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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                                  ANNUAL REPORT
                       PURSUANT TO SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

         For the fiscal year ended                       Commission file number
            December 31, 1996                                 0-28462

                          ONLINE SYSTEM SERVICES, INC.
             (Exact name of registrant as specified in its charter)

                Colorado                                          84-1293864
        (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                       Identification No.)

                        1800 Glenarm Place, Denver, CO               80202
                    (Address of principal executive offices)       (Zip Code)

                     Registrant's telephone number, including area code:
                                        (303) 296-9200
                 Securities registered pursuant to Section 12(b) of the Act:
                                             None
           Securities registered pursuant to Section 12(g) of the Act:
  Units, consisting of one share of Common Stock, no par value and one Warrant
                           Common Stock, no par value
             Warrants for the purchase of Common Stock, no par value

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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___

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB [X_].

     Registrant's revenues for fiscal year ended December 31, 1996: $1,445,042

     Aggregate market value of voting stock held by non-affiliates of registrant
as of February 28, 1997: Approximately $8,925,313

     Number of shares  outstanding as of February 28, 1997:  3,177,995 shares of
Common Stock, no par value, and 1,265,000 common stock purchase warrants.

     Documents   incorporated  by  reference:   Portions  of  the   registrant's
definitive Proxy Statement, for the Annual Meeting of Shareholders to be held on
May 20, 1997, to be filed with the Commission,  are incorporated by reference in
Part III of this Form 10-KSB.


<PAGE>


                                            PART I
Item 1.  DESCRIPTION OF BUSINESS.

General

         Online System Services, Inc. (the "Company" or "OSS") develops, markets
and  supports  sophisticated,  high-end  World Wide Web  ("Web")  sites,  on the
Internet or Intranets,  to enable companies to enhance  revenues,  reduce costs,
and improve customer service and communication.  A growing number of businesses,
associations  and other  organizations  are establishing Web sites as a means to
communicate internally with employees and externally with customers, prospective
customers and other  constituents.  Many Web sites have been used initially only
for one-way  communication  such as  marketing  or  advertising  through  online
product brochures.  The Company  differentiates itself by offering high quality,
highly   functional,   sophisticated   Web  sites  that  allow  for  interactive
communication  and automated  processing of information.  Businesses can enhance
revenues  by using Web sites to conduct  online  commerce,  such as  interactive
catalog sales.  Businesses can also reduce costs by using Web-based technologies
to automate help desk and other service  functions that have  historically  been
staffed with operators who require training and who may handle hundreds of calls
each day. Interactive, sophisticated Web sites for employee and customer service
functions  can reduce  staffing  and  training  costs,  and  improve  service by
providing  faster  response  time and more  complete  and  current  information.
Businesses  can  also  readily  track  usage  of Web  sites  as a means to focus
marketing efforts and improve service.

        The Company also develops and markets  sophisticated  Web sites that are
targeted to specific industry  segments.  The first industry segment targeted by
the Company is the healthcare industry,  for which standard and custom Web sites
and an  integrated  network  or  "marketspace"  called  "MD  Gateway"  have been
developed.  In  addition,  the Company  markets and supports  "Community  Access
America," a turnkey package of hardware, software,  documentation, and marketing
and technical assistance that enables a local cable company,  telephone company,
newspaper or other entity to provide Internet access and Web site development to
smaller non-urban communities.

         Since commencing operations in February 1995, the Company has built its
expertise  through the development of Web sites for companies,  primarily in the
Denver,  Colorado  area.  The  price for each of these  Web  sites  ranged  from
approximately  $1,500 to $150,000.  The Company has sold five  Community  Access
America  packages  as of February  28,  1997,  and has  developed  two  Internet
training seminars used to establish business contacts for other OSS products and
services.  In January  1997,  OSS  introduced  new products  for the  continuing
medical  education  market at the  Alliance  for  Continuing  Medical  Education
tradeshow and has recently introduced a new enhancement for the Community Access
America  product  which is  specifically  designed  for the cable  and  wireless
television industry.  The Company is also designing and developing WebQuest,  an
interactive  Web site  design  method  that  allows the  Company to provide  its
customers a more effective and collaborative design process.

The Internet and Intranet

        The  Internet is a global web of computer  networks.  Developed  over 25
years ago,  this  "network  of  networks"  allows any  computer  attached to the
Internet  to talk to any other using  Internet  protocols.  Individuals  connect
directly to the Internet through Internet Service Providers ("ISPs").  The rapid
growth in  popularity  of the  Internet  is in large part due to the  increasing
availability of user-friendly  navigational and utility tools designed to enable
easier access to the  Internet;  continued  penetration  of computers and modems
into U.S. households;  the growth of Internet  applications and the awareness of
those applications; and the emergence of the World Wide Web.

         The Web is the term  commonly  used to describe the network of services
and  information  available on the Internet.  This  technology  uses Web browser
software  that allows  non-technical  users to exploit the  capabilities  of the
Internet.  The Web enables users to find,  retrieve and link  information on the
Internet with easy to use graphical interfaces.  The term "Web site" is commonly
used to describe the computer  screen layouts and the file server  computer that
are  accessible  by users of the Web. A Web site  typically  has a collection of
"Web pages" which may contain text, graphics,  pictures, sound, animation, video
or other multi-media content.
<PAGE>
        The Intranet is a term used to describe the  implementation  of Internet
technologies  within a  corporation  or business  organization,  rather than for
external  connection  to  the  global  Internet.  The  Intranet   infrastructure
similarly enables employees using personal computers and Web browser software to
access and  interact  with a broad range of  information  sources  within  their
company, independent of physical location and underlying computer design.

Web Site Development and Maintenance

        The set up and  operation of a Web site requires a computer file server,
software  resident on that file  server and  dedicated  telephone  communication
access to the file  server.  The file  server is given an  Internet  or Intranet
address for each of the Web sites  located on that  server.  When an Internet or
Intranet user enters that address,  they are then  connected to that  customer's
file server where the resident Web pages are located.  Once connected,  the user
can view and interact with the  information  and content of the  customer's  Web
pages.  Most of the Company's  customers elect to have the file server for their
Web site located at the Company's  facilities.  A customer may elect to purchase
their own file server and software,  either directly or through the Company,  or
use one of the  Company's  file  servers.  If a file  server for a  customer  is
located  at the  Company's  facilities,  the  Company  will,  as a  part  of its
maintenance  services,  correct  problems  and  make  periodic  updates  to  the
Customer's Web pages. The Company generates net sales through the sale of design
and consulting services for Web site development,  mark-ups on computer hardware
and software  sold to  customers  and  maintenance  fees charged to customers to
maintain  computer  hardware  and Web sites.  The Company  provides  prospective
customers  a  quote  which  includes  the  applicable  equipment,  software  and
communication  access  pricing,  and the price for the Web site  development and
maintenance services desired by the prospective  customer.  Criteria for pricing
these services include the number of Web pages, and their complexity, the amount
of custom  programming to be done by the Company,  an estimate of the time to be
incurred and competitive  conditions in the customer's industry.  As a marketing
strategy and way to enhance  revenues,  the Company  intends to  negotiate  cost
savings  arrangements with selected  customers.  Under these  arrangements,  the
Company would receive as part of its pricing a percentage of the customer's cost
savings derived from its Web site.

        Web sites vary  significantly in their complexity and  interactivity.  A
simple Web site may have only text in outline form.  More complex sites may have
colored text, graphics,  pictures, sound, animation,  video or other multi-media
content.  A limiting  factor on the content for a site is that as sites get more
complex, significantly more data must be transmitted,  making transmission speed
an issue. The speed at which a user can access a Web site will vary based on the
user's modem speed or type of  connection  to the  Internet or Intranet.  As the
availability of increased  transmission speeds grows, more complex presentations
of information  will become  practical at Web sites.  Web sites may also vary in
their level of interactivity  with the user. Many Web sites are for inquiry only
while others allow the user to interact with, enter and process  information.  A
properly  designed Web site shares many  attributes  of the  telephone,  namely,
widespread   connectivity,   widespread  access  to  services,   and  a  simple,
easy-to-use interface.  However,  because of the computer keyboard and screen, a
Web site has the added capabilities of communicating text,  graphics,  pictures,
animation, video or other multi-media content.

        The  Company  designs  and  implements  Web  sites  ranging  from  basic
inquiry-only  sites to complex,  interactive  sites capable of providing  online
commerce,   database  integration  and  manipulation,   sophisticated  graphics,
animation  and  other  multi-media   content.  The  Company  also  serves  as  a
value-added  reseller of software  capable of allowing  the Internet or Intranet
user to use self-service applications such as the online purchase of products or
services,  product warranty and support,  employee benefit enrollments and other
applications.

        The  Company  demonstrates  to a  potential  client  how a Web  site can
increase  sales by  providing  a cost  effective  way to market its  products to
consumers;  or decrease  costs by providing a more  efficient  way of processing
information.  The Company  can offer such  companies  a pricing  structure  that
minimizes up front costs and allows the Company to share in a percentage  of the
customers'   increased   revenues  or  cost   savings.   Internet  and  Intranet
technologies are well-suited for tracking the number of Web site transactions as
a means to determine added revenues and savings.

        The Company has  developed  a  structured  process for the design of Web
sites.  During the initial phase of a design,  the Company's Web developers meet
with representatives of the business customer to discuss the current methods for
serving  employees,  suppliers,  customers or other targeted  constituents.  The
Company  designs  sites  and 
<PAGE>
Web page  layouts as a logical  extension  of the  customer's  current  business
methods for serving targeted  constituents.  When appropriate,  the Company uses
its  specialized  designers who are  experienced in Web graphics,  animation and
other  multi-media  content  applications.  Prices for low-end Web site designs,
without added software, currently range from $5,000 to $50,000, depending on the
complexity of the design and  implementation of the site. The Company focuses on
high-end  Web site  development  that uses  leading  edge  software.  Prices for
high-end Web sites range from $100,000 to $500,000 or more.

        WebQuest. The Company is developing an interactive design process called
WebQuest   to  expedite   the  design  of  Web  sites  and  to  allow   customer
representatives  to participate  in the design at the Company's  facility and by
remote computer  access.  Using WebQuest,  the Company's  designers and customer
representatives  work together on  computerized  sketches of each Web page.  The
WebQuest concept allows large-screen viewing and simultaneous design and editing
of the Web site by local participants and up to 32 remote  participants.  At the
end of a design session using WebQuest,  the customer's  participants  receive a
printed  "storyboard,"  which shows the design and content of the Web pages. The
storyboard  includes  the concept  sketches  made by OSS' design  artists  using
WebQuest.  The Company believes its WebQuest system significantly  increases the
quality and efficiency of Web site development.

        Value  Added  Resale of  Leading  Edge Web Site  Software.  The  Company
incorporates  leading edge software in its Web site development.  In March 1996,
the Company entered into a  non-exclusive  value-added  reseller  agreement with
Edify, which allows the Company to use and sublicense to OSS customers the Edify
"Electronic Workforce" software.  Electronic Workforce incorporates  intelligent
software agents, which are independent software modules that allow a user on the
Web to interact with a company's  existing  databases and that allow interaction
with Web  browsers,  telephones,  facsimiles,  e-mail and  alphanumeric  pagers.
Electronic  Workforce  easily  allows for the  exchange  of  information  from a
variety  of  sources  including  mainframes,   client-server   environments  and
relational  databases.  Electronic  Workforce  currently  runs with the IBM OS/2
operating system.  Electronic  Workforce  operates on a stand alone file server,
using the IBM OS/2  operating  system,  that can  easily be  connected  to other
hardware platforms and operating systems. Thus, the IBM OS/2 operating system is
not a  significant  limiting  factor.  According  to  Edify,  use of  Electronic
Workforce with the Windows NT operating system is currently under development by
Edify.  Electronic Workforce includes a visual, object oriented environment that
enables  rapid  development  of  business  applications.  The  initial  types of
cross-industry  business  applications  targeted  by the  Company  for Web  site
development  using Edify's  Electronic  Workforce include the online purchase of
products  or  services,   customer  service   applications  and  human  resource
functions.

        Edify  Corporation  is based  in  Santa  Clara,  California.  Edify  was
established  in 1989 to  develop,  market  and  support  software  that  enables
organizations to provide automated services accessed by consumers, employees and
business  partners.  When the  Company  designs  and  implements  an Internet or
Intranet  business  solution  using Edify's  Electronic  Workforce,  the Company
obtains  the  software  from Edify and pays  Edify a license  fee.  The  Company
sublicenses  the Edify software to OSS customers for a sublicense fee determined
by the Company.  The sublicense  fee includes the Company's  markup and may vary
depending  on the  size of the  project  and the  number  of  software  modules.
Customers who  sublicense  Edify  software from the Company also are expected to
pay the Company fees for ongoing software maintenance and support services.  The
sublicense agreement between the Company and its customers must contain required
terms that protect Edify's proprietary interests in the software. The Company is
required  to pay  Edify a  quarterly  maintenance  and  support  fee  based on a
percentage of the cumulative product fees paid to Edify. Edify provides software
updates  and support to the  Company,  but Edify is not  responsible  to provide
updates or support  directly to the  Company's  customers.  Since the  Company's
agreement  with  Edify is  nonexclusive,  Edify and other  Edify  resellers  can
compete with the Company for Web site development projects.

        The agreement  with Edify required  payment of a one time  nonrefundable
fee of  $100,000.  The $100,000 one time fee includes the purchase of $60,000 of
Edify products to be resold to OSS customers.  The agreement has an initial term
of 15 months  which may be  renewed  for 12 months if agreed to by Edify.  As of
February 28, 1997, the Company had purchased  $165,210 of Edify products,  which
includes  the  $60,000  balance  of the one time fee and had  sublicensed  Edify
software to one OSS customer.  The Company plans to use other software  products
and  solutions  in the future to  support  its Web site  design and  development
services.
<PAGE>
        Internet  Access and Web Site  Customers.  In February 1997, the Company
had approximately 350 subscribers for Internet access in the Denver Metropolitan
area through the Company as their ISP. As of February 28, 1997,  the Company had
designed Web sites for 80 customers that are maintained at its Denver  facility.
Four of the Company's  larger Web site  customers  include  INVESCO Funds Group,
Inc., a national mutual fund company;  Echostar  Communications  Corp., a direct
broadcast  satellite  company;   Ciba-Geigy,  Ltd.,  a  multinational  chemical,
pharmaceutical  and  agriculture  company;  and  KCNC  News4  Television,  a CBS
station,  in  Denver, Colorado.  The Web  site for KCNC  News4  Television  uses
sophisticated features including video from the station's "City Cam" network and
real time weather maps.

        Web Site  Maintenance.  If a customer  chooses to locate its Web site on
one of the Company's  computer file servers,  the Company will maintain the file
server and make periodic  updates to the customer's Web pages for a monthly fee.
The monthly  fees  currently  range from $100 to $750 or more,  depending on the
amount of storage  used on the file  server and the  complexity  of the Web page
updates.

        Training. The Company currently offers two Internet training seminars at
the training facility located at its principal offices.  The Internet Game is an
introductory  four-hour  hands-on  training  seminar that uses computers for the
participants and incorporates  interactive learning  techniques.  This course is
designed to teach  people about the  Internet,  how to connect to it, and how to
use basic e-mail and Web browsers. This course was designed by Creative Learning
International  ("CLI") and the Company  pays CLI a royalty of 5% of the revenues
derived  from the  fees for this  course.  The  Business  Person's  Guide to the
Internet  is a four-hour  seminar  that  focuses on how the  Internet is used to
conduct various business activities.  The Company also provides custom corporate
Internet and Intranet training.  The Company has also developed a custom version
of The  Internet  Game,  called "The  Medical  Internet  Game,"  especially  for
physicians.

Healthcare Market

        The Company  has  selected  the  healthcare  market as a major  business
focus, with an emphasis on Internet-based medical education and information. The
healthcare  market is being driven by rapid growth;  pressure to control  costs;
industry  consolidation  and fundamental  market  structure  changes;  increased
complexity of medical  knowledge and  technology;  and  competitive  pressure on
physicians  and  other  healthcare  professionals.  The  Company  believes  that
Internet-based  products and services can assist  clients to increase  revenues,
control costs and improve the quality of healthcare.

        The Company offers  Internet-based  products designed to help physicians
and other healthcare  professionals obtain access to timely and mission-critical
education and information via the Internet. At a customer's Web site, physicians
may choose from a variety of educational  opportunities,  view content  samples,
access course content,  take an online test, and receive CME credit. The Company
expects to generate  revenues in the healthcare  market from providing  Internet
services to CME providers and by the  development of Web sites. In January 1997,
the Company  introduced  new  products  for the CME market at the  Alliance  for
Continuing  Medical Education  tradeshow.  Internet products are directed to the
needs of communications  companies,  managed care organizations,  pharmaceutical
firms, hospitals, physicians and other users and providers of medical education.

        MD  Gateway,   introduced   last  year  as  a  marketspace  for  medical
information and education,  complements the Company's product strategy. The site
functions  as a central  clearing  house for  education  and  information  about
conferences,  associations,  relevant  sites  and  other  useful  content.  This
marketspace integrates the professional and educational needs of physicians with
the unique  interests  of  professional  associations,  multi-media  publishers,
managed care organizations and pharmaceutical and medical device companies.

        The Company  has a joint  development  and  marketing  arrangement  with
Charles Spickert and Medical Education Collaborative ("MEC"). MEC is a nonprofit
medical  education  firm  founded by Mr.  Spickert  in 1988 and is a  nationally
accredited provider of continuing medical education credits for physicians.  Mr.
Spickert  has worked in  continuing  medical  education  for over 15 years.  The
Company has granted to Mr. Spickert options for the purchase of 50,000 shares of
Common Stock with an exercise price of $0.50 per share.
<PAGE>
        MEC routinely  receives grants from private  industry,  including grants
from medical device and pharmaceutical  companies for medical education services
performed  by MEC.  MEC plans to use  Web-based  technologies  for some of these
services. MEC may subcontract with the Company for Web site development services
that  are to be  performed  under  one or more  grants.  As  part  of the  joint
development and marketing arrangement with MEC and Mr. Spickert, the Company has
agreed to perform Web site development services as a vendor to MEC.

        On  November  11,  1996,  the Company  entered  into an  agreement  with
Telemedical  Systems  Integration,  Inc.  ("TMED")  to work with the  Company to
design  and  market  online-interactive   medical  information  and  educational
products and services to the health-care industry. The agreement is for a period
of three years,  subject to earlier  termination in certain events, and provides
that TMED will  perform  consulting  services  for the  Company  valued at up to
$225,000  ($80,000 of which had been  advanced as of February 28, 1997) and will
be paid a  commission  on  sales  completed  by  TMED.  TMED  will  serve as the
Company's  primary  sales  group  for its  healthcare  products,  including  the
recently  introduced CME products.  The Company has also agreed to grant TMED an
option to  purchase  up to  28,000  shares of the  Company's  common  stock at a
purchase price of $3.57 per share.

        Many online and Internet-based systems exist or are under development by
different companies to serve the needs of the healthcare  industry.  The Company
expects to  differentiate  its healthcare  offerings by combining its ability to
develop highly  functional,  sophisticated  Web sites that allow for interactive
communication  and  automated  processing of  information  with the resources of
industry specialists, such as MEC.

Community Access America

        The market for  providing  Internet  access  services  has been  growing
rapidly,  with many competing ISPs in urban markets.  The Company  believes that
currently only a few of the ISPs operate in non-urban  markets with  populations
from 10,000 to 200,000  within a local  calling area. If a person in that market
desires to purchase  Internet  access but there is no ISP in that person's local
calling  area,  that person  generally  would incur long  distance  charges when
obtaining  Internet  access  unless  access could be purchased on a  competitive
basis from a long  distance  carrier  such as AT&T Corp.  ("AT&T").  The Company
believes  there is  currently  an  opportunity  for  providing  ISP  services in
non-urban  markets,  which will allow  consumers  in those  markets to  purchase
Internet access without incurring long distance  charges.  OSS believes there is
an  additional  opportunity  in  non-urban  markets for ISPs to set up local Web
sites with  content  and  advertising  space sold to local  businesses  in those
markets.

        The Company has developed an Internet  Service  Provider  package called
"Community  Access  America" to offer a turnkey  Internet "Point of Presence" to
local  cable,  telephone  and  newspaper  companies  in  non-urban  markets with
populations  from 10,000 to 200,000.  The Company has sold five Community Access
America  packages as of February 28, 1997.  The package is designed to add a new
layer of revenues for the local companies' existing subscriber base.  Especially
developed for  non-urban  areas,  Community  Access  America  provides the local
community a link to the Internet and World Wide Web for local and  international
information,  entertainment and news. The turnkey package includes the hardware,
software, documentation, and marketing and technical assistance that an operator
requires to become an ISP and Web  developer.  The Company  assists with initial
installation and setup of the system for a fixed fee, and sells or may lease the
required  equipment to the ISP operator.  The ISP solicits  subscribers and pays
for Internet  access in its local calling area under a contract  between the ISP
and MCI,  Sprint or other  provider of  Internet  backbone  services.  The ISP's
customers  use their  computer  modem to dial a local  number to  connect to the
ISP's  equipment  that has a  digital  access  line  serving  as the link to the
Internet.  The  Company  contracts  with ISP  operators  to provide  the turnkey
package,  for a price  which  includes  the  Company's  margin,  and to  provide
continued marketing and technical assistance in exchange for a service fee and a
share of the ISP's gross revenues.

        The Company  believes that the Community Access America program offers a
local  ISP the  benefit  of a  turnkey  package  that can be  readily  geared to
advertising  by local  businesses.  The Community  Access  America  program also
includes  the  Company's  proprietary  software  for use with  billing  Internet
access. The Company is targeting local cable companies,  telephone companies and
newspapers  as  prospective  ISPs.  These types of  businesses  already  have an
existing  base of  consumer  and  advertising  customers  but  often do not have
experience with the Internet or Web-based  technologies.  The Company's  turnkey
package provides the necessary hardware, software, training and support required
<PAGE>
for providing  quality Internet access services and local Web site  development.
The Company believes that the end users of Internet access will have an interest
in the Community Access America program because it eliminates long distance toll
charges for Internet  access,  supports the local  community and is a source for
local information and advertising.

        The Company has recently  introduced a new enhancement for the Community
Access  America   product  under  the  name  "Cable  Access  America"  which  is
specifically  designed  for the  cable and  wireless  television  industry.  The
enhancement uses hybrid cable modems to deliver data at high speeds to customers
while using conventional  telephone modems to send data from the customer to the
Internet. For cable operators,  hybrid cable modems do not require costly system
upgrades  in their  existing  plant  to be  performed  in  order  to offer  data
services. This enables cable operators to provide customers with high-speed data
transmission  where it is most  needed,  from  the  Internet  to the  customer's
computer, while keeping costs down for the cable operator.

        The  initial  capital  investment  for an ISP  operator  purchasing  the
Community Access America package ranges from approximately $33,000 to $70,000 or
more,  depending on the size of the  equipment.  The equipment is sized based on
the number of  anticipated  subscribers.  The ISP operator  determines  the fees
payable by a subscriber.  Those fees can range from  approximately $10 per month
for a few hours of Internet access to several hundred dollars per month for high
speed access by a frequent user.

        In addition to  providing  Internet  access,  Community  Access  America
provides the local ISP training and software to assist the ISP operator with the
design and  implementation  of Web sites for the local ISP area. The Company has
developed an interactive  Web site available to all ISP operators  participating
in  Community  Access  America to provide  them with  continued  assistance  and
support.

Trademarks and Proprietary Protection

         The Company has applied  for  federal  registration  of the  trademarks
"Community  Access  America",  "WebQuest"  and "MD  Gateway"  and  "The  Virtual
Salesforce."  The Company does not believe that its current products or services
are patentable.  The Company plans to rely on a combination of copyright,  trade
secret,  trademark laws, and nondisclosure  and other contractual  provisions to
protect its proprietary rights. As a part of its confidentiality procedures, the
Company   generally  enters  into  with  its  officers  and  employees   written
nondisclosure  and  nonsolicitation   agreements  which  restrict  the  use  and
disclosure of proprietary  information and the solicitation of customers for the
purpose of selling competing  products or services.  The Company has not entered
into  noncompetition  agreements  with its  officers,  directors  or  employees.
Because the policing of  proprietary  rights may be difficult  and the ideas and
other  aspects  underlying  the  Company's  products and services may not in all
cases be protectable under intellectual property laws, there can be no assurance
that the Company  can prevent  competitors  from  marketing  the same or similar
products  and  services.  In addition,  competitors  may  independently  develop
products and services that compete with the Company.

Competition

        The market for  Internet  and  Intranet  products and services is highly
competitive  and the Company  expects  that this  competition  will  continue to
intensify  in the future.  The  Company's  current and  prospective  competitors
include many companies that have  substantially  greater  financial,  technical,
marketing,  and other resources than the Company.  Increased  competition  could
result in price  reductions  and  increased  spending on  marketing  and product
development.  Any of these  events could have a material  adverse  effect on the
Company's financial  condition and operating results.  There can be no assurance
that the Company will be able to compete successfully against current and future
competitors  or  that  competitive  pressures  faced  by the  Company  will  not
materially adversely affect its business,  financial  condition,  and results of
operations.

        There  are many  nationally  known  companies  and  regional  and  local
companies  across  the  country  that are  involved  in  Internet  and  Intranet
applications, including the development and support of Web sites, and the number
of competitors is growing.  Andersen  Consulting LLP and Electronic Data Systems
Corporation  are large custom  software  developers,  integrators  and resellers
whose services include a broad range of Internet and Intranet  applications.  In
addition,   many  of  the  Internet  access  providers  also  provide  Web  site
development services.  The Company  believes  that in most  urban  markets there
<PAGE>
are growing  numbers of software and consulting  firms that provide a wide range
of Web site  design and  support  services.  Competitors  in the  Denver  market
include Eagle River Interactive,  Inc.,  Navidec,  Inc., Rocky Mountain Internet
and SuperNet,  Inc. The Company will also compete with the internal  information
system  departments  of  prospective  customers  who  are  choosing  whether  to
outsource design and support or retain or develop that function in-house.

        In the market for  Internet  and Intranet  business  solutions  that use
self-service  applications  such as Edify's  Electronic  Workforce,  competitors
include systems integrators and potential customers' internal information system
departments.  Since the Company's reseller agreement with Edify is nonexclusive,
the Company  competes with Edify and other resellers of Edify  products.  In the
future,   the  Company   expects   competition   from  Netscape   Communications
Corporation, Microsoft and others to increase. The Company also expects database
vendors  such  as  Oracle  Systems   Corporation,   Sybase,  Inc.  and  Informix
Corporation to provide many of the capabilities needed in the development of the
Internet and Intranet self-service applications.  Where appropriate, the Company
plans to serve as a  value-added  reseller of other  software  products that are
complementary or alternatives to the Edify products.

        Many online and  Internet-based  services  for the  healthcare  industry
exist or are under  development by various  organizations.  Intense  competition
could jeopardize the success of the Company's healthcare product offerings.

        Individuals  and  businesses  connect  directly to the Internet  through
Internet  Service  Providers,   including  MCI  Telecommunications   Corporation
("MCI"), AT&T, Sprint Corp. ("Sprint"), Microsoft, NETCOM On-Line Communications
Services, Inc. ("NETCOM"),  Performance Systems International,  Inc. ("PSINet"),
UUNET  Technologies,  Inc.  ("UUNET"),  Bolt  Beranek & Newman Inc.  ("BBN") and
others.  There are also many local ISPs providing Internet access principally in
urban markets.  These companies are competitors to OSS, which provides  Internet
access services in the Denver Metropolitan area market. Internet access services
are growing  nationwide as  easy-to-use  software  packages  make  accessing the
Internet  as easy as getting to the popular  online  services.  To compete  with
these direct Internet  access  providers,  consumer  online  services  including
America OnLine,  Inc.  ("AOL"),  CompuServe,  Inc.  ("CompuServe"),  and Prodigy
Services Co.  ("Prodigy"),  have  Internet  access  gateways for their  existing
subscribers.  With these gateways,  the online services effectively become large
Internet "on-ramps" bringing large numbers of subscribers onto the Internet.

        In the Denver market,  the Company  competes with  nationally  known and
local ISPs for Internet access, including MCI, AT&T, Microsoft,  NETCOM, PSINet,
UUNET,  as well as Rocky  Mountain  Internet and  SuperNet  Inc.  Ameritech  has
partnered with Concentric Networks Corporation to sell, primarily to independent
telephone companies,  Internet access in non-urban markets.  Management believes
that  the  Community   Access  America  pricing   structure  is  currently  more
advantageous to potential ISP's than the Ameritech program.  The Company expects
that  competition  with its Community  Access  America  program will grow as the
large urban markets for Internet  access begin to mature and the large ISPs look
to open smaller markets.  The Company is aware of at least one company which has
developed a program which competes with OSS's Cable Access America product.

Government Regulation

        The Company's  products and services  pertaining to Web site content and
development  are not  currently  subject  to direct  regulation  by the  Federal
Communications  Commission  or any other  federal  or state  agency,  other than
regulations  applicable  to  businesses  generally.  Changes  in the  regulatory
environment  relating  to  the  Internet  content  or  connectivity  industries,
including    regulatory    changes   that   directly   or   indirectly    affect
telecommunication  costs or increase the likelihood or scope of competition from
regional telephone companies or others,  could have a material adverse effect on
the Company's  business.  The Company  cannot  predict the impact,  if any, that
future regulation or regulatory changes may have on its business.

Employees

        At February 28, 1997,  the Company  employed 42 people,  all of whom are
full time employees.
<PAGE>
        The directors and executive officers of the Company are as follows:

Name                    Position

R. Steven Adams        President, Chief Executive Officer and a  Director
Thomas S. Plunkett     Chief Financial Officer
Robert M. Geller       Secretary and a Director
Paul H. Spieker        Vice President-Technical Operations and a  Director      
D. Kent McBride        Vice President-Learning and Performance
William Eager          Vice President-Web Services
Vincent D.Bradshaw     Vice President-Sales
Robert J. Lewis        Director
H. Robert Gill         Director
Richard C. Jennewine   Director


 ........R.  Steven  Adams,  founder  of OSS,  has  served  as  President,  Chief
Executive  Officer and a director  since the  Company's  incorporation  in March
1994. From 1985 to 1994, Mr. Adams was  President-Sheridan  Hotel Management,  a
full service hotel management company.  Mr. Adams was the creator and founder of
HotelNet,  which was an online information system for the hospitality  industry.
Mr.  Adams'  experience   includes  software   development,   personal  computer
manufacturing and management of online information systems.

 ........Thomas S. Plunkett, has served as Vice President-Chief Financial Officer
of the Company since October 1996.  From 1995 to 1996 Mr.  Plunkett was the Vice
President of Business Management at Maxtor  Corporation,  a manufacturer of disk
drives.  From 1994 to 1995 Mr. Plunkett was the Vice President of Operations for
Hi-Tech Manufacturing,  an electronic  manufacturing services company. From 1992
to 1994 he was a  Controller  at  Conner  Peripherals,  a  manufacturer  of disk
drives.  From 1989 to 1992, Mr.  Plunkett served as Vice President and C.F.O. of
Discovery  Technologies,   a  manufacturer  of  high  resolution  medical  image
transmission equipment.  Prior to joining Discovery  Technologies,  Mr. Plunkett
held  various  senior  operations  and  financial   management   positions  with
Miniscribe Corporation from 1982 to 1989.

 ........Robert  M. Geller,  has been a director and  corporate  secretary of the
Company since May 1995. He also served as Vice President-Chief Financial Officer
of the  Company on a one-half  time  basis  from May 1995 to October  1996.  Mr.
Geller  currently  provides  services to the Company on a part time basis.  From
1986 to the present,  Mr.  Geller has been  President  of The Growth  Strategies
Group, a consulting  company  specializing  in board and executive  services for
emerging  growth  companies.  Mr. Geller is a director of Integral  Peripherals,
Inc.,  a privately  held  manufacturer  of  computer  disk  drives;  Renaissance
Entertainment  Corporation,  a publicly  held owner and operator of  renaissance
fairs;  and Armanino  Foods of  Distinction,  Inc., a publicly  held producer of
Italian foods.

 ........Paul  H. Spieker,  has been Vice  President-Technical  Operations of the
Company  since  February  1995.  From 1992 to 1994 Mr.  Spieker was President of
Business Regulatory Coalition-Colorado, a public affairs company responsible for
policy  formulation and activities  primarily  dealing with  regulatory  matters
representing  companies  before the Colorado Public Utilities  Commission.  From
1991 to 1994, he was a private consultant  primarily for businesses in voice and
data communications.  From 1990 to 1991, Mr. Spieker was President of Developers
Cable Construction,  a startup company providing contract  construction services
for residential developers and local telephone and cable companies. From 1987 to
1990, Mr. Spieker was employed by Volt  Information  Sciences,  Inc., a New York
based  telecommunications  company.  Mr.  Spieker  was  employed  by  U  S  WEST
Communications, Inc. and its predecessor from 1966 to 1987 and served in several
senior management capacities,  including the head of the strategic business unit
which served large telephone customers in a seven state territory.

 ........D. Kent McBride, has been Vice President-Learning and Performance of the
Company since December 1995 and served as Vice President of Business Development
from May 1995 to December  1995.  From May 1994 to May 1995,  Mr. McBride was an
independent  consultant and developed and delivered accelerated learning classes
for clients  ranging  from  nuclear  power  plants to the U.S. Air Force and the
Colorado  Department of Revenue.  From January 1993 to May 1994, he was employed
by The Boulder Center of Accelerated Learning, a training firm based in Boulder,
Colorado.  From  October  1992 to January  1993,  he was a software and training
consultant.
<PAGE>
Mr. McBride served as customer service manager for the Association of Brewers, a
publisher  for the home and micro brewing  industries,  from May 1992 to October
1992.  From March 1991 to May 1992,  he was a  consultant  to industry  for team
building and personal leadership.

 ........William Eager, has been Vice President-Web Services of the Company since
March 1995.  From 1990 to 1995, Mr. Eager was an author  publishing for Prentice
Hall  Publishing  and Que  Corporation.  During that time Mr.  Eager wrote seven
books on the Internet and electronic communications.  Mr. Eager is the author of
the book "Using the World Wide Web," published in 1994 by Que Corporation.  From
1987 to 1990, he was Director-Corporate  Communications for BASF Corporation, an
electronic  media  company.  Mr. Eager  provides  his full time  services to the
Company and without  restriction  from any  publisher.  If Mr.  Eager  elects to
author additional books, he would do so on his own time. The Company believes it
benefits from Mr. Eager's reputation as an author in the Internet and technology
application fields.

 ........Vincent  D. Bradshaw,  joined the Company as Director-Sales in June 1996
and was promoted to Vice  President-Sales  and made an officer of the Company in
September  1996.  From  May  1993  to May  1996,  he was  Director  of  Business
Development  for Source One  Management,  Inc.,  a privately  held Denver  based
company  in the  business  of  providing  technical  operations  management  and
engineering services. From 1987 to 1996, Mr. Bradshaw was an independent, Denver
based marketing and business  consultant,  doing business as Foresight  Business
Services. As a consultant,  he provided marketing and business operations advice
to a number of private and public companies. From May 1981 to December 1986, Mr.
Bradshaw  was employed by Mountain  Bell and its parent  company US West Inc. in
different  sales  positions  leading to his being  named Vice  President-Federal
Services from 1985 to 1986. From August 1960 to April 1981, he held  progressive
technical  operations,  engineering  and  sales/marketing  positions  with  AT&T
Company in several eastern states.  Mr. Bradshaw is currently a business advisor
with the Boulder Technology Incubator, a not-for-profit corporation that assists
fledgling inventors and firms in marketing their technologies.

 ........Robert J. Lewis, has been a director of the Company since February 1995.
Mr.  Lewis  retired in October  1995  after  having  spent 37 years in the cable
television  industry  as an owner and  developer  of cable  systems  and  senior
executive  with  several  cable  television  companies.   From  1987  until  his
retirement, Mr. Lewis was employed by TCI Telecommunications,  Inc. ("TCI"), one
of the largest cable television companies in the United States. Mr. Lewis served
as a Senior Vice  President of TCI from 1991 to 1993 and as a Senior  Advisor to
TCI from 1993 until his retirement.

 ........H.  Robert Gill,  has been a director of the Company  since August 1996.
From April 1996 to the  present,  Mr. Gill has been the  President  of The Topaz
Group,  a  consulting  company  offering  board  of  director  services  to high
technology,  emerging growth public and private corporations. From March 1995 to
March 1996,  Mr.  Gill was the Senior Vice  President  and  President,  Enhanced
Products Group for Frontier  Corporation,  a  telecommunications  company.  From
January  1989 to March 1995 he was  President,  Chief  Executive  Officer  and a
director or  Confer-Tech  International,  Inc.  Mr. Gill is a director of TOPRO,
Inc., a systems integration company offering equipment and services to a variety
of  growth  manufacturing  industries,   QualMark  Corporation,  a  provider  of
accelerated  Life testing  equipment and services,  MOSAIX,  Inc., a marketer of
inbound and outbound call center systems and services, and Spatial Technologies,
Inc., a developer and marketer of three  dimensional  modeling  software for CAD
applications.

 ........Richard C. Jennewine,  has been a director of the Company since November
1996.   From   September   1995  to  the  present,   Mr.   Jennewine   has  been
President-International  Operations and Regional Manager-Western  Operations for
Computer Aid, Inc. a leader in strategic  outsourcing and  information  services
consulting.  From December 1991 to February  1995, Mr.  Jennewine  served as the
Senior Vice President of the CONCORD  Group,  a privately  held  entrepreneurial
group of 40 significant international enterprises. From January 1994 to February
1995, he served as the President of the Concord Trading  Corporation,  a company
focusing on trading and business ventures in Asia,  Russia,  the Middle East and
South America.  Prior to these positions,  Mr. Jennewine spent 26 years with IBM
Corporation,  including startup operations in mainland China. Mr. Jennewine is a
director of Easter Seals of Colorado and is a member of the Corporate Management
Committee of Computer Aid, Inc.
<PAGE>
 ........Mr.  Geller  currently  provides  services to the Company on a part-time
basis.  All of the other  officers of the Company are full time employees of the
Company.  There  are no  family  relationships  among  any of the  directors  or
executive officers of the Company.

Item 2.  DESCRIPTION OF PROPERTY.

 ........The  Company's  principal  offices are located in  approximately  12,600
square  feet of space in Denver,  Colorado,  leased for a period of three  years
ending on September 30, 1999.  The current base monthly  rental is $13,657.  The
spouse of R. Steven Adams, President,  Chief Executive Officer and a director of
the  Company,  is an officer of the firm which  manages the  building  where the
Company's principal offices are located.

Item 3. LEGAL PROCEEDINGS.

 ........Not Applicable.

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

 ........Not applicable.

                                     PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER  MATTERS.

         The number of record  holders of the  Company's  Common Stock  ("Common
Stock") and Common Stock Purchase Warrants ("Warrants") on February 28, 1997 was
64 and 8,  respectively.  The Company  estimates  that the number of  beneficial
owners of the Common Stock on February 28, 1997 exceeded 1,200. Prior to May 23,
1996 there was no public trading market for the Common Stock and Warrants. Since
May 23, 1996, the high and low sale prices for the Common Stock and the Warrants
as reported on the Nasdaq Small Cap Market are shown in the table  below,  based
on information  provided by the Nasdaq Stock Market.  These quotations represent
prices  between  dealers,  and do  not  include  retail  markups,  markdowns  or
commissions, and may not represent actual transactions.

                                   COMMON STOCK               WARRANTS
                             -------------------------   ----------------------
          Quarter Ended         High          Low        High          Low

          1996
          June 30             11-1/4        5-5/8           3           7/8
          September 30         6-1/4        3-1/8       1-1/2           1/2
          December 31          5-1/8        3-1/4         7/8           3/8

        The Company  has never paid a cash  dividend  on its Common  Stock.  The
payment by the  Company of  dividends,  if any, in the future  rests  within the
discretion of its Board of Directors and will depend,  among other things,  upon
the Company's earnings, capital requirements and financial condition.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

General

        The Company develops,  markets and supports sophisticated,  high-end Web
sites for  customers'  use on the Internet or Intranets.  The Company  generates
revenues  through  the  sale of  design  and  consulting  services  for Web site
development,  resale of software  licenses,  mark-ups on computer  hardware  and
software  sold to customers,  maintenance  fees charged to customers to maintain
computer hardware and Web sites,  license fees based on a percentage of revenues
from the Community  Access America  program,  training  course fees, and monthly
fees paid
<PAGE>
by customers for Internet  access  provided by the Company in the Denver market.
The Company  commenced sales in February 1995, and was in the development  stage
through December 31, 1995.

Results of Operations

         The following table sets forth for the periods indicated the percentage
of net sales by items contained in the statements of operations. All percentages
are calculated as a percentage of total net sales, with the exception of cost of
services and cost of hardware and software  which are calculated as a percentage
of service sales and hardware and software sales, respectively.

                                                     For the Twelve Months Ended
                                                             December 31
                                                     ---------------------------
                                                         1996      1995
                                                         ----      ----
Net Sales:
  Service sales                                          77.9%     59.4%
  Hardware and software sales                            22.1%     40.6%
                                                         -----     ----- 
    Total net sales                                     100.0%    100.0%

Cost of sales:
  Cost of services (as percentage of service sales)      63.7%     70.3%
  Cost of hardware and software (as percentage of
  hardware and software  sales)                          72.8%     83.4%
                                                        -----     -----   
   
    Cost of sales                                        65.7%     75.6%
                                                        -----     -----   

Gross Margin                                             34.3%     24.4%
                                                        -----     -----       

Operating expenses:
  Sales and marketing expenses                           43.8%     21.2%
  Product development expenses                           32.0%     20.1%
  General and administrative expenses                    61.8%     98.7%
  Depreciation and amortization expense                   7.4%      5.3%
                                                        -----     -----       
    Total operating expenses                            145.0%    145.3%

Loss from operations                                   (110.7%)  (120.9%)

Net Loss                                                (98.3%)  (121.2%)

Twelve Months Ended December 31, 1996 and 1995

        Net  sales  for  the  twelve  months  ended   December  31,  1996  total
$1,445,042, including $1,125,617 for service sales and $319,425 for hardware and
software  sales.  This  represents an increase of 263.3% above 1995 net sales of
$397,756,  which  consisted  of $236,412  for  service  sales and  $161,344  for
hardware and software  sales.  Net sales for the 1995 period were  predominantly
from two initial customers.  In 1966, one customer accounted for sales in excess
of 10% of net sales.  The  increase  in sales for the 1996  period,  compared to
1995, was due to the expanded  development of the Company's  product and service
offerings  and to a substantial  increase in marketing  and sales  activities in
general.

        Cost of sales as a percentage of net sales was 65.7% for the 1996 period
and 75.6% for the 1995 period.  The  Company's  gross  profit  margin on service
sales has  fluctuated  and has been lower  during  periods  when the Company has
hired   additional   service   personnel  and  incurred  other  fixed  costs  in
anticipation of future growth.  Cost of sales on hardware and software sales are
generally higher than on service sales.  Therefore,  the Company's overall gross
profit  margin  is  higher  during  periods  when  service  sales  are a greater
percentage of total net sales. The decrease in the cost of sales as a percentage
of net sales in the twelve-month  period of 1996 is due to the higher percentage
of service sales in the 1996 period, compared to the 1995 period, and the higher
relative fixed costs associated with providing initial services during 1995.
<PAGE>
        Sales and  marketing  expenses  were  $633,025  for the 1996  period and
$84,444 for the 1995 period. Sales and marketing expenses as a percentage of net
sales  increased  from 21.2% in 1995 to 43.8% in 1996.  The  increase in dollars
spent,  as well as the  increase as a  percentage  of net sales  during the 1996
period,  were  due to the  hiring  of new  sales  and  marketing  personnel  and
associated expenditures.  The Company also increased the promotion and marketing
of its MD Gateway and Community Access America products and services. Because of
the potentially  long sales cycle for the Company's  products and services,  and
the recent  introduction  of new  products and  services in the  healthcare  and
Community  Access  America areas,  sales and marketing  expenses are expected to
increase  at a faster  rate than net sales  during  the next  several  quarters,
resulting in an increased percentage of net sales for these expenses.

        Product  development  expenses were $462,108 for the twelve months ended
December 31, 1996, compared to $79,760 for the 1995 period.  Product development
expense as a percentage  of net sales  increased  from 20.1% in 1995 to 32.0% in
1996. The increase in these expenses, as well as the increase as a percentage of
net sales during the 1996  period,  reflects the  continued  development  of the
Company's products and services.  Product  development  expenses during the 1996
period include  enhancements  to the Community  Access America  products with an
emphasis  during the fourth  quarter on a line of new offerings  targeted at the
cable industry,  continued  development work on WebQuest,  an interactive design
process  intended to expedite the design of Web sites,  and initial  feasibility
studies on various broadbanned  transmission  products and services.  During the
fourth  quarter of fiscal 1996,  the Company also developed a group of Web-based
products  and  services   targeted  to  continuing   medical  education  ("CME")
providers.  Product  development  expenses  during the 1995 period  included the
development of the Company's  training  courses entitled "The Internet Game" and
"The Business Person's Guide to the Internet" which are primarily being utilized
as marketing  tools to enhance Web  development  sales  activity and the initial
development  of the Community  Access  America  products and  services.  Product
development  expenses are expected to continue to increase during fiscal 1997 as
the Company  continues to develop the Community  Access America and CME products
and services and investigates the feasibility of other product offerings.

        General and administrative  expenses were $892,799 for the twelve months
ended December 31, 1996,  compared to $392,600 for the 1995 period.  General and
administrative  expenses as a percentage  of net sales  decreased  from 98.7% in
1995 to 61.8% in 1996.  The dollar  increase  reflects  the  development  of the
Company's  general  and   administrative   infrastructure,   including  finance,
accounting,  business development and investor relation capabilities, as well as
additional  expenses  related to being a public company.  The  expenditures as a
percentage of net sales  decreased  during 1996 compared to 1995 as a portion of
the general and administrative  infrastructure  expenses  represents fixed costs
that do not increase at the same rate as increases in net sales.

        Depreciation  and  amortization  expenses  were  $106,814 for the twelve
months ended  December 31, 1996,  compared to $20,936 for the 1995 period.  This
increase  reflects the increase in fixed assets and equipment to support  higher
levels of Web site and  Internet  access  services,  as well as to  support  the
growth in the  number of  employees.  During  1996,  the  Company  enhanced  its
training facility utilized to educate potential customers.

        Other income  (expense) was $179,192 during the  twelve-month  period
ended  December  31,  1996, compared  to  ($1,479)  for the  1995  period.  Upon
completion of the Company's  initial  public  offering in May 1996,  the Company
paid a portion  of its  outstanding  debt  resulting  in a  reduction  of future
interest expense and began earning interest income on the invested net proceeds.
The Company's investments consist of U.S. Treasury Bills and cash equivalents.

         Net losses were  $1,420,432 in the  twelve-month  period ended December
31, 1996 compared to $482,239 for the 1995 period. These losses reflect expenses
incurred to develop and identify the  Company's  initial  products and services,
and to develop  marketing and sales programs and operational and  administrative
expenses  incurred to support its business.  The Company  expects to continue to
experience  increased  operating expenses and capital  investments during fiscal
1997, as it continues to develop new product  offerings  and the  infrastructure
required  to  support  its  anticipated   growth.  The  Company  believes  that,
initially, these expenses are expected to be greater than increases in net sales
and, more likely than not, will result in  substantial  operating  losses in the
first,  second and third quarters of fiscal 1997. The Company  expects to report
an operating loss for the full year ending December 31, 1997.
<PAGE>
Liquidity and Capital Resources

        As of December 31, 1996,  the Company had cash and cash  equivalents  of
$1,645,163,   short-term  investments  of  $3,855,343  and  working  capital  of
$5,698,288.  The Company  has  financed  its  operations  and capital  equipment
expenditures  through a combination of public and private sales of common stock,
issuing common stock for services,  lease  financing,  short-term  loans and the
utilization of trade  payables.  During 1996,  the Company  completed an initial
public  offering  of its common  stock  which  resulted  in net  proceeds to the
Company of  $7,231,981  and the issuance of an  additional  1,265,000  shares of
common stock.

        During the twelve months ended December 31, 1996, the Company purchased
$459,997 of fixed assets.  These  purchases were primarily  computer  equipment,
communications  equipment and software necessary to provide Internet access, and
training to host Web sites and to develop Web sites for  customers.  In addition
to these amounts,  during 1996, the Company  entered into an operating  lease in
order to make significant upgrades to its Web server, access server and Internet
communications  capabilities.  As part of the lease agreement,  the Company must
maintain an  interest-bearing  deposit of $222,693,  which will be released over
time as lease payments are made. In anticipation  of future growth,  the Company
expects  to  invest  a  minimum  of  $500,000  during  fiscal  1997 to  purchase
additional computer equipment, software and office equipment.

        Accounts receivable balances increased from $98,282 at December 31, 1995
to $229,350 at December 31, 1996, due to the increased sales level during fiscal
1996. Due to the Company's  utilization of the percentage of completion  method
of revenue recognition for its Web services,  an asset of $90,337,  representing
revenue  earned  and not  billed,  is shown as  accrued  revenue  receivable  at
December 31, 1996. A liability for amounts invoiced but not earned of $48,669 is
shown as deferred  revenue at December  31,  1996.  The  Company's  hardware and
software  inventory  of  $195,941  at December  31,  1996,  consists of software
licenses purchased by the Company for resale.

        Prepaid expenses increased to $132,544 at December 31, 1996, from $5,000
at December 31, 1995,  primarily due to amounts paid under a marketing and sales
agreement  with an  independent  company.  These  amounts  consist  of  advanced
consulting fees, sales commission advances and travel advances that are expected
to be earned  through  commissions  on sales of the  Company's  CME products and
services.  Trade  account  payables at December 31, 1996,  increased to $331,809
from  $74,990 at  December  31,  1995,  due to the  increased  level of business
activity  and  associated  expenses  and  acquisition  of software  and hardware
inventory,  as well as equipment,  which acquisitions  occurred near the
end of the 1996 period.

         The Company  believes  that its cash and cash  equivalents  and working
capital are adequate to sustain  operations for at least the next twelve months.
If  sufficient  cashflow is not being  generated at the end of this period,  the
Company may be required to seek additional  funds through equity,  debt or other
external financing. There is no assurance that any additional capital resources,
which the Company may need, will be available if and when required, and on terms
that will be acceptable to the Company.


<PAGE>


Length of Sales Cycle; Potential Fluctuations in Quarterly Results

        The development and  implementation of interactive Web sites is often an
enterprise-wide decision by prospective customers and may require the Company to
engage in a lengthy sales cycle.  The pursuit of sales leads typically  involves
an  analysis  of the  prospective  customer's  needs,  preparation  of a written
proposal, one or more presentations and contract negotiations. The Company often
provides  significant  education to prospective  customers regarding the use and
benefits  of  Internet or Intranet  technologies  and  products  such as Edify's
Electronic Workforce.  Extensive Web site development or licensing of Electronic
Workforce may also involve a substantial commitment of capital and the attendant
delays  frequently  associated  with approving  large capital  expenditures  and
reviewing new  technologies  that affect key  operations.  While the sales cycle
varies from customer to customer, it typically has ranged from one to six months
for Web site  design and  support,  and from one to three  months for  Community
Access  America  projects.  The sales cycle may also be subject to a prospective
customer's budgetary constraints and internal acceptance reviews, over which the
Company  has little or no  control.  Consequently,  if sales  forecasted  from a
specific customer for a particular quarter are not realized in that quarter, the
Company is unlikely to be able to generate  revenue  from  alternate  sources in
time to compensate for the shortfall.  If a larger order is delayed or lost to a
competitor,  the  Company's  revenues  for  that  quarter  could  be  materially
diminished.  Moreover,  to the extent that significant  sales occur earlier than
expected, operating results for subsequent quarters may be adversely affected.

        Further,  as a result of the Company's  limited operating  history,  the
Company  does not have  historical  financial  data for a  sufficient  number of
periods on which to base planned operating expenses.  Accordingly, the Company's
expense levels are based in part on its  expectations  as to future revenues and
to a large extent are fixed.  The Company  typically  operates with little or no
backlog  and  the  sales   cycles  for  its   products  and  services  may  vary
significantly.  As a result,  quarterly  sales and operating  results  generally
depend on the  volume  and timing of and  ability  to close  customer  contracts
within the quarter,  which are difficult to forecast.  The Company may be unable
to adjust  spending on a timely manner to compensate for any unexpected  revenue
shortfalls.  Accordingly,  any significant shortfall of demand for the Company's
products and services in relation to the  Company's  expectations  would have an
immediate  adverse  impact on the  Company's  business,  operating  results  and
financial  condition.  In addition,  the Company plans to increase its operating
expenses to fund product  development  and increase sales and marketing.  To the
extent that such expenses precede or are not subsequently  followed by increased
revenues, the Company's business, operating results and financial condition will
be materially adversely affected.

Forward Looking Information

        Information contained in this report, other than historical information,
should be considered forward looking and reflects  management's  current view of
future  events  and  financial  performance  that  involve a number of risks and
uncertainties.  The factors that could cause actual results to differ materially
include,  but are not  limited  to,  the  following:  general  economic  product
development and technology changes; competition and pricing pressures; length of
sales cycle; variability of sales order flow; and management growth.


<PAGE>



Item 7. FINANCIAL STATEMENTS.




                          ONLINE SYSTEM SERVICES, INC.


                          INDEX TO FINANCIAL STATEMENTS




                                                                            Page


Report of Independent Public Accountants                                      17

Balance Sheets as of December 31, 1996 and 1995                               19

Statements of Operations for the Years Ended December 31, 1996 and 1995       20

Statements of Stockholders' Equity (Deficit) for the Years Ended
        December 31, 1996 and 1995                                            21

Statements of Cash Flows for  the Years Ended December 31, 1996 and 1995      22

Notes to Financial Statements                                                 24



<PAGE>


                                 INDEPENDENT AUDITORS' REPORT


To Online System Services, Inc.:


Board of Directors
Online System Services, Inc.
Denver, Colorado

We have audited the accompanying  balance sheet of Online System Services,  Inc.
as of December 31, 1995, and the related statements of operations, stockholders'
equity  (deficit)  and cash flows for the year ended  December 31,  1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit 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 audit provides 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 Online System Services, Inc. as
of December 31, 1995,  and the results of its  operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.



Jones, Jensen & Company
Salt Lake City, Utah
February 9, 1996.

<PAGE>





                           REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Online System Services, Inc.:

We have audited the accompanying  balance sheet of ONLINE SYSTEM SERVICES,  INC.
(a Colorado  corporation) as of December 31, 1996, and the related statements of
operations,  stockholders'  equity  (deficit)  and cash  flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit 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 audit provides 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 Online System Services, Inc. as
of December 31, 1996,  and the results of its  operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

                                                         ARTHUR ANDERSEN LLP

Denver, Colorado,
February 28, 1997.






<PAGE>


                                 ONLINE SYSTEM SERVICES, INC.

                                        BALANCE SHEETS

                                                             December 31,
                                                        1996             1995
                                                    ------------     -----------

                                     ASSETS
Current assets:
   Cash and cash equivalents                          $1,645,163      $  25,241
   Short-term investments                              3,855,343          ---
   Accounts receivable, net                              229,350         98,282
   Accrued revenue receivables                            90,337          ---
   Inventory                                             195,941          ---
   Prepaid expenses                                      132,544          5,000
   Short-term deposit                                     61,015          ---
                                                     -----------     ----------
               Total current assets                    6,209,693        128,523
                                                     -----------     ----------

 Equipment, net (Notes 3 and 6)                          486,344         97,215

 Other assets                                            164,616          1,994
                                                      ----------     ----------
                                                      $6,860,653       $227,732
                                                     ===========     ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
             
Current liabilities:
   Accounts payable                                     $331,809      $  74,990
   Accrued expenses                                       17,684         11,020
   Accrued salaries and taxes payable                     82,806         19,403
   Short-term notes payable (Note 4)                       --            50,814
   Current portion of note and capital leases payable     30,437         17,017
          (Notes 6 and 11)
   Note payable-related party (Note 11)                    --            12,707
   Deferred revenue                                       48,669           --
                                                      ----------      ---------
         Total current liabilities                       511,405        185,951
                                                      ----------      ---------

Note and capital leases payable (Notes 6 and 11)          32,647         42,232

Commitments and Contingencies (Notes 7, 11 and 12)

Stockholders' equity (deficit):
    Preferred stock, no par value, 5,000,000 shares
          authorized, no shares issued or outstanding      --              --
    Common stock, no par value, 10,000,000 shares
          authorized, 3,162,545 and 1,625,000 shares
          issued and outstanding, respectively         7,953,665        272,864
    Stock subscriptions receivable (Note 8)                 (586)       (57,269)
    Accumulated  deficit                              (1,636,478)      (216,046)
                                                                       
                                                     -----------      ---------
          Total stockholders' equity (deficit)         6,316,601           (451)
                                                     -----------      ---------
                                                     $ 6,860,653      $ 227,732
                                                     ===========      =========



 The  accompanying  notes to financial  statements are an integral part of these
balance sheets.



<PAGE>

<TABLE>
                                ONLINE SYSTEM SERVICES, INC.

                                  STATEMENTS OF OPERATIONS
<CAPTION> 
              
                                                                                  Year Ended
                                                                                 December 31,
                                                                         -----------------------------
                                                                            1996             1995
        <S>                                                               <C>                <C>
        Net Sales:
             Service sales                                                $1,125,617         $236,412
             Hardware and software sales                                     319,425          161,344
                                                                         ------------     ------------
                                                                           1,445,042          397,756

        Cost of sales:
             Cost of services                                                717,409          166,224
             Cost of hardware and software                                   232,511          134,552
                                                                         ------------     ------------
                                                                             949,920          300,776
                                                                                              
                                                                         ------------     ------------
             Gross margin                                                    495,122           96,980

        Operating expenses:
             Sales and marketing expenses                                    633,025           84,444
             Product development expenses                                    462,108           79,760
             General and administrative expenses                             892,799          392,600
             Depreciation and amortization                                   106,814           20,936
                                                                         ------------     ------------
                                                                           2,094,746          577,740
                                                                          
                                                                         ------------     ------------

             Loss from operations                                         (1,599,624)        (480,760)
                                                                                            

        Other income (expense):
             Interest income (expense)                                       179,192           (1,635)
             Other                                                             ---                156                      
                                                                               
                                                                                                  
                                                                         ------------     ------------
                                                                             179,192           (1,479)
                                                                         ------------     ------------

        Loss before provision for income taxes                            (1,420,432)        (482,239)
        Provision for income taxes                                               ---              ---
                                                                         ------------     ------------
        Net loss                                                         $(1,420,432)       $(482,239)
                                                                         ============     ============

        Net loss per common and common equivalent share (Note            $      (.52)      $    (.19)
        2)                                                                                 
                                                                         ============     ============

        Weighted average common and common equivalent shares
           outstanding (Note 2)                                            2,742,654        2,550,695
                                                                         ============     ============
</TABLE>






   The accompanying notes to financial  statements are an integral part of these
statements.



<PAGE>
<TABLE>

                                        ONLINE SYSTEM SERVICES, INC.
                                STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                               FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>

                                                                          Stock                           Total
                                               Common Stock           Subscriptions    Accumulated     Stockholders'
                                          Shares         Amount         Receivable       Deficit      Equity (Deficit)
                                          ------         ------       -------------    -----------    ----------------              
    <S>                                 <C>             <C>          <C>           <C>             <C>                 
     Balances, December 31, 1994            ---        $  ---           $  ---       $    ---          $    ---
                                                             
     Common stock issued to founder
        for cash at an average
        price of $0.0002 per share        480,000            100           ---            ---               100
          
     Common stock issued to founders
        for services rendered at          
        $0.05 per share                   125,000          6,250           ---            ---             6,250
     Common stock issued for services
        rendered at $0.56 per share       370,000        207,707           ---            ---           207,707
     Stock subscriptions receivable          
        (Note 8)                              ---            ---      (57,269)            ---           (57,269)           
     Common stock issued in private
        placement for cash at $0.50
        per share                         650,000        325,000           ---            ---           325,000
                                                         
     Net loss                                 ---            ---           ---       (482,239)         (482,239)
                                                                                    
     Subchapter S corporation losses
        allocated to individual        
        shareholders                          ---       (266,193)          ---        266,193               ---
                                       -----------   ------------  ------------  -------------    --------------
     Balances, December 31, 1995        1,625,000        272,864      (57,269)       (216,046)             (451)
                                                                           
     Common stock issued in
        conjunction with private                        
        placement (Note 5)                182,245        410,000           ---            ---           410,000
     Less offering costs                      ---         (6,330)          ---            ---            (6,330)
                                              
     Common stock issued in
        conjunction with initial
        public offering for cash at     
        $6.75 per unit (Note 5)         1,265,000      8,538,750           ---            ---         8,538,750
     Less offering costs                      ---     (1,306,769)          ---            ---        (1,306,769)
     Exercise of stock options and
        warrants (Note 5)                  90,300         45,150           ---            ---            45,150
     Stock subscriptions receivable      
        (Note 8)                              ---            ---        56,683            ---            56,683
     Net loss                                 ---            ---           ---     (1,420,432)       (1,420,432)
                                       -----------   ------------  ------------  -------------    --------------
     Balances, December 31, 1996        3,162,545     $7,953,665   $      (586)   $(1,636,478)     $  6,316,601    
                                                                         
                                       ===========   ============  ============  =============    ==============

</TABLE>


   The accompanying notes to financial  statements are an integral part of these
statements.





<PAGE>
<TABLE>

                                 ONLINE SYSTEM SERVICES, INC.
                                   STATEMENTS OF CASH FLOWS
<CAPTION>


                                                                                       Year Ended
                                                                                      December 31,
                                                                              -------------- --------------
                                                                                  1996           1995
   <S>                                                                        <C>              <C>
                                                                              --------------   ------------
   Cash flows from operating activities:
     Net loss                                                                 $(1,420,432)      $(482,239)
     Adjustments to reconcile net loss to net cash used in operating
       activities:
         Depreciation and amortization                                             106,814         20,936
         Stock issued for services                                                  36,683        176,688
     Changes in operating assets and liabilities:
         Increase in short-term deposit                                            (61,015)         ---
         Increase in accounts receivable                                          (131,068)       (98,282)
         Increase in accrued revenue receivables                                   (90,337)         ---
         Increase in inventory                                                    (195,941)         ---
         Increase in prepaid expenses                                             (127,544)         ---
         Increase in other assets                                                 (162,622)          (956)
         Increase in accounts payable                                              256,819         74,990
         Increase in accrued expenses                                               70,067         30,423
         Increase in deferred revenue                                               48,669          ---
                                                                             --------------   ------------
             Net cash used in operating activities                              (1,669,907)      (278,440)
                                                                             --------------   ------------
   Cash flows from investing activities:
         Purchase of short-term investments                                     (3,855,343)         ---
         Purchase of equipment                                                    (459,997)       (92,760)
                                                                             --------------   ------------
             Net cash used in investing activities                              (4,315,340)       (92,760)
                                                                             --------------   ------------
   Cash flows from financing activities:
         Proceeds from refinancing equipment                                            ---        45,000
         Payments on note payable and capital leases                               (32,111)        (4,473)
         Proceeds from issuance of common stock                                  8,993,900        305,100
         Proceeds from (payments on) short-term notes payable                      (50,814)        50,814
         Payments on note payable - related party                                  (12,707)         ---
         Payments received on stock subscriptions receivable                        20,000          ---
         Stock offering costs                                                   (1,313,099)         ---
                                                                             --------------   ------------
             Net cash provided by financing activities                           7,605,169        396,441
                                                                             --------------   ------------
   Net increase in cash and cash equivalents                                     1,619,922         25,241
   Cash and cash equivalents at beginning of period                                 25,241          ---
   Cash and cash equivalents at end of period                                --------------   ------------                          
                                                                                $1,645,163        $25,241
                                                                             ==============   ============

   The accompanying notes to financial  statements are an integral part of these
statements.
<PAGE>
</TABLE>


                                 ONLINE SYSTEM SERVICES, INC.
                             STATEMENTS OF CASH FLOWS (Continued)


                                                              Year Ended
                                                              December 31,
                                                      --------------------------
                                                          1996           1995
                                                      -----------    -----------
                                            
   Supplemental disclosure of cash flow information:
   
   Cash paid for
         Interest                                     $    12,100       $  1,635
   Supplemental schedule of non-cash
   investing and financing activities:
         Stock issued for services                         36,683        176,688
         
         Equipment acquired from related parties              ---         75,051
                  
         Capital lease for equipment                        5,623         10,500
        
         Note payable to related party for
         fixed assets purchased                               ---         15,929
             
         Note payable for fixed assets purchased           30,323            ---
                                                           
         Intangibles acquired from related parties            ---          1,271
                                                               
         Prepaid lease payments                               ---          5,000


























   The accompanying notes to financial  statements are an integral part of these
statements.


<PAGE>


                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS

(1)     ORGANIZATION AND BUSINESS

        Online System  Services,  Inc. (the "Company") was incorporated on March
22, 1994,  under the state laws of Colorado,  and principal  operations began in
1995. The Company develops, markets and supports World Wide Web ("Web") sites on
the Internet and on proprietary  Intranets.  The Company  designs and implements
Web sites ranging from basic  inquiry-only  sites to complex,  interactive sites
capable of providing online  commerce,  database  integration and  manipulation,
sophisticated  graphics,  animation and other multi-media  content.  The Company
also  serves as a  value-added  reseller of  software  capable of  allowing  the
Internet or Intranet user to use  self-service  applications  such as the online
purchase of products or services, product warranty and support, employee benefit
enrollments  and other  applications.  The Company  also  markets  and  supports
"Community   Access   America,"  a  turnkey   package  of  hardware,   software,
documentation, and marketing and technical assistance that enables a local cable
company, telephone company, newspaper or other entity to provide Internet access
and Web site development to small non-urban communities.

        The Company generates revenues through the sale of design and consulting
services  for Web site  development,  computer  hardware  and  software  sold to
customers  of its Web site  development  services,  maintenance  fees charged to
customers to maintain computer  hardware and Web sites,  license fees based on a
percentage of revenues  from the  Community  Access  America  program,  training
course fees and monthly fees paid by customers for Internet  access  provided by
the Company in the Denver market.

        Prior to December 31, 1995, planned principal  operations had commenced,
but no significant  revenues had been generated and the Company was considered a
development  stage  enterprise.  Beginning  January 1, 1996,  the  Company is no
longer in the development stage. The Company has incurred operating losses since
its inception, and is devoting significant resources to developing and marketing
its products and services. Although the Company's initial public offering raised
a significant  amount of funding,  which the Company believes will be sufficient
to fund such product  development  and marketing,  commercial  acceptance of the
Company's  products and services  must occur in the  marketplace  in  sufficient
quantities  to allow the  Company to  generate  income  sufficient  to cover its
selling,  marketing,  development and administrative  expenses.  There can be no
assurance that such marketplace acceptance will occur.

(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Revenue Recognition

        Revenue from  hardware and software  sales is  recognized  upon shipment
provided  that the Company has no further  material  obligations.  Revenue  from
maintenance  fees,  training  courses and Internet  access are recognized as the
services  are  performed.  License fees are  recognized  when the Company has no
further material obligations.

        Revenue  from  Web site  design  and  consulting  is  recognized  on the
percentage of  completion  method on an individual  contract  basis.  Percentage
complete is determined  primarily based upon the ratio that labor costs incurred
bear to total estimated costs. The Company's use of the percentage of completion
method of  revenue  recognition  requires  estimates  of the  degree of  project
completion.  To the extent these estimates prove to be inaccurate,  the revenues
and gross margin,  if any, reported for periods during which work on the project
is ongoing may not  accurately  reflect the final results of the project,  which
can only be determined  upon project  completion.  Provisions  for any estimated
losses on uncompleted  contracts are made in the period in which such losses are
determinable.

        Amounts earned but not billed are shown as accrued  revenue  receivables
in the accompanying balance sheets. Amounts invoiced but not earned are shown as
deferred revenue in the accompanying balance sheets.

<PAGE>

                                 ONLINE SYSTEM SERVICES, INC.
                                NOTES TO FINANCIAL STATEMENTS

(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Cash and Cash Equivalents

        The Company  considers all cash and cash  equivalents  to include highly
liquid investments with original  maturities of 90 days or less that are readily
convertible into cash and are not subject to significant risk from  fluctuations
in interest rates.

        Short-Term Investments

        Short-term investments consist of U.S. Government Treasury Bills. These
investments  are classified as  held-to-maturity  securities and are measured at
amortized cost.

        Accounts Receivable

        Accounts  receivable are shown net of allowance for doubtful accounts of
$64,851 and $5,173 at December 31, 1996 and 1995, respectively.

        Equipment

        Equipment  is  stated at cost and  depreciation  is  provided  using the
straight-line  method over the estimated useful lives of the respective  assets.
Maintenance  and  repairs  are  expensed  as  incurred  and   improvements   are
capitalized.

        Inventory

        Inventory  is  stated  at the  lower of cost  (first-in,  first-out)  or
market.  Inventory  consists of finished goods,  comprised of software  licenses
which the Company has purchased for the purpose of sublicensing  the software to
its customers and hardware and software purchased for resale.

        Concentration of Credit Risk

        The Company  has no  significant  off  balance-sheet  concentrations  of
credit  risk such as  foreign  exchange  contracts,  option  contracts  or other
foreign  hedging  arrangements.  The Company  maintains the majority of its cash
with financial institutions, in the form of demand deposits.

        The Company  performs ongoing  evaluations of its customers'  financial
condition  and  generally  does not require  collateral,  except for billings in
advance of work  performed.  Its  accounts  receivable  balances  are  primarily
domestic.

        Income Taxes

        The Company  recognizes  deferred  income tax assets and liabilities for
the  expected  future  income tax  consequences,  based on enacted tax laws,  of
temporary  differences  between the financial reporting and tax bases of assets,
liabilities and carryforwards.  Deferred tax assets are then reduced,  if deemed
necessary,  by a valuation  allowance for the amount of any tax benefits  which,
more likely than not,  based on current  circumstances,  are not  expected to be
realized (Note 10).


<PAGE>

                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS


(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


        Income Taxes (Continued)

        Until  September  26,  1995,  the Company  operated as an S  Corporation
whereby all tax benefits  were passed  through to the  individual  shareholders.
Upon  termination  of  the S  Corporation,  all  losses  were  allocated  to the
individual shareholders.

        Net Loss Per Common and Common Equivalent Share

        Net loss per common and common  equivalent share has been computed based
upon the weighted  average number of common shares and common share  equivalents
outstanding.  Pursuant to Securities and Exchange  Commission  Staff  Accounting
Bulletin No. 83, common stock and common stock  equivalent  shares issued by the
Company at prices  below the initial  public  offering  price  during the twelve
month period prior to the offering  (using the treasury  stock method for common
stock  equivalents  and an assumed  offering  price of $6.75 per unit) have been
included  in the  calculation  as if they were  outstanding  for all the periods
presented regardless of whether they were antidilutive.

        Use of Estimates

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

        Long-Lived Assets

        Long-lived  assets and certain  identifiable  intangibles to be held and
used by the Company are reviewed for  impairment  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Any long-lived assets and certain  identifiable  intangibles to be
disposed of are reported at the lower of carrying amount or fair value less cost
to sell.

        Fair Value of Financial Instruments

        The   Company's   financial   instruments   consist  of  cash  and  cash
equivalents,  short-term trade receivables and payables,  short-term investments
and notes payable. As of December 31, 1996 and 1995, the carrying values of such
instruments approximated their fair value.

        Reclassifications

        Certain  reclassifications  to prior year financial statements have been
made to conform to the current year's presentation.

<PAGE>



                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS
(3)     EQUIPMENT

        Equipment consists of the following:
                                                   December 31,   December 31,

                                                       1996           1995
                                                     ----------    -----------
                 Computer equipment                   $450,743       $139,964
                 Office equipment                       85,558         26,408
                 Software                               83,387         11,939
                 Leasehold improvements                 52,608            ---
                                                     ----------    -----------
                                                       672,296        178,311
                                                                      
                 Less accumulated depreciation       (185,952)        (81,096)
                                                                     
                                                     ----------    -----------
                       Net equipment                  $486,344      $  97,215
                                                     ==========    ===========

        The  Company  depreciates  computer  equipment,   office  equipment  and
software over five years and leasehold improvements over the life of the lease.

        Depreciation  expense  was  $106,814  and  $20,703  for the years  ended
December  31,  1996 and 1995,  respectively.  Depreciation  expense  related  to
equipment  under  capital  leases was  $17,583  and  $8,591 for the years  ended
December 31, 1996 and 1995, respectively.

(4)     SHORT-TERM NOTES PAYABLE

        The Company  negotiated two short-term  notes of $24,000 and $32,814 for
services provided by a vendor and equipment  purchased.  The balance outstanding
as of December 31, 1995,  was $50,814 . The payment terms  required two payments
of $19,407  through  February  1996 and $3,000 per month from March through June
1996. The notes were non-interest bearing, unsecured and no interest was imputed
on the notes because it was not material to the financial statements.  The notes
were repaid during 1996.

(5)     STOCKHOLDERS' EQUITY (DEFICIT)

        Initial Public Offering

        In May 1996,  the Company  completed an initial  public  offering of its
common stock. The Company sold 1,265,000 units,  each consisting of one share of
common stock and one common stock purchase warrant. The units sold at a price of
$6.75 per unit.  Total proceeds from the initial public offering after deducting
offering costs of $1,306,769 were $7,231,981.

        Private Placement

        In March 1996,  the  Company  completed  a private  placement  of common
stock.  The Company  sold 41 units,  each  consisting  of 4,445 shares of common
stock and 450  common  stock  purchase  warrants.  The units  sold at a price of
$10,000 per unit.  Total proceeds from the private  placement,  after  deducting
offering costs of $6,330, were $403,670.

        Preferred Stock

        The Board of Directors is authorized to issue up to 5,000,000  shares of
Preferred  Stock,  in any one or more  classes or series,  to fix the  dividend,
redemption,  liquidation,  retirement,  conversion,  voting and other preference
rights for such  shares,  and to issue  options and warrants for the purchase of
such shares, on such terms and for such
<PAGE>

                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS
(5)      STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

consideration  as the Board may deem  appropriate.  As of December 31, 1996,  no
shares of Preferred Stock are issued or outstanding.

        Stock Option Plan

        During  1995,  the  Company  adopted  the 1995  Stock  Option  Plan (the
"Plan").  The Company may grant options for up to 700,000 shares under the Plan.
The Company has options  outstanding for 719,258 shares as of December 31, 1996.
The Company  intends to increase the number of shares which may be granted under
the Plan to 1,100,000 at its annual shareholders  meeting on May 20, 1997. Under
the Plan, the option  exercise price equals the stock's fair market value on the
date of grant. The options vest over various terms with a maximum vesting period
of 42 months and expire after a maximum of ten years.  The Company  accounts for
the Plan under Accounting  Principles Board ("APB") Opinion No. 25,  "Accounting
for Stock  Issued  to  Employees,"  under  which no  compensation  cost has been
recognized.

        In  October  1995,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards No. 123 ("SFAS 123"),  "Accounting
for Stock-Based  Compensation".  SFAS 123 defines a fair  value-based  method of
accounting for employee stock options and similar equity  instruments.  However,
it also  allows an entity to  continue  to measure  compensation  cost for those
plans using the  intrinsic  value based method of  accounting  prescribed by APB
Opinion No. 25.  Entities  electing to remain with the accounting in APB Opinion
No. 25 must make pro forma  disclosures  of net income and earnings per share as
if the  fair  value-based  method  of  accounting  defined  in SFAS 123 had been
applied. The Company has elected to make the pro forma disclosures in accordance
with SFAS 123 as set forth below.

        The fair value of each option  grant is  estimated  on the date of grant
using the Black Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995,  respectively:  risk-free interest
rate of 5.9 and 5.7 percent, no expected dividend yields,  expected lives of 2.7
and 1.9 years, and expected  volatility of 75 percent (actual  volatility of the
Company's   common  stock  since  the  initial  public   offering.)  Fair  value
computations are highly sensitive to the volatility factor assumed;  the greater
the volatility, the higher the computed fair value of options granted.

        Had compensation cost for the Plan been determined  consistent with SFAS
123, the Company's net loss and net loss per common and common  equivalent share
would have been increased to the following pro forma amounts:

                                               1996                1995
                                           --------------     --------------
Net Loss:                  As Reported      $(1,420,432)        $(482,239)
                           Pro Forma         (1,541,985)         (495,286)
Net loss per common and
 common equivalent share:  As Reported           $(0.52)           $(0.19)
                           Pro Forma              (0.56)            (0.19)
                          


        Because the fair value method of accounting required by SFAS 123 has not
been applied to options  granted  prior to January 1, 1995,  the  resulting  pro
forma  compensation  cost may not be  representative  of that to be  expected in
future years.

<PAGE>



                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS
(5)      STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

        Stock Option Plan (Continued)

        A summary of the status of the Plan at December  31, 1996 and 1995,  and
changes  during  the years then ended is  presented  in the table and  narrative
below:
<TABLE>
                                                1996                          1995
                                      --------------------------    --------------------------
                                                 Weighted Avg.                Weighted Avg.
                                     Shares     Exercise Price      Shares   Exercise Price
                                     --------   --------------     --------- --------------                               
<S>                                  <C>          <C>              <C>          <C>                                    
Outstanding at beginning of year      510,558        $0.50             -          $   -
Granted                               466,100         3.28           535,558          0.50
Exercised                             (85,300)       (0.50)             -             -
Forfeited                            (172,100)        2.27           (25,000)         0.50
                                     --------      ---------        --------    -----------
Outstanding at end of year            719,258        $1.87           510,558         $0.50
                                      =======                       ========

Exercisable at end of year            209,008        $0.76           133,058         $0.50
                                      =======                       ========

Weighted average fair value of
options granted during year             $1.59                         $0.16
     
</TABLE>
Of the 719,258 options  outstanding at December 31, 1996,  437,758 have exercise
prices between $0.50 and $1.25,  with a weighted average exercise price of $0.59
and a weighted average remaining contractual life of 4.4 years, of which 201,508
of these options are exercisable and have a weighted  average  exercise price of
$.64.  Of the 719,258  options  outstanding  at December 31, 1996,  281,500 have
exercise prices between $2.25 and $4.38,  with a weighted average exercise price
of $3.87 and a weighted  average  remaining  contractual  life of 6.2 years,  of
which  7,500 of these  options  are  exercisable  and  have a  weighted  average
exercise price of $2.63.

        Common Stock Options/Warrants

        In September 1995, in conjunction  with a consulting  agreement  entered
into by the Company with Creative Business Strategies ("CBS") (see Note 12), the
Company  granted stock options under the Plan to purchase  100,000 shares of the
Company's  common  stock at an  exercise  price of $.50 per  share,  which  vest
eighteen months after the date of the agreement and are exercisable for a period
of 5 years. As of December 31, 1996, none of these options are vested.

        In December 1995, in conjunction  with a business  relationship  entered
into among Charlie  Spickert,  Medical Education  Collaborative  ("MEC") and the
Company  (see Note 12),  the Company  granted  stock  options  under the Plan to
purchase  50,000  shares of the Company's  common stock at an exercise  price of
$.50  per  share.  The  options  vest  over  48  months,  which  vesting  may be
accelerated in certain  events.  As of December 31, 1996,  none of these options
are vested.

        During  December  1995,  in  connection  with  the  acquisition  of  the
equipment  described in Note 11, the Company issued  warrants to purchase 25,000
shares of the  Company's  common  stock at an exercise  price of $.50 per share,
which  vested  immediately  and are  exercisable  for 5  years.  On the  date of
issuance,  the  Company  determined  the  warrants  had a nominal  value.  As of
December 31, 1996, 5,000 warrants have been exercised.

        In connection  with the Company's  private  placement of common stock in
March  1996,  the Company  issued  warrants  to  purchase  18,450  shares of the
Company's common stock at an exercise price of $2.25 per share,
<PAGE>
                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS
(5)      STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

which  vested  immediately  and are  exercisable  for 5  years.  On the  date of
issuance,  the  Company  determined  the  warrants  had a nominal  value.  As of
December 31, 1996, none have been exercised.

        In conjunction with the initial public offering in May 1996, the Company
issued 1,265,000 units (including 165,000 units under the over-allotment),  each
unit  consisting  of one share of common  stock and one  common  stock  purchase
warrant.  Two of such warrants  entitle the unitholders to purchase one share of
common  stock at a price of $9.00  during the three year period  commencing  May
1996.  Commencing  one year from the date of the initial  public  offering,  the
Company will have the right, at its discretion,  to call all of the warrants for
redemption  on 45 days' prior written  notice at a redemption  price of $.05 per
warrant if: (i) the closing bid price of the Company's  common stock exceeds the
exercise  price of the  warrants  ($9.00)  by at least 50% during a period of at
least 20 of the 30 trading days immediately  preceding the notice of redemption;
(ii) the Company has in effect a current  registration  statement  covering  the
common stock issuable upon exercise of the warrants; and (iii) the expiration of
the 45-day  notice  period is within the term of the  warrants.  If the  Company
elects to  exercise  it's  redemption  right,  holders  of  warrants  may either
exercise their warrants, or their warrants will be redeemed.

        In conjunction with the initial public offering,  the Company issued to
the underwriters an option to purchase 110,000 units (consisting of one share of
common stock and one warrant, of which two warrants purchase one share of common
stock  at  a  price  of  $9.00)   (the   "Representative's   Securities").   The
Representative's  Securities are not  exercisable for one year after the date of
the  initial  public  offering.  Thereafter,  for a period  of four  years,  the
Representative's  Securities  are  exercisable at a price of $8.10 per unit. The
warrants included in the Representative's  Securities are exercisable consistent
with those issued in the initial public offering.

(6)     NOTE AND CAPITAL LEASES PAYABLE

        Note and capital leases payable consist of the following:
                                                      December 31,  December 31,
                                                          1996         1995
                                                         -------      -------
Capital lease payable in monthly  principal and interest
payments of $1,733, for thirty-six months beginning 
January 15, 1996, effective interest rate of 14.9%,
secured by office equipment                              $35,747      $50,000

Capital lease payable in monthly  principal and interest
payments of $471, for thirty-six months beginning July
28, 1995, effective interest rate of 35.8%, secured by
a phone system                                             6,485        9,249

Capital lease payable in monthly  principal and interest
payments of $198 for thirty-six months beginning 
April 26, 1996,  effective  interest rate at 19.7%, 
secured by a phone system                                  4,293          ---

Note payable for purchase of equipment, monthly principal
payments of $1,588 beginning March 1996 for twelve
months after which payment changes to $625 for the 
remaining twenty-four months, effective interest rate of
9.0%, unsecured                                           16,559          ---

                                                       ---------      ---------
                                                          63,084       59,249
Less-current portion                                     (30,437)     (17,017)
                                                       ---------      ---------
                                                         $32,647      $42,232
                                                       =========      =========

<PAGE>

                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS
(6)     NOTE AND CAPITAL LEASES PAYABLE (Continued)

        Future  minimum lease  payments  under capital leases as of December 31,
1996 are as follows:
           1997                                                 $28,355
           1998                                                  26,002
           1999                                                     594
                                                               ---------
                   Total minimum lease payments                  54,951
                   Lease amount representing interest           (8,426)
                                                               ---------
                                                                $46,525
                                                               =========
        Annual  maturities  of the note  payable as of December  31, 1996 are as
follows:

           1997                                                 $ 8,282
           1998                                                   7,041
           1999                                                   1,236
                                                               ---------
                                                                $16,559
                                                               =========

(7)     ROYALTY AGREEMENT

        The  Company   entered  into  an  agreement   with   Creative   Learning
International ("CLI") for a 5% royalty on all participants in the Internet Game,
"The Adventure  Begins." The agreement  encompasses  revenues generated from all
public  seminars,  corporate  training,  special  events  and any  licensing  or
franchise agreements. A royalty of 3% will be paid to CLI for any other products
that use the design concept created for the Internet Game.  Through December 31,
1996, the Company had paid CLI $353 in royalties.

        This royalty agreement will be in effect as long as the training program
is used by the Company or by any other  entity the program is licensed to by the
Company.

(8)     STOCK SUBSCRIPTIONS RECEIVABLE

        The Company entered into two stock  subscription  agreements.  The first
agreement  stipulates  that shares will be paid through the fair market value of
services rendered to the Company. The $36,683 of required services was completed
as of December 31, 1996.  The second  agreement  required the payment of $20,000
cash on or before  January  31,  1996.  The payment  was  received  prior to the
expiration date.

(9)     MAJOR CUSTOMERS

        The  Company's  sales to customers in excess of 10% of net sales for the
years ended December 31, 1996 and 1995, are as follows:
                                                     1996                  1995
                                                     ----                  ----
        Customer A                                 $149,175             $  ----
        Customer B                                   55,485              157,421

        The Company's accounts  receivable  balances from customers in excess of
10% of the accounts  receivable and accrued revenue  receivables balance for the
years ended December 31, 1996 and 1995, are as follows:
                                                     1996                  1995
                                                     ----                  ----
        Customer C                                 $ 39,834             $ 8,584
        Customer D                                   33,850                ----
        Customer E                                      900              16,300
        Customer F                                      579              10,500
<PAGE>

                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS
(10)    INCOME TAXES
        For income tax return purposes, the Company has approximately $1,433,002
of net  operating  loss  carryforwards  that expire at various dates through the
year  2011.  The net  operating  loss for tax  purposes  differs  from  that for
financial   reporting   purposes  due  to  differences   in  reporting   certain
transactions for income tax and financial reporting purposes. The Tax Reform Act
of 1986 contains provisions which may limit the net operating loss carryforwards
available  to be used in any  given  year if  certain  events  occur,  including
significant changes in ownership interests.

        The Company has determined that deferred tax assets representing the net
operating loss carryforward, as of December 31, 1996 and 1995, respectively, did
not satisfy the realization  criteria.  Accordingly,  a valuation  allowance was
recorded  against the entire deferred tax asset. No other  significant  deferred
tax assets or liabilities existed at December 31, 1996 or 1995.

        The  difference  between the expected  statutory  rate and the effective
rate is a result of the increase in the valuation allowance.

(11)    RELATED PARTY TRANSACTIONS

        Note Payable-Related Party

        The  Company  had  recorded  a note  payable  to a  former  officer  and
shareholder  of the  Company of  $12,707  at  December  31,  1995.  The note was
unsecured,  noninterest  bearing and no interest was imputed on the note because
it is not material to the financial statements. The note was repaid during 1996.

        Capital Lease-Related Party

        To provide working capital for the Company,  shareholders of the Company
formed a partnership  that purchased the equipment from the Company for cash and
then leased the equipment back through a capital lease (See Note 6). Amounts due
under capital leases to related  parties was $35,747 and $50,000 at December 31,
1996 and 1995, respectively.

        Office Lease

        The Company's  principal offices are located in a building managed by an
affiliate.  An officer of the  Company is related to the vice  president  of the
management  company.  The Company was in need of expanding  its office space and
due to several vacant floors in the building,  the management  company agreed to
rent an additional  floor to the Company and its current office space at a total
monthly rate of $9,104, which increases to $13,657 in February 1997 as new space
is occupied.

(12)    COMMITMENTS AND CONTINGENCIES

        The Company has entered  into certain  operating  lease  agreements  for
office  furniture  during  1996 and 1995 which  have  various  expiration  dates
through  1999.  Minimum  future  annual lease  payments as of December 31, 1996,
including amounts paid to related parties, are as follows:

               1997                                                     $352,079
               1998                                                      319,382
               1999                                                      196,004
                                                                       ---------
                                                                        $867,465
                                                                        ========

<PAGE>
                                 ONLINE SYSTEM SERVICES, INC.

                                NOTES TO FINANCIAL STATEMENTS
(12)    COMMITMENTS AND CONTINGENCIES (Continued)

        In  conjunction  with an operating  lease entered into during 1996,  the
Company  made a security  deposit of  $222,693,  which will be  returned  to the
Company  during the lease term as payments  are made.  The  security  deposit is
included in  short-term  deposit and other  assets in the  accompanying  balance
sheet.

        The total lease expense for the years ended  December 31, 1996 and 1995,
was $122,578 and $6,942, respectively.

        The Company  entered  into a business  relationship  on December 7, 1995
among Charlie Spickert,  MEC and the Company.  Mr. Spickert and MEC will provide
the  knowledge and  reputation  to penetrate  the medical  training and services
market.  The Company will provide the needed resources and expertise in Internet
services.  In addition to receiving a percentage of revenues from the results of
the joint efforts of the parties,  Mr.  Spickert was granted 50,000 common stock
options (see Note 5).

        As part of the joint development and marketing  arrangement with MEC and
Mr. Spickert, the Company has agreed to perform Web site development services as
a vendor to MEC.

        In September 1995, the Company entered into a consulting  agreement with
CBS  pursuant to which CBS is to assist the Company in  developing  its business
plan,  advise the Company  regarding  business  opportunities and financings and
promote the Company and its services.  For these services,  CBS was to be paid a
fee of $2,500 a month,  was granted a stock option to purchase 100,000 shares of
the Company's common stock (see Note 5), and was to be paid a  transaction-based
fee for business  combinations  or certain other  transactions  completed by the
Company which were  initiated by CBS.  Between  September and December 1995, CBS
purchased  114,000  shares  of the  Company's  common  stock at $.50 per  share.
Effective  February 1, 1996, the agreement with CBS was amended to provide for a
monthly  fee  of  $4,000  for a  period  of  36  months  and  to  eliminate  any
transaction-based compensation.



<PAGE>


Item  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE.

Change in Accountants

(i)     On October 7, 1996, the Company dismissed Jones, Jensen & Company as its
        independent accountants effective October 7, 1996.

(ii)    The  reports  of Jones,  Jensen and  Company,  regarding  the  Company's
        consolidated financial statements since the Company's inception on March
        22, 1994  through  December 31,  1995,  contained no adverse  opinion or
        disclaimer  of  opinion  and  were  not  qualified  or  modified  as  to
        uncertainty,   audit  scope  or  accounting  principles,  except  for  a
        an explanatory paragraph  in Jones,  Jensen and Company's  report dated 
        February 9, 1996, concerning the Company's ability to continue as a 
        going concern.

(iii)   The  Company's  board of  directors  approved  the  decision  to  change
        independent accountants.

(iv)    In connection with the Company's audits since its inception on March 22,
        1994 through  December 31, 1995 and through October 7, 1996,  there have
        been no  disagreements  with Jones,  Jensen and Company on any matter of
        accounting principles or practice,  financial statement  disclosure,  or
        auditing scope or procedure,  which disagreements if not resolved to the
        satisfaction of Jones, Jensen and Company would have caused them to make
        reference thereto in their reports on the financial  statements for such
        years.


New Independent Accountants

(i)     On October 7, 1996, the Company  engaged Arthur  Andersen LLP as its new
        independent accountants for the fiscal year ended December 31, 1996.

(ii)    Since  its  inception  on March 22,  1994 and  through  October  7, 1996
        the Company did not engage or consult with Arthur Andersen LLP regarding
        the matters described in Regulation S-B, Item 304(a)(2).

<PAGE>


                                           PART III

Item 9.        DIRECTORS,   EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL
               PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

        Reference  is  made  to  the  pertinent  information  contained  in  the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange  Commission,  which  information is
incorporated herein.

Item 10.       EXECUTIVE COMPENSATION.

        Reference  is  made  to  the  pertinent  information  contained  in  the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange  Commission,  which  information is
incorporated herein.

Item 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        Reference  is  made  to  the  pertinent  information  contained  in  the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange  Commission,  which  information is
incorporated herein.

Item 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        Reference  is  made  to  the  pertinent  information  contained  in  the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange  Commission,  which  information is
incorporated herein.

        Since  inception,  the Company has issued the following shares of Common
Stock to certain current or former officers and directors:


<PAGE>



               Number of Shares       Number of Shares            Number of
Recipient    Issued to Founder(1)   Issued for Services(2)   Shares Purchased(3)
---------    --------------------   ----------------------   -------------------
R. Steven Adams          480,000             --                     20,000
Robert M. Geller           --              100,000                  55,000
Paul H. Spieker            --               50,000                 100,000
Mitchell B. Campbell       --                --                    160,000
D. Kent McBride            --               50,000                   5,000
William Eager              --               50,000                  10,000
Mark D. Rothschild         --               20,000                  30,000
Robert J. Lewis            --                --                     26,670
-------------

(1)     On January 1, 1995,  the Company  issued  480,000 shares of Common Stock
        issued to Mr. Adams,  as the founder and promoter of the Company,  for a
        nominal value ($100).

(2)     In March and May 1995, the Company issued an aggregate of 270,000 shares
        of Common Stock to the respective  officers and directors  identified in
        the table for services  valued at $0.10 per share,  which was determined
        by the Board of  Directors  to be the fair  market  value of the  Common
        Stock at the time of issuance.

(3)     From June through  December 1995, the officers and directors  identified
        in the table  purchased an  aggregate of 315,000  shares of Common Stock
        for cash at a price of $0.50  per  share,  which was  determined  by the
        Board of  Directors  to be the fair market  value of the Common Stock at
        the time of purchase.  During fiscal 1996,  65,000 shares were purchased
        at a price of $.50 per share  pursuant to the exercise of stock  options
        and  26,670  shares  were  purchased  at a price of $2.25 per share in a
        private placement.

        During 1995, the Company  leased  $50,000 of equipment  (the  "Equipment
Lease") from a partnership  whose partners include Robert M. Geller,  an officer
and  director of the  Company.  The three year  capital  lease has an  effective
annual  interest  rate of 14.9%.  The  Company  granted  Mr.  Geller a five-year
warrant to purchase  5,000 shares of Common Stock at an exercise  price of $0.50
per share in connection with the Equipment Lease.

        In September 1995, the Company entered into a consulting  agreement with
Creative  Business  Strategies,  Inc.  ("CBS"),  a principal  shareholder of the
Company at that time. During 1995, CBS was granted an option to purchase 100,000
shares of the Company's Common Stock at $0.50 per share and was paid $10,000 for
services. During 1995, CBS also purchased 114,000 shares of the Company's Common
Stock  for $0.50 per  share.  The  agreement  with CBS was  replaced  with a new
agreement during the first quarter of 1996, under which CBS is to be paid $2,500
for  services  rendered  in  January  1996 and  $4,000  per  month for 36 months
commencing  February 1, 1996. CBS is a partner of the lessor under the Equipment
Lease and was granted a five-year  warrant to  purchase  5,000  shares of Common
Stock at an exercise  price of $0.50 per share in connection  with the Equipment
Lease.

        The  Company's  principal  offices are located in a building  managed by
Sheridan Management Company and owned by one of its affiliates. R. Steven Adams'
spouse is a vice president of Sheridan Management Company.

Item 13.       EXHIBITS AND REPORTS ON FORM 8-K.

(a)      For Financial Statements filed as a part of this Report,  reference
         is made to "Index to Financial  Statements" on page F-1 of this Report.
         For a list of  Exhibits  filed as a part of this  Report,  see  Exhibit
         Index on page 38 of this Report.

(b)      The Company filed a report on Form 8-K dated October 7, 1996, reporting
         a change in the Company's independent public accountants.


<PAGE>


                                          SIGNATURES


        In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934,  the  registrant  has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                      .......               ONLINE SYSTEM SERVICES, INC.

Date:  March 28, 1997 .......               By /s/  R. Steven Adams
                                               --------------------
                      .......               R. Steven Adams, President and Chief
Executive
                      .......                      Officer


        In accordance with the Securities  Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the dates indicated.


/s/ R. Steven Adams   .......                             March 28, 1997
------------------------------------
R. Steven Adams,
(President, Chief Executive Officer and a Director)


/s/ Thomas Plunkett   .......                             March 28, 1997
------------------------------------
Thomas Plunkett
(Chief Financial Officer & Principal Accounting Officer)


/s/ Paul H. Spieker   .......                             March 28, 1997
------------------------------------
Paul H. Spieker
(Director)


/s/ Robert M. Geller  .......                             March 28, 1997
------------------------------------
Robert M. Geller
(Director)


/s/ Robert J. Lewis   .......                             March 28, 1997
------------------------------------
Robert J. Lewis
(Director)


/s/ H. Robert Gill    .......                                    March 28, 1997
------------------------------------
H. Robert Gill
(Director)


/s/ Richard C. Jennewine.....                                    March 28, 1997
--------------------------------------------
Richard Jennewine
(Director)



<PAGE>


                                 ONLINE SYSTEM SERVICES, INC.
                                      INDEX TO EXHIBITS
                    FORM 10-KSB (For Fiscal Year Ended December 31, 1996)

(a)     Listing of Exhibits:

 3.1     Articles of Incorporation, as amended, of the Company(1)
 3.2     Bylaws of the Company(1)
 4.1     Specimen form of the Company's Common Stock certificate(2)
 4.2     Form of Warrant  Agreement  dated May 23, 1996 between  Corporate Stock
         Transfer and the Company, including form of Warrant(2)
 4.3     Stock Option Plan of 1995(1)
 4.4     Form of  Incentive  Stock  Option  Agreement  for Stock  Option Plan of
         1995(1)
 4.5     Form of  Nonstatutory  Stock Option  Agreement for Stock Option Plan of
         1995(1)
 4.6     Nonstatutory  Stock  Option  Agreement  for options  issued to Creative
         Business Strategies, Inc.(2)
 4.7     Form  of  Warrant   issued  in  connection   with   Sale-Leaseback   of
         Equipment(1)
 4.8     Form of  Warrant  issued to private  investors(1) 
 
 4.11     Specimen of Warrant Certificate--See Exhibit A filed with Exhibit 4.2
10.1     Certified  Solutions  Provider  Agreement  dated March 1, 1996  between
         Edify Corporation and the Company(1)
10.1(a)  Exhibits E and F to the Certified  Solutions  Provider  Agreement
         between  Edify  Corporation  and the Company and filed as Exhibit
         10.1(2)
10.2     Joint Marketing and Development Arrangement among the Company,  Charlie
         Spickert and Medical Education Collaborative(2)
10.3     Consulting   Agreement   between  the  Company  and  Creative  Business
         Strategies, Inc.(2)
10.4     Equipment  Lease  Agreement dated December 15, 1995 between the Company
         and OSS Equipment Leasing General Partnership(1)
10.5     Financial  Advisory  Agreement  dated  February  23,  1996  between the
         Company and Cohig and Associates(1)
10.6     Purchase  Agreement  dated  February  7, 1996  between  the Company and
         WEBAD, Inc.(2)
10.7     Forms of Community Access America Agreements
10.8     Form of Nondisclosure and Nonsolicitation Agreement between the Company
         and its employees(2)
10.9     Office Lease for the Company's principal offices(2)
10.10    Agreement   dated   November  11,  1996,   with   Telemedical   Systems
         Integration,  Inc.*  13  (The  registrant  intends  to  deliver  to its
         shareholders  a copy of 1996  Annual  Report  on form  10-KSB  (without
         exhibits), in lieu of a separate Annual Report to Shareholders)
16       Letter on change in certifying accountant(5)
23.1     Consent of Arthur Anderson LLP*
23.2     Consent of Jones, Jensen & Company*
27       Financial Data Schedule*

*       Filed herewith.
(1)     Filed with the initial Registration  Statement on Form SB-2, filed April
        5, 1996, Commission File No. 333-3282-D.
(2)     Filed with Amendment No. 1 to the  Registration  Statement on Form SB-2,
        filed May 3,1996, Commission File No. 333-3282-D.
(3)     Filed with Amendment No. 2 to the  Registration  Statement on Form SB-2,
        filed May 16,1996, Commission File No. 333-3282-D.
(4)     Filed with Amendment No. 3 to the  Registration  Statement on Form SB-2,
        filed May 22,1996, Commission File No. 333-3282-D.
(5)     Filed with the Form 8-K Report,  dated October 7, 1996,  Commission File
        No. 0-28462.

<PAGE>
                                  Exhibit 10.10
                            COOPERATIVE MARKETING AND
                           SALES DEVELOPMENT AGREEMENT

THIS  AGREEMENT  is entered  into as of 11/22/96 by and  between  Online  System
Services,   Inc.,  a  Colorado   corporation  ("OSS")  and  Telemedical  Systems
Integration,  Inc. ("TMED") a Georgia  corporation,  and its affiliated  company
known as HeathCom  Resources,  located at: 1008 Chateau Lane,  Smyrna, GA 30082,
hereinafter referred to as ("TMED").

WHEREAS,  OSS and TMED wish to establish a joint effort to design,  market, sell
and  produce/deliver  online products and services to the healthcare market. The
target  markets  for these  products/services  include  but are not  limited  to
pharmaceutical and medical device companies, medical associations, hospitals and
group  medical  practices  ("Market").  The  products/services   envisioned  are
internet and intranet solutions, online CME training, internet access, MD Media,
and other high value online products and services ("Services").

The  parties  agree  that they are each duly  qualified  for and in the  regular
business of providing such Services.  The parties envision their relationship to
take the form of a  strategic  alliance  to jointly  develop,  deliver  and more
effectively sell the Services to the Market.

NOW, therefore, the parties agree as follows:

1. RESPONSIBILITES OF THE PARTIES

The parties will jointly:
  o Determine the strategic direction of the alliance
  o Determine product and services strategy
  o Design detailed specifications of Services including benefits to the
    customer and business case                economics
  o Develop packaging and marketing strategy
  o Provide access to medical advisory committees for strategic input

OSS will:
  o Develop marketing materials
  o Provide lead generation support
  o Develop all products and deliver all services
  o Provide  overall  coordination  of client  services and technical  support o
  Perform  billing,  collections  and  accounting  for all sales  made by TMED o
  Perform  accounting  for and  disbursement  of all  expenses  including  fees,
  commissions and
expenses              due to TMED

TMED will:
  o Provide lead generation support
  o Establish and manage a nationwide sales force in cities mutually  acceptable
    to the parties (minimum of 6 salespersons)
  o Recommend other potential strategic partners
  o Offer  professional   services  to  clients  or  potential  clients  (as  a
  subcontractor)  to  OSS o  Promote  the  alliance  and  OSS  through  speaking
  engagements  and  other  contacts  o  Facilitate   introductions   to  medical
  associations  and  other  healthcare  groups  o  Arrange  introductions  (as a
  seller's broker) to potential CME content providers



<PAGE>


2. TERM: Services shall be performed pursuant to this Agreement for a three-year
period commencing as of the above date, unless terminated  earlier in accordance
with  paragraph 8. At the  conclusion of this term,  OSS will have the exclusive
option  to extend  this  Agreement  for up to two,  additional  one-year  terms.
Additionally,  TMED agrees that OSS has the option to extend  TMED's  consulting
days in  additional  180 day blocks  during the term of this  agreement  and its
extensions at the rate of $1,250 per day.

3.  COMPENSATION:  For services  performed by TMED for OSS under this Agreement,
OSS shall pay to TMED:

For  consulting  services  related to product  and market  development,  and for
introductions to potential content providers:

         $225,000  total  payable in  accordance  with the  provisions  shown on
Schedule A.

For establishment, management and operation of a national sales force:

        Commissions  on all gross  revenues  from sales  resulting  from  TMED's
        efforts payable in accordance with Schedule B.

        An advance against commissions  ("Draw") of $25,000 payable upon signing
        of this  Agreement.  Such Draw shall be considered a  non-recourse  loan
        against future  commissions earned and OSS shall deduct amounts advanced
        prior to payment of any future earned commissions. In addition, OSS will
        advance,  on a similar  basis,  up to $12,500 per month during the first
        three months of this  Agreement  to cover  travel and other  expenses of
        TMED if TMED does not have sufficient commission income pursuant to this
        Agreement to cover such expenses.

plus reimbursement for expenses as defined in paragraph 5 below.

4. PAYMENT METHOD: TMED shall invoice OSS at the end of each month in which work
is performed under this Agreement. Partial periods at the beginning or ending of
the term of this Agreement shall be invoiced on a pro-rata basis.  OSS agrees to
remit payments  within fifteen days of receipt of TMED's  invoices,  except that
earned  commissions  will be accrued  pending  receipt of payment  for  services
rendered from purchasing clients.

5.  EXPENSES:  Except as  specified  in  Section  3 above,  TMED  shall  seek no
reimbursement  from OSS for its normal  expenses  which include its local office
expense, use of personal automobiles,  travel by TMED's principals or sales reps
for sales calls and management of the sales force, and business  overhead.  TMED
shall  utilize its own  offices,  equipment  and  computer  systems,  except for
limited use of OSSs  facilities  for  mutually  agreed upon tasks.  OSS shall be
responsible for any additional expenditures that it may request TMED to incur in
connection  with  attending  training  courses,  seminars,  meetings and special
events  requiring  travel by TMED's  principals  or sales agents  outside  their
assigned  territory,  provided  such  expenses are incurred  only with the prior
consent  of an  authorized  officer  of OSS  and  are  properly  documented  and
accounted for.

6. DESIGNATION OF DUTIES: The performance of consulting and other services under
this Agreement shall be under the direction of OSS. TMED agrees to be reasonably
available to provide such services  subject to other  reasonable  obligations of
TMED for  non-related  activities.  TMED  further  agrees  that  for  consulting
services OSS is acquiring the specific expertise of TMED's  principals,  Charles
Turcan,  Diane Turcan and Sue Kwentus.  TMED agrees that it will devote not less
than 180 person days of consulting  services,  with not less than 90 person days
to be  provided  during  the  first  year of this  Agreement.  OSS  expects  the
direction  of the  national  sales  force to be  personally  overseen by Charles
Turcan.  TMED  agrees  it will  ensure  the  direct  participation  of these key
personnel and will substitute no other individuals for the these duties,  except
with the prior written consent of OSS.
<PAGE>
7. REPORTS:  TMED shall maintain continuous work records,  time and expense logs
and other such  documentation  as may be required to substantiate its activities
on behalf of OSS.  TMED's  records shall be available for inspection by OSS upon
OSS's  reasonable  request.  TMED shall submit a report at the end of each month
summarizing its activities on behalf of OSS.

8.  TERMINATION:  OSS may  terminate  this  Agreement  for cause at anytime upon
notice to TMED, such notification  effective with delivery of the notice.  Cause
is defined as breach of any portion of this Agreement or any conduct,  action or
omission  of action on the part of TMED,  its  employees  or agents  which has a
material adverse impact on either the reputation of OSS or its ability to market
its Services.

This  Agreement  may be  terminated at the sole option of OSS, at any time after
three  months from the date this  Agreement is effective if TMED has not staffed
at least six qualified sales representatives in cities acceptable to OSS, and at
any time after six months from the date an initial product is defined by OSS and
training is delivered on that product to at least six TMED sales people if total
cumulative  sales  are less  than  $250,000,  or after  twelve  months  if total
cumulative sales are less than $1,000,000. For the purpose of this clause, sales
are defined as signed sales orders submitted to OSS by TMED.

Additionally,  this Agreement may be terminated by either party upon  occurrence
of any of the following:

    The insolvency,  bankruptcy,  reorganization  under the bankruptcy  laws, or
    assignment  for the benefit of creditors of either party to the extent there
    is a  reasonable  doubt that such party  lacks the  resources  or ability to
    properly perform its obligations herein.

    At the end of any twelve month period beginning from the date this Agreement
    is  effective  providing  written  notice  by the  terminating  party of its
    intention  to  terminate  the  Agreement is delivered to the other party not
    less than 90 days prior to the end of the period.

OSS  agrees  that in the event of  termination,  it will  continue  to remit any
commissions  due to TMED on sales  secured  prior to the  effective  date of the
termination,  and  TMED  agrees  that  it  will  continue  to  service  accounts
throughout the period up to the date of termination.

9. PATENTS AND  COPYRIGHTS:  TMED agrees that all work produced by TMED pursuant
to this  Agreement  shall be  deemed  "works  for  hire."  All  rights  thereto,
including any patents or copyrights, shall be the sole and exclusive property of
OSS.

10. NON-DISCLOSURE  AGREEMENT: TMED agrees to keep confidential and not disclose
to any third party any proprietary  information of OSS without the prior express
written  consent of OSS. TMED agrees that during the term of this  Agreement and
thereafter, TMED will not directly or indirectly use the proprietary information
of OSS other than in the course of performing duties on behalf of OSS on a "need
to know" basis.

As used  herein,  the  term  "proprietary  information"  shall  mean any and all
information of a  confidential,  proprietary or secret nature which is or may be
either applicable to, or related in any way to, the business (present or future)
of OSS, or the research and development or investigation of activities by OSS.

TMED agrees that no  information  or  documents  shall be published or otherwise
made public without the prior express written consent of OSS.

11. CLIENT LISTS:  TMED agrees that it will fully  identify all clients to which
OSS  Services  are  proposed or sold and provide OSS with  complete  information
about the client, including but not limited to name, title, address,  telephone,
fax and email  numbers,  and business  applications  being
<PAGE>
addressed. OSS will register such clients in its sales contact management system
and, to the best of its ability, take such actions as are necessary to avoid any
conflicts  with the  client.  OSS,  from  time to time,  may  supply  TMED  with
prospective leads and lists of current or potential  clients.  Any list of OSS's
clients or customers,  whether  committed to writing or generally known by TMED,
as such list may exist  from time to time,  constitutes  a  valuable  and unique
asset of OSS, and TMED hereby agrees that during and at all times after the term
of this Agreement, TMED will not disclose such lists or any part thereof, or the
name of any of OSS's customers to any person, firm, corporation,  association or
other entity for any reason or purpose whatsoever without OSS's written consent.

12.  RETURN  OF  DOCUMENTS:  Upon  termination  of this  Agreement  (whether  by
expiration,  termination,  or otherwise),  TMED shall promptly supply to OSS, if
requested  to do so, all notes,  memoranda,  writings,  lists,  files,  reports,
customer lists, prospect lists, correspondence,  indexes, machines and any other
tangible products or documents which TMED produced,  developed for OSS, received
or  otherwise  had access to while  engaged by OSS.  Further,  without the prior
written  consent  of OSS,  TMED  will  not copy  and/or  take a copy of any such
products or documents in preparation for or upon termination of this engagement.
This clause shall not apply to any materials  provided by OSS to TMED as part of
Schedule A, Payment 2.

13.  SOLICITATION  OF  EMPLOYEES:  Each party agrees that it will not recruit or
offer employment,  either directly or indirectly,  to any employee, except those
individuals who regularly and customarily perform free-lance  services,  who has
been engaged by other party during the term of this Agreement,  and for one year
after the termination of such engagement, except with written consent.

14. CONFLICTS OF INTEREST:  TMED  acknowledges that OSS does not wish to acquire
or use any trade secrets or documents of others.  TMED  represents  and warrants
that it will not  disclose  to OSS or use any such trade  secrets or  documents.
TMED represents and warrants that work to be performed under this Agreement will
not require it to violate any  confidence of another,  and TMED  represents  and
warrants that it has not entered into any agreement which imposes any obligation
which conflicts with its obligations herein.

15.  WARRANTIES BY CONSULTANT:  TMED shall not,  directly or indirectly,  use or
cause OSS to use, in any prohibited  manner,  any material which is subject to a
patent, trademark or copyright of another without appropriate authorization.  In
the  event  that any work or  consultation  services  performed  for OSS by TMED
violates the rights of another,  TMED shall  indemnify and hold harmless OSS for
any such violation.

It is  specifically  understood  that TMED shall use its best  efforts  and that
there are no guarantees or warranties  concerning  the product of those efforts,
except as provided  herein.  Where a date of completion  is given by TMED,  TMED
will use its best  efforts to complete its services on or before the date given,
but will not be liable for loss or  inconvenience  caused by delay or failure to
complete the services required on said date.

16.  LIMITATION  OF LIABILITY:  TMED warrants that the services  performed by it
herein shall conform to accepted  industry  practices.  However,  since TMED has
limited control over the use or application of the work output, the liability of
TMED to OSS  herein for  damages,  regardless  of the form of action,  shall not
exceed the total amount paid for services  rendered under this contract.  Except
as specified  herein,  neither party to this Agreement  shall be liable to other
party for  damages  or losses of any kind,  including  special,  incidental  and
consequential damages, loss of anticipated profit, or unabsorbed direct costs or
overhead, or any other losses or claims whatever on account of or arising out of
its activities pursuant to this Agreement.

17.  INDEPENDENT  CONTRACTOR  STATUS:  Except  for the  express  purpose of TMED
soliciting  sales of OSS's Services,  neither party hereto shall be deemed to be
the agent,  partner,  or representative of the other. Except for duly authorized
sales  contracts,  neither  party shall have
<PAGE>
authority to make any  agreement  or incur any  liability on behalf of the other
party,  nor  shall  either  party be  liable  for any  acts,  omissions  to act,
contracts, commitments, promises or representations made by the other, except as
the  parties may  otherwise  expressly  agree in writing.  TMED shall be totally
responsible  for all taxes,  fees,  licenses,  or other charges  required by any
jurisdictions  for any  compensation to TMED, its officers,  employees,  agents,
vendors or subcontractors resulting from this Agreement.

18. TMED'S RIGHT TO ENGAGE IN OTHER NON-COMPETITIVE WORK: The parties agree that
OSS shall have no  proprietary or other rights to the work or activities of TMED
not directly  related to services  performed for OSS.  Thus, it is  acknowledged
that TMED will continue other customary duties and endeavors which are unrelated
to the Services  provided by OSS.  However,  TMED and OSS each agree that during
the course of this Agreement and for one years thereafter, they will not compete
directly  or  indirectly  , with the other or  represent  or market  products or
services of or own 5% or more of any company  which  competes  with the other in
the  United  States in any  business  in which the other was  engaged  as of the
effective date of this Agreement. In addition,  Charles Turcan, Diane Turcan and
Sue Kwentus, jointly and severally, agree that following the termination of this
Agreement, they will not, directly or indirectly,  engage in, be associated with
or own any interest in any business involved in a business doing business in the
United States which is in competition  with the business being  conducted by OSS
at the  time of the  termination  of this  Agreement  for a  period  of one year
following  such  termination  or, if earlier,  until they have  provided for the
payment to OSS of an amount equal to any outstanding Draw or advance provided by
OSS.. Nothing in this paragraph 18 shall be construed as to deny either party or
individual signatory to this Agreement the right to pursue any business activity
in which it was  engaged  as of the date this  Agreement  was  made,  or any new
business activity subsequent to the date this Agreement was made which is wholly
separate  from and  independent  of any  activity  covered  by the terms of this
Agreement or any extension thereof.


19.  NONEXCLUSIVE  ARRANGEMENT:  TMED  understands  that  OSS has  entered  into
strategic business partnerships with various other companies,  including but not
limited  to,  Microsoft  Corporation,  Edify  Corporation,  Echostar  - The Dish
Network,  Worldcom/Gridnet (LDDS), Sprint,  Healthcare Communications Group, and
Medical Education Collaborative.  It is the nature of these agreements that they
are  nonexclusive  and their rights and benefits are not  transferable  to other
parties.  OSS  anticipates  it will  continue its existing  agreements  and make
other, similar arrangements which enhance its service offerings and increase its
access to markets. TMED agrees that nothing in this Agreement shall be construed
as limiting  OSS's  right to enter into or execute  such  agreements  with other
business partners.

20. ASSIGNMENT: Neither party may assign or otherwise transfer this Agreement or
any of its rights or  obligations  herein  without the prior written  consent to
such assignment or transfer by the other party.

21.  OPTION FOR FIRST  RIGHTS OF  REFUSAL:  The  parties  agree that  successful
execution of this Agreement will result in the  development of a substantial and
potentially  lucrative business activity. It is also likely that during the term
of this  Agreement or its optional  extension,  TMED may be  approached by other
internet or intranet services providers, content developers, or similar entities
who are  offering  products,  services or similar  business  arrangements.  TMED
agrees  that it will offer OSS  exclusive  right of first  refusal to  negotiate
jointly with TMED concerning any such  arrangement,  or alternatively to propose
equivalent  arrangements  with TMED or third  parties.  OSS agrees  that it will
promptly  respond  and/or  negotiate  in good faith to any notice by TMED of the
receipt  of all  offers  from a third  party  and  that  agreement  will  not be
unreasonably withheld.

         22. RIGHT OF FIRST REFUSAL:  The parties agree that it is the intent of
this Agreement to forge a long term strategic  relationship between the parties.
As part of the  compensation  arrangements,  OSS has made  available  to TMED an
opportunity to acquire  substantial  beneficial interest in OSS common Stock. If
during  the  term of this  Agreement,  or any  extension  thereof,  TMED  should
<PAGE>
determine to make a public  offering or private  placement of its stock, it will
notify OSS of such a determination and offer to OSS the exclusive first right of
refusal to acquire all or part of such offering or private placement at terms no
less favorable than those offered to any third party.

         23.  ARBITRATION:  All claims or disputes arising out of this Agreement
or the breach  thereof shall be decided by  arbitration  in accordance  with the
appropriate rules of the American Arbitration Association, then obtaining unless
the parties mutually agree otherwise.  Notice of demand for arbitration shall be
filed in writing  with the other party to the  Agreement  and with the  American
Arbitration  Association  and shall be made within a  reasonable  time after the
dispute has arisen. The arbitration  hearing shall be held in Denver,  Colorado.
The  arbitration  award shall be binding  and  enforceable  in any court  having
jurisdiction thereover.  The cost of the arbitration  proceedings,  exclusive of
each  party's  own  attorney's  fees and out of  pocket  costs,  shall be shared
equally by both parties.

24. SEPARABILITY:  If any provision of this Agreement shall be held, declared or
pronounced void, voidable, invalid,  unenforceable or inoperative for any reason
by any court of competent  jurisdiction,  or otherwise,  all other provisions of
this  Agreement  shall  remain  in full  force and  effect  and be  enforced  in
accordance with their terms.

25.  GENERAL:  This Agreement shall be construed and enforced in accordance with
the laws of Colorado.  This Agreement  shall be binding upon the parties,  their
heirs,  successors and assigns.  This Agreement  supersedes all prior agreements
and understandings relating to the subject matter hereof between the parties and
may be modified or amended only in writing signed by the party against whom such
amendment or modification is sought to be enforced.

         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
date and year first above written.

ONLINE SYSTEM SERVICES, INC.                TELEMEDICAL SYSTEMS INTEGRATION, INC



BY:                                         BY:
R. Steven Adams                             Charles F. Turcan
President and CEO                           Chief Executive Officer
1800 Glenarm, 8th Floor                     1008 Chateau Lane
Denver, Colorado 80202                      Smyrna, GA 30082

The undersigned agree to the provisions of paragraph 18 of the Agreement as they
relate to each of the undersigned.

Charles F. Turcan                           Dated: ________________, 1996

K. Sue Kwentus                              Dated: ________________, 1996

Diane Brown Turcan                          Dated: ________________, 1996



<PAGE>


                                   SCHEDULE A
 COMPENSATION TO TMED FOR CONSULTING SERVICES AND INTRODUCTIONS TO POTENTIAL 
            THIRD PARTY CONTENT SUPPLIERS OR STRATEGIC PARTNERS


TMED will be  compensated  for  consulting  services  rendered via the following
three methods:

Payment 1: $80,000 in cash for consulting  services paid in advance (at contract
signing). This payment will be an advance against performance of future services
and shall be paid by TMED through the  performance of services,  including sales
of OSS's Services as follows (any amount not so paid by TMED at the  termination
of this Agreement shall be paid in cash by TMED upon any such termination).

   For the $80,000  advance to be earned by TMED, TMED must provide a minimum of
64 days of consulting services and be credited with commission income ("Credited
Income") in  addition  to that earned  pursuant to the terms of Schedule B of at
least  $80,000,  such  Credited  Income  to be  based on a 15%  override  to the
commission  earned and paid in accordance  with Schedule B. For example,  on the
first  $533,333  of sales  of  OSS's  Services  for  which  TMED is to be paid a
commission  pursuant to Schedule B, TMED will be paid $73,333 (14.5% of $533,333
per Schedule B) and will be credited with $80,000 against payment of the advance
(15% of $533,333).  The 64 days of consulting services must be performed and the
credited income must be based on revenues for firm contracts  accepted by OSS by
December 31,  1997.  In the event that the advance is not earned by December 31,
1997,  or the  termination  date of this  Agreement,  if earlier,  TMED shall be
obligated  to pay OSS an amount  equal to the  difference  between the  Credited
Income as of December 31, 1997, or the termination  date of this  Agreement,  if
earlier,  and  $80,000,  plus an  amount  equal to $1,250  times the  difference
between the number of consulting  days actually  provided during such period and
64;  provided  (i) that OSS shall have given TMED a  reasonable  opportunity  to
provide at least 64  consulting  days prior to December 31, 1997;  and (ii) that
the maximum  amount TMED shall be required to pay OSS pursuant to the  foregoing
is  $80,000.  Any amount so owed to OSS by TMED may,  so long as this  Agreement
remains in effect,  be paid by  deducting  such amount  from  future  commission
payment to be made to TMED pursuant to Schedule B.

Once the $80,000 advance has been earned as indicated above,  TMED shall be paid
in cash a commission in addition to the  commission to paid pursuant to Schedule
B on the next $933,333 of revenues  through  December 31, 1997 relating to sales
of OSS's Services for which TMED is to be paid a commission pursuant to Schedule
B, as follows:

                            Revenues (through           Maximum Additional
        Rate                    12/31/97)                   Commission

        15%                    $0-133,333                     $20,000
        7.5%                $133,334-933,333                  $60,000


Payment 2: $45,000  credit for OSS web  development  services to create  desired
online presence for TMED at OSS market  development  rates.  Amounts not used in
this  manner  will be paid in cash at the rate of $1,250  per day as  consulting
services are provided.  Additional OSS costs above $45,000 approved by TMED will
be deducted from commission payments due.

Credited  payments made pursuant to this paragraph shall be made before payments
pursuant to the Payment 3 paragraph  below.  Any portion of the $45,000 credited
amount not used shall be paid in cash after  payment  pursuant  to the Payment 3
paragraph.


Payment 3: The parties agree that it is their intent that the remaining $100,000
shall be paid in 28,000  shares of Online  System  Services  common  stock.  The
parties agree to develop  mutually  acceptable  procedures for such payment that
are  compliant  with SEC, IRS and other  applicable  laws, to be specified in an
amendment to this Agreement on or before December 31, 1996.
<PAGE>
                                      SCHEDULE B
             COMMISSIONS AND INCENTIVES FOR SALES BY TMED OF OSS SERVICES


Commissions  will be based on gross  revenues  of all sales  completed  by TMED.
Sales shall exclude  ongoing  access,  hosting,  and maintenance not prepaid and
minor  changes to the contract of less than  $1,000.  Sales made by TMED will be
deemed  valid only when the  contract is signed and  accepted  by an  authorized
officer  of OSS.  Commissions  will be deemed  earned  upon  acceptance  of such
contracts by OSS, but will be paid upon receipt by OSS of payment from  end-user
client and after deduction of any outstanding draw balances.

Rate        ANNUAL SALES REVENUE        MAXIMUM COMM.

14.5%             $0-$1,000,000      =     $145,000*
15.5%     $1,000,001 $2,000,000      =      155,000
16.5%     $2,000,001 $3,000,000      =      165,000
17.5%     $3,000,001 $4,000,000      =      175,000
19.5%     $4,000,001 $5,000,000      =      195,000
22.5%     $5,000,000                 =      225,000 per Million

plus,  a one-time  bonus of $50,000 for each  $2,500,000  in gross sales in each
calendar year




<PAGE>


                                  Exhibit 23.1





                          CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation of our
report dated  February  28,  1997,  included in this Form 10-KSB into the Online
System Services, Inc.'s previously filed Registration Statement No. 333-13983 on
Form S-8.



Arthur Andersen LLP
Denver, Colorado
     March 28, 1997.







<PAGE>


                                  Exhibit 23.2




                     CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


        We hereby  consent  to the use in this  Form  10KSB  for  Online  System
Services,  Inc., of our report dated February 9, 1996, relating to the Financial
Statements dated December 31, 1995 of Online System Services, Inc.



Jones, Jensen & Company
March 28, 1997.



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