company issued, in the aggregate, 191,758 shares
of  unregistered  restricted  common stock in exchange  for certain  advertising
arrangements.  The  issuance  of the  shares of common  stock was  exempt  under
Section 4(2) of the Securities Act.

In October 1999, the Company issued  162,602 shares of  unregistered  restricted
common stock in exchange for a one year  advertising  agreement.  The  agreement
also  requires  the  Company  to pay  approximately  $350,000  per  month  as an
exclusivity fee and a placement fee of impressions to be delivered. The issuance
of the shares of common  stock was exempt under  Section 4(2) of the  Securities
Act.

In December 1999, the Company issued 292,683 shares of  unregistered  restricted
common stock in exchange for the delivery of a guaranteed  number of impressions
and click  throughs  on another  internet  portal  over a one year  period.  The
issuance  of the shares of common  stock was exempt  under  Section  4(2) of the
Securities Act.

                                       18
<PAGE>


ITEM 6.         SELECTED FINANCIAL DATA

The selected  financial data presented below has been derived from the financial
statements  of the  Company.  For  additional  information,  see  the  Financial
Statements  and Notes  thereto  and  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                       ------------------------------------------------------------------
                                            1999(1)       1998         1997         1996         1995
                                            ----          ----         ----         ----         ----
                                                       (In thousands, except per share data)
<S>                                    <C>           <C>           <C>         <C>           <C>

SUMMARY OF OPERATIONS:
Net revenue                            $     3,767   $     1,522   $   3,761   $    9,470    $  11,970
Loss from operations                       (47,608)      (11,019)    (11,262)     (10,326)     (14,875)
Net loss                                   (47,327)      (10,939)    (10,947)     (10,157)     (14,234)
Net loss applicable to
   common shareholders                 $   (47,327)  $   (11,964)  $ (13,965)  $  (10,336)   $ (14,254)
Net loss per common share:
   Basic and diluted                   $     (2.70)  $     (1.12)  $   (1.73)  $    (1.36)   $   (1.90)


BALANCE SHEET DATA:
Cash, cash equivalents and
   short-term investments              $    10,142   $     2,119   $   2,488   $    3,462    $   7,759
Working capital (deficiency)                 8,019        (1,158)     (1,252)       3,230        8,607
Total assets                                32,720         3,894       4,577       13,411       18,352
Convertible subordinated
   debentures                                    -             -           -        3,500            -
Total liabilities                           11,825         4,195       4,559        8,606        3,627
Convertible redeemable
   preferred stock                               -             -           -        1,905        1,845
Shareholders' equity (deficit)              20,895          (301)         18        2,900       12,880
<FN>
(1)  Includes  financial  data of  BabyData,  which was acquired on September 9,
     1999,  and HDI,  which was  acquired  on  November  29,  1999.  Results  of
     operations  for  BabyData  and  HDI  are  included   beginning  with  their
     respective dates of acquisition.
</FN>
</TABLE>

ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                                   RESULTS OF OPERATIONS

OVERVIEW

We intend to become the leading internet resource dedicated to the management of
family health and well-being.  We are an Internet-based provider of high quality
health and medical  information  and  applications to a broad base of consumers.
Our Internet site,  onhealth.com,  produces and distributes  original,  relevant
health content including in-depth reports,  personalized  information retrieval,
geographically   specific  guides  to  healthcare   services  and   information,
editorials and interactive community environments.

Until  January  1998,  our   traditional   line  of  business  had  been  CD-ROM
development,  production  and  distribution.  We were also a supplier  of video,
animation  and graphic  assets to a health and medical  cable TV channel.  Under
this strategy, we were never able to attain profitability,  and, at December 31,
1997, had an accumulated deficit of $78,576,000. In 1997, our Board of Directors
revised its business strategy and brought in an entirely new management team and
other key employees skilled in the development of internet Web sites. In 1998 we
were  focused on the  development  of an  internet-delivered,  consumer-oriented
network of health and wellness sites. We intend to generate  advertising revenue
by appealing to advertisers  through our ability to reach targeted  demographics
and  psychographics.  Additional  products and services,  such as  transactional
based  e-commerce,  subscription and  syndication,  will be developed to exploit
opportunities as they present themselves in the marketplace.

In July 1998, we relaunched the  onhealth.com Web site and focused on generating
advertising  revenue.  We have a wide  variety  of  advertisers  on our Web site
including  healthcare and other  non-healthcare  advertisers.  In March 1999, we
launched a shopping area on our site designed to offer our consumers the ability
to purchase a wide variety of health and wellness products and related products.
To date, we have e-commerce  relationships  with,  among others,  drugstore.com,
VitaminShoppe,   Amazon.com,  SelfCare,  Nutrisystem.com,   American  Greetings,


                                       19
<PAGE>

ProFlowers, WholeFoods Market,  greenmarketplace.com and enews.com and expect to
continue to add additional categories and partners.

During  the third and fourth  quarters  of 1999,  we  acquired  BabyData.com,  a
premier Web site for pregnant  couples and those trying to conceive,  and Health
Decisions  International,  LLC ("HDI"), which develops,  provides and supports a
broad  range of  personal  health  information,  referral  and nurse  counseling
services to customers  throughout the United States. We have accounted for these
acquisitions under the purchase method of accounting.  The results of operations
for BabyData.com and HDI have been included since the dates of acquisition.

On  February  15,  2000,  Healtheon/WebMD  agreed to  acquire  OnHealth  Network
Company. Under the terms of the agreement, shareholders of OnHealth stock are to
receive  .189435  shares  of  Healtheon/WebMD  Common  Stock  for each  share of
OnHealth  stock.  Closing of the  transaction,  which will be accounted for as a
purchase transaction, is expected in the second quarter of this year, subject to
regulatory approval,  including the effectiveness of a joint  registration/proxy
statement  on Form S-4 to be filed with the SEC,  and  certain  other  customary
conditions.   Following  the  closing,   OnHealth  will  become  a  wholly-owned
subsidiary of Healtheon/WEBMD  and the common stock of OnHealth will cease to be
publicly traded.


RESULTS OF OPERATIONS

The following  table sets forth  selected  income  statement  data for the years
ended December 31, 1999, 1998 and 1997:

                                                 Year Ended December 31,
                                      ------------------------------------------
                                          1999          1998          1997
                                      ------------- ------------- -------------
                                                     (In thousands)

         Net revenue                  $    3,767    $    1,522    $    3,761
         Costs and expenses               51,375        12,541        15,023
         Loss from operations            (47,608)      (11,019)      (11,262)
         Net loss                        (47,327)      (10,939)      (10,947)


NET REVENUE

Net revenue for the years ended December 31, 1999, 1998 and 1997 was as follows:


                                              Year Ended December 31,
                              --------------------------------------------------
                                    1999             1998              1997
                              --------------   --------------   ----------------
                                               (In thousands)


Online                        $       3,385    $         388    $            58
Services and communication              277                -                  -
Contract development and other           69              380              1,220
Product sales and licensing              36              754              1,990
Cable television licensing                -                -                493
                              --------------   --------------   ----------------
                              $       3,767    $       1,522    $         3,761
                              ==============   ==============   ================

Online revenue

Online revenue is generated  through the sale of advertising  and sponsorship of
our  onhealth.com  Web site. The increase in online  revenue of  $2,997,000,  or
772%,  from 1998 to 1999 was the result of an  increase  in user  traffic on our
onhealth.com  Web site, the number of site  sponsorship and advertising  clients
and the size of the  advertising  contracts from the prior year.  Online revenue
increased $330,000, or 569%, from 1997 to 1998. The increase in 1998 as compared
with 1997 reflects  increased site sponsorship and advertising  revenue from our
onhealth.com  Web site, which was redesigned  and  re-launched in July 1998. The
1997 online  revenues of $58,000  included site  sponsorships,  advertising  and
premium  services revenue related to onhealth.com and the former O@SIS web site.
Online  revenue is expected to increase  due  principally  to an increase in the
number of advertising clients.

Services and communication revenue

Services  and  communication  revenue,  a line of  revenue  for HDI,  which  was
acquired by us on November 29, 1999,  includes,  among others,  nurse counseling
and personal care management services.  Services and communication revenue is


                                       20
<PAGE>

expected to increase  in 2000 as the  operations  of HDI will be included in our
consolidated financial statements for a full year.

Contract development revenue and other

Contract  development  revenue is generated through the use of our personnel and
facilities for the creation of custom multimedia products.  Contract development
and other revenue decreased $311,000,  or 82% from 1998 to 1999 and $840,000, or
69%, from 1997 to 1998. The decreases  generally  reflected our shift toward the
online efforts.

Product sales and licensing revenue

Product  sales and  licensing  revenue  consists of retail  distribution  sales,
direct mail sales, product sales and royalties on licenses to original equipment
manufacturers  (OEM's) and end users.  Product sales and licensing  revenue have
declined  steadily  over the past few years.  The  decrease  generally  reflects
market conditions for CD-ROM products, our cancellation of a CD-ROM distribution
agreement,  and the lack of new CD-ROM product  releases as we shifted our focus
toward  online  efforts.  In 1995,  we  entered  into a five  year  distribution
agreement which allowed for the promotion, marketing and distribution of certain
of our CD-ROM products.  The agreement also provided for minimum levels of sales
through the year 2000. In December 1998, we received a $603,000  payment related
to minimum sales  requirements  from the termination of the CD-ROM  distribution
agreement.  We do not  anticipate  receiving any  significant  product sales and
licensing revenue from CD-ROM products in the future.

Cable television licensing revenue

Cable television licensing revenue reflects revenue from the content and royalty
agreement with  America's  Health  Network  (AHN).  Under the agreement,  we are
licensing  multimedia  content  to AHN  starting  in May 1995 and are to receive
minimum  licensing  royalties  over the life of the  agreement.  The revenue was
being recognized  evenly over the expected life of the agreement.  In June 1997,
as a result of our not receiving our quarterly payment,  we stopped  recognizing
revenue under the AHN agreement.

COSTS AND EXPENSES

Total cost and expenses in 1999  increased  $38,834,000  or 310%, to $51,375,000
from  $12,541,000 in 1998. The increase was primarily due to increased sales and
marketing  efforts related to our  onhelath.com  Web site and increased  product
development, editorial and design expenses.

Product Development, Editorial & Design

In 1999 and 1998 product  development,  editorial  and design  expenses  consist
primarily of  compensation  and related  costs for our  development,  editorial,
design systems staff, consulting fees, third-party content acquisition costs and
Web site maintenance and enhancement costs related to our onhelath.com Web site.
In 1997, product development, editorial and design expenses also included CD-ROM
development  costs.  The increase in product  development,  editorial and design
expenses of $3,149,000,  or 70%, from  $4,511,000 in 1998 to $7,660,000 in 1999,
was primarily due to the increase in the use of  consultants  and staff required
to enhance and  maintain  the  onhealth.com  Web site.  The  decrease in product
development,   editorial  and  design  expenses  of  $2,273,000,  or  34%,  from
$6,784,000 in 1997 to $4,511,000 in 1998 reflects the shift from CD-ROM products
towards an internet focused business.  Product  development,  editorial & design
expenses  are  expected  to  increase  in  2000  as we  continue  to  build  our
infrastructure and increase product offerings.

Sales and Marketing

Sales  and  marketing   expenses   consist   primarily  of  salaries  and  sales
commissions, advertising costs, travel and public relations. Sales and marketing
expenses increased $31,415,000,  or 558%, from $5,626,000 in 1998 to $37,041,000
in 1999. The increase was primarily the result of increased advertising expenses
related to the roll out of our redesigned onhealth.com Web site during July 1999
as well as increased  headcount.  The broad-based  consumer targeted advertising
campaign,  which includes  online,  television,  radio and outdoor  advertising,
commenced  early in the  third  quarter  of 1999.  We  intend  to  continue  our
advertising  campaign in 2000 and, as a result,  we expect  sales and  marketing
expenses to increase over 1999 amounts.

Sales and marketing expenses increased  $4,279,000,  or 318%, from $1,347,000 in
1998 to  $5,626,000  in  1997.  The  increase  primarily  relates  to  increased
marketing  activities  for our  onhealth.com  web site. In July 1998, we began a
marketing  campaign to promote the launch of the  onhealth.com  web site,  which
included online and radio advertising.

General and Administrative

General and  administrative  expenses consist  primarily of salaries and related
costs for general corporate functions,  including finance,  accounting and legal
expenses,  investor relations and fees for other professional services.  General
and administrative  expenses increased  $2,495,000,  or 110%, from $2,274,000 in
1998 to $4,769,000 in 1999. The increase was due to increased  employee costs as
a result of increased headcount, legal fees and settlements, travel and bad debt


                                       21
<PAGE>

expense. Year-to-date legal fees and settlements include $468,000 for settlement
and legal costs related to two lawsuits.  We expect  general and  administrative
expenses to increase  in 2000 as the  operations  of HDI will be included in our
consolidated financial statements for a full year.

General  and  administrative  expenses  were  $2,274,000  in 1998,  compared  to
$6,892,000 in 1997, a decrease of $4,618,000, or 67%. The large decrease in 1998
relative to 1997 reflects  substantially  reduced legal costs,  reduced bad debt
costs, and general cost cutting measures  including  reduced rent costs from our
relocation to smaller  facilities.  The 1997 costs also included certain special
charges including costs to relocate the Company from  Minneapolis,  Minnesota to
Seattle, Washington.

Amortization of Intangibles and Goodwill

Amortization of intangibles and goodwill totaled $504,000 in 1999 and is related
to the  amortization  of  goodwill  and  identifiable  intangibles  recorded  in
connection with the 1999 business  acquisitions.  There was no such amortization
in 1998 and 1997.  Amortization  of  intangibles  and  goodwill  are expected to
increase  in  2000,  as a full  year of  amortization  will be  included  in the
financial statements.

Stock-based Compensation

Stock-based  compensation is principally comprised of the portion of acquisition
related  consideration  which  is  contingent  on the  continued  tenure  of key
employees,  which must be  recorded  as  compensation  expense  under  generally
accepted accounting  principles,  and the compensation  expense related to stock
option grants. The 1999 stock-based  compensation  includes  amortization of the
compensation arrangements in connection with the acquisitions of BabyData.com in
the third  quarter  of 1999 and HDI in the fourth  quarter of 1999,  aggregating
$822,000.  The stock-based  compensation amounts related to options granted with
an exercise  price less than the fair value of the  underlying  common  stock is
$579,000 in 1999 and $130,000 in 1998.  Stock-based  compensation is expected to
increase in 2000,  as the  remaining  amortization  related to the two  12-month
employment contracts,  which became effective September 9, 1999 and November 29,
1999, will be included in the financial statements.

Interest Income (Expense), Net

Interest  income  (expense),  net was $279,000,  $84,000 and $(158,000) in 1999,
1998 and 1997,  respectively.  The 1999 net interest income  (expense)  includes
interest  income of  $387,000,  and interest  expense,  the majority of which is
related to the Searle note payable of $108,000.  The increase in 1999 was due to
the interest  earned on the cash  balances as a result of  financings  completed
during the first and third quarters of 1999. The increase in net interest income
(expense),  net from 1997 to reflects the lack of debt in 1998 relative to 1997.
The 1997 net  interest  income  (expense),  net  includes  interest  expense  of
$264,000  related to $3,500,000 in convertible  subordinated  debentures,  which
were  outstanding  for ten months in 1997.  These  debentures  were converted to
common stock in October 1997.

Other Income (Expense), Net

Other income (expense),  net was $2,000, $(4,000) and $473,000 in 1999, 1998 and
1997,  respectively.  The 1998 other expense of $4,000  included a $285,000 loss
related to fixed asset disposals, a $562,000 gain related to the collection of a
previously reserved accounts receivable,  and a $281,000 revenue sharing payment
related to the collection of the receivable.

The 1997 other income  (expense),  net of $473,000  included a  $2,700,000  cash
payment  that we received in  connection  with the  transfer of ownership of our
O@sis Web site to Mayo. This was partially offset by other expense of $2,229,000
in connection with our conversion of Convertible  Subordinated  Debentures.  The
expense  represents  the excess of the fair market  value of Common Stock issued
over the fair  value of the  Common  Stock  issuable  pursuant  to the  original
conversion terms of the debentures.

Income Taxes

We have not  recorded a current or deferred  provision  for income taxes for the
periods presented due to the history of losses incurred.

LIMITATION ON USE OF NET OPERATING LOSS AND OTHER TAX CREDIT CARRYFORWARDS

At December 31, 1999,  we had  available net  operating  loss  carryforwards  of
approximately  $130,323,000  and available  research and development  credits of
approximately  $442,000 for federal income tax purposes.  The net operating loss
carryforwards  and the  credits  expire at various  times  through  2019.  These
carryforwards  are subject to the  limitations of Internal  Revenue Code Section
382. This section  provides  limitations  on the  availability  of net operating
losses to offset current  taxable income if significant  ownership  changes have
occurred for federal tax purposes.


                                       22
<PAGE>

INFLATION

Management  believes that inflation has not had a material impact on our results
of operations.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, we had cash and cash  equivalents  of  $10,142,000.  Total
cash  used by  operating  activities  during  1999 was  $43,398,000,  which  was
primarily due to a net loss of $47,327,000.  Investing  activities used net cash
of  $1,187,000  primarily  for  purchases of computer  equipment  and  leasehold
improvements due to the growth in personnel.  Financing activities provided cash
of  $52,608,000  through  the  private  placement  of common  stock in the first
quarter  and  public  offerings  in  second  and  third  quarters,   aggregating
$49,676,000,  net of offering costs; proceeds from the exercise of stock options
$1,347,000; and the exercise of warrants, $1,585,000.

In  February  2000,  we  agreed  to  merge  with   Healtheon/WEBMD   Corporation
("Healtheon/WEBMD").  In connection with the merger  agreement,  Healtheon/WEBMD
has agreed to lend us up to $30 million for working  capital needs.  The amounts
borrowed  under this line of credit are due on February 15, 2001. We believe our
cash and cash  equivalents,  including  the $30 million  lending  commitment  by
Healtheon/WEBMD,  will be sufficient to fund our operations through December 31,
2000.  Operations generated a negative cash flow during 1997, 1998 and 1999, and
we expect a  significant  use of cash in 2000 as it markets  and  expands it Web
site.  Any material  unforeseen  increase in expenses or reductions in projected
revenues will likely require us to seek additional debt or equity financing.  If
additional cash is required,  we may need to reduce our  expenditures or curtail
certain operations. There can be no assurance that additional capital, on a debt
or equity  basis,  will be found,  or if found  that it will be on  economically
viable terms.

YEAR 2000

We  have  experienced  no  disruptions  or  problems  regarding  the  year  2000
changeover. As part of our year 2000 plan, prior to January 1, 2000, we assessed
its internal systems consisting primarily of desktop and network computers,  and
third-party software utilized in our day-to-day  operations.  Our assessment was
completed  as of January 1, 2000 and  indicated  all systems  were  operating as
normal.  As of the date of the  filing  of this  document,  all of our  internal
hardware  and software  continue to operate as normal and  to-date,  all vendors
utilized  by us in our daily  operations  are  operating  normally  and have not
indicated any year 2000 anomalies.  Based upon the successful transition through
the  January 1, 2000  rollover  period,  we do not  anticipate  any  problems to
materialize.  Our expenditures for the year 2000 effort were not material and we
do not expect to incur any material costs in 2000 with regards to year 2000.

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The Company believes that the market risk arising from holdings of its
financial instruments is not material.

ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The financial  information required by Item 8 is included elsewhere in
this Report (see Part IV, Item 14).

ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                                    FINANCIAL DISCLOSURE

          None.




                                       23
<PAGE>




                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Set forth are the  executive  officers and  directors of the Company as of March
24, 2000.

         Name           Age                      Title
---------------------- ------- -------------------------------------------------
 Robert N. Goodman       47      Chief Executive Officer, President and Director
 Rebecca J. Farwell      38      Executive Vice President, General Manager
 Ronald M. Stevens       36      Chief Financial Officer
 Michael A. Brochu       46      Chairman of the Board
 Ann Kirschner           49      Director
 Ram Shriram             42      Director
 Rick Thompson           40      Director



Executive  officers of the Company are elected at the discretion of the Board of
Directors with no fixed term. There are no family relationships between or among
any of the executive officers or directors of the Company.

Robert N. Goodman  joined the Company in November  1997 as  President  and Chief
Executive  Officer and a member of the Company's Board of Directors.  From April
1997 to November  1997,  he was the director of business  development  for MSNBC
Interactive  News,  LLC. From December  1995 to April 1997,  Mr.  Goodman was an
independent consultant working for Microsoft Corporation.  From November 1993 to
October 1995, he was Assistant General Counsel for The 3DO Company.

Rebecca J. Farwell  joined the Company in February 1998 and currently  serves as
Executive  Vice  President  and  General  Manager.  Prior to  that,  she was the
editorial director for Discovery Channel Online (DCOL) and Discovery Publishing.
She began her career at The Discovery  Channel in 1987 as the managing editor of
The Discovery Channel Magazine.

Ronald M. Stevens  joined  OnHealth in August 1999 as Chief  Financial  Officer.
From May 1996 to August  1999,  he served as General  Manager  and  Senior  Vice
President of Sierra-On-Line,  Inc., a leader in entertainment software. From May
1994  to  May  1996,  he  served  as  Corporate  and  Divisional  Controller  of
Sierra-On-Line.

Michael A. Brochu has been a Director  of the  Company  since April 1997 and has
also served as Chairman of the Board of Directors of the Company  since  October
1997. Mr. Brochu has served as President and Chief Executive  Officer of Primus,
Inc., an electronic customer  relationship  management  ("eCRM") company,  since
November  1997.  From October 1995 to October  1997,  he served as President and
Chief  Operating  Officer of Sierra  On-Line,  Inc.,  a leader in  entertainment
software,  and as its Chief Financial  Officer and Executive Vice President from
July 1994 to October  1995.  From 1987 to July 1994,  Mr.  Brochu  served in the
positions of Senior Vice President,  Chief Financial Officer and Chief Operating
Officer of Burlington  Environmental,  Inc., a division of Burlington Resources,
Inc.

Ann  Kirschner  has been a Director  of the Company  since  February  1998.  Ms.
Kirschner is currently the  executive  director of Columbia  Media  Enterprises.
From  December  1994 to  December  1998,  she  served as Vice  President  of NFL
Interactive  for NFL  Enterprises,  Inc. Ms.  Kirschner was  responsible for the
launch of the NFL's official Web site, the official Super Bowl Web site and Team
NFL. Prior to December 1994, she served as President of Comma Communications for
more than two years.

Ram Shriram has been a Director of the Company since  February 1998. Mr. Shriram
is currently the Managing  Partner of Sherpalo LLC, an early stage venture fund.
From September 1998 to September 1999, Mr. Shriram served as  Vice-President  of
Business  Development  at  Amazon.com,  an Internet  retailer.  From May 1998 to
September  1998, he served as President and Chief  Operating  Officer of Junglee
Corporation,  a company that  enables Web users to locate,  compare and transact
goods and  services on the  Internet.  Junglee was  acquired  by  Amazon.com  in
September 1998. From February 1994 to February 1998, he served as Vice President
of Netscape  Communications  Corporation and from October 1990 to November 1994,
Mr. Shriram was Netscape's Director, Channel Sales of Network Computing Devices.

Rick  Thompson  has been a Director  of the Company  since  February  1998.  Mr.
Thompson  has  served  as  Vice  President  and  General  Manager  of  Microsoft
Corporation's  Hardware  Division since October 1987. Mr.  Thompson  manages the
division's product lines and oversees development.


                                       24
<PAGE>


ITEM 11.        EXECUTIVE COMPENSATION

  SUMMARY COMPENSATION TABLE

The following  table sets  forth all cash compensation paid or to be paid by the
Company,  as well as certain other compensation paid or accrued,  during each of
the  Company's  last  three  fiscal  years to each  person  who  served as Chief
Executive  Officer during fiscal 1999 and the only other  executive  officer who
earned more than $100,000 in salary and bonuses in 1999.

<TABLE>
<CAPTION>
                                                                                   Long Term Compensation
                                                                          -------------------------------------
                                                                                   Awards             Payouts
                                                                          --------------------------  ---------
                                                                           Restricted
                                                                             Stock
                                        Annual Compensation                  Awards                             All Other
Name and Principal            Fiscal   ----------------------------------    Awards                     LTIP   Compensation
     Position                  Year    Salary ($)   Bonus ($)   Other ($)     ($)         Options       ($)        ($)
-------------------------     ------   ----------   ------    ----------   ----------     -------      ------- ------------
<S>                            <C>     <C>          <C>            <C>         <C>       <C>             <C>      <C>

Robert N. Goodman              1999    180,000      110,000        -            -         650,000        -           -
  President and Chief          1998    180,000      110,000        -            -         300,000        -           -
  Executive Officer (2)        1997     18,548       35,000        -            -         450,000        -           -


Rebecca Farwell                1999    130,000       50,000                     -         310,000        -           -
  General Manager (1)          1998    123,559          -          -            -         115,000        -        50,000

--------------
<FN>
(1)      Ms. Farwell joined the Company on February 2, 1998.  All Other
         Compensation consists of relocation paid to Ms. Farwell during 1998.

(2)      Mr. Goodman joined the Company on November 24, 1997 at an annual salary
         of $180,000.
</FN>
</TABLE>


 OPTION GRANTS DURING 1999 FISCAL YEAR

The following table provides information  regarding stock options granted during
fiscal 1999 to the named executive officers in the Summary  Compensation  Table.
The Company has not granted any stock appreciation rights.

<TABLE>
<CAPTION>
                                                                                            Potential Realizable Value at
                                                                                            Assumed Annual Rates of Stock
                                              Total Options                                 Price Appreciation for Option
                           Number of Shares     Granted to     Exercise or                            TERM(2)
                              Underlying        Employees      Base Price     Expiration    ------------------------------
      NAME                 Options Granted    In Fiscal Year   Per Share(1)      Date           5%                10%
-------------------        ---------------   ---------------   ------------   -----------   -----------       -----------
<S>                          <C>                  <C>           <C>           <C>           <C>               <C>

Robert N. Goodman            500,000 (3)          14.60%        $    4.75     01/03/09      $ 1,493,625       $ 3,785,138
                             150,000 (4)           4.38             11.0625   07/01/09        1,043,572         2,644,616


Rebecca Farwell               65,000 (5)           1.90%        $    4.75     01/03/09      $   194,171       $   492,068
                              25,000 (6)           0.73              8.9375   06/14/09          140,519           356,102
                             220,000 (7)           6.42             11.0625   07/01/09        1,530,572         3,878,771

------------------
<FN>
(1)      The exercise price is equal to the fair market value of the Common
         Stock on the date of each grant.

(2)      The  potential   realizable   value  portion  of  the  foregoing  table
         illustrates  value that might be realized  upon exercise of the options
         immediately  prior  to the  expiration  of  their  term,  assuming  the
         specified  compounded  rates of  appreciation  on the Company's  Common
         Stock  over the term of the  options.  These  numbers  do not take into
         account  provisions of certain options providing for termination of the
         option  following  termination  of  employment,  nontransferability  or
         vesting over periods of up to five years.

(3)      The option was granted on January 4, 1999 and became exercisable to the
         extent of 100,000 on January 4, 2000 and will become exercisable to the
         extent of 100,000 shares on January 4 of each year beginning January 4,
         2001 through January 4, 2004.

(4)      The  option was  granted on July 2, 1999 and will  become  exercisable
         to the extent of 30,000 shares on July 2 of each year beginning July 2,
         2000 through July 2, 2004.


                                       25
<PAGE>

(5)      The option was granted on January 4, 1999 and became exercisable to the
         extent of 16,250  shares on January 4,  2000,  1,354  shares on each of
         February 4, 2000 and March 4, 2000 and will become  exercisable  to the
         extent of 1,354  shares on the 4th day of each month from April 4, 2000
         through January 4, 2003.

(6)      The option was  granted on June 15,  1999 and will become  exercisable
         to the extent of 6,250 shares on June 15, 2000 and to the extent of 520
         shares on the 15th day of each month from July 15, 2000 through June
         15, 2003.

(7)      The option was granted on July 2, 1999 and will become  exercisable  to
         the extent of 55,000  shares on July 2 of each year  beginning  July 2,
         2000 and to the  extent of 4,583  shares  on the 2nd day of each  month
         from August 2, 2000 through August 2, 2003.
</FN>
</TABLE>


OPTION EXERCISES DURING 1999 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES


The following  table provides  information as to options  exercised by the named
executive officers in the Summary  Compensation Table during 1999 and the number
and value of all  outstanding  options at December 31, 1999.  The Company has no
outstanding stock appreciation rights.

<TABLE>
<CAPTION>
                                                                                                  Value of
                                                                    Number of                   Unexercised
                                                                   Unexercised                  In-the-Money
                                                                    Options at                   Options at
                                  Shares                        December 31, 1999            December 31, 1999
                                 Acquired        Value             Exercisable/                 Exercisable/
         Name                  On Exercise     Realized           Unexercisable               Unexercisable(1)
 --------------------       ----------------- ------------  --------------------------      ---------------------
<S>                                  <C>            <C>         <C>                          <C>
 Robert N. Goodman                   -              -           1,823,089 exercisable        $    1,823,089
                                                                3,655,736 unexercisable      $    3,974,411

 Rebecca Farwell                     -              -             287,276 exercisable        $      287,276
                                                                  151,686 unexercisable      $      619,076
------------
<FN>

(1)      Value is calculated on the basis of the  difference  between the option
         exercise  price and $8.938,  the closing  sale price for the  Company's
         Common  Stock at  December  31,  1999 as quoted on the Nasdaq  National
         Market, multiplied by the number of shares underlying the option.
</FN>
</TABLE>

COMPENSATION OF DIRECTORS

DIRECTORS'  FEES.  The  Company's  directors  receive no fees for  attendance at
meetings of the Board of Directors,  but they are reimbursed  for  out-of-pocket
expenses relating to attendance at the meetings;  however, Mr. Brochu is paid an
annual fee of $30,000 for his  services  as  Chairman  of the Board,  as well as
out-of-pocket expenses.

STOCK OPTION GRANTS TO NON-EMPLOYEE  DIRECTORS.  The Company's 1997 Stock Option
Plan provides for the  automatic  option grant of stock options to each director
who  is  not an  employee  of the  Company  (a  "Non-Employee  Director").  Each
Non-Employee  Director  who is  elected  for the  first  time as a  director  is
automatically  granted a  nonqualified  option to purchase  25,000 shares of the
Common Stock at an option price per share equal to 100% of the fair market value
of the Common Stock on the date of the Non-Employee Director's initial election,
which option is  exercisable,  to the extent of 6,250 shares  immediately and on
each of the first three  anniversaries of the date of grant. All options granted
pursuant to these  provisions  shall expire on the earlier of (i) one year after
the  optionee  ceases to be a director and (ii) ten (10) years after the date of
grant.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS

In August 1999,  the Company  entered into an employment  agreement  with Ronald
Stevens.  Pursuant to the agreement,  Mr. Stevens shall be employed as the Chief
Financial  Officer,  receive  an annual  base  salary of  $125,000  and shall be
entitled  to be  considered  for an annual  cash bonus of up to  50,000.  If his
employment is terminated for reasons other than (i) due to Mr. Stevens' death or
permanent  disability;  (ii) by  OnHealth  for Just  Cause;  or (iii) by Stevens
without  Good  Reason  he will be  entitled  to  severance  benefits.  Severance
benefits will include  continuance of his base salary and continued stock option
vesting benefits for a period of 12 months.

In February  2000, the Company  finalized its  employment  agreement with Robert
Goodman.  Pursuant  to the  agreement,  Mr.  Goodman  shall be  employed  as the
President and Chief Executive Officer, receive an annual base salary of $180,000
and shall be entitled to be considered  for an annual cash bonus of up to 50% of
his annual base salary.  If his  employment is terminated for reasons other than
(i) due to Mr.  Goodman's  death or permanent  disability;  (ii) by OnHealth for

                                       26
<PAGE>

Just  Cause;  or (iii) by Goodman  without  Good  Reason he will be  entitled to
severance  benefits.  Severance  benefits will include  continuance  of his base
salary and continued stock option vesting benefits for a period of 24 months.


REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

The  Compensation  Committee  (the  "Committee")  of  the  Board  of  Directors,
consisting  of Messrs.  Shriram,  Goodman and Brochu has furnished the following
report on executive compensation.

The Company's executive  compensation  program is administered by the Committee.
The Committee,  which is composed of two independent  directors and an employee,
establishes and administers the Company's  executive  compensation  policies and
plans and  administers  the  Company's  stock  option  and other  equity-related
employee  compensation  plans.  The  Committee  considers  internal and external
information in determining officers' compensation.

Compensation Philosophy

The  Company's  compensation  policies for  executive  officers are based on the
belief that the interests of executives  should be closely aligned with those of
the Company's  shareholders.  The Compensation  policies are designed to achieve
the following objectives:

Offer  compensation  opportunities  that attract  highly  qualified  executives,
reward  outstanding  initiative and  achievement,  and retain the leadership and
skills necessary to build long-term shareholder value.

Maintain a portion of executives'  total  compensation at risk, tied to both the
annual and long-term  financial  performance  of the Company and the creation of
shareholder value.

Further the Company's short and long-term strategic goals and values by aligning
compensation with business objectives and individual performance.

Compensation Program

The  Company's  executive   compensation  program  has  three  major  integrated
components, base salary, incentive awards, and long term incentives.

Base Salary.  Base salary levels for executive officers are determined  annually
by reviewing the competitive pay practices of Internet companies of similar size
and market  capitalization,  the skills,  performance level, and contribution to
the business of individual  executives,  and the needs of the Company.  Overall,
the Company  believes  that base  salaries  for its  executive  officers  are at
competitive salary levels for similar positions in these Internet companies.

Incentive Awards.  The Company's  executive  officers may be eligible to receive
annual cash bonus awards  designed to motivate  executives to attain  short-term
and  long-term   corporate  and  individual   management  goals.  The  Committee
establishes  the annual  incentive  opportunity  for each  executive  officer in
relation to his or her base salary.

Long-Term Incentives. The Committee believes that stock options are an excellent
vehicle for  compensating  its  officers  and  employees.  The Company  provides
long-term  incentives through its 1997 Stock Option Plan, 1991 Stock Option Plan
and New Hire Stock Option Plans, the purpose of which is to create a direct link
between executive compensation and increases in shareholder value. Stock options
are granted at fair market value and vest in  installments  generally over three
to five years.  When  determining  option awards for an executive  officer,  the
Committee considers the executive's current contribution to Company performance,
the  anticipated  contribution  to meeting  the  Company's  long term  strategic
performance  goals,  and  industry  practices  and norms.  Long-term  incentives
granted in prior years and  existing  levels of stock  ownership  are also taken
into consideration. Because the receipt of value by an executive officer under a
stock option is dependent upon an increase in the price of the Company's  Common
Stock, this portion of the executive's  compensation is directly aligned with an
increase in shareholder value.

Chief Executive Officer Compensation

Mr.  Goodman's  base salary,  annual  incentive  award and  long-term  incentive
compensation  are  determined  by the  Committee  based upon the same factors as
those employed by the Committee for executive officers generally.  Mr. Goodman's
current  annual  base  salary is  $225,000  with a  potential  bonus of up to 50
percent.  His salary is subject to annual  review and  increase  by the Board of
Directors of the Company. During fiscal 1999, Mr. Goodman was granted options to
purchase  500,000 and  150,000  shares of Common  Stock at an exercise  price of
$4.75 and $11.06 per share respectively,  the fair market value of the Company's
Common  Stock on the  dates of the  grants.  As Mr.  Goodman  is a member of the
Compensation Committee,  he excused himself from all discussions,  deliberations
and determinations relating to the compensation of the Chief Executive Officer.

                                       27
<PAGE>

Section 162(m) Limitation

Section  162(m) of the  Internal  Revenue  Code limits the tax  deduction  to $1
million  for  compensation  paid to  certain  executives  of  public  companies.
Historically,  the combined salary and bonus of each executive  officer has been
well below the $1 million limit. The Committee's  present intention is to comply
with Section 162(m) unless the Committee  feels that required  changes would not
be in the best interest of the Company or its shareholders.


                                          COMPENSATION COMMITTEE


                                          MICHAEL BROCHU
                                          RAM SHRIRAM
                                          ROBERT GOODMAN



                      COMMON STOCK PRICE PERFORMANCE CHART

The following  graph  compares the yearly  percentage  change in the  cumulative
total shareholder  return for the Company,  the Nasdaq U.S.  Companies Index and
the Nasdaq Computer and Data Processing Services Stock Index for the period from
December 31, 1994 to December 31, 1999. The Nasdaq  Computer and Data processing
Services  Stock Index is prepared by Nasdaq and  includes  all  companies in the
Standard  Industry Code 737 (computer  programming,  data  processing  and other
computer-related  services), which are  included  in the Nasdaq  U.S.  Companies
Index.  A list  of the  companies  included  in the  Nasdaq  Computer  and  Data
Processing Services Stock Index is available from the Company upon request.  The
graph assumes that $100 was invested on December 31, 1994.



                                 [CHART OMITTED]





                                     28
<PAGE>

<TABLE>
<CAPTION>
                                                                                   YEAR END
                                                        1994          1995        1996        1997        1998       1999
                                                    -------------- ----------- ---------  ----------- ----------- ----------
<S>                                                      <C>         <C>        <C>         <C>         <C>         <C>

IVI Publishing, Inc./ OnHealth Network Company*          $100.00     $114.13    $ 27.71     $ 22.28     $ 43.48     $ 77.72
Nasdaq Index (U.S.)                                      $100.00     $141.33    $173.89     $213.07     $300.25     $542.43
Nasdaq Comp & Data Proc. Index                           $100.00     $152.28    $187.95     $230.90     $412.23     $871.27
<FN>
*Prior to June 16, 1998, the Company's name was IVI Publishing, Inc.
</FN>
</TABLE>



ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  following  table sets forth the  number of shares of the  Company's  Common
Stock  beneficially  owned by (i) each  director and nominee for election to the
Board of Directors of the Company;  (ii) each of the named  executive  officers;
(iii) all directors and executive  officers as a group;  and (iv) to the best of
the  Company's  knowledge,  all  beneficial  owners  of  more  than  5%  of  the
outstanding  shares of the Company's  Common Stock as of March 22, 2000.  Unless
otherwise  indicated,  the shareholders listed in the table have sole voting and
investment power with respect to the shares indicated.

Effective  February 15, 2000,  certain  shareholders  of the Company  holding in
excess  of 45% of the  outstanding  common  stock of the  Company  entered  into
agreements with  Healtheon/WebMD  granting  Healtheon/WebMD  a proxy to vote the
shares  of  Company's  common  stock  held by  such  shareholders  (the  "Voting
Agreements").  The  execution  of the Voting  Agreements  triggered  accelerated
vesting of outstanding  stock options  granted under the Company's  Stock Option
Plans.  As a result all  unvested  stock  options  became fully  vested.  Twenty
members of Senior  Management agreed to waive the vesting until the later of the
closing of the transaction, or the termination of the Merger Agreement.



                                               Common Shares
      Name (And Address of 5%                  Beneficially          Percent of
   Holder) or Identity of Group(1)               Owned(2)              Class(2)
------------------------------------------    ------------------     ----------
Robert N. Goodman                                  430,625   (3)         1.76%
Rebecca Farwell                                     85,104   (4)           *
Michael A. Brochu                                  280,000   (5)         1.15%
Ann Kirschner                                       80,000   (6)           *
Ram Shriram                                         80,000   (7)           *
Rick Thompson                                       80,000   (8)           *
Van Wagoner Capital Management, Inc.            10,327,600   (9)        43.02%
All Directors and Executive
 Officers as a Group (6 persons)                 1,035,729  (10)         4.14%
---------------------------

  *      Less than 1% of the outstanding shares of Common Stock.

(1)      The addresses of the more than 5% holder is: Van Wagoner Group (Van
         Wagoner  Capital  Management,  Inc. and Van Wagoner Funds, Inc.) - 345
         California Street, Suite 2450, San Francisco. CA 94104.

(2)      Under the rules of the Securities and Exchange  Commission,  shares not
         actually  outstanding are nevertheless  deemed to be beneficially owned
         by a person if such person has the right to acquire  the shares  within
         60 days.  Pursuant to such SEC rules,  shares deemed beneficially owned
         by virtue of a  person's  right to  acquire  them are also  treated  as
         outstanding  when calculating the percent of class owned by such person
         and when determining the percentage owned by a group.

(3)      Includes 430,625 shares that may be purchased by Mr. Goodman upon
         exercise of currently exercisable options.

(4)      Includes 85,104 shares that may be purchased by Ms. Farwell upon
         exercise of currently exercisable options.

(5)      Includes 280,000 shares that may be purchased by Mr. Brochu upon
         exercise of currently exercisable options.


                                       29
<PAGE>

(6)      Includes 80,000 shares that may be purchased by Ms. Kirschner upon
         exercise of currently exercisable options.

(7)      Includes 80,000 shares that may be purchased by Mr. Shriram upon
         exercise of currently exercisable options.

(8)      Includes 80,000 shares that may be purchased by Mr. Thompson upon
         exercise of currently exercisable options.

(9)      Of the shares,  9,823,650  shares are owned by Van Wagoner Funds, Inc.
         ("Van Wagoner  Funds"),  and 503,950 shares are owned by clients of Van
         Wagoner Capital Management,  Inc. ("Van Wagoner Capital").  Van Wagoner
         Funds has the sole power to vote 9,823,650 shares.  Van Wagoner Capital
         has no power to vote on 503,950  shares and has sole  investment  power
         for all of the shares,  including the shares held by Van Wagoner Funds.
         The  Company  has relied on  information  contained  in a Schedule  13G
         Amendment filed with the Securities and Exchange Commission on February
         24, 2000 by Van Wagoner Funds and Van Wagoner Capital as a group.

(10)     Includes 1,035,729 shares that may be purchased upon exercise of
         currently exercisable options.



ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.

                                       30
<PAGE>



                                     PART IV

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

         (1)  Financial Statements
                                                                           PAGE
                                                                           ----
              Report of Ernst & Young LLP, Independent Auditors............ F-1
              Balance Sheet as of December 31, 1999 and 1998............... F-2
              Consolidated Statements of Operations for the years
                ended December 31, 1999, 1998 and 1997..................... F-3
              Consolidated Statements of Shareholders' Equity
                for the years ended December 31, 1999, 1998 and 1997....... F-4
              Consolidated Statements of Cash Flows for the years
                ended December 31, 1999, 1998 and 1997..................... F-5
              Notes to Financial Statements................................ F-6


         (2)  Financial Statement Schedules
                                                                           PAGE
                                                                           ----
              Valuation and Qualifying Accounts............................ S-1


              All other  schedules are omitted  because they are not applicable,
              or not required  because the required  information  is included in
              the Financial Statements or notes thereto.

         (3)  Exhibits and Reports on Form 8-K

                  (a) Exhibits With Each Management Contract or Compensatory
                      Plan or Arrangement Required to be Filed Identified.

                      See paragraph (c) below.

                  (b) Reports on Form 8-K.

                      The  following  reports  on Form  8-K  were  filed  by the
                      registrant  during the quarter ended December 31, 1999: on
                      October  26,  1999 to  report  their  third  quarter  1999
                      results,  on November 23, 1999 to amend the  September 15,
                      1999  filing,  which  announced  the  third  quarter  1999
                      BabyData  acquisition,  to include the  related  financial
                      statements and pro forma information,  and on December 14,
                      1999 to announce  the third  quarter 1999  acquisition  of
                      HDI, including certain related financial statements.

                  (c) Exhibit Listing.

                      Certain  exhibits have been  previously  filed with the
                      Commission and are incorporated herein by reference.



                                       31
<PAGE>


                            ONHEALTH NETWORK COMPANY
                                  EXHIBIT INDEX
                       FISCAL YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
   Exhibit
   Number                                              Description                                             Ref.
------------   ---------------------------------------------------------------------------------------------  -----
     <S>         <C>                                                                                           <C>

     2.1         Agreement and Plan of Reorganization among OnHealth Network Company, BabyData.com Inc., BB
                   Acquisition, Inc. and the stockholders of BabyData.com Inc. dated as of September 9,
                   1999.                                                                                       (L)
     2.2         Agreement and Plan of  Reorganization  among  OnHealth  Network Company,
                   Demand  Management,   Inc.,  DMISub,   Inc.,  Health Decisions,  Inc., HDISub, Inc.,
                   Health Decisions International, LLC and Donald M. Vickery, the sole shareholder of
                   HDI and DMI dated as of November 19, 1999.*                                                 (M)
     2.3         Agreement  and Plan of Merger  dated  February  15, 2000 by and
                   among Healtheon/WebMD Corporation, Tech Acquisition Corporation
                   and OnHealth Network Company                                                                (N)
     3.1         Amended and Restated Articles of Incorporation of the Company.                                (K)
     3.2         Bylaws of the Company.                                                                        (A)
     4.1         Form of Stock Certificate.                                                                    (B)
     9.1         Voting Agreement dated February 15, 2000 executed by Healtheon/WebMD Corporation, Tech
                   Acquisition Corporation and OnHealth Network Company and Jon C. Baker, Van Wagoner
                   Funds, Inc., David R. Wilmerding, Michael A. Brochu, Rebecca Farwell, Robert N.
                   Goodman, Ann Kirschner, Ram Shriram, Ronald Stevens and Rick Thompson.                      (N)
    10.1         License Agreement, dated April 24, 1991, among the Company, William Morrow Company and Mayo
                   Foundation for Medical Education and Research, as amended.                                  (B)
    10.2         Electronic Publishing License, Development and Marketing Agreement, dated April 28, 1993,
                   between the Company and Mayo Foundation for Medical Education and Research.                 (B)
    10.3         401(k) Savings and Investment Plan.                                                           (B)
    10.4         1997 Stock Option Plan, as amended.                                                           (C)
    10.5         IVI Publishing, Inc. Director Stock Option Plan, as amended.                                  (D)
    10.6         License Agreement, dated February 9, 1994, between the Company and Time Life, Inc. and
                   First Amendment to Titles Development Agreement, dated as of February 9, 1994 between
                   the Company and Time Life, Inc.                                                             (D)
    10.8         License, Development and Marketing Agreement, dated September 28, 1994, between the Company
                   and Time Life, Inc.*                                                                        (E)
    10.9         1994 License, Development and Marketing Agreement, dated September 27, 1994, between the
                   Company and Mayo Foundation for Medical Education and Research.*                            (E)
    10.10        Agreement between America's Health Network, Inc. and the Company, dated May 25, 1995.*        (F)
    10.11        Amendment No. 2 to License Agreement among William Morrow Company, Mayo Foundation for
                   Medical Education and Research and the Company, dated December 29, 1995.*                   (F)
    10.12        Financial  Advisor and  Consulting  Agreement  with Frazier & Company  LP, dated
                   July 14,  1994,  as  amended by a letter agreement, dated June 28, 1995.**                  (G)
    10.13        Settlement Agreement and Mutual Release dated September 12, 1997 between the Company and
                   Mayo Foundation for Medical Education and Research.                                         (H)
    10.14        Sublicense Agreement dated September 12, 1997 between the Company and Mayo Foundation for
                   Medical Education and Research.                                                             (H)
    10.15        Letter Agreement dated November 9, 1997 between the Company and Robert Goodman.**             (I)
    10.16        Subscription  Agreement,  dated January 29, 1999, among the Company and certain investors
                   named therein.                                                                              (J)
    10.17        Employment Agreement, dated August 16, 1999, between the Company and Ronald Stevens.**
    10.18        Employment Agreement, dated February 15, 2000, between the Company and Robert Goodman.**
    23.1         Consent of Ernst & Young LLP, Independent Auditors
    27           Financial Data Schedule (electronic version only)
-----------------------------------

                                       32
<PAGE>

<FN>
     (A)       Incorporated  herein by reference to the  Company's  Registration
               Statement on Form S-3, No.  333-69989,  filed with the Securities
               and Exchange Commission on December 31, 1998.
     (B)       Incorporated  herein by reference to the  Company's  Registration
               Statement on Form S-1, No. 33-67064,  (file number 0-22212) filed
               with the Securities and Exchange Commission in 1993.
     (C)       Incorporated  herein by  reference to the  Company's  Preliminary
               Proxy Statement for the Annual Meeting of Shareholders  held June
               16, 1998 on Form PRE 14A,  filed with the Securities and Exchange
               Commission on May 6, 1998.
     (D)       Incorporated  herein by reference to the  Company's  Registration
               Statement on Form S-1, No.  33-76496,  filed with the  Securities
               and Exchange Commission in 1994.
     (E)       Incorporated by reference to the Company's Form 10-K for the year
               ended  December 31, 1994,  filed with the Securities and Exchange
               Commission.
     (F)       Incorporated  by reference to Exhibit 10.14 to the Company's Form
               10-K/A  for the year  ended  December  31,  1995  filed  with the
               Securities and Exchange Commission on October 4, 1996.
     (G)       Incorporated  by reference to Exhibit 10.19 to the Company's Form
               10-K  for the  year  ended  December  31,  1995  filed  with  the
               Securities and Exchange Commission.
     (H)       Incorporated herein by reference to Exhibit 10.1 to the Company's
               Form 10-Q for the quarter ended September 30, 1997 filed with the
               Securities and Exchange Commission on November 12, 1997.
     (I)       Incorporated  herein by reference to the Company's  Form 10-K for
               the year ended  December 31, 1997,  filed with the Securities and
               Exchange Commission on April 15, 1998.
     (J)       Incorporated by reference to the Company's Form 10-K for the year
               ended  December 31, 1998,  filed with the Securities and Exchange
               Commission on March 31, 1999.
     (K)       Incorporated  herein by reference to the  Company's  Registration
               Statement on Form S-3, No.  333-81321,  filed with the Securities
               and Exchange Commission on June 22, 1999.
     (L)       Incorporated  herein by reference to the Company's Report on Form
               8-K,  filed  with  the  Securities  and  Exchange  Commission  on
               September 15, 1999.
     (M)       Incorporated  herein by reference to the Company's Report on Form
               8-K,  filed  with  the  Securities  and  Exchange  Commission  on
               December 14, 1999.
     (N)       Incorporated  herein by reference to the Company's Report on Form
               8-K,  filed  with  the  Securities  and  Exchange  Commission  on
               February 22, 2000.

*        Portions of the Exhibit  have been  omitted  pursuant to the  Company's
         request for confidential  treatment  pursuant to Rule 24b-2 promulgated
         under the Securities Act of 1933, as amended.

**       Management Agreement or Compensatory Plan or Arrangement
</FN>

</TABLE>


                                       33
<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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, in Seattle, Washington, on
the 25th day of March, 2000.



                                    ONHEALTH NETWORK COMPANY

                                    By:  /S/ ROBERT N. GOODMAN
                                         -------------------------------------
                                         Robert N. Goodman
                                         President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the Registrant,  in
the capacities and dates indicated.

<TABLE>
<CAPTION>
       SIGNATURE                         TITLE                               DATE
------------------------  ----------------------------------------     ----------------
<S>                        <C>                                           <C>

/S/ ROBERT N. GOODMAN      President, Chief Executive Officer and        March 25, 2000
---------------------      Director (Principal Executive Officer)
    Robert N. Goodman

/S/ RONALD M. STEVENS      Chief Financial Officer (Principal            March 27, 2000
---------------------      Financial and Accounting Officer)
    Ronald M. Stevens

/S/ MICHAEL A. BROCHU      Chairman of the Board                         March 27, 2000
---------------------
    Michael A. Brochu

/S/ ANN  KIRSHNER          Director                                      March 24, 2000
---------------------
    Ann  Kirshner

/S/ RAM  SHRIRAM           Director                                      March 23, 2000
---------------------
    Ram  Shriram

/S/ RICK  THOMPSON         Director                                      March 23, 2000
---------------------
    Rick  Thompson
</TABLE>



                                       34
<PAGE>





                Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Shareholders
OnHealth Network Company

     We have audited the  accompanying  consolidated  balance sheets of OnHealth
Network  Company as of December  31, 1999 and 1998 and the related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended  December 31, 1999. Our audits also included the
financial  statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

      We conducted our audits in accordance  with auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of OnHealth
Network Company at December 31, 1999 and 1998, and the  consolidated  results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 1999, in conformity  with  accounting  principles  generally
accepted in the United  States.  Also,  in our  opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly,  in all  material  respects the
information set forth therin.


                                          /s/ ERNST & YOUNG LLP
Seattle, Washington
February 18, 2000




                                       F-1
<PAGE>





                                 ONHEALTH NETWORK COMPANY AND SUBSIDIARIES
                                        CONSOLIDATED BALANCE SHEETS
                                  (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                            ---------------------------------
                                                                                 1999              1998
                                                                            ---------------    --------------
<S>                                                                         <C>                <C>
ASSETS:

Current assets:
      Cash and cash equivalents                                             $      10,142      $       2,119
      Restricted cash                                                                 500                  -
      Accounts receivable, net of allowances of $413 (1999) and
           $256 (1998)                                                              1,870                509
      Inventories                                                                      15                  -
      Prepaid advertising                                                           6,848                197
      Other current assets                                                            401                212
                                                                            ---------------    --------------
Total current assets                                                               19,776              3,037

Furniture and equipment, net                                                        2,137                735
Intangibles and goodwill, net                                                      10,754                  -
Other non-current assets                                                               53                122
                                                                            ---------------    --------------
Total assets                                                                $      32,720      $       3,894
                                                                            ===============    ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Notes payable                                                          $       2,000      $           -
     Accounts payable                                                               6,515              1,526
     Deferred revenue                                                                 859                 95
     Other accrued expenses                                                         2,383              2,574
                                                                            ---------------    --------------
Total current liabilities                                                          11,757              4,195

Non-current liabilities                                                                68                  -

Commitments and contingencies

Shareholders' equity:
      Preferred stock, $0.01 par value; authorized, 1,000; issued and
          outstanding, none                                                             -                  -
      Common stock, $0.01 par value; authorized, 100,000; issued
          and outstanding, 23,812 (1999) and 12,800 (1998)                            238                128
      Additional paid-in-capital                                                  162,662             89,159
      Accumulated deficit                                                        (136,842)           (89,515)
      Deferred compensation                                                        (5,163)               (73)
                                                                            ---------------    --------------
Total shareholders' equity (deficit)                                               20,895               (301)
                                                                            ---------------    --------------
Total liabilities and shareholders' equity                                  $      32,720      $       3,894
                                                                            ===============    ==============
</TABLE>



     The accompanying notes are an integral part of the financial statements



                                       F-2
<PAGE>




                    ONHEALTH NETWORK COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                       -----------------------------------------------------
                                                            1999               1998               1997
                                                       ---------------    ---------------    ---------------
<S>                                                    <C>                <C>                <C>

Net revenue                                            $       3,767      $       1,522      $       3,761

Costs and  expenses:
     Product development, editorial & design                   7,660              4,511              6,784
     Sales and marketing                                      37,041              5,626              1,347
     General and administrative                                4,769              2,274              6,892
     Amortization of intangibles and goodwill                    504                  -                  -
     Stock-based compensation                                  1,401                130                  -
                                                       ---------------    ---------------    ---------------
            Total costs and expenses                          51,375             12,541             15,023
                                                       ---------------    ---------------    ---------------
Loss from operations                                         (47,608)           (11,019)           (11,262)

Interest income (expense), net                                   279                 84               (158)
Other income (expense), net                                        2                 (4)               473
                                                       ---------------    ---------------    ---------------
       Total interest and other income (expense)                 281                 80                315
                                                       ---------------    ---------------    ---------------
Net loss                                                     (47,327)           (10,939)           (10,947)

Preferred stock dividends                                          -               (103)              (100)
Preferred stock accretion                                          -               (702)               (43)
Preferred stock deemed dividend                                    -               (220)            (2,875)
                                                       ---------------    ---------------    ---------------
Net loss applicable to common shareholders             $     (47,327)     $     (11,964)     $     (13,965)
                                                       ===============    ===============    ===============

Net loss per common share-
     Basic and diluted                                 $       (2.70)     $       (1.12)     $       (1.73)
                                                       ===============    ===============    ===============

Weighted average number of common shares
     outstanding                                              17,529             10,680              8,056
                                                       ===============    ===============    ===============
</TABLE>




     The accompanying notes are an integral part of the financial statements




                                       F-3
<PAGE>



                    ONHEALTH NETWORK COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                            Common Stock
                                       -----------------------     Additional                                              Total
                                                       Par          Paid-In        Accumulated          Deferred      Shareholders'
                                        Shares        Value         Capital          Deficit          Compensation       Equity
                                       ----------    ---------    -----------     -------------    ----------------  --------------
<S>                                    <C>           <C>          <C>              <C>             <C>               <C>

Balance at December 31, 1996           $  7,612      $    76      $  70,453        $   (67,629)    $              -  $        2,900
Issuance of common stock:
   Exercise of options                       59            1             97                  -                    -              98
   Lawsuit settlement                       175            2            431                  -                    -             433
Return of common stock per Mayo
  agreement                                (490)          (5)             5                  -                    -               -
Preferred stock conversion to
  common                                  1,000           10          1,938                  -                    -           1,948
Dividends on convertible
  redeemable preferred stock
  ($0.05 per share)                           -            -           (100)                 -                    -            (100)
Preferred stock accretion                     -            -            (43)                 -                    -             (43)
Convertible subordinated debenture
   conversion to common                   1,750           17          5,712                  -                    -           5,729
Net loss                                      -            -            -              (10,947)                   -         (10,947)
                                       ----------    ---------    -----------      -------------    ----------------    ------------
Balance at December 31, 1997             10,106          101         78,493            (78,576)                   -              18
Issuance of common stock:
   Private placements                     1,543           15          5,675                  -                    -           5,690
   Exercise of options                      371            4          1,064                  -                    -           1,068
   Services                                  47            -            365                  -                    -             365
Discount on sale of convertible
   redeemable preferred stock                 -            -            702                  -                    -             702
Preferred stock conversion to
   common stock                             733            8          3,622                  -                    -           3,630
Cash dividends on convertible
   redeemable preferred stock
   ($0.06 per share)                          -            -             (3)                 -                    -              (3)
Non-cash dividends -
   preferred stock                            -            -           (100)                 -                    -            (100)
Accretion of discount on
   preferred stock                            -            -           (702)                 -                    -            (702)
Preferred stock deemed
   dividend                                   -            -           (220)                 -                    -            (220)
Issuance of stock options and
   warrants for services                      -            -             60                  -                    -              60
Deferred compensation                         -            -            203                  -                 (203)              -
Amortization of deferred compensation         -            -              -                  -                  130             130
Net loss                                      -            -              -            (10,939)                   -         (10,939)
                                       ----------    ---------    -----------      -------------      ----------------  ------------
Balance at December 31, 1998             12,800          128         89,159            (89,515)                 (73)           (301)
Issuance of common stock:
   Public offerings                       5,500           55         35,529                  -                               35,584
   Private placements                     2,596           26         14,066                  -                               14,092
   Exercise of options                      345            4          1,343                  -                                1,347
   Exercise of warrants                     356            3          1,582                  -                                1,585
   Services                                 647            6          6,119                  -                                6,125
   Business acquisitions                  1,568           16         12,995                  -               (4,622)          8,389
Deferred compensation                         -            -          1,869                  -               (1,869)              -
Amortization of deferred compensation         -            -              -                  -                1,401           1,401
Net loss                                      -            -              -            (47,327)                  -          (47,327)
                                       ----------    ---------    -----------      -------------    ----------------    ------------
                                         23,812      $   238      $ 162,662        $   136,842)     $       (5,163)     $    20,895
                                       ==========    =========    ===========      =============    ================    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements



                                       F-4
<PAGE>




                                     ONHEALTH NETWORK COMPANY AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (In thousands)
<TABLE>
<CAPTION>

                                                                              Year ended December 31,
                                                                 ---------------------------------------------------
                                                                      1999              1998              1997
                                                                 ---------------    --------------    --------------
<S>                                                              <C>                <C>               <C>

Cash flows from operating activities:
     Net loss                                                    $     (47,327)     $     (10,939)    $     (10,947)
     Adjustments to reconcile net loss to cash used
       in operating activities:
          Depreciation and amortization                                    851                722             1,252
          Interest expense associated with debenture
             conversion                                                      -                  -             2,229
          Loss on disposition of  furniture and equipment                    -                285               711
          Provision for (recoveries of) doubtful
             accounts and returns                                          117               (755)            2,336
          Amortization of prepaid advertising and other
             services, paid by  stock issuances                          1,676                  8                 -
          Amortization of deferred compensation                          1,401                130                 -
          Common stock issued as litigation settlement                       -                  -               433
          Common stock issued for services                                   -                365                 -
          Changes in assets and liabilities:
             (Increase) in restricted cash                                (500)                 -                 -
             (Increase) decrease in accounts receivable                   (934)               583             1,461
             Decrease in inventories                                         2                150                 5
             (Increase) decrease in other current assets                (2,311)               (25)              253
             (Increase) decrease in other non-current assets                69               (122)            1,885
             Increase (decrease) in accounts payable                     4,765               (393)           (1,287)
             Increase (decrease) in other accrued expenses              (1,207)                29               760
                                                                 ---------------    --------------    --------------
Net cash used in operating activities                                  (43,398)            (9,962)             (909)

Cash flows from investing activities:
      Proceeds from disposition of furniture and fixtures                    -                217                61
      Capital expenditures                                              (1,028)              (689)             (104)
      Business acquisitions, net of cash acquired                         (159)                 -                 -
                                                                 ---------------    --------------    --------------
Net cash used in investing activities                                   (1,187)              (472)              (43)

Cash flows from financing activities:
      Proceeds from issuance of convertible redeemable
      preferred stock                                                        -              5,000                 -
      Proceeds from issuance of common stock:
         Public offerings                                               35,584                  -                 -
         Private placements                                             14,092              5,690                 -
         Exercise of options                                             1,347              1,068                98
         Exercise of warrants                                            1,585                  -                 -
      Redemption of preferred stock                                          -             (1,690)                -
      Preferred stock dividends paid                                         -                 (3)             (120)
                                                                 ---------------    --------------    --------------
Net cash provided by (used in) financing activities                     52,608             10,065               (22)
                                                                 ---------------    --------------    --------------
Net decrease in cash and cash equivalents                                8,023               (369)             (974)
Cash and cash equivalents at beginning of year                           2,119              2,488             3,462
                                                                 ---------------    --------------    --------------
Cash and cash equivalents at end of year                         $      10,142      $       2,119     $       2,488
                                                                 ===============    ==============    ==============
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                      F-5
<PAGE>


                     ONHEALTH NETWORK COMPANY AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999


NOTE 1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Business

OnHealth  Network  Company,  formerly  known  as  IVI  Publishing,   Inc.,  (the
"Company"),   is  engaged  in  electronic   publishing  of  health  and  medical
information in interactive multimedia formats through its web site onhealth.com,
and  providing  and  supporting  a broad range of personal  health  information,
referral  and nurse  counseling  services  to  customers  throughout  the United
States.

Business Combinations

For  business  combinations  which have been  accounted  for under the  purchase
method of  accounting,  the Company  includes the results of  operations  of the
acquired  business  from the date of  acquisition.  Net assets of the  companies
acquired are recorded at their fair value at the date of acquisition. The excess
of the purchase price over the fair value of net assets  acquired is included in
intangibles and goodwill in the accompanying consolidated balance sheets.

Principles of Consolidation

The  consolidated  financial  statements  include the  financial  statements  of
OnHealth and its wholly-owned subsidiaries,  Health Decisions International, LLC
("HDI") and BabyData.com,  Inc. ("BabyData"). All material intercompany balances
and transactions have been eliminated.

Use of Estimates

The  financial  statements  have been  prepared  in  conformity  with  generally
accepted accounting  principles,  which require management to make estimates and
assumptions  that affect the amounts and  disclosures  reported in the financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

Intangibles and Goodwill

Intangibles  and goodwill  represent  the excess of the purchase  price over the
fair value of assets acquired. Intangibles and goodwill are being amortized on a
straight-line basis over lives ranging from three to five years.

Long-Lived Assets

In accordance with Finanical  Accounting  Standards Board ("FASB")  Statement of
Financial Accounting Standard ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  Of, the  carrying
value of intangible  assets and other long-lived assets is reviewed on a regular
basis  for  the  existence  of  facts  or  circumstances,  both  internally  and
externally,  that may suggest  impairment.  To date, no such impairment has been
indicated. Should there be an impairment in the future, the Company will measure
the amount of the impairment  based on  undiscounted  expected future cash flows
form the impaired assets. The cash flow estimates that will be used will contain
management's  best estimated,  using  appropriate and customary  assumptions and
projections at the time.

Fair Value of Financial Instruments

Financial  instruments  of the  Company  consist  of cash and cash  equivalents,
accounts  receivable,  other current assets,  accounts payable and other accrued
expenses.  The Company's other financial instruments generally approximate their
fair values at  December  31,  1999 and 1998 based on the  short-term  nature of
these instruments.

Cash and Cash Equivalents

The Company  considers  all highly liquid  investments  with a maturity of three
months or less at the time of purchase to be cash  equivalents.  At December 31,
1999 and 1998, cash and cash equivalents  consisted principally of United States
Government obligations for which the carrying amount approximates fair value.

Inventories

All inventories are stated at the lower of cost (first-in,  first-out method) or
market and consist of books for resale and communication materials.

                                       F-6
<PAGE>



Furniture and Equipment

Furniture  and  equipment  are  stated  at cost and are  depreciated  using  the
straight-line  method  over the  shorter of the  estimated  useful  lives of the
respective assets, generally three to five years.

Concentration of Credit Risk and Significant Customers

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist principally of its holdings of cash and cash equivalents and
trade accounts  receivable.  Banking and investing with credit-worthy  financial
institutions mitigates risks associated with cash and cash equivalents.

The  Company's  trade  accounts  are not  collateralized.  The Company  performs
periodic  credit  reviews of its customers and maintains  reserves for potential
losses for  uncollectible  accounts.  Such losses have  historically been within
management's expectations.

No customer represented more than 10% of net revenue for the year ended December
31, 1999. Three customers represent 40%, 16% and 13% of net revenue for the year
ended December 31, 1998; one customer represents 12% of net revenue for the year
ended December 31, 1997. The revenue recorded from the customer which represents
40% of the net  revenue in 1998 was the result of a  $603,000  payment  received
from the customer related to minimum sales requirements from a terminated CD-ROM
distribution agreement.

Revenue Recognition

The Company's  revenue consists of fees for online  services,  product sales and
licensing  revenue,  contract  development  revenue,  services and communication
revenue  and fees  relating  to the  licensing  of its  content for use on cable
television.

Online revenue is generated  through the sale of advertising  and sponsorship of
the Company's  onhealth.com  web site.  Advertising and  sponsorship  revenue is
earned based upon the number of impressions delivered.

Product  sales and  licensing  revenue  consists of retail  distribution  sales,
direct mail sales, product sales and royalties on licenses to original equipment
manufacturers  (OEM's) and end users. The revenue is recognized upon shipment of
the product or in  accordance  with the licensing  agreements.  An allowance for
return is recorded at the time revenue is recognized.

Contract  development  revenue is  generated  through  the use of the  Company's
personnel and facilities  for the creation of custom  multimedia  products.  The
contract  revenue  is  recognized  on a  percentage-of-completion  basis or at a
specific hourly rate, depending on the terms of the contract.

Services and  communication  revenue is generated through use of HDI's nurse and
customer service staff members. Services and communication revenue is recognized
in the period in which services are performed.

Revenue  relating to the licensing of the Company's  health and medical  content
for use on cable  television  channels is recognized when payments are received.
The  Company  recognized  revenue  under its  cable  television  agreement  with
America's Health Network ("AHN") during 1997. (See Note 16).

Net revenue for each of the three years ended  December 31, 1999,  1998 and 1997
is as follows (in thousands):

<TABLE>
<CAPTION>
                                                   1999                1998                1997
                                             -----------------   ------------------   ----------------
<S>                                          <C>                 <C>                  <C>
     Online                                  $        3,385      $          388       $           58
     Services and communication                         277                   -                    -
     Contract development and other                      69                 380                1,220
     Product sales and licensing                         36                 754                1,990
     Cable television licensing                           -                   -                  493
                                             =================   ==================   ================
     Net revenue                             $        3,767      $        1,522       $        3,761
                                             =================   ==================   ================
</TABLE>

Product Development, Editorial and Design Costs

Product  development,  editorial and design costs consist principally of payroll
and related expenses for development,  editorial, systems and telecommunications
operations   personnel   and   consultants,   systems   and   telecommunications
infrastructure and costs of acquired content.

                                       F-7
<PAGE>


Advertising Costs

Advertising  costs are expensed as they are incurred. Advertising costs in 1999,
1998, and 1997 were  $33,882,000,  $3,409,000,  and $190,000, respectively.

Income Taxes

Income taxes are provided  based on earnings  reported for  financial  statement
purposes.  Deferred income taxes are provided for temporary  differences between
financial  reporting  and income tax basis of assets and  liabilities  under the
liability method.

Stock Based Compensation

As allowed under SFAS No. 123,  Accounting  for  Stock-Based  Compensation,  the
Company  follows  the  disclosure-only  provisions  of SFAS No. 123 but  applies
Accounting  Principles  Board  Opinion  No. 25  Accounting  for Stock  Issued to
Employees  (APB  No.  25) and  related  interpretations  in  accounting  for its
employee  stock  options.  Under APB No. 25, when the exercise price of employee
stock  options  equals the market price of the  underlying  stock on the date of
grant, no compensation expense is recorded. The Company recognizes  compensation
expense for options granted to  non-employees  in accordance with the provisions
of SFAS No. 123 and the  Emerging  Issues  Task  Force  consensus  Issue  96-18,
Accounting  for Equity  Instruments  that are Issued to Other Than Employees for
Acquiring,  or in  Conjunction  with Selling,  Goods or Services,  which require
using a Black-Sholes  option pricing model and remeasuring such stock options to
the current fair market value until the performance date has been reached.

Loss Per Common Share

Basic earnings per share ("EPS")  excludes any dilutive  effects of common stock
equivalents - options,  warrants and convertible securities - and is computed by
dividing income available to common shareholders by the weighted-average  number
of common  shares  outstanding  during the  period.  Diluted  EPS is computed by
dividing income available to common shareholders by the weighted-average  number
of common  shares and common stock  equivalents  outstanding.  Excluded from the
computation  of the  weighted-average  number of common  shares  outstanding  at
December  31,  1999 are 549,784  shares,  which are  forfeitable  subject to the
continued employment of certain key employees.

The effects of common stock  equivalents  are excluded from the  computation for
all periods presented as their effects are anti-dilutive.

Reclassifications

Certain  reclassifications  have been made for  consistent  financial  statement
presentation.

Impact of Recently Issued or Adopted Accounting Standards

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,  was
issued in June 1998 and  establishes  accounting  and  reporting  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts,  and for  hedging  activities.  It  requires  that  an  entity
recognize all  derivatives  as either assets or liabilities in the balance sheet
and measure those  instruments at fair value.  If certain  conditions are met, a
derivative may be specifically designated as a hedge. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and the  resulting  designation.  SFAS No.  133,  as  amended  by SFAS  137,  is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The adoption of this statement is not expected to have a material  impact on the
Company's consolidated financial statements since the Company does not currently
hold any derivative instruments.

In March 1998, the Accounting  Standards Executive Committee issued Statement of
Position  98-1  ("SOP  98-1"),  Accounting  for the Costs of  Computer  Software
Developed or Obtained for Internal  Use. SOP 98-1  requires all costs related to
the  development of internal use software  other than those incurred  during the
application development stage to be expensed as incurred.  Costs incurred during
the application  development  stage are required to be capitalized and amortized
over the estimated useful life of the software.  The Company adopted SOP 98-1 on
January 1, 1999 and there was no significant  impact on the Company's  financial
position or operating results.

In  December  1999,  the  Securities  and  Exchange  Commission  released  Staff
Accounting  Bulletin  No.  101 ("SAB  101")  Revenue  Recognition  in  Financial
Statements,  which  provides  guidance  on  the  recognition,  presentation  and
disclosures of revenue in financial  statements.  The Company adopted SAB101 and
there was no significant impact on the Company's financial position or operating
results.


NOTE 2.   LIQUIDITY

The Company has experienced  recurring  losses from operations and has generated
an  accumulated  deficit from  inception  to December 31, 1999 of  $136,842,000.
During the year ended December 31, 1999, the Company used $43,398,000 of cash in

                                       F-8
<PAGE>

operations.  At December 31, 1999, the Company has working capital of $8,019,000
and cash and cash  equivalents  of  $10,142,000.  In February  2000, the Company
agreed  to  merge  with  Healtheon/WEBMD  Corporation  ("Healtheon/WEBMD").   In
connection  with the merger  agreement,  Healtheon/WEBMD  has agreed to lend the
Company up to $30 million for working capital needs. Amounts borrowed under this
line of credit are due February 15, 2001 (see Note 23). The Company believes its
cash and cash  equivalents,  including  the $30 million  lending  commitment  by
Healtheon/WEBMD,  will be sufficient to fund its operations through December 31,
2000.  Operations  generated a negative cash flow during 1997, 1998 and 1999 and
the Company  expects a significant use of cash in 2000 as it markets and expands
it Web site.  Any  material  unforeseen  increase in expenses or  reductions  in
projected  revenue will likely  require the Company to seek  additional  debt or
equity financing. If additional cash is required, the Company may need to reduce
its  expenditure or curtail certain  operations.  There can be no assurance that
additional  capital,  on debt or equity basis, will be found or if found that it
will be on economically viable terms.

NOTE 3.   RESTRICTED CASH

On August 19,  1999,  the Company  pledged  $500,000 of cash for an  irrevocable
standby  letter  of credit  related  to the lease of new  office  space  that is
classified as restricted  cash on the balance  sheet.  The letter of credit will
expire on  August  20,  2000 and will only be drawn on in the event the  Company
fails  to  comply  with the  terms  and  conditions  as set  forth in the  lease
agreement.


NOTE 4.   COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS

 <TABLE>
<CAPTION>
                                                                           December 31,
                                                                ------------------------------------
                                                                     1999                1998
                                                                ---------------     ----------------
                                                                          (In thousands)
       <S>                                                      <C>                 <C>

       Furniture and equipment:
            Computer hardware                                   $       2,205       $       1,032
            Software                                                      349                 186
            Furniture & fixtures                                          470                 220
            Equipment                                                       6                   -
            Leasehold improvements                                         71                  71
            Construction in progress                                      157                   -
                                                                ---------------     ---------------
                                                                        3,258               1,509
            Less accumulated depreciation                              (1,121)               (774)
                                                                ---------------     ---------------
       Total                                                    $       2,137       $         735
                                                                ===============     ===============

       Intangibles & goodwill:
           Web development costs                                $          43       $           -
           Customer base                                                2,400                   -
           Database content                                             3,900                   -
           Internally developed software                                1,300                   -
           Assembled work force                                           130                   -
           Goodwill                                                     3,486                   -
                                                                ---------------     ---------------
                                                                       11,259                   -
       Less accumulated amortization                                     (505)                  -
                                                                ---------------     ---------------
       Total                                                    $      10,754       $           -
                                                                ===============     ===============

       Other accrued expenses:
            Litigation loss                                     $         195       $         677
            Legal fees                                                    225                   -
            Advertising                                                     -                 609
            Royalties                                                     425                 338
            Accrued wages and benefits                                    410                 175
            Interest payable                                              676                   -
            Payroll taxes                                                  90                 358
            Other                                                         362                 417
                                                                ---------------     ---------------
       Total                                                    $       2,383       $       2,574
                                                                ===============     ===============
</TABLE>


NOTE 5.   COMMON STOCK

During  January  1999,  the  Company  completed  a  private  placement  with six
investors which resulted in the issuance of 2,596,000 unregistered shares of the
Company's  common stock at $5.50 per share. One of the investors was an existing
significant  shareholder.  The Company granted  registration rights covering the
shares  issued with this  agreement.  This  transaction  reflected a discount of


                                      F-9
<PAGE>

approximately  45% to the market  price of the  common  stock at the time of the
offering.  The price was negotiated with the investors using the 35-day trailing
average of the common stock prior to the private placement date.  Proceeds,  net
of offering costs, totaled approximately $14.1 million.

On June 15,  1999  the  shareholders  approved  an  increase  in the  number  of
authorized shares of the Company's common stock to 100,000,000 from 29,000,000.

During  September  1999, the Company  completed a public offering of 3.4 million
shares,  which included the  underwriter's  over allotment of 300,000 shares, of
the Company's  common  stock,  at $6.6875 per share.  Proceeds,  net of offering
costs, totaled approximately $20.9 million.

During  November  1999, the Company  completed a public  offering of 2.1 million
shares of the  Company's  common  stock,  at $7.00 per share.  Proceeds,  net of
offering costs, totaled $14.7 million.

In February and March 1999, the Company issued, in the aggregate, 191,758 shares
of  unregistered  restricted  common stock in exchange  for certain  advertising
arrangements.

In October 1999, the Company issued  162,602 shares of  unregistered  restricted
common stock in exchange for a one year  advertising  agreement.  The  agreement
also  requires  the  Company  to pay  approximately  $350,000  per  month  as an
exclusivity fee and a placement fee of impressions to be delivered.

In December 1999, the Company issued 292,683 shares of  unregistered  restricted
common stock in exchange for the delivery of a guaranteed  number of impressions
and click throughs on another internet portal over a one year period.

NOTE 6.   CONVERTIBLE SUBORDINATED DEBENTURES

In November 1996, the Company issued  $3,500,000 of 9% Convertible  Subordinated
Debentures ($3,325,000 net of debt issue costs). These debentures were converted
into common stock on October 28, 1997 at a rate of $2.00 per share, resulting in
the issuance of 1,750,000 shares of common stock. The original  conversion price
was $3.25 per share.  The excess of the fair  value of the common  stock  issued
over the fair value of the shares issuable  pursuant to the original  conversion
terms  was  $2,229,000  and was  recorded  as an  other  expense  at the date of
conversion.

NOTE 7.         CONVERTIBLE REDEEMABLE PREFERRED STOCK

In April 1998,  the Company  issued  5,000  shares of the  Company's 5% Series B
Convertible  Redeemable  Preferred  Stock (the  "Series B Preferred  Stock") for
$5,000,000.  The Series B Preferred Stock was convertible at various  increasing
discount rates to the market value of the common stock. This discount aggregated
$702,000 and was recorded as preferred  stock accretion over the various periods
of conversion.  During 1998,  3,630 shares of the Series B Preferred  Stock were
converted  into 732,605  shares of the Company's  common stock and 1,470 of such
preferred  shares were  redeemed.  The excess of the  redemption  price over the
carrying value of the preferred shares redeemed was $220,000 and was recorded as
a preferred  stock deemed  dividend.  The preferred  stock  accretion and deemed
dividend  increased  the net  loss  applicable  to  common  shareholders  in the
calculation  of the  1998 net loss  per  share  as  shown in the  statements  of
operations.

In 1995, the Company  issued 2,000 shares of 6% Series A Convertible  Redeemable
Preferred Stock (the "6% Series A Preferred  Stock") for $2,000,000  ($1,845,000
net of  brokerage  expenses)  to Davidson &  Associates,  Inc.,  ("Davidson")  a
distributor of multimedia educational and entertainment  software. The 6% Series
A Preferred  Stock was converted into 1,000,000  shares of the Company's  common
stock on October 30, 1997, at a rate of $2.00 per share. The original conversion
price was  $11.21 per  share.  The excess of the fair value of the Common  Stock
issued  over the fair  value of the shares  issuable  pursuant  to the  original
conversion terms was $2,875,000 and was recorded as a deemed preferred  dividend
at the  date  of  conversion.  This  deemed  dividend  increased  the  net  loss
applicable to common  shareholders  in the  calculation of the 1997 net loss per
share as shown in the statements of operations.

NOTE 8.   STOCK OPTIONS AND WARRANTS

In December 1997, the Company's Board of Directors adopted the 1997 Stock Option
Plan ("1997 Plan") for its employees,  directors and  consultants.  During 1999,
the 1997 Plan was amended and restated.  The Plan,  which is administered by the
Board of Directors,  permits the Company to grant stock options for the purchase
of Common  Stock.  Incentive  stock  options  ("ISOs") and  non-qualified  stock
options may be granted pursuant to the 1997 Amended and Restated Plan.

The  Company  also has a 1991  Stock  Option  Plan  (the  "1991  Plan")  for its
employees.  The 1991  Plan,  which is  administered  by the Board of  Directors,
permits the Company to grant stock options for the purchase of Common Stock. The
1991 Plan provides for the granting of ISOs and non-qualified  stock options. In
the case of ISO's,  the exercise price must be at least equal to the fair market
value  per  share  of the  Common  Stock on the  date of  grant.  In the case of
non-qualified stock options, the exercise price must be at least 85% of the fair
market value per share on the date of grant.  Options  generally  expire nine to
ten years from the date of grant.

In  addition,  the Company has a Director  Stock  Option Plan  pursuant to which
current  non-employee  directors  are  eligible  to receive  options to purchase
shares of the Company's common stock at the market price on the date of grant.


                                      F-10
<PAGE>


Activity in the plans mentioned above is as follows:
 <TABLE>
<CAPTION>
                                                            Shares                                  Weighted-
                                                        Available For                             Average Price
                                                        Future Grants           Options             Per Share
                                                        ----------------  ------------------    ----------------
<S>                                                        <C>                 <C>              <C>

BALANCE AT JANUARY 1, 1997                                   568,000             940,000        $       7.10
Options Reserved                                           1,750,000                   -                   -
Options Granted                                             (684,000)            684,000                2.85
Options Exercised                                                  -             (59,000)               1.64
Options Canceled                                             474,000            (474,000)               9.86
                                                        ----------------  ------------------
BALANCE AT DECEMBER 31, 1997                               2,108,000           1,091,000                3.53
Options Granted                                             (656,000)            656,000                5.50
Options Exercised                                                  -            (371,000)               2.88
Options Canceled                                             392,000            (392,000)               3.82
                                                        ----------------  ------------------
BALANCE AT DECEMBER 31, 1998                               1,844,000             984,000                4.97
Increase in shares reserved                                3,000,000                   -
Options Granted                                           (2,867,000)          2,867,000                7.32
Options Exercised                                                  -            (185,000)               4.27
Options Canceled                                             160,000            (160,000)               7.48
                                                        ================  ==================
BALANCE AT DECEMBER 31, 1999                               2,137,000           3,506,000                6.81
                                                        ================  ==================
</TABLE>


At December 31, 1999, 1998 and 1997,  options to purchase  463,000,  237,000 and
325,000, shares were exercisable, respectively.

The following table summarizes  information about the stock options  outstanding
at December 31, 1999:
<TABLE>
<CAPTION>

                                        OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                         -----------------------------------------------------  ---------------------------------
                                         Weighted-Average
 Range of Exercise         Number            Remaining        Weighted-Average      Number       Weighted-Average
      Prices             Outstanding     Contractual Life      Exercise Price     Exercisable     Exercise Price
--------------------- ------------------ ------------------ ------------------- ---------------- ----------------
<S>                      <C>                   <C>          <C>                       <C>         <C>
$  2.31 -  2.50            150,000              8 years     $      2.31               150,000     $     2.31
   2.51 -  3.00             25,000              7 years            2.75                19,000           2.75
   3.01 -  3.50             98,000              8 years            3.33                50,000           3.32
   3.51 -  4.00             20,000              9 years            3.56                 6,000           3.56
   4.01 -  4.50             27,000              9 years            4.22                 9,000           4.22
   4.51 -  5.00          1,101,000              9 years            4.75                     -              -
   6.01 -  6.50            390,000              8 years            6.25                93,000           6.25
   6.51 -  7.00            213,000             10 years            6.92                     -              -
   7.01 -  7.50             81,000              9 years            7.19                 7,000           7.38
   7.51 -  8.00            314,000             10 years            7.75                     -              -
   8.51 -  9.00            522,000             10 years            8.94               125,000           8.94
   9.01 -  9.50             26,000             10 years            9.12                     -              -
   9.51 - 10.00             46,000             10 years            9.84                 4,000          10.00
  10.01 - 11.00             63,000             10 years           10.48                     -              -
  11.01 - 11.50            420,000             10 years           11.08                     -              -
  12.00                     10,000             10 years           12.00                     -              -
                      ------------------                                        ----------------
 $ 2.31 - 12.00          3,506,000              9 years            6.81               463,000           5.21
                      ==================                                        ================
</TABLE>

From time to time,  the  Company's  Board of Directors  may grant stock  options
outside of the existing  stock  option  plans.  In 1997,  the Board of Directors
adopted the  1997-1998  New Hire Stock Option Plan.  This plan  provides for the
granting of 1,241,000  non-qualified  stock options to newly hired  employees in
late 1997  through  early  1998.  In 1999,  the Board of  Directors  adopted the
1998-1999  New Hire Stock  Option Plan.  This plan  provides for the granting of
1,500,000  non-qualified  stock  options to newly hired  employees  in late 1998
through early 2000.  Options generally expire nine to ten years from the date of
grant.


                                      F-11
<PAGE>


Activity in the New Hire Stock Option Plans is as follows:

<TABLE>
<CAPTION>
                                                            Shares                                  Weighted-
                                                        Available For                             Average Price
                                                        Future Grants          Options              Per Share
                                                        ----------------  ------------------    -------------------
<S>                                                     <C>               <C>                   <C>

Balance at JANUARY 1, 1997                                         -                   -        $         -
Options reserved                                           1,241,000                   -                  -
Options granted                                             (523,000)            523,000               2.47
Options exercised                                                  -                   -                  -
Options canceled                                                   -                   -                  -
                                                        ----------------  ------------------
BALANCE AT DECEMBER 31, 1997                                 718,000             523,000               2.47
Increase in options reserved                               1,500,000                   -
Options granted                                           (1,246,000)          1,246,000               3.61
Options exercised                                                  -                   -                  -
Options canceled                                             305,000            (305,000)              2.59
                                                        ----------------  ------------------
BALANCE AT DECEMBER 31, 1998                               1,277,000           1,464,000               3.42
Increase in shares reserved                                        -                   -
Options granted                                             (808,000)            808,000              10.82
Options exercised                                                  -            (160,000)              3.46
Options canceled                                             434,000            (434,000)              8.06
                                                        ----------------  ------------------
BALANCE AT DECEMBER 31, 1999                                 903,000           1,678,000               5.78
                                                        ================  ==================
</TABLE>


The  following  table  summarizes  information  about the New Hire Stock  Option
Plans' options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
                                        OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                       -------------------------------------------------------- -------------------------------
     Range of                          Weighted-Average
     Exercise            Number           Remaining        Weighted-Average        Number      Weighted-Average
      Prices           Outstanding     Contractual Life     Exercise Price       Exercisable    Exercise Price
------------------     -------------  ------------------ -------------------    -------------- ----------------
<S>                        <C>                  <C>      <C>                    <C>            <C>
$  2.31 -  2.50            450,000              8 years  $         2.50               288,000           2.50
   2.51 -  3.00            174,000              8 years            2.89               113,000           2.85
   3.01 -  3.50             45,000              9 years            3.22                13,000           3.22
   3.51 -  4.00            279,000              8 years            3.73                94,000           3.72
   4.01 -  4.50             27,000              8 years            4.45                 4,000           4.22
   4.51 -  5.00            182,000              9 years            4.74                 9,000           4.63
   5.51 -  6.50             59,000              8 years            6.04                20,000           6.10
   6.51 -  7.00             20,000              8 years            6.69                 9,000           6.68
   7.01 -  9.00             39,000              9 years            8.37                 2,000           7.87
   9.51 - 10.00             60,000              9 years            9.69                     -              -
  11.01 - 11.50            104,000              9 years           11.38                     -              -
  11.51 - 12.00             22,000              9 years           11.94                     -              -
  12.01 - 12.51             45,000              9 years           12.13                     -              -
  13.01 - 13.51             43,000              9 years           13.18                     -              -
  13.51 - 14.00             25,000              9 years           13.63                     -              -
  14.50 - 15.00             80,000              9 years           14.62                     -              -
  15.01 - 15.50              6,000              9 years           15.38                     -              -
  18.50 - 19.56             18,000              9 years           18.97                     -              -
                      ------------------                                        ----------------
 $ 2.31 - 12.00          1,678,000              9 years            5.78               552,000           3.06
                      ==================                                        ================
</TABLE>

The pro forma information  regarding net loss and net loss per share required by
SFAS  No.  123 has been  determined  as if the  Company  had  accounted  for its
employee stock options under the fair value method of that  statement.  The fair
value  for  these  options  has been  estimated  at the  date of  grant  using a
Black-Scholes  option  pricing  model,  assuming no expected  dividends  and the
following weighted-average assumptions for 1999, 1998 and 1997:


                                      F-12
<PAGE>


                                                   1999       1998       1997
                                                 ---------  ---------   -------
              Risk-free interest rate              6.00%      5.00%      5.50%
              Volatility factor                    1.113       .817       .760
              Weighted-average expected life     5 years    5 years    5 years


The  weighted-average  fair value of options granted at fair market value during
1999,   1998  and  1997  was   $6.78,   $2.99  and  $1.74,   respectively.   The
weighted-average  fair value of options  granted at less than fair market  value
during 1999 and 1998 was $10.66 and $2.65,  respectively.  The  weighted-average
fair value of options  granted at greater than fair market value during 1998 was
$1.95.  The  Black-Scholes  option  valuation  model  was  developed  for use in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows:

<TABLE>
<CAPTION>
                                                                   1999              1998              1997
                                                               --------------    --------------    -------------
                                                                     (In thousands, except per share data)
<S>                                                            <C>               <C>               <C>
Net loss applicable to common shareholders - as reported       $      (47,327)   $      (11,964)    $  (13,965)
Net loss applicable to common shareholders - pro forma                (52,075)          (12,970)       (14,294)
Basic and diluted net loss per share - as reported             $        (2.70)   $        (1.12)    $    (1.73)
Basic and diluted net loss per common share  pro forma         $        (2.97)   $        (1.21)    $    (1.77)
</TABLE>


The  pro  forma  effect  on the  net  loss  for  1999,  1998,  and  1997  is not
representative  of the pro forma effect on the net loss in future years  because
it does not take into  consideration pro forma  compensation  expense related to
grants made prior to 1995.

As of December 31, 1999 the Company had warrants outstanding to purchase 224,662
shares of common  stock at prices  ranging  from  $3.25 per share to $14.06  per
share.  Warrants outstanding at December 31, 1999 expire from 2000 through 2004.
The warrants were generally  issued to underwriters  and investment  bankers for
services  performed  in  connection  with  several  of the  Company's  financing
transactions.

Common stock reserved for future issuance at December 31, 1999 is as follows:

      1991, 1997 and Director Stock Option Plans                     5,643,000
      1997 - 1998, 1998 - 1999 New Hire Stock Option Plans           2,581,000
      Warrants                                                         224,662
                                                                    -----------
                                                                     8,448,662
                                                                    ===========

NOTE 9.         DEFERRED COMPENSATION

The  Company  recorded  aggregate  deferred  compensation  of $6.5  million  and
$203,000 in 1999 and 1998, respectively. The amount recorded in 1998, as well as
$1.9 million of the amount  recorded in 1999,  represent the difference  between
the grant  price and the fair  value of the  Company's  common  stock for shares
subject to options  granted in 1999 and 1998.  Options granted below fair market
value and the associated  weighted-average exercise price per share were 395,000
and $5.99 and 70,000 and $3.35  during the years  ended  December  31,  1999 and
December 31, 1998,  respectively.  The amortization of deferred  compensation is
charged to operations over the vesting period of the options, which is typically
three to five  years.  The  amount of  deferred  compensation  recorded  in 1999
includes $4.6 million  related two  acquisitions  which  included  common shares
forfeitable  subject to  continued  employment  of certain  key  employees.  The
amortization  of these deferred  compensation  amounts are charged to operations
over the twelve month employment agreement period. Total amortization recognized
in 1999 and 1998 was $1.4 million and $130,000, respectively.

NOTE 10.        MERGERS AND ACQUISITIONS

On September 9, 1999,  the Company  acquired  all of the  outstanding  shares of
common stock of BabyData.com, Inc. ("BabyData"), a premier Web site for pregnant
couples and those  trying to  conceive.  The  purchase  price for  BabyData  was
approximately  $3.4 million and was comprised of 477,074 shares of the Company's
common  stock,  par value $.01 per  share,  including  approximately  $93,000 of
acquisition  costs. An additional  204,460 shares of the Company's common stock,
valued  at  $1.4  million,  were  issued  and  are  restricted  pursuant  to the
employment  agreement entered into by OnHealth and one key employee of BabyData.
The  acquisition of BabyData has been accounted for using the purchase method of
accounting.


                                      F-13
<PAGE>


Since BabyData had no significant  assets or liabilities,  substantially  all of
the purchase price was allocated to intangibles  and goodwill.  Intangibles  and
goodwill  will be  amortized  on a  straight-line  basis over three  years.  The
deferred compensation component will be recognized as stock-based  compensation,
on a straight-line basis, over a one year period.

On November 29, 1999, the Company acquired Health Decisions  International,  LLC
("HDI"), which develops,  provides and supports a broad range of personal health
information,  referral and nurse counseling services to customers throughout the
United States. The purchase price for the HDI acquisition was approximately $4.9
million and was  comprised  of 451,709  shares of the  Company's  common  stock,
including  approximately  $691,000 of acquisition  costs. An additional  345,324
shares of the Company's  common stock,  valued at $3.2 million,  were issued and
are restricted pursuant to the employment agreement entered into by OnHealth and
one key employee of HDI. In  connection  with the  acquisition,  an  additional,
207,194  shares are  contingently  issuable based upon the occurrence of certain
future events.

The aggregate  purchase price was  allocated,  based on estimated fair values on
the acquisition date, as follows (in thousands):


               Cash                                     $      24
               Accounts receivable                            546
               Other current assets                            87
               Equipment                                      721
               Intangibles:
                   Customer base                            2,400
                   Database content                         3,900
                   Internally developed software            1,300
                   Assembled work force                       130
                   Goodwill                                   156
               Liabilities assumed                        ( 4,366)
                                                        -----------
               Total purchase price                     $   4,898
                                                        ===========

The  intangibles  and goodwill will be amortized on a  straight-line  basis over
periods ranging from three to five years.  The deferred  compensation  component
will be recognized as stock-based compensation, on a straight-line basis, over a
one year period.

The  following  table  reflects  unaudited  consolidated  pro forma  results  of
operations of OnHealth,  BabyData and HDI on the basis that the acquisitions had
taken place at the  beginning of each period  presented.  Such pro forma amounts
are not  necessarily  indicative  of what the  actual  consolidated  results  of
operations  might  have  been if the  acquisitions  had  been  effective  at the
beginning of the respective periods.


                                                Year Ended December 31,
                                          -----------------------------------
                                                1999               1998
                                          -----------------   ---------------
                                         (In thousands, except per share data)

         Revenue                           $        7,186      $      6,000
                                          =================   ===============
         Net loss applicable to common
           shareholders                    $      (50,687)     $    (22,210)
                                          =================   ===============
         Basic and diluted net loss
           per share                       $        (2.63)     $      (1.85)
                                          =================   ===============

NOTE 11.        LOSS PER COMMON SHARE

The components of basic and diluted loss per common share are as follows:

<TABLE>
<CAPTION>
                                                                1999              1998              1997
                                                           --------------    ---------------    -------------
                                                               (In thousands, except per share data)
<S>                                                        <C>               <C>                <C>

Net loss applicable to common shareholders
     (numerator)                                           $    (47,327)     $     (11,964)     $    (13,965)
                                                           ==============    ===============    =============

Weighted average common shares outstanding
     (denominator)                                               17,529             10,680             8,056
                                                           ==============    ===============    =============

Loss per share:
     Basic and diluted                                     $      (2.70)     $       (1.12)     $      (1.73)
                                                           ==============    ===============    =============
</TABLE>


                                      F-14
<PAGE>


NOTE 12.        COMMITMENTS

The Company leases office space under non-cancelable operating lease agreements.
The  agreements  expire at various  times  through  2004.  Gross  rent  expense,
including  charges for monthly  operating  costs,  was  $422,000,  $522,000  and
$881,000  for 1999,  1998 and 1997  respectively.  The Company  also has several
marketing agreements that require minimum payments to be made. Scheduled minimum
lease commitments and annual marketing payments are as follows:

                                                                   Marketing
                                             Leases                Payments
                                       --------------------  ------------------
                                                      (In thousands)

                       2000            $              829    $            9,966
                       2001                           849                    57
                       2002                           882                     -
                       2003                           832                     -
                       2004                           391                     -
                                       --------------------  ------------------
             Total                     $            3,783    $           10,023
                                       ====================  ==================

NOTE 13.        NOTE PAYABLE

In  connection  with the  acquisition  of HDI  described  in Note 9, the Company
assumed a $2,000,000 note payable to G.D. Searle & Company ("Searle"),  which is
secured by all tangible and intangible  property of HDI. Interest on the note is
stated at 30% per annum.  All  principal  and  interest  are due on December 18,
2000,  with a call  option  by  Searle  on June 30,  2000.  As a  result  of the
acquisition, the Company and Searle entered into a release and Note Cancellation
Agreement,  whereby the Company  intends to repay the principal and interest due
by issuing  Searle  registered  shares of the  Company's  common  stock.  If the
Company is unable to provide Searle with registered shares on or before June 30,
2000, then Searle has the option to call the note and all principal and interest
will be due in cash.

NOTE 14.        SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
(In thousands)                                                          Year Ended December 31, 1999
                                                              -------------------------------------------------
                                                                  1999             1998              1997
                                                              -------------    --------------    --------------
<S>                                                           <C>              <C>               <C>
Cash paid during the years for:
   Interest                                                   $         -      $         -       $       298
   Income taxes                                                         4                7                 5

Non-cash investing and financing transactions:
   Common stock issued in connection with business
    acquisitions                                                    8,389                -                 -
   Stock options and warrants issued for services                   6,125               60                 -
   Common stock issued for deferred compensation                    4,622                -                 -
   Deferred compensation related to stock options                   1,869              203                 -
   Conversion of preferred stock to common stock                        -            3,630             1,948
   Conversion of convertible subordinated debentures                    -                -             5,729
   Fair market value of preferred stock warrant                         -              702                 -
   Preferred stock accretion                                            -             (702)              (43)
   Preferred stock dividends                                            -              100                 -
   Preferred stock deemed dividend                                      -                -             2,875
   Common stock issued as litigation settlement                         -                -               433
</TABLE>


NOTE 15.        INCOME TAXES

At December  31,  1999,  the Company has net  operating  loss  carryforwards  of
$130,323,000 for income tax purposes and unused research and development credits
of $442,000 that expire at various times through 2019. These  carryforwards  are
subject to the  limitations  of Internal  Revenue Code Section 382. This section
provides  limitations  on the  availability  of net  operating  losses to offset
current  taxable  income if  significant  ownership  changes  have  occurred for
federal tax purposes.  For financial reporting  purposes,  a valuation allowance
has been recognized to completely reserve for the deferred tax assets related to
those carryforwards. The reserve has been established because of the uncertainty
of future taxable income,  which is necessary to realize the benefits of the net
operating loss carryforwards.  The valuation reserve increased $14.7 million and
$1.2 million during 1999 and 1998, respectively.



                                       F-15
<PAGE>


Components of the Company's deferred tax assets and liabilities are as follows:

                                                     December 31,
                                      -----------------------------------------
                                              1999                  1998
                                      -------------------   -------------------
DEFERRED TAX ASSETS:
Accrued expenses and allowances       $       1,856,000     $       1,223,000
Research and development credits                442,000               339,000
Net operating loss carryforwards             45,613,000            28,669,000
                                      -------------------   -------------------
                                             47,911,000            30,231,000
DEFERRED TAX LIABILITIES:
Depreciation                                     48,000               (15,000)
Acquisition of intangibles                   (3,004,000)                    -
                                      -------------------   -------------------
                                             (2,956,000)              (15,000)
                                      -------------------   -------------------
Net deferred tax assets
   before valuation allowance                44,955,000            30,216,000
Less valuation allowance                    (44,955,000)          (30,216,000)
                                      -------------------   -------------------
NET DEFERRED TAX ASSETS               $               -     $               -
                                      ===================   ===================

NOTE 16.        AMERICA'S HEALTH NETWORK AGREEMENT

In May 1995,  the Company  entered  into a content and  royalty  agreement  with
America's Health Network ("AHN"),  a health information cable television network
that combines live programming  with medical  consumer product sales.  Under the
agreement  the Company  licensed its  multimedia  content to AHN starting in May
1995  and was to  receive  minimum  licensing  royalties  over  the  life of the
agreement.  This revenue was being  recognized  evenly over the expected life of
the  contract.  In June  1997,  as a result of the  Company  not  receiving  its
quarterly payment, the outstanding AHN receivable was fully reserved. Due to the
uncertainty of future payments, in 1997 the Company began recognizing revenue on
a cash basis. The Company recorded  $493,000 in license royalty revenue in 1997.
In  December  1997 and in early  1998,  AHN made  payments,  which were  applied
against the  receivable.  At December 31, 1999, the Company has a fully reserved
receivable  of  $153,000  and AHN has  failed to make three  scheduled  payments
totaling $1,688,000.

NOTE 17.        BENEFIT PLAN

The  Company  has  a  defined   contribution   salary   deferral  plan  covering
substantially  all employees under Section 401(k) of the Internal  Revenue Code.
The Plan  allows  eligible  employees  to make  contributions  up to the maximum
amount  provided  under  the Code.  The  Company  may also make a  discretionary
contribution to the Plan. No such contributions have been made by the Company.

NOTE 18.          MAYO AGREEMENT

In September  1997, the Company  entered into an agreement with Mayo  Foundation
("Mayo") which included a full transfer of ownership of the Company's  O@sis web
site to Mayo and a new  arrangement  for revenues  and cost  sharing  concerning
O@sis. Under the terms of the agreement,  the Company received a $2,700,000 cash
payment,  an  additional  $300,000  cash  payment for hosting the web site for a
transition  period,  and the return of 490,000  shares of the  Company's  common
stock.  Through the year 2001,  the Company  will receive a royalty from Mayo on
certain  revenues  generated  by the Mayo Health  O@sis site and  certain  other
non-O@sis Internet projects.  In addition,  Mayo was released from the Company's
"right of first offer" on Mayo health  products  produced for electronic  media,
and Mayo assumed  operating  expenses  incurred for the web site  retroactive to
January  1, 1997 which  were  recorded  as a  reduction  to product  development
expenses.  The  Company  recorded  the  $2,700,000  payment as other  income and
recorded the $300,000 payment as contract  development  revenue during the third
and fourth quarters, respectively, of 1997.

NOTE 19.        RELATED PARTY TRANSACTIONS

During 1998, 1997 and 1996, the Company  subleased  approximately  20,000 square
feet of its Eden  Prairie  office  space to Reality  Interactive,  Inc.  Reality
Interactive,  Inc. and the Company  share a common Board  member.  The lease was
terminated in 1998.

During 1996,  two officers of the Company  participated  in the  Company's  debt
offering.  The total  amount of debt issued by the Company to these  individuals
was $120,000.  Additionally,  three directors of the Company participated in the
debt offering,  either  individually or through  affiliated  organizations.  The
total  amount  of  debt  issued  by  the  Company  to  these   individuals   and
organizations  was $550,000.  On October 28, 1997,  this debt was converted into
common stock at a rate of $2.00 per share (see Note 6).


                                      F-16
<PAGE>


NOTE 20.        RELOCATION

During early 1998, the Company relocated its primary  operating  facilities from
Minneapolis,  Minnesota  to  Seattle,  Washington.  As a result,  certain of the
Company's Minnesota  leasehold  improvements and computer and software equipment
having a carrying value of $721,000 were not  transferable  or were not utilized
in the  Company's  Seattle  operations.  In 1997,  the Company had estimated and
recorded  the  related   relocation   expense  of  $721,000  as  a  General  and
Administrative  expense. In addition,  in 1997 the Company recorded $252,000 and
$610,000 in general and  administrative  expenses  related to lease  termination
costs and severance for former officers and employees, respectively.

NOTE 21.        LEGAL PROCEEDINGS

In February 1996, an action in the District Court of Hennepin County (Minnesota)
was brought by T. Randal  Productions et al. against the Company and one current
and two former  employees.  The plaintiffs made various  allegations,  including
misappropriation of corporate opportunities and trade secrets by the Company and
its  employees  and sought  award of  monetary  damages,  exemplary  damages and
royalties  substantially  in excess of $10.0  million.  In November 1997, a jury
found that there was no joint venture  between T. Randal and the company  and/or
any of its  employees  but awarded T. Randal  $480,000 plus interest for damages
sustained to its business.  Plaintiffs  moved for a new trial,  amended findings
and for judgment notwithstanding the verdict. The jury verdict was upheld by the
trial court.  The  plaintiffs  appealed this decision to the Minnesota  Court of
Appeals.  In March 1999, the Minnesota Court of Appeals affirmed the decision of
the trial court.  On June 1, 1999,  the Company made a payment of $950,000 to T.
Randal Productions in full satisfaction of a judgment against the Company. As of
December 31, 1998, the Company had accrued $677,000.  The remaining $273,000 was
recorded in the quarter ended June 30, 1999.

In June 1999, Jon Fisse, the Company's newly named Chief Operating Officer, left
the Company  before the Company and Mr. Fisse were able to agree on the terms of
his  employment  agreement.  In June  1999,  the  Company  filed  a  declaratory
judgement action in the United States District Court for the Western District of
Washington  seeking to declare that Mr. Fisse terminated his employment and that
the Company owes him no future  remuneration  or stock option  benefits.  On the
same day, Mr. Fisse filed a lawsuit in the United States  District Court for the
Southern District of New York, asserting that the Company violated his rights in
connection  with his separation from the Company,  seeking damages which,  among
other things,  include  severance  compensation and stock option  benefits.  The
action filed in Washington was transferred to New York. A settlement was reached
during  January 2000,  which will result in the issuance of 22,500 shares of the
Company's  common  stock,  for which an accrual in the  amount of  $195,000  was
recorded at December 31, 1999.

NOTE 22.        SEC INVESTIGATION

In October 1999, the Division of  Enforcement,  Pacific  Regional  Office of the
Securities  and Exchange  Commission  ("SEC"),  notified the Company that it was
initiating an investigation of the Company's policies and procedures  concerning
the granting of stock options.  The Company has provided information to the SEC.
In addition, The Company's Board of Directors hired independent legal counsel to
conduct its own special investigation.  As a result of the Company's own special
investigation  , the  Company  became  aware of certain  instances  where  stock
options were granted to new employees with exercise  prices that were below fair
market  value on the date of  grant.  As a result,  the  Company  recorded  $1.8
million  of  deferred   stock-based   compensation   and  will  be   recognizing
amortization  of the  deferred  compensation  over  the  vesting  period  of the
underlying options as a stock-based  compensation charge. The SEC has been given
a copy of the report of the special  investigation  and has taken  deposition of
various members of management and Company employees.

The SEC  investigation  is still in  process  and has not  been  finalized.  The
Company  intends to cooperate with this  investigation.  However,  until the SEC
investigation is completed,  the Company could,  among other things, be required
to record additional  stock-based  compensation charges and could be required to
pay a fine.  The Company is unable to assess the likely  outcome of this matter.
As a result,  there can be no assurance that this  investigation will not have a
material  adverse  affect on the  Company's  financial  position  or  results of
operations.

NOTE 23.        SUBSEQUENT EVENTS

On  February  15,  2000,  the  Company  agreed  to  merge  with  Healtheon/WEBMD
Corporation  ("Healtheon/WEBMD").  As a result of the merger,  each share of the
Company's  common stock shall be converted  into and  exchanged for the right to
receive .189435 shares of Healtheon/WEBMD common stock. The merger is subject to
certain  conditions  and approval of the Company's  shareholders.  The merger is
expected to be completed in either the second or third quarter of 2000.

In connection with the merger agreement,  Healtheon/WEBMD has agreed to lend the
Company up to $30 million for working  capital needs.  The Company  borrowed $15
million on February 24, 2000 and may make  additional  loans beginning on May 1,
2000.  The loans bear interest at prime rate plus 2% and are due on February 15,
2001.

Simultaneous  with the  execution of the  Healtheon/WEBMD  loan  agreement,  the
Company granted  Healtheon/WEBMD  a warrant to purchase  5,800,000 shares of the
Company's common stock with an exercise price of $10.75 per shares.  The warrant
is fully vested and exercisable immediately and expires on February 15, 2003. In
addition,  the Company  granted  Healtheon/WEBMD  a warrant to purchase  500,000
shares of the Company's  common stock with an exercise price of $0.01 per share.


                                      F-17
<PAGE>

The warrant is exercisable  in the event the merger  agreement is terminated and
any principal and interest arising under the loans from  Healtheon/WEBMD  remain
outstanding  90 days after the  termination  date.  The warrant  will vest as to
250,000  shares after 90 days,  125,000  shares after 180 days and 125,000 after
270 days.

As a result of this merger,  Healtheon/WEBMD  expects to file a Proxy  Statement
and Prospectus with the SEC as promptly as reasonably possible. The shareholders
of the Company will  consider  adoption  and  approval of this merger  agreement
within 30 days after  declaration of the  effectiveness  of the  Healtheon/WEBMD
Registration  Statement.  If the SEC investigation of the Company`s stock option
grants  (see Note 22) will cause a material  delay in the  effectiveness  of the
Registration   Statement,   then   Healtheon/WEBMD  may  terminate  this  merger
agreement.




                                      F-18
<PAGE>




                                       S-1



<PAGE>


                    ONHEALTH NETWORK COMPANY AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                             Additions
                                                             Charged to
                                                            (Recoveries
                                           Balance at         Credited                                                Balance
                                           Beginning         to) Costs                                               at End of
                                           of Period        and Expenses          Other          Deductions           Period
                                          -------------     -------------       ----------      -------------       -----------
<S>                                       <C>               <C>                 <C>             <C>                 <C>

Year Ended December 31, 1999:
Allowance for doubtful accounts
     receivable, promotional
     allowances and sales returns         $         256     $        117        $      40 (4)   $       -           $     413
Allowance for obsolete inventory                    501                -                -             (501)   (2)           -
                                          =============     =============       ==========      =============       ===========
                                          $         757     $        117        $      40       $     (501)         $     413
                                          =============     =============       ==========      =============       ===========

Year Ended December 31, 1998:
Allowance for doubtful accounts
     receivable, promotional
     allowances and sales returns         $       1,011     $       (755) (3)   $       -       $        -    (1)   $     256
Allowance for obsolete inventory                    451               50                -                -    (2)         501
                                          -------------     -------------       ----------      -------------       -----------
                                          $       1,462     $       (705)       $       -       $        -          $     757
                                          =============     =============       ==========      =============       ===========

Year Ended December 31, 1997:
Allowance for doubtful accounts
     receivable, promotional
     allowances and sales returns         $         277     $      2,336        $       -       $   (1,602)   (1)   $   1,011
Allowance for obsolete inventory                    485              200                -             (234)   (2)         451
                                          -------------     -------------       ----------      -------------       -----------
                                          $         762     $      2,536        $       -       $   (1,836)         $   1,462
                                          =============     =============       ==========      =============       ===========

--------------
<FN>

1)   Deductions represent accounts receivable determined to be uncollectable and
     therefore  charged  against  the  allowance  account;  accounts  receivable
     determined to be  uncollectable  due to return of product(s);  and accounts
     credited due to promotional and administrative  allowance arrangements with
     distributors.

2)   Write-offs of inventory.

3)   The  $75  net  credit  to costs  and expenses is primarily  due to the 1998
     recovery of an account  previously written off.

4)   Allowance for doubtful accounts of HDI, which was acquired on 11/29/99.
</FN>
</TABLE>




                                      F-19
<PAGE>