<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 1999

                         Commission file number 0-26345

                                CareInsite, Inc.
             (Exact name of registrant as specified in its charter)


                DELAWARE                                    22-3630930
    (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                    Identification No.)

 669 River Drive, River Drive Center Two                    07407-1361
        Elmwood Park, New Jersey                            (Zip Code)
         (Address of principal
           executive offices)

       Registrant's telephone number, including area code: (201) 703-3400

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     Common Stock, par value $.01 per share
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.

                               Yes  X     No
                                   ---       ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].

         The aggregate market value of the common stock held by persons other
than affiliates of the registrant, as of September 21, 1999, was approximately
$821,831,748 (based on the last sale price of the registrant's common stock on
the NASDAQ National Market System on that date and, for purpose of this
computation only, the assumption that Medical Manager Corporation and all of the
registrant's directors and officers are affiliates).

         The number of shares of the registrant's common stock outstanding at
September 21, 1999 was 70,410,134.


                       DOCUMENTS INCORPORATED BY REFERENCE

         Certain information in the registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission relating to the
registrant's 1999 Annual Meeting of Shareholders is incorporated by reference
into Part III.
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                                     PART I

ITEM 1.  BUSINESS

                                  INTRODUCTION

         General

         CareInsite, Inc. ("CareInsite") is a Delaware corporation and was
incorporated in 1998. Its principal offices are located at 669 River Drive,
Elmwood Park, New Jersey 07407-1361 and its telephone number is (201) 703-3400.
As used in this report, the "Company" means CareInsite and its subsidiaries,
except where the context otherwise requires.

         The Company is developing and intends to provide an Internet-based
healthcare electronic commerce, or e-commerce, network for interactive use by
physicians, payers, suppliers and patients. The Company intends to market a
comprehensive set of transaction, messaging and content services to physicians,
to payers such as managed care organizations and pharmacy benefit managers, or
PBMs, to suppliers such as pharmacies and clinical laboratories, and to
patients. CareInsite's system is comprised of a network of computers, related
equipment and application software that uses the Internet to link the key
participants in the healthcare industry. The Company expects that the CareInsite
system will facilitate a broad range of healthcare transactions, such as
enabling a physician to order prescriptions and lab tests and to verify a
particular patient's eligibility for treatment under his or her healthcare plan,
and will facilitate medical claims processing, compiling medical data and
informing physicians of particular patient histories. Physicians and their
patients will be able to use a web browser to access relevant clinical,
administrative and financial information of payers and suppliers through the
CareInsite system to make more informed healthcare decisions. The Company
believes its integration of payer-specific rules and healthcare guidelines with
patient-specific information at the point of care will improve the quality of
patient care, lead to more appropriate use of healthcare resources, gain
compliance with benefit plan guidelines and control healthcare costs.

         Medical Manager Corporation (formerly known as Synetic, Inc.) ("Medical
Manager") owns 72.1% of the Company's common stock. The Company and Medical
Manager share certain management and are parties to a services agreement, as
described in Part III below. The Company and Medical Manager Health Systems,
Inc. ("Medical Manager Health Systems"), a wholly owned subsidiary of Medical
Manager, also have a strategic relationship, as described in "--Strategic
Relationships" below.

         On December 24, 1996, Medical Manager acquired Avicenna Systems
Corporation, a privately held, development stage company that marketed and built
Intranets for managed healthcare plans, integrated healthcare delivery systems
and hospitals. The acquisition of Avicenna marked the inception of Medical
Manager's healthcare electronic commerce business. On January 23, 1997, Medical
Manager acquired CareAgents, Inc. ("CareAgents"), a privately held, development
stage company engaged in developing Internet-based clinical commerce
applications. On November 24, 1998, Medical Manager formed Synetic Healthcare
Communications, Inc., which was subsequently renamed CareInsite, Inc. On January
2, 1999, Medical Manager contributed the stock of CareAgents to Avicenna.
Concurrently, Avicenna contributed the stock of CareAgents and substantially all
of Avicenna's other assets and liabilities to the Company.

         On June 16, 1999, the Company completed the initial public offering of
6,497,500 shares of its common stock. The net proceeds of the offering were
$106,446,000.

         The Company is developing and intends to provide a broad range of
healthcare electronic commerce services which will leverage Internet technology
to improve communication among physicians, payers, suppliers and patients. The
provision of services using Internet technology in the healthcare electronic
commerce industry is subject to risks, including but not limited to those
associated with competition from existing companies offering the same or similar
services, uncertainty with respect to market acceptance of the Company's
services, rapid technological change, development risks, management of growth
and a minimal previous record of operations or earnings. For additional
description of the risks inherent in the business of the Company, see "--Risk
Factors" below.

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         Acquisition Program

         The Company maintains an acquisition program and intends to concentrate
its acquisition efforts in businesses which are complementary to the Company's
principal business activities. This emphasis, however, is not intended to limit
in any manner the Company's ability to pursue acquisition opportunities in other
healthcare related businesses or in other industries. The Company's acquisition
program could result in a substantial change in the business, operations and
financial condition of the Company. No assurance can be given that the Company
will succeed in consummating any acquisitions or that the Company will be able
to successfully manage or integrate any business that it acquires. The future
growth of the Company will depend in part on its ability to consummate one or
more such acquisitions and to operate such businesses successfully. Any such
acquisitions will be subject to the provisions of the Company's Certificate of
Incorporation providing that, to the fullest extent permitted by law, so long as
the Company is controlled by, or under common control with, Medical Manager,
directors or officers of the Company who are also directors or officers of
Medical Manager shall:

         . be obligated to present to the Company a potential acquisition, which
           may be made by either the Company or Medical Manager, of a business
           engaged in the business of providing electronic commerce
           prescription, laboratory or managed care communication services that
           connect physicians with payers, pharmacies and laboratories; and

         . have no obligation to present to the Company a potential acquisition,
           which may be made by either the Company or Medical Manager, of a
           business which is not in the business of providing electronic
           commerce prescription, laboratory and managed care communication
           services that connect physicians with payers, pharmacies and
           laboratories.

For purposes of the provisions described in the preceding sentence, an entity
shall be deemed to be "engaged" in any business from which it derived more than
10% of its net revenues for the fiscal year most recently completed prior to
such measurement, and an entity shall not be deemed to be engaged in the
business transacted using such communication services or the businesses of the
persons and entities connected by such communication services.


                DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this report, the words "anticipate",
"believe", "estimate", "expect", and similar expressions, as they relate to the
Company or the Company's management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. These risks may include product demand and market acceptance risks,
the feasibility of developing commercially profitable Internet healthcare
services, the effect of economic conditions, user acceptance, the impact of
competitive products, services and pricing, product development,
commercialization and technological difficulties, the outcome of litigation and
other risks described elsewhere herein including those set forth in "-- Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" below. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, or expected. The Company does not intend to update these
forward-looking statements.


                                COMPANY SERVICES

         The Company intends to utilize the Internet to provide a broad array of
browser initiated healthcare e-commerce solutions which facilitate the
confidential, on-line exchange of healthcare information for all constituents in
the healthcare industry. For a description of factors relevant to the healthcare
e-commerce industry see "--Industry Background" below. The Company's healthcare
e-commerce services will include the transaction, content and messaging services
described below.

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         Transaction Services. The Company's transaction services include
prescription, laboratory and managed care communication services. The Company's
prescription and laboratory communication services are focused primarily on
assisting physicians to more efficiently support diagnoses and plan, prescribe
and follow treatment, consistent with payer guidelines. The Company's managed
care communication services are focused on automating the telephonic and paper
processes physicians and payers conduct in order to verify coverage and
reimbursement, process medical claims, and manage patient access to procedures
and providers. The Company believes that significant market opportunities exist
for these services given the size of such markets and the potential for improved
efficiencies.

         Prescription Communication Services. The Company's prescription
communication services, called RxInsite, are targeted to physicians and their
patients, pharmacy benefit managers, pharmacies and payers. While communication
of payer and pharmacy benefit manager rules to the pharmacy at the point of
dispensing through existing electronic data interchange has yielded substantial
administrative savings, payers and pharmacy benefit managers need an efficient
means to communicate their rules to physicians at the point of care in order to
further control drug expenditures and improve the quality of care. The Company
believes that payers and pharmacy benefit managers may realize significant
savings through greater prescribing of generic drugs, increased use of preferred
formulary drugs, and greater compliance with best clinical practices and
treatment guidelines. Since no single payer or pharmacy benefit manager
typically represents a majority of a physician's patients, these organizations
need a common network to communicate with physicians.

         The Company's RxInsite services will provide physicians the ability to
write prescriptions in the context of patient medication histories and payer
clinical rules. As a result, they can improve patient care, reduce potentially
harmful drug interactions, lessen the number of telephone calls from payers and
pharmacies, and improve patient satisfaction. Payers and pharmacy benefit
managers who use the Company's services may gain the ability to communicate to
the physician through the CareInsite system their patients' dispensed medication
histories, drug utilization review results, formulary and treatment guidelines.
As a result, payers may realize the savings and improvement in patient care that
accompany compliance with their guidelines. Pharmacies may reduce administrative
costs as prescriptions are clarified and corrected before they are submitted to
the pharmacy for dispensing.

         Laboratory Communication Services. The Company's laboratory
communications services are targeted to physicians and their patients, payers
and clinical laboratories. These services will facilitate the electronic
transmission of laboratory orders and results between the physician and the
clinical laboratory. This will enable the physician to order diagnostic tests
online from the clinical laboratory within the context of a specific patient's
lab coverage. In a managed care environment, payers are seeking to ensure
quality of patient care and to minimize overall healthcare costs by eliminating
unnecessary or redundant tests and establishing testing protocols. Similarly,
clinical laboratories, managing deep discount and capitation contracts, are
seeking to provide care as efficiently and appropriately as possible. These
services will provide payers the ability to communicate payer-specific
information and treatment guidelines, which the Company believes will lead to
significant reductions in test costs. Clinical laboratories also are expected to
gain the ability to obtain significant savings through process automation of the
orders and results process. Moreover, the Company believes that they will be
able to more effectively manage payer rules, minimize costs under capitation
contracts and reduce the incidence of overdue payments and bad debt.


         Managed Care Communication Services. The Company's managed care
communication services are comprised of a comprehensive set of administrative
and financial network services as described below, and are designed to gain
authorization from payers for procedures, visits and referrals to network
physicians and providers and to facilitate reimbursements.

         . Claims Services. Healthcare claims are the most commonly communicated
           transactions between physicians and payers today. The Company's
           claims services are designed to allow physicians to submit claims to
           payers for payment, inquire as to the status of claims previously
           submitted and receive electronic remittance advice which provides
           payment information as well as an explanation of the settlement of
           the related claim. The Company's claims services will reduce
           administrative paperwork, resulting in savings for payers, and
           expedite the reimbursement process, which are intended to result in
           lower average number of outstanding accounts receivable days for
           physicians.


         . Eligibility Services. Verification as to whether services rendered to
           a patient are eligible for reimbursement is the most basic of
           e-commerce applications, but one which is largely provided today

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           via telephone and fax. Given the proliferation of managed care
           organizations and the increasing complexity of their rules and
           guidelines, the Company believes that there will be an increasing
           demand for timely and accurate electronic eligibility determination.
           Through these services, physicians will benefit by being able to
           verify the terms of reimbursement prior to providing services to the
           patient. Payers will benefit by being able to eliminate the cost of
           processing claims and paying for claims from ineligible patients.

         . Referral and Pre-Certification Authorization Services. Referral
           authorization transactions facilitate physician-to-physician
           referrals by providing the physician with the payer's referral rules
           at the point of care. Pre-certification authorization transactions
           involve the determination as to whether a patient can be pre-
           certified for hospitalization or in-hospital procedures. These
           services will reduce the incidence of referral or pre-certification
           errors, which thereby reduce unauthorized treatment.

         Content Services. The Company's content services will provide
physicians and their patients with online access to both medical reference
material and the private content unique to payers. The Company licenses publicly
available content resources, including medical databases and other general
reference material. The Company intends to contract with payers to provide
through the CareInsite system their content, benefit plan information, provider
directories, formularies, policies and procedures, treatment guidelines and
other patient education and wellness information, in an indexed and easily
searchable format. The Company believes its services will be differentiated from
its competitors by its ability to integrate content into its messaging and
transaction applications in order to provide physicians and their patients with
the requisite context for informed decision making.

         Messaging Services. The Company's messaging services will provide
physicians and their patients with online access to payer and supplier specific
inquiries, alerts and advisories as well as e-mail and broadcast messaging
applications. Messaging applications facilitate communication between
physicians, payers, suppliers and patients. In particular, messaging
applications are intended to simplify time consuming processes for the physician
and patient. Prescription messaging applications include prescription renewal
and interchange programs which automate telephonic processes between patients,
physicians and pharmacies. Laboratory messaging programs will provide the
ability to not only view results, but also order subsequent tests as suggested
by payer rules and treatment guidelines. The Company believes its services will
be differentiated from its competitors by the Company's ability to integrate
messaging into its transaction applications.


                               INDUSTRY BACKGROUND

         Healthcare expenditures in the United States totaled approximately $1.0
trillion in 1996, representing a 6.7% compound annual increase since 1990.
Increases in healthcare costs have been driven principally by technological
advances in the healthcare industry and by the aging of the population, as older
Americans utilize more healthcare resources on a per capita basis.
This increasing trend in aggregate healthcare costs is expected to continue.

         In the past 15 years, the U.S. healthcare industry has undergone
significant changes. Among the most significant of these changes has been a
shift away from fee-for-service indemnity plans into health maintenance
organizations, or HMOs, and other managed healthcare benefit plans. These payers
have used a variety of managed care techniques to control administrative costs
including, but not limited to, lowering reimbursement rates, shifting costs from
payers to patients, restricting coverage for services, limiting access to a
select group of providers, negotiating discounts with healthcare providers, case
management functions, and shifting the economic risk for the delivery of care to
providers through alternative reimbursement models, such as capitation and risk
pools. While these techniques have been initially helpful in controlling
healthcare costs, the Company believes that these techniques have over time
become less effective in reducing costs.

         The Company believes that future healthcare cost management is
increasingly dependent upon compliance with benefit plan guidelines designed to
promote the appropriate use of healthcare resources and adherence to best
clinical practices to improve the quality of care and control patient care
costs. The Company believes payers are unlikely to gain compliance with these
guidelines and practices without an efficient channel of communications to their
affiliated physicians. Today, electronic communication among the physician,
payer and supplier is typically limited to administrative transactions. These
communications typically occur at specified times of day, usually several hours
after medical care has been given or treatment has been prescribed. The Company
believes that compliance with benefit

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guidelines can be better achieved through Internet-based healthcare e-commerce
systems that enable real time communication at the point of care of clinical
information as well as basic administrative and financial information.

         The dramatic growth of the Internet as an important new medium to
collect and distribute information, communicate, interact and engage in commerce
has emerged as a way to overcome the historical technical barriers for
connecting the participants in the fragmented healthcare industry. These
technical barriers are diminishing as:

        . universal, low-cost Internet access is replacing private networks;

        . common navigation via browser technology is replacing proprietary
          desktop client software; and

        . the Internet's open architecture is providing a solution for
          integrating existing computer systems.


Factors influencing healthcare's core constituents

         The Company believes the healthcare industry's core constituents -
physicians, payers, suppliers and patients - will benefit from timely access to
patient-specific information and payer content, such as benefit plan rules and
care guidelines. The Company believes that the CareInsite system will aid in
reducing the complexity of administration, increase compliance with benefit plan
guidelines, secure appropriate use of healthcare resources and improve the
quality of patient care.

         Physicians. Physicians are confronted with a proliferation of health
plans, each of which has complex clinical, administrative and financial rules
and guidelines relating to matters such as eligibility for prescriptions, lab
tests, referrals and follow-up visits, scope of coverage and co-payments. These
complex rules and guidelines require administrative personnel to spend
significant time navigating the cumbersome administrative procedures of a large
number of health plans often after the medical care has been given or
prescriptions or referrals have been written. This complexity has created demand
for real-time information exchange across all patients and all payers to
streamline cumbersome and time-consuming clinical and administrative processes.

         Payers. Payers, such as health maintenance organizations and pharmacy
benefit managers, are finding less incremental value in the historical levers of
managed care. In order to stem the unabated growth in healthcare costs, managed
care plans must do more than automate the administrative and financial processes
that govern the provision of services and the payment of claims. While
administrative costs account for approximately 15% of annual healthcare
expenditures, it is the cost of care itself, approximately 85% of annual
healthcare expenditures, which primarily drives the growth in healthcare
expenditures. The Company believes that facilitating compliance with benefit
plan guidelines that also promotes more efficient use of healthcare resources
and adherence to best practices will result in cost reductions and improvements
in the quality of care. Payers are seeking an efficient channel to communicate
their benefit plan rules and care guidelines to physicians at the point of care
in order to realize savings.

         Suppliers. Pharmacies, clinical laboratories and other suppliers are
being forced to become increasingly efficient in managing their business as
managed care organizations have negotiated significant reductions in price and
demanded measurable improvements in quality. Pharmacies continue to incur
substantial inefficiencies in the process of managing orders with physicians and
patients. The Company believes that as many as ten percent of the nation's
approximately 2.8 billion annual prescriptions require telephone intervention
between the pharmacist and patient or physician. The Company also believes that
fewer than 20% of laboratory orders and/or results in the ambulatory care
environment are submitted or transmitted through electronic systems. Physicians
have been slow to adopt these systems because they are proprietary in nature and
are usually limited to results reporting. Consequently, clinical laboratories
incur unnecessary administrative costs associated with processing and reporting
orders and also incur significant losses related to tests for which
reimbursement is not authorized.

          Patients. As the payer exerts increasing influence over plan design,
service coverage, and provider access, patients are demanding ever more
objective measures of quality and cost. This is evidenced by the unprecedented
demand for healthcare information on the Internet, confirming both the absence
of information from traditional sources, and desire for additional sources of
objective, credible and trustworthy information.

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                             STRATEGIC RELATIONSHIPS


         THINC. The Company currently provides services to The Health
Information Network Connection LLC, referred to as THINC, an entity founded in
1996 by several major managed care organizations in the New York metropolitan
area to facilitate the confidential exchange of healthcare information. Pursuant
to a services agreement with THINC, the Company, among other things, manages
THINC's operations and will make a comprehensive suite of healthcare e-commerce
services available to the New York metropolitan area's more than 40,000
physicians. The Company believes that its relationship with THINC in New York
will serve as a springboard for launching its services on a national basis. As
part of this relationship, the Company also acquired an ownership interest of
approximately 20% in THINC in exchange for $1,500,000 in cash and a warrant to
purchase an aggregate of 4,059,118 shares of common stock of the Company.
Charges for the Company's management services during fiscal year 1999 to THINC
were approximately $993,000.

         Cerner. In January 1999, the Company entered into a strategic
relationship with Cerner Corporation ("Cerner"), a publicly traded corporation
that is a leading supplier of clinical and management information systems to
more than 1,000 healthcare organizations worldwide. Through this relationship,
the Company has a perpetual, royalty-free license to certain of Cerner's
technology, which was obtained by the Company in exchange for 12,437,500 shares
of the Company's common stock. Cerner's technology consists of the clinical and
administrative information technology contained in Cerner's Health Network
Architecture ("HNA"), including their HNA Millennium Architecture, for use in
the CareInsite system. Cerner has agreed that the Company will be its exclusive
vehicle for providing a full suite of healthcare e-commerce services that
connect physicians' offices with managed care organizations, PBMs, clinical
laboratories, pharmacies and other providers. Cerner has also agreed to market
the Company's services to its customers. As of June 30, 1999, Cerner owned 18.7%
of the Company's outstanding common stock.

         Medical Manager Health Systems. The Company has an agreement with
Medical Manager Health Systems, under which the Company will be the exclusive
provider of certain network, web hosting and transaction services to Medical
Manager Health Systems. Medical Manager Health Systems is a leading provider of
comprehensive physician practice management information systems that address the
financial, administrative and clinical practice needs of physicians. Medical
Manager Health Systems' practice management information systems support a
physician base estimated at more than 130,000 in more than 25,000 medical
practices nationwide. Medical Manager Health Systems has a distribution network
of independent and company-owned offices with almost 2,000 sales and technical
support personnel who provide service, training and support to physician offices
in major markets in the United States. The Company intends to provide its
healthcare e-commerce services to Medical Manager Health Systems' physician base
by integrating those services into Medical Manager Health Systems' physician
practice management information systems. The Company intends to use Medical
Manager Health Systems' sales and support network as a platform from which to
distribute, install and support the Company's transaction, messaging and content
services to Medical Manager Health Systems' physicians.

         Horizon. In June 1999, the Company entered into a five and one-half
year agreement with Horizon Blue Cross Blue Shield of New Jersey ("Horizon") to
provide online prescription, laboratory and managed care communication services.
In connection with this transaction, among other things, the Company issued to
Horizon a warrant to purchase an aggregate of 811,824 shares of common stock of
the Company.

         AOL. In September 1999, the Company entered into a strategic alliance
with America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider
of a comprehensive suite of services that connect AOL's 18 million members, as
well as CompuServe members and visitors to AOL's Web-based brands Netscape,
AOL.COM and Digital City (collectively, "AOL Members"), to physicians, health
plans, pharmacy benefit managers, covered pharmacies and labs. Under the
agreement, the Company and AOL have agreed to create co-branded sites which will
enable AOL Members to manage their healthcare through online communication with
their physicians, health plans, pharmacy benefit managers, covered pharmacies
and labs. Through this arrangement, AOL Members will have access to the
Company's secure, real-time services being developed that allow them, among
other things, to select and enroll in health plans, choose their providers,
schedule appointments, renew and refill plan approved prescriptions, view lab
results, review claims status, receive explanation of benefits, review patient
education materials provided by their health plans, understand plan policies and
procedures and receive plan treatment authorization. The Company and AOL have
also agreed to collaborate in sales and marketing to the healthcare industry,
and they intend to leverage their alliance into cross-promotional and shared
advertising revenue initiatives. Under the financial terms of the arrangement,
the Company has agreed to make $30,000,000 of guaranteed payments to AOL.

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         Under a separate agreement entered into in September 1999, AOL
purchased 100 shares of the Company's newly issued convertible redeemable
preferred stock ("Preferred Stock") at a price of $100,000 per share, or
$10,000,000 of Preferred Stock in the aggregate, with an option to purchase up
to an additional 100 shares of Preferred Stock in September 2000 at the same
price. See "-Management's Discussion and Analysis of Financial Condition and
Results of Operations-Effects of Recent Transactions."

         The Company intends to continue to pursue other strategic
relationships, including customer/vendor agreements, joint ventures and
acquisitions. The Company believes that making strategic acquisitions and
developing strategic industry relationships will enhance its ability to
penetrate additional markets through new distribution channels and develop and
provide additional services.


                                    STRATEGY

Provide transaction, messaging and content services responsive to the needs of
physicians and their patients

         The Company intends to provide physicians with transaction, messaging
and content services. These services are intended to complement the clinical
work flows and existing computer systems of the physician office environment.
The Company's prescription, laboratory and managed care communication services
respond to the physician's need to provide patient care consistent with payer
guidelines. Specialized messaging services provide the office staff with alert
and advisory applications, which facilitate patient treatment compliance,
prescription renewals and laboratory ordering and results and automate time
consuming paper and telephonic processes. Content services, in the form of
indexed and searchable directories and databases, provide physicians with
convenient access to payer-specific information and general medical reference
material. Together, these services provide the context for informed decision
making.

         The Company also intends to provide patients with transaction,
messaging and content services which are complementary to those services
provided to physicians. These services respond to the needs of patients to
participate in the management of their healthcare by enabling them to
communicate online with their physicians, health plans, pharmacy benefit
managers, pharmacies and labs and with pharmaceutical companies. These services,
among other things, will provide patients with convenient access to provider and
sponsor directories, drug information and lab results, explanations of benefits,
patient education materials, plan policies and procedures, and plan enrollment
information.

         The Company's services are designed to work for all payers and
suppliers, since physician adoption requires services which work for virtually
all patients. The Company's strategy, by definition, is to remain
"content-neutral." In other words, the Company does not intend to create its own
content for physicians - this is the role of its payers and suppliers. Rather,
the Company contracts with payers and suppliers to transmit their content in the
form of clinical, administrative and financial guidelines over its network and
display these rules, in the form of alerts, advisories and annotations, to the
physician at the point of care.


Contract with key payers and suppliers to make patient-specific rules available
to physicians

         The Company's marketing strategy is to contract with the managed care
organizations, pharmacy benefit managers, pharmacies and clinical laboratories
who benefit from the automation of specific clinical, administrative or
financial processes. Payers define the rules that govern the course of care
available to patients, and contract with physicians and suppliers to meet
specific cost and quality standards. Suppliers respond to physician orders,
dispensing prescriptions and conducting laboratory tests. By integrating
patient-specific information with benefit plan and supplier specific rules
through the CareInsite system at the point of care, the Company believes these
institutions will realize administrative and medical resource savings, improved
patient care and more appropriate resource utilization.

         The Company has contracted with each of Empire Blue Cross and Blue
Shield, Group Health Incorporated and HIP Health Plans, the payer participants
in THINC, to provide the Company's prescription and laboratory communication
services. The Company has also entered into contracts with each of National
Prescription Administrators (NPA) and Caremark, Inc., pharmacy benefit managers,
to provide the Company's prescription communication services. In addition, the
Company has contracted with Prudential HealthCare, a payer, to provide

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managed care communication services and with Horizon Blue Cross Blue Shield of
New Jersey, a payer, to provide prescription, laboratory and managed care
communication services.


Maximize distribution to physicians with high transaction volumes

         The Company's distribution strategy is to target the high-volume
physicians who account for the majority of transactions. The Company works
closely with payers and suppliers to identify these physicians. In addition, the
Company works closely with providers of desktop software to physicians. The
Company's strategy is to complement, rather than compete with, vendors who
market and provide software and network services to physicians. The Company
intends to contract with these vendors, such as Medical Manager Health Systems,
Cerner and THINC, to gain distribution of its services. The Company intends also
to provide physicians with direct access to its networks, as well as indirect
access via links from other web portals. The Company's primary sales vehicle is
its direct sales force, which targets groups of physicians.

         As part of the THINC agreement, the Company is responsible for
maximizing adoption of its services by the New York metropolitan area's 40,000
physicians. Each of THINC's founding payers is responsible for providing the
Company with a list of target physicians, and taking appropriate steps to ensure
that physicians understand and use the services. To maximize distribution, the
Company has entered into a marketing agreement with Greater New York Hospital
Association to market these services to its hospital members. The Company has
entered into a distribution agreement with Cerner for integrating the Company's
services into Cerner's physician desktop software.


Sales and Marketing

         The Company's sales and marketing efforts are focused on four target
audiences:

         . payers, including pharmacy benefits managers;

         . suppliers, including clinical laboratories and pharmacies;

         . physicians, including physician practice management groups; and

         . business development partners, including physician software and
           network service vendors.


         The Company's key objectives are to maximize the number of
physicians utilizing the service, maximize the number of patient lives covered
by participating payers and pharmacy benefit managers, and maximize the number
of participating suppliers. The Company will market its services through
multiple channels, including building on the Company's model in the greater New
York area, working closely with payer and supplier customers to maximize
physician enrollment, working with physician office management information
system vendors and hospital information system vendors and electronic data
interchange networks, as well as through strategic relationships.

         Once contracts are in place, the Company's customer service strategies
are essential to its ability to maximize physician use of its services and
minimize payer and supplier attrition. The Company expects to provide toll free
telephone support to physician and physician office staff members seven days a
week, 24 hours per day. The Company intends to provide online resources and help
functions which should facilitate solutions to most frequently asked questions.
In addition to the Company's customer service center, the Company intends to
provide account management services to its payer, supplier and distribution
partners. These personnel provide implementation support to customers, and
provide an ongoing channel of communication between the Company and its
customers to ensure that the Company's services consistently meet customer
needs.

         Physicians. The Company will market its services to physicians in
several ways. Employing the target data from payer and supplier customers, the
Company intends to employ a direct sales force to contract with large groups of
physicians. In addition, the Company intends to adopt a strategy of
complementing, rather than competing with, traditional providers of desktop
software and network services to physicians, by pursuing marketing relationships
with those vendors.

                                       9
<PAGE>

         Payers. The Company will contract with payers to maximize the number of
patient lives accessible by participating physicians. The Company also intends
to work closely with payers to maximize physician enrollment. Together, the
Company will seek to identify groups of high volume physicians that represent
the majority of potential transactions. In addition, the Company will work
closely with payers to maximize physician adoption of its services.

         Suppliers. The Company will contract with clinical laboratories and
pharmacies which represent the bulk of transaction volume on a local and
national basis. The Company also intends to work closely with payer customers to
identify and contract with the preferred clinical laboratories and pharmacies
that comprise their managed care networks. In turn, the Company will work with
these suppliers to maximize physician enrollment by identifying those physicians
which represent the majority of their prescription and laboratory transactions.


                                   TECHNOLOGY

         The Company's technology strategy is focused upon building and
deploying the CareInsite system, which permits the integration of
patient-specific information with payer-specific and other supplier-specific
guidelines. The CareInsite system is intended to:

         . host or connect to multiple payer-specific or supplier-specific
           guidelines, such as procedure level eligibility, benefit plan
           coverage, formularies and order sets;

         . host or connect to patient-specific profiles, such as lab results or
           medication histories;

         . analyze an incoming request or order versus payer-specific or
           supplier-specific guidelines;

         . transmit payer-specific or supplier-specific annotations, alerts and
           advisories when the orders or requests are at variance with
           guidelines; and

         . transmit payer-specific or supplier-specific content and messages to
           authorized healthcare participants.

The Company believes its perpetual, royalty-free license to the Cerner
technology will allow the Company to accelerate the building and deployment of
the CareInsite system. This technology is central to the CareInsite system's
ability to register and identify patients, house patient-specific information,
analyze requests, and communicate payer rules in the form of alerts, advisories
and annotation messages.

         The CareInsite system is comprised of a network of computers, related
equipment and application software that uses the Internet to link the key
participants in the healthcare industry. The Company expects that the CareInsite
system will facilitate a broad range of healthcare transactions, such as
enabling a physician to order prescriptions and lab tests and to verify a
particular patient's eligibility for treatment under his or her health plan, and
will facilitate medical claims processing, compiling medical data and informing
physicians of particular patient histories.

         The CareInsite system is a comprehensive online transaction processing
environment focused on the key physician oriented aspects of healthcare
e-commerce. The CareInsite system is being designed to request, receive,
rationalize, and present patients' clinical records, drug and medical reference
content, treatment guidelines, and financial status and payer rules related to
treatment preferences to the physician at the point of care. Underlying these
processes are the capabilities to acquire, validate, and maintain patient-
specific and plan-specific directories, house, and execute payer-specific and
provider-specific rules, as well as to analyze and report results.

         The magnitude and complexity of the healthcare data model and rules
engines required to establish precise, relevant communication among healthcare
payers, providers, and eventually consumers at various points of care exceeds
the development capability of start-up Internet-focused enterprises. The Company
obtained a perpetual, royalty-free license to certain Cerner technology, which
provides the foundation for the Company's transaction processing environment and
which the Company believes will enable it to accelerate the roll-out of its
services. The Company will also continue to leverage commercially available
software, make acquisitions, create joint ventures with strategic partners and
pursue internal software development.

                                       10
<PAGE>

         The Company's technological innovation is the integration of the
licensed Cerner technology with the capability to deliver patients' health
benefit rules at the point of care. The Company leverages Cerner's proven
person-focused data model, its Master Patient Index supported by
industry-leading patient matching procedures and a portfolio of Web-enabled
clinical applications. These applications are currently accessed by more than
15,000 physicians who use them to support clinical workflow in the hospital and
integrated delivery network environment. The Company builds upon the Cerner
Health Network Architecture to create the CareInsite system, which provides the
ability to communicate the Company's customers' benefit plan rules, such as
prior authorization, treatment guidelines, formularies and plan specific order
sets within physician's workflow at the point of care.

         The CareInsite system incorporates industry leading capabilities with
respect to the following attributes:

         Compatibility. The Company's technology solution is being designed to
work with virtually any physician's desktop system. The CareInsite system is
designed to work from within either Microsoft's or Netscape's browsers. The
Company works with vendors to integrate its transactions into physicians'
workflow. The Company believes that many of its competitors will have difficulty
interfacing with existing systems of multiple payers. The industry-wide
challenge of building interfaces to integrate with providers' and payers'
existing systems is significantly simplified because of Cerner's Interface
Services, which include an application that supports the interfacing of computer
applications and its library of foreign system interfaces that have been built,
tested and are maintained to interact with over 1,000 healthcare provider and
payer-based systems. The Company's system employs the licensed Cerner technology
to provide access to information from servers it does not control or own by
implementing open interface protocols and providing tools that simplify
interface creation and data integration. Moreover, the Company's platform
exploits Cerner's common data/process model, which uses new standards to
seamlessly integrate functions into the workflow of client applications.

         Security. A security database defines the relationship among all
elements in the system and maintains the required information to support all
functions, including login, availability of data, user-privileges, user activity
and inactivity monitoring, access control, transaction routing, billing, and
error messages. The security database is being designed to address unauthorized
disclosure of information, unauthorized modification of information, loss of
data integrity, and denial of service. The CareInsite system employs a variety
of techniques in order to provide a comprehensive and secure system, including
128-bit data encryption technology, firewall technology among all subnetworks
throughout the system, and systems to immediately identify break-in attempts and
automate lock-out if breaches are suspected. In addition, the Company's system
builds upon the proven patient data security services of the Cerner systems.

         Scalability. Scalability, the ability of a networked computer system to
support an increasing number of system users without adversely affecting system
performance, is inherent in the design and selection of software components for
the CareInsite system. The Company's applications are designed to be used by
thousands of physicians in a particular region of the country simultaneously.
The Company's applications and data center are designed to be rapidly scaled to
support all of the Company's users with rapid response times. The key software
components of the CareInsite system have been tested and benchmarked to verify
this scalability.

         Rapid Application Development. The Company's development of a single
architecture, common data model, use of industry standards wherever available,
and object-oriented approach to development is designed to maximize the speed
with which thoroughly tested, complex healthcare applications can be brought to
market. The Company uses a method of software development called "time-boxed
incremental delivery life cycle model" for its software development, with
certification and quality assurance processes for each delivery into the
Company's service. Under this method, the Company provides new releases of its
software at regular intervals.

         High Availability. The Company intends to maintain a highly reliable
systems architecture operating in the Company's data center. The reliability is
achieved by duplication of key components, including networking devices,
networking and telecommunications connections and storage devices. In addition,
high availability of these operations will also be assured through the use of:

         . uninterrupted power supply equipment;

         . building-independent cooling and environmental systems;

                                       11
<PAGE>

         . automatic fail-over of critical network services; and

         . 24 hour a day monitoring of network connectivity, traffic, hardware
           and software status.

         The Company's data center will be in operation seven days a week, 24
hours a day.

         Disaster Recovery. While the Company believes its facilities and
operations will include redundancy, back-up and security to ensure minimal
exposure to systems failure or unauthorized access, a comprehensive and prudent
disaster recovery plan will also be put in place. Incremental backups of both
software and databases will be performed on a daily basis and a full system
backup will be performed monthly. Backup tapes will be stored at an offsite
location along with copies of schedules/production control procedures,
procedures for recovery using an off-site data center, all off-site
documentation, run books, call lists, critical forms and supplies. The Company
also intends to maintain power backup throughout the enterprise should a power
outage occur within the data center.


                                   COMPETITION

         The market for healthcare e-commerce is in its infancy and is
undergoing rapid technological change. Competition will potentially come from
several areas, including traditional healthcare software vendors, electronic
data interchange network providers, emerging e-commerce companies or others.
Traditional healthcare software vendors typically provide some form of physician
office practice management system. These include companies like Medic and IDX.
These organizations primarily focus on the administrative functions in the
healthcare setting. Electronic data interchange network providers and claims
clearinghouses like Envoy, which was acquired by Quintiles Transnational, and
National Data Corporation (NDC) provide connectivity to edit and transmit data
on medical and pharmacy claims. These competitors offer services which may be
competitive with the Company's healthcare e-commerce services. Companies like
Healtheon, which recently entered into definitive agreements to merge with WebMD
and to acquire Med-E-America, and other emerging e-commerce companies offer a
range of services which are competitive to the Company's services. Any
organizations that create stand-alone healthcare software products may migrate
into the healthcare e-commerce business. Due to a high degree of system and
application interconnectivity, the Company believes that it will share common
customers with many of these organizations. The Company also believes that, in
most instances, the Company's services are incremental and complementary
applications to the existing services offered by these companies. Some of the
Company's competitors have services that are currently in operation. Some of the
Company's competitors also have greater financial, technological and marketing
resources than the Company. Further, some of the Company's competitors have
entered into strategic relationships that make them more competitive, including
Quintiles' acquisition of Envoy and Healtheon's plan to merge with WebMD.

         The Company believes its services have several advantages over the
services offered by its competitors, several of which have services that are
currently in operation. The Company believes that:

         . the Company's integration of payer-specific benefit rules and
           healthcare guidelines with patient-specific information at the point
           of care provides a unique ability to control the costs and improve
           the quality of healthcare;

         . the Company's management's experience in clinical process automation,
           healthcare transaction processing and benefit management enables the
           Company to design and implement a healthcare e-commerce network that
           is responsive to the needs of physicians, payers, suppliers and
           patients; and

         . the CareInsite system is being built with existing, well-proven
           software and system interfaces, including the licensed Cerner
           technology, that can be integrated with other healthcare information
           systems in an efficient and scalable manner.

                                       12
<PAGE>

                              GOVERNMENT REGULATION

         Participants in the healthcare industry are subject to extensive and
frequently changing regulation at the federal, state and local levels. The
Internet and its associated technologies are also subject to government
regulation. Many existing laws and regulations, when enacted, did not anticipate
the methods of healthcare e-commerce the Company is developing. The Company
believes, however, that these laws and regulations may nonetheless be applied to
the Company's healthcare e-commerce business.

         Current laws and regulations which may affect the healthcare e-commerce
industry relate to the following:

         . confidential patient medical record information;

         . the electronic transmission of information from physicians' offices
           to pharmacies, laboratories and other healthcare industry
           participants;

         . the use of software applications in the diagnosis, cure, treatment,
           mitigation or prevention of disease;

         . health maintenance organizations, insurers, healthcare service
           providers and/or employee health benefit plans; and

         . the relationships between or among healthcare providers.

         The Company expects to conduct its healthcare e-commerce business in
substantial compliance with all material federal, state and local laws and
regulations governing the Company's operations. However, the impact of
regulatory developments in the healthcare industry is complex and difficult to
predict. The Company makes no assurances it will not be materially adversely
affected by existing or new regulatory requirements or interpretations. These
requirements or interpretations could also limit the effectiveness of the use of
the Internet for the methods of healthcare e-commerce we are developing or even
prohibit the sale of a subject product or service.

         Healthcare service providers, payers, and plans are also subject to a
wide variety of laws and regulations that could affect the nature and scope of
their relationships with the Company. Laws regulating health insurance, health
maintenance organizations and similar organizations, as well as employee benefit
plans, cover a broad array of subjects, including licensing requirements,
confidentiality, financial relationships with vendors, mandated benefits,
grievance and appeal procedures, and others. Laws governing healthcare
providers, payers and plans are often not uniform between states, and could
require the Company to undertake the expense and difficulty of tailoring the
Company's business procedures, information systems, or financial relationships
in order for its customers to be in compliance with applicable laws and
regulations. Compliance with such laws could also interfere with the scope of
the Company's services, or make them less cost-effective for the Company's
customers.

         The Company and its customers and suppliers are subject to numerous
federal and state laws and regulations that govern the financial relationships
between entities in the healthcare industry. A federal law commonly known as the
Federal Health Care Programs antikickback law, and several similar laws,
prohibit payments that are intended to induce physicians or others either to
refer patients or to purchase, order or arrange for or recommend the purchase of
healthcare products or services, including laboratory services and
pharmaceuticals. Another federal law, commonly known as the "Stark" law,
prohibits physicians from referring Medicare and Medicaid patients for
designated health services to entities with which they have a financial
relationship, unless that relationship qualifies for an exception to
the referral ban. It is also possible that additional or amended federal and
state laws, regulations or guidelines could be adopted in the future. There can
be no assurance that the Company's present or future arrangements will not be
challenged, required to be changed, or subject to sanctions under these laws.
Any such challenge or change, including any related sanctions which might be
assessed, could have a material adverse effect on the Company's operations,
revenue and earnings.

         Because of the Internet's popularity and increasing use, new laws and
regulations with respect to the Internet are becoming more prevalent. Such laws
and regulations have covered, or may cover in the future, issues such as:

                                       13
<PAGE>

         . security, privacy and encryption;

         . pricing;

         . content;

         . copyrights and other intellectual property;

         . contracting and selling over the Internet;

         . distribution; and

         . characteristics and quality of services.

         Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Demand for the Company's applications and services may be affected by additional
regulation of the Internet. For example, until recently current Health Care
Financing Administration guidelines prohibited transmission of Medicare
eligibility information over the Internet. Any new legislation or regulation
regarding the Internet, or the application of existing laws and regulations to
the Internet, could adversely affect the Company's business. Additionally, while
the Company does not currently operate outside of the United States, the
international regulatory environment relating to the Internet market could have
an adverse effect on its business, especially if the Company should expand
internationally.

         The growth of the Internet, coupled with publicity regarding Internet
fraud, may also lead to the enactment of more stringent consumer protection
laws. These laws may impose additional burdens on the Company's business. The
enactment of any additional laws or regulations in this area may impede the
growth of the Internet, which could decrease the Company's potential revenues or
otherwise cause its business to suffer.

         The Company is subject to extensive federal and state laws and
regulations relating to the transmission, disclosure and use of confidential
medical information, including, among others, the Health Insurance Portability
and Accountability Act of 1996 and related rules proposed by the Health Care
Financing Administration, state privacy and confidentiality laws, Medicare and
Medicaid laws, state pharmacy laws, and Health Care Financing Administration
standards for the Internet transmission of data. New laws and regulations
governing confidential medical information may be adopted at both the state and
federal level, including proposed regulations pursuant to the Health Insurance
Portability and Accountability Act of 1996. The Secretary of Health and Human
Services is promulgating rules governing the use and disclosure of individually
identifiable healthcare information, in the event that Congress does not enact
legislation on the subject. It may be expensive to implement security or other
measures designed to comply with any new legislation. Moreover, laws and
regulations governing confidential medical information may restrict the
Company's ability to conduct its business under certain circumstances or for
certain purposes, or in a particular format, such as electronically.

         Other legislation currently being considered at the federal level could
affect the Company's business. For example, the Health Insurance Portability and
Accountability Act of 1996 also mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000, for
healthcare information that is electronically transmitted, processed, or stored.
The Company is designing its services to comply with these proposed regulations;
however, these regulations are subject to significant modification prior to
becoming final, which could cause the Company to use additional resources and
lead to delays in order to revise its services. In addition, the Company's
ability to electronically transmit information in carrying out business
activities depends on other healthcare providers and payers complying with these
regulations.

                                       14
<PAGE>

                                    EMPLOYEES

         As of June 30, 1999, the Company had 160 full-time employees. Pursuant
to the terms of a services agreement between the Company and Medical Manager,
certain employees of Medical Manager may also provide services from time to time
to the Company.

         The Company's ability to achieve its financial and operational
objectives depends on the Company's ability to continue to attract, integrate,
retain and motivate highly qualified technical and customer support personnel. A
competitive environment exists for attracting such personnel.

                       ENGINEERING, RESEARCH & DEVELOPMENT

         The Company is in its development stage and has incurred, and will
continue to incur, costs associated with the development of its healthcare
e-commerce business. During the last three fiscal years ended June 30, 1999,
1998 and 1997, the Company expensed $11,253,000, $4,159,000 and $7,505,000,
respectively, of research and development costs. Additionally, during the fiscal
years ended June 30, 1999, 1998 and 1997, the Company capitalized internally
generated costs of $4,353,000, $4,368,000 and $348,000, respectively. Including
amounts capitalized, total research and development costs spent by the Company
for the years ending June 30, 1999, 1998 and 1997 were $15,606,000, $8,527,000
and $7,853,000, respectively.



                                  RISK FACTORS

         The Company's business involves significant risks and uncertainties,
including those described below.

         THE COMPANY IS ENGAGED IN A BUSINESS THAT PROVIDES HEALTHCARE
ELECTRONIC COMMERCE SERVICES AND THAT ONLY RECENTLY BEGAN TO GENERATE REVENUES
AND HAS INCURRED NET LOSSES SINCE INCEPTION. The Company is a development stage
company. The Company began operations in December 1996 and has not yet delivered
several of its healthcare e-commerce services. The Company did not generate its
first revenues until the quarter ended March 31, 1999. As of June 30, 1999, the
Company had an accumulated deficit of $75,490,000. CareInsite expects that it
will continue to incur significant development, deployment and sales and
marketing expenses in connection with its business and it will continue to incur
operating losses for at least the next two fiscal years. The Company may never
achieve or sustain profitability. The provision of services using Internet
technology in the healthcare e-commerce industry is a developing business that
is inherently riskier than businesses in industries where companies have
established operating histories.

         THE COMPANY WILL NOT BECOME PROFITABLE UNLESS IT ACHIEVES SUFFICIENT
LEVELS OF PHYSICIAN PENETRATION AND MARKET ACCEPTANCE OF ITS SERVICES. The
Company's business model depends on its ability to generate usage by a large
number of physicians with a high volume of healthcare transactions and to sell
healthcare e-commerce services to payers and other healthcare constituents. The
acceptance by physicians of the Company's transaction, messaging and content
services will require adoption of new methods of conducting business and
exchanging information. There can be no assurance that physicians will integrate
the Company's services into their office workflow, or that the healthcare market
will accept its services as a replacement for traditional methods of conducting
healthcare transactions. The healthcare industry uses existing computer systems
that may be unable to access the Company's Internet-based solutions. Customers
using existing systems may refuse to adopt new systems when they have made
extensive investment in hardware, software and training for existing systems or
if they perceive that the CareInsite system will not adequately protect
proprietary information. Failure to achieve broad physician penetration or
successfully contract with healthcare participants, would have a material
adverse effect on the Company's business prospects.

         Achieving market acceptance for the Company's services will require
substantial marketing efforts and expenditure of significant funds to create
awareness and demand by participants in the healthcare industry. The Company
believes that it must gain significant market share with its services before its
competitors introduce alternative services with features similar to the
Company's services. There can be no assurance that the Company will be able to
succeed in positioning its services as a preferred method for healthcare
e-commerce, or that any pricing strategy that the Company develops will be
economically viable or acceptable to the market. Failure to successfully market
its services would have a material adverse affect on the Company's business
prospects.

                                       15
<PAGE>

         THE COMPANY'S BUSINESS PROSPECTS WILL SUFFER IF THE COMPANY IS NOT ABLE
TO QUICKLY AND SUCCESSFULLY DEPLOY THE CAREINSITE SYSTEM. The Company believes
that its business prospects will suffer if the Company does not deploy its
services quickly. The Company has not yet deployed many of its services over its
CareInsite system. The Company currently intends to deploy access to such
services by the end of 1999, although there can be no assurance that the Company
will be able to do so at that time, or at all. In order to deploy its services,
the Company must integrate its architecture with physicians', payers' and
suppliers' systems. The Company will need to expend substantial resources to
integrate the CareInsite system with the existing computer systems of large
healthcare organizations. CareInsite has limited experience in doing so, and may
experience delays in the integration process. These delays would, in turn, delay
the Company's ability to generate revenue from its services and may have a
material adverse effect on the Company's business, financial condition and
results of operations. Once the Company has deployed its CareInsite system, it
may need to expand and adapt it to accommodate additional users, increased
transaction volumes and changing customer requirements. This expansion and
adaptation could be expensive. The Company may be unable to expand or adapt its
network infrastructure to meet additional demand or its customers' changing
needs on a timely basis and at a commercially reasonable cost, or at all. Any
failure to deploy, expand or adapt the CareInsite system quickly could have a
material adverse effect on the Company's business prospects.

         THE COMPANY DOES NOT CURRENTLY HAVE A SUBSTANTIAL CUSTOMER BASE AND ITS
REVENUES WILL INITIALLY COME FROM A FEW PAYERS IN ONE GEOGRAPHIC MARKET. The
Company does not currently have a substantial customer base. In addition, the
Company expects that initially it will generate a significant portion of its
revenue from providing its products and services in the New York metropolitan
area and from a small number of payers. If the Company does not generate as much
revenue in this market or from these payers as it expects, its revenue will be
significantly reduced which would have a material adverse effect on the
Company's business prospects.

         Under its agreement with THINC, the Company provides management
services. During the fiscal year ended June 30, 1999, THINC accounted for
$993,000 or 72.8% of the Company's net revenues.

         THE COMPANY MAY EXPERIENCE SIGNIFICANT DELAYS IN GENERATING REVENUES
FROM ITS SERVICES BECAUSE POTENTIAL CUSTOMERS COULD TAKE A LONG TIME TO EVALUATE
THE PURCHASE OF ITS SERVICES. A key element of the Company's strategy is to
market its services directly to large healthcare organizations. The Company does
not control many of the factors that will influence physicians', payers' and
suppliers' buying decisions. The Company expects that the sales and
implementation process will be lengthy and will involve a significant technical
evaluation and commitment of capital and other resources by physicians, payers
and suppliers. The sale and implementation of the Company's services are subject
to delays due to physicians', payers' and suppliers' internal budgets and
procedures for approving large capital expenditures and deploying new
technologies within their networks.

         THE COMPANY'S BUSINESS WILL SUFFER IF THE INTEGRITY AND SECURITY OF ITS
SYSTEMS ARE INADEQUATE. Once the Company begins to deliver its healthcare
e-commerce services, its business could be harmed if the Company or its present
or future customers were to experience any system delays, failures or loss of
data. Although the Company intends to have safeguards for emergencies, the
occurrence of a catastrophic event or other system failure at its facilities
could interrupt its operations or result in the loss of stored data. In
addition, the Company will depend on the efficient operation of Internet
connections from customers to its systems. These connections, in turn, depend on
the efficient operation of Web browsers, Internet service providers and Internet
backbone service providers. In the past, Internet users have occasionally
experienced difficulties with Internet and online services due to system
failures. Any disruption in Internet access provided by third parties could have
a material adverse effect on the Company's business, results of operations and
financial condition. Furthermore, the Company will be dependent on hardware
suppliers for prompt delivery, installation and service of equipment used to
deliver its services.

         DESPITE THE IMPLEMENTATION OF SECURITY MEASURES, THE COMPANY'S
INFRASTRUCTURE MAY BE VULNERABLE TO DAMAGE FROM PHYSICAL BREAK-INS, COMPUTER
VIRUSES, PROGRAMMING ERRORS, ATTACKS BY HACKERS OR SIMILAR DISRUPTIVE PROBLEMS.
A material security breach could damage the Company's reputation or result in
liability to the Company. CareInsite will retain confidential customer and
patient information in its processing center. An experienced computer user who
is able to access the Company's computer systems could gain access to
confidential patient and company information. Furthermore, the Company may not
have a timely remedy to secure its system against any

                                       16
<PAGE>

hacker who has been able to penetrate its system. Therefore, it is critical that
the Company's facilities and infrastructure remain and are perceived by the
marketplace to be secure. The occurrence of any of these events could result in
the interruption, delay or cessation of service, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

         A significant barrier to e-commerce and communications are the issues
presented by the secure transmission of confidential information over public
networks. The Company will rely on encryption and authentication technology
licensed from third parties to secure Internet transmission of and access to
confidential information. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods used to
protect customer transaction data. A party who is able to circumvent security
measures could misappropriate or alter proprietary information or cause
interruptions in operations. If any such compromise of the Company's security or
misappropriation of proprietary information were to occur, it could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company may be required to expend significant capital
and other resources to protect against such security breaches or to alleviate
problems caused by security breaches. The Company may also be required to spend
significant resources and encounter significant delays in upgrading its systems
to incorporate more advanced encryption and authentication technology as it
becomes available. Concerns over the security of the Internet and other online
transactions and the privacy of users may also inhibit the growth of the
Internet and other online services generally, and the Company's services in
particular, especially as a means of conducting commercial and/or
healthcare-related transactions. There can be no assurance that the Company's
security measures will prevent security breaches or that failure to prevent such
security breaches will not have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.

          CAREINSITE'S OPERATIONS WILL ALSO BE DEPENDENT ON THE DEVELOPMENT AND
MAINTENANCE OF SOFTWARE. Although CareInsite intends to use all necessary means
to ensure the efficient and effective development and maintenance of software,
both activities are extremely complex and thus frequently characterized by
unexpected problems and delays.

          EXPANSION THROUGH ACQUISITIONS BY THE COMPANY MAY BE DIFFICULT TO
IMPLEMENT AND MAY EXPOSE THE COMPANY TO ADDITIONAL RISK. The Company maintains
an acquisition program and intends to concentrate its acquisition efforts on
businesses which are complementary to its core businesses. Such emphasis is not,
however, intended to limit in any manner the Company's ability to pursue
acquisition opportunities in other related businesses or in other industries.
The Company anticipates that it may enter into further acquisitions, joint
ventures, strategic alliances or other business combinations. These transactions
may materially change the nature and scope of the Company's business.

         Although the Company's management will endeavor to evaluate the risks
inherent in any particular transaction, there can be no assurance that it will
properly ascertain all such risks. In addition, no assurances can be given that
the Company will succeed in consummating any such transactions, that such
transactions, will ultimately provide the Company with the ability to offer the
services described or that the Company will be able to successfully manage or
integrate any resulting business.

         The success of the Company's acquisition program will depend on, among
other things:

         . the availability of suitable candidates,

         . the availability of funds to finance transactions, and

         . the availability of management resources to oversee the operation of
           resulting businesses.

         Financing for such transactions may come from several sources,
including, without limitation:

         . cash and cash equivalents on hand,

                                       17
<PAGE>

         . marketable securities,

         . proceeds from new indebtedness, or

         . proceeds from the issuance of additional common stock, preferred
           stock, convertible debt or other securities.

         The issuance of additional securities, including common stock, could
result in:

         . substantial dilution of the percentage ownership of the Company's
           stockholders at the time of any such issuance, and

         . substantial dilution of the Company's earnings per share.

         The proceeds from any financing may be used for costs associated with
identifying and evaluating prospective candidates, and for structuring,
negotiating, financing and consummating any such transactions and for other
general corporate purposes. The Company does not intend to seek stockholder
approval for any such transaction or security issuance unless required by
applicable law or regulation.

         INTEGRATING THE COMPANY'S BUSINESS OPERATIONS WITH BUSINESSES THE
COMPANY MAY ACQUIRE IN THE FUTURE, MAY BE DIFFICULT AND MAY HAVE A NEGATIVE
IMPACT ON THE COMPANY'S BUSINESS. The Company may also acquire additional
businesses in the future. The integration of companies or businesses that the
Company may acquire in the future involves the integration of separate companies
that have previously operated independently and have different corporate
cultures. The process of combining such companies may be disruptive to their
businesses and may cause an interruption of, or a loss of momentum in, such
businesses as a result of the following difficulties, among others:


         . loss of key employees or customers;

         . possible inconsistencies in standards, controls, procedures and
           policies among the companies being combined and the need to implement
           and harmonize company-wide financial, accounting, information and
           other systems;

         . failure to maintain the quality of services that such companies
           have historically provided;

         . the need to coordinate geographically diverse organizations; and

         . the diversion of management's attention from the Company's day-to-day
           business and that of any company or business that the Company may
           acquire, as a result of the need to deal with the above disruptions
           and difficulties and/or the possible need to add management resources
           to do so.

         Such disruptions and difficulties, if they occur, may cause the Company
to fail to realize the benefits that it currently expects to result from such
integration and may cause material adverse short- and long-term effects on the
operating results and financial condition of the Company.

         UNCERTAINTIES IN REALIZING BENEFITS FROM A COMBINATION. Even if the
Company is able to integrate the operations of an acquired company or business
into the Company successfully, there can be no assurance that such integration
will result in the realization of the full benefits that the Company expects to
result from such integration or that such benefits will be achieved within the
time frame that the Company expects.

         . Revenue enhancements from cross-selling complementary services may
           not materialize as expected.

         . The benefits from the combination may be offset by costs incurred in
           integrating the companies.

                                       18
<PAGE>

         . The benefits from the transaction may also be offset by increases in
           other expenses, by operating losses or by problems in the business
           unrelated to the transaction.

         THE COMPANY IS SUBJECT TO SIGNIFICANT COMPETITION. The Company's
business operates in a highly competitive environment. Many healthcare industry
participants are consolidating to create integrated healthcare delivery systems
with greater market power. As the healthcare industry consolidates, competition
to provide products and services to industry participants will become more
intense and the importance of establishing a relationship with each industry
participant will become greater. These industry participants may try to use
their market power to negotiate price reductions for the Company's products and
services. If forced to reduce its prices, the Company's operating results could
suffer if it cannot achieve corresponding reductions in the Company's expenses.
For additional information regarding potential competitors of the Company, see
"-Competition" above.

         RAPIDLY CHANGING TECHNOLOGY MAY ADVERSELY AFFECT THE COMPANY'S
BUSINESS. All businesses which rely on technology, including the healthcare
e-commerce business that the Company is developing, are subject to, among other
risks and uncertainties:

         . rapid technological change;

         . changing customer needs;

         . frequent new product introductions; and

         . evolving industry standards.

         Internet technologies are evolving rapidly, and the technology used by
any e-commerce business is subject to rapid change and obsolescence. These
market characteristics are exacerbated by the emerging nature of the market and
the fact that many companies are expected to introduce new Internet products and
services in the near future. In addition, use of the Internet may decrease if
alternative protocols are developed or if problems associated with increased
Internet use are not resolved. As the communications, computer and software
industries continue to experience rapid technological change, the Company must
be able to quickly and successfully modify its services so that they adapt to
such changes. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development and
introduction of its healthcare e-commerce services or that it will be able to
respond to technological changes in a timely and cost-effective manner.
Moreover, technologically superior products and services could be developed by
competitors. These factors could have a material adverse effect upon the
Company's business prospects.

         DEPENDENCE ON PROPRIETARY TECHNOLOGY. The success of the Company's
business is dependent to a significant extent on each business's ability to
protect the proprietary and confidential aspects of its technology. The
technology relating to the Company is not patented and existing copyright laws
offer only limited practical protection. The Company relies on a combination of
trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions and technical measures to establish and protect
their proprietary rights. There can be no assurance that the legal protections
afforded to the Company or the steps taken will be adequate to prevent
misappropriation of its technology. In addition, these protections do not
prevent independent third-party development of competitive products or services.
The Company believes that its products, services, trademarks and other
proprietary rights do not infringe upon the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against the Company or that any such assertion will not
require the Company to enter into a license agreement or royalty arrangement
with the party asserting the claim. As competing healthcare information systems
increase in complexity and overall capabilities and the functionality of these
systems further overlap, providers of such systems may become increasingly
subject to infringement claims. Responding to and defending any such claims may
distract the attention of the Company's

                                       19
<PAGE>

management and otherwise have a material adverse effect on the Company's results
of operations, financial condition or business.

         GOVERNMENT REGULATION OF THE COMPANY'S BUSINESS COULD ADVERSELY AFFECT
ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CareInsite's services may be
subject to extensive and frequently changing regulation at federal, state and
local levels. The Internet and its associated technologies are also subject to
government regulation. Many existing laws and regulations, when enacted, did not
anticipate the methods of healthcare e-commerce CareInsite is developing. The
Company believes, however, that these laws and regulations may nonetheless be
applied to CareInsite's healthcare e-commerce business. It may take years to
determine the extent to which existing laws and regulations governing general
issues of property ownership, sales and other taxes, libel, negligence and
personal privacy are applicable to the Internet. Laws and regulations may also
be adopted in the future that address Internet-related issues, including
security, privacy and encryption, pricing, content, copyrights and other
intellectual property; contracting and selling over the Internet; and
distribution of products and services over the Internet. Accordingly,
CareInsite's healthcare e-commerce business may be affected by current
regulations as well as future regulations specifically targeted to this new
segment of the healthcare industry. For additional information regarding
regulatory matters, see "--Government Regulation" above.


ITEM 2.  PROPERTIES

         The Company's principal executive office is located in Elmwood Park,
New Jersey, in approximately 14,000 square feet of leased office space shared
with Medical Manager under a lease agreement that expires on December 31, 2002.
The Company also maintains approximately 46,000 square feet of leased office
space in Cambridge, Massachusetts under a lease that expires on February 28,
2002 and approximately 8,800 square feet of leased office space in Somerset, New
Jersey under a lease that expires on May 31, 2001. The Company believes that its
facilities are adequate for the Company's current operations and that additional
leased space can be obtained if needed.


ITEM 3.  LEGAL PROCEEDINGS

         In the normal course of business, the Company may become involved in
various claims and legal proceedings. In addition, the Company was named as a
defendant in a complaint filed by Merck & Co., Inc. and Merck-Medco Managed
Care, L.L.C. in February 1999 as described below.


Litigation by Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C. against the
Company

         On February 18, 1999, Merck & Co., Inc. and Merck-Medco Managed Care,
L.L.C. filed a complaint in the Superior Court of New Jersey against the
Company, Medical Manager (at that time Synetic, Inc.), Martin J. Wygod, Chairman
of the Company and Medical Manager, and three officers and/or directors of
CareInsite and Medical Manager, Paul C. Suthern, Roger C. Holstein and Charles
A. Mele. The plaintiffs assert that the Company, Medical Manager and the
individual defendants are in violation of certain non-competition, non-
solicitation and other agreements with Merck and Merck-Medco, and seek to enjoin
the Company and the individuals from conducting the Company's healthcare e-
commerce business and from soliciting Merck-Medco's customers. The Medical
Manager and Mr. Wygod's agreements provide an expiration date of May 24, 1999.
The remaining individuals' agreements provide for expiration in December 1999,
in the case of Mr. Suthern, March 2000, in the case of Mr. Mele, and September
2002, in the case of Mr. Holstein.

         A hearing was held on March 22, 1999 on an application for a
preliminary injunction filed by Merck and Merck-Medco. On April 15, 1999, the
Superior Court denied this application. The Company believes that Merck's and
Merck-Medco's positions in relation to the Company and the individual defendants
are without merit and the Company intends to vigorously defend the litigation.
However, the outcome of complex litigation is uncertain and cannot be predicted
at this time. Any unanticipated adverse result could have a material adverse
effect on the Company's financial condition and results of operations. The
Company and Medical Manager are parties to an indemnification

                                       20
<PAGE>

agreement pursuant to which Medical Manager will bear both the actual costs of
conducting the litigation and any monetary damages that may be awarded to Merck
and Merck-Medco in the litigation. The Company will record any amounts funded by
Medical Manager under this agreement as a capital contribution. The agreement
further provides that any damages awarded to the Company and Medical Manager in
the litigation will be for the account of Medical Manager. Finally, the
agreement provides that Medical Manager shall not be responsible for any losses
suffered by CareInsite resulting from any equitable relief obtained by Merck and
Merck-Medco against CareInsite, including, but not limited to, any lost profits,
other losses, damages, liabilities, or costs or expenses arising from such
equitable relief.


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

           During the last quarter of the fiscal year covered by this report,
the Company did not submit any matters to the vote of security holders, through
the solicitation of proxies or otherwise.

                                       21
<PAGE>

                      EXECUTIVE OFFICERS OF THE REGISTRANT

         Pursuant to General Instruction G(3) to the Annual Report on Form 10-K,
the information regarding executive officers of the Company required by Item 401
of Regulation S-K is hereby included in Part I of this Report.  The executive
officers of the Company as of September 21, 1999 are as follows:

Name                      Age       Position

Martin J. Wygod           59        Chairman of the Board
Paul C. Suthern           47        President, Chief Executive Officer
                                    and Director
Richard S. Cohan          46        Executive Vice President - Operations
Robert C. Dieterle        48        Executive Vice President - Chief Operating
                                    Officer
Roger C. Holstein         46        Executive Vice President - Sales &
                                    Marketing and Director
James R. Love             43        Executive Vice President - Chief
                                    Financial Officer,
                                    Treasurer and Director
David M. Margulies, M.D.  47        Executive Vice President - Chief Scientist
                                    and Director
David C. Amburgey         35        Senior Vice President - General Counsel
                                    and Secretary
Steven L. Zatz            42        Senior Vice President - Medical Director


         Martin J. Wygod became the Chairman of the Board of the Company in
March 1999. Mr. Wygod has been Chairman of the Board of Medical Manager since
May 1989. From May 1989 to February 1993, Mr. Wygod also served as Medical
Manager's President and Chief Executive Officer and until May 1994 was an
executive officer of Medical Manager. Until May 1994, Mr. Wygod was Chairman of
the Board of Medco Containment Services, Inc. for more than five years, and
until January 1993 he also served as Chief Executive Officer of Medco. He is
also engaged in the business of racing, boarding and breeding thoroughbred
horses, and is President of River Edge Farm, Inc.

         Paul C. Suthern became Chief Executive Officer and President and a
Director of the Company in March 1999. Mr. Suthern was President and Chief
Executive Officer of Medical Manager from March 1998 until June 1999 and was an
executive officer of Medical Manager from February 1993 until July 1996, Vice
Chairman of Medical Manager from July 1996 to March 1998 and also Chief
Executive Officer from October 1993 until January 1995. Mr. Suthern was also
President and Chief Operating Officer of Medco Containment Services, Inc. from
November 1992 through December 1994 and Assistant to Medco's Chairman from
December 1991 to November 1992. Prior thereto, he was Executive Vice President -
Operations for more than five years.

         Richard S. Cohan became Executive Vice President - Operations of the
Company in March 1999. Mr. Cohan joined Medical Manager in May 1998 as Senior
Vice President. Prior to joining Medical Manager, he was Executive Vice
President, Health Network Services of National Data Corporation where he led the
practice management systems and transactional services groups for pharmacy,
physician and dental markets for more than five years.

         Robert C. Dieterle became Executive Vice President - Chief Operating
Officer of the Company in June 1999. From July 1995 to June 1999, Mr. Dieterle
was Senior Vice President and General Manager of Cerner, where he was
responsible for all of Cerner Health Services and initiatives related to
Community Health and Cerner Health Ventures, where Cerner partners with
technology providers and local care organizations to expand the scope of
Cerner's investment in local delivery systems. Prior to joining Cerner, Mr.
Dieterle was President of Knowledge Partners, a consulting group that
specializes in building healthcare services for public and private sponsoring
organizations.

         Roger C. Holstein became Executive Vice President - Sales & Marketing
and a Director of the Company in March 1999. Mr. Holstein has been Executive
Vice President - Marketing and Sales of Medical Manager since 1997. He was a
Special Consultant to Medco from 1996 to 1998. Prior to such time, Mr. Holstein
acted as Senior Executive Vice President - Chief Marketing Officer of Medco from
1994 to 1995 and Senior Executive Vice President-Marketing and Sales of Medco
from 1991 to 1994.

         James R. Love became the Executive Vice President - Chief Financial
Officer and Treasurer of the Company in May 1999 and a Director of the Company
in March 1999. Mr. Love became Executive Vice President -Finance and
Administration of Medical Manager in March 1999. Prior to joining Medical
Manager, Mr. Love was a Managing Director, since 1993, in the investment banking
group of Merrill Lynch & Co. At Merrill Lynch, he was most recently responsible
for the diversified companies group and the healthcare products group.

                                       22
<PAGE>

         Dr. David M. Margulies became Executive Vice President - Chief
Scientist and a Director of the Company in March 1999. Dr. Margulies has been
Executive Vice President - Chief Scientist of Medical Manager since January
1997. He was founder and President of CareAgents. From 1990 to mid-1996, Dr.
Margulies was Executive Vice President and Chief Scientist of the Cerner
Corporation, a leading supplier of enterprise-level clinical applications. Prior
to such time, he was Vice President and Chief Information Officer at Boston
Children's Hospital and on the medical faculties of the Harvard Medical School
and Columbia College of Physicians and Surgeons.

         David C. Amburgey became Senior Vice President - General Counsel and
Secretary of the Company in March 1999. Mr. Amburgey has been Vice President -
Legal of Medical Manager since March 1999 and Assistant General Counsel and
Assistant Secretary of Medical Manager since April 1997. Prior to joining
Medical Manager, Mr. Amburgey was an attorney with the law firm of Shearman &
Sterling since 1993.

         Dr. Steven L. Zatz became Senior Vice President - Medical Director of
the Company in June 1999. Prior to joining the Company, Dr. Zatz was senior vice
president of RR Donnelley Financial in charge of its health care business from
June 1998 to May 1999. From August 1995 to May 1998, Dr. Zatz was the president
of Physicians' Online. Previously, Dr. Zatz was senior vice president of U.S.
Healthcare and the president of US Quality Algorithms, Inc. (USQA), the quality
management subsidiary of U.S. Healthcare from April 1990 to July 1995. Prior to
joining U.S. Healthcare, Dr. Zatz was a director of Medical Services in the
Group Department of the Prudential Insurance Company of America from April 1989
to April 1990.

         No family relationship exists among any of the directors or executive
officers of the Company, except that Messrs. Wygod and Suthern are
brothers-in-law. All executive officers of the Company are elected annually by
the Board and serve at the discretion of the Board. Messrs. Wygod and Suthern
are also directors of Medical Manager.

                                       23
<PAGE>

                                     PART II

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

         CareInsite's common stock has been traded on the NASDAQ National Market
under the symbol "CARI" since June 16, 1999. Prior to that date, there was no
public market for the Company's common stock and, therefore, no quoted market
prices for the Company's common stock are available prior to such date. The
following table sets forth, for the period indicated, the range of high and low
per share closing prices for the common stock as reported by NASDAQ.


                                                  High             Low
                                                  ----             ---
Year Ended June 30, 1999

     Fourth Quarter (from June 16, 1999)         $40 3/4         $26 3/4


         As of September 21, 1999, the Company believes there are more than
400 beneficial owners of the Company's common stock. As of September 21, 1999,
the Company had 14 record holders of its common stock.

         The Company has not paid any dividends to holders of its common stock.
The Company intends to retain any earnings to finance the development and
expansion of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future. Any declaration and payment of dividends
would be subject to the discretion of the Company's board of directors. Any
future determination to pay dividends will depend on the Company's results of
operations, financial condition, capital requirements, contractual restrictions
and other factors deemed relevant at the time by the board of directors.

         On January 2, 1999, the Company issued 12,437,500 shares of Company
common stock, a warrant to purchase up to 1,008,445 shares of common stock at
$4.00 per share and agreed to issue to Cerner 2,503,125 additional shares of
common stock on or after February 15, 2001 at $0.01 per share in the event the
Company has achieved a stated level of physician participation by 2001 in
exchange for, among other things, a perpetual software license to the
functionality embedded in Cerner's HNA including their HNA Millennium
Architecture. The shares are subject to certain restrictions on transfer and
other adjustments. The software acquired from Cerner was valued at approximately
$20,800,000 based on the value of the equity consideration as determined using
an income approach valuation methodology. A ten year forecast of revenues and
costs was prepared with the resulting cash flows reduced by working capital and
capital expenditures and then discounted to present value based on a weighted
average discount rate of 30%. These securities were issued pursuant to the
exemption available under Section 4(2) of the Securities Act of 1933, as
amended.

         In connection with the agreement with THINC on January 1, 1999, the
Company issued a warrant to purchase an aggregate of 4,059,118 shares of common
stock of the Company to THINC. The warrant is exercisable on December 13, 1999
at $4.00 per share of common stock issued and expires on January 1, 2006,
subject to certain exceptions. The warrant and the shares of the Company's
common stock issuable upon the exercise of the warrant are subject to certain
restrictions on transfer. The estimated fair value of the warrant at the date
issued was approximately $1,700,000 as determined using the Black-Scholes
option-pricing model. These securities were issued pursuant to the exemption
available under Section 4(2) of the Securities Act of 1933, as amended.

         In connection with the Med-Link acquisition on May 24, 1999, the
Company sold, in a private transaction, 875,000 shares of common stock at a
price of $16.00 per share for total proceeds of $14,000,000, which was used to
purchase Med-Link. Of these 875,000 shares sold, Medical Manager purchased
700,875 shares and Cerner purchased 174,125 shares. These securities were issued
pursuant to the exemption available under Section 4(2) of the Securities Act of
1933, as amended.

                                       24
<PAGE>

         On June 16, 1999, the Company completed the initial public offering
(the "Offering") of its common stock. The managing underwriters in the offering
were Merrill Lynch & Co., Warburg Dillon Read LLC and Wit Capital Corporation.
The shares of common stock sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (No.
333-75071). The Registration Statement was declared effective by the Securities
and Exchange Commission on June 16, 1999.

         The Offering commenced on June 16, 1999. The Offering terminated on
June 16, 1999 after the Company had sold all of the 6,497,500 shares of common
stock registered under the Registration Statement (including 847,500 shares sold
in connection with the exercise of the underwriters' over-allotment option). The
initial public offering price was $18.00 per share for an aggregate initial
public offering of $116,955,000.

         The Company paid a total of $8,186,850 in underwriting discounts and
commissions. In addition, the following table itemizes the estimated expenses
incurred in connection with the Offering, other than underwriting discounts and
commissions. None of the amounts shown was paid directly or indirectly to any
director, officer, general partner of the Company or their associates, persons
owning 10 percent or more of any class of equity securities of the Company or an
affiliate of the Company.

         Securities and Exchange Commission registration fee       $   29,000
         NASDAQ filing fees                                            98,000
         Printing and engraving expenses                              474,000
         Professional fees and expenses                             1,572,000
         Blue Sky fees and expenses                                    10,000
         Transfer agent fees                                            5,000
         Miscellaneous                                                134,000
                                                                   ----------
                  Total                                            $2,322,000
                                                                   ==========

         After deducting the underwriting discounts and commissions and the
Offering expenses, the net proceeds to the Company from the Offering was
approximately $106,446,000, which has been invested in short and long-term,
interest-bearing, investment grade securities.

         Concurrent with the Offering, the Company sold 537,634 shares of its
Common Stock in a separate, private transaction directly to Cerner for net
proceeds of approximately $9,000,000 to be used as working capital. These
securities were issued pursuant to the exemption available under Section 4(2) of
the Securities Act of 1933, as amended.

         In June 1999, the Company issued to Horizon Blue Cross Blue Shield
of New Jersey a warrant to purchase 811,824 shares of Company common stock,
which is exercisable December 23, 2001 at $18.00 per share and expires on
January 4, 2005. The Horizon warrant and the shares of the Company's common
stock issuable upon the exercise of the Horizon warrant are subject to certain
restrictions on transfer. The estimated fair value of the warrant at the date
issued was approximately $6,725,000, as determined using the Black-Scholes
option pricing model. These securities were issued pursuant to the exemption
available under Section 4(2) of the Securities Act of 1933, as amended.

                                       25
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The selected financial data for the Company set forth below as of the
period from Inception (December 24, 1996) through June 30, 1997, for the years
ended June 30, 1997, 1998, 1999, and for the cumulative period from Inception
(December 24, 1996) through June 30, 1999 have been derived from the audited
consolidated financial statements of the Company. The selected financial data
for the predecessor business of Avicenna Systems Corporation set forth below for
the Period from inception (September 20, 1994) through December 31, 1994, for
the year ended December 31, 1995 and for the period January 1, 1996 through
December 23, 1996 have been derived from the audited financial statements of
Avicenna Systems Corporation. The selected financial data presented below should
be read in conjunction with the financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the Company included elsewhere in this Report.


INCOME STATEMENT DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                      Avicenna Systems Corporation
                                         Predecessor Business                              CareInsite, Inc.
                                 --------------------------------------    --------------------------------------------------
                                     Period                                 Period                                 Cumulative
                                     from                    Period          from                                     from
                                   Inception                  from         inception                                inception
                                   (09/20/94)      Year      01/01/96      (12/24/96)      Year         Year       (12/24/96)
                                    through       Ended      through        through       Ended         Ended        through
                                    12/31/94     12/31/95    12/23/96       06/30/97     06/30/98     06/30/99      06/30/99
                                 -----------   ----------   ---------     ----------     --------     --------      --------
<S>                               <C>          <C>          <C>           <C>            <C>          <C>           <C>
Statement of Operations Data:
Net revenue ..................    $     --     $     --     $     20      $     --       $     --     $    371      $    371
Service revenue to affiliates           --           --           --            --             --          993           993
                                 -----------   ----------   ---------     ----------     --------     --------      --------
     Total revenues ..........          --           --           20            --             --        1,364         1,364
Costs and Expenses:
   Cost of revenues ..........          --           --           --            --             --           69            69
   Cost of services to
     affiliates ..............          --           --           --            --             --          993           993
   Research & development ....          16           84        1,025         7,505          4,159       11,253 (1)    22,917 (1)
   Sales & marketing .........           9           12        1,297         1,150          1,733        1,910         4,793
   General & administrative ..           7           69          860           937          2,840        4,205         7,982
   Litigation costs ..........          --           --           --            --             --        4,300 (2)     4,300 (2)
   Acquired in-process
   research & development ....          --           --           --        32,185 (3)         --           --        32,185 (3)
Depreciation and amortization           --            2          136           589          1,650        1,695         3,934
                                 -----------   ----------   ---------     ----------     --------     --------      --------
Total costs & expenses .......          32          167        3,318        42,366         10,382       24,425        77,173
                                 -----------   ----------   ---------     ----------     --------     --------      --------
Loss from operations .........         (32)        (167)      (3,298)      (42,366)       (10,382)     (23,061)      (75,809)
Other income, net ............          --           --           --             9             47          263           319
                                 -----------   ----------   ---------     ----------     --------     --------      --------

Net loss .....................         (32)        (167)      (3,298)      (42,357)       (10,335)     (22,798)      (75,490)

Preferred stock dividends ....          --           --         (241)           --             --           --            --
                                 -----------   ----------   ---------     ----------     --------     --------      --------
Net loss applicable to common
stockholders .................    $    (32)    $   (167)    $ (3,539)     $(42,357)      $(10,335)    $(22,798)     $(75,490)
                                 ===========   ==========   =========     ==========     ========     ========      ========
Basic and diluted net loss
per share applicable to
common stockholders...........    $  (0.08)    $  (0.44)    $  (9.34)     $  (0.85)      $  (0.21)    $  (0.40)     $  (1.45)
Weighted average shares
outstanding  (basic & diluted)         379          379          379        50,063         50,063       56,371        52,166
</TABLE>

                                       26
<PAGE>

<TABLE>
<CAPTION>
                                          Avicenna Systems Corporation
                                             Predecessor Business                              CareInsite, Inc.
                                     ------------------------------------------     --------------------------------------------
                                      12/31/94       12/31/95       12/23/96         06/30/97        06/30/98        06/30/99
                                     -----------    -----------    ------------     ------------    -----------     ------------
<S>                                  <C>            <C>            <C>              <C>             <C>             <C>
Balance Sheet Data:
Working capital (deficit).........       $ (32)       $  998        $ (1,257)         $(1,592)        $   775        $ 114,837
Totals assets.....................         --          1,201           1,263            3,476          10,883          179,953
Stockholders' equity (deficit)...          (32)         (206)         (3,744)           1,566           7,798          173,424
</TABLE>

(1)  Includes a write-off of $2,381,000 of capitalized software costs which
     relate to the abandonment of development efforts with respect to certain
     products and services. Those efforts were abandoned as a result of
     encountering a high risk development issue associated with integrating
     those products and services with the acquired Cerner technology.

(2)  Represents charges relating to expenses incurred in conjunction with the
     Merck litigation during the fiscal year ended June 30, 1999. Refer to Item
     3 of this Report.

(3)  Represents a non-recurring charge related to the write-off of acquired
     in-process research and development costs in conjunction with the purchase
     of Avicenna Systems Corporation and CareAgents, Inc.


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

Overview

         The Company's healthcare e-commerce services are still under
development and no revenues have been generated from the sale of these services.
Additionally, the market for the Company's services is unproven. These factors
make it difficult to evaluate the Company's business and prospects. The Company
has incurred substantial operating losses since the Company's inception and
there can be no assurance that the Company will generate significant revenues or
profitability in the future. The Company intends to significantly increase its
expenditures primarily in the areas of development, sales and marketing, data
center operations and customer support. As a result, the Company expects to
incur substantial operating losses for at least the next two fiscal years.

         The Company expects to generate a significant portion of its revenue
from payers and suppliers who are expected to pay initial set-up and ongoing
maintenance fees associated with organizing, loading and maintaining their
content, transaction fees for the transmission of payer content to physicians
and transaction fees for lab orders/results and prescription routing. The
Company also expects to generate revenue from physicians who are expected to pay
a monthly fee for access to a range of the Company's services.

         Management believes that they have a unique understanding of the
economic leverage inherent in facilitating the automation of certain clinical,
administrative and financial processes. Accordingly, the Company also has
contracted with certain payers and in the future may contract with other payers
and suppliers to guarantee them incremental cost savings from the use of certain
of the Company's services. If any of these payers or suppliers do not realize
the guaranteed level of cost savings, the Company will be obligated to make a
payment to that payer or supplier, which payment may exceed the Company's
charges to that payer or supplier. In some cases, the Company intends to share
in any cost savings in excess of the guaranteed cost savings. The amount and
timing of transaction revenue generated under these arrangements may be impacted
by the Company's guarantee of cost savings.

         On December 24, 1996, Medical Manager acquired Avicenna, a privately
held, development stage company that marketed and built Intranets for managed
healthcare plans, integrated healthcare delivery systems and hospitals. The
acquisition of Avicenna marked the inception of Medical Manager's healthcare
electronic commerce business. On January 23, 1997, Medical Manager acquired
CareAgents, a privately held, development stage company engaged in developing
Internet-based clinical commerce applications. On November 24, 1998, Medical
Manager formed

                                       27
<PAGE>

CareInsite, Inc. (formerly Synetic Healthcare Communications, Inc.). On January
2, 1999, Medical Manager contributed the stock of CareAgents to Avicenna.
Concurrently, Avicenna contributed the stock of CareAgents and substantially all
of Avicenna's other assets and liabilities to the Company. Medical Manager also
contributed $10,000,000 in cash to the Company. As of September 21, 1999,
Medical Manager held a 72.1% interest in the Company through Avicenna. These
transactions, which resulted in the formation of the Company, have been
accounted for using the carryover basis of accounting and the Company's
financial statements include the accounts and operations of Avicenna and
CareAgents for all periods presented from the date each entity was acquired.


Effect of Recent Transactions

         In January 1999, the Company and The Health Information Network
Connection LLC, referred to as THINC, and THINC's founding members, Greater New
York Hospital Association, Empire Blue Cross and Blue Shield, Group Health
Incorporated and HIP Health Plans, entered into definitive agreements and
consummated a broad strategic alliance. Under these arrangements, among other
things, the Company:

         . acquired a 20% ownership interest in THINC in exchange for $1,500,000
           in cash and a warrant to purchase an aggregate of 4,059,118 shares of
           common stock of the Company, exercisable on December 13, 1999 at
           $4.00 per share of common stock issued and which expires on January
           1, 2006, subject to certain exceptions, referred to as the THINC
           warrant;

         . agreed to extend senior loans to THINC of $2,000,000 of working
           capital line of credit (the "Working Capital Line of Credit") and
           $1,500,000 of contingent line of credit (the "Contingent Line of
           Credit");

         . entered into a Management Services Agreement with THINC pursuant to
           which the Company will manage all operations of THINC, including, as
           part of the services, providing THINC with certain content and
           messaging services, and THINC will provide the Company with the right
           to deploy its prescription and laboratory communication services on
           the THINC network on behalf of the payers;

         . licensed to THINC the Company content and messaging services for use
           over the THINC network; and

         . entered into Clinical Transaction Agreements with each of Empire,
           Group Health Incorporated and HIP, referred to together as the "THINC
           Payers," to provide online prescription and laboratory communication
           services.

As part of this arrangement, THINC entered into Managed Care Transaction
Contracts with each of the THINC payers whereby the THINC payers agreed to use
the THINC network for their online medical claims submission, eligibility,
benefit plan detail, roster distribution, remittance advice distribution, claims
inquiry, referral/pre-certification and authorization, and encounter submission
transactions.

         The estimated fair value of the THINC warrant at the date issued was
approximately $1,700,000, as determined using the Black-Scholes option-pricing
model. The Company accounts for the Company's investment in THINC using the
equity method of accounting. For the twelve months ended December 31, 1998,
THINC incurred a net loss of $4,837,000. For the six months ended June 30, 1999,
THINC incurred a net loss of $3,309,000. The Company anticipates that THINC will
continue to incur losses over the next twelve to eighteen months. The carrying
value of the Company's investment in THINC exceeds its pro rata share of the net
assets of THINC. This excess of $2,880,000 is being amortized over a ten-year
period.

         In January 1999, the Company also entered into agreements and
consummated a broad strategic alliance with Cerner. Cerner, a publicly traded
corporation, is a supplier of clinical and management information systems for
healthcare organizations. Under this arrangement, the Company, among other
things, obtained a perpetual software license to the functionality embedded in
Cerner's HNA, including their HNA Millennium Architecture, in exchange for
12,437,500 shares of the Company's common stock (such shares are subject to
certain restrictions on transfer and other adjustments). In addition, the
Company issued to Cerner a warrant to purchase up to 1,008,445 shares of common

                                       28
<PAGE>

stock at $4.00 per share, exercisable only in the event THINC exercises its
warrant. Also, the Company will issue to Cerner 2,503,125 additional shares of
common stock on or after February 15, 2001 at $0.01 per share in the event the
Company has achieved a stated level of physician participation by 2001. The
software acquired from Cerner was valued at approximately $20,800,000 based on
the value of the equity consideration as determined using an income approach
valuation methodology. In connection with the Company's strategic relationship
with Cerner, the Company sold Cerner a beneficial interest of 2% of THINC. As
beneficial owner Cerner will receive any dividends, income and liquidation or
disposition proceeds related to their 2% interest. However, the Company will
remain the owner of record, will exercise voting rights and will have the right
to sell, transfer, exchange, encumber, or otherwise dispose of this 2% interest.
Cerner has also agreed to fund $1,000,000 of the Company's $2,000,000 senior
loan to THINC. Additionally, the Company and Cerner entered into a Marketing
Agreement that allows for the marketing and distribution of the Company's
services to the physicians and providers associated with more than 1,000
healthcare organizations who currently utilize Cerner's clinical and management
information system. In addition, Cerner committed to make available engineering
and systems architecture personnel and expertise to accelerate the deployment of
the Company's services, as well as ongoing technical support and future
enhancements to HNA. Concurrent with the Offering, the Company sold 537,634
shares of its common stock directly to Cerner for net proceeds of approximately
$9,000,000. As of September 21, 1999, Cerner owned 18.7% of the Company.

         On May 24, 1999, the Company acquired Med-Link for $14,000,000 in cash.
Med-Link is a regional provider of electronic data interchange services to
healthcare providers and payers in the northeastern United States that automate
their claims and other managed care transactions. Med-Link currently processes
over 12 million managed care transactions annually for approximately 12,000
physicians.

         In June 1999, the Company entered into a five and one-half year
agreement with Horizon to provide online prescription, laboratory and managed
care communication services. In connection with this transaction, among other
things, the Company issued to Horizon a warrant to purchase an aggregate of
811,824 shares of common stock of the Company ("Horizon warrant"). The Horizon
warrant is exercisable December 23, 2001 at $18.00 per share and expires on
January 4, 2005. The Horizon warrant and the shares of the Company's common
stock issuable upon the exercise of the Horizon warrant are subject to certain
restrictions on transfer. The estimated fair value of the warrant at the date
issued was approximately $6,725,000 as determined using the Black-Scholes
option-pricing model.

         The Company has an agreement with Medical Manager Health Systems, under
which, CareInsite will be the exclusive provider of certain network, web hosting
and transaction services to Medical Manager Health Systems. Medical Manager
Health Systems, is a leading provider of comprehensive physician practice
management information systems that address the financial, administrative and
clinical practice needs of physicians. The Company intends to provide its
healthcare e-commerce services to Medical Manager Health Systems' physician base
by integrating those services into Medical Manager Health Systems' physician
practice management information systems. The Company intends to use Medical
Manager Health Systems' sales and support network as a means from which to
distribute, install and support the Company's transaction, messaging and content
services to Medical Manager Health Systems physicians.

         In September 1999, the Company entered into a strategic alliance with
America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's 18 million members, as well
as CompuServe members and visitors to AOL's Web-based brands Netscape, AOL.COM
and Digital City (collectively, "AOL Members"), to physicians, health plans,
pharmacy benefit managers, covered pharmacies and labs. Under the agreement, the
Company and AOL have agreed to create co-branded sites which will enable AOL
Members to manage their healthcare through online communication with their
physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. Through this arrangement, AOL Members will have access to the Company's
secure, real-time services being developed that allow them, among other things,
to select and enroll in health plans, choose their providers, schedule
appointments, renew and refill plan approved prescriptions, view lab results,
review claims status, receive explanation of benefits, review patient education
materials provided by their health plans, understand plan policies and
procedures and receive plan treatment authorizations. The Company and AOL have
also agreed to collaborate in sales and marketing to the healthcare industry,
and they intend to

                                       29
<PAGE>

leverage their alliance into cross-promotional and shared advertising revenue
initiatives. Under the financial terms of the arrangement, the Company has
agreed to make $30,000,000 of guaranteed payments to AOL.

         Under a separate agreement entered into in September 1999, AOL
purchased 100 shares of the Company's newly issued convertible redeemable
preferred stock ("Preferred Stock") at a price of $100,000 per share, or
$10,000,000 of Preferred Stock in the aggregate, with an option to purchase up
to an additional 100 shares of Preferred Stock in September 2000 at the same
price. At the option of AOL, in March 2002, the Preferred Stock is either
redeemable in whole for $100,000 per share in cash or convertible in whole, on a
per share basis, into (i) the number of shares of the Company's common stock
equal to $100,000 divided by $49.25 (or 2,030.5 shares) and (ii) a warrant
exercisable for the same number of shares of the Company's common stock, or
2,030.5 shares, at a price of $49.25 per share. In the event that AOL elects to
convert the 100 shares of Preferred Stock it purchased in September 1999, it
would receive 203,046 shares of the Company's common stock and a warrant
exercisable into an additional 203,046 shares at $49.25 per share. Prior to
March 2002, AOL has the right to require the Company to redeem the Preferred
Stock in whole at $100,000 per share in the event of a change of control of the
Company. The Preferred Stock is non-voting except under certain extraordinary
circumstances and no dividend is payable on the Preferred Stock unless the
Company declares a dividend on its common stock.


Results of Operations

Year Ended June 30, 1999 Compared to Year Ended June 30, 1998

         Total revenues in fiscal year 1999 were $1,364,000, and were comprised
of (i) $371,000 of revenue attributable to the newly acquired Med-Link
subsidiary and (ii) service revenues from affiliates of $993,000 consisting of
management services provided to THINC.

         Cost of revenues, other than to affiliates, was $69,000. Cost of
services to affiliates of $993,000 consisted primarily of employee compensation
and benefits expense for those employees supporting the THINC business.

         Research and development expenses consist primarily of employee
compensation, the cost of consultants and other direct expenses incurred in the
development of the Company's services. These expenses were $11,253,000 in fiscal
year 1999 compared to $4,159,000 in fiscal year 1998. Research and development
expenses in fiscal year 1999 includes a $2,381,000 write-off of capitalized
software costs which relate to the abandonment of the Company's development
efforts with respect to certain of the Company's services. Those efforts were
abandoned as a result of encountering a high risk development issue associated
with integrating those services with the acquired Cerner technology. Excluding
this write-off of capitalized software, total expenditures for research and
development, including amounts capitalized, were $16,641,000 in fiscal year 1999
and $8,783,000 in fiscal year 1998. The increase in total expenditures was
related to the purchase of third party licenses, as well as increases in
development personnel and outside consultants. Of the total expenditures,
$7,769,000 was capitalized during fiscal year 1999 and $4,624,000 was
capitalized during fiscal year 1998. The Company's policy is to capitalize
software development costs once technological feasibility has been established.

         Sales and marketing expenses consist primarily of salaries and
benefits, travel for sales, marketing and business development personnel, and
promotion related expenses such as advertising, marketing materials, and
tradeshows. Sales and marketing expenses were $1,910,000 in fiscal year 1999
compared to $1,733,000 in fiscal year 1998. The increase reflects the addition
of payer oriented marketing staff partially offset by the elimination of the
remaining advertising and Intranet sales and marketing personnel. Included in
sales and marketing expenses are charges from Medical Manager of $651,000 in
fiscal year 1999 and $422,000 in fiscal year 1998. These charges represent an
allocation of compensation costs for Medical Manager personnel who devoted a
majority of their time to the Company, and primarily relate to business
development and marketing support services.

         General and administrative expenses consist primarily of compensation
for legal, finance, management and administrative personnel. General and
administrative expenses were $4,205,000 in fiscal year 1999 compared to
$2,840,000 in fiscal year 1998. The increase in general and administrative
expenses of $1,365,000 resulted primarily from increased costs associated with
supporting the growth in the research and development efforts. Included in
general and administrative expenses are charges from Medical Manager of $400,000
for fiscal year 1999 and $141,000 for fiscal year 1998. These charges represent
an allocation of compensation costs for Medical Manager personnel who devoted a
majority of their time to the Company, and primarily relate to administrative
and legal services. The increase

                                       30
<PAGE>

in these allocated expenses is due to increased staffing to support the
business. The Company expects to hire additional personnel and incur additional
costs related to being a public company. Accordingly, the Company intends to
increase the absolute dollar level of general and administrative expenses in
future periods.

         The Company recorded $4,300,000 in litigation charges during fiscal
year 1999, related to the Company's ongoing defense against assertions that it
violated certain agreements with Merck & Co., Inc. and Merck-Medco Managed Care,
L.L.C. Refer to Item 3 of this Report.


Year Ended June 30, 1998 Compared to Period from Inception (December 24, 1996)
Through June 30, 1997

         Research and development expenses were $4,159,000 for the year ended
June 30, 1998 and $7,505,000 for the period from Inception (December 24, 1996)
through June 30, 1997. Total expenditures for research and development,
including amounts capitalized, were $8,783,000 for the year ended June 30, 1998
and $7,853,000 for the period from Inception (December 24, 1996) through June
30, 1997. The increase in total expenditures was primarily due to the longer
fiscal period and a significant increase in research and development personnel.
This increase was partially offset by the write-off of $5,228,000 in costs
associated with the acquisitions of rights to certain intellectual property and
software technologies in the period from Inception (December 24, 1996) through
June 30, 1997, for which there was no comparable write-off for the year ended
June 30, 1998. This write-off primarily related to a royalty-free perpetual
license for pharmacy - and prescription - related software applications,
together with the supporting documentation. The Company licensed these assets
for use in developing certain components of the Company's computer applications.
As the Company had not established the technological feasibility of the
Company's applications prior to the date the license was acquired, and there was
no alternative future use of the licensed technology, the entire cost was
charged to research and development expense. Research and development costs
capitalized for the year ended June 30, 1998 and for the period from Inception
(December 24, 1996) through June 30, 1997 were $4,624,000 and $348,000,
respectively.

         Sales and marketing expenses were $1,733,000 for the year ended June
30, 1998 and $1,150,000 for the period from Inception (December 24, 1996)
through June 30, 1997. The increase reflects the impact of the longer fiscal
period partially offset by a reduction in advertising and Intranet sales and
marketing personnel. This reduction is reflective of the Company's change in the
business model from the development of Intranets and the generation of
advertising revenue from pharmaceutical and medical device manufacturers who
advertise on these Intranets to the Company's focus on clinical e-commerce.
Included in sales and marketing expenses are charges from Medical Manager of
$575,000 for the year ended June 30, 1998 and $206,000 for the period from
Inception (December 24, 1996) through June 30, 1997. These charges represent an
allocation of compensation costs for personnel who devote a majority of their
time to the Company, and primarily relate to business development and marketing
support services. The increase in these allocated expenses is primarily due to
the longer fiscal period and to a lesser extent, increased staffing.

         General and administrative expenses were $2,840,000 for the year ended
June 30, 1998 and $937,000 for the period from Inception (December 24, 1996)
through June 30, 1997. The increase in general and administrative expenses of
$1,903,000 resulted primarily from the longer fiscal period and increased
occupancy costs. Included in general and administrative expenses are charges
from Medical Manager of $261,000 for the year ended June 30, 1998 and $24,000
for the period from Inception (December 24, 1996) through June 30, 1997. These
charges represent an allocation of compensation costs for personnel who devote a
majority of their time to the Company, and primarily relate to administrative
and legal services. The increase in these allocated expenses is primarily due to
the longer fiscal period and, to a lesser extent, increased staffing.

         Purchased research and development for the period from inception
(December 24, 1996) through June 30, 1997 was $32,185,000. This relates to the
write-off of the portion of the purchase price allocated to acquired in-process
research and development for the Avicenna and CareAgents acquisitions.

         In connection with the acquisitions of Avicenna and CareAgents, the
Company allocated a portion of each purchase price to acquired in-process
research and development. The amount allocated to acquired in-process research
and development for each of these acquisitions was determined based on an income
approach valuation methodology. For both Avicenna and CareAgents a nine year
forecast of revenues and costs attributable to the acquired technology was
prepared. The nine year projection period was consistent with the expected
useful lives of the technology under development. The resulting operating cash
flows were then reduced by working capital and capital expenditures and
discounted to present value based on a discount rate of 30% for Avicenna and 50%
for CareAgents. These different

                                       31
<PAGE>

discount rates were used because, at the time of acquisition, Avicenna had
commenced operations, had more than 30 employees and had received financing. In
contrast, CareAgents, at the time of acquisition, had not commenced operations,
had no employees other than its stockholders, and had not received any
financing. These amounts have been expensed on the respective acquisition dates
as the in-process research and development had not reached technological
feasibility and had no alternative future use. A description of the acquired in-
process research and development and the estimates made by us is set forth
below.

         Avicenna. Avicenna's business plan was to design and market Intranets
to provider organizations to provide communication and reference capabilities to
these organizations. Doctors in these organizations would communicate via e-mail
and forum groups with centralized medical reference information with the
objective of reducing costs in a managed care environment. The fundamental
technology plan was to develop a client/server based application to allow
hospital affiliated doctors to access a local Intranet that housed medical
reference information, in-house policies and procedures, and communication among
the various parties. This required development of electronic search, medical
reference material storage and communication capabilities such as forums and
e-mail. The revenue model had been, prior to acquisition, primarily one based on
pharmaceutical and medical device manufacturers' advertising fees on these
Intranets. Avicenna also envisioned creating a search capability that would
allow doctors to quickly access relevant reference information on a variety of
medical topics from databases that were licensed to Avicenna. These databases
would be customized in format by Avicenna.

         As of the acquisition date, Avicenna was in the early stages of its
development and the systems under development had not yet reached technological
feasibility. There was a working public Intranet site and they had begun to
implement the search techniques. Their primary mechanism to allow users to
search their Intranet sites and access content provided by hospitals,
advertisers, and others was to develop a method of customizing that content via
a software utility known as "Framework." Framework was in the initial stage of
development with the substantive system design, coding, and testing work
remaining incomplete. Framework was the fundamental piece of code that would
enable users to be able to both search and reference the content contained on an
Avicenna Intranet and thereby realize their business model.

         As of the December 24, 1996 acquisition date, Avicenna had incurred
approximately $1,263,000 in research and development costs to develop the
technology to its status described above. It was estimated that over $3,000,000
of costs remained to complete the projects described above in the following
calendar year and that additional significant costs remained in subsequent years
to further enhance and maintain the capabilities of the Avicenna system.
Subsequent to the date of acquisition, we have modified the acquired technology
from both Avicenna and CareAgents and incorporated them into a broader system,
the CareInsite system.

         CareAgents. CareAgents' business plan was to design and market Internet
based clinical commerce applications that allowed the various healthcare
participants to exchange information and conduct basic medical transactions with
each other. Participants included patients, providers, and suppliers. The
fundamental technology plan was to create an Internet and standards based
connection between the participants and then provide specific transaction
capabilities using both internally and externally developed application
software.

         CareAgents' technology was in the very early stages of development with
basic user requirements, a business plan, preliminary system architecture with
process flow diagrams and prototyping efforts comprising the work completed to
date. In excess of $8,000,000 in costs remained over the next two years to
mature the technology to the point of technological feasibility and then
complete for first product deployment. No work had been completed on a detailed
engineering design or on building or testing any substantive code.


Liquidity and Capital Resources

         The Company's operations since Inception (December 24, 1996) have been
funded through capital contributions from its parent company Medical Manager. On
June 16, 1999, the Company completed its initial public offering of 6,497,500
shares at $18.00 of its Common Stock (the "Offering"). The net cash proceeds of
the Offering were approximately $106,446,000, after deducting anticipated
amounts for underwriting discounts and commissions and Offering expenses.
As of June 30, 1999 the Company had $118,689,000 of cash and cash equivalents
and short-term marketable securities.

                                       32
<PAGE>

         Cash used in operating activities was $18,276,000 during fiscal year
1999, $9,052,000 in fiscal year 1998 and $5,011,000 for the period from
Inception (December 24, 1996) through June 30, 1997. The cash used during this
period was primarily attributable to the losses associated with the development
of the Company's business activities.

         Cash used in investing activities was $77,767,000 during fiscal year
1999, $6,721,000 in fiscal year 1998 and $1,371,000 for the period from
Inception (December 24, 1996) through June 30, 1997. The cash used during fiscal
year 1999 was primarily related to purchases of short-term marketable securities
for $54,392,000, the acquisition of Med-Link for $14,000,000 and software
development costs of $7,769,000. The Company's short-term marketable securities
are invested in various investment-grade commercial paper, money market accounts
and certificates of deposit.

         Cash provided by financing activities was $159,747,000 for fiscal year
1999, $15,842,000 for fiscal year 1998 and $6,628,000 for the period from
Inception (December 24, 1996) through June 30, 1997. The Company completed its
Offering on June 16, 1999 for net proceeds of $108,366,000, after deducting
underwriting discounts and issuance costs paid through June 30, 1999. The
Company also issued additional shares to Cerner and Medical Manager during
fiscal year 1999 for net proceeds of $23,000,000. The Company's parent company
Medical Manager also contributed additional capital and paid its stock
subscription receivable for an aggregate of $28,381,000.


         Pursuant to the Company's strategic relationship with THINC, the
Company has committed to the Working Capital Line of Credit and the Contingent
Line of Credit. In connection with the Company's strategic relationship with
Cerner, Cerner has agreed to fund $1,000,000 of the Working Capital Line of
Credit. As of September 21, 1999, the Company has funded the entire $2,000,000
of the Working Capital Line of Credit and Cerner has paid the Company $750,000
of the $1,000,000 portion of the Working Capital Line of Credit it has committed
to. The Company was not required to fund any amounts to THINC under the
Contingent Line of Credit.

         The Company currently anticipates that the net proceeds from the
Offering and proceeds from the sale of shares to Cerner in a concurrent private
transaction, together with the Company's available cash resources, will be
sufficient to meet the Company's presently anticipated working capital, capital
expenditure and business expansion requirements for approximately the next
18-24 months. There can be no assurance that the Company will not require
additional capital prior to the expiration of this 18-24 month period. Even if
such additional funds are not required, the Company may seek additional equity
or debt financing. There can be no assurance that such financing will be
available on acceptable terms, if at all, or that such financing will not be
dilutive to the Company's stockholders.

         The Company continues to pursue an acquisition program pursuant to
which it seeks to effect one or more acquisitions or other similar business
combinations with businesses it believes have significant growth potential.
Financing for such acquisitions may come from several sources, including,
without limitation, (a) the Company's cash, cash equivalents and marketable
securities and (b) proceeds from the incurrence of additional indebtedness or
the issuance of common stock, preferred stock, convertible debt or other
securities. There can be no assurance that the Company's acquisition program
will be successful. See "--Business-Acquisition Program".

New Accounting Pronouncements

         In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position, or "SOP," 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company is required to implement SOP 98-1
for the year ending June 30, 2000. Management believes that the adoption of SOP
98-1 will have no material impact on the Company's financial condition or
results of operations.

         In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires that entities expense start-up costs as incurred. The Company is
required to implement SOP 98-5 for the year ending June 30, 2000. Management
believes that the adoption of SOP 98-5 is expected to have no material impact on
the Company's financial condition or results of operations.


Year 2000 Compliance

         Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries for the year in the date
code field. These systems and software products will need to accept four digit
year entries to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with such Year 2000 requirements or
risk system failure or miscalculations causing disruptions of normal business
activities.

         State of Readiness. The Company has made a preliminary assessment of
the Year 2000 readiness of its information technology systems, including the
hardware and software that enable the Company to develop and deliver its
healthcare e-commerce services as well as its non-information technology
systems. The Company's assessment plan consists of:

         . quality assurance testing of the Company's internally developed
           proprietary software;

         . contacting third-party vendors and licensors of material hardware,
           software and services that are both directly and indirectly related
           to developing the Company's healthcare e-commerce network;

                                       33
<PAGE>

         . contacting vendors of material non-IT systems;

         . assessment of repair or replacement requirements;

         . repair or replacement; and

         . implementation.

         The Company has been informed by its vendors of material hardware and
software components of its IT systems that the products used by the Company are
currently Year 2000 compliant. The Company has also been informed by its non-IT
system vendors that the products used by the Company are currently Year 2000
compliant.

         Costs. To date, the Company has not incurred any material expenditures
in connection with identifying or evaluating Year 2000 compliance issues. Most
of the Company's expenses have related to, and are expected to continue to
relate to, the operating costs associated with time spent developing a Year 2000
compliant healthcare e-commerce channel.

         The Company is not currently aware of any Year 2000 compliance problems
relating to its information technology or non-information technology systems
that the Company believes would have a material adverse effect on its business,
financial condition and results of operations. There can be no assurance that
the Company will not discover Year 2000 compliance problems that will require
substantial revisions to the Company's systems or services. In addition, there
can be no assurance that third-party software, hardware or services incorporated
into the Company's material information technology and non-information
technology systems will not need to be revised or replaced, all of which could
be time consuming and expensive. Any failure to fix the Company's information
technology systems or to replace third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs, the loss
of customers and other business interruptions, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition.

         In addition, there can be no assurance that physicians, payers,
suppliers, Internet access companies, third-party service providers, vendors,
business partners and others outside the Company's control will be Year 2000
compliant. The failure by such entities to be Year 2000 compliant could result
in a systemic failure beyond the Company's control, such as a prolonged Internet
or communications failure, which could also prevent the Company from delivering
the Company's services to its customers, decrease the use of the Internet or
prevent users from accessing the Company's service. Such a failure could have a
material adverse effect on the Company's business, results of operations and
financial condition. Also, a general Year 2000 systemic failure could require
healthcare companies to spend large amounts of money to correct any such
failures, reducing the amount of money that might otherwise be available to be
spent on services such as the Company's.

         Contingency plan. The Company is continuing to assess and test its
systems for Year 2000 compliance. The Company has also developed contingency
plans for system failure, service disruption and data corruption issues due to
Year 2000 problems. In the event that there is a system problem due to a Year
2000 date, the Company will immediately attempt to diagnose and fix the problem.
At the same time, the Company will change (a) the system clock back to 1999
while separately logging all transactions so affected and/or (b) the dates
within transactions to 1999 while separately logging all transactions so
affected. In the event that a Year 2000 problem occurs at an external entity,
that entity will be informed of the problem and the Company will continue to
review and repair the dates until the problem is fixed. The Company makes no
assurance that it will be able to successfully diagnose and/or fix any Year 2000
problems that occur or that the cost of doing so will not be material.

         As the Year 2000 issue has many elements and potential consequences,
some of which are not reasonably foreseeable, the ultimate impact of the Year
2000 on the Company's operations could differ materially from the Company's
expectations.

         This discussion contains forward-looking statements relating to the
Company's operations that are based on management's current expectations,
estimates and projections about the Company, and the healthcare e-commerce
industry. Words such as "expects," "intends," "plans," "projects," "believes,"
"estimates," "anticipates" and variations

                                       34
<PAGE>

of these words and similar expressions are used to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Further, certain forward-looking statements are based upon assumptions
as to future events that may not prove to be accurate. Therefore, actual
outcomes and results may differ materially from what is expressed or forecast in
such forward-looking statements. The Company undertakes no obligation, and does
not intend, to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. A number of important
factors could cause actual results to differ materially from those indicated by
such forward-looking statements. Such factors include establishing a successful
business model; ability to penetrate physician offices; acceptance of the
Company's services; results of the Company's strategic relationships Medical
Manager, Cerner, THINC and Horizon; limited customer base; competition;
government regulation of the Internet or healthcare e-commerce services and
economic conditions.


ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate sensitivity

         The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investments in marketable securities. The
Company does not use derivative financial instruments in its investments. The
Company's investments consist primarily of U.S. Treasury Notes and Federal
Agency Notes.

         The following table presents the amounts of the Company's cash
equivalents and short-term marketable securities that are subject to market risk
by range of expected maturity and weighted-average interest rates as of June 30,
1999. This table does not include money market funds because those funds are not
subject to market risk.

<TABLE>
<CAPTION>
                                                                        (in thousands)
                                                       Three      Three Months                      Fair
                                                       Months      to One Year       Total          Value
                                                      -----------------------------------------------------
<S>                                                   <C>         <C>               <C>            <C>
Included in cash and cash equivalents............     $ 64,019           N/A        $ 64,019       $ 64,019
    Weighted-average interest rate...............        4.88%           N/A            4.88%          4.88%

Included in short-term marketable securities              N/A       $ 54,392        $ 54,392       $ 54,670
    Weighted-average interest rates..............         N/A           5.44%           5.44%          5.44%
</TABLE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Financial statements are contained on pages F-1 through F-21 of this
report.


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

         None.

                                       35
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A, except that the information
regarding the Company's executive officers required by Item 401 of Regulation
S-K has been included in Part I of this Report.


ITEM 11. EXECUTIVE COMPENSATION

         The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.

                                       36
<PAGE>

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

(a)(1)   The financial statements, related notes thereto and reports of
         independent accountants required by Item 8 are listed on page F-1
         herein.

(2)      Schedule II- Valuation and Qualifying Accounts for the Years Ended June
         30, 1997, 1998 and 1999. All other financial statement schedules are
         omitted because they are not applicable or the required information is
         shown in the Company's consolidated financial statements or the notes
         thereto.

(3)      Index to Exhibits:

         See Index to Exhibits on page E-1.


(b)      Reports on Form 8-K.

         None.

                                       37
<PAGE>

                                   SIGNATURES

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


                               CAREINSITE, INC.

Date: September 27, 1999       By:  /s/ Paul C. Suthern
                                  ---------------------------------------------
                                  Paul C. Suthern, President, Chief Executive
                                   Officer and Director

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 27, 1999.

(1)  Principal Executive Officer:     (3)  A Majority of the Board of Directors:

By:  /s/ Paul C. Suthern              Martin J. Wygod
   --------------------------------   James R. Love
   Paul C. Suthern                    Dr. Mark Adler
   President and Chief Executive      Roger C. Holstein
   Officer                            James V. Manning
                                      David M. Margulies
                                      Charles A. Mele
                                      Larry Rader
                                      Michael A. Singer
                                      Joseph Smith


(2)   Principal Financial and
      Accounting Officer:             By: /s/ Paul C. Suthern
                                         -------------------------------------
                                         Paul C. Suthern
By: /s/ James R. Love                    Individually and as Attorney-In-Fact
   --------------------------------
   Executive Vice President and
   Chief Financial Officer

                                       38
<PAGE>

                                INDEX TO EXHIBITS

Exhibit
Number                                   Title
------                                   -----

   3.1        Amended and Restated Certificate of Incorporation of the
              Registrant. Incorporated by reference to Exhibit 3.1 to the
              Registrant's Registration Statement on Form S-1 filed on March 26,
              1999, and amended April 23, 1999, May 6, 1999, May 17, 1999, May
              26, 1999, June 3, 1999, June 11, 1999 and June 14, 1999 (File No.
              333-75071) (the "Registration Statement").

   3.2        By-laws of the Registrant, as amended. Incorporated by reference
              to Exhibit 3.2 to the Registration Statement.

   4.1        Specimen Certificate representing Common Stock. Incorporated by
              reference to Exhibit 4.1 to the Registration Statement.

  10.1        Agreement and Plan of Merger among Synetic, Inc (since renamed
              Medical Manager Corporation ("Medical Manager")), Synternet
              Acquisition Corp., a subsidiary of Medical Manager, Avicenna
              Systems Corp., and the individuals and entities listed on the
              signature pages thereof, dated as of December 23, 1996.
              Incorporated by reference to Exhibit 10.1 to the Registration
              Statement.

  10.2        Agreement and Plan of Merger among Medical Manager, Synternet
              Acquisition Corp., CareAgents, Inc. and the individuals listed on
              the signature pages thereof, dated as of January 23, 1997.
              Incorporated by reference to Exhibit 10.2 to the Registration
              Statement.

  10.3        Subscription Agreement dated as of January 2, 1999 between Synetic
              Healthcare Communications, Inc. (since renamed CareInsite, Inc.
              ("CareInsite" or the "Registrant")), Medical Manager, Avicenna
              Systems Corporation and Cerner Corporation. Incorporated by
              reference to Exhibit 10.3 to the Registration Statement.

  10.4        License Agreement dated as of January 2, 1999 between CareInsite
              and Cerner Corporation. Incorporated by reference to Exhibit 10.4
              to the Registration Statement.

  10.5        Stockholders' Agreement, dated as of January 2, 1999, among
              CareInsite, Medical Manager, Avicenna Systems Corporation and
              Cerner Corporation. Incorporated by reference to Exhibit 10.5 to
              the Registration Statement.

  10.6        Non-Competition Agreement, dated as of January 2, 1999, among
              CareInsite, Medical Manager, Avicenna Systems Corporation and
              Cerner Corporation. Incorporated by reference to Exhibit 10.6 to
              the Registration Statement.

  10.7        Marketing Agreement, dated as of January 2, 1999, between
              CareInsite and Cerner Corporation. Incorporated by reference to
              Exhibit 10.7 to the Registration Statement.

  10.8        Clinical Transaction Agreement, dated as of January 1, 1999,
              between CareInsite and Empire Blue Cross and Blue Shield, Empire
              Healthchoice, Inc., Empire Healthchoice Assurance Inc. and Empire
              Health Plans Assurance, Inc. Incorporated by reference to Exhibit
              10.8 to the Registration Statement.

  10.9        Clinical Transaction Agreement, dated as of January 1, 1999,
              between CareInsite and Group Health Incorporated. Incorporated by
              reference to Exhibit 10.9 to the Registration Statement.

  10.10       Clinical Transaction Agreement, dated as of January 1, 1999,
              between CareInsite and Health Insurance Plans of Greater New York.
              Incorporated by reference to Exhibit 10.10 to the Registration
              Statement.

                                      E-1
<PAGE>

  10.11       Management Services Agreement, effective as of January 1, 1999,
              between CareInsite and The Health Information Network Connection
              LLC ("THINC"). Incorporated by reference to Exhibit 10.11 to the
              Registration Statement.

  10.12       Warrant dated as of January 1, 1999 (entitling THINC to purchase
              from CareInsite 81,081 shares (prior to a 50.0625 for 1 stock
              split) of Common Stock). Incorporated by reference to Exhibit
              10.12 to the Registration Statement.

  10.13       Amended and Restated Operating Agreement, dated as of January 1,
              1999, among The Health Information Network Connection LLC, Empire
              Blue Cross and Blue Shield, GNYHA Management Corporation,
              GroupHealth Incorporated, Health Insurance Plan of Greater New
              York and CareInsite. Incorporated by reference to Exhibit 10.13 to
              the Registration Statement.

  10.14       Form of Tax-Sharing Agreement between the Registrant and Medical
              Manager. Incorporated by reference to Exhibit 10.14 to the
              Registration Statement.

  10.15       Services Agreement, dated January 1, 1999, between the Registrant
              and Medical Manager. Incorporated by reference to Exhibit 10.15 to
              the Registration Statement.

  10.16       Form of Indemnification Agreement between the Registrant and
              Medical Manager. Incorporated by reference to Exhibit 10.16 to the
              Registration Statement.

  10.17       CareInsite, Inc. 1999 Employee Stock Option Plan.  Incorporated by
              reference to Exhibit 10.17 to the Registration Statement.*

  10.18       CareInsite, Inc. 1999 Officer Stock Option Plan.  Incorporated by
              reference to Exhibit 10.18 to the Registration Statement.*

  10.19       Employment Agreement dated as of January 23, 1997 between Medical
              Manager and David M. Margulies. Incorporated by reference to
              Exhibit 10.19 to the Registration Statement.*

  10.20       Employment Agreement dated November 6, 1997 between Medical
              Manager and Roger C. Holstein. Incorporated by reference to
              Exhibit 10.21 to the Registration Statement.*

  10.21       Software License Agreement, dated as of March 31, 1997, between
              Medical Manager and Advanced Health Med-E-Systems Corporation.
              Incorporated by reference to Exhibit 10.22 to the Registration
              Statement.

  10.22       Exclusive Electronic Gateway and Network Services Agreement, dated
              as of May 16, 1999, between the Registrant and Medical Manager
              Corporation (since merged with a subsidiary of Medical Manager and
              renamed Medical Manager Health Systems, Inc.). Incorporated by
              reference to Exhibit 10.23 to the Registration Statement.

  10.23       Employment Agreement dated February 1999 between Medical Manager
              and James R. Love. Incorporated by reference to Exhibit 10.24 to
              the Registration Statement.*

  10.24       Employment Agreement dated May 26, 1998 between Medical Manager
              and Richard S. Cohan. Incorporated by reference to Exhibit 10.25
              to the Registration Statement.*

  10.25       Stock Purchase Agreement dated as of May 24, 1999 among CareInsite
              and SPS Payment Systems, Inc. for the purchase of Med-Link
              Technologies, Inc. Incorporated by reference to Exhibit 10.26 to
              the Registration Statement.

                                      E-2
<PAGE>

  10.26       Form of Indemnification Agreement Between CareInsite and each of
              its directors and officers. Incorporated by reference to Exhibit
              10.27 to the Registration Statement.

  10.27       1989 Class A Non-Qualified Stock Option Plan of Medical Manager.
              (Incorporated by reference to Exhibit 4.1 to the Medical Manager's
              Registration Statement on Form S-8 (No. 333-21555)).*

  10.28       1989 Class B Non-Qualified Stock Option Plan of Medical Manager.
              (Incorporated by reference to Exhibit 4.2 to Medical Manager's
              Registration Statement on Form S-8 (No. 333-21555)).*

  10.29       1991 Director Stock Option Plan of Medical Manager.  (Incorporated
              by reference to Exhibit 4.3 to Medical Manager's Registration
              Statement on Form S-8 (No. 333-21555)).*

  10.30       Stock Option Agreement, dated as of July 24, 1991, between Medical
              Manager and Roger C. Holstein. (Incorporated by reference to
              Exhibit 4.3 to Medical Manager's Registration Statement on Form
              S-8 (No. 33-46640)).*

  10.31       Form of Stock Option Agreement, made as of December 7, 1994,
              between Medical Manager and Paul C. Suthern. (Incorporated by
              reference to Exhibit 4.5 to Medical Manager's Registration
              Statement on Form S-8 (No. 333-21555)).*

  10.32       1997 Class D Stock Option Plan of Medical Manager.  (Incorporated
              by reference to Exhibit 4.2 to Medical Manager's Registration
              Statement on Form S-8 (No. 333-36041)).*

  10.33       1991 Special Non-Qualified Stock Option Plan of Medical Manager.
              (Incorporated by reference to Exhibit 4.3 to Medical Manager's
              Registration Statement on Form S-8 (No. 333-36041)).*

  10.34       Stock Option Agreement, dated as of March 15, 1999, between
              Medical Manager and James R. Love. Incorporated by reference to
              Exhibit 10.35 to the Registration Statement.*

  10.35       Stock Option Agreement, dated as of January 7, 1998, between
              Medical Manager and David C. Amburgey. (Incorporated by reference
              to Exhibit 4.4 to Medical Manager's Registration Statement on
              Form S-8 (No. 333-72517)).*

  10.36       Stock Option Agreement, dated as of October 9, 1998, between
              Medical Manager and Richard S. Cohan. (Incorporated by reference
              to Exhibit 4.6 to Medical Manager's Registration Statement on
              Form S-8 (No. 333-72517)).*

  10.37       Stock Option Agreement, dated as of June 23, 1997, between
              Medical Manager and Roger C. Holstein. (Incorporated by reference
              to Exhibit 4.3 to Medical Manager's Registration Statement on
              Form S-8 (No. 333-72517)).*

  10.38       Employment Agreement dated as of June 11, 1999 between CareInsite
              and Steven L. Zatz. Incorporated by reference to Exhibit 10.39 of
              the Registration Statement.*

  10.39       Employment Agreement dated as of June 11, 1999 between CareInsite
              and Robert C. Dieterle. Incorporated by reference to Exhibit 10.40
              to the Registration Statement.*

  10.40       Warrant dated as of June 14, 1999 (entitling Horizon Blue Cross
              Blue Shield of New Jersey to purchase from CareInsite 811,824
              shares of common stock). Incorporated by reference to Exhibit
              10.41 to the Registration Statement.

  21.1        Subsidiaries of CareInsite.**


                                      E-3
<PAGE>


  24.1      Powers of Attorney.**

  27.1      Financial Data Schedule for fiscal year ended June 30, 1999 (for SEC
            use only).**

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

*   Management contract or compensation plan or arrangement.

**  Filed herewith.

                                      E-4
<PAGE>

<TABLE>
<CAPTION>

CAREINSITE, INC. AND SUBSIDIARIES   (a Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES                     Page Number



<S>                                                                              <C>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                         F-2


FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of June 30, 1999 and June 30, 1998                F-3

Consolidated Statements of Operations for the Years ended June 30, 1999
      and June 30, 1998, the Period from Inception (December 24, 1996)
      through June 30, 1997 and Cumulative from Inception (December 24, 1996)
      through June 30, 1999                                                      F-5

Consolidated Statements of Changes in Stockholders' Equity for the Period
      from Inception (December 24, 1996) through June 30, 1997,
      the Years ended June 30, 1998 and June 30, 1999                            F-6

Consolidated Statements of Cash Flows for the Years ended June 30, 1999
      and June 30, 1998, the Period from Inception (December 24, 1996)
      through June 30, 1997 and Cumulative from Inception (December 24, 1996)
      through June 30, 1999                                                      F-7

Notes to Consolidated Financial Statements                                       F-8



SUPPLEMENTAL SCHEDULES:

I   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                     S-I
II  VALUATION AND QUALIFYING ACCOUNTS                                            S-II
</TABLE>

All other schedules not listed above have been omitted as not applicable or
because the required information is included in the Consolidated Financial
Statements or in the notes thereto.  Columns omitted from any schedule filed
have been omitted because the information is not applicable.

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To CareInsite, Inc.:

We have audited the accompanying consolidated balance sheets of CareInsite, Inc.
(a Delaware corporation in the development stage) and subsidiaries (formerly
Synetic Healthcare Communications, Inc.) as of June 30, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the two years in the period ended June 30, 1999, the
period from Inception (December 24, 1996) through June 30, 1997 and the
cumulative period from Inception (December 24, 1996) through June 30, 1999.
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 audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CareInsite, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the two years in the period ended June 30,
1999, and for the period from Inception (December 24, 1996) through June 30,
1997 and the cumulative period from Inception (December 24, 1996) through June
30, 1999, in conformity with generally accepted accounting principles.



                                                             ARTHUR ANDERSEN LLP

Roseland, New Jersey
August 27, 1999

                                      F-2
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                          CONSOLIDATED BALANCE SHEETS

                                (in thousands)

                                    ASSETS

<TABLE>
<CAPTION>

                                                                                                     June 30,
                                                                                         --------------------------------
                                                                                             1999              1998
                                                                                         -------------     --------------
<S>                                                                                      <C>               <C>
CURRENT ASSETS:
           Cash and cash equivalents...............................................          $ 64,019           $    315
           Marketable securities...................................................            54,670                  -
           Accounts receivable, net of allowance of $6 at June 30, 1999............               532                  -
           Note receivable.........................................................                 -              2,000
           Receivable from affiliate...............................................             1,448                  -
           Prepaid and other.......................................................               697                220
                                                                                         -------------     --------------
                        Total current assets.......................................           121,366              2,535
                                                                                         -------------     --------------


PROPERTY, PLANT AND EQUIPMENT:
           Leasehold improvements..................................................               732                681
           Equipment...............................................................             3,454              2,826
           Furniture and fixtures..................................................               427                371
                                                                                         -------------     --------------
                                                                                                4,613              3,878
           Less: Accumulated depreciation..........................................            (2,033)            (1,025)
                                                                                         -------------     --------------
                        Property, plant and equipment, net.........................             2,580              2,853
                                                                                         -------------     --------------


CAPITALIZED SOFTWARE DEVELOPMENT COSTS.............................................            31,330              4,972

OTHER ASSETS:
           Intangible assets, net..................................................            22,475                404
           Investment..............................................................             2,000                  -
           Other...................................................................               202                 69
                                                                                         -------------     --------------
                        Total other assets.........................................            24,677                473
                                                                                         -------------     --------------
                                                                                            $ 179,953           $ 10,833
                                                                                         =============     ==============
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-3
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                          CONSOLIDATED BALANCE SHEETS

                       (in thousands, except share data)

                     LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                                       June 30,
                                                                                        ---------------------------------------
                                                                                            1999                      1998
                                                                                        --------------            -------------
<S>                                                                                     <C>                       <C>
CURRENT LIABILITIES
           Accounts payable..........................................................       $     764                 $    594
           Payable to Parent.........................................................             853                        -
           Payable to affiliate......................................................             497                        -
           Accrued liabilities.......................................................           4,415                    1,166
                                                                                        --------------            -------------
                        Total current liabilities....................................           6,529                    1,760
                                                                                        --------------            -------------

DEFERRED INCOME TAXES................................................................               -                    1,275
                                                                                        --------------            -------------

COMMITMENTS AND CONTINGENCIES (NOTE 7)

STOCKHOLDERS' EQUITY:
           Preferred stock, $.01 par value, 30,000,000 shares authorized;
                none issued and outstanding..........................................               -                        -
           Common stock, $.01 par value, authorized 300,000,000 shares;
                70,410,134 shares issued and outstanding at June 30, 1999 and
                50,062,500 shares issued and outstanding at
                June 30, 1998........................................................             704                      501
           Additional paid-in capital................................................         247,932                   69,989
           Stock subscription receivable.............................................               -                  (10,000)
           Deficit accumulated during the development stage..........................         (75,490)                 (52,692)
           Accumulated other comprehensive income....................................             278                        -
                                                                                        --------------            -------------
                        Total stockholders' equity...................................         173,424                    7,798
                                                                                        --------------            -------------
                                                                                            $ 179,953                 $ 10,833
                                                                                        ==============            =============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                      F-4
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                        Period From           Cumulative From
                                                                                         Inception                Inception
                                                     Years Ended June 30,             (Dec. 24, 1996)          (Dec. 24, 1996)
                                             -----------------------------------          Through                  Through
                                                  1999                1998             June 30, 1997            June 30, 1999
                                             ---------------     ---------------     -------------------     --------------------
<S>                                          <C>                  <C>                <C>                     <C>
Net revenue...............................        $     371             $     -               $       -                $     371
Service revenue to affiliates.............              993                   -                       -                      993
                                             ---------------     ---------------     -------------------     --------------------
              Total revenues..............            1,364                   -                       -                    1,364
                                             ---------------     ---------------     -------------------     --------------------
Costs and Expenses:
    Cost of revenues......................               69                   -                       -                       69
    Cost of services to affiliates........              993                   -                       -                      993
    Research and development expenses.....           11,253               4,159                   7,505                   22,917
    Sales and marketing expenses..........            1,910               1,733                   1,150                    4,793
    General and administrative expenses...            4,205               2,840                     937                    7,982
    Litigation costs......................            4,300                   -                       -                    4,300
    Acquired in-process research and
     development..........................                -                   -                  32,185                   32,185
    Depreciation and amortization.........            1,695               1,650                     589                    3,934
                                             ---------------     ---------------     -------------------     --------------------
              Total costs and expenses....           24,425              10,382                  42,366                   77,173
                                             ---------------     ---------------     -------------------     --------------------
Loss from operations......................          (23,061)            (10,382)                (42,366)                 (75,809)
Other income, net.........................              263                  47                       9                      319
                                             ---------------     ---------------     -------------------     --------------------
Net loss..................................        $ (22,798)          $ (10,335)              $ (42,357)               $ (75,490)
                                             ===============     ===============     ===================     ====================

Net loss per share, basic and diluted.....        $   (0.40)          $   (0.21)              $   (0.85)               $   (1.45)
                                             ===============     ===============     ===================     ====================

Weighted average shares outstanding,
 basic and diluted........................           56,371              50,063                  50,063                   52,166
                                            ================     ===============    ===================      ====================

</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-5
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                (in thousands)



<TABLE>
<CAPTION>
                                                      Common Stock                             Deficit
                                                    ----------------                         Accumulated  Accumulated
                                                      Number         Additional     Stock     During the     Other        Total
                                                        of             Paid-In  Subscription Development Comprehensive Stockholders'
                                                      Shares  Amount   Capital   Receivable     Stage        Income       Equity
                                                    -------- ------- ---------- ------------ ----------- ------------- -------------

<S>                                                  <C>      <C>      <C>        <C>        <C>          <C>          <C>
Capitalization at Inception, December 24, 1996.....  50,063   $ 501    $ 9,499    $ (10,000)  $       -       $   -    $       -
      Contribution of Avicenna assets..............       -       -     28,817            -           -           -       28,817
      Contribution of CareAgents stock.............       -       -      3,250            -           -           -        3,250
      Net loss.....................................       -       -          -            -     (42,357)          -      (42,357)
      Capital contributions from Parent............       -       -     11,856            -           -           -       11,856
                                                    -------- ------- ---------- ------------ -----------  ----------   ----------
Balance at June 30, 1997...........................  50,063     501     53,422      (10,000)    (42,357)          -        1,566
                                                    -------- ------- ---------- ------------ -----------  ----------   ----------
      Net loss.....................................       -       -          -            -     (10,335)          -      (10,335)
      Capital contributions from Parent............       -       -     16,567            -           -           -       16,567
                                                    -------- ------- ---------- ------------ -----------  ----------   ----------
Balance at June 30, 1998...........................  50,063     501     69,989      (10,000)    (52,692)          -        7,798
                                                    -------- ------- ---------- ------------ -----------  ----------   ----------
         Net loss..................................       -       -          -            -     (22,798)          -      (22,798)
         Unrealized gains on marketable securities        -       -          -            -           -         278          278
                                                                                                                       ----------
           Total comprehensive loss................                                                                      (22,520)
      Settlement of stock subscription receivable..       -       -          -       10,000           -           -       10,000
      Common stock issued to Cerner................  13,148     131     32,455            -           -           -       32,586
      Issuance of warrants to THINC................       -       -      1,700            -           -           -        1,700
      Issuance of warrants to Horizon..............       -       -      6,725            -           -           -        6,725
      Sale of common stock in initial public
        offering, net of underwriting discount
        and offering expenses of $10,509...........   6,498      65    106,381            -           -           -      106,446
      Common stock issued to Parent................     701       7     11,207            -           -           -       11,214
      Capital contributions from Parent............       -       -     19,475            -           -           -       19,475
                                                    -------- ------- ---------- ------------ -----------  ----------   ----------
Balance at June 30, 1999...........................  70,410   $ 704   $247,932    $       -   $ (75,490)      $ 278    $ 173,424
                                                    ======== ======= ========== ============ ===========  ==========   ==========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-6
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (in thousands)



<TABLE>
<CAPTION>                                                                                     Period From         Cumulative
                                                                                               Inception        From Inception
                                                                   Years Ended June 30,     (Dec. 24, 1996)     (Dec. 24, 1996)
                                                            ------------------------------      Through             Through
                                                               1999             1998         June 30, 1997       June 30, 1999
                                                            ------------    --------------   ---------------   ------------------
<S>                                                               <C>             <C>         <C>              <C>
Cash Flows Used In Operating Activities:
  Net loss...............................................     $ (22,798)        $ (10,335)      $ (42,357)       $ (75,490)
     Adjustments to reconcile net loss to net cash
      used in operating activities:
       Depreciation and amortization.....................         1,695             1,650             589            3,934
       Write-off of acquired in-process research and
        development costs................................             -                 -          32,185           32,185
       Write-off of acquired intellectual property and
             software technologies.......................             -                 -           5,228            5,228
       Write-off of capitalized software costs...........         2,381                 -               -            2,381
       Net loss from investment in unconsolidated
        affiliate........................................           596                 -               -              596
       Changes in operating assets and liabilities:
           Accounts and affiliate receivable, net........        (1,269)                -               -           (1,269)
           Prepaid and other current assets..............          (410)                -               -             (410)
           Other assets..................................          (434)             (217)             61             (590)
           Accounts, Parent and affiliate payables.......         1,499               329            (241)           1,587
           Accrued liabilities...........................           464              (479)           (476)            (491)
                                                            ------------    --------------   -------------    -------------
            Net cash used in operating activities........       (18,276)           (9,052)         (5,011)         (32,339)
                                                            ------------    --------------   -------------    -------------
Cash Flows Used In Investing Activities:
       Purchases of property, plant and equipment........          (276)           (2,097)         (1,023)          (3,396)
       Software development costs........................        (7,769)           (4,624)           (348)         (12,741)
       Purchases of short-term marketable securities.....       (54,392)                -               -          (54,392)
       Acquisition of Med-Link, net of cash acquired.....       (13,980)                -               -          (13,980)
       Investment in unconsolidated affiliate............        (1,350)                -               -           (1,350)
                                                            ------------    --------------   -------------    -------------
            Net cash used in investing activities........       (77,767)           (6,721)         (1,371)         (85,859)
                                                            ------------    --------------   -------------    -------------
Cash Flows Provided By Financing Activities:
       Proceeds from stock subscription receivable.......        10,000                 -               -           10,000
       Net proceeds from initial public offering.........       108,366                 -               -          108,366
       Proceeds from sale of Common Stock to Parent......        11,214                 -               -           11,214
       Proceeds from sale of Common Stock to Cerner......        11,786                 -               -           11,786
       Capital contribution from Parent..................        18,381            15,842           6,628           40,851
                                                            ------------    --------------   -------------    -------------
            Net cash provided by financing activities....       159,747            15,842           6,628          182,217
                                                            ------------    --------------   -------------    -------------
Change in cash and cash equivalents......................        63,704                69             246           64,019
Cash and cash equivalents, beginning of period...........           315               246               -                -
                                                            ------------    --------------   -------------    -------------
Cash and cash equivalents, end of period.................     $  64,019         $     315       $     246        $  64,019
                                                            ============    ==============   =============    =============

Supplemental disclosure of non-cash investing and
     financing activities:
  Contribution of Avicenna assets from Parent............     $       -         $       -       $  28,817        $  28,817
                                                            ============    ==============   =============    =============
  Contribution of CareAgents stock from Parent...........     $       -         $       -       $   3,250        $   3,250
                                                            ============    ==============   =============    =============
  Contribution of acquired intellectual property
     and software technologies from Parent...............     $       -         $       -       $   5,228        $   5,228
                                                            ============    ==============   =============    =============
  Contribution of note receivable from Parent............     $       -         $   2,000       $       -        $   2,000
                                                            ============    ==============   =============    =============
  Issuance of equity for software technology licensed
     from Cerner.........................................     $  20,800         $       -       $       -        $  20,800
                                                            ============    ==============   =============    =============
  Conversion of note receivable into a stock investment..     $   2,000         $       -       $       -        $   2,000
                                                            ============    ==============   =============    =============
  Issuance of THINC warrant..............................     $   1,700         $       -       $       -        $   1,700
                                                            ============    ==============   =============    =============
  Issuance of Horizon warrant............................     $   6,725         $       -       $       -        $   6,725
                                                            ============    ==============   =============    =============
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-7
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  Nature of Operations and Strategic Relationships


The Company

     On December 24, 1996, Medical Manager Corporation (formerly known as
Synetic, Inc., herein referred to as "Medical Manager" or the "Parent") acquired
Avicenna Systems Corporation, a privately held, development stage company that
marketed and built Intranets for managed healthcare plans, integrated healthcare
delivery systems and hospitals (See Note 3).  The acquisition of Avicenna marked
the inception of Medical Manager's healthcare electronic commerce business (the
"Inception"). On January 23, 1997, Medical Manager acquired CareAgents, Inc.
("CareAgents"), a privately held, development stage company engaged in
developing Internet-based clinical commerce applications (See Note 3).  On
November 24, 1998, Medical Manager formed Synetic Healthcare Communications,
Inc., which was subsequently renamed CareInsite, Inc. ("CareInsite" or the
"Company").  On January 2, 1999, Medical Manager contributed the stock of
CareAgents to Avicenna.  Concurrently, Avicenna contributed the stock of
CareAgents and substantially all of Avicenna's other assets and liabilities to
the Company (the "Formation").  Medical Manager also contributed $10,000,000 in
cash to the Company.  The Formation has been accounted for using the carryover
basis of accounting and the Company's financial statements include the accounts
and operations of Avicenna and CareAgents for all periods presented from the
date each entity was acquired.  As of June 30, 1999, Medical Manager owned 72.1%
of the outstanding common stock of the Company.

     On June 16, 1999, the Company completed its initial public offering of
6,497,500 shares of its common stock (the "Offering").  The net proceeds of the
Offering were $106,446,000.

     The Company is in the development stage. The Company intends to provide a
broad range of healthcare electronic commerce services which will leverage
Internet technology to improve communication among physicians, payers, suppliers
and patients. The provision of products and services using Internet technology
in the healthcare electronic commerce industry is subject to risks, including,
but not limited to, those associated with competition from existing companies
offering the same or similar services, uncertainty with respect to market
acceptance of its products and services, rapid technological change, management
of growth, availability of future capital and minimal previous record of
operations or earnings.


Strategic Relationships



THINC

          In January 1999, the Company, The Health Information Network
Connection LLC ("THINC"), and the THINC founding members, Greater New York
Hospital Association, Empire Blue Cross and Blue Shield ("Empire"), Group Health
Incorporated ("GHI"), and HIP Health Plans ("HIP") entered into definitive
agreements and consummated a broad strategic alliance. Under this arrangement,
among other things, the Company (i) acquired a 20% ownership interest in THINC
in exchange for $1,500,000 in cash and a warrant to purchase an aggregate of
4,059,118 shares of common stock of the Company, (ii) agreed to extend senior
loans to THINC of $2,000,000 of working capital line of credit (the "Working
Capital Line of Credit") and $1,500,000 of contingent line of credit (the
"Contingent Line of Credit"), (iii) entered into a Management Services Agreement
with THINC pursuant to which the Company will manage all operations of THINC,
including, providing THINC with certain content and messaging services, (iv)
licensed to THINC content and messaging services for use over the THINC network
and (v) entered into Clinical Transaction Agreements with each of Empire, GHI
and HIP (the "THINC Payers") to provide online prescription and laboratory
transaction services. The Company's Clinical Transaction Agreement with GHI
specifies that the Company

                                      F-8
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1)  Nature of Operations and Strategic Relationships  (continued)


does not have the right to provide prescription communication services to GHI
unless either the Company enters into an agreement with GHI's pharmacy benefit
manager outlining a methodology for the implementation of such services or GHI
elects to proceed without such an agreement. GHI's current pharmacy benefit
manager is Merck-Medco, a company with whom the Company is currently involved in
litigation (See Note 7).  To date, the Company has not entered into any such
agreement with Merck-Medco and GHI has not made such election.

     As part of this arrangement, THINC entered into Managed Care Transaction
Contracts with each of the THINC Payers whereby the THINC Payers agreed to use
the THINC network for their online medical claims submission, eligibility,
benefit plan detail, roster distribution, remittance advice distribution, claims
inquiry, referral/pre-certification and authorization, and encounter submission
transactions.

          The warrant issued to THINC is exercisable on December 13, 1999 at
$4.00 per share of common stock and expires on January 1, 2006, subject to
certain exceptions.  The warrant and the shares of the Company's common stock
issuable upon the exercise of the warrant are subject to certain restrictions on
transfer.  The estimated fair value of the warrant on the date issued was
$1,700,000, as determined using the Black-Scholes option-pricing model.  The
Company accounts for its investment in THINC using the equity method of
accounting.

Cerner

     In January 1999, the Company entered into definitive agreements and
consummated a broad strategic alliance with Cerner Corporation ("Cerner").
Cerner, a publicly traded corporation, is a supplier of clinical and management
information systems for healthcare organizations. Under this arrangement, the
Company, among other things, obtained a perpetual software license to the
functionality embedded in Cerner's Health Network Architecture ("HNA"),
including HNA Millennium Architecture, in exchange for 12,437,500 shares of the
Company's common stock (such shares are subject to certain restrictions on
transfer and other adjustments).  In addition, the Company issued to Cerner a
warrant to purchase up to 1,008,445 shares of common stock at $4.00 per share,
exercisable only in the event THINC exercises its warrant. Also, the Company
will issue to Cerner 2,503,125 additional shares of common stock on or after
February 15, 2001 at $0.01 per share in the event the Company has achieved a
stated level of physician participation by 2001. The software acquired from
Cerner was valued at $20,800,000 based on the value of the equity consideration
as determined using an income approach valuation methodology.  A ten year
forecast of revenues and costs was prepared with the resulting cash flows
reduced by working capital and capital expenditures.  The net results were then
discounted to present value based on a weighted average discount rate of 30%. In
connection with the Company's strategic relationship with Cerner, the Company
sold to Cerner a beneficial interest representing 2% of THINC. As beneficial
owner, Cerner will receive any dividends, income and liquidation or disposition
proceeds related to its 2% interest.  However, the Company will remain the owner
of record, will exercise voting rights and will have the right to sell,
transfer, exchange, encumber, or otherwise dispose of Cerner's 2% interest.
Cerner has also agreed to fund $1,000,000 of the Company's $2,000,000 senior
loan to THINC. Additionally, the Company and Cerner entered into a Marketing
Agreement that allows for the marketing and distribution of the Company's
services to the physicians and providers associated with more than 1,000
healthcare organizations who currently utilize Cerner's clinical and management
information system. In addition, Cerner committed to make available engineering
and systems architecture personnel and expertise to accelerate the deployment of
the Company's services, as well as ongoing technical support and future
enhancements to HNA. Concurrent with the Offering, the Company sold 537,634
shares of its common stock to Cerner for net proceeds of approximately
$9,000,000. As of June 30, 1999, Cerner owned 18.7% of the outstanding common
stock of the Company.

                                      F-9
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Nature of Operations and Strategic Relationships  (continued)

Horizon Blue Cross Blue Shield of New Jersey

          In June 1999, the Company entered into a five and one-half year
agreement with Horizon Blue Cross Blue Shield of New Jersey ("Horizon") to
provide online prescription, laboratory and managed care communication services.
In connection with this transaction, among other things, the Company issued to
Horizon a warrant to purchase an aggregate of 811,824 shares of common stock of
the Company. The Horizon warrant is exercisable December 23, 2001 at $18.00 per
share and expires on January 4, 2005.  The Horizon warrant and the shares of the
Company's common stock issuable upon the exercise of the Horizon warrant are
subject to certain restrictions on transfer.  The estimated fair value of the
warrant at the date issued was approximately $6,725,000, as determined using the
Black-Scholes option-pricing model.

Medical Manager Health Systems, Inc.

     Medical Manager Health Systems, Inc. ("Medical Manager Health Systems"), a
wholly-owned subsidiary of Medical Manager,  is a leading provider of
comprehensive physician practice management systems that address the financial,
administrative and clinical practice needs of physicians.

     Medical Manager Health Systems and the Company entered into an agreement
under which the Company will be the exclusive provider of certain network, web
hosting and transaction services to Medical Manager Health Systems. Under this
agreement the Company intends to provide healthcare e-commerce services to
Medical Manager Health System physician base. The Company intends to use Medical
Manager Health Systems' sales and support network as a platform from which to
distribute, install and support the Company's transaction, messaging and content
services to Medical Manager Health Systems physicians.

America Online agreement

     In September 1999, the Company entered into a strategic alliance with
America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's 18 million members, as well
as CompuServe members and visitors to AOL's Web-based brands Netscape, AOL.COM
and Digital City (collectively, "AOL Members"), to physicians, health plans,
pharmacy benefit managers, covered pharmacies and labs. Under the agreement, the
Company and AOL have agreed to create co-branded sites which will enable AOL
Members to manage their healthcare through online communication with their
physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. Through this arrangement, AOL Members will have access to the Company's
secure, real-time services being developed that allow them, among other things,
to select and enroll in health plans, choose their providers, schedule
appointments, renew and refill plan approved prescriptions, view lab results,
review claims status, receive explanations of benefits, review patient education
materials provided by their health plans, understand plan policies and
procedures and receive plan treatment authorizations. The Company and AOL have
also agreed to collaborate in sales and marketing to the healthcare industry,
and they intend to leverage their alliance into cross-promotional and shared
advertising revenue initiatives. Under the financial terms of the arrangement,
the Company has agreed to make $30,000,000 of guaranteed payments to AOL.

     Under a separate agreement entered into in September 1999, AOL purchased
100 shares of the Company's newly issued convertible redeemable preferred stock
("Preferred Stock") at a price of $100,000 per share, or $10,000,000 of
Preferred Stock in the aggregate, with an option to purchase up to an additional
100 shares of Preferred Stock in September 2000 at the same price. At the option
of AOL, in March 2002, the Preferred Stock is either redeemable in whole for
$100,000 per share in cash or convertible in whole, on a per share basis, into
(i) the number of shares of the Company's common stock equal to $100,000 divided
by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for

                                      F-10
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  Nature of Operations and Strategic Relationships  (continued)

the same number of shares of the Company's common stock, or 2,030.5 shares, at a
price of $49.25 per share. In the event that AOL elects to convert the 100
shares of Preferred Stock it purchased in September 1999, it would receive
203,046 shares of the Company's common stock and a warrant exercisable into an
additional 203,046 shares at $49.25 per share. Prior to March 2002, AOL has the
right to require the Company to redeem the Preferred Stock in whole at $100,000
per share in the event of a change of control of the Company. The Preferred
Stock is non-voting except under certain extraordinary circumstances and no
dividend is payable on the Preferred Stock unless the Company declares a
dividend on its common stock.

(2)  Summary of Significant Accounting Policies

Principles of consolidation

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries.  All significant intercompany
accounts and transactions have been eliminated.

Revenue recognition

     Revenue is recognized when services are performed. The Company began to
recognize revenues for the first time during fiscal year 1999.  Revenues have
been recognized under the management services agreement with THINC and the
Company's newly acquired subsidiary Med-Link (See Note 3).  Two customers
accounted for approximately 37.9% and 10.3% of net revenues, excluding service
revenues from affiliates, during fiscal year 1999.

Property, plant and equipment

     Property, plant and equipment are stated at cost.  Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets.  Leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the underlying lease.  Estimated useful
lives by class of assets are as follows:

   Equipment.................................................      3 - 5 years
   Furniture and fixtures....................................      7 years
   Leasehold improvements....................................  Lesser of useful
                                                              life or lease term

     Expenditures for repairs and maintenance are charged to expense as
incurred.  Renewals or betterments of significant items are capitalized.

     The Company assesses the recoverability of long-lived assets periodically.
If there is an indication of impairment of such assets, the amount of
impairment, if any, is charged to operations in the period in which impairment
is determined.

Intangible assets

     Intangible assets relate to goodwill and services agreements and are stated
at cost less accumulated amortization.  Intangible assets are amortized over the
expected periods to be benefited, which have been determined to have lives
between 3 and 10 years.  Accumulated amortization at June 30, 1999 and 1998 was
approximately $1,903,000 and $1,214,000, respectively.

     The Company periodically assesses the recoverability of intangible assets
by determining whether the amortization of the balances over its remaining life
can be recovered through projected undiscounted cash flows.  Any impairment is
charged to operations in the period in which impairment is determined.

                                      F-11
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(2)  Summary of Significant Accounting Policies  (continued)


Product development costs

     The Company incurs costs for the production of computer software for use in
the sale of its services. The Company's services include prescription
communication services, laboratory communication services, managed care services
(which include claims eligibility and referral and pre-certification
authorization services), content services and messaging services. All costs in
the software development process, which are classified as research and
development, are expensed as incurred until technological feasibility has been
established. Once technological feasibility has been established, such software
development costs are capitalized until the software is commercially available.
Costs capitalized include direct labor and related overhead for software
produced by the Company and the costs of software licensed from third parties
related to the Company's services.

     The amounts expensed in the fiscal years ended June 30, 1999 and 1998 and
the period from inception December 24, 1996 through June 30, 1997, were
$11,253,000, $4,159,000 and $7,505,000, respectively.  As of June 30, 1999 and
1998, capitalized internally generated costs were $4,353,000 and $4,368,000,
respectively.  As of June 30, 1999 and 1998, amounts capitalized for software
licensed from vendors were $26,977,000 and $604,000, respectively.  Software
licensed from vendors primarily relates to the perpetual software licenses
obtained from Cerner.

     During the year ending June 30, 1999, the Company abandoned its development
efforts with respect to certain of its products and services as a result of
encountering a high risk development issue associated with integrating those
products and services with the acquired Cerner technology.  Accordingly, the
capitalized software costs related to these products and services in the amount
of $2,381,000 were written off in December 1998 and included in research and
development expenses for the year ended June 30, 1999.

     For the period from inception (December 24, 1996) through June 30, 1997,
$5,228,000 of costs associated with the acquisitions of certain intellectual
property and software technologies was expensed as research and development as
technological feasibility had not been reached.

Cash and cash equivalents

     The Company considers all investment instruments with an original maturity
of three months or less to be the equivalent of cash for purposes of balance
sheet presentation and for the consolidated statements of cash flows. These
short-term investments are stated at cost, which approximates markets.

Net loss per share

     Basic net loss per share and diluted net loss per share are presented in
conformity with SFAS No. 128, "Earnings per Share" and SEC Staff Accounting
Bulletin No. 98 ("SAB 98").  Under SFAS No. 128 and SAB 98, basic net loss per
share is computed by dividing net income by the weighted-average number of
common shares outstanding for the period.  It also requires a reconciliation of
the numerator and denominator of the basic net loss per share to the numerator
and denominator of the diluted net loss per share.  As of June 30, 1999 the
calculation of diluted net loss per share excludes an aggregate of 4,652,500
shares of common stock issuable upon exercise of employee stock options,
warrants to purchase an aggregate of 5,879,387 shares of common stock and an
aggregate of 2,503,125 shares of common stock contingently issuable to Cerner,
as the effect of such shares would be anti-dilutive for all periods presented.
Common shares outstanding and per share amounts reflect the Formation and are
considered outstanding from inception.

                                      F-12
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(2)  Summary of Significant Accounting Policies  (continued)

Use of estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
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.

Business segment information

     The Company adopted Statement of Financial Accounting Standards, No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), in fiscal year 1999. SFAS No. 131 establishes standards for reporting
information about operating segments and related disclosures about products,
geographic information and major customers. The Company operates in a single
business segment, which is healthcare e-commerce within the United States.

Recently issued accounting standards

     In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position, or "SOP," 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use."  SOP 98-1
requires that entities capitalize certain costs related to internal-use software
once certain criteria have been met.  The Company is required to implement SOP
98-1 for the year ending June 30, 2000.  Management believes the adoption of SOP
98-1  will have no material impact on the Company's financial condition or
results of operations.

     In April 1998, the AICPA issued SOP 98-5,  "Reporting on the Costs of
Start-Up Activities."  SOP 98-5 requires that entities expense start-up costs as
incurred.  The Company is required to implement SOP 98-5 for the year ending
June 30, 2000.  Management believes the adoption of SOP 98-5 will have no
material impact on the Company's financial condition or results of operations.

Reclassifications

     Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.

Accrued liabilities

<TABLE>
<CAPTION>
                                                             June 30, 1999            June 30, 1998
                                                           ------------------       ------------------
                                                                          (in thousands)
<S>                                                          <C>                      <C>
Accrued payroll and benefit costs.................                  $  618                   $  408
Accrued software costs............................                       -                      400
Accrued accounting fees...........................                     370                        -
Accrued legal fees................................                   1,765                        -
Accrued acquisition costs.........................                     590                      109
Accrued consulting................................                      48                      154
Accrued printing and engraving cards..............                     474                        -
Other.............................................                     550                       95
                                                                    ------                   ------
                                                                    $4,415                   $1,166
                                                                    ======                   ======
</TABLE>

                                      F-13
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(3)  Acquisitions

Avicenna

     On December 24, 1996, Medical Manager acquired the outstanding equity and
indebtedness (including employee stock options) of Avicenna, a privately held
development stage company located in Cambridge, Massachusetts, for 428,643
shares of Medical Manager's common stock and 161,015 shares of Medical Manager's
common stock to be issued in connection with the exercise of employee stock
options.  The shares issued were subject to certain limitations restricting the
liquidity and transferability of such shares.  The fair value of the shares, as
determined by management, was approximately $47.37 per share.  A discount was
applied to the market value of Medical Manager stock to reflect the limitations
restricting the liquidity and transferability of such shares to arrive at this
amount.  The acquisition was accounted for using the purchase method, with the
purchase price being allocated to assets acquired based on their fair values.

     A summary of the purchase price allocation is as follows (in thousands):

<TABLE>
<CAPTION>
<S>                                                                               <C>
     Cash........................................................................ $    42
     Short-term investments......................................................     240
     Other assets................................................................     216
     Property, plant and equipment...............................................     759
     Purchased research and development..........................................  28,600
     Intangible assets...........................................................   1,502
     Goodwill....................................................................     116
                                                                                  -------
                                                                                  $31,475
                                                                                  =======
</TABLE>

     The intangible assets of  $1,502,000 represent the estimated fair market
value of Avicenna's existing technical staff.  The amount allocated to technical
staff was determined based on the estimated costs to recruit, train and develop
a replacement workforce.  The significant assumptions include salary and benefit
levels and expected employee turnover rate.  The amount allocated to acquired
in-process research and development of $28,600,000 was determined using
established valuation techniques.  Remaining amounts have been allocated to
goodwill and were amortized over a two-year period.

CareAgents

     On January 23, 1997, Medical Manager acquired CareAgents, a privately held
development stage company, for 106,029 shares of Medical Manager's common stock.
The shares issued were subject to certain limitations restricting the liquidity
and transferability of such shares.  The fair value of the shares, as determined
by management, was approximately $30.65 per share.  A discount was applied to
the market value of Medical Manager stock to reflect the two-year limitation
restricting the liquidity and transferability of such shares to arrive at this
amount.  CareAgents was an early development stage company focused on
Internet-based clinical commerce applications. The acquisition was accounted for
using the purchase method, with the purchase price being allocated to acquired
in process research and development of $3,585,000 based on its fair value. The
amount allocated to purchased research and development of $3,585,000 was
determined using established valuation techniques.

Acquired In-Process Research and Development

     In connection with the acquisitions of Avicenna and CareAgents, an
allocation of the purchase price was made to acquired in-process research and
development.  The estimates of fair value for the purchased research and
development are primarily the responsibility of management.  These amounts have
been expensed on the respective

                                      F-14
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(3)  Acquisitions  (continued)

acquisition dates as the in-process research and development had not reached
technological feasibility and had no alternative future use.  A description of
the acquired in-process research and development and the estimates made are as
follows:

Avicenna

     The amount allocated to acquired in-process research and development of
$28,600,000 was determined based on an income approach valuation methodology.
The valuation projected revenue and costs over a nine year period with
profitability commencing in three years and increasing steadily through year
nine. The assumptions on which the projections were based are subject to a high
degree of uncertainty. The more significant uncertainties were those regarding
the timing and extent of the estimated revenues associated with this technology
as well as the estimated costs to complete the development. A nine year forecast
of revenues and costs attributable to the acquired technology was prepared. The
nine-year projection period was consistent with the expected useful life of the
Intranets under development. The resulting operating cash flows were then
reduced by working capital and capital expenditures and discounted to present
value based upon a discount rate of 30%.

     Avicenna was in the early stages of its development and the systems under
development had not yet reached technological feasibility. There was no
alternative future use for the technology then developed.

     Avicenna had incurred approximately  $1,263,000 in research and development
costs to develop the technology to its then current status. Significant costs
remained to complete the technological capabilities of its product line and then
migrate those capabilities to a new business model envisioned by Medical
Manager.

CareAgents

     The entire purchase price of  $3,585,000 was assigned to acquired in-
process research and development.  The purchase price allocation to acquired in-
process research and development was determined based on an income approach
methodology.  The assumptions on which the projections were based are subject to
a high degree of uncertainty.  The more significant uncertainties were those
regarding the timing and extent of the estimated revenues associated with this
technology as well as the estimated costs to complete the development, as
CareAgents was in its initial stages of development.  A nine-year forecast of
revenues and costs attributable to the acquired technology was prepared.  The
nine-year projection period was consistent with the expected useful life of the
Intranets under development.  The resulting operating cash flows were then
reduced by working capital and capital expenditures and discounted to present
value based upon a discount rate of 50%.


     CareAgents' technology was in the very early stages of development with
basic user requirements, a business plan, preliminary system architecture with
process flow diagrams and prototyping efforts comprising the work completed to
date. Substantial costs remained to mature the technology to the point of
technological feasibility and then complete for first product deployment.  No
work had been completed on a detailed engineering design or on building or
testing any substantive code.

Med-Link Technologies, Inc.

          On May 24, 1999, the Company acquired Med-Link Technologies, Inc.
("Med-Link"), a provider of electronic data interchange services based in
Somerset, New Jersey.  The purchase price for the outstanding capital stock of
Med-Link was $14,000,000 in cash.  The acquisition was funded through the sale
of 875,000 shares of the Company's common stock at a price of $16.00 per share
for total proceeds of $14,000,000.  Of these shares,  Medical Manager purchased
700,875 shares and Cerner purchased 174,125 shares.  The acquisition was
accounted for using the purchase method of accounting.  The operations of Med-
Link are included in the accounts beginning on May 24, 1999.

                                      F-15
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)  Acquisitions  (continued)

     Management of the Company allocated the purchase consideration for Med-Link
assets acquired, at fair market value, with the excess allocated to goodwill.
Goodwill of $13,450,000 is being amortized over ten years utilizing the straight
line method.


     A preliminary summary of the purchase price allocation is as follows (in
thousands):
<TABLE>
<CAPTION>

<S>                                                                               <C>
     Cash........................................................................ $    20
     Accounts receivable.........................................................     711
     Other assets................................................................      38
     Property, plant and equipment...............................................     459
     Goodwill....................................................................  13,450
                                                                                   ------
                                                                                  $14,678
                                                                                  =======
</TABLE>

Unaudited Pro Forma Financial Data

     The unaudited pro forma revenues, net and net loss per common share,
assuming the Med-Link acquisition was consummated on July 1, 1997 are presented
below.  The unaudited pro forma financial data does not purport to represent
what the Company's results of operations actually would have been if those
transactions had been consummated on the dates or for the periods indicated, or
what such results will be for any future date or for any future period.

<TABLE>
<CAPTION>

                                                                                              (unaudited)
                                                                                            Pro forma June 30,
                                                                               -----------------------------------------
                                                                                        1999                 1998
                                                                               -----------------------------------------
                                                                                  (in thousands, except per share data)
<S>                                                                              <C>                  <C>
Net revenues                                                                            $  4,311             $  2,657
                                                                                        ========             ========
Net loss                                                                                $(25,414)            $(13,212)
                                                                                        ========             ========
Net loss per common share, basic and diluted                                            $  (0.44)            $  (0.26)
                                                                                        ========             ========
Weighted average shares outstanding, basic and diluted                                    57,155               50,938
                                                                                        ========             ========
</TABLE>


(4)  Investment

     On March 24, 1998, Medical Manager loaned a privately held company
("Debtor") $2,000,000 under an 8% Senior Convertible Note due March 23, 1999
(the "Note").  In connection with the Formation of the Company, Medical Manager
assigned its rights under the Note to the Company.  In January 1999, Debtor was
acquired by another privately held company ("Successor").  In connection with
this acquisition, the Company elected to convert the Note into 291,952 shares of
Successor's Series B Preferred Stock ("Preferred").  The Preferred is
convertible into common stock (i) at the Company's option any time after the
anniversary date of issuance, and (ii) automatically immediately prior to an IPO
of Successor.  In 1999, the Successor entered into a plan of merger with a
publicly held company.  Should the merger be approved and completed,  the
Successor's Preferred will be convertible into a pre-determined number of shares
of common stock of this publicly held company.  The Preferred is included on the
consolidated balance sheet as an investment at June 30, 1999.

                                      F-16
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(5)  Related Party Transactions

Tax sharing agreement

     Effective June 16, 1999, the Company no longer files a consolidated federal
income tax return with Medical Manager, but will continue to file a combined tax
return with Medical Manager for California income tax purposes.  The Company and
Medical Manager entered into a tax sharing agreement providing, among other
things, that, for periods prior to the Offering and during which the Company was
included in Medical Manager's consolidated federal income tax returns, the
Company will be required to pay Medical Manager an amount equal to the Company's
federal income tax liabilities for these periods, determined as if the Company
had filed federal income tax returns on a separate company basis.  Additionally,
for periods both before and after the Offering, in situations where the Company
files a combined return with Medical Manager for state income tax purposes, such
as for California, the Company will be required to pay Medical Manager an amount
equal to the Company's state income tax liabilities, determined as if the
Company had filed state income tax returns on a separate company basis.  If the
Company experiences a net operating loss resulting in no federal or state income
tax liability for a taxable period in which it was included in Medical Manager's
consolidated federal or combined state income tax returns, the Company will be
entitled to a payment from Medical Manager equal to the reduction, if any, in
the federal or state income tax liability of the Medical Manager consolidated
group by reason of the use of the Company's net operating loss.  Further, under
the tax sharing agreement, if the Company receives a net tax benefit for certain
equity based compensation arrangements involving Medical Manager stock, or for
the payment by Medical Manager of certain litigation expenses and damages
pursuant to the terms of an indemnification agreement between the Company and
Medical Manager as described below, then the Company is required to pay an
amount equal to those tax benefits to Medical Manager when they are actually
realized by the Company.  The tax sharing agreement also provides for Medical
Manager to conduct tax audits and tax controversies on the Company's behalf for
periods, and with respect to returns, in which the Company is included in the
Medical Manager consolidated or combined returns.

Services agreement

     The Company and Medical Manager entered into a services agreement dated as
of January 1, 1999, pursuant to which Medical Manager will provide the Company
with certain administrative services which may include payroll, accounting,
business development, legal, tax, executive services and information processing
and other similar services.  The Company pays the actual costs of providing
these services.  Such costs include an allocable portion of the compensation and
other related expenses of employees of Medical Manager who serve as officers of
the Company.  This agreement is terminable by either party upon 60 days prior
written notice in certain events, or by Medical Manager, at any time, if Medical
Manager ceases to own at least 50% of the voting stock of the Company.  The
services agreement shall terminate by its terms, if not previously terminated or
renewed, on January 1, 2004.

     Allocations from Medical Manager to the Company were $1,050,000, $836,000
and $230,000 for the fiscal years ended June 30, 1999 and 1998 and for the
period from Inception (December 24, 1996) through June 30, 1997, respectively.
The allocation was calculated based on the estimated time the Medical Manager
employees worked providing services to the Company.  As of June 30, 1999, the
Company owes Medical Manager an aggregate of $853,000 associated with services
agreement, reimbursable expenses and certain costs related to the Offering.

Indemnification agreement

     The Company and Medical Manager entered into an indemnification agreement,
under the terms of which the Company will indemnify and hold harmless Medical
Manager, on an after tax basis, with respect to any and all claims, losses,
damages, liabilities, costs and expenses that arise from or are based on the
operations of the business of the Company before or after the Offering.
Similarly, Medical Manager will indemnify and hold harmless the Company, on an
after tax basis, with respect to any and all claims, losses, damages,
liabilities, costs and expenses that arise from or are based on the operations
of Medical Manager other than the business of the Company before or after the
Offering.

                                      F-17
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)  Related Party Transactions  (continued)

     With respect to the Merck litigation (See Note 7), this agreement provides
that Medical Manager will bear both the actual costs of conducting the
litigation and any monetary damages that may be awarded to Merck and Merck-Medco
in the litigation. The Company records amounts funded by Medical Manager as a
capital contribution, which was $4,300,000 through June 30, 1999. The agreement
further provides that any damages awarded to the Company and Medical Manager in
the litigation will be for the account of Medical Manager. Finally, the
agreement provides that Medical Manager shall not be responsible for any losses
suffered by CareInsite resulting from any equitable relief obtained by Merck-
Medco against CareInsite, including, but not limited to, any lost profits, other
losses, damages, liabilities, or costs or expenses arising from such equitable
relief.

Medical Manager Health Systems

     The Company has an agreement with Medical Manager Health Systems, under
which the Company will be the exclusive provider of certain network, web hosting
and transaction services to Medical Manager Health Systems. Medical Manager
Health Systems is a leading provider of comprehensive physician practice
management information systems that address the financial, administrative and
clinical practice needs of physicians. The Company intends to provide its
healthcare e-commerce services to Medical Manager Health Systems' physician base
by integrating those services into Medial Manager Health Systems' physician
practice management information systems. The Company intends to use Medical
Manager Health Systems' sales and support network as a platform from which to
distribute, install and support the Company's transaction, messaging and content
services to Medical Manager Health Systems' physicians.

THINC

     In connection with the management services agreement with THINC, the
Company has billed approximately  $993,000 related to services performed and
$205,000 of associated reimbursable expenses.  In addition, the Company and
Cerner have funded to THINC an aggregate of $500,000 of the Working Capital
Line of Credit, to which the Company and Cerner are committed. The Company's
portion of the Working Capital Line of Credit funded was $250,000. These amounts
are included in the receivable from affiliate balance of $1,448,000 included on
the balance sheet as of June 30, 1999.

Cerner

     In connection with the January 1999 Cerner agreement, Cerner committed to
make available engineering and systems architecture personnel and expertise to
accelerate the deployment of the Company's services.  During fiscal year 1999,
Cerner charged the Company approximately $320,000 of fees and expenses related
to the development of the Company's services.  In connection with the Working
Capital Line of Credit, Cerner has contributed $500,000 to the Company for the
benefit of THINC.  As of June 30, 1999, $250,000 is included on the balance
sheet for the benefit of THINC from Cerner as part of the payable to affiliate
of $497,000.


(6)  Income Taxes

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At June 30, 1998 net
deferred tax liabilities of $1,275,000 primarily related to software development
costs capitalized for financial reporting purposes and expensed for tax
purposes.

     For the period from inception (December 24, 1996) through January 2, 1999,
the tax benefits associated with net operating losses generated by the Company
were retained by Medical Manager. Accordingly, no tax benefit has been or will
be reflected in the accompanying financial statements for these net operating
losses. For the period from January 2, 1999 through June 30, 1999, the Company
generated net operating loss carry-forwards of approximately $6,537,000, which
expire in fiscal year 2014. A valuation allowance of $919,000 has been provided
against the net deferred tax assets in the same amount at June 30, 1999.


(7)  Commitments and Contingencies

Legal proceedings

     On February 18, 1999, Merck & Co., Inc. ("Merck") and Merck-Medco Managed
Care, L.L.C. ("Merck-Medco") filed a complaint in the Superior Court of New
Jersey against the Company, Medical Manager, Martin J. Wygod, Chairman of the
Company and Medical Manager, and three officers and/or directors of the Company
and Medical Manager, Paul C. Suthern, Roger C. Holstein and Charles A. Mele. The
plaintiffs assert that the Company, Medical Manager and the individual

                                      F-18
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(7)  Commitments and Contingencies  (continued)

defendants are in violation of certain non-competition, non-solicitation and
other agreements with Merck and Merck-Medco, and seek to enjoin the Company and
them from conducting the Company's healthcare e-commerce business and from
soliciting Merck-Medco's customers.  The Medical Manager and Mr. Wygod's
agreements provide an expiration date of May 24, 1999.  Mr. Suthern's, Mr.
Mele's and Mr. Holstein's agreements expire in December 1999, March 2000 and
September 2002, respectively.

     A hearing was held on March 22, 1999 on an application for preliminary
injunction filed by Merck and Merck-Medco.  On April 15, 1999, the Superior
Court denied this application.  The Company believes that Merck's and Merck-
Medco's positions in relation to it and the individual defendants are without
merit and the Company intends to vigorously defend the litigation.  However, the
outcome of complex litigation is uncertain and cannot be predicted at this time.
Any unanticipated adverse result could have a material adverse effect on the
Company's financial condition and results of operations.

     The Company has recorded  $4,300,000 in litigation costs associated with
the Merck and Merck-Medco litigation in fiscal year 1999.

     In the normal course of business, the Company is involved in various claims
and legal proceedings.  While the ultimate resolution of these matters has yet
to be determined, the Company does not believe that their outcome will have a
material adverse effect on its financial position.

THINC senior loans

     In connection with the Working Capital Line of Credit with THINC the
Company and Cerner are obligated to fund the remaining available balance of
approximately  $1,500,000 subject to terms of the agreement with THINC.
Subsequent to June 30, 1999, the Company and Cerner have funded the remaining
balance of the Working Capital Line of Credit to THINC. Under the terms of the
Contingent Line of Credit agreement with THINC, the Company is obligated to fund
up to $1,500,000.  As of June 30, 1999, the Company was not required to fund any
amounts under the Contingent Line of Credit agreement.

Leases

     The Company leases office space and equipment under various non-cancelable
operating leases. Rental expense was $1,271,000,  $1,241,000 and  $270,000 for
the fiscal years ended June 30, 1999 and 1998 and for the period from Inception
(December 24, 1996) through June 30, 1997, respectively.  The minimum aggregate
rental commitments under non-cancelable leases, excluding renewal options, are
as follows (in thousands):


     Years ending June 30,

     2000..................................  $1,366
     2001..................................   1,332
     2002..................................     811


(8)  Fair Value of Financial Instruments

     Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
marketable securities and accounts receivable. Cash, cash equivalents and short-
term marketable securities are deposited with high quality financial
institutions. All highly liquid investments with an original maturity from date
of purchase of three months or less are considered to be cash equivalents. The
Company's

                                      F-19
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(8)  Fair Value of Financial Instruments  (continued)

cash, cash equivalents and short-term marketable securities are invested in
various investment-grade commercial paper, money market accounts and
certificates of deposit.  All of the short-term marketable securities mature
within twelve months.  The carrying value of the Company's cash equivalents and
short-term marketable securities is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         June 30, 1999
                                                                         Carrying Value
                                                                      --------------------
<S>                                                               <C>
Cash equivalents:
  Corporate and other non-government debt securities                          $  9,918
  Money market funds                                                            54,101
                                                                              --------
                                                                                64,019
                                                                              --------

Marketable securities:
  Corporate and other non-government debt securities                            19,253
  U.S. Federal Agency notes                                                     35,417
                                                                              --------
                                                                                54,670
                                                                              --------
                                                                              $118,689
                                                                              ========
</TABLE>
          Gross unrealized gains on the marketable securities were $278,000 at
June 30, 1999 and are included as part of accumulated other comprehensive
income.

          Subsequent to year end, the Company purchased $50,000,000 principal
amount of Federal Agency Notes maturing in June 2001.

          Management determines the appropriate classification of debt and
equity securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Marketable debt and equity securities are considered
available-for-sale, and are carried at their fair value, with the unrealized
gains and losses reported net-of-tax as other comprehensive income. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in other income. The cost of
securities sold is based on specific identification. Interest and dividends on
securities classified as available-for-sale are included in interest income.

(9)   Stock Options

          The Company adopted the CareInsite, Inc. 1999 Officer Stock Option
Plan (the "Officer Stock Plan") and the CareInsite, Inc. 1999 Employee Stock
Option Plan (the "Employee Stock Plan") (collectively the "Plans") during fiscal
year 1999.  The maximum number of shares of Company common stock that will be
subject to options under the Employee Stock Plan is 4,000,000 and the maximum
number of shares of Company common stock that will be subject to options under
the Officer Stock Plan is 3,500,000, subject to adjustment in accordance with
the terms of the Plans. The options under the Plans vest forty percent at the
end of a thirty month period following the date of grant, and the remainder will
vest in increments of twenty percent at the end of each subsequent twelve-month
period, with the options being fully vested sixty-six months from the date of
grant.  Generally, options granted under the Plans have an exercise price equal
to 100% of the fair market value of the Company's common stock on the date of
grant and expire ten years after date of grant.

          The Plans will be administered by the Compensation Committee, provided
that under certain circumstances the Compensation Committee may, subject to
certain conditions, delegate authority under the Employee Stock Plan to certain
designated officers. The Company accounts for the Plans under Accounting
Principles Board Opinion No. 25 ("APB No. 25"), under which no compensation cost
has been recognized. Had compensation cost for these plans been determined
consistent with FASB Statement No. 123, the Company's pro forma net loss and pro
forma net loss per share would be $(23,192,000) and $(0.41), respectively, for
the year ending June 30, 1999. The pro forma results indicated above are not
intended to be indicative of or a projection of future results.



                                      F-20
<PAGE>

                               CAREINSITE, INC.
                         (a Development Stage Company)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) Stock Options  (continued)

     The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes option-pricing model.  The following weighted average
assumptions were used:


<TABLE>
<CAPTION>
                                                                                 June 30,1999
                                                                             --------------------

<S>                                                                          <C>
Expected dividend yield....................................................                0.0%
Expected volatility........................................................             0.5327
Risk-free interest rates...................................................               5.65%
Expected option lives (years)..............................................           0.5 - 3.00
</TABLE>

     The Company issued options to purchase an aggregate of 4,652,500 shares of
Company common stock at a weighted average exercise price of $18.00.  The
weighted average fair value of options granted is $9.73.  None of these options
are exercisable as of June 30, 1999.

     Certain of the Company's employees have options to purchase shares of
common stock in Medical Manager. These shares are included in Medical Manager's
stock option plans and accounted for by Medical Manager under APB No. 25. Had
compensation cost for these options been determined consistent with FASB
Statement No. 123 and those costs allocated to the Company, pro forma net loss
and pro forma net loss per share, including the Company Plans, would be
$(37,098,000), $(20,340,000), $(45,570,000) and $(0.66), $(0.41), $(0.91) for
the years ended June 30, 1999 and 1998 and for the period from Inception
(December 24,1996) through June 30, 1997, respectively.

(10)   Unaudited Quarterly Information

          The following table summarizes the unaudited quarterly financial data
for the fiscal years ended June 30, 1999 and 1998.  Net income (loss) per share
calculations for each of the quarters are based on the weighted average number
of shares outstanding for each period; therefore, the sum of the quarters may
not necessarily be equal to the full fiscal year per share amount.  All dollar
amounts are in thousands except per share data.

<TABLE>
<CAPTION>
                                           ----------------------------------------------------------------
                                                                     Quarter Ended
                                           ----------------------------------------------------------------
                                             September 30,    December 31,     March 31,        June 30,
                                                 1998            1998            1999            1999
                                            --------------  --------------  --------------  --------------
<S>                                         <C>             <C>             <C>             <C>
Fiscal 1999
 Net revenues                                     $     -    $     -            $   213          $ 1,151
 Net loss                                         $(2,058)   $(6,749)           $(6,674)         $(7,317)
 Net loss per share, basic and diluted            $ (0.04)   $ (0.13)           $ (0.11)         $ (0.11)
</TABLE>

<TABLE>
<CAPTION>
                                            ----------------------------------------------------------------
                                                                      Quarter Ended
                                            ----------------------------------------------------------------
                                              September 30,    December 31,     March 31,        June 30,
                                                   1997            1997            1998            1998
                                              --------------  --------------  --------------  --------------
<S>                                           <C>             <C>             <C>             <C>
Fiscal 1998
 Net revenues                                     $     -        $     -         $     -          $     -
 Net loss                                         $(2,449)       $(2,586)        $(2,755)         $(2,545)
 Net loss per share, basic and diluted            $ (0.05)       $ (0.05)        $ (0.06)         $ (0.05)
</TABLE>

                                      F-21
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To CareInsite, Inc.:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of CareInsite, Inc. and subsidiaries included
in this Form 10-K and have issued our report thereon dated August 27, 1999. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to the
consolidated financial statements and schedule is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.




                                                             ARTHUR ANDERSEN LLP

Roseland, New Jersey
August 27, 1999



                                      S-I
<PAGE>
                               CAREINSITE, INC.

                Schedule II - Valuation and Qualifying Accounts

                    Years Ended June 30, 1999, 1998 and 1997

                                (in thousands)

<TABLE>
<CAPTION>
                                                                         Additions
                                                            ----------------------------------
                                                                Charged to       Charged to
                                               Beginning         Costs and          Other         Deductions         Ending
                                                Balance          Expenses         Accounts        Write-offs         Balance
                                            ----------------  ---------------  ---------------  ---------------  ---------------

<S>                                         <C>               <C>              <C>              <C>              <C>
For the year ended June 30, 1999
     Allowance for doubtful accounts......     $        -       $        6        $       -       $        -       $        6
     Deferred tax valuation allowance.....              -                -              919                -              919
                                            ----------------  ---------------  ---------------  ---------------  ---------------
                                               $        -       $        6        $     919       $        -       $      925
                                            ================  ===============  ===============  ===============  ===============

 For the year ended June 30, 1998.........     $        -       $        -        $       -       $        -       $        -
                                            ================  ===============  ===============  ===============  ===============

 For the year ended June 30, 1997.........     $        -       $        -        $       -       $        -       $        -
                                            ================  ===============  ===============  ===============  ===============
</TABLE>

                                     S-II