UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
  X          Annual Report Pursuant to Section 13 or 15(d) of the Securities
             Exchange Act of 1934
             For the fiscal year ended December 31, 1997

                         Commission file number 0-22212

                              IVI PUBLISHING, INC.
             (Exact name of registrant as specified in its charter)

        Minnesota                                          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) 292-6247



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

    Title of each class                Name of each exchange on which registered
-----------------------------          -----------------------------------------
 Common Stock, $.01 Par Value                                N/A

     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.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant as of April 8, 1998 was $74,113,657.

     The number of shares outstanding of the issuer's classes of common stock as
of April 8, 1998: Common stock, $.01 Par Value: 10,135,201

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of  registrant's  definitive  Proxy  Statement for its 1998 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.


<PAGE>

                                     PART I
ITEM 1.  BUSINESS

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

IVI  Publishing,  Inc.  (the  "Company" or "IVI")  intends to become the premier
network of  health-related  channels  on the World Wide Web to help  adults make
smarter,  better-informed health decisions.  IVI was incorporated in August 1990
in the State of Minnesota under the name Interactive  Television,  Inc. Its name
was subsequently changed to Interactive Ventures, Inc. in March 1991, and to IVI
Publishing,  Inc. in August 1993. IVI has created interactive  programs for some
of America's best-known content owners. The Company has also distributed content
in  various  forms of media  and in  partnership  with  some of  America's  most
prestigious media firms.  Historically,  IVI's attention and resources have been
directed to the cable television,  CD-ROM and online  interactive media markets.
The Company  expects to leverage its years of experience  in developing  content
for interactive  media,  its skill in working with  third-party  medical content
providers,  and its knowledge of consumers of medical information to develop the
leading online health information network.

The  Company's  flagship  site,  OnHealth,  opened in July 1997 and is currently
being enhanced and redesigned. The Company intends to re-release OnHealth in the
third quarter of 1998. To reflect its new Web-oriented  focus, the Company plans
to propose to shareholders at the 1998 Annual Meeting a corporate name change to
"OnHealth Network Company."

The  Company's  common stock is listed on the NASDAQ  SmallCap  Market under the
symbol "IVIP." Information  contained on the Company's Web site is not deemed to
be a part of this Annual Report on Form 10-K.

The  Company   plans  to   distinguish   itself  in  the  market  for   consumer
health-related  information and commerce by "cutting through the clutter" of the
Internet and locating and packaging the best  informational,  transactional  and
archival  content for its  customers.  By doing so, the Company will attain high
levels of targeted usage and an attractive editorial context,  both of which are
necessary for creating an advertising-supported medium.


<PAGE>

IVI's  first Web venture was the  development,  production,  and hosting of Mayo
Health  O@sis which was jointly  owned with the Mayo  Foundation  and which went
live in July 1996. Under the initial intent of the venture,  the Mayo Foundation
was  to  provide  intellectual  property  and  IVI  Publishing  was  to  provide
production,  hosting and marketing  services.  Revenues were to be split between
the companies.  IVI transferred full ownership of the Mayo O@sis website to Mayo
Foundation in September 1997. See "Mayo  Relationship  and Transfer of Ownership
of Mayo Health O@sis Web Site."

The  Company's   previous   principal  line  of  business  consisted  of  CD-ROM
development,  production, and distribution. IVI's best-known title has been Mayo
Clinic  Ultimate  Medical  Guide.  The Company has also produced  numerous other
CD-ROM  titles.  IVI  continues to  distribute  these  products  through  retail
channels and computer OEM (bundling) channels.

IVI has had a significant venture with Time Life Books, including the production
of a CD-ROM,  "Taking  Control  of Your  Health"  as well as other  titles.  The
Company is also a supplier  of content to  America's  Health  Network  (AHN),  a
health and  medical  cable TV network,  which  began with AHN's  launch in March
1996.  IVI also develops web sites for third parties.  To date, web  development
customers have been primarily from the medical field.

The  Company's  net  revenues  have  declined  69%  in the  past  two  years  to
approximately $3.8 million in 1997. This is largely attributable to the shift in
the Company's focus from CD-ROM  publishing and marketing to online  publishing.
Management anticipates that the shift in focus will result in growth in revenues
and in positive  net income in future  years.  The Company has  accumulated  net
losses of approximately $78.6 million through December 31, 1997.

WEB ACTIVITIES: CURRENT

The Company  believes  that it will be able to create the best online  resources
for  equipping  users to  actively  and  successfully  manage  their  health and
well-being.  By doing so, management  believes that it can create a large, loyal
and active user base,  and, by extension,  that it can create a significant  hub
for online  advertising  and  transactional  commerce.  The key  attributes  for
success in this venture  include  building deep,  high-value  editorial  content
(proprietary,  licensed,  and  linked);  developing a friendly,  accessible  and
useful  editorial  character;  creating  an  image  of  trust  and  credibility;
encouraging a sense of community  among site users;  and striving to develop the
OnHealth brand as the leading brand in its segment.

WEB ACTIVITIES: PROSPECTIVE

The Company  intends to launch a family of Web sites that leverage the branding,
customer set, and market  awareness  created by the OnHealth site. The editorial
focus,  business models, and revenue streams of these additional sites are still
under  development.  Collectively,  IVI  intends  to call  these  sites  and the
OnHealth flagship site the OnHealth Network.

OTHER IVI ACTIVITIES

Agreement With and Investment in America's Health Network ("AHN")

         As  part  of  its  integrated  publishing  strategy,  the  Company  has
developed  a  strategic  relationship  with AHN to provide  health  and  medical
programming on cable television. AHN has developed a consumer health information
cable  television  network  which  features a  physician  and other  health care
professionals  responding to viewers' call-in  questions  interspersed with home
shopping segments  featuring health related products.  AHN began broadcasting on
March 25, 1996.


<PAGE>

         The Company  entered into an agreement with AHN dated May 25, 1995 (the
"Agreement")  pursuant to which the Company agreed to provide health and medical
information for AHN's cable television programming.  The Agreement provides that
the health and medical  content  produced by the  Company for  broadcast  on AHN
shall  remain the property of the Company but shall be licensed  exclusively  to
AHN for use in a televised program.  AHN has agreed to pay the Company a fee for
the  production of content used by AHN equal to the Company's  cost of producing
or obtaining the requested content plus 15%. In addition,  AHN has agreed to pay
the Company $11,000,000 in royalties over the life of the Agreement. The Company
recognized  $493,000 in royalty revenue in 1997, and applied additional payments
made by AHN against  previously  reserved  receivables.  The Company  expects to
receive $2,250,000 in cash during 1998 under this agreement.  The first $715,000
will be applied  against the  previously  reserved  receivables.  The  Agreement
extends to five  years  beyond  the date AHN began  broadcasting.  The amount of
future  royalties  is subject to  reduction,  however,  in the event the Company
fails to deliver health and medical  content in accordance with the terms of the
agreement. The royalties will also be reduced to 25% of their original amount in
the event the Company terminates the exclusivity provisions of the Agreement. In
the event AHN  achieves  its  revenue  forecasts  for its  first  five  years of
operations,  the Company may earn additional  royalties which are payable within
45 days after the end of the fifth year of AHN's operations.

         The Company holds an equity  position in AHN which it acquired in March
1994 in exchange for an  investment of  $2,000,000,  which was expensed in 1994.
AHN subsequently  has acquired  additional  financing from other investors.  The
Company estimates that its percentage  interest in the equity of AHN at December
31, 1997 is approximately 4%.

         Over the  past  year,  AHN has been  unable  to  consistently  make the
minimum payments under this agreement,  due to its own lack of funding.  In late
1997, however, AHN received new venture funding, became current on payments owed
to IVI, and its contractual relationship with IVI continues.

Time Life Relationship

         The Company has established a strategic  relationship with Time Life to
broaden its content base. In February 1994,  the Company  entered into a license
agreement  (the "First Time Life  Agreement")  with Time Life for the  exclusive
license  to  develop,  manufacture  and  distribute  to  third  party  resellers
interactive  multimedia  versions of six Time Life books. In September 1994, the
Company and Time Life entered into a second license  agreement (the "Second Time
Life Agreement") which grants the Company an exclusive  right-of-first-offer for
the right to publish  non-print  versions for any and all health and/or  medical
material  and/or  titles  which  Time Life  intends to  publish  for  commercial
purposes in print media.

         Pursuant to the First Time Life  Agreement,  three  titles for children
were  released  during  1994.  In order to  focus on its  integrated  publishing
strategy  to  distribute  health  and  medical  information  primarily  to adult
audiences,  the Company has suspended efforts to produce any further  children's
titles and is closing out remaining inventory of the titles.

         Pursuant to the Second Time Life  Agreement,  the first title developed
by the Company was Taking  Control Of Your Health.  Released in September  1996,
this  home  medical  guide  on  CD-ROM  provides  comprehensive  information  on
alternative and conventional medicine. Based on the book from Time Life entitled
The  Medical  Advisor  -  The  Complete  Guide  to  Alternative  &  Conventional
Treatments,  released  in  September  1996,  the  content  for this  product was
developed by a team of over 60 physicians.


<PAGE>

         As  compensation  for  developing  the Taking  Control  of Your  Health
concept,  the Company granted Time Life 60,000  restricted  shares of its Common
Stock.  Under the Second Time Life  Agreement,  the  Company  funded Time Life's
development  of the  print  version  of  the  series  at an  estimated  cost  of
approximately  $2.2 million  through  September  1996. At December 31, 1996, the
Company  recorded  an asset  of  $1,778,000,  which  represented  the  Company's
payments to Time Life,  net of royalty  payments  received  from Time Life.  The
Company's  policy was to amortize  this asset over the period that revenues were
recognized.  During 1997,  revenues  from the print  version were not as high as
anticipated,  and  management  determined  that the  asset  was not  realizable.
Accordingly, the Company wrote-off the then remaining asset balance and expensed
$1,741,000 in general and administrative  expenses.  Time Life retains the right
for marketing and distributing the print version of each title while the Company
has the sole right for the marketing and distribution of the non-print  versions
of the title.  The Company has the right to receive a royalty from Time Life for
the sale of the print  version of the title and has a  royalty-free  license for
the distribution of the electronic version of the title. The term of the license
is perpetual from the date the title was accepted by the Company.  Time Life has
the right to approve the final  versions of the title,  which approval shall not
be  unreasonably  withheld,  prior to  distribution.  To date, Time Life has not
refused approval for a title developed by the Company.

Massachusetts Medical Society License Agreement

         In November 1994, the Company and Massachusetts Medical Society ("MMS")
entered  into a license  agreement  pursuant to which the Company was granted an
exclusive  license to develop and  distribute  to end users the  digital  format
versions of the monthly newsletter "Health News" currently  published by MMS. In
exchange  for these  rights,  the Company  assisted  MMS with the funding of the
newsletter  at a rate of $250,000  per year for the three  years ended  November
1997.  The Company will also pay MMS a royalty  based on a percentage of the net
revenues earned by sale of the digital format versions of the newsletter.

         The term of the license agreement is five years after the date on which
the design  format was  approved  by MMS and the content  was  available  to the
Company and will  thereafter  automatically  renew for periods of one year each.
MMS has the sole right to and  responsibility for the marketing and distribution
of the title in any non-digital  format.  MMS has the right to approve the final
form of each digital  newsletter,  which  approval shall not be, and to date has
not been, unreasonably withheld or delayed, prior to distribution.

Web Site Production

         The Company  operates a New Media  division  whose goal is to build Web
sites for third parties.  Third party customers currently include Searle,  North
Memorial Hospital, MGI Pharma, and St. Jude Medical Center.

Mayo Relationship and Transfer of Ownership of Mayo Health O@sis Web Site

         Until the third quarter of 1997, the Company's  relationship  with Mayo
had been one of the most significant elements in the Company's development. Mayo
Foundation,  parent  corporation for Mayo  Foundation for Medical  Education and
Research,  is the legal  entity under which Mayo Clinic  Group  Practices,  Mayo
Medical School and certain other Mayo institutions  operate.  In September 1997,
the Company  completed a transfer of control and ownership  interest in the Mayo
Health O@sis Internet web site to Mayo.  The principal  terms of the transfer of
ownership included:  1) Mayo made a cash payment to the Company of $2.7 million;
2) Mayo returned  490,000  shares of the  Company's  common stock which Mayo had
received as partial payment in two previous license agreements with the Company;
3) Mayo agreed to make  payments to the Company of certain  royalties on all net
revenues  received  by Mayo in  connection  with  O@sis  and  certain  non-O@sis
Internet projects through the year 2001; 4) Mayo was released from the Company's
previously  granted  "right of first  offer" on all Mayo  products  published in
electronic media; and 5) Mayo assumed all O@sis operational expenses retroactive
to January 1, 1997.  In  addition,  the  Company is no longer  required  to gain
Mayo's approval before entering into agreements concerning the health or medical
education materials of another entity.


<PAGE>

         Current Mayo License Agreements

         In April 1991, the Company entered into a License  Agreement (the "1991
License Agreement") pursuant to which it obtained an exclusive five-year license
from Mayo and William  Morrow  Company to develop,  manufacture  and  distribute
interactive  multimedia  versions of Mayo Clinic  Family  Health  Book.  William
Morrow  receives a minimum annual  royalty,  or if greater,  a percentage of net
sales of the title.  In December  1995,  the Company  amended the agreement with
Mayo and William Morrow to include online  distribution rights and to extend the
rights period until September 2000.

         In April 1993,  the Company and Mayo entered  into a License  Agreement
(the "1993 License Agreement") which granted the Company an exclusive license to
develop,  produce and market up to ten title areas with  specific  content to be
determined  jointly by Mayo and the Company,  in all digital optical  electronic
publishing  formats.  The  licenses  with  respect  to the ten  title  areas are
severable,  so that if one is  terminated  the  others  are not  affected.  Mayo
retains  the  right to  market  the  titles  developed  under  the 1993  License
Agreement to end users or persons  employing or educating end users. The term of
the license is ten years for each title from the date of first  commercial sale.
The term as to any new  edition of a title  recommences  when the new edition is
released.  Mayo retains broad  approval  rights with respect to the substance of
each  title,   the  marketing  plan,  the  business  plan  and  advertising  and
distribution  and also receives a royalty based on a percentage of net sales for
each title.  All of the Company's  CD-ROM titles  produced in  conjunction  with
Mayo,  excluding  Mayo Clinic  Family  Health Book,  were granted under the 1993
License Agreement.

         In September  1994,  the Company and Mayo entered into another  License
Agreement (the "1994 License Agreement") which grants the Company,  for a period
of five  years,  the right to  produce up to five  additional  titles in various
interactive or multimedia  formats.  The licenses with respect to each other are
severable so that if one is terminated the others are not affected.  The term of
the license is ten years from the date of first commercial sale and the term, as
to any new edition of a title,  recommences  when the new  edition is  released.
Mayo Health  O@sis,  which was sold back to Mayo in September  1997, is the only
title produced under the 1994 License Agreement.

         Mayo CD-ROM Titles

         Pursuant to its still existing license  agreements with Mayo (see "Mayo
License  Agreements"),  the Company  markets six  consumer  reference  titles or
packages and one professional title, all on CD-ROM.

                        Consumer Reference CD-ROM Titles

         Mayo  Clinic  Family  Health.  This  title is a source of  health  care
information for family members of all ages, including  information on nutrition,
wellness,  first aid,  the health care system and the  symptoms,  prognosis  and
treatment for more than 1,000  diseases and  disorders.  In September  1997, the
Company introduced the updated version 4.0 of Mayo Clinic Family Health,  adding
built-in  Microsoft Internet Explorer browser support for linking to Mayo Health
O@sis web site,  several new graphics and  illustrations and a new Personal Food
Pyramid.

         Mayo Clinic Family Pharmacist. Released in June 1994 and updated with a
new 1997 drug database,  this title is a  comprehensive  home reference guide to
prescription  and  over-the-counter  medications  and therapeutic and diagnostic
procedures.  The USP, DI Volume II,  "Advice for The Patient" (The United States
Pharmacopeial  Convention,  Inc.) is the core database for the disc and has been
supplemented with information  provided by pharmacists and physicians from Mayo.
The Company also added built-in  Microsoft Internet Explorer browser support for
linking to Mayo Health O@sis on the Internet.


<PAGE>

         Mayo Clinic  Ultimate  Medical Guide II. Released in September 1997, it
is a  combination  of the latest  versions of both Mayo Clinic Family Health and
Mayo Clinic Family Pharmacist  packaged together.  This powerful  combination of
two  highly-acclaimed  titles is packed  with  information  essential  to family
health. With Mayo Clinic Family Health,  consumers can search for in-depth facts
about diseases,  nutrition, anatomy, common symptoms, home safety and more. Mayo
Clinic Family Pharmacist  offers details on thousands of drugs,  early detection
and first aid.

         Mayo Clinic - The Total Heart. This title is a comprehensive  source of
information  concerning  the  heart,  cardiovascular  disease,  diet  plans  and
exercise  programs to promote a healthy  heart.  The print version of the title,
entitled  Mayo Clinic Heart Book,  was released by Mayo in August 1993,  and the
Company released the interactive multimedia version in October 1993.

         Mayo Clinic Sports,  Health & Fitness.  Released in November 1994, this
title was developed in cooperation with the Mayo sports medicine  department and
in  collaboration  with  ESPN.  It is  an  individualized  interactive  fitness,
nutrition, and sports physiology guide.

         Mayo Clinic Health Encyclopedia.  First released in 1994 and updated in
1995,  this product  combines all four Mayo Clinic  CD-ROM  titles into a single
package.

                            Professional CD-ROM Title

         PrimePractice. This title is a comprehensive resource developed to meet
the ongoing  education  needs of primary  care  physicians.  PrimePractice  is a
CD-ROM series  marketed to physicians in North America  specializing in internal
medicine,  general practice or family  practice.  The first issue of this series
was  completed  in July  1994  and the last in  December  1996.  Subscribers  to
PrimePractice  receive a CD-ROM series  covering  current  topics of interest to
primary care  physicians  including the latest  developments  in  cardiovascular
disease,  endocrinology,  gastroenterology,  hematology,  pulmonary medicine and
other areas.  Each issue of the series  provides the physician with ten hours of
continuing  medical  education  credits (CME).  By subscribing to the series,  a
physician  can  obtain  up to 40  hours  of CME  on an  annual  basis.  Although
requirements  for  annual  CME vary  from  state to  state,  most  primary  care
physicians are required to obtain 50 hours of CME per year.

         In December  1995, the Company  entered into a  Distribution  Agreement
with  Churchill  Livingstone  whereby  Churchill  Livingstone  agreed  to market
PrimePractice   to  physicians  and  others  with  influence  over   physicians'
continuing education.  Before entering into this agreement, the Company marketed
PrimePractice  through  its  own  sales  staff,  catalogs  and  health  sciences
bookstores.  Churchill  Livingstone  was  acquired  by Harcourt  Brace,  Inc. in
September 1997 and the Company and  representatives  of Harcourt Brace, Inc. are
currently  discussing a termination and settlement  related to the  Distribution
Agreement.

Agreement With Davidson & Associates, Inc. for CD-ROM Distribution

         In late 1995,  the Company  entered into an agreement  with  Davidson &
Associates,  Inc. to strengthen distribution capabilities.  Under the agreement,
Davidson  handles the sales and  marketing of the  Company's  consumer  oriented
family  health  reference  CD-ROM  titles.  Davidson is a leading  publisher and
distributor of multimedia  educational and  entertainment  software for both the
home and school markets.  As such, the Company  believes that this agreement has
provided greater access to consumer channels while enabling the Company to focus
its marketing and sales staff on the Company's online business.


<PAGE>

Marketing, Distribution and Manufacturing of CD-ROMs

         The Company's  non-retail  distribution is done outside of the Davidson
agreement.   This  includes   arrangements  and  sales  to  original   equipment
manufacturers ("OEM") for bundling with the OEM's hardware. Bundling consists of
selling software titles to computer hardware vendors and computer and peripheral
manufacturers  for  inclusion  with their  products.  In  addition  to  revenue,
bundling  creates  positive  word-of-mouth  endorsements  from  consumers of the
Company's  titles  which could  ultimately  lead to greater  sales at the retail
level.

         The  number of CD-ROM  titles  competing  for  retail  shelf  space has
increased  substantially in recent years. In addition, the distribution channels
through  which the  Company  sells  its  products  are  known for rapid  change.
Mergers,  consolidations  and financial  difficulties of both  distributors  and
retailers are typical as is the  emergence of new  retailers.  This  environment
breeds an  intense  competition  among  software  products  for shelf  space and
retailer  support.  In order to  remain  competitive  and  maintain  distributor
relationships,  the  Company's  policy is to  accept  product  returns  from its
distributors.

         All of the Company's  CD-ROM  titles are  currently  replicated by Sony
Disc Manufacturing  ("Sony"), a division of Sony Electronic  Publishing Company.
Sony also  warehouses the Company's  finished goods  inventory and handles order
fulfillment.  Although the Company  anticipates that its relationship  with Sony
will continue,  the Company believes that other  manufacturers  are available to
replicate its titles and handle its order fulfillment.

MARKETING AND PROMOTION

The Company's  strategy is designed to strengthen the OnHealth brand name, drive
traffic  to the  network of  OnHealth  Network  sites,  build the  duration  and
frequency  of visitor  usage,  encourage  user  loyalty and develop  incremental
revenue  opportunities.  Some of the specific  strategies  that are, or will be,
employed to do so include:

Advertising:  Raising awareness of the OnHealth brand through banner advertising
campaigns  in  relevant  high-traffic  sites.  Online  advertising  may  also be
supplemented through brand based media outside the web.

Public  relations:  An  active  campaign  by which  the  OnHealth  brand and its
products are  highlighted in news,  features and related  editorial  contexts to
increase consumer and trade awareness.

Promotion:  Traffic  building  programs with publicity value will be implemented
quarterly. Relevant and preferred listings in directories,  databases and search
engines will also be pursued.

Cooperative Marketing: Co-promotion through compatible editorial sites and media
partners.

Syndication:  OnHealth editorial content will appear on other sites, in exchange
for payment or for promotional consideration.

CONTENT STRATEGY

The Company's goals for its editorial content are to create high-value,  useful,
accessible, and trustworthy editorial elements for its users. These elements may
be:

Proprietary:   Created   exclusively  for  OnHealth  by  Company   employees  or
contractors.

Syndicated:   Licensed  for  distribution  via  OnHealth,  on  an  exclusive  or
non-exclusive basis.

Linked:  OnHealth may "point" to other content  elsewhere on the World Wide Web.
Although  this content is not  exclusive to OnHealth,  the Company adds value by
finding and pre-qualifying the best health-related content on the Internet.

Additional  content  to be  added  to the  Network  in the  future  may  include
high-value  content,  which may be  licensed  in context of user  models that go
beyond advertising support.


<PAGE>

Management believes that through a combination of these content strategies,  the
OnHealth  brand can create a unique  product  that will have more user value and
will  have a  potential  for  greater  levels of usage  than any  health-related
content now on the World Wide Web.

TECHNOLOGY

The Company has implemented, and intends to continue to implement, a combination
of proprietary  technologies  developed in-house by the Company and commercially
obtained, licensed technologies.  These technologies are employed in hosting the
Company's Web sites,  delivering  licensed and original content and advertising,
supporting  content   development  and  maintenance,   transaction   processing,
security, and back-end functions.

COMPETITION

The editorial  environment in interactive  media is new, highly  competitive and
rapidly  evolving.  The competitive  frame varies depending upon the area of the
company.

Online Competitors

There is significant interest in health-related  content among online consumers.
Demographic  factors  and the  growth  of  online  audiences  suggest  that  the
popularity  of this content will continue to increase.  Similarly,  major health
advertisers are showing increased levels of interest in the Internet.

The key operators of health-related sites on the Internet today include:

Divisions or affiliates  of print  publishers,  including  Healthy Ideas (Rodale
Press),  Phys (Conde Nast),  and Thrive  (jointly owned by Time Inc. and America
Online).  

Ventures of online service firms,  including Better Health (iVillage) and Thrive
(partly owned by America Online and Time Inc.).

Public  Sector and  institutional  sites,  including  the National  Institute of
Health and  university  sites.  While  these  sites  compete for viewer time and
attention,  they do not  typically  compete  for  advertising  or  transactional
revenues.

Commercial online services,  principally the proprietary  health-related content
presented to subscribers to America Online and Microsoft Network.

Internet  sites other than  health-related  sites,  including  general  interest
sites,   such  as  news  sites  and  search  engines,   which  often  host  some
health-related content in context of other editorial materials.

In addition, the online sites compete to some extent with other media, including
print and  television.  The  Company  believes  that the  principal  competitive
factors which  differentiate  OnHealth from  competing  brands and sites include
timeliness of content, the users' perception of content  interactivity,  content
reliability and trustworthiness, design and usability factors, comprehensiveness
and level of promotion.

This level of  competition  may  result in an  environment  in which  content or
promotional  expenses  to the Company  increase.  It may also result in a higher
level of competition  for key  promotional  vehicles.  The known and prospective
competitors to the Company are often  significantly  larger and better  financed
than the  Company  and will  likely  be  better  able to  afford a more  intense
competitive environment than the Company.


<PAGE>

Web Site Production Competitors

The Company's web site production  business competes with development  resources
in independent  production  shops,  advertising  agencies and client  companies'
in-house  production  resources.  The Company believes that competitive  factors
that favor IVI's Web site production  business  include better  knowledge of the
health marketplace,  Company relationships acquired through the OnHealth Network
and an established base of talented professionals.

CD-ROM Competitors

The  intense   competition  in  the  consumer  software  business  continues  to
accelerate as an increasing  number of companies,  many of which have financial,
managerial,  technical and intellectual property resources greater than those of
the  Company,  offer  products  that  compete  directly  with one or more of the
Company's  products.  In the CD-ROM line of business,  the Company competes with
other CD-ROM publishers for rights acquisition,  retail and OEM distribution and
retail  shelf  space.  The key  competitive  factors  that may favor the Company
include the brand names on some of its successful titles and its existing retail
distribution relationships.

INTELLECTUAL PROPERTY

The Company regards its copyrights,  service marks,  trademarks,  trade secrets,
proprietary  technology  and  similar  intellectual  property as critical to its
success, and relies on trademark,  copyright, trade secret and patent protection
to protect its  proprietary  rights.  While the Company tries to assure that the
quality  of its  brand is  maintained  through  such  actions,  there  can be no
assurance that steps taken by the Company to protect its proprietary rights will
be  adequate  or  that  third   parties  will  not  infringe  on  the  Company's
intellectual property. In addition, there can be no assurance that third parties
will not assert  infringement  claims  against  the Company  which,  even if not
meritorious,  could  result in the  expenditure  of  substantial  resources  and
management effort.

EMPLOYEES

As of March 31, 1998, the Company  employed 25 people on a full-time  basis.  As
the situation  arises,  the Company also uses part-time  employees.  None of the
Company's  employees are represented by a labor union and the Company  considers
its  relationship  with its employees to be good. The Company believes that some
measure of its  future  success  is  dependent  upon  attracting  and  retaining
qualified employees, and competition for hiring such employees is intense.

ADDITIONAL 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.

Limited Operating History and Accumulated Deficit

The Company was incorporated in 1990 and has been operating  continuously  since
1991.  However,  it has  only  been  active  online  since  1996.  The  Company,
therefore,  has a limited  history of  operation  on which to base  analysis  of
financial results.

Since its founding in 1990, the Company has generated an accumulated  deficit of
approximately  $78.6  million.  The Company's  ability to return  profits to its
investors  will be  dependent  upon  creating  services  with  high  degrees  of
leverage.  In turn,  that will require  creation of significant  revenue streams
from its online properties,  earning  substantial gross margins on those revenue
streams and controlling its costs of operation.


<PAGE>

The Company  anticipates  continued  operating losses in the near future, as the
OnHealth flagship site is redesigned and the OnHealth Network is enhanced. There
is no assurance that the Company will ever attain profitability.

Unpredictability of Future Revenue Streams

Since the Company's online  operating  history is very limited and the economics
of the Internet are still evolving,  it is difficult to forecast future revenues
with a high degree of accuracy.  While the investments that the Company plans in
personnel, product and development are largely fixed and are committed to in the
near term, the expected  operating  profits are highly  variable with respect to
consumer  demand over the longer term.  For this reason,  shortfalls in consumer
demand will have a significant negative impact on Company profitability.

Results  are  expected  to  vary  to  some  extent  on a  quarterly  basis.  The
advertising and retail industries typically experience their best quarter in the
fourth  quarter of each year,  and to the extent  that the  Company  relies upon
advertising and transactional revenues, its revenues will be similarly variable.
Due to the health related nature of editorial content,  management believes that
OnHealth  revenues will not be as seasonal as the  remainder of the  advertising
and retail industries.

The Company  expects  that its CD-ROM  sales will be subject to the  seasonality
that generally affects the computer software  business.  Typically net revenues,
gross margins and operating income are fairly constant in the first,  second and
third quarters and are highest during the fourth  quarter.  This  seasonality is
due principally to the increased demand for the Company's CD-ROM products during
the holiday  season.  Because  revenues  from other  segments  of the  Company's
integrated  publishing  strategy  are not subject to the same  seasonality,  the
development  of these aspects of the  Company's  business in 1997 did reduce the
impact the  seasonality in the CD-ROM  segment of the Company's  business has on
the Company's operations.

Competition

There are a number of competitors  currently  delivering  online health content,
and it is likely that more competitors  will emerge in the near future.  Many of
today's  competitors are better financed,  have longer  operating  histories and
better brand recognition than the Company,  and some have internal  distribution
or  cross-promotional  opportunities  to support their online  ventures that the
Company does not have and can not replicate for a reasonable  investment.  It is
possible that existing or emerging  competitors  may be able to secure  critical
editorial  content or distribution  relationships  on an exclusive basis, or may
raise a  provider's  expectation  about  the  value of such  assets.  For  these
reasons,  increased competition may result in diminished profit margins,  market
share or brand value.

The Company expects that competition will increase online in the future,  due to
more   entrants   introducing   competitive   products,   and  due  to  industry
consolidation, which can result in better-financed competitors.

The  intense   competition  in  the  consumer  software  business  continues  to
accelerate as an increasing  number of companies,  many of which have financial,
managerial,  technical and intellectual property resources greater than those of
the  Company,  offer  products  that  compete  directly  with one or more of the
Company's  products.  Sales of products on older  platforms have  declined,  and
there can be no assurance that sales of these products will not decline  further
or experience  lower than expected sales levels.  There can be no assurance that
sales of the  Company's  existing  products  will  continue  to  sustain  market
acceptance and to generate significant levels of revenue in subsequent quarters.
In addition, retailers of the Company's products typically have a limited amount
of shelf space and promotional resources for which there is intense competition.
There can be no assurance  that retailers will continue to purchase all of these
products  or provide  these  products  with  adequate  levels of shelf space and
promotional support.


<PAGE>

Risks Related To System Development and Operation

The  enhancement of  onhealth.com  as part of the OnHealth  Network is dependent
upon various  development  efforts  which will be performed by in-house  Company
employees and by  contractors.  There can be no assurance that this  development
effort will be completed in a timely fashion.  To the extent that development is
incomplete or delayed, the Company will incur additional development expense and
may lose a portion of its advantage to competitors.

All companies that rely on the Web are dependent upon the  continuous,  reliable
and secure  operation of Web servers and related  hardware and software.  To the
extent  that  service  is  interrupted,  consumers  will be  inconvenienced  and
commercial  clients  will  suffer  from a loss  in  advertising  or  transaction
delivery.  These  shortfalls  will  directly  result  in a  revenue  loss to the
Company.

The  Company's  computer  and  communications  hardware  are  protected  through
physical and software  safeguards.  However,  they are still vulnerable to fire,
earthquake, flood, power loss, telecommunications failures, physical or software
break-ins and similar events.  The Company does not have full redundancy for all
of its computer and telecommunications facilities and it does not carry business
interruption  insurance  to  protect it in the event of a  catastrophe.  Such an
event could lead to  significant  negative  impacts on the  Company's  operating
results and financial condition.

Management of Potential Growth

To  accommodate  the demand of  additional  editorial  content and  distribution
channels for the OnHealth  Network,  the employee base could grow  significantly
from the March 31, 1998 level of 25  employees.  The  expansion of the Company's
workforce  could  place  a  significant  strain  on  the  Company's  management,
financial resources and  infrastructure.  There is no assurance that the Company
will be able to attract and retain employees with the appropriate skill sets, or
that the Company will be able to manage  growth  effectively.  If the Company is
unable to manage growth in the coming years, there could be an adverse affect on
the Company's operations.

Risks of New Business Areas

Some of the incremental  opportunities  that will comprise the OnHealth  Network
may follow business models that are unfamiliar to the Company today, or that are
completely  without  precedent.   These  expansions  will  require   significant
commitment  of resources  and time,  and there is no assurance  that the Company
will benefit from being the first  entrant in a new business or economic  model,
or that such business or economic model will be viable. It is also possible that
new  businesses  or  economic  models  will  impair  the  Company's  ability  or
reputation with respect to existing customers or suppliers,  to the detriment of
the  OnHealth  brand.  A lack of market  response  or the failure of an economic
model could have detrimental effects on the Company's results.

Risks Associated With Strategic Alliances

The Company may elect to enter into strategic  alliances with respect to content
provision,  promotion,  distribution  or  technology,  among other  areas.  Such
alliances  carry risks that are  associated  with any alliance.  These risks may
include   difficulty  in  coordinating  the  roles  of  strategic  allies,   the
possibility  of  disruption  of the  Company's  core  business,  maintenance  of
editorial or quality  standards and the potential to damage  relationships  with
current Company  employees.  There is no assurance that the Company's  alliances
will avoid these and similar risks.


<PAGE>

Rapid Technological Change

The  Internet's  technology  is  changing  at a rapid  pace.  In order to remain
competitive,  the Company  must remain at the  forefront of the new features and
capabilities  that are  being  and that will be  introduced.  This may  entail a
continuous level of development and capital  spending.  If the Company is unable
to make these changes, for financial,  operational,  legal, or any other reason,
it risks a loss of market share and some portion of its brand identity.

Reliance On External Content

The Company intends to produce only a portion of the editorial content that will
be found on the OnHealth Network,  and none of the content utilized by CD-ROM or
cable  television  distribution  media. It will be reliant on third-party  firms
that have the expertise, technical capability, name recognition, and willingness
to  syndicate  product  content for  branding  and  distribution  by others.  As
health-related content grows on the Web, there may be increasing competition for
the best  product  suppliers,  which may result in a  competitor  to the Company
acquiring a key  supplier on an  exclusive  basis,  or in  significantly  higher
content prices.  Such an outcome could make the OnHealth Network less attractive
or useful for an end user,  or could  reduce the  profitability  of IVI.  Either
event would have a materially adverse impact on the Company's results.

Dependence On Key Personnel

The Company is critically  dependent  upon its senior  management  team and some
other key employees to create and maintain the OnHealth Network.  See "Executive
Officers and Key Employees of the  Registrant."  The Company does not carry "key
person" insurance on any employee. If the Company were to lose any key employee,
its financial and operational results would suffer.

Reliance On External Financing

The Company's  operations generated a negative cash flow during 1997. The degree
to which the Company is a net user of cash is likely to  increase in 1998,  as a
result of the expansion  plans for the OnHealth  Network and as a consequence of
focusing  on a new  business  model.  The  Company  will  therefore  depend upon
external financing for operations and liquidity.  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.

On April 10,  1998,  the Company  closed $5 million of new  financing  through a
private  placement  transaction.  The funds were  invested by two  institutional
investors and will be used primarily for marketing and distribution  purposes in
association   with  the  launch  of  the   redesigned   OnHealth.com   Web  site
(www.onhealth.com). The investment is in the form of a 5% Convertible Redeemable
Preferred  Stock.  The Company  believes that the  completion of this  financing
transaction  will allow the Company to  continue  to meet its ongoing  financial
obligations and operate through, at least, December 31, 1998.

Governmental Regulation and Legal Issues

The Company is not  governed by any laws of any  government  entity,  other than
general  business  and taxation  regulations  and the general  regulations  that
surround  online  enterprises.  However,  with the growing  popularity of online
usage,   various  new   regulations  are  possible  which  may  affect  privacy,
intellectual property rights, marketing,  pricing, content, or other issues. The
adoption of additional  laws in this field may reduce consumer demand for online
services,  or adversely  impact the  Company's  cost of doing  business.  Either
outcome could have a material adverse affect on the Company's financial results.



<PAGE>

OTHER

Product Development/Research and Development

In 1997, 1996 and 1995, product development expenses were $4,243,000, $5,651,000
and  $7,494,000,  respectively.  In addition,  in 1997,  1996 and 1995,  product
development  expenses paid for by third parties were  $682,000,  $1,204,000  and
$1,555,000, respectively.

Protection of Proprietary Rights

The  Company  regards  the  software  it owns as  proprietary  and relies upon a
combination  of  copyrights,   trade  secret  laws,   employee  and  third-party
non-disclosure agreements and other methods to protect its products. The Company
believes that  copyright  protection  for its titles is less  significant to the
Company's success than factors such as the knowledge,  ability and experience of
the  Company's  personnel,  and the quality of its new product  development  and
distribution efforts.

Backlog

The Company had no  significant  backlog at fiscal  year end of 1997,  1996,  or
1995.

Customers

In 1997 and 1996,  the Company  recognized  revenue of $493,000 and  $1,972,000,
respectively, from the Company's content agreement with AHN. Net sales to an OEM
manufacturer in 1996 totaled $1,394,000. Also in 1996, $1,000,000 of revenue was
recognized  from the  Company's  online  content  agreement  with AT&T which was
terminated  in  that  year.  No  individual  customer  accounted  for 10% of the
Company's net revenues in 1995.

ITEM 2.         PROPERTIES

During 1997,  the  Company's  principal  executive  and  administrative  offices
consisted  of  approximately  40,000  square feet in an office  building in Eden
Prairie,   Minnesota,   a  suburb  of   Minneapolis.   The  lease  also  covered
approximately  2,000 square feet of storage  space.  The Company  terminated the
Eden Prairie lease effective March 31, 1998.

Effective in the first quarter of 1998,  the Company's  principal  executive and
administrative offices are located in Seattle,  Washington.  Starting in January
1998,  the Company began  subleasing  approximately  1,500 square feet of office
space in Seattle,  Washington on a month-to-month basis. The Company has entered
into a lease for approximately 7,000 square feet of space and anticipates moving
into the new building in May 1998.  The lease  expires  approximately  62 months
from the move in date.

Effective  March,  1998, the Company's  sales personnel are located in an office
building  in  Edina,  Minnesota,  a  suburb  of  Minneapolis.  The  lease is for
approximately 1,000 square feet and expires in September 1998.

The Company also leases space in the following locations:  (1) 4,124 square feet
in an office building in Carlsbad,  California ending in approximately June 1999
and (2) 790 square feet in an office building in Carlsbad,  California ending in
May 1998. The Company does not currently intend to renew either of these leases.



<PAGE>

ITEM 3.         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.  The jury verdict and the resulting  judgment entered
by the court on March 24,  1998 is subject to motions  for a new trial,  amended
findings and for judgment notwithstanding the verdict and to appeal to the Court
of  Appeals.  The  plaintiffs  also  have  an  action  pending  against  certain
affiliates  of the Company on the same  grounds on which the action  against the
Company was based.  The Company has  indemnified  these  principles  against any
damages arising out of these claims.

In 1996,  Berkshire  Multimedia Group, Inc.  ("Berkshire")  initiated  mediation
regarding a dispute with the Company.  Shortly after an  unsuccessful  mediation
conference was held in September 1996, Berkshire Multimedia Group filed a demand
for  arbitration  alleging  that the Company  breached its  obligations  under a
contract.  An arbitration hearing was completed in January 1997, and in February
1997  the  arbitration  panel  awarded  Berkshire   $300,000.   Hennepin  County
(Minnesota)  District  Court  vacated that award on May 29, 1997,  and Berkshire
appealed  the  case.  The  Court of  Appeals  heard  the  case in late  1997 and
reinstated the original  decision of the  arbitration  panel in January 1998. On
February 25, 1998,  the Hennepin  County  (Minnesota)  District  Court issued an
order  directing  that judgment be entered  against the Company in the amount of
$300,000 plus interest.


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

There was no matter  submitted to the vote of security holders during the fourth
quarter of 1997.



<PAGE>


EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT

Set forth,  below, are the names of the executive  officers and key employees of
the  Company as of April 8, 1998,  their ages and  employment  for the past five
years.
<TABLE>
<CAPTION>
Name                        Age          Title
----------------------      ----         ----------------------------------------------------------
<S>                          <C>          <C>                                                 
Robert N. Goodman            45           President and Chief Executive Officer of the Company
Charles A. Nickoloff         37           Vice President, Secretary, Acting Chief Financial Officer
Michael D. Conway            29           Controller, Vice President of Finance
Rebecca Farwell              36           Editor in Chief
Jim L. Dixon                 32           Vice President of Development
Deborah K. Taylor            38           Vice President of Marketing
Miriam Adelman               26           Vice President of New Media
Timothy J. Walsh             36           Vice President of Sales
</TABLE>

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.  Mr. Goodman joined the Company in November 1997 as president
and chief  executive  officer.  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.  Mr.  Goodman  was in the  process  of  moving  from San
Francisco,  CA to Seattle,  WA during October and November  1995.  From November
1993 to October 1995, he was Assistant General Counsel for The 3DO Company. From
April 1993 to November  1993,  Mr.  Goodman was  General  Counsel for  Asymetrix
Corporation.

CHARLES A.  NICKOLOFF.  Mr.  Nickoloff  is a founder of the Company and has been
Vice President and Secretary  since  operations  began in February 1991. He also
was a director  from  February  1991 to February  1998.  Mr.  Nickoloff has also
served as Acting  Chief  Financial  Officer  since April 1996 and has held other
management positions in his seven years with the Company.

MICHAEL D.  CONWAY.  Mr.  Conway  joined the  Company in early  January  1998 as
controller and vice  president of finance.  From November 1997 to December 1997,
he worked as an  independent  contractor  for  PhotoDisc,  Inc. - a developer of
high-resolution  photographs on CD-ROM , and Sierra  On-Line,  Inc.- a leader in
entertainment  software  and a subsidiary  of Cendant.  From May 1996 to October
1997, Mr. Conway served as the Accounting  Manager at Sierra On-Line,  Inc. From
August 1994 to May 1996, Mr. Conway served as a Senior  Accountant at Deloitte &
Touche LLP. From October 1992 to August 1994, he held various  positions at KPMG
Peat  Marwick  including  Senior  Accountant.  Mr.  Conway  received his B.A. in
Economics/Accounting  from Claremont  McKenna College,  and his M.B.A.  from the
Claremont Graduate School's Peter Drucker School of Management.

REBECCA FARWELL. Ms. Farwell joined the Company in early February 1998. 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 TDC Magazine.


<PAGE>

JIM L.  DIXON.  Mr.  Dixon  joined  the  Company in early  January  1998 as Vice
President  of  Development.  From  October  1996 to December  1997,  Jim was the
principal of his own business (The Voodoo  Softworks),  where he secured several
contracts  with  Microsoft  and  other  companies  as  an  independent  software
development  house.  From March 1996 to October 1996, he was the lead  developer
for Alpenglow, Inc., a small multimedia and web development house. From February
1994 to March 1996,  he was the lead  developer  for Medio  Multimedia,  Inc.--a
producer of multimedia  title and magazine  CD-ROMs.  And from September 1990 to
February  1994,  Jim was a software test manager at Microsoft,  in charge of the
Visual Basic products. In 1988, he graduated with a B.S. in Computer Science and
Minor in Business from the Evergreen State College in Olympia, WA.

DEBORAH  K.  TAYLOR.  Ms.  Taylor  joined the  Company  in January  1998 as Vice
President of Marketing.  From April 1994 to December 1997, she was employed as a
Senior Vice President,  Management  Supervisor for Elgin DDB, the Seattle office
of DDB, one of the world's  largest  advertising  and  communications  agencies,
managing new business and the  Nordstrom  retail  account.  From January 1990 to
April  1994,  Ms.  Taylor was the Vice  President,  Account  Director  of McCann
Erickson in Seattle,  another worldwide  advertising agency. At McCann Erickson,
she ran the  strategic  communications  efforts  for several  consumer  products
acccounts.  Ms.  Taylor has a B.A. in  American  History  from Mills  College in
California.

MIRIAM  ADELMAN.  Ms. Adelman joined the Company in March 1998 as vice president
of new media. From November 1996 to March 1998, she ran Adelwave  Productions--a
sole  proprietorship  that produced  websites for  Microsoft.  From June 1994 to
November  1996,  Miriam worked as an  interactive  media  producer and marketing
consultant  for  Microsoft.  From  September  1993 to June  1994,  Miriam  was a
freelance illustrator for print magazines.  Miriam received her BA in studio art
from Carleton College.

TIMOTHY J. WALSH. Mr. Walsh has been Vice President of Sales and Marketing since
October 1996.  Prior thereto,  Mr. Walsh was the Vice President of International
Operations at TRO Learning,  Inc. from October 1995 to September 1996. Mr. Walsh
held various other management positions during his 10 years at that company.

BOARD OF DIRECTORS AT APRIL 8, 1998
<TABLE>
<CAPTION>
Name                            Age         Title
-----------------------         ----        -------------------------------------------------------
<S>                             <C>         <C>
Michael A. Brochu               44          President and Chief Executive Officer of Primus
Robert N. Goodman               45          President and Chief Executive Officer of the Company
Ronald E. Eibensteiner          47          President of Wyncrest Capital
Alan D. Frazier                 46          Managing Partner of Frazier and Company
Timothy I. Maudlin              47          Managing Partner of Medical Innovation Partners
Ann Kirschner                   47          Vice President of NFL Interactive for NFL Enterprises
Ram Shriram                     41          Vice President of Netscape Communications
Rick Thompson                   38          Vice President Hardware Group, Microsoft Corp.

</TABLE>



<PAGE>


                                     PART II

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

The Company's Common Stock,  initially offered to the public on October 6, 1993,
is quoted on the NASDAQ SmallCap Market system under the symbol "IVIP."

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
1997
-----
Fourth Quarter              $ 4 1/4    $ 2
Third Quarter                 4 5/16     2
Second Quarter                3 7/8      2 1/16
First Quarter                 4 1/2      2 7/8

1996
-----
Fourth Quarter              $ 3 7/8    $ 2 15/16
Third Quarter                 7 3/8      1 1/8
Second Quarter               14 3/8      5 7/8
First Quarter                14 1/2     11 1/4

At April 8, 1998 there were  approximately  125 record  holders of the Company's
Common Stock,  excluding shareholders whose stock is held either in nominee name
and/or street name brokerage  accounts.  Based on information  which the Company
obtained from its transfer agent, there are approximately  3,175 shareholders of
the Company's Common Stock, including shareholders whose stock is held either in
nominee name and/or street name brokerage accounts.

The Company has never paid or declared  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.

In November 1996, the Company issued  $3,500,000 of 9% Convertible  Subordinated
Debentures.  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
unregistered  shares of Common  Stock.  Because the  offering  involved  only 16
debenture  holders and no general  solicitation  occurred,  in addition to other
factors,  the  issuance  did not involve a public  offering  and  therefore  the
Company relied upon Section 4(2) of the Security Act of 1933 for such issuance.

In November  1995,  the Company  issued 2,000 shares of 6% Series A  Convertible
Redeemable  Preferred  Stock for  $2,000,000 to Davidson & Associates,  Inc., in
connection with entering into a distribution agreement.  The Preferred Stock was
converted  into  Common  Stock on October 30, 1997 at a rate of $2.00 per share,
resulting in the issuance of 1,000,000  unregistered shares of Common Stock. The
Company  relied on Section  3(a)(9) of the  Securities Act of 1933 on the ground
that the issuance was pursuant to conversion of convertible securities.


<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>

                                                     (In Thousands, Except Per Share Data)
Statement of
     Operations Data:                                     Year Ended December 31
                                          1997         1996         1995         1994        1993
                                         --------     --------     --------      -------     --------
<S>                                      <C>          <C>         <C>           <C>          <C>     
Net revenue                              $  3,761     $  9,470    $  11,970     $  7,013     $  2,264
Cost of revenues                            2,541        5,076        6,231        2,402          580
                                         --------     --------     --------      -------     --------
Gross margin                                1,220        4,394        5,739        4,611        1,684

Cost and expenses:
     Product development                    4,243        5,651        7,494       19,503        6,614
     Sales and marketing                    1,347        2,705        7,473        9,694        2,586
     General and administrative             6,892        6,364        5,647        5,585        1,495
     Investment in affiliate                                                       2,263
                                         --------     --------     --------      -------     --------

Loss from operations                      (11,262)     (10,326)     (14,875)     (32,434)     (9,011)

Other income, net                             315          169          641        1,177          184
                                         --------     --------     --------      -------     --------

Net loss                                  (10,947)     (10,157)     (14,234)     (31,257)     (8,827)


Preferred stock dividends                    (100)        (119)         (20)
Preferred stock accretion                     (43)         (60)
Preferred stock deemed dividend            (2,875)
                                         --------     --------     --------      -------     --------
Net loss applicable to common stock
                                         ($13,965)    ($10,336)    ($14,254)    ($31,257)    ($8,827)
                                         ========     ========     ========      =======     ========

Net loss per common share
     Basic and diluted                     ($1.73)      ($1.36)      ($1.90)      ($4.75)     ($5.11)
                                         ========     ========     ========      =======     ========


Balance Sheet Data:                                             December 31
                                          1997         1996         1995         1994        1993
                                         --------     --------     --------      -------     --------
Cash, cash equivalents and
     short-term investments               $ 2,488      $ 3,462      $ 7,759      $20,653      $19,835
Working capital (deficiency)               (1,252)       3,230        8,607       20,735       19,622
Total assets                                4,577       13,411       18,352       32,101       22,561
Convertible
    subordinated debentures                              3,500
Total liabilities                           4,559        8,606        3,627        5,133        1,556
Convertible redeemable  preferred
stock                                                    1,905        1,845
Shareholders' equity                           18        2,900       12,880       26,968       21,005

</TABLE>


<PAGE>


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

Overview

Since its inception, the Company's strategy has been to develop online and cable
television platforms, as well as maintain its staple platform, CD-ROMs, in order
to enhance an integrated  approach to publishing  electronic  health and medical
information.  In 1997 the  Company  was  distributing  its  health  and  medical
information  to end users via all three  platforms.  Under  this  strategy,  the
Company was never able to attain  profitability,  and, at December 31, 1997, had
an accumulated deficit of $78,576,000. In 1997, the Company's 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  websites.  The
Company's  current  strategy is to focus its resources on the  development of an
internet-delivered, consumer-oriented network of health and wellness sites.

Results of Operations

The following table sets forth selected income statement data of IVI Publishing,
Inc.  and such data as a  percentage  of net  revenues for the three years ended
December 31, 1997.
<TABLE>
<CAPTION>

                                                             Year ended December 31,
                                                          (Dollar amounts in thousands)
                              ---------------------------------------------------------------------------------------
                                  1997                        1996                          1995
                                  ----                        ----                          ----

<S>                              <C>             <C>           <C>             <C>           <C>              <C> 
Net Revenues                     $   3,761         100%        $   9,470         100%         $ 11,970          100%
Gross margin                         1,220          32%            4,394          46%            5,739           48%
Operating expenses                  12,482         332%           14,720         155%           20,614          172%
Operating loss                    (11,262)       (299)%         (10,326)       (109)%         (14,875)        (124)%
Net loss                         ($10,947)       (291)%        ($10,157)       (107)%        ($14,234)        (119)%
</TABLE>

Revenues
Revenues for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>

                                                            1997               1996               1995
                                                      -----------------  -----------------  -----------------
<S>                                                       <C>                <C>                <C>         
Product sales and licensing revenue                       $  1,990,000       $  5,152,000       $  8,333,000
Contract development revenue                                 1,220,000          1,346,000          1,637,000
Cable television licensing revenue                             493,000          1,972,000          1,000,000
Online revenue                                                  58,000          1,000,000          1,000,000
                                                      -----------------  -----------------  -----------------

Net revenues                                               $ 3,761,000       $  9,470,000        $11,970,000
                                                      =================  =================  =================
</TABLE>

Sales  for  1997,  1996  and 1995 of  $3,761,000,  $9,470,000  and  $11,970,000,
respectively, represent a decrease of 60% from 1996 to 1997 and 21% from 1995 to
1996.  The 60%  decrease in 1997 is due to a  substantial  reduction  in product
sales and licensing  revenue of $3,162,000,  or 61%, a substantial  reduction in
cable  television  licensing  revenue of  $1,479,000,  or 75%, and a decrease in
online  revenue  from  $1,000,000  to $58,000.  The 21%  decrease in 1996 is due
primarily  to  lower  product  sales  and  licensing   revenue  which   declined
$3,181,000,  or 38%, relative to the previous year. This was partially offset by
a $972,000 increase in cable television licensing revenue.

Product sales and licensing revenue
Product sales and licensing revenue has declined steadily from 1995 to 1997. The
decrease in revenue of  $3,162,000  from 1996 to 1997 was a result of  increased
competition  and lower unit sales as the Company shifted its focus to its online
efforts and released fewer new CD-ROM  products.  In 1998, the Company expects a
continued  shift in focus toward the online  efforts,  and  anticipates  intense
competition to continue in the CD-ROM business.


<PAGE>

In late 1995,  the  Company  signed a new CD-ROM  distribution  agreement  which
resulted  in a lower  net  sales  price  to the  Company  on  products  sold and
contributed  to the decrease of  $3,181,000  in revenue from 1995 to 1996.  Also
during this period,  increased  competition for shelf space led to further price
erosion in addition to a decrease in unit sales.

Contract development revenue
Contract  development  revenues  decreased  slightly from 1996 to 1997, and from
1995 to 1996. The decrease  represents  managements efforts to control costs and
focus on more profitable contracts.

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,  the Company
is licensing its multimedia  content to AHN from May 1995 to March 25, 2001, and
is to receive a minimum of $11,000,000  in licensing  royalties over the life of
the  agreement.  This revenue was being  recognized  evenly over the life of the
contract.   Due  to  the  gradual   increase  in  actual   payments  versus  the
straight-line  revenue  recognition  policy,  a receivable  was recorded for the
difference between the revenue recognized and the cash received during the early
years of the contract.  The $972,000 increase in revenue from 1995 to 1996 was a
result of a full year of revenue in 1996 compared to a partial year in 1995. The
$1,479,000 decrease in revenue from 1996 to 1997 was a result of AHN's inability
to make the required payment due to its financial difficulties. In June 1997, as
a result of the Company not receiving its quarterly payment, the outstanding AHN
receivable was fully  reserved.  As a result of the uncertainty of AHN's ability
to pay royalties  under the  agreement,  the Company began  recognizing  royalty
revenue only on a cash basis. In December,  AHN resumed payments and the Company
received a royalty  payment of $1,313,000.  This payment was applied against the
previously recorded  receivable,  and the related bad debt reserve of $1,313,000
was reversed.  At December 31, 1997, the Company has a fully reserved receivable
of $715,000.

Online revenues
The online revenues recorded in 1995 and 1996 related to nonrefundable  advances
payable to the Company under the exclusive agreement signed with AT&T in October
1995.   Online   revenues   decreased   $942,000  from  1996  to  1997  due  the
discontinuance  by AT&T of the AT&T  Healthsite  in August 1996.  The $58,000 in
revenue in 1997 was generated through the sale of site sponsorships, advertising
and premium services on its OnHealth.com and former O@sis Web site. In September
1997, the Company entered into an agreement with Mayo Foundation  which included
the full  transfer  to Mayo of the  Company's  ownership  interest  in the O@sis
Website (See Note 15 to the financial statements).

Gross Margin

Gross margin as a percentage  of net revenues was 32% in 1997 compared to 46% in
1996.  The  decrease in gross margin in 1997 was  primarily  due to decreases in
higher  margin cable  television  licensing  and online  revenue and to a lesser
extent to continued lower margin realized on CD-ROM sales.

Gross margin as a percentage  of net revenues was 46% in 1996 compared to 48% in
1995.  The slight  reduction in gross margin  percentage  was due to lower gross
margins realized on CD-ROM retail sales due to decreased  pricing as a result of
increased competition.


<PAGE>

Operating Expenses

Product Development
Product development expenses were $4,243,000 for 1997, a decrease of $1,408,000,
or 25% from 1996, due to the Company's  release of fewer CD-ROM products and its
shift to online publishing.

Product development  expenses decreased in 1996 to $5,651,000 from $7,494,000 in
1995, or 25% resulting  from fewer CD-ROM titles being  developed  combined with
management's efforts to reduce costs.

Sales and Marketing
Sales and marketing expenses were $1,347,000 in 1997,  compared to $2,705,000 in
1996.  The decrease of 50% was a result of the release of fewer CD-ROM titles in
1997,  decreases in expenditures to promote the Company's products and a smaller
expense structure created by the downsizing of operations in late 1996.

Sales and marketing expenses were $2,705,000 in 1996,  compared to $7,473,000 in
1995.  The  decrease of 64% is  primarily a result of the  delegation  of retail
product distribution to Davidson in September of 1995. Additionally,  there were
fewer CD-ROM titles in 1996 than in 1995, which contributed to reduced marketing
expenses.

General and Administrative

General  and  administrative  expenses  were  $6,892,000  in  1997  compared  to
$6,364,000  in 1996.  The  increase of 8% was due to  extensive  litigation  and
special charges in 1997. The Company recorded  $808,000 in expenses related to a
settlement of litigation  with Viridis,  Inc. and received an adverse jury award
of $480,000, plus interest from a dispute with T. Randal Productions,  et al. in
1997 (See Note 17 to the financial  statements).  In the fourth quarter of 1997,
the Company  recorded  charges of $1,572,000 for the relocation of the Company's
headquarters from Minneapolis,  Minnesota to Seattle,  Washington. These charges
included  $610,000 in severance to officers and employees and $973,000 for asset
dispositions  and  lease  termination  costs  (See  Note  17  to  the  financial
statements).  Also in 1997,  the Company  wrote-off  $1,741,000  in other assets
related  to an  agreement  with Time  Life,  Inc.  (See Note 4 to the  financial
statements).  Excluding  the  litigation  and  special  charges,  the  Company's
reduction  in  general  and  administrative  expenses  was  the  result  of  the
downsizing  of  the  facilities  and  personnel  and  management's   efforts  to
streamline operating costs.

General  and  administrative  expenses  were  $6,364,000  in  1996  compared  to
$5,647,000  in 1995.  The  overall  increase  of 13% was due to special  charges
incurred  in the third and  fourth  quarters  of 1996.  These  charges  included
$978,000  related to the downsizing of facilities  and personnel.  Additionally,
there was a write-off of an $836,000 receivable to bad debt expense. Finally, in
the fourth  quarter,  there was a special  charge of $300,000  due to an adverse
arbitration  award.  Excluding these special charges,  the resulting decrease in
general and  administrative  expenses was the result of management's  efforts to
streamline operating costs.

Interest Income (Expense)

Interest  income was $106,000 in 1997 and $203,000 in 1996.  The decrease of 48%
was due to decreases in cash balances in 1997.  Interest expense was $264,000 in
1997 compared to $34,000 in 1996. Interest expense increased in 1997 because the
Company's convertible  subordinated debentures were issued in late 1996 and were
outstanding for most of 1997.

Interest  income was $203,000 in 1996 compared to $641,000 in 1995. The decrease
was due to lower cash balances.


<PAGE>

Other Income, net

Other income was $473,000 in 1997 which included a $2,700,000  cash payment that
the Company  received  in  connection  with the  transfer  of  ownership  of the
Company's O@sis Web site to Mayo and an expense of $2,229,000 in connection with
the Company's conversion of its Convertible Subordinated Debentures in 1997. 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. The Company did not have any other income in
1996 or 1995.

Limitation on Use of Net Operating Loss and Other Tax Credit Carryforwards

At December 31, 1997, the Company had available net operating loss carryforwards
of approximately  $64,699,000 and available research and development  credits of
approximately  $326,000 for federal income tax purposes.  The balance of the net
operating loss  carryforwards  of $64,699,000  and the credits expire at various
times through 2012. The research and development credits will also be subject to
limitations under the regulations.  These  carryforwards are subject to Internal
Revenue Code Section 382 which limits the  availability of net operating  losses
to offset current taxable income if significant  ownership changes have occurred
for federal tax purposes.  The Company incurred "ownership changes," pursuant to
regulations  currently in effect under  Internal  Revenue Code Section 382, as a
result of sales of the Company's  Preferred  Stock in 1992 and 1993 and may have
incurred ownership changes since that time .

Liquidity and Capital Resources

The Company's cash and cash  equivalents  at December 31, 1997 were  $2,488,000.
The Company used $909,000 of cash in operating  activities in 1997,  compared to
$8,256,000  in 1996.  The decrease in cash used by operating  activities in 1997
was a result of the  Company  carrying a larger  receivable  balance in 1996 and
incurring  larger losses from  operations,  net of special  charges in 1996. The
Company  did not  generate  or use  significant  cash in  1997 in  investing  or
financing  activities.  In  1996,  the  Company  generated  $3,737,000  of  cash
primarily from financing activities primarily from the issuance of $3,500,000 of
9% Convertible Subordinated Debentures.

The  Company  believes  that  its  cash and cash  equivalents,  in  addition  to
$5,000,000  which the Company  obtained in early April through a private  equity
placement to certain  institutional  investors,  will be  sufficient to fund its
operations through December 31, 1998. (See Note 2 of the financial  statements.)
However,  the Company's  projected costs in 1998 in connection with the redesign
and the launch of the onhealth.com website, and associated personnel,  marketing
and distribution costs, will be substantial.  Any material unforeseen  increases
in expenses or reductions in projected  revenues will likely require the Company
to seek additional debt or equity  financing to be able to continue  operations.
Because of the  Company's  financial  history,  there is no assurance  that such
financing  could be obtained,  or, if obtained  that the terms of the  financing
would be acceptable.

Year 2000

The Company has  determined  that it will need to modify or replace  significant
portions of its software so that its computer  systems  will  function  properly
with  respect  to dates in the year 2000 and  beyond.  The  Company's  Year 2000
initiative is being managed by internal  staff.  The  activities are designed to
ensure that there is no adverse effect on the Company's core business operations
and that the transactions with customers,  suppliers and financial  institutions
are fully supported.  The Company is well underway with these efforts, which are
scheduled  to be  completed  by 1999.  While the Company  believes  its planning
efforts  are  adequate  to  address  its Year  2000  concerns,  there  can be no
guarantee that the systems of other companies on which the Company's systems and
operations rely will be converted on a timely basis and will not have a material
effect on the Company.  The cost of the Year 2000  initiative in not expected to
be material to the Company's results of operations or financial position.


<PAGE>

Forward-Looking Statements

Certain  statements  made in this Form  10-K,  which are  summarized  here,  are
forward-looking  statements  that  involve  risk and  uncertainties,  and actual
results may be materially different.  Factors that could cause actual results to
differ include, but are not limited to those identified:

o    The expectation that IVI will become the leading on-line health information
     network depends on IVI's ability to obtain high quality editorial  content,
     its ability to implement  effective traffic building  programs,  as well as
     other general market  conditions  and  competitive  conditions  within this
     market,  including the introduction and further  development of competitive
     web sites.
o    The expectation  that IVI will re-release its  OnHealth.com web site in the
     third  quarter  of 1998 and that it will launch a family of web sites to be
     included  in the  OnHealth  network  depends  upon  successful  development
     efforts and meeting the currently scheduled timetable for such development,
     as well as being able to obtain any necessary or desired licensing or other
     content rights on a timely basis.
o    The  expectation  that IVI will see a growth in revenues  and  positive net
     income  as a result  of its shift in focus to its  on-line  health  network
     depends on  customer  interest,  the ability to obtain  successful  revenue
     sources from  advertisers,  as well as other general market and competitive
     conditions within the on-line health network market.
o    For additional  information  regarding forward looking  statements,  please
     refer to the first  paragraph  in "ITEM 1.  BUSINESS"  and the  "ADDITIONAL
     FACTORS  THAT  MAY  AFFECT  FUTURE  RESULTS"  section  later  in  "ITEM  1.
     BUSINESS".


ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

               Not applicable.


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

              The  financial  statements  of the  Company  for  the  year  ended
              December 31, 1997, begin on page F-1 of this report.


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

              None.


<PAGE>


                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

(a)      Directors of the Registrant.

         The  information  under the  caption  "Election  of  Directors"  in the
Company's Proxy Statement for the 1998 Annual Meeting of Shareholders (the "1998
Proxy Statement") to be filed with the Securities and Exchange Commission within
120 days of the fiscal  year  covered by this Report is  incorporated  herein by
reference.

(b)      Executive officers of the Registrant.

         Information concerning Executive Officers of the Company is included in
this Report at the end of Part I,  "Executive  Officers and Key Employees of the
Registrant."

(c) Compliance with 16 (a) of the Securities Exchange Act of 1934.

         The information  under the caption  "Compliance  with Sections 16(a) of
the Exchange Act" in the Company's 1998 Proxy Statement is  incorporated  herein
by reference.


ITEM 11.      EXECUTIVE COMPENSATION

         The  information  under  the  caption   "Executive   Compensation"  and
"Compensation   of  Directors"  in  the  Company's   1998  Proxy   Statement  is
incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  under the  caption  "Security  Ownership  Of  Certain
Beneficial  Owners and  Management"  in the  Company's  1998 Proxy  Statement is
incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information  under the caption "Certain  Relationships  and Related
Transactions"  in the Company's 1998 Proxy Statement is  incorporated  herein by
reference.



<PAGE>


                                     PART IV

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

         (a)(1)   The following financial statements of IVI Publishing, Inc. are
 included in this Report:
                                                                          Page
Report of the Independent Auditors........................................F-1
Balance Sheets as of December 31, 1997 and 1996...........................F-2
Statements of Operations for the years ended December 31, 1997, 1996,
    and 1995..............................................................F-3
Statements of Cash Flow for the years ended December 31, 1997, 1996,
    and 1995..............................................................F-4
Statement of Shareholders' Equity for the years ended
    December 31, 1997, 1996, and 1995.....................................F-5
Notes to the Financial Statements.........................................F-6

         (a)(2)   The following  financial statement schedule of IVI Publishing,
Inc.  required by Item 14(d) is included  in a separate  section of  this Report
following the financial statements:

     II.      Valuation and Qualifying Accounts...........................S-1

         All other schedules to the financial  statements  required by Article 7
of  Regulation  S-X are not  required  under  the  related  instructions  or are
inapplicable and therefore have been omitted.

         (a)(3)   Listing of Exhibits

         The  Exhibits  required  to be a part of this  Report are listed in the
Index to Exhibits which follows the Financial Statement Schedule.

         (b)     Reports on Form 8-K

         A Form 8-K was filed on November  10,  1997 to report the jury  verdict
rendered on the T. Randal  Productions,  Inc.  lawsuit.  (See notes to financial
statements).  On November 12, 1997 an 8-K was filed to report the  settlement of
the Viridis, Inc. lawsuit. (See notes to financial statements). The Company also
reported  the  conversion  of  its  convertible   subordinated  debentures  into
1,750,125  shares of common stock.  As well as, the  conversion of its preferred
stock  into  1,000,000  shares of common  stock.  These  conversions  ocurred on
October 28 and October  30,  respectively.  On November  18, 1997 a Form 8-K was
filed which showed a pro forma  capitalization  table at  September  30, 1997 to
reflect the conversions.

         (c)     Exhibits

         Included in Item 14(a)(3) above.

         (d)     Financial Statement Schedules

         Included in Item 14(a)(2) above.

<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  Minneapolis,
Minnesota, on the 14th day of April, 1998.
                                      IVI PUBLISHING, INC.

                                      By: /s/ Robert N. Goodman
                                          Robert N. Goodman
                                          President and Chief Executive Officer

         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
                               (Power of Attorney)
         Each person whose  signature  appears  below  constitutes  and appoints
Robert   Goodman   and   Michael   Brochu   as  his  or  her  true  and   lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and  resubstitution,  for him or her and in his or her name, place and stead, in
any and all  capacities,  to sign any or all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits  thereto,  and other documents
in connection therewith,  with the Securities and Exchange Commission,  granting
unto said  attorneys-in-fact  and  agents,  each  acting  alone,  full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might  or  could  do  in  person,  hereby  ratifying  and  confirming  all  said
attorneys-in-fact   and  agents,   each  acting  alone,  or  his  substitute  or
substitutes, may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
          Signature                                           Title                                    Date

<S>                                 <C>                                                          <C> 
/s/ Robert N. Goodman               President, Chief Executive Officer and Director              April 14, 1998
        Robert N. Goodman           (Principal Executive Officer)

/s/ Charles A. Nickoloff            Vice President and Acting Chief Financial Officer            April 14, 1998
        Charles A. Nickoloff        (Principal Financial and Accounting Officer)

                                    Chairman of the Board                                  
        Michael A. Brochu

/s/ Alan D. Frazier                 Director                                                     April 14, 1998
         Alan D. Frazier

/s/ Ronald E. Eibensteiner          Director                                                     April 14, 1998
     Ronald E. Eibensteiner

/s/ Timothy I. Maudlin              Director                                                     April 14, 1998
        Timothy I. Maudlin

/s/ Ann Kirschner                   Director                                                     April 12, 1998
          Ann Kirschner

/s/ Ram Shriram                     Director                                                     April 9, 1998
           Ram Shriram

/s/ Rick Thompson                   Director                                                     April 9, 1998
          Rick Thompson

</TABLE>


<PAGE>

                       REPORT OF THE INDEPENDENT AUDITORS



The Board of Directors and Shareholders
IVI Publishing, Inc.

         We have audited the accompanying balance sheets of IVI Publishing, Inc.
as of December 31, 1997 and 1996, and the related statements of operations, cash
flows and  shareholders'  equity for each of the three years in the period ended
December 31, 1997.  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 generally  accepted auditing
standards.  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 financial position of IVI Publishing, Inc.
at December 31, 1997 and 1996,  and the results of its  operations  and its cash
flows for each of the three years in the period  ended  December  31,  1997,  in
conformity with generally accepted accounting principles.  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 therein.




                                                      /s/   ERNST & YOUNG LLP



Minneapolis, Minnesota
February 12, 1998, except for Note 2 as
   to which the date is April 13, 1998



<PAGE>
                           IVI PUBLISHING, INC.
                              BALANCE SHEETS
                  (In Thousands, Except Per Share Data)

                                                       December 31
                                                ---------------------------
                                                   1997           1996
                                                -----------   -------------
    ASSETS

    Current assets:
        Cash and cash equivalents                   $2,488          $3,462
        Accounts receivable, net of allowances
           for returns and doubtful accounts of
          $1,011 in 1997 and $277 in 1996              337           4,134
        Inventories                                    150             155
        Other current assets                           332             585
                                                -----------   -------------
    Total current assets                             3,307           8,336

    Furniture and equipment:
        Computers and software                       2,856           4,583
        Office equipment                             1,403           1,546
        Leasehold improvements                           -             683
                                                -----------   -------------
                                                     4,259           6,812
        Accumulated depreciation                    (2,989)         (3,622)
                                                -----------   -------------
                                                     1,270           3,190

    Long-term receivables and other assets               -           1,885
                                                -----------   -------------

    Total assets                                    $4,577         $13,411
                                                ===========   =============

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities:
        Accounts payable                            $1,919          $3,206
        Other accrued expenses                       2,640           1,900
                                                -----------   -------------
    Total current liabilities                        4,559           5,106

    Convertible subordinated debentures                  -           3,500

    Convertible redeemable preferred stock               -           1,905
        (redemption value of $2,000)

    Shareholders' equity:
        Common stock, $.01 par value:
            Issued and outstanding shares -
                10,106 and 7,612  at December 31,
                1997 and 1996, respectively            101              76
        Additional paid-in capital                  78,493          70,453
        Accumulated deficit                        (78,576)        (67,629)
                                                -----------   -------------
    Total shareholders' equity                          18           2,900
                                                -----------   -------------

    Total liabilities and shareholders' equity      $4,577         $13,411
                                                ===========   =============

    See accompanying notes.

<PAGE>
                              IVI PUBLISHING, INC.
                            STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)

                                                    Year Ended December 31
                                              --------------------------------

                                                1997        1996        1995
                                              --------    --------    --------


Net revenues                                  $  3,761    $  9,470    $ 11,970
Cost of revenues                                 2,541       5,076       6,231
                                              --------    --------    --------
Gross margin                                     1,220       4,394       5,739


Operating expenses:
     Product development                         4,243       5,651       7,494
     Sales and marketing                         1,347       2,705       7,473
     General and administrative                  6,892       6,364       5,647
                                              --------    --------    --------
Loss from operations                           (11,262)    (10,326)    (14,875)

Interest income                                    106         203         641
Interest expense                                  (264)        (34)       --
Other income, net                                  473        --          --
                                                          --------    --------
Net loss                                       (10,947)    (10,157)    (14,234)
                                              ========    ========    ========


Preferred stock dividends                         (100)       (119)        (20)
Preferred stock accretion                          (43)        (60)       --
Preferred stock deemed dividend                 (2,875)       --          --
                                              --------    --------    --------
Net loss applicable to
     common shareholders                      ($13,965)   ($10,336)   ($14,254)
                                              ========    ========    ========

Net loss per common share --
     basic and diluted                        ($  1.73)   ($  1.36)   ($  1.90)
                                              ========    ========    ========

Weighted average number of
     common shares outstanding                   8,056       7,580       7,484
                                              ========    ========    ========

See accompanying notes.


<PAGE>
                                                IVI PUBLISHING, INC.
                                              STATEMENTS OF CASH FLOW
                                                   (In Thousands)
<TABLE>
<CAPTION>
                                                                             Year Ended December 31
                                                                      --------------------------------
                                                                          1997        1996        1995
                                                                      --------    --------    --------
<S>                                                                   <C>         <C>         <C>      
Operating activities:
     Net loss                                                         ($10,947)   ($10,157)   ($14,234)
     Adjustments to reconcile net loss to
        net cash used in operating activities:
          Debenture conversion to equity                                 2,229
          Depreciation                                                   1,252       1,409       1,403
          Loss (gain) on disposal of furniture and equipment               711          (3)        (96)
          Common stock issued as litigation settlement                     433
          Changes in assets and liabilities:
            Decrease (increase) in accounts receivable                   3,797        (926)        240
            Decrease in inventories                                          5         666         363
            Decrease (increase) in other current assets                    253        (139)        137
            Decrease (increase) in other long-term assets                1,885        (585)       (365)
           (Decrease) increase in accounts payable                      (1,287)        843      (1,750)
            Increase in other accrued expenses                             760         636         224
                                                                      --------    --------    --------
     Net cash used in operating activities                                (909)     (8,256)    (14,078)

Investing activities:
     Purchase of furniture and equipment                                  (104)       (288)     (1,026)
     Proceeds from disposal of furniture and equipment                      61         510         199
     Purchase of short-term investments                                                         (4,388)
     Maturity of short-term investments                                                         22,218
                                                                      --------    --------    --------
     Net cash (used in) provided by investing activities                   (43)        222      17,003

Financing activities:
     Net proceeds from issuance of convertible
            redeemable preferred stock                                                           1,845
     Preferred stock dividends paid                                       (120)       (119)
     Proceeds from exercised stock options                                  98         356         166
     Proceeds from issuance of convertible
          subordinated debentures                                                    3,500
                                                                      --------    --------    --------
     Net cash (used in) provided by financing activities                   (22)      3,737       2,011
                                                                      --------    --------    --------

Net (decrease) increase in cash and cash equivalents                      (974)     (4,297)      4,936
Cash and cash equivalents at beginning of year                           3,462       7,759       2,823
                                                                      --------    --------    --------
Cash and cash equivalents at end of year                              $  2,488    $  3,462    $  7,759
                                                                      ========    ========    ========
</TABLE>

See accompanying notes.

<PAGE>
                                               IVI PUBLISHING, INC.
                                        STATEMENT OF SHAREHOLDERS' EQUITY
                                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>

                                                 Common                 Additional                       Total
                                                 Shares       Common     Paid-In       Accumulated   Shareholders'
                                               Outstanding    Stock      Capital        Deficit         Equity
                                              ------------------------ ------------- --------------- --------------

<S>                                                  <C>          <C>       <C>            <C>             <C>    
Balance at December 31, 1994                         7,478        $75       $70,131        ($43,238)       $26,968

Issuance of common stock
    through exercise of options                         46                      166                            166

Dividends on convertible
    redeemable preferred stock
    ($.01 per share)                                                            (20)                           (20)

Net loss                                                                                    (14,234)       (14,234)
                                              ------------- ---------- ------------- --------------- --------------

Balance at December 31, 1995                         7,524         75        70,277         (57,472)        12,880

Issuance of common stock
    through exercise of options                         88          1           355                            356

Dividends on convertible
    redeemable preferred stock
    ($.06 per share)                                                           (119)                          (119)

Preferred stock accretion                                                       (60)                           (60)

Net loss                                                                                    (10,157)       (10,157)
                                              ------------- ---------- ------------- --------------- --------------

Balance at December 31, 1996                         7,612         76        70,453         (67,629)         2,900

Issuance of common stock
    through exercise of options                         59          1            97                             98

Dividends on convertible
    redeemable preferred stock
    ($.06 per share)                                                           (100)                          (100)

Preferred stock accretion                                                       (43)                           (43)

Issuance of common stock
    as lawsuit settlement                              175          2           431                            433

Return of common stock
    per Mayo agreement                                (490)        (5)            5                             --

Debenture conversion                                 1,750         17         5,712                          5,729

Preferred stock conversion                           1,000         10         1,938                          1,948

Net loss                                                                                    (10,947)       (10,947)
                                              ------------- ---------- ------------- --------------- --------------

Balance at December 31, 1997                        10,106       $101       $78,493        ($78,576)           $18
                                              ============= ========== ============= =============== ==============
</TABLE>

See accompanying notes.


<PAGE>


                              IVI PUBLISHING, INC.
                        Notes to the Financial Statements
                                December 31, 1997


Note 1.         Business Activity

Formation of the Business

IVI Publishing,  Inc. (the  "Company"),  which was founded in 1990 and commenced
operations  in early  1991,  is  engaged  in a  single  business  consisting  of
electronic   publishing  of  health  and  medical   information  in  interactive
multimedia formats.

Note 2.  Management's Plans Concerning Cash Flow and Ongoing Operations

The Company has experienced  recurring  losses from operations and has generated
an accumulated deficit from inception through December 31, 1997 of approximately
$78,576,000.  These  conditions  give rise to the question  about the  Company's
ability to generate  positive cash flow and fund operations.  In April 1998, the
Company  completed a $5,000,000  issuance of non-voting  Convertible  Redeemable
Preferred  Stock  (CPS)  to  two  institutional   investors.   As  part  of  the
transaction,  the Company also granted to the investors  warrants to purchase an
aggregate of 66,778 shares of the Company's common stock at $11.23125 per share.
The CPS  provides  for the  payment of  dividends  at a rate of 5%. The CPS also
provides the investors with certain  conversion  rights into Common Stock of the
Company and allows for  redemption of the CPS by the Company.  Further,  the CPS
holders could require the Company to repurchase  the CPS upon the  occurrence of
certain  events,  such as the absence of any bids for the Common  Stock for five
consecutive trading days or failure of the Common Stock to be listed for trading
on the AMEX,  NASDAQ SmallCap Market,  NASDAQ National Market,  or the NYSE. The
Company  believes  that  the  completion  of  this  financing   transaction  and
anticipated  operating cash flows will allow the Company to continue to meet its
ongoing financial obligations and operate through December 31, 1998.


Note 3.         Summary of Significant Accounting Policies

Cash Equivalents

The Company  considers  all highly liquid  investments  with a maturity of three
months or less when purchased to be cash  equivalents.  At December 31, 1997 and
1996,  cash  and  cash  equivalents   consisted  principally  of  United  States
Government obligations for which the carrying amount approximates fair value.

Furniture and Equipment

Furniture  and  equipment  are  stated  at cost and are  depreciated  using  the
straight-line method over the estimated useful life of the assets ranging from 5
to 7 years.


Product Development Costs

Product  development  costs  consist  principally  of  compensation  to  Company
employees,  interactive  design  costs paid to outside  consultants,  travel and
supplies.  Product  development  also  includes  costs  incurred  related to the
acquisition of content under license and publishing agreements. Costs related to
research,  design and development of products are charged to product development
expenses as incurred.  Under Statement of Financial  Accounting Standards No. 86
(SFAS No. 86),  software  development  costs are  capitalized  beginning  when a
product's  technological  feasibility  has been  established  and ending  when a
product is  available  for  general  release to  customers.  The Company has not
capitalized  any  software  development  costs  since  such  costs  meeting  the
requirements of SFAS No. 86 have not been significant.


<PAGE>

Revenue Recognition

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

Product sales and licensing revenues are made up of retail  distribution  sales,
direct  mail  sales,  and product  sales and  royalties  on licenses to original
equipment  manufacturers (OEM's). These revenues are recognized upon shipment of
the product or when the Company's obligations under the licensing agreements are
complete. Allowances for returns are 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.  This
revenue is  recognized by contract on a  percentage-of-completion  basis or at a
specific hourly rate, depending on the terms of the contract.

Revenues are generated through the licensing of the Company's health and medical
content for use on cable television  channels.  The Company  recognized  revenue
under its cable  television  agreement  with America's  Health  Network  ("AHN")
during 1997, 1996 and 1995. (See Note 12).

Revenues are generated  through the sale of advertising and  sponsorships of the
Company's Onhealth web site. These revenues are recognized as they are earned.

During 1996, the Company also  generated  revenue  through the Company's  online
agreement with American  Telephone and Telegraph  ("AT&T").  These revenues were
nonrefundable  advances  payable to the Company  under the  exclusive  agreement
signed with AT&T. They were recognized as they were earned. (See Note 13).

Revenues for each of the three years ended December 31, 1997,  1996 and 1995 are
as follows:
<TABLE>
<CAPTION>

                                         1997          1996          1995
                                     -----------   -----------   -----------
<S>                                  <C>           <C>           <C>
Product sales                        $ 1,990,000   $ 5,152,000   $ 8,333,000
Contract development                   1,220,000     1,346,000     1,637,000
Cable television                         493,000     1,972,000     1,000,000
Online                                    58,000     1,000,000     1,000,000
                                     -----------   -----------   -----------
Net revenues                         $ 3,761,000   $ 9,470,000   $11,970,000
                                     ===========   ===========   ===========
</TABLE>

Net sales to one OEM manufacturer in 1996 totaled $1,394,000.  Additionally, for
1997 and 1996  respectively,  $439,000 and  $1,972,000 of revenue was recognized
from the Company's  content  agreement  with AHN, and  $1,000,000 of revenue was
recognized from the Company's online content agreement with AT&T in 1996.

No  individual  customer  accounted  for more than 10% of total net  revenues in
1995.

Inventories

All inventories are stated at the lower of cost (first-in,  first-out method) or
market and consist of packaging supplies and finished goods.


<PAGE>

Advertising Costs

The  Company's  policy is to  expense  advertising  costs as they are  incurred.
Advertising  costs were $190,000,  $556,000,  and $1,732,000 for 1997, 1996, and
1995, respectively.

Impairment of Long-Lived Assets

The  Company  will  record  impairment  losses  on  long-lived  assets  used  in
operations when indicators of impairment are present and the  undiscounted  cash
flows  estimated  to be  generated  by those  assets  are less than the  assets'
carrying amount.

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.

Net Loss Per Share

In 1997,  the Financial  Accounting  Standards  Board issued  Statement No. 128,
Earnings Per Share (Statement  128).  Statement 128 replaced the calculations of
primary and fully diluted earnings per share with basic and diluted earnings per
share.  Unlike primary earnings per share, basic earnings per share excludes any
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings per share is very similar to fully diluted earnings per share under the
previous  rules.  All  earnings  per share  amounts  for all  periods  have been
presented,  and where  necessary,  restated  to  conform  to the  Statement  128
requirements.  The  effect of  outstanding  options,  warrants  and  convertible
securities are excluded from the  computation for all periods as their effect is
antidilutive.

Use of Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Stock Based Compensation

The Company  follows the  disclosure-only  provisions  of Statement of Financial
Accounting  Standards No. 123,  Accounting  for  Stock-Based  Compensation,  but
applies  Accounting  Principles Board Opinion No. 25 Accounting for Stock Issued
to Employees (APB 25) and related interpretations in accounting for its employee
stock  options.  Under APB 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.

Reclassifications

Certain amounts for 1996 and 1995 have been  reclassified to conform to the 1997
financial statement presentation.


Note 4.         Other Assets

In 1994,  the Company  entered into an  agreement  with Time Life,  Inc.  ("Time
Life") pursuant to which the Company agreed to pay Time Life for the development
of a  comprehensive  home  health  reference  guide.  In  exchange,  the Company
receives  royalty  payments in the amount of 5% of Time Life's net revenue  from
the sale of the print versions of the product. At December 31, 1996, the Company
recorded an asset of $1,778,000,  which  represented  the Company's  payments to
Time Life, net of royalty payments received from Time Life. The Company's policy
was to amortize this asset over the period that revenues were recognized. During
1997,  revenues  from the print  version  were not as high as  anticipated,  and
management  determined  that the  asset  was not  realizable.  Accordingly,  the
Company wrote-off the remaining asset balance and expensed $1,741,000 in general
and administrative operating expenses.



<PAGE>

Note 5.         Other Accrued Expenses

Other accrued expenses consist of the following:
                                                   December 31
                                              1997                  1996
                                  -----------------      ----------------

   Litigation loss                        $961,000              $300,000
   Severance                               610,000
                                                         -
   Royalties                               501,000               993,000
   Rent obligation                         252,000               429,000
   Other                                   316,000               178,000
                                  =================      ================
   Total                                $2,640,000            $1,900,000
                                  =================      ================

Note 6.         Common Stock

As of December 31, 1997 and 1996, the Company had 30,000,000  shares of $.01 par
value  capital  stock  authorized.  As of  December  31,  1996,  the Company had
designated  2,000 of its shares to be 6% Series A Convertible  Preferred  Stock,
and such designation was canceled in December 1997.


Note 7.         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.

On December 31, 1996, the estimated fair value of the  Convertible  Subordinated
Debentures approximated the recorded amount.


Note 8.         Convertible Redeemable Preferred Stock

In 1995, the Company  issued 2,000 shares of 6% Series A Convertible  Redeemable
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 Preferred Stock was converted into
Common Stock on October 30, 1997 at a rate of $2.00 per share,  resulting in the
issuance of 1,000,000 shares of Common Stock. 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 net  loss  per  share  as shown in the
statements of operations.



<PAGE>

Note 9.         Stock Options and Warrants

The Company has a 1991 Stock  Option Plan (the  "Plan") for its  employees.  The
Plan,  which is administered  by the Board of Directors,  permits the Company to
grant stock options for the purchase of Common Stock.  The Plan provides for the
granting of Incentive Stock Options (ISO's) and  Non-Qualified  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  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.

From time to time,  the  Company's  Board of Director  may grant  stock  options
outside of either of the existing stock option plans.

In December 1997, the Company's Board of Directors adopted the 1997 Stock Option
Plan for its employees  and reserved  1,750,000  shares of the Company's  Common
Stock for such plan.  The 1997  Stock  Option  Plan is  subject  to  shareholder
approval at the Company's 1998 Annual Meeting.

Activity in the plans is as follows:
<TABLE>
<CAPTION>
                                                                              Option               Weighted-
                                                           Shares             Shares             Average Price
                                                          Reserved         Outstanding             Per Share
                                                       ----------------  ------------------    --------------------
<S>                                                       <C>                 <C>                    <C>   
Total Outstanding at December 31, 1994                      413,000           1,029,000              $15.72
Options Granted                                            (467,000)            467,000               11.04
Options Exercised                                                               (46,000)               3.59
Options Canceled                                            543,000            (543,000)              19.72
                                                       ----------------  ------------------
Total Outstanding at December 31, 1995                      489,000             907,000               11.53
Options Reserved                                            200,000
Options Granted                                            (582,000)            582,000                4.98
Options Exercised                                                               (88,000)               4.06
Options Canceled                                            461,000            (461,000)              13.24
                                                       ----------------  ------------------
Total Outstanding at December 31, 1996                      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
                                                       ----------------  ------------------
Total Outstanding at December 31, 1997                    2,108,000           1,091,000             $  3.53
                                                       ================  ==================
</TABLE>

At December 31, 1997, 1996 and 1995,  options to purchase  325,000,  602,000 and
557,000 shares were exercisable,  respectively.  Exercise prices for the options
outstanding as of December 31, 1997 range from $2.31 to $17.75.



<PAGE>


The following table summarizes  information about the stock options  outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
                                     Options Outstanding                              Options Exercisable
                                        Weighted-Average
                                            Remaining                                           Weighted-Average
Range of Exercise                          Contractual     Weighted-Average       Number           Exercise 
Prices              Number Outstanding        Life          Exercise Price      Exercisable          Price
------------------- ------------------- ------------------ ------------------ ----------------- ---------------
<S>                    <C>                  <C>                  <C>                <C>               <C>  
  $2.31 -   2.50         221,000            10 years             $2.31                9,000           $2.31
   2.51 -   3.00         346,000             9 years              2.78              121,000            2.81
   3.01 -   3.50         398,000             9 years              3.22               86,000            3.00
   3.51 -  17.75         126,000             7 years              8.75              109,000            8.81
                    ------------------- ------------------ ------------------ ----------------- ---------------
  $2.31 -  17.75       1,091,000             9 years             $3.53              325,000           $4.86
</TABLE>

The Company reserved 547,260 and 559,760 shares of Common Stock for the issuance
of warrants  at  December  31,  1997 and 1996,  respectively,  and had  warrants
outstanding  at those  dates to purchase  547,260  and 559,760  shares of Common
Stock at prices  ranging  from  $3.25 per share to $30.94  per  share.  Warrants
outstanding  at December  31, 1997 expire from 1998 through  2000.  The warrants
were  generally  issued to  underwriters  and  investment  bankers for  services
performed in connection with several of the Company's financing transactions.

In 1997, the Company granted  non-qualified options outside any of the Company's
stock option plans to purchase  522,500  shares at prices  ranging from $2.31 to
$2.50.  These  options  expire in 2007.  Of the options  granted,  one option to
purchase  60,000  shares  becomes  exercisable  on October 8, 2002.  This option
provides  for earlier  exercise in six  10,000-share  tranches as the  Company's
stock trades at various  prices from $5.00 to $10.00 or more for 40  consecutive
trading  days.  The  accounting  for  this  option  may  result  in  the  future
recognition of compensation expense.

Pro forma information regarding net income and earnings per share is required by
Statement  123, and 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 was estimated at the date of grant using a Black-Scholes
option pricing model with the following  weighted-average  assumptions for 1997,
1996 and 1995:

                                        1997             1996             1995
                                      --------          -------         --------
  Risk-free interest rate              5.50%             6.21%            5.37%
  Dividend yield                          0%                0%               0%
  Volatility factor                    .760               .726             .613
  Weighted-average expected life      5 years          5 years           5 years


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.


<PAGE>

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>

                                                                   1997               1996                1995
                                                               --------------    ----------------    ---------------

<S>                                                              <C>                  <C>                <C>        
Pro forma net loss applicable to common shareholders             $14,294,000          $10,562,000        $14,378,000
Pro forma net loss per common share -
         basic and diluted                                             $1.77                $1.39              $1.92
Weighted average fair value of options
         granted during year                                           $1.74                $2.99              $6.15
</TABLE>

The  pro  forma  effect  on  the  net  loss  for  1997,  1996  and  1995  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.


Note 10.        Commitments

The Company  leases  office space under  agreements  accounted  for as operating
leases. The agreements expire at various times through 1999. Gross rent expense,
including  charges for monthly  operating costs, was $881,000,  $1,433,000,  and
$1,287,000  for 1997,  1996 and 1995,  respectively.  The Company has  subleased
certain facilities to various tenants in under  non-cancelable  operating leases
expiring in 1999. The Company also has several  license  agreements that require
minimum annual royalty payments.  Scheduled minimum lease commitments and annual
royalty payments are as follows:

                                                                Royalty
                                           Lease                Payments
                                    --------------------  ---------------------

                    1998                  $1,191,000              $303,000
                    1999                     496,000               212,000
                                    -------------------------------------------
                                           1,687,000               515,000
          Less Sublease
               Rental Income                (577,000)
                                    --------------------  ---------------------

          Total                           $1,110,000              $515,000
                                    ====================  =====================

In 1998,  the Company  entered into a termination  arrangement  for its existing
lease in  Minneapolis,  Minnesota,  effective March 31, 1998. As a result of the
arrangement, the Company paid $122,000 and contributed to the lessor $150,000 in
furniture and equipment for  satisfaction  of the above lease  commitments.  The
Company  entered  into new leases in  Seattle,  Washington  and a  substantially
smaller facility in Minneapolis,  Minnesota.  As a result,  future minimum lease
commitments  related  to the new  lease  agreements  would be  $61,000  in 1998,
$128,000 in 1999,  $134,000 in 2000,  $142,000  in 2001,  $151,000 in 2002,  and
$52,000 thereafter.


Note 11.        Income Taxes

At December  31,  1997,  the Company has net  operating  loss  carryforwards  of
$64,699,000 for income tax purposes and unused research and development  credits
of $326,000 that expire at various times through 2012. 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.


<PAGE>

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

                                                          December 31
                                                ----------------------------
                                                      1997            1996
                                                ------------    ------------
Deferred tax assets:
Accrued expenses and allowances                 $  2,788,000    $  2,649,000
Stock issued for license agreements                     --         1,351,000
Research and development credits                     326,000         326,000
Net operating loss carryforwards                  25,880,000      23,054,000
                                                ------------    ------------
                                                  28,994,000      27,380,000
Deferred tax liabilities:
Depreciation                                          16,000         186,000
                                                ------------    ------------
                                                      16,000         186,000
                                                ------------    ------------
Net deferred tax assets
    before valuation allowance                    28,978,000      27,194,000
Less valuation allowance                         (28,978,000)    (27,194,000)
                                                ------------    ------------
Net deferred tax assets                         $       --      $       --
                                                ============    ============


Note 12.        Investment in America's Health Network

In March 1994,  the  Company  acquired an equity  position in  America's  Health
Network ("AHN"),  a health  information  cable television  network that combines
live  programming  with medical  consumer product sales. The network launched on
March 25, 1996.

In the first  quarter of 1994,  the Company  expensed its entire  investment  of
$2,000,000  along with the  related  investment  banking  fees of  approximately
$263,000.  This  approach  to the  investment  was  made on the  basis  that the
invested  amounts  are not  assured of  recoverability  through  future  revenue
streams.  As of December 31, 1997 and 1996, the Company's  underlying  equity in
its  investment in AHN was $500,000 and $650,000 based on 4% and 8% of AHN's net
assets, respectively.  However, because the Company expensed its investment, its
equity in AHN's net assets is not recognized in the balance sheet.

In May 1995, the Company entered into a content and royalty  agreement with AHN.
Under the agreement the Company is licensing its multimedia  content to AHN from
the date of the  agreement  until March 25,  2001,  five years from the date the
cable  television  network  launched.  The  Company  will  receive a minimum  of
$11,000,000 in licensing royalties over the life of the agreement.  This revenue
was being  recognized  evenly over the life of the contract.  Due to the gradual
increase in actual payments versus the straight-line revenue recognition policy,
a receivable was recorded for the difference  between the revenue recognized and
the cash  received  during the early years of the  contract.  In June 1997, as a
result of the Company not receiving their quarterly payment, the outstanding AHN
receivable was fully reserved. As such, the revenue recognized is currently on a
cash basis for the AHN royalties.  In December,  AHN resumed payments but due to
the uncertainty of future payments,  the Company  continues to recognize revenue
on a cash  basis.  At  December  31,  1997,  the  Company  has a fully  reserved
receivable of $715,000 with  scheduled  payments in 1998.  The Company  recorded
$493,000, $1,972,000 and $1,000,000 in license royalty revenue in 1997, 1996 and
1995, respectively.


Note 13.        Agreement with AT&T

In October  1995,  the  Company  entered  into a four year  agreement  with AT&T
whereby the Company agreed to provide content for AT&T's HealthSite,  a division
of AT&T's Personal Online Service ("POS"), in exchange for guaranteed  revenues.
In August 1996, AT&T discontinued the HealthSite,  and subsequently discontinued
POS. The Company received the 1996 guaranteed revenue payment of $1,000,000 from
AT&T.


<PAGE>

Warrants held by AT&T to purchase up to 20% of the  Company's  common stock at a
price of $14.00 per share expired on March 31, 1997.


Note 14.        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 15.        Mayo Agreement

In September  1997, the Company  entered into an agreement with Mayo  Foundation
("Mayo")  which included a full transfer of ownership of IVI'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,  IVI  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 IVI 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 quarter.


Note 16.        Related Party Transactions

During 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 Company had a note receivable of  approximately  $88,000 and $229,000 from a
former officer of the Company at December 31, 1997 and 1996, respectively.  This
note receivable,  included in accounts  receivable in the balance sheet, will be
used to offset future contract consulting fees.

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 7).


Note 17.        Legal Proceedings

In March  1996,  the Company  commenced  an action  seeking  replevin of certain
computer equipment leased to a former contractor,  Viridis, Inc. In May of 1996,
Viridis expanded the scope of the action by filing a cross-complaint against the
Company,   alleging  that  the  Company  breached  contractual  obligations  and
committed  various  torts by ending its business  relationship  with Viridis and
seeking  $10,000,000.  In October 1997,  the Company and Viridis  entered into a
settlement  agreement  resolving all disputes  between them.  Under the terms of
this  agreement,  the Company issued 175,000 shares of restricted  common stock,
paid  $225,000  and issued a  $125,000  installment  note  payable in 15 monthly
installments  ending  December 1998.  The estimated  value of the shares issued,
$433,000,  was recorded as a general and  administrative  expense at the date of
the settlement.  The settlement  agreement also called for an additional $25,000
to be paid by the Company when AHN resumed its quarterly  payments.  The Company
recorded  total  general and  administrative  expenses of $808,000 in connection
with the  settlement.  The  outstanding  obligations  are  secured by all of the
Company's assets except its interests in AHN.


<PAGE>

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 make 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 $10,000,000. 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. The jury verdict is subject to motions for a new trial, amended
findings and for judgment notwithstanding the verdict and to appeal to the Court
of  Appeals.  The  plaintiffs  also  have  an  action  pending  against  certain
affiliates  of the Company on the same  grounds on which the action  against the
Company was based.  The Company has  indemnified  these  principles  against any
damages arising out of these claims.  While the Company is unable to predict the
ultimate  outcome of these legal actions,  it is the opinion of management  that
the disposition of these matters will not have a material  adverse effect on the
Company's Financial Statements taken as a whole.

In 1996,  Berkshire  Multimedia Group, Inc.  ("Berkshire")  initiated  mediation
regarding a dispute with the Company.  Shortly after an  unsuccessful  mediation
conference was held in September 1996, Berkshire Multimedia Group filed a demand
for  arbitration  alleging  that the Company  breached its  obligations  under a
contract.  An arbitration hearing was completed in January 1997, and in February
1997  the  arbitration  panel  awarded  Berkshire   $300,000.   Hennepin  County
(Minnesota)  District  Court  vacated that award on May 29, 1997,  and Berkshire
appealed  the  case.  The  Court of  Appeals  heard  the  case in late  1997 and
reinstated the original  decision of the  arbitration  panel in January 1998. On
February 25, 1998,  the Hennepin  County  (Minnesota)  District  Court issued an
order  directing  that judgment be entered  against the Company in the amount of
$300,000 plus interest.  The Company recorded general and administrative expense
of $300,000 in 1996.


Note 18.        Relocation of Operations

During 1997, the Company decided to move its primary  operating  facilities from
Minneapolis,  Minnesota  to  Seattle,  Washington  in early  1998.  As a result,
certain of the  Company's  leasehold  improvements  and  computer  and  software
equipment having a carrying value of $721,000 is not  transferable,  or will not
be utilized in the Company's operations going forward in 1998. The Company plans
to sell  salvageable  assets in 1998 and has  estimated  the sale value,  net of
related selling costs, to be immaterial.  Accordingly,  the Company has recorded
an  impairment  loss of  $721,000  in 1997,  which is  included  in general  and
administrative expenses. In addition, 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.




<PAGE>


                              IVI PUBLISHING, INC.

                 Schedule II - Valuation and Qualifying Accounts

                             Years ended December 31

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                     Additions
                                        Balance at   Charged to                  Balance at
                                        Beginning    Costs and                      End
                                        of Period    Expenses      Deductions    of Period
<S>                                      <C>         <C>           <C>           <C>    
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
                                         =======     =======       =======       =======

Year Ended December 31, 1996
    Allowance  for  doubtful  accounts
    receivable, promotional allowances
    and sales returns                    $   753     $ 1,675       $(2,151)(1)   $   277
    Allowance for obsolete inventory         682         365          (562)(2)       485
                                         -------     -------       -------       -------
                                         $ 1,435     $ 2,040       $(2,713)      $   762
                                         =======     =======       =======       =======

Year Ended December 31, 1995
    Allowance  for  doubtful  accounts
    receivable, promotional allowances
    and sales returns                    $   730     $ 1,659       $(1,636)(1)   $   753
    Allowance for obsolete inventory         124         698          (140)(2)       682
                                         -------     -------       -------       -------
                                         $   854     $ 2,357       $(1,776)      $ 1,435
                                         =======     =======       =======       =======
</TABLE>




(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


<PAGE>


                              IVI PUBLISHING, INC.
                 INDEX TO EXHIBITS TO ANNUAL REPORT ON FORM 10-K
                     FOR FISCAL YEAR ENDED DECEMBER 31, 1997

EXHIBIT
NUMBER

3.1      Amended  and  restated   Articles  of  Incorporation  of  the  Company,
         incorporated  herein by reference  to Exhibit No. 3.2 to the  Company's
         Registration Statement on Form S-1, No. 33-76496 (the 1994 S-1)

3.2      Bylaws of the Company,  incorporated herein by reference to Exhibit No.
         3.2 to the Company's  Registration  Statement on Form S-1, No. 33-67064
         (the 1993 S-1)

4.1      Form of Stock Certificate,  incorporated herein by reference to Exhibit
         No. 4.1 to the 1993 S-1

4.2      Statement of Registration Rights - Preferred Stock, incorporated herein
         by reference to Exhibit No. 4.2 to the 1993 S-1

4.3      Warrant  Agreement,  dated as of July 17, 1992, between the Company and
         Medical  Innovation Fund,  incorporated  herein by reference to Exhibit
         No. 4.3 to the 1993 S-1

4.4      Warrant  Agreement,  dated as of November 30, 1992, between the Company
         and Ronald  Eibensteiner,  incorporated  herein by reference to Exhibit
         No. 4.4 to the 1993 S-1

4.5      Warrant  Agreement,  dated as of December 20, 1992, between the Company
         and Wayne Mills, incorporated herein by reference to Exhibit No. 4.5 to
         the 1993 S-1

4.6      Warrant  Agreement,  dated as of June 4, 1993,  between the Company and
         Frazier Investment Securities,  L.P.,  incorporated herein by reference
         to Exhibit No. 4.6 to the 1993 S-1

10.1     License  Agreement,  dated April 24, 1991,  among the Company,  William
         Morrow Company and Mayo Foundation for Medical  Education and Research,
         as amended, incorporated herein by reference to Exhibit No. 10.1 to the
         1993 S-1

10.2     Electronic  Publishing  License,  Development and Marketing  Agreement,
         dated April 28,  1993,  between the  Company  and Mayo  Foundation  for
         Medical  Education  and Research,  incorporated  herein by reference to
         Exhibit No. 10.4 to the 1993 S-1

10.3     401(k) Savings and Investment Plan, incorporated herein by reference to
         Exhibit No. 10.9 to Amendment No. 1 to the 1993 S-1

10.4     1991 Stock Option Plan, as amended, incorporated herein by reference to
         Exhibit No. 10.11 to the 1994 S-1

10.5     IVI   Publishing,   Inc.   Director  Stock  Option  Plan,  as  amended,
         incorporated herein by reference to Exhibit No. 10.12 to the 1994 S-1

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.,
         incorporated herein by reference to Exhibit No. 10.19 to the 1994 S-1


<PAGE>

10.7     Lease  Agreement,  dated  March  30,  1994,  between  the  Company  and
         Ryan/Wilson  Limited  Partnership,  incorporated herein by reference to
         Exhibit No. 10.25 to the 1994 S-1

10.8     License, Development and Marketing Agreement, dated September 28, 1994,
         between the Company and Time Life,  Inc.,  incorporated by reference to
         Exhibit  No.  10.25 to the  Company's  Form  10-K  for the  year  ended
         December 31, 1994*

10.9     1994 License,  Development and Marketing Agreement, dated September 27,
         1994, between the Company and Mayo Foundation for Medical Education and
         Research,  incorporated  by  reference  to  Exhibit  No.  10.26  to the
         Company's Form 10-K for the year ended December 31, 1994*

10.10    License  Agreement,  dated  November 10, 1994,  between the Company and
         Massachusetts Medical Society, incorporated by reference to Exhibit No.
         10.27 to the Company's Form 10-K for the year ended December 31, 1994*

10.11    Sublicense Agreement,  dated December 31, 1994, between the Company and
         Georg von Holtzbrinck GmbH & Co.,  incorporated by reference to Exhibit
         No. 10.28 to the  Company's  Form 10-K for the year ended  December 31,
         1994*

10.12    Agreement between America's Health Network, Inc. and the Company, dated
         May 25,  1995,  incorporated  by  reference  to  Exhibit  10.14  to the
         Company's Form 10-K for the year ended December 31, 1995*

10.13    Amendment No. 2 to License Agreement among William Morrow Company, Mayo
         Foundation  for Medical  Education and Research and the Company,  dated
         December 29, 1995,  incorporated  by reference to Exhibit  10.18 to the
         Company's Form 10-K for the year ended December 31, 1995*

10.14    Financial  Advisor and Consulting  Agreement with Frazier & Company LP,
         dated July 14, 1994, as amended by a letter  agreement,  dated June 28,
         1995,  incorporated by reference to Exhibit 10.19 to the Company's Form
         10-K for the year ended December 31, 1995**

10.15    First Amendment dated June, 27, 1994 and Second Amendment dated October
         10, 1995 to Lease Agreement between the Company and Ryan/Wilson Limited
         Partnership,   incorporated  by  reference  to  Exhibit  10.20  to  the
         Company's Form 10-K for the year ended December 31, 1995

10.16    Agreement  dated  April 1995  among  Ryan/Wilson  Limited  Partnership,
         Wilson  Learning  Corporation  the Company  regarding a certain  lease,
         incorporated  by reference to Exhibit 10.21 to the Company's  Form 10-K
         for the year ended December 31, 1995

10.17    Distribution on Consignment Agreement,  dated February 29, 1996 between
         the Company and Davidson & Associates, Inc. , incorporated by reference
         to Exhibit 10.22 to the Company's Form 10-K for the year ended December
         31, 1995*

10.18    Sublease Agreement, dated January 31, 1996, between the Company and The
         McGraw-Hill  Companies,  Inc.  related to a property leased by Woodland
         Hills  Property-W,  Inc.  pursuant  to a May 23,  1993  lease  with the
         Company,  incorporated  by reference to Exhibit  10.23 to the Company's
         Form 10-K for the year ended December 31, 1995

10.19    Employment  Agreement  between the Company  and Joy A.  Solomon,  dated
         August 7, 1996,  incorporated  herein by reference to Exhibit  10.24 to
         the Company's Form 10-K for the year ended December 31, 1996**


<PAGE>

10.20    Separation  Agreement  between the  Company  and Ronald G. Buck,  dated
         August 1, 1996,  incorporated  herein by reference to Exhibit  10.25 to
         the Company's Form 10-K for the year ended December 31, 1996**

10.21    Notice  of Lease  Term to  Sublease  Agreement,  dated  April 1,  1996,
         between the Company and The McGraw-Hill  Companies,  Inc.  related to a
         property leased by Woodland Hills  Property-W,  Inc.  pursuant to a May
         23,  1993  lease and  January  31,  1996,  Sublease  with the  Company,
         incorporated herein by reference to Exhibit 10.26 to the Company's Form
         10-K for the year ended December 31, 1996

10.22    Sublease  Agreement,  dated September 17, 1996, between the Company and
         Reality  Interactive,  Inc.  for the fourth  floor  portion of the Main
         Lease between the Company and Ryan/Wilson Limited  Partnership,  Wilson
         Learning Corporation, incorporated herein by reference to Exhibit 10.27
         to the Company's Form 10-K for the year ended December 31, 1996

10.23    Letter of Employment to Tim Walsh,  dated  September 19, 1996,  for the
         position of Vice  President  of Sales and  Marketing  for the  Company,
         incorporated herein by reference to Exhibit 10.28 to the Company's Form
         10-K for the year ended December 31, 1996**

10.24    Settlement  Agreement  and Mutual  Release  dated  September  12,  1997
         between the  Company and Mayo  Foundation  for  Medical  Education  and
         Research,  incorporated  herein by  reference  to  Exhibit  10.1 to the
         Company's Form 10-Q for the quarter ended September 30, 1997

10.25    Sublicense  Agreement  dated September 12, 1997 between the Company and
         Mayo Foundation for Medical Education and Research, incorporated herein
         by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter
         ended September 30, 1997

10.26    Separation  Agreement  and  Release of Claims  dated  January  26, 1998
         between the Company and Joy A. Solomon**

10.27    Letter Agreement dated November 9,  1997 between the Company and Robert
         Goodman**

11       Statement Re: Computation of Per Share Loss

21       Subsidiaries  of the  Company,  incorporated  herein  by  reference  to
         Exhibit 21 to the Company's  Form 10-K for the year ended  December 31,
         1996

23.1     Consent of Ernst & Young LLP

24       Power of Attorney of certain directors (included in signature page)

27       Financial Data Schedule (filed with electronic version only)

*        Portions of the Exhibit  have been  deleted  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