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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K
                            ------------------------

(MARK ONE)

     [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
         OF 1934

            FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NO. 000-28715

                               NEOFORMA.COM, INC.
           (EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)

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                   DELAWARE                                      77-0424252
       (STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
        INCORPORATION OR ORGANIZATION)

               3061 ZANKER RD.
                 SAN JOSE, CA                                      95134
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
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                                 (408) 468-4000
            (THE REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, $0.001 PAR VALUE PER SHARE

     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 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 the 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.  [X]

     As of March 31, 2001, the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant, based on the closing price for
the Registrant's common stock on The Nasdaq Stock Market on such date, was
$91,807,846. This calculation does not reflect a determination that certain
persons are affiliates of the Registrant for any other purposes.

     The number of shares of common stock outstanding on March 31, 2001 was
182,781,670.

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                               TABLE OF CONTENTS

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                                    PART I
ITEM 1.     BUSINESS....................................................    3
ITEM 2.     PROPERTIES..................................................   20
ITEM 3.     LEGAL PROCEEDINGS...........................................   21
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   21

                                   PART II
ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.........................................   22
ITEM 6.     SELECTED FINANCIAL DATA.....................................   24
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS...................................   25
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
            RISK........................................................   54
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   54
ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE....................................   54

                                   PART III
ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   55
ITEM 11.    EXECUTIVE COMPENSATION......................................   58
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT..................................................   64
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   66

                                   PART IV
ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
            8-K.........................................................   69
SIGNATURES  ............................................................   73
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     Neoforma, Neoforma.com, EquipMD, US Lifeline, USL, Pharos Technologies,
NeoMD, NeoMD Marketplace, AdsOnline, AuctionLive, AuctionOnline and the Neoforma
logo are our trademarks or service marks. All other trademarks or trade names
appearing in this annual report are the property of their respective owners.
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                                     PART I

     We make many statements in this annual report, such as statements regarding
our plans, objectives, expectations and intentions that are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We may identify these
statements by the use of words such as "will," "may," "might," "could,"
"should," "believe," "expect," "anticipate," "intend," "plan," "predict,"
"project," "estimate," "potential," "continue" and similar expressions. These
forward-looking statements involve several risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those we discuss in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors That May Affect Future Operating Results" and elsewhere in
this annual report. You should carefully review the risks described in other
documents we file from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-Q that we will file in 2001. These
forward-looking statements speak only as of the date of this annual report, and
we caution you not to rely on these statements without also considering the
risks and uncertainties associated with these statements and our business that
are addressed in this annual report. We undertake no obligation to publicly
release any revisions to the forward-looking statements to reflect circumstances
or events after the date of this report.

     This annual report also contains estimates of market growth of the Internet
and the healthcare market as well as estimates of inefficiencies in the
healthcare supply chain. These estimates have been included in studies published
by Gartner, Inc., Efficient Healthcare Consumer Response, the Health Industry
Manufacturers' Association, the Health Care Financing Administration and the
Health Industry Group Purchasing Association. These estimates assume that
certain events, trends and activities will occur. Although we believe that these
estimates are generally indicative of the matters reflected in those studies,
these estimates are inherently imprecise, and we caution you to read these
estimates in conjunction with the rest of the disclosure in this annual report,
particularly "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors That May Affect Future Operating Results."

ITEM 1. BUSINESS

OUR COMPANY

     Neoforma is a leading healthcare supply chain solutions company. We build
and operate Internet marketplaces that empower healthcare trading partners to
optimize supply chain performance. The healthcare market has a number of
characteristics that make it suited for an Internet-based marketplace solution,
including its large size, high degree of fragmentation, significant
inefficiencies, industry cost pressures and highly complex supply chain. Our
solutions enable the participants in the healthcare supply chain market,
principally healthcare providers, manufacturers, distributors, group purchasing
organizations, or GPOs, and integrated delivery networks, or IDNs, to
significantly improve business processes within their organizations and among
their trading partners. Using our products and services, these organizations can
improve efficiencies, increase revenue, reduce costs and improve capital
allocation.

     Our solutions consist of web-based products and services for our customers,
or trading partners, as well as other services offered that are designed to
accelerate and optimize their use of the marketplaces that we build for them.
Our trading partners include both acute care and alternate site healthcare
providers, manufacturers and distributors to these healthcare providers, GPOs
and IDNs.

     Our primary business objectives are aligned with those of our trading
partner customers. We seek to enable our trading partners to reallocate and
redirect to their strategic priorities the excess costs that adversely affect
their supply chain, reduce the time their employees spend on non-productive
activities and offset a significant portion of the capital investment they
currently make in redundant and isolated supply chain-related technologies. Our
strategies to achieve these objectives are to increase the number of custom
marketplaces we build and operate on a common software platform, increase the
number of trading partners that utilize our marketplaces, enhance the
functionality of our product and service offerings and continue to form key
strategic relationships that extend the value and functionality of our products
and services.

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     Our executive offices are located at 3061 Zanker Road, San Jose, California
95134, and our telephone number is (408) 468-4000.

RECENT DEVELOPMENTS

     On January 18, 2000, we acquired Pharos Technologies, Inc., a developer of
content management software that facilitates the locating, organizing and
updating of product information in an online marketplace.

     On March 16, 2000, we acquired U.S. Lifeline Inc., or USL, a healthcare
content company. USL provides supply chain information to senior-level
executives in the manufacturing, distribution, provider and GPO communities
through web-based subscription products, industry newsletters and research.

     On March 24, 2000, we entered into an agreement to acquire all of the
outstanding capital stock of EquipMD, Inc., a business-to-business procurement
company serving the physician market.

     On March 30, 2000, we entered into agreements to acquire Eclipsys
Corporation and HEALTHvision, Inc., entered into an outsourcing and operating
agreement with Novation LLC, Healthcare Purchasing Partners International LLC,
or HPPI, and VHA Inc. and University HealthSystem Consortium, or UHC, the owners
of Novation, and entered into agreements to issue our common stock and warrants
to purchase our common stock to VHA and UHC.

     On May 25, 2000, we agreed by mutual consent to terminate the proposed
mergers announced on March 30, 2000. Instead, we entered into a strategic
commercial relationship with Eclipsys and HEALTHvision that includes a
co-marketing and distribution arrangement between HEALTHvision and us. The
arrangement includes the use of Eclipsys' eWebIT(TM) enterprise application
integration technology and professional services to enhance the integration of
legacy applications with our e-commerce platform. In addition, we modified the
structure and terms of our outsourcing and operating agreement with Novation,
HPPI, VHA and UHC and our stock and warrant agreements with VHA and UHC.

     Under the terms of the amended outsourcing and operating agreement, we
agreed to develop and manage an e-commerce marketplace, which we refer to as
Marketplace@Novation, to be used by VHA, UHC and HPPI member healthcare
organizations as their primary purchasing tool for products and services,
including medical supplies and equipment. Novation agreed to contract and manage
relationships with manufacturers, distributors and service suppliers on our
behalf. VHA and UHC agreed to provide marketing support for
Marketplace@Novation, guarantee Novation's obligations under the outsourcing and
operating agreement and enter into specified exclusivity provisions.

     Also on May 25, 2000, as a result of our transaction with Novation and
acquisition of EquipMD, we streamlined our operations to focus on two key global
markets, IDNs and hospitals, and physician practices. The restructuring involved
both changes in our executive management and organizational structure, as well
as a reduction in force of approximately 80 individuals in functions largely
duplicated or unnecessary as a result of both the amended outsourcing and
operating agreement and the reorganization.

     On July 14, 2000, we acquired some of the assets of National Content
Liquidators, Inc., or NCL, an asset management company focused on healthcare
facility liquidations and the resale of used medical products.

     On November 5, 2000, we entered into a definitive agreement with Medbuy
Corporation, Canada's largest national medical GPO, to jointly develop an
Internet solution for the Canadian healthcare market known as Canadian Health
Marketplace. The ten-year agreement names us as Medbuy's exclusive provider of
an Internet e-commerce solution for the procurement of products and services.

     In December 2000, we entered into a three-year software license agreement
and a series of related agreements with i2 Technologies, Inc., a leading
provider of marketplace solutions, to develop, deploy and market Internet supply
chain solutions for healthcare. As part of this strategic relationship, we will
collaborate with i2 on product development, marketing, sales and service
activities and we have agreed to share specified revenue with i2. We also
entered into a stock purchase agreement with i2 under which it agreed to invest
in our next round of equity financing.

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     On January 25, 2001, we sold approximately 18 million shares of our common
stock to i2, VHA and UHC for $30.5 million in cash. We also amended our
outsourcing and operating agreement that we originally had entered into with
Novation, VHA, UHC and HPPI on March 30, 2000 and subsequently had amended on
May 25, 2000. Under the terms of the amended outsourcing and operating
agreement, effective January 1, 2001, we revised some of the terms of our
relationship with Novation, VHA, UHC and HPPI, including those related to the
payment of fees to us by Novation, sharing of revenue by us with Novation and
obligations of each of the parties. The amended outsourcing and operating
agreement provides that, subject to specified conditions, Novation guarantees to
us a fee based on the gross volume of purchases made by Novation members through
Marketplace@Novation.

     Also on January 25, 2001, we announced our intent to divest certain
operations that are not aligned with our core strategy of building and operating
Internet marketplaces that empower healthcare trading partners to optimize
supply chain performance. The operations that we intend to divest are two wholly
owned subsidiaries, General Asset Recovery, or GAR, a live auction house, and
USL. GAR includes the assets acquired in the NCL transaction.

     On February 1, 2001, we entered into an agreement with Lawson Software, a
leading provider of integrated e-business solutions, to form a strategic
relationship to integrate our Internet supply chain solutions for the healthcare
industry.

     On February 13, 2001, we entered into an agreement with McKesson HBOC,
Inc., a leading supplier of medical, surgical and pharmaceutical products, under
which McKesson HBOC has agreed to accept orders placed through
Marketplace@Novation.

     On February 16, 20001, we entered into an agreement with Allegiance
Healthcare Corporation, a subsidiary of Cardinal Health, Inc. and a leading
supplier of medical, surgical and laboratory products, under which Allegiance
has agreed to accept orders that are placed through Marketplace@Novation.

     On March 27, 2001, we announced that we have signed agreements with a total
of 356 hospitals to use Marketplace@Novation, of which 120 were purchasing
products as of that date through the marketplace. We also announced that we have
agreements with a total of 69 suppliers, including Owens & Minor, Allegiance
Healthcare Corporation and McKesson HBOC.

     On April 2, 2001, we sold USL to Medical Distribution Solution, Inc., or
MDSI. MDSI provides information services and products to the healthcare business
community.

INDUSTRY BACKGROUND

  GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS E-COMMERCE

     The Internet is rapidly changing the competitive landscape of many
industries, creating significant opportunities for companies to expand and
improve their businesses. Companies have increasingly begun to use the Internet
to create business-to-business networks to streamline complex processes,
purchase and sell goods and exchange information among fragmented groups of
customers, manufacturers and distributors. Gartner, Inc. has estimated that
business-to-business e-commerce is expected to grow from $433 billion in 2000 to
$8.5 trillion in 2005.

     Business-to-business e-commerce enables buyers and sellers in fragmented
markets to reduce supply chain inefficiencies. Sellers are able to
cost-effectively access global markets, streamline their sales, marketing and
distribution operations, reduce their time to market and efficiently distribute
updated product information. Buyers can improve their purchasing processes and
easily access current product information and a broad range of products and
services.

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  HEALTHCARE SUPPLY CHAIN MARKET

     The U.S. healthcare supply chain consists of products and services sold to
acute care and alternate site healthcare providers, including:

     - medical supplies;

     - surgical supplies;

     - pharmaceuticals;

     - diagnostic imaging products;

     - business products;

     - laboratory products;

     - dietary and food products and services; and

     - capital equipment and related services.

     The U.S. healthcare supply chain exhibits the following characteristics:

     Large and Growing

     Based on information published by the Health Industry Manufacturers'
Association and the Health Care Financing Administration, we believe annual
purchasing in the U.S. healthcare supply chain is approximately $200 billion.
According to information published by the Health Industry Manufacturers'
Association, medical technology manufacturing is growing at a rate of
approximately 7% per year. According to information published by the Health
Industry Group Purchasing Association, hospital expenditures for pharmaceuticals
are growing at a rate of nearly 9% per year.

     Highly Fragmented

     In the U.S., healthcare products are supplied by over 20,000 manufacturers
and distributors, ranging from small companies offering single products to
Fortune 500 corporations with comprehensive offerings. These suppliers serve a
diverse group of buyers, including hospitals, physician practices and clinics.
The U.S. market includes approximately 6,000 hospitals, 185,000 physicians'
offices and thousands of non-hospital healthcare delivery sites such as
outpatient care facilities, nursing homes and ambulatory surgery centers. These
organizations may purchase products and services directly or through centralized
buying organizations such as GPOs and IDNs.

     Highly Inefficient

     Buyers within healthcare organizations typically purchase products and
services from thousands of suppliers. This high degree of buyer and supplier
fragmentation and the current means of conducting business result in significant
inefficiencies at each step of the procurement process. According to Efficient
Healthcare Consumer Response, a 1996 independent study commissioned by a number
of industry participants, the supply chain costs of distributing medical
products alone totaled approximately $23 billion per year, of which an estimated
$11 billion could have been eliminated by more efficient sharing of information,
management of orders and movement of products. We believe that these significant
inefficiencies still exist in the healthcare supply chain.

     Industry Cost Pressures

     Healthcare providers in the U.S. are under increasing pressure to reduce
costs because of increased competition, as well as the ongoing tightening of
reimbursement policies by private payers and the government. Healthcare
suppliers also are facing increased competition and are continuously seeking
ways to

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increase revenue and reduce costs. As a result, we believe that both healthcare
providers and suppliers are increasingly seeking new ways to make their supply
chains more efficient.

     Highly Complex

     The U.S. healthcare supply chain is highly complex. There are multiple
contracted supply relationships between providers and their manufacturers and
distributors, as well as between GPOs or IDNs and distributors and
manufacturers. Pricing is complicated, as it depends on a number of factors,
including the negotiated contracts between the providers, GPOs or IDNs and the
suppliers, tiered structures based on quantity and type of purchase,
class-of-trade distinctions within and among healthcare organizations and a
complex rebate system that involves providers, manufacturers, distributors, GPOs
and IDNs.

  LIMITATIONS OF TRADITIONAL APPROACHES TO BUYING AND SELLING PRODUCTS

     Healthcare Providers

     Large healthcare organizations, particularly hospitals, typically manage
their buying activity through a centralized purchasing group as well as at the
departmental level. Pricing is either negotiated at the time of purchase, based
on long-term contracts negotiated between the organization and its suppliers or,
depending on the institution's buying power, based on contracts negotiated on
their behalf by an IDN or a GPO. The purchasing process involves evaluating
products, negotiating price and delivery, ensuring compliance with purchasing
contracts and placing and tracking orders through a variety of paper and
electronic means. Outdated or unavailable product and price information, price
variability, invoice errors, lack of compliance with negotiated contracts, high
inventory levels, poor fill rates and the significant effort required to manage
numerous supplier relationships and orders can result in errors and
inefficiencies.

     Purchasing decisions in physicians' offices and other small healthcare
facilities are generally made by nurses, office managers or administrative
staff. Purchasing activities include searching through paper catalogs, placing
and tracking orders via telephone or fax machines and receiving frequent,
time-consuming visits from numerous medical supply representatives. This
approach makes it difficult and time-consuming for buyers to identify, compare
and purchase specific items.

     Manufacturers and Distributors

     Manufacturers and distributors have limited resources to support the
growing challenge of marketing and selling to the increasingly complex
healthcare market. Many organizations lack the necessary infrastructure to
establish a worldwide sales and marketing presence. In addition, the high cost
of printing and distributing paper catalogs limits the ability of suppliers to
cost-effectively provide timely updates of important catalog product and pricing
information. Although many suppliers offer online versions of their catalogs,
this does not address the primary cause of inefficiency for buyers -- the
inability to quickly and easily find products and consolidate orders from
different suppliers through a single source. Both manufacturers and distributors
face additional challenges. Many manufacturers have limited visibility into
customer sales and consumption data, experience high inventory levels and have
difficult-to-manage service levels. Many distributors experience high inventory
and days sales outstanding levels, and may incur significant costs managing
invoice inaccuracies.

     Group Purchasing Organizations and Integrated Delivery Networks

     GPOs and IDNs, which negotiate and manage purchasing on behalf of
healthcare organizations, experience lengthy and costly contracting processes
with both manufacturers and distributors and have limited information regarding
how and when their contracts are being used by the healthcare providers they
represent. These problems often result in lower than desirable compliance on the
contracts with these healthcare providers and loss of revenue as a result of the
lack of information.

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  MARKET OPPORTUNITY

     We believe that a significant opportunity exists for business-to-business
e-commerce marketplaces that empower healthcare providers, manufacturers,
distributors, GPOs and IDNs to optimize their supply chain performance. Private
Internet marketplaces can offer several important benefits, including:

     - Buyers and sellers can have improved access to each other, communicate
       effectively in real time and create new levels of efficiency through the
       sharing of data and information;

     - Industry, product and pricing information can be centralized, updated and
       organized for accuracy and simplified access; and

     - The time and costs involved with traditional paper, telephone and fax, as
       well as electronic data interchange, or EDI, purchasing methods, can be
       significantly reduced.

OUR SOLUTIONS

     Our solutions enable our customers, principally healthcare providers,
manufacturers, distributors, GPOs and IDNs, to significantly improve business
processes within their organizations and among their trading partners. We
connect these customers to each other via the Internet and other electronic
means, aggregate data based on their business transactions and convert this raw
data into usable information. This information enables our customers to make
better business decisions, and we provide them with the tools to act based on
these decisions. Using our products and services, these organizations can
improve efficiencies, increase revenue, reduce costs and improve capital
allocation. We believe that our solutions can provide our customers the
following additional benefits:

  BENEFITS TO ACUTE CARE AND ALTERNATE SITE HEALTHCARE PROVIDERS:

     - reduced price variability;

     - lower pricing;

     - improved invoice accuracy;

     - lower inventory levels;

     - higher fill rates;

     - lower labor costs; and

     - enhanced information capture and access.

  BENEFITS TO MANUFACTURERS:

     - improved sales and consumption data;

     - higher contract compliance;

     - better production efficiencies;

     - lower inventory levels;

     - extension of existing sales and distribution channels into new markets;
       and

     - enhanced ability to manage service levels.

  BENEFITS TO DISTRIBUTORS:

     - improved invoice accuracy;

     - lower inventory levels;

     - lower accounts receivable levels;

     - higher fill rates;

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     - lower labor costs; and

     - enhanced information capture and access.

  BENEFITS TO GROUP PURCHASING ORGANIZATIONS AND INTEGRATED DELIVERY NETWORKS:

     - improved compliance;

     - reduced contracting periods; and

     - enhanced information capture and access.

OUR STRATEGY

     Our primary business objectives are aligned with those of our trading
partners. We seek to enable our trading partners to reallocate and redirect to
their strategic priorities the excess costs that adversely affect their supply
chain, reduce the time their employees spend on non-productive activities and
offset a significant portion of the capital investment they currently make in
redundant and isolated supply chain-related technologies. Our strategy to
achieve these objectives includes the following elements:

  INCREASE THE NUMBER OF MARKETPLACES WE BUILD AND OPERATE

     We intend to increase the number of Internet marketplaces we build and
operate for our healthcare trading partners. Our three current marketplaces are
Marketplace@Novation, which is sponsored by Novation, the largest GPO in the
U.S. representing approximately one-third of the acute care market; Canadian
Health Marketplace, which is sponsored by Medbuy, the largest national medical
GPO in Canada; and NeoMD Marketplace, which is our marketplace for alternate
site healthcare providers, primarily physicians. We expect that each of the
marketplaces that we intend to establish will be sponsored by an established
industry participant, such as a healthcare provider, manufacturer, distributor,
GPO, IDN or an organization that represents a collection of providers,
manufacturers or distributors.

     By increasing the number of custom marketplaces we build and operate using
a common technology platform, we believe we can leverage our platform and
technology investments over an increasing number of marketplaces, thereby
achieving economies of scale and increasing our return on investment and
operating margins.

  INCREASE THE NUMBER OF TRADING PARTNERS THAT UTILIZE OUR MARKETPLACES

     We intend to continue to increase the number of providers, manufacturers
and distributors that use our marketplaces. We believe that the value of our
products and services to our trading partners will increase as the number of
trading partners that use our marketplaces increases. By adding suppliers and
broadening the range of products available in our marketplaces, we create
additional value for buyers. By attracting more buyers to our marketplaces, we
create additional value for suppliers. Our current healthcare trading partners
include some of the largest and most widely recognized healthcare providers,
manufacturers and distributors in the world.

  ENHANCE THE FUNCTIONALITY OF OUR PRODUCT AND SERVICE OFFERINGS

     We plan to continue to enhance the functionality of our products and
services, increasing their value to both current and future trading partners.
Our recently announced strategic relationship with i2 will extend our product
and service offerings to healthcare trading partners. In addition to augmenting
our provider solutions with greater contracting, requisitioning and ordering
functionality, our customization of i2's TradeMatrix(TM) platform will provide
the healthcare buyer with more product searching, content management and supply
chain collaboration capabilities.

     We intend to considerably enhance our product and service offerings to
suppliers. We plan to offer demand planning, inventory optimization, cataloging,
content management and collaboration tools to healthcare manufacturers and
distributors.

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  CONTINUE TO FORM KEY STRATEGIC RELATIONSHIPS

     We intend to continue to enter into key alliances with leading technology
and healthcare-related organizations to increase the number of marketplaces that
we operate, expand the number of our trading partners and usage of our products
and services and enhance the functionality of our product and service offerings.
Our current strategic partners include Novation, VHA, UHC, Medbuy, i2, Lawson
Software, Dell Marketing and Superior Consultant. In addition, we have strategic
relationships with a number of healthcare providers and suppliers. We plan to
strengthen and broaden these relationships and enter into new strategic
relationships.

OUR PRODUCTS AND SERVICES

     Optimized supply chain performance is possible only when each step in the
supply chain process is streamlined, accelerated and tightly connected to the
processes which precede and follow it. For example, traditionally, when a
hospital runs low on a product, such as a syringe, a manual and paper-based
process has been required to replace or replenish that product. A nurse, a
supplier sales representative or an inventory clerk must complete a paper
request for a replacement product and deliver that requisition to the purchasing
department. The requisition then is passed to the hospital buyer who will first
check, if possible, whether the product is in stock elsewhere in the hospital.
If that is not the case, he or she will check the paper contracts on file to
ensure that the product is priced properly, then consult a paper catalog to
obtain product number and ordering information. When these steps are completed,
the buyer will complete a purchase order and fax that order to the supplier of
that product.

     This order would be received by a manufacturer or distributor that will
return a paper-based confirmation of the order, aggregate that paper order with
all of the other paper orders from that hospital, secure the product from the
warehouse and ship that product to the hospital. At that time, the manufacturer
or distributor will fax an advance shipping notice to the hospital. The hospital
will receive the product at its loading dock, document the number of products
actually received, forward that information to accounts payable and deliver the
product to the department that ordered it. Accounts payable will manually
compare the purchase order, the packing slip and the invoice sent by the
manufacturer or distributor to ensure that the quantities and prices match. If
they do, accounts payable will write a check to the manufacturer or distributor.
If they do not, then the accounts payable clerk must review the order with the
purchasing department and the manufacturer or distributor to resolve the
discrepancy before payment can be made.

     While hospitals, manufacturers, distributors, GPOs and IDNs have made
considerable efforts and progress to improve how products, information and money
are managed within their organizations, they have not achieved significant
levels of progress among their organizations. The average large hospital uses as
many as 50,000 stock keeping units, or SKUs, or unique products, from over 2,000
suppliers to deliver patient care and support ancillary operations. The average
large GPO manages as many as 300 to 400 contracts with several hundred suppliers
for over 200,000 products. The average large manufacturer or distributor
services hundreds of hospitals, several thousand locations to which they ship
products and over 250,000 SKUs. As difficult as the institutional challenge
these organizations have faced in streamlining their internal operations is, it
is even more challenging to organize and manage the combined product,
information and money that flow among them.

     We offer two broad groups of Internet-based products and services to
address the significant challenges of the healthcare supply chain: Marketplace
Applications and Trading Partner Services. We believe these products and
services will enable our healthcare customers to optimize their individual and
collective supply chain performance, extend the investments they have made
individually to improve supply chain operations and enable a much greater degree
of collaborative commerce among them.

  MARKETPLACE APPLICATIONS

     Marketplace Applications are the Internet-based software products that we
provide to our healthcare trading partners. These applications, consisting of
Access Manager, Requisition Manager, Order Manager,

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Report Manager, Catalog Manager and NeoConnect, provide a comprehensive supply
chain solution for a broad range of activities, from product use to
replenishment and from ordering to payment.

     Access Manager

     Access Manager controls which services and functions each user can perform
within a Neoforma-powered marketplace. This application is similar to, though
much more complicated than, the password-based process an individual would use
to access a consumer website. Each potential user in the healthcare provider
organization, manufacturer organization, distributor organization and/or GPO
must be profiled to determine his or her appropriate and specific level of
access to, and use of, our marketplaces. This profile contains information such
as level of spending authority, product selection, work-flow and information
access. Access Manager enables us to customize our marketplace solutions,
providing customer-specific access within a shared and scaleable application.

     Requisition Manager

     Requisition Manager allows users to access product information, create
requisitions and electronically submit them as purchase orders through a
marketplace. Additionally, Requisition Manager will provide custom templates to
enable the end-user to design, in advance, quick order sheets to aggregate the
products they order most frequently. Currently, Requisition Manager can be used
as a stand-alone requisitioning system or as a supplement to a healthcare
organization's existing requisitioning system.

     Order Manager

     Order Manager allows buyers to view the status of an order that has been
transmitted through a marketplace. All transaction documents related to an order
are dated, time stamped and viewable online. These transaction documents include
the purchase order, purchase order confirmation, advance shipping notice,
pricing update and other key communications between buyer and supplier.

     Report Manager

     Access to accurate and timely reports for purchasing expenditures is an
important element of maintaining an efficient e-commerce system. Report Manager
provides a variety of user-definable reports for each of our marketplace
services. The reports deliver: information to manage purchasing, drive
compliance, reduce costs and increase savings; consolidated and detailed views
of usage, purchasing, compliance and pricing, ensuring that purchasing systems
are working as efficiently as possible; and information to manage
standardization, off contract buying, pricing and purchasing activity at all
levels of the organization.

     Catalog Manager

     Catalog Manager allows suppliers to add, edit and upload their product
catalog directly. By providing suppliers the ability to manage their catalog
information, such as product identification and units of measure, via the
Internet, Catalog Manager enables suppliers to provide catalog information
directly to customers using our marketplaces, as well as to manage this
information in a single database. In future releases, we expect that Catalog
Manager will provide a vehicle for suppliers to distribute content to customers.

     NeoConnect

     NeoConnect is a core component of our marketplace solutions. It provides
the tools, interfaces and methodologies to integrate our marketplaces with the
legacy systems of both buyers and sellers. NeoConnect facilitates business
transactions by supporting industry standard business document formats,
including EDI and XML.

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     TRADING PARTNER SERVICES

     Through our Trading Partner Services, we offer comprehensive e-commerce
solutions for hospitals by delivering robust and economical technology and a
variety of advisory and specialty services to help healthcare organizations
accelerate their readiness to adopt e-commerce and increase the effectiveness
and results of e-commerce initiatives. Trading Partner Services include Item
Data Readiness, Custom Connectivity and Staff Augmentation.

     We plan to offer similar services to manufacturers and distributors.

     Item Data Readiness

     We provide data management services to healthcare organizations for data
scrubbing, rationalization, categorization and analysis. The ability for
hospitals and their materials managers to maintain accurate and clean
information for medical and surgical products in an item master is a significant
challenge. A typical item master includes products that a hospital no longer
purchases, multiple listings for the same product, inaccurate manufacturer
catalog numbers, unclear product descriptions, duplicate entries and multiple
units of measure. These issues can cause pricing errors and result in excess
inventory, and the correction or reconciliation of these errors by a materials
manager or hospital typically requires significant attention and resources,
resulting in further inefficiencies.

     Our experts work with hospital staff to understand their business processes
and rules. We then apply our customers' unique rules in combination with our
expertise to deliver an up-to-date, cleansed item master with information that
can be used in the materials management, operating room and other systems within
the healthcare organization. A clean item master results in more accurate
purchase orders, improved inventory tracking and reduced time required to
correct mistakes. We also provide training to hospital staff to maintain a clean
item master on an ongoing basis.

     Custom Connectivity

     We assist healthcare provider organizations in utilizing their current
system infrastructure and maximizing the value of previous investments. Our
connectivity solutions address the limitations of their current infrastructure
by providing applications and services that provide data and information in a
more timely, accurate and efficient manner. By incorporating our technology into
existing systems, we help healthcare organizations improve the management of
their business operations and reduce the time and resources required to complete
their tasks. In addition, we provide system connectivity and e-commerce
capabilities that allow healthcare organization to perform many functions such
as data warehousing and online communications to remote sites.

     Our connectivity team has experience with many healthcare organizations
nationwide, and works with each hospital's staff to address the specific needs
of the organization. We assist with all levels of connectivity, including
customized applications and sophisticated interface requirements. Some of the
specific services include:

     - Accelerated implementation of an e-commerce interface for uncommon
       materials management information systems;

     - Custom programming to incorporate specific requirements unique to the
       organization;

     - Custom interfaces between the e-commerce platform and specific
       applications, such as data warehousing, cost accounting, operating room
       scheduling and warehouse management systems; and

     - Connectivity to all satellite locations affiliated with an organization.

     Staff Augmentation

     We offer staffing assistance to healthcare organizations that are
implementing our marketplace solutions. We provide staff that understands the
information systems, logistics, service level requirements, standardization and
utilization benefits, and overall workflow requirements for the organization
undergoing the transition

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to our marketplace solutions. Our team has experience with many healthcare
organizations nationwide. We work with hospital staff to utilize existing
investments in technology, coupled with the Internet, so that an organization
can save time and money and dedicate increased resources to patient care.

OUR TRADING PARTNERS

     Our marketplaces empower our healthcare trading partners, including acute
care and alternate site healthcare providers, suppliers and GPOs, to optimize
their supply chains.

  PROVIDERS

     Provider organizations using our marketplaces include independent
hospitals, hospital alliances, IDNs, physician offices, multi-specialty groups,
clinics and other alternate site healthcare organizations.

     Our key hospital alliance trading partners are VHA, the largest association
of not-for-profit hospitals in the U.S., and UHC, the largest group of
university-based academic medical centers in the U.S. Collectively, VHA and UHC
represent approximately 2,200 hospitals that account for $35 billion in annual
supply consumption, both through online and traditional purchasing methods.

     As of March 27, 2001, we had agreements with 292 VHA, 63 UHC and one HPPI
member hospitals, which collectively represent approximately $8.8 billion in
annual supply purchasing, both through online and traditional purchasing
methods. These agreements name us as the exclusive e-commerce provider and
require each hospital to conduct 50% of its available purchasing through
Marketplace@Novation within a specified time period. Our customers include some
of the leading hospitals in the U.S., such as:

     - Allina Health System;

     - Crozer Keystone Health System;

     - Evanston Northwestern Healthcare;

     - Memorial Hermann Hospital System;

     - Novant Health;

     - Ohio State University Medical Center;

     - Shands University of Florida;

     - University Hospitals of Cleveland;

     - University of California, Los Angeles Healthcare;

     - The University of California, San Diego Medical Center;

     - The Medical Center at the University of California, San Francisco;

     - University of Utah Hospitals and Clinics; and

     - Yale New Haven Health System.

     As of March 27, 2001, we also had agreements with approximately 18,000
physicians and 250 long-term care facilities.

  SUPPLIERS

     As of March 27, 2001, we had agreements with 69 manufacturers and
distributors to offer their products for sale in our marketplaces. These
suppliers represent approximately $6 billion in annual sales to healthcare
providers in our marketplaces. Our current suppliers include leading companies
such as:

     - Allegiance Healthcare;

     - Boise Cascade Office Products;

     - Buffalo Hospital Supply;

     - The Burrows Company;

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<PAGE>   14

     - Caligor Medical Division HSIC;

     - Dade Behring;

     - Eastman Kodak;

     - Kimberly-Clark;

     - Marconi Medical Systems' Health Care Products Division;

     - McKesson HBOC;

     - Medical Action Industries;

     - Nycomed Amersham Imaging;

     - Owens & Minor;

     - Professional Hospital Supply;

     - Standard Textile; and

     - Sunrise Medical Home Healthcare Group.

     Our agreements with these suppliers provide for the payment to us of a fee
equal to a negotiated percentage of the purchase price of products that are sold
through our marketplaces.

     Our agreements with distributors enable buyers to purchase products from a
significantly greater number of additional manufacturers, including Beckman
Coulter, Becton Dickinson, C.R. Bard, DeRoyal, Fuji, Johnson & Johnson, Maxxim
Medical, Minnesota Mining & Manufacturing, or 3M, Smith & Nephew, Steris and
Tyco International.

  GROUP PURCHASING ORGANIZATIONS

     Our key GPO trading partners are Novation, the supply management
organization owned by VHA and UHC, and Medbuy, the largest national medical GPO
in Canada. Collectively, these GPOs have agreements with more than 400
manufacturers and distributors. Novation hospital members purchase approximately
$15 billion annually under Novation contracts, and Medbuy hospital members
purchase approximately $115 million annually under Medbuy contracts. These
figures include both online and traditional purchasing.

STRATEGIC ALLIANCES

     We enter into alliances with leading technology and healthcare-related
service organizations to enhance the portfolio of products and services that we
offer to our trading partners, collaborate on research and development, increase
usage of our marketplaces and extend our sales and marketing resources. We have
entered into strategic alliances in the following areas:

  MARKETPLACE SPONSORS

     We have entered into strategic relationships with the sponsors of our two
acute care focused marketplaces, Marketplace@Novation and Canadian Health
Marketplace. Both marketplace sponsors are established healthcare industry
participants. We believe that strategic alliances with established industry
participants accelerate adoption of our marketplaces.

     Marketplace@Novation is sponsored by Novation, the U.S.'s largest
healthcare GPO, and its owners, VHA and UHC. The approximately 2,200 member
hospitals of Novation, VHA and UHC collectively purchase approximately $35
billion in products and services annually, which represents approximately one-
third of the U.S. acute care market. We entered into a ten-year relationship
with Novation, VHA and UHC, in which these organizations named us as the
exclusive e-commerce solution that they promote to their members.

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<PAGE>   15

     Canadian Health Marketplace is sponsored by Medbuy, Canada's largest
national medical GPO that represents more than 20% of the Canadian healthcare
market, measured in active beds for acute, pediatric and long-term care. We
entered into a ten-year strategic relationship with Medbuy to jointly develop a
comprehensive Internet solution for the Canadian healthcare market. The
agreement names us as Medbuy's exclusive provider of an Internet e-commerce
solution for the procurement of products and services.

  TECHNOLOGY PARTNERS

     We believe that by entering into strategic relationships with leading
technology companies, we can effectively expand our portfolio of services and
solutions and leverage the sales, marketing and services reach of our technology
partners.

     We have entered into a series of agreements with i2, a leading provider of
marketplace solutions, to develop, deploy and market Internet supply chain
solutions for healthcare. Using i2's TradeMatrix Solutions, we expect our
Internet marketplaces to deliver greater value-added services and supply chain
applications to the healthcare community, including healthcare manufacturers,
distributors and providers, to improve trading relationships and reduce costs.
We are collaborating on product development, marketing, sales and service
activities, and will share revenue. Our initial focus will be to use i2's
technology to enhance our existing marketplace infrastructure via i2's
TradeMatrix solutions, and to accelerate the delivery of value to our
manufacturer and distributor trading partners by providing them with access to
i2's supply chain applications via our marketplaces.

     We have formed a strategic alliance with Lawson Software to integrate their
Internet supply chain solutions for the healthcare industry into our
marketplaces. We will integrate the lawson.insight(TM) e-Procurement Service
with our healthcare marketplace solutions to provide an end-to-end e-procurement
solution for Lawson healthcare customers. Under the terms of the agreement, we
will jointly develop application programming interfaces that will enable Lawson
users to integrate their internal systems with our healthcare supply chain
marketplaces. In developing these interfaces, we and Lawson plan to enable
higher levels of supply chain collaboration and information sharing, which
should result in lower costs and improved efficiencies for healthcare supply
chain participants.

     We also have licensing and operating agreements with a number of other
leading technology companies, including BEA Systems, CrossWorlds, iPlanet, Moai
Technologies, Oracle, Resonate, Sterling Commerce, Sun Microsystems, TIBCO and
webMethods.

SALES, MARKETING AND SERVICE

     We sell our products and services through a direct field sales force in our
sales and services organization and through our targeted sales forces within our
marketplace management teams, such as our NeoMD Marketplace organization. The
direct field sales force in our sales and services organization primarily
targets the acute care healthcare provider market and focuses on signing
hospitals to participate in our marketplaces. This sales force works closely
with our implementation specialists to speed our response to customers' needs
and to ensure that each customer has a single point of contact within our
organization. Marketplace management teams support specific marketplace
customers and integrate those customers into the ongoing selling effort required
to enroll new buyers and sellers into those marketplaces. Our field sales forces
have significant experience in the sale of medical products, equipment and
information technology systems.

     Our relationships with a number of our strategic partners include joint and
cross selling and marketing of our marketplaces, services and solutions. For
example, under our strategic relationship with Novation, VHA and UHC, the sales
forces of these organizations are exclusively promoting our e-commerce solution
to providers and suppliers. Novation has a greater than 100 person field
organization focused on bringing supply chain solutions to VHA and UHC members,
including Marketplace@Novation, and a greater than 50 person sales force that
focuses on suppliers. In addition, under our agreements with i2, the i2 sales
force is promoting the use of our products and services to existing and
potential customers.

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<PAGE>   16

     Our marketing organization supports the marketing needs of our marketplace
management teams, our co-marketing activities with our strategic partners and
our overall corporate marketing initiatives. Our marketing programs include
traditional and Internet-based marketing initiatives to increase awareness of
our brand and to attract new buyers and suppliers to our products and services.
These programs include a variety of public relations initiatives, such as
participation in industry conferences and trade shows and ongoing relationships
with healthcare, Internet and technology media and industry analysts. We believe
these relationships significantly extend our internal sales resources and will
accelerate adoption of our marketplaces. We believe that the collective
resources represented by our alliance partners, combined with our internal
resources, represent one of the largest sales and marketing organizations in the
healthcare industry.

     We believe that we can strengthen our relationships with our trading
partners by providing good account management, customer support and service. Our
customer service organization provides support to our customers twenty-four
hours a day, seven days a week on topics such as communications, marketplace
functionality and access, training in marketplace use and management and
document tracking. Additionally, we expect that customer service will provide
premium services for a fee to customers who require more personal attention,
greater staff support and/or extended training services.

     Our worldwide sales, marketing and customer service group consisted of 148
full-time employees as of December 31, 2000.

TECHNOLOGY

     We have invested, and will continue to invest, in both systems and software
to provide the platform for building and operating Internet marketplaces that
optimize supply chain performance. We have developed technology infrastructure
to address the three primary elements of a hosted supply chain marketplace:
connectivity, content and hosted solutions. These services are deployed on a
marketplace platform that we plan to continue to enhance on a periodic release
basis.

  FUNCTIONALITY

     Connectivity

     The first step in delivering value to our customers is connecting their
people and business information systems to our marketplaces. Our connectivity
infrastructure, NeoConnect, includes both dial-up and Internet-based access for
healthcare providers, manufacturers and distributors, deployed to operate as a
high-availability, redundant system. We leverage commercial technologies from
leading vendors to support transaction routing and reporting, and have developed
custom software to connect these various solutions. Our connectivity
infrastructure is designed to support increasing transaction volumes from acute
care and alternate site healthcare buyers, manufacturers and distributors
consistent with our forecast growth. NeoConnect supports extensive
bi-directional transaction sets, including ordering, confirmation, shipping
notices, invoicing and catalog updates, and is adaptable to trading partners who
use existing EDI systems, XML-based communications and/or web-based interfaces
to our marketplaces.

     Content

     We have invested in extensive catalog and transaction content indexing and
normalization efforts. We plan to continue to provide content rationalization
services, both directly and through our partners, to enable healthcare
providers, manufacturers and distributors to make buying and selling decisions,
evaluate performance against committed contracts and understand standardization
opportunities. Our content solutions leverage internally developed applications
for moving, indexing and cross-referencing data which can be leveraged across
multiple marketplaces. Additionally, we use commercial applications to store,
search and display this data for use by both provider and supplier customers. We
intend to continue to develop and extend our content business to include
additional products, cross-references between suppliers and contracts and other
value added services that facilitate supplier and provider communication.

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<PAGE>   17

     Hosted Solutions

     Our marketplaces consist of a number of web-based services, including user
administration, requisitioning and approvals, contract management and
optimization, reporting and analysis, order management and catalog maintenance.
We have developed these and other services in close consultation with hospital,
physician office, manufacturer, distributor and GPO user groups. Our currently
deployed marketplaces reflect the prioritized services necessary to enhance the
performance of our customers' supply chains. We believe that additional
application development, both in-house and with our technology partners, will
further extend the breadth of solutions available to support high-value
collaborations between current and potential trading partners. As a part of our
relationship with i2, we plan to deploy some of the applications from i2's
portfolio as hosted solutions for use within our marketplaces.

  INFRASTRUCTURE

     Open Architecture

     Our open architecture supports integration with our users' existing legacy
systems. The ability to integrate with these diverse systems is important for us
to aggregate a wide range of providers and suppliers in our marketplace with
minimal disruption to their existing processes. Our architecture is based on
industry standards, enabling us to rapidly introduce new features and
functionality.

     Scalability, Performance and Availability

     Our highly modular, distributed architecture is designed to enable us to
readily add capacity as the number of users and transactions increase on our
system. We have fully-redundant hardware systems which, when combined with our
distributed architecture, enable us to provide our services on an uninterrupted
basis, even in the event of partial system failure. By locating our data center
at an Exodus Communications hosted facility, we are able to easily and rapidly
expand our network bandwidth and maintain the physical security of our systems.
We have invested in, and plan to continue to support, a co-located backup system
in the event of geographic catastrophe.

     Security

     Our platform for building and operating Internet marketplaces contains a
variety of features to ensure the secure transmission of business information
among multiple trading partners and to protect against communication failures.
We use SSL, or secure sockets layer, an Internet security protocol, at
appropriate points in the transaction flow to protect user information during
transactions. User information is encrypted to provide a high degree of
security. Our employees do not have access to user information, except as
necessary to perform customer service functions. The system authenticates users
through standard secure login and password technologies.

PRODUCT DEVELOPMENT AND OPERATIONS

     We intend to continue to expand and enhance the functionality of our
products and services. We are currently focusing our product development
resources on enhancing our infrastructure to support increasing transaction
volumes, delivering supply chain solutions that support ordering and pricing
visibility for our trading partners, extending our sourcing catalog services,
and improving our extensive reporting and analytics functionality. We intend to
continue to enhance our existing solutions within our marketplaces on a periodic
basis and launch new solutions that provide increased utility and value for
healthcare manufacturers, distributors and providers.

     Our future product development efforts will focus on extending the
enterprise and supply chain analytics capabilities made possible by the
transaction volume and data flow through our marketplaces, providing demand and
procurement collaboration services for our trading partners and developing
contracting and performance solutions to support committed purchasing and supply
relationships.

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<PAGE>   18

     For both our current and future product development activities, we plan to
continue to leverage our technology partners to accelerate delivery and hedge
development risk. Our strategic relationship with i2 includes provisions for
conducting joint development products aimed at extending the i2 solution suite
to specifically address the needs of the healthcare supply chain. These joint
development projects include the definition of a specific statement of work,
commitment of resources by both us and i2 and the assignment of intellectual
property on a project-by-project basis.

     Our product development and operations group is responsible for translating
customer needs into detailed functional and technical specifications,
configuring and developing software applications and web services to meet these
specifications, testing and verifying performance and operating in a
high-availability production environment. As of December 31, 2000, we had 75
full-time employees in this organization. Depending on the number and complexity
of current development projects underway, our staff is augmented using both
independent contractors and consulting firms.

PROPRIETARY RIGHTS AND LICENSING

     Our success and ability to compete depend on our ability to develop and
maintain the proprietary aspects of our technology. We rely on a combination of
copyright, trademark and trade secret laws and contractual restrictions to
establish and protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. Finally, we seek to avoid
disclosure of our intellectual property by restricting access to our source code
and by requiring employees and consultants with access to our proprietary
information to execute confidentiality agreements with us.

     We rely on technology that we license from third parties, including
software that is integrated with internally developed software and used in our
software products to perform key functions. For example, we license TradeMatrix
software from i2 to offer procurement and order management functions. We also
license Gentran software from Sterling Commerce for the processing of order
transactions from our customers. Such product licenses may expose us to
increased risks, including risks associated with the assimilation of new
products, the diversion of resources from the development of our products, the
inability to generate revenues from new products sufficient to offset associated
acquisition costs and the maintenance of uniform, effective products. If we are
unable to continue to license any of this software on commercially reasonable
terms, we will face delays in releases of our services until equivalent
technology can be identified, licensed or developed and integrated into our
current technology. These delays, if they occur, could seriously harm our
business.

     Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources, and could seriously harm our business. In addition, the laws of some
foreign countries do not protect proprietary rights to the same extent as do the
laws of the United States.

     Our success and ability to compete also depend on our ability to operate
without infringing upon the proprietary rights of others. For example, on
January 14, 2000, Forma Scientific informed us that it believed our use of
"Neoforma" and "Neoforma.com" violated its trademark rights in "Forma" and
"Forma Scientific." On September 12, 2000, we entered into a settlement
agreement with Forma Scientific under which we agreed to modify our logo so that
the mark "Neoforma" is presented to viewers as one word without any form of
distinction separating the "Neo" portion of the mark from the "Forma" portion of
the mark. In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business would be
seriously harmed.

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COMPETITION

     The healthcare supply chain market is new, rapidly evolving and highly
competitive. Our competitors are diverse and offer a variety of solutions
directed at various segments of the healthcare supply chain. Competitors
include:

        - e-commerce providers that currently have or have announced plans for
          online marketplaces targeted at the healthcare supply chain, including
          medibuy, Broadlane, MedAssets, MedChannel and Medpool;

        - healthcare exchanges that have been formed by suppliers, namely Global
          Health Exchange, which was founded by five healthcare manufacturers,
          Abbott Laboratories, Baxter International, General Electric Medical
          Systems, Johnson & Johnson and Medtronic, and HealthNexis, which was
          formed by four healthcare distributors, Amerisource, Cardinal Health,
          Fisher Scientific and McKesson HBOC;

        - suppliers that have created their own websites that offer e-commerce
          functions to their customers for the sale of their products and
          services;

        - enterprise resource application software vendors that offer solutions
          in the healthcare market, such as SAP, Oracle, PeopleSoft, Lawson and
          McKesson HBOC;

        - vendors establishing electronic marketplaces and procurement
          capabilities, including Ariba and Commerce One; and

        - supply chain software vendors, including Manugistics and Logility.

     We believe that companies in our market compete to provide services to
suppliers based on:

        - brand recognition;

        - number of buyers using their services and the volume of their
          purchases;

        - level of bias, or perceived bias, towards particular suppliers;

        - existing relationships;

        - compatibility with suppliers' existing distribution methods;

        - the amount of the fees charged to suppliers;

        - functionality, ease of use and convenience;

        - ability to integrate their services with suppliers' existing systems
          and software; and

        - quality and reliability of their services.

     In addition, we believe that companies in our market compete to provide
services to buyers based on:

        - brand recognition;

        - breadth, depth and quality of product offerings;

        - ease of use and convenience;

        - number of suppliers available through their marketplace;

        - ability to integrate their services with buyers' existing systems and
          software;

        - quality and reliability of their services; and

        - customer service.

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     Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:

        - enter into strategic or commercial relationships with larger, more
          established healthcare, medical products and Internet companies;

        - secure services and products from suppliers on more favorable terms;

        - devote greater resources to marketing and promotional campaigns;

        - secure exclusive arrangements with buyers that impede our sales; and

        - devote substantially more resources to website and systems
          development.

     Our current and potential competitors' services may achieve greater market
acceptance than ours. Our existing and potential competitors may have longer
operating histories in the healthcare supply chain market, greater name
recognition, larger customer bases or greater financial, technical and marketing
resources than we do. As a result of these factors, our competitors and
potential competitors may be able to respond more quickly to market forces,
undertake more extensive marketing campaigns for their brands and services and
make more attractive offers to buyers and suppliers, potential employees and
strategic partners. In addition, new technologies may increase competitive
pressures. We cannot be certain that we will be able to expand our buyer and
supplier base or retain our current buyers and suppliers. We may not be able to
compete successfully against our competitors, and competition could seriously
harm our revenue, gross margins and market share.

EMPLOYEES

     As of December 31, 2000, we had 251 full-time employees, including 148 in
sales, marketing and customer service, 43 in product development, 32 in
operations and 28 in general and administrative functions. Our future success
will depend, in part, on our ability to attract, train, retain, integrate and
motivate highly qualified sales, technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit, and we have never experienced a work stoppage. We believe our
relations with our employees are good. We also use independent contractors to
support our services. We use a firm based in India to digitize and format
product information for our Shop service. We plan to use a third party
specializing in Internet support to respond to our most common customer service
requests.

ITEM 2. PROPERTIES

FACILITIES

     As of December 31, 2000, our executive, administrative and operating
offices were located in approximately 116,000 square feet of office space
located in San Jose, California under a lease scheduled to expire in March 2007.
We occupy approximately 84,300 square feet of this facility, and sublease
approximately 31,700 square feet to another corporation under a sublease that
expires in October 2003. We have been in this facility since April 2000, at
which time we moved from our previous headquarters located in Santa Clara,
California. At the time of our move, we entered into agreements to terminate our
leases in Santa Clara.

     We also lease offices in San Francisco, California, Atlanta, Georgia and
Carlisle, Pennsylvania. Our San Francisco office is located in the previous
headquarters of Pharos. The facility is approximately 2,400 square feet, and the
lease expires in December 2004. Our Atlanta office is approximately 3,900 square
feet and the lease expires in October 2002. Our Carlisle office is located in
the previous headquarters of USL. The facility is approximately 6,700 square
feet and the lease expires in March 2002. As part of the sale of USL to MDSI in
April 2001, MDSI assumed the operating lease on this facility as of the closing
date.

     We also maintain two facilities in the metropolitan area of Chicago,
Illinois for our Auction operations. We entered into a lease that expires in
February 2004 for our facility located in Arlington Heights, Illinois, which is
19,765 square feet of office and warehouse space which serves as the
headquarters for our Auction operations. Additionally, we entered into a lease
which expires in November 2002 for a second location in the

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Chicago area in Elk Grove Village, Illinois. The facility is approximately
124,000 square feet of primarily warehouse space and serves as storage for
consigned or purchased items until they are sold in an auction. We also maintain
a lease which expires in July 2001 on a facility in Santa Fe Springs,
California, which is approximately 21,000 square feet of warehouse space for
consigned items and the primary location of our auction activities on the West
Coast. As the result of our planned divestiture of our Auction operations, we
anticipate transferring these leases to the purchaser of our Auction operations.

ITEM 3. LEGAL PROCEEDINGS

     On October 30, 2000, we were formally served with a complaint entitled
Healthworks, Inc. against Neoforma.com, Inc., and Jeffrey H. Kleck, Index No.
604682-00, Supreme Court of the State of New York, County of New York. The
complaint indicated that Healthworks had filed suit against us seeking relief of
its obligations under two contracts between itself and us. Healthworks alleges
that we failed to fulfill our obligations under a basic commerce agreement and
letter of intent (the "Basic Agreement"), and we have thus breached the Basic
Agreement. Further, Healthworks is claiming that a consulting services and
capital equipment purchasing agreement (the "Consulting Agreement") was obtained
via fraudulent means, and, as a result, should be rescinded. We believe that
Healthworks' case is without merit, and plan to vigorously defend this action.
We do not believe this litigation will have a material impact on our financial
statements.

     On October 30, 2000, we filed a complaint for breach of contract entitled
Neoforma.com, Inc. v. Continuum Health Partners, Inc. and Healthworks, Inc., in
the Superior Court of the State of California, County of Santa Clara. The
complaint indicates that Healthworks and Continuum Health Partners, Inc. are in
breach of both the Basic Agreement and the Consulting Agreement, both of which
were entered into by Healthworks acting as an agent for Continuum. The complaint
indicates that the breach was created by Healthworks' and Continuum's refusal to
pay amounts due to us under the agreements, despite the fact that we had
performed on our obligations under those agreements. We are seeking compensatory
damages in excess of $1.0 million.

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

     Not applicable.

                                        21
<PAGE>   22

                                    PART II

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

PRICE RANGE OF COMMON STOCK

     Our common stock has been traded on the Nasdaq National Market under the
symbol "NEOF" since January 24, 2000, the date of our initial public offering.
Prior to that time, there was no public market for our common stock.

     The following table sets forth the high and low closing prices for our
common stock as reported on the Nasdaq National Market for the periods
indicated.

<TABLE>
<CAPTION>
                                                HIGH     LOW
                                               ------   ------
<S>                                            <C>      <C>
FISCAL YEAR ENDED DECEMBER 31, 2000
  First quarter (from January 24, 2000)......  $73.53   $16.38
  Second quarter.............................  $16.19   $ 6.06
  Third quarter..............................  $ 8.19   $ 2.69
  Fourth quarter.............................  $ 3.31   $ 0.63
</TABLE>

     The market price of our common stock has fluctuated significantly in the
past and is likely to fluctuate in the future. In addition, the market prices of
securities of other technology companies, particularly Internet-related
companies, have been highly volatile. See "Managements' Discussions and Analysis
of Financial Condition and Results of Operations -- Factors That May Affect
Future Operating Results."

RECENT SALES OF UNREGISTERED SECURITIES

     On October 18, 2000, we canceled VHA's warrant to purchase up to 30,845,020
shares of our common stock and issued to VHA 30,845,020 shares of our restricted
common stock in substitution for such warrant. The restricted common stock that
we issued to VHA is subject to the identical performance-based vesting criteria
to which the warrant was subject.

     The securities issuances set forth above were not registered under the
Securities Act of 1933 in reliance upon the exemption provided by Section 4(2)
of the Securities Act and/or Rule 506 promulgated thereunder for transactions by
an issuer not involving a public offering.

HOLDERS OF RECORD

     As of March 31, 2001, there were approximately 729 holders of record of our
common stock. This number does not include a significant number of stockholders
for whom shares were held in a "nominee" or "street name."

DIVIDENDS

     We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to fund the expansion and growth of
our business. Payment of future dividends, if any, will be at the discretion of
our board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion. In addition, the terms of some of our credit facilities
prohibit us from paying cash dividends on our capital stock without the prior
consent of the lender.

                                        22
<PAGE>   23

USE OF PROCEEDS

     We sold 8,050,000 shares of our common stock on January 24, 2000, pursuant
to a registration statement on Form S-1, Registration No. 333-89077, which was
declared effective by the Securities and Exchange Commission on January 24,
2000. From January 24, 2000 through December 31, 2000, we used substantially all
of the net proceeds from our initial public offering primarily to fund operating
losses and working capital requirements.

                                        23
<PAGE>   24

ITEM 6. SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA

     The selected consolidated financial data for the period from inception
(March 6, 1996) to December 31, 1996, and the years ended December 31, 1997,
1998, 1999 and 2000 are derived from our historical consolidated financial
statements. When you read this selected consolidated financial data, it is
important that you also read the historical financial statements and related
notes included in this report, as well as the section of this report entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.

     See Note 2 of notes to consolidated financial statements for an explanation
of the determination of the number of shares used in computing per share
amounts.

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED
                                             PERIOD FROM INCEPTION                 DECEMBER 31,
                                              (MARCH 6, 1996) TO     ----------------------------------------
                                               DECEMBER 31, 1996      1997      1998       1999       2000
                                             ---------------------   ------   --------   --------   ---------
                                                                              (IN THOUSANDS, EXCEPT
                                                                                PER SHARE AMOUNTS)
<S>                                          <C>                     <C>      <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
  Sales of equipment.......................         $   --           $   --   $     --   $     --   $   4,629
  Transaction fees.........................             --               --         --        929       2,273
  Services.................................             --               --         --         --         959
  Website sponsorship fees and other.......             --               --         --         75       2,585
                                                    ------           ------   --------   --------   ---------
    Total revenue..........................             --               --         --      1,004      10,446
Operating Expenses:
  Cost of equipment sold...................             --               --         --         --       3,544
  Cost of services.........................             --               --         --         --       8,247
  Operations...............................             --               --        627      5,941      13,517
  Product development......................             31              179      1,494      8,161      24,599
  Selling and marketing....................            111              153      1,411     16,860      53,216
  General and administrative...............             54               76      1,075     17,937      25,922
  Amortization of intangibles..............             --               --         --        715      25,700
  Amortization of partnership costs........             --               --         --         --      30,491
  Cost of warrant issued to recruiter......             --               --         --      2,364          --
  Write-off of acquired in-process research
    and development........................             --               --         --         --      18,000
  Abandoned acquisition costs..............             --                          --         --       2,742
  Restructuring............................             --               --         --         --       2,100
  Costs of anticipated divestitures........             --               --         --         --      14,446
                                                    ------           ------   --------   --------   ---------
    Loss from operations...................           (196)            (408)    (4,607)   (50,974)   (212,078)
Other Income (Expense):
  Interest income..........................             --               --         66        659       4,464
  Interest expense.........................             --              (15)       (22)      (676)     (1,289)
  Other income (expense)...................            142                7         --        (29)         88
                                                    ------           ------   --------   --------   ---------
    Net loss                                        $  (54)          $ (416)  $ (4,563)  $(51,020)  $(208,815)
                                                    ======           ======   ========   ========   =========
Basic and diluted net loss per share                $(0.01)          $(0.05)  $  (1.65)  $ (19.15)  $   (2.49)
                                                    ======           ======   ========   ========   =========
Weighted-average shares -- basic and
  diluted                                            8,000            8,083      2,762      2,664      83,948
                                                    ======           ======   ========   ========   =========
Pro forma basic and diluted net loss per
  share (unaudited)                                                           $  (0.36)  $  (1.63)  $   (2.41)
                                                                              ========   ========   =========
Weighted average shares -- pro forma basic
  and diluted (unaudited)                                                       12,848     31,282      86,585
                                                                              ========   ========   =========
</TABLE>

                                        24
<PAGE>   25

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                          -----------------------------------------------
                                                           1996     1997     1998       1999       2000
                                                          ------   ------   -------   --------   --------
                                                                          (IN THOUSANDS)
<S>                                                       <C>      <C>      <C>       <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.......  $    7   $   32   $   812   $ 46,775   $ 29,760
Working capital.........................................      38      (23)      214     36,888     (3,447)
Total assets............................................      51       55     1,672     77,369    513,938
Notes payable, less current portion.....................      75      385       279      7,743      5,458
Mandatorily redeemable convertible preferred stock......      --       --     3,884     88,812         --
Total stockholders' equity (deficit)....................     (34)    (390)   (3,155)   (31,863)   468,791
</TABLE>

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

     The following discussion of our financial condition and results of
operations should always be read in conjunction with our consolidated financial
statements and related notes. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of factors including those discussed in "-- Factors That May Affect
Future Operating Results" and elsewhere in this report.

OVERVIEW

     Neoforma is a leading healthcare supply chain solutions company. We build
and operate Internet marketplaces that empower healthcare trading partners to
optimize supply chain performance. The healthcare market has a number of
characteristics that make it suited for an Internet-based marketplace solution,
including its large size, high degree of fragmentation, significant
inefficiencies, industry cost pressures and highly complex supply chain. Our
solutions enable the participants in the healthcare supply chain market,
principally healthcare providers, manufacturers, distributors, GPOs and IDNs, to
significantly improve business processes within their organizations and among
their trading partners. Using our products and services, these organizations can
improve efficiencies, increase revenue, reduce costs and improve capital
allocation.

     Our solutions consist of web-based products and services for our customers,
or trading partners, as well as other services offered that are designed to
accelerate and optimize their use of the marketplaces that we build for them.
Our trading partners include both acute care and alternate site healthcare
providers, manufacturers and distributors to these healthcare providers, GPOs
and IDNs.

     Our primary business objectives are aligned with those of our trading
partner customers. We seek to enable our customers to reallocate and redirect to
their strategic priorities the excess cost that adversely affect their supply
chain, reduce the time our trading partners' employees spend on non-productive
activities and offset a significant portion of the capital investment our
trading partners currently make in redundant and isolated supply chain-related
technologies. Our strategies to achieve these objectives are to increase the
number of custom marketplaces we build and operate, increase the number of
trading partners that utilize our marketplaces, enhance the functionality of our
product and service offerings and continue to form key strategic relationships.

     Historically, we have offered four primary services -- Shop, Auction, Plan
and Services Delivery. Our Shop service provides private marketplaces where
buyers can easily identify, locate and purchase new products and suppliers can
access new customers and markets. Healthcare providers can use our Shop service
to purchase a wide range of products, from disposable gloves to surgical
instruments and diagnostic equipment. Our Auction service creates an efficient
marketplace for idle assets by enabling users to list, sell and buy used and
refurbished equipment and surplus medical products. Our Plan service provides
interactive content to healthcare facility planners and designers, including 360
degree interactive photographs of rooms and suites in medical facilities that we
believe represent industry best practices, together with floor plans and
information about the products in the room. This information helps reduce the
complexities of planning and outfitting facilities, which we believe increases
the appeal of our website to the facility planners responsible for many product
purchasing decisions. Our Services Delivery service provides scaleable and
cost-effective implementation solutions for both healthcare providers and
suppliers.

                                        25
<PAGE>   26

     The Neoforma website was first launched in 1997 and following its
introduction, we have added a number of enhancements and additional
functionality to the site. Initially, our website only provided information for
healthcare professionals, but in 1999 we began offering e-commerce services with
the introduction of our initial Auction service, AdsOnline, and subsequently
expanded our services with the introduction of our second and third Auction
services, AuctionLive and AuctionOnline, in the second half of 1999. We
introduced our first true marketplace offering in August 1999 with the launch of
Shop functionality on the Neoforma website. Since we introduced our Auction and
Shop services, we have focused on expanding and enhancing our services,
establishing relationships with suppliers of products to healthcare providers,
expanding our purchaser base, developing strategic alliances, promoting our
brand name and building our operating infrastructure.

     In late fiscal 2000, we decided to refocus our development efforts and
internal resources to our core business of building and operating Internet
marketplaces to optimize supply chain performance for our trading partners. As
part of this effort, we developed a plan to eliminate any operations that are
not aligned with this core strategy. As such, we intend to divest our Auction
operations, as well as portions of our Plan operations. On April 2, 2001, we
implemented part of this strategy by selling USL, part of our Plan operations,
to MDSI.

     To date, our principal source of revenue has been transaction fees paid by
the sellers of products that use our Shop and Auction services. These
transaction fees represent a negotiated percentage of the sale price of the
products sold through Shop or Auction. During 2000, we also received revenue
from the following sources:

     - setup fees from participating sellers to digitize their product
       information for display on our website as part of our Shop service;

     - subscription fees paid by healthcare providers and manufactures and
       distributors of products for participation in private marketplaces for
       products and supplies;

     - subscription fees paid by healthcare providers and manufactures and
       distributors of medical products for our management and disposition of
       their used medical equipment through our asset recovery service on
       Auction;

     - product revenue related to the sale of medical equipment that we purchase
       for resale through our live and online auction services;

     - sponsorship fees paid by sellers of medical products and services used in
       planning and outfitting healthcare facilities in exchange for the right
       to feature their brands and products on our Plan service;

     - license fees from the sale of software tools and related technical
       information for the equipping and planning of healthcare facilities; and

     - service delivery fees for implementation and consulting services paid by
       users of our marketplaces.

     We recognize transaction fees as revenue when the seller confirms a buyer's
order. Setup fees are recognized upon completion of the related services. For
live and online auction services, we recognize seller transaction fees, as well
as a buyer's premium, when the product is sold. As a result of our planned
divestiture of our Auction operation, we expect to recognize significantly less
revenue from our live and online auction services in 2001 and no such revenue
subsequent to the completion of this divestiture. Product revenue, representing
the difference between the amount we pay for the equipment and the price paid on
resale, is recognized when the product is shipped or delivered, depending on the
shipping terms associated with each transaction. Sponsorship and subscription
fees are recognized ratably over the period of the agreement. With respect to
software licenses, license fees are recognized when the software has been
delivered and there are no other contingencies related to our performance. If
license fees are contingent upon our performance subsequent to delivery, we
defer recognition of such fees or the fair market value of the undelivered
element requiring performance until we have completed performance. Subscription
and maintenance fee revenue is recognized ratably over the period of the service
agreement. Services delivery revenue for implementation and other services,
including training and consulting, is recognized as services are performed for
time and material arrangements and using the percentage of completion method
based on labor input measures for fixed fee arrangements.

                                        26
<PAGE>   27

     Both our operating expenses and our revenue increased significantly over
the course of fiscal 2000. The revenue increases resulted from growth primarily
in Shop and Plan, as well as the addition of the Services Delivery revenue
stream in mid-2000. The increases in the operating expenses were due to a number
of factors including increases in staffing in our development and sales
organizations and elsewhere in our organization, including contractors and
consultants, costs of strategic partnerships entered into during the year, costs
associated with the restructuring of our organization and costs associated with
being a publicly traded company such as increased reporting and regulatory
oversight requirements. During the course of fiscal 2000, our headcount
increased from 269 full-time employees as of December 31, 1999 to as many as 326
during the year, and decreased to 251 full-time employees as of December 31,
2000 as a result of the reduction in force we announced on May 25, 2000 and
normal attrition.

     In order to acquire certain software and technology for use in our Shop,
Auction and Plan services, on January 18, 2000 we acquired Pharos Technologies,
Inc., a developer of content management software that facilitates the locating,
organizing and updating of product information in an online marketplace. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the intangible assets acquired
and liabilities assumed on the basis of their respective fair values on the
acquisition date. The total purchase price of approximately $22.8 million
consisted of approximately 2,000,000 shares of common stock valued at
approximately $22.0 million, forgiveness of a loan outstanding to Pharos of
$500,000, estimated assumed liabilities of approximately $94,000 and estimated
acquisition-related expenses of approximately $230,000. Of the shares issued to
the previous owners of Pharos, approximately 700,000 shares were subject to
repurchase rights which lapse over the original four-year vesting period of the
shares. In the initial allocation of the purchase price, $367,000, $3.0 million,
$3.0 million and $16.5 million were allocated to tangible assets, acquired
in-process research and development, developed technology and goodwill,
respectively. The acquired in-process research and development was charged to
expense during the first quarter of fiscal 2000. The developed technology is
being amortized over an estimated useful life of three years. The goodwill is
being amortized over an estimated useful life of five years.

     In connection with the acquisition of Pharos, we allocated $3.0 million of
the purchase price to in-process research and development projects. These
allocations represent the estimated fair value based on risk-adjusted cash flows
related to the incomplete research and development projects. At the date of
acquisition, the development of these projects had not yet reached technological
feasibility and the research and development in progress had no alternative
future uses. Accordingly, these costs were expensed as of the acquisition date.

     We allocated values to the in-process research and development based on an
assessment of the research and development projects. The value assigned to these
assets was limited to significant research projects for which technological
feasibility had not been established, including development, engineering and
testing activities associated with the introduction of the Pharos'
next-generation technologies.

     The value assigned to in-process research and development was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development was based on
estimates of relevant market sizes and growth factors, expected trends in
technology, and the nature and expected timing of new product introductions by
Pharos and its competitors.

     The nature of the efforts to develop the acquired in-process technology
into commercially viable products and services principally related to the
completion of planning, designing, coding, prototyping and testing activities
that were necessary to establish that the developmental Pharos technologies met
their design specifications including functional, technical and economic
performance requirements. Anticipated completion dates ranged from six to nine
months, at which times Pharos expected to begin selling the developed products.
Development costs to complete the research and development were estimated at
approximately $2.0 million.

     Pharos' primary in-process research and development projects involved
designing new technologies and an application platform for a next generation
content syndication solution, including enterprise application

                                        27
<PAGE>   28

integration. The estimated revenue for the in-process projects was expected to
peak within three years of acquisition and then decline as other new products
and technologies were expected to enter the market.

     Operating expenses were estimated based on historical results and
management's estimates regarding anticipated profit margin improvements. Due to
purchasing power increases and general economies of scale, estimated operating
expense as a percentage of revenues were expected to decrease after the
acquisition.

     The rates utilized to discount the net cash flows to their present value
were based on the estimated cost of capital calculations. Due to the nature of
the forecast and the risks associated with the projected growth, profitability
and developmental projects, discount rates of 35 to 40% were appropriate for the
in-process research and development, and discount rates of 25% were appropriate
for the existing products and technology. These discount rates were commensurate
with Pharos' stage of development and the uncertainties in the economic
estimates described above.

     In March 2000, we acquired U.S. Lifeline, Inc., or USL, a healthcare
content company. USL provides supply chain information to senior-level
executives in the manufacturing, distribution, provider and GPO communities
through web-based subscription products, industry newsletters and research. The
total purchase price of approximately $7.2 million consisted of approximately
61,000 shares of common stock valued at $2.8 million, $3.5 million in cash and
estimated assumed liabilities of approximately $912,000. In the initial
allocation of the purchase price, $682,000 and $6.5 million were allocated to
tangible assets and goodwill, respectively. This acquisition was accounted for
using the purchase method of accounting. The goodwill is being amortized over an
estimated useful life of five years.

     In April 2000, we acquired EquipMD, Inc., a business-to-business
procurement company serving the physician market. The total purchase price of
approximately $141.7 million consisted of approximately 4.4 million shares of
our common stock valued at approximately $126.4 million, 269,000 vested options
valued at approximately $7.2 million and estimated assumed liabilities and
acquisition costs of $8.1 million. In addition, we assumed approximately 807,000
unvested options. In the initial allocation of the purchase price, $1.5 million,
$100,000, $19.0 million, $106.1 million and $15.0 million were allocated to
tangible assets, assembled workforce, customer lists, goodwill and acquired
in-process research and development, respectively. This acquisition was
accounted for using the purchase method of accounting. The intangible assets,
including goodwill, are being amortized over an estimated useful life of five
years.

     In connection with the acquisition of EquipMD, we allocated approximately
$15.0 million of the purchase price to in-process research and development
projects. This allocation represented the estimated fair value based on
risk-adjusted cash flows related to the incomplete research and development
projects. At the date of acquisition, the development of these projects had not
yet reached technological feasibility, and the research and development in
progress had no alternative future uses. Accordingly, these costs were expensed
as of the acquisition date.

     At the acquisition date, EquipMD was conducting design, development,
engineering and testing activities associated with the completion of a real-time
commerce engine. The projects under development at the valuation date
represented next-generation technologies that were expected to address emerging
market demands for healthcare related business-to-business e-commerce.

     At the acquisition date, the technologies under development were
approximately 60% complete based on engineering man-month data and technological
progress. EquipMD had spent approximately $1.2 million on the in-process
projects, and expected to spend approximately $1.0 million to complete all
phases of the research and development. Anticipated completion dates ranged from
three to nine months, at which time we expected to begin benefiting from the
developed technologies.

     In making its purchase price allocation, management considered present
value calculations of income, an analysis of project accomplishments and
remaining outstanding items, an assessment of overall contributions, as well as
project risks. The value assigned to purchased in-process technology was
determined by estimating the costs to develop the acquired technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development was based on
estimates of relevant market sizes and
                                        28
<PAGE>   29

growth factors, expected trends in technology and the nature and expected timing
of new product introductions by us and our competitors. The resulting net cash
flows from such projects were based on management's estimates of cost of sales,
operating expenses and income taxes from such projects.

     Aggregate revenue for the developmental EquipMD products was estimated to
grow at a compounded annual growth rate of approximately 100% for the five years
following introduction, assuming the successful completion and market acceptance
of the major research and development programs. The estimated revenue for the
in-process projects was expected to peak within three years of acquisition and
then decline sharply as other new projects and technologies were expected to
enter the market.

     The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. Due to the nature of the
forecast and the risks associated with the projected growth and profitability of
the developmental projects, a discount rate of 35% was considered appropriate
for the in-process research and development. These discount rates were
commensurate with EquipMD's stage of development and the uncertainties in the
economic estimates described above.

     If these projects are not successfully developed, our sales and ability to
achieve profitability may be adversely affected in future periods. Additionally,
the value of other acquired intangible assets may become impaired.

     The estimates used by us in valuing in-process research and development
relating to the Pharos and EquipMD acquisitions were based upon assumptions we
believe to be reasonable, but which are inherently uncertain and unpredictable.
Our assumptions may be incomplete or inaccurate, and no assurance can be given
that unanticipated events and circumstances will not occur. Accordingly, actual
results may vary from the projected results. Any such variance may result in a
material adverse effect on our financial condition and results of operations.

     In July 2000, we acquired some of the assets of National Content
Liquidators, Inc., or NCL, an asset management company focused on healthcare
facility liquidations and the resale of used medical products. The acquisition
was accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to the intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
The total purchase price of approximately $3.2 million consisted of
approximately 300,000 shares of common stock valued at $2.2 million, $500,000 in
cash and $500,000 in notes payable to the principals of NCL. In the initial
allocation of the purchase price, the full $3.2 million was allocated to
goodwill as there were no material tangible assets acquired. The goodwill is
being amortized over an estimate useful life of seven years.

     On March 30, 2000, we entered into agreements to acquire Eclipsys
Corporation and HEALTHvision, Inc., entered into an outsourcing and operating
agreement with Novation and entered into agreements to issue our common stock
and warrants to the owners of Novation.

     On May 25, 2000, we mutually agreed to terminate the proposed mergers
announced on March 30, 2000. Instead, we entered into a strategic commercial
relationship with Eclipsys and HEALTHvision that includes a co-marketing and
distribution arrangement between us and HEALTHvision. The arrangement includes
the use of Eclipsys' eWebIT(TM) enterprise application integration technology
and professional services to enhance the integration of legacy applications with
our e-commerce platform. In addition, we modified the structure and terms of our
stock and warrant transactions with VHA and UHC.

     As a result of the termination of the mergers, a number of costs which we
had capitalized as incurred during the due diligence and acquisition process,
including investment banker fees, legal advisory fees and financial and
accounting fees, no longer had any realizable future value. As a result, we
wrote off approximately $2.7 million of these costs in the third quarter of
2000. These costs are reflected in our consolidated statement of operations as
Abandoned Acquisition Costs.

     Under the terms of the modified Novation agreements, which were approved by
our stockholders on July 26, 2000, VHA received approximately 46.3 million
shares of our common stock, representing approximately 36% of our then
outstanding common stock, and UHC received approximately 11.3 million

                                        29
<PAGE>   30

shares, representing approximately 9% of our then outstanding common stock. We
also issued warrants to VHA and UHC, allowing VHA and UHC the opportunity to
earn up to approximately 30.8 million and approximately 7.5 million additional
shares of our common stock, respectively, over a four-year period by meeting
specified performance targets. These targets are based upon the historical
purchasing volume of VHA and UHC member healthcare organizations that sign up to
use Marketplace@Novation. The targets increase annually to a level equivalent to
total healthcare organizations representing approximately $22 billion of
combined purchasing volume at the end of the fourth year.

     Under our outsourcing and operating agreement with Novation, we have agreed
to provide specific functionality to Marketplace@Novation, the online
marketplace only available to the patrons and members of VHA, UHC and HPPI.
Novation has agreed to act as our exclusive agent to negotiate agreements with
suppliers to offer their equipment, products, supplies and services through our
marketplaces, subject to some exceptions. VHA, UHC, HPPI and Novation have each
agreed not to develop or promote any other Internet-based exchange for the
acquisition or disposal of products, supplies, equipment or services by
healthcare organizations.

     On October 18, 2000, we and VHA agreed to amend our common stock and
warrant agreement to provide for the cancellation of the performance warrant to
purchase approximately 30.8 million shares of our common stock. In substitution
for the warrant, we issued to VHA approximately 30.8 million shares of our
restricted common stock. On January 25, 2001, we and UHC agreed to amend our
common stock and warrant agreement to provide for the cancellation of the
remaining unexercised portion of the performance warrant to purchase
approximately 5.6 million shares of our common stock. In substitution for the
warrant, we issued to UHC approximately 5.6 million shares of our restricted
common stock. Both VHA's and UHC's restricted shares are subject to forfeiture
if the same performance targets that were contained in their original warrants
are not met.

     On January 25, 2001, we entered into an amendment to the outsourcing and
operating agreement which we had originally entered into with Novation, VHA, UHC
and HPPI on May 25, 2000. Under the terms of the amended outsourcing and
operating agreement, which was effective January 1, 2001, Novation agreed to
guarantee a minimum fee level to us, which is directly derived from the gross
transaction volume processed through Marketplace@Novation. The amended
outsourcing and operating agreement also includes modifications to revenue
sharing provisions under which we will share specified fees we receive for
products and services sold through or related to our marketplaces. We will share
with Novation revenue related to transactions through Marketplace@Novation and
from our other marketplaces, revenue related to our Shop and Auction services
and revenue related to the distribution or licensing of software and other
technology solutions. We will not share revenue related to marketplaces
sponsored by other GPOs, except for specified types of purchases. For the term
of the agreement, we will not share with Novation revenue related to any of the
above transactions in any quarter until we have achieved specified minimum
transaction fees related to Marketplace@Novation transactions. The amended
outsourcing and operating agreement also includes modifications to certain
supplier recruitment and supplier implementation provisions of the original
agreement.

     On January 25, 2001, we entered into stock purchase agreements with i2, VHA
and UHC under which they purchased a total of approximately 18.0 million shares
of our common stock at a purchase price of $1.69 per share. We raised a total of
approximately $30.5 million prior to costs associated with the sale of the
shares, which are estimated at approximately $1.5 million, including an advisory
fee to our investment bankers. After the closing of the financing, VHA and UHC
owned approximately 48.8% and 12.1%, respectively, of our total shares of
outstanding common stock, assuming exercise of all outstanding stock options and
warrants to purchase our common stock.

     As a result of our transaction with Novation and acquisition of EquipMD, in
May 2000 we streamlined our operations to focus on our key global markets, IDNs
and hospitals, and physician practices. The restructuring involved both changes
in executive management and our organizational structure, as well as a reduction
in force of approximately 80 individuals in functions largely duplicated or
unnecessary as a result of both the outsourcing and operating agreement and the
restructuring. The resulting restructuring charge of

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approximately $2.1 million consisted almost entirely of accrued severance and
other employee related costs. As of December 31, 2000, the accrual had been
fully utilized and there was no remaining balance.

     In the fourth quarter of 2000, management, working with our board of
directors, finalized a plan to refocus our operations on building and operating
private Internet marketplaces that empower our healthcare trading partners to
optimize supply chain performance. As part of this process, we announced our
intent to divest some of our operations that are no longer aligned with our core
strategy. The operations to be divested were USL, GAR and the assets acquired
from NCL. On April 2, 2001, we sold USL, part of our Plan operations, to MDSI.

     As a result of these planned divestitures, at December 31, 2000, we have
written down the assets of these operations to our estimate of the net
realizable disposal value of the operations based on their activity through
December 31, 2000. Additionally, we have recorded an accrual for the anticipated
costs to sell these operations. The total impact of these planned divestitures
on our statement of operations for the year ended December 31, 2000 was $14.4
million, which consisted of an approximately $13.3 million reduction in the net
realizable value of the assets relating to the operations to be sold, and $1.1
million of accruals for anticipated deal costs including any severance for the
employees of those operations, accrued rent relating to potentially idle
facilities, as well as financial and legal advisory fees. As of December 31,
2000, the full $1.1 million accrual was still unpaid.

     Since inception, we have incurred significant losses and, as of December
31, 2000, had an accumulated deficit of $264.9 million. We expect operating
losses and negative cash flow to continue for the coming fiscal year. We
anticipate our losses will increase significantly over the course of the coming
year despite a projected reduction in cash operating losses, due primarily to
amortization of non-cash costs associated with strategic partnerships.

     We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as the online market for the purchase and sale of new and used products and
services used by healthcare providers, including medical supplies and equipment.
To address these risks, we must, among other things, increase the number of
custom marketplaces we build and operate, expand the number of trading partners
that use our marketplaces, enter into new strategic alliances, increase the
functionality of our services, implement and successfully execute our business
and marketing strategy, respond to competitive developments and attract, retain
and motivate qualified personnel. We may not be successful in addressing these
risks, and our failure to do so could seriously harm our business. Further, our
inability to address these risks could necessitate a reduction in our operations
relating to any of our acquired businesses. Such a reduction could potentially
result in an impairment of the intangible assets associated with those
businesses, and any such impairment could result in our being required to write
down, or even write-off the related intangible assets. Given the volume of
intangible assets the company has associated with its acquired businesses, it is
possible that such a write off could be significant.

RESULTS OF OPERATIONS

  YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO YEAR ENDED DECEMBER 31, 2000

  Revenue

     Sales of Equipment. Sales of equipment consists of the gross revenue
generated from the sales of used and refurbished medical equipment owned by us
in connection with our Auction service. We had total revenue from sales of
equipment of $4.6 million for the year ended December 31, 2000, as compared to
none in the year ended December 31, 1999. The increase from 1999 is a result of
the fact that Auction activity for periods prior to fiscal 2000 consisted solely
of sales of consigned medical equipment, which we did not own. As a result,
revenue related to consigned equipment is recognized, net of settlement costs,
as transaction fees. In fiscal 2000, as part of our acquisition of some of the
assets of NCL, the Auction service expanded the scope of its operations to
include hospital liquidations in which we purchased and took title to the used
equipment of a hospital being liquidated in order to sell that equipment through
the Auction channel. The sales of equipment
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in fiscal 2000 related to these used equipment and supplies. As we take title
and risk of loss on the equipment, the revenue is reported at the gross sales
value, with the related costs being reflected in the cost of equipment sold line
in our income statement. If we succeed in selling our Auction operations, we
will no longer recognize any future revenue from sales of equipment.

     Transaction Fees. Transaction fees consist of transaction fees paid by
sellers for purchases through our marketplaces in Shop as well as buyer and
seller fees paid on consigned used equipment and supplies as part of our live
and online Auction services. We had total transaction fee revenue of $2.3
million for the year ended December 31, 2000, an increase of 145% from $929,000
for the year ended December 31, 1999. The increase is due primarily to an
increase in Shop transaction fees to $1.3 million in 2000 from $75,000 in 1999,
in addition to a 58% increase in Auction transaction fees to $1.3 million in
2000. If we succeed in selling our Auction operations, we will no longer
recognize revenues from Auction transaction fees.

     Services. Services revenue consists primarily of e-commerce readiness
services and implementation and integration services performed by our Services
Delivery organization for trading partners to allow them to maximize the benefit
of their utilization of our marketplaces. The Services Delivery group commenced
activities during fiscal 2000, and, as a result, there was no activity or costs
associated with this group in fiscal 1999. During the year ended December 31,
2000, services revenue was $1.0 million, and related solely to e-commerce
readiness and implementation services performed for one customer.

     Website Sponsorship Fees and Other. Website sponsorship fees and other
revenue consists of sponsorship setup and maintenance revenue, as well as
software license and support revenue, both relating to our Plan service. Also
included in website sponsorship fees and other are subscription revenue relating
to the USL operations and setup fees relating to the digitization and
categorization of data relating to the Shop service. Website sponsorship fees
and other revenue increased to $2.6 million in fiscal 2000 from $75,000 in
fiscal 1999. The increase in fiscal 2000 was due primarily to subscription
revenue relating to the USL operations of $1.1 million, as well as sponsorship
revenue of $467,000. No revenue was generated from either source in fiscal 1999,
as USL was not acquired until March 2000, and sponsorship sales did not commence
until early 2000. In addition, Shop setup fees increased to $264,000 for the
year ended December 31, 2000 from $15,000 for the year ended December 31, 1999.
Software license and maintenance revenue also increased to $650,000 in 2000 from
$5,000 in 1999. We expect website sponsorship fees and other revenue to decline
in 2001 as a result of our sale of USL to MDSI on April 2, 2001.

     Operations. Operations expenses consist primarily of expenditures for the
operation and maintenance of our website and our marketplace technology
infrastructure and for digitizing and inputting content. These expenditures
consist primarily of fees for independent contractors, technology costs and
software licenses and personnel expenses for our site operations personnel.
Operations expenses increased from approximately $5.9 million for the year ended
December 31, 1999 to $13.5 million for the year ended December 31, 2000. The
increase was primarily due to an increase in operations personnel costs, and an
increase in payments to third party consultants. These increases were primarily
due to hiring personnel and increased expenditures for digitizing and inputting
content and for additional technology costs such as software licenses and
hardware costs associated with the enhancement of the infrastructure of our
marketplaces. We expect our operations expenses to continue to increase as we
expand our operating infrastructure and add content and functionality to our
marketplaces.

     Product Development. Product development expenses consist primarily of
personnel expenses and consulting fees associated with the development and
enhancement of our marketplace services and functionality and technology costs
for software and hardware for development. Product development expenses
increased from $8.2 million for the year ended December 31, 1999 to $24.6
million for the year ended December 31, 2000. The increase was primarily due to
increased technology costs relating to software and hardware for development, as
well as from an increase in personnel costs, and an increase in fees paid to
contractors and consultants. These increases primarily relate to fees paid to
contractors and consultants as well as costs of additional personnel being hired
as part of the development of our Shop and Auction platforms and subsequent
development of our broader marketplace platforms. We believe that continued
investment in product development is critical to attaining our strategic
objectives and, as a result, expect product development

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expenses to continue to increase, although at much slower rates, in future
periods. We expense product development costs as they are incurred.

     Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, commissions, advertising, promotions and related marketing costs.
Selling and marketing expenses increased from approximately $16.9 million for
the year ended December 31, 1999 to $53.2 million for the year ended December
31, 2000. The increase was primarily due to an increase in salaries and
commissions, an increase in expenses related to travel, an increase in expenses
related to advertising and attendance at trade shows and expenses incurred in
connection with our strategic alliance with Novation, VHA and UHC. These
increases were primarily due to significant expansion of our sales and marketing
efforts and the hiring of additional sales and marketing personnel. As part of
our plan to realign our resources to focus on our core business model, we will
be focusing the majority of our resources on product development and marketplace
implementation and integration efforts. As such, while we intend to continue to
invest in marketing activities and sell our marketplace services into the
channels we have established, we do not expect selling and marketing expenses to
continue to increase in the coming year.

     General and Administrative. General and administrative expenses consist of
expenses for executive and administrative personnel, facilities, professional
services and other general corporate activities. General and administrative
expenses increased from approximately $17.9 million for the year ended December
31, 1999 to $25.9 million for the year ended December 31, 2000. The increase was
primarily due to an increase in executive and administrative personnel costs
related to our chief executive officer, who was hired in mid-year 1999, and four
of our executive officers who were hired in 2000. These officers, as well as
additional finance, accounting and administrative personnel, were on hand for
all or most of 2000, but not for any or all of 1999. Additionally, we
experienced an increase in recruiting, legal and accounting expenses, primarily
related to our initial public offering and subsequent mergers and acquisitions
activity, and an increase in expenses related to other consultants, all of which
resulted from our growth in fiscal 2000. As a result of the streamlining we are
undertaking in focusing on our core strategy around our marketplaces, we expect
general and administrative expenses to decrease during the coming year as we
divest ourselves of operations that are not in line with our core strategy, and
the general and administrative costs associated with those operations.

     Amortization of Intangibles. Intangibles include goodwill and the value of
software and other intangibles purchased in acquisitions. Intangibles are
amortized on a straight-line basis over a period of three to seven years.
Amortization of intangibles increased to $25.7 million for the year ended
December 31, 2000 from $715,000 for the year ended December 31, 1999. The
increase was a result of a full year of amortization being taken for the
acquisition of GAR in August 1999 and FDI in November 1999, as well as the
additions of intangibles relating to our acquisitions of Pharos in January 2000,
USL in March 2000, EquipMD in March 2000 and some of the assets of NCL in July
2000. We expect that the amortization of intangibles will decrease in the coming
year as a significant portion of the intangibles relating to the operations we
intend to divest, specifically GAR and the assets acquired from NCL, as well as
the USL operations we have divested, will be eliminated as part of the
divestiture of those operations.

     Amortization of Partnership Costs. Amortization of partnership costs
represent the amortization of the capitalized valuation of consideration given
to strategic partners as part of entering into any operating relationship with
that partner. As of December 31, 2000, capitalized partnership costs represent
common stock, performance warrants and restricted common stock given to VHA and
UHC as part of our entering into an outsourcing and operating agreement with
those entities and with their purchasing organization, Novation, as well as
legal and accounting fees relating to the transaction. The value of the common
stock issued to VHA and UHC is being amortized over a five year estimated useful
life. The performance warrants and the restricted common stock are being valued,
and the related valuation is being capitalized, as they are earned. The
partnership costs relating to the performance warrants and the restricted common
stock are being amortized over the term of the agreement with the healthcare
organization which resulted in the shares being earned, which is generally two
to three years. For the year ended December 31, 2000, total amortization of
partnership costs was $30.5 million. As the outsourcing and operating agreement
did not close until July 2000, there was no amortization of partnership costs in
the year ended December 31, 1999. See Liquidity and

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Capital Resources for a further discussion of the outsourcing and operating
agreement and the related cash and accounting implications.

     Amortization of Deferred Compensation. Deferred compensation represents the
aggregate difference, at the date of grant, between the exercise price of stock
options and the estimated fair value for accounting purposes of the underlying
stock. Deferred compensation is amortized over the vesting period of the
underlying options, generally four years, based on an accelerated vesting
method. In connection with the grant of certain stock options to employees
during fiscal 1998, 1999 and 2000, we recorded deferred compensation of
approximately $65.2 million in total. In May 2000, we decreased deferred
compensation by approximately $5.1 million as a result of a reduction in
workforce related to restructuring activities. Additionally, during the
remainder of the year ended December 31, 2000, we recorded $3.4 million in
additional reductions of deferred compensation as a result of normal employee
attrition. We recorded amortization of deferred compensation of $25.3 million
during the year ended December 31, 2000.

     In connection with the assumption of certain stock options granted to
employees of EquipMD prior to the acquisition of EquipMD, we recorded deferred
compensation of approximately $23.1 million, representing the difference between
the estimated fair value of the common stock for accounting purposes and the
option exercise price of these options at the date of announcement of the
acquisition. This amount is presented as a reduction of stockholders' equity and
amortized over the vesting period of the applicable options using an accelerated
method of amortization. We recorded amortization of deferred compensation
related to these options of $9.0 million during the year ended December 31,
2000.

     The remaining deferred compensation of approximately $32.3 million at
December 31, 2000 will be amortized as follows: $18.6 million during fiscal
2001, $9.7 million during fiscal 2002, $3.6 million during fiscal 2003 and $0.4
million during fiscal 2004. The amortization expense relates to options awarded
to employees in all operating expense categories. The amount of deferred
compensation has been separately allocated to these categories in the
consolidated statement of operations. The amount of deferred compensation
expense to be recorded in future periods could continue to decrease if options
for which accrued but unvested compensation has been recorded are forfeited.

     Cost of Warrant Issued to Recruiter. For the year ended December 31, 1999,
we recorded $2.4 million related to the valuation of a warrant issued to an
executive search firm in connection with services rendered in the search for our
chief executive officer. No such costs were incurred in the year ended December
31, 2000.

     Other Income (Expense). Other income (expense) consists of interest and
other income and expense. Interest income for the year ended December 31, 2000
was $4.5 million compared to $659,000 for the year ended December 31, 1999. The
increase in interest income was due to an increase in our average net cash and
cash equivalents balance as a result of our issuance of preferred stock in
October 1999 and as a result of the proceeds from our initial public offering in
January 2000. Interest expense increased from $676,000 for the year ended
December 31, 1999 to $1.3 million for the year ended December 31, 2000,
primarily as a result of the interest associated with significantly higher
levels of leases and notes payable outstanding throughout the year ended
December 31, 2000. Other income for the year ended December 31, 2000 was
$88,000.

     Income Taxes. As of December 31, 2000, we had federal and state net
operating loss carryforwards of approximately $153.1 million and $105.7 million,
respectively, which will be available to reduce future taxable income. These net
operating loss carryforwards expire on various dates through 2020. A valuation
allowance has been recorded for the entire deferred tax asset as a result of
uncertainties regarding the realization of the asset due to our lack of earnings
history. Federal and state tax laws impose significant restrictions on the
amount of the net operating loss carryforwards that we may utilize in a given
year. See Note 15 of notes to consolidated financial statements.

  Year Ended December 31, 1998 as Compared to Year Ended December 31, 1999

     Revenue. For a significant portion of 1999, we were still in the
development stage and thus we had only limited revenue in that year. We had
total revenue of $1.0 million for the year ended December 31, 1999 primarily
from transaction fees paid by sellers of medical products using our live auction
service. We did not

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have any revenue for the year ended December 31, 1998. For the year ended
December 31, 1999, the gross value of transactions was approximately $3.6
million, which resulted in net revenue for our Shop, Auction and Plan services
of $83,000, $916,000 and $5,000, respectively.

     Operations. Operations expenses consist primarily of expenditures for
digitizing and inputting content and for the operation and maintenance of our
website. These expenditures consist primarily of fees for independent
contractors and personnel expenses for our customer support and site operations
personnel. Operations expenses increased from approximately $627,000 for the
year ended December 31, 1998 to $5.9 million for the year ended December 31,
1999. The increase was primarily due to an increase in operations personnel
costs, including deferred compensation charges relating to stock options grants
to operations personnel, and an increase in payments to third party consultants.
These increases were primarily due to hiring personnel and increased
expenditures for digitizing and inputting content and for the enhancement of the
infrastructure of our website.

     Product Development. Product development expenses consist primarily of
personnel expenses and consulting fees associated with the development and
enhancement of our services and website. Product development expenses increased
from $1.5 million for the year ended December 31, 1998 to $8.2 million for the
year ended December 31, 1999. The increase was primarily due to an increase in
personnel costs, including amortization of deferred compensation relating to
stock option grants to product development personnel, and an increase in fees
paid to third parties. These increases were primarily due to hiring personnel
and increased expenses incurred during development of our Auction and Shop
services.

     Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, commissions, advertising, promotions and related marketing costs.
Selling and marketing expenses increased from approximately $1.4 million for the
year ended December 31, 1998 to $16.9 million for the year ended December 31,
1999. The increase was primarily due to an increase in sales and marketing
personnel costs, including amortization of deferred compensation relating to
stock option grants to sales and marketing personnel, an increase in expenses
related to travel, an increase in expenses related to advertising and attendance
at trade shows and expenses incurred in connection with our strategic alliances
with Superior Consultant and VerticalNet. These increases were primarily due to
significant expansion of our sales and marketing efforts and the hiring of
additional sales and marketing personnel.

     General and Administrative. General and administrative expenses consist of
expenses for executive and administrative personnel, facilities, professional
services and other general corporate activities. General and administrative
expenses increased from approximately $1.1 million for the year ended December
31, 1998 to $17.9 million for the year ended December 31, 1999. The increase was
primarily due to an increase in executive and administrative personnel costs
related to the hiring of our chief executive officer, our former chief financial
officer and additional finance, accounting and administrative personnel,
amortization of deferred compensation relating to stock option grants to general
and administrative personnel, an increase in recruiting, legal and accounting
and litigation settlement expenses, primarily as a result of the litigation
expenses with respect to the hiring of one of our executive officers, and an
increase in expenses related to other consultants, in each case associated with
our growth.

     Amortization of Intangibles. Intangibles include goodwill and the value of
software purchased in acquisitions. Intangibles are amortized on a straight-line
basis over a period of three to seven years. Amortization of intangibles
increased to $715,000 for the year ended December 31, 1999. The increase was a
result of the acquisition of GAR in August 1999 and FDI in November 1999.

     Cost of Warrant Issued to Recruiter. For the year ended December 31, 1999,
we recorded $2.4 million related to the valuation of a warrant issued to an
executive search firm in connection with services rendered in the search for our
chief executive officer.

     Other Income (Expense). Other income (expense) consists of interest and
other income and expense. Interest income for the year ended December 31, 1999
was $659,000 compared to $66,000 for the year ended December 31, 1998. The
increase in interest income was due to an increase in our average net cash and
cash equivalents balance as a result of our issuance of preferred stock in
February and October 1999. Interest

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expense increased from $22,000 for the year ended December 31, 1998 to $676,000
for the year ended December 31, 1999, primarily as a result of the amortization
of the fair value of a warrants issued in connection with debt. Other expense
for the year ended December 31, 1999 was $29,000.

     Income Taxes. As of December 31, 1999, we had federal and state net
operating loss carryforwards of approximately $31.5 million which will be
available to reduce future taxable income. The federal net operating loss
carryforwards expire beginning in 2013 through 2018. A valuation allowance has
been recorded for the entire deferred tax asset as a result of uncertainties
regarding the realization of the asset due to our lack of earnings history.
Federal and state tax laws impose significant restrictions on the amount of the
net operating loss carryforwards that we may utilize in a given year. See Note
15 of notes to consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

     In January 2000, we completed our initial public offering and issued
8,050,000 shares of our common stock at an initial public offering price of
$13.00 per share. Net cash proceeds to us from the initial public offering were
approximately $95.3 million. From our inception until our initial public
offering, we financed our operations primarily through private sales of
preferred stock through which we raised net proceeds of $88.5 million through
December 31, 1999. We have also financed our operations through an equipment
loan and lease financing and bank and other borrowings. As of December 31, 2000,
we had approximately $29.8 million of cash, cash equivalents and investments.

     In January 2001, we completed a $30.5 million private round of financing in
which we sold 18,047,388 shares of our common stock at $1.69 per share to three
strategic investors, i2, VHA and UHC. In April 2001, we entered into a $25
million revolving credit agreement with VHA. Under the credit agreement, until
May 31, 2002, we are able to borrow funds up to an amount based on a specified
formula dependent on the gross volume of transactions through
Marketplace@Novation. Any funds that we borrow under this credit agreement will
bear interest at a rate of 10% per annum and will be secured by substantially
all of our assets. In the event that we (1) sell any of our stock as part of an
equity financing, (2) obtain funding in connection with a debt financing or
other lending transaction that is either unsecured or subordinate to the lien of
VHA under the credit agreement or (3) enter into a debt financing or other
lending transaction secured by assets we owned as of the date we entered into
the credit agreement, then the maximum of $25 million we could potentially
borrow under the credit agreement will be reduced by an amount equal to the cash
proceeds we receive from any of these transactions.

     In September 1998, we entered into a $750,000 secured credit facility with
Silicon Valley Bank. This facility included a $225,000 term loan due December
1999 and an equipment loan facility providing for up to $525,000 of equipment
loans. In July 1999, we converted the $433,000 of outstanding equipment loans
into a term loan due July 2000. At December 31, 2000, there were no borrowings
outstanding under either the term loan or the equipment loan. In consideration
for this credit facility, we granted Silicon Valley Bank a warrant to purchase
45,000 shares of common stock at an exercise price of $0.77 per share. In
consideration for the conversion of our equipment loan to a term loan and the
release of its security interest in equipment, we granted Silicon Valley Bank a
warrant to purchase 10,000 shares of common stock at an exercise price of $1.18
per share.

     In May 1999, Comdisco provided us with a $2.0 million subordinated loan to
provide working capital. We agreed to pay Comdisco principal and interest at a
rate of 12.5% per annum in 36 equal monthly installments, commencing July 1999.
This loan is secured by all of our assets. In connection with this loan, we
issued Comdisco a warrant to purchase 228,813 shares of common stock at $1.18
per share. As of December 31, 2000, the outstanding balance on the note was
approximately $1.1 million.

     In July 1999, Comdisco provided us with a $2.5 million loan and lease
facility to finance computer hardware and software equipment. Amounts borrowed
to purchase hardware bear interest at a rate of 9% per annum and are payable in
48 monthly installments consisting of interest only payments for the first year
and principal and interest payments for the remaining 36 months, with a balloon
payment of the remaining principal payable at maturity. Amounts borrowed to
purchase software bear interest at a rate of 8% per annum
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<PAGE>   37

and are payable in 30 monthly installments consisting of interest only payments
for the first four months and principal and interest payments for the remaining
26 months, with a balloon payment of the remaining principal payable at
maturity. As of December 31, 2000, we had outstanding approximately $1.7 million
in loans under this facility payable through September 2003. This facility is
secured by the computer equipment purchased with the loans. In connection with
this facility, we issued Comdisco a warrant to purchase 137,711 shares of common
stock at $1.18 per share.

     In August 1999, as a result of the GAR acquisition, we issued a promissory
note in the principal amount of $7.8 million payable monthly over five years
bearing interest at a rate of 7% per annum. As of December 31, 2000, the
outstanding balance on the note was approximately $5.1 million.

     In May 1999, we entered into an agreement with ECRI, a non-profit health
services research agency focusing on healthcare technology. The agreement
provides us with content from ECRI's database of information about medical
products and manufacturers and a license to use elements of its classification
system. In addition, the agreement provides for joint marketing activities and
collaboration in the development of Plan's database of product and vendor
information. This agreement requires us to make revenue sharing payments to ECRI
during the three-year term of the agreement and for two years following
expiration or termination of the agreement based on a percentage of revenue
derived from our Plan service. During the second and third years of the term of
the agreement, we are required to pay to ECRI a minimum nonrefundable fee equal
to $600,000 per year, which shall be credited against any revenue sharing
payments payable to ECRI. As of December 31, 2000, we had paid ECRI $350,000
under the terms of this agreement. We are currently in discussions with ECRI to
modify this agreement as a result of our reduced focus on our Plan service.

     In October 1999, we entered into an agreement with Superior Consultant
Company, Inc., a wholly owned subsidiary of Superior Consultant Holdings
Corporation, providing for collaboration between us and Superior. Superior is a
supplier of Digital Business Transformation(TM) services to large healthcare
organizations, including Internet-related services, systems integration,
outsourcing and consulting, which enable Superior clients to utilize digital
technologies and process innovations to improve their businesses. Under the
agreement, we have agreed to market Superior's services to our users, and
Superior has agreed to introduce our services to appropriate clients, based on
their interests, and to incorporate our services into its Digital Business
Transformation(TM) offerings. The agreement also provides for joint marketing
activities. In consideration, we agreed to make payments to Superior in an
aggregate amount of up to approximately $2.0 million, as well as a percentage of
specified Neoforma e-commerce transaction revenue and potential fixed payments
based on the success of our joint marketing activities. We also agreed to
utilize Superior's services on a preferred basis for systems integration,
development, infrastructure, process improvement and consulting assistance,
totaling at least $1.5 million of services from Superior, at a discount from
Superior's standard fees. Our agreement with Superior expires in October 2002.
As of December 31, 2000, we had paid Superior $1.7 million under the terms of
this agreement.

     In October 1999, we entered into an agreement with Dell Marketing, L.P.
under which we agreed to develop complementary marketing programs with Dell and
establish hyperlinks between our respective websites. We agreed to use Dell as
our exclusive supplier of desktops, portables, workstations, servers and storage
devices unless such products did not meet our reasonable technical requirements.
We also agreed to purchase at least $5.0 million of Dell products under a
schedule to be mutually agreed upon by both parties and $100,000 of data center
consulting services. This agreement can be terminated by either party for any
reason with 30 days' prior written notice. As of December 31, 2000, we had
purchased $1.3 million in equipment from Dell.

     In November 1999, we entered into a co-branding agreement with VerticalNet,
Inc. Under the agreement, VerticalNet agreed to transfer to our website all
listings of new and used medical products offered for sale through its website
on an exclusive basis to the extent it has the right to do so, and we agreed to
transfer to VerticalNet all listings of used and excess laboratory products
offered for sale on our website on an exclusive basis to the extent we have the
right to do so. We also agreed to establish links between our respective
websites. In addition, VerticalNet agreed to develop and maintain a co-branded
career center and a

                                        37
<PAGE>   38

co-branded training and education center, and provide us with specified content
created for its medical online communities. VerticalNet also was granted the
non-exclusive right to sell sponsorships on our Plan service and the exclusive
right to sell advertising on the co-branded sites. We agreed to pay VerticalNet
$2,000,000 of development and promotional fees over the first two years of this
agreement. In February 2001, we entered into an amendment to this agreement
under which we were relieved of substantially all of our remaining obligations
to pay any development or promotional fees, and under which VerticalNet was
relieved of some obligations it had under the agreement, including the
exclusivity of their relationship with us in the healthcare vertical market.

     In December 1999, we purchased 526,250 shares of common stock of
CarePortal.com, LLC, formerly known as IntraMedix, LLC in exchange for $2.5
million. CarePortal is a company that provides procurement services related to
the distribution of geriatric care products to the nursing home community. We
accounted for this investment using the cost method. CarePortal is a related
party to GeriMedix, a supplier with which we had an agreement to perform
e-commerce services. On May 26, 2000, we issued a 30-day note receivable to
CarePortal in the amount of $1.0 million. Additionally, we invested an
additional $1.5 million in CarePortal in exchange for common stock. On August 8,
2000, we exercised our option to convert the promissory note into shares of
CarePortal common stock. In November 2000, we issued a 30-day note receivable to
CarePortal in the amount of $400,000. On December 31, 2000, we exercised our
option to convert the promissory note into shares of CarePortal common stock. As
of December 31, 2000, we owned approximately 9.6% of the total outstanding
common stock of CarePortal.

     In March 2000, we entered into a Hosting Alliance Agreement with Ariba,
Inc. under which we have the right to offer Ariba's ORMX procurement solution to
users of our marketplace. Under this agreement, we paid Ariba a substantial
up-front fee for use of the ORMX procurement solution and we agreed to pay Ariba
specified fees for transactions occurring through Ariba's network, subject to
minimum monthly amounts. The agreement also provides for joint marketing
activities and sales planning.

     In March 2000, we purchased 600,000 shares of the Series D preferred stock
of Pointshare, Inc. in exchange for $3.0 million. Pointshare is a company that
provides online business to business administrative services to healthcare
communities. Our ownership represented approximately 2% of the Pointshare common
shares outstanding, assuming a 1:1 conversion ratio of preferred stock to common
stock. We have accounted for this investment using the cost method.

     As part of the acquisition of EquipMD, we assumed the balance on an
unsecured line of credit. The maximum borrowings allowed under the agreement are
$300,000, of which none was available at December 31, 2000. Additionally, as
part of the purchase of EquipMD, we assumed a note payable in the amount of $1.8
million which is related to EquipMD's purchase of Central Point Services, LLC.
The note bears interest at a rate of 7.5% per annum and is payable in eight
quarterly installments, after which the unpaid principal balance and accrued
interest become due and payable through January 2002. At December 31, 2000, the
remaining principal balance was $1.5 million. According to the provisions of the
note, a payment of $250,000 was due upon a change of control of EquipMD. As a
result of our purchase of EquipMD, we made a $250,000 payment as a result of
this provision.

     In July 2000, in recognition of advisory services rendered in connection
with the terminated Eclipsys and Healthvision mergers, our outsourcing and
operating agreement and our acquisition of EquipMD, we entered into a promissory
note with Merrill Lynch, Pierce, Fenner & Smith Incorporated, our investment
bankers, in the amount of $6.0 million. The note was payable in quarterly
payments of $1.5 million, commencing on January 1, 2001. At December 31, 2000,
we had not made any payments under the note. In April 2001, we amended the terms
of the note such that of the remaining balance of $4.5 million, $2.0 million is
payable in April 2001, and the remaining $2.5 million is payable in May 2002.

     In July 2000, as part of the acquisition of some of the assets of NCL, we
issued a promissory note to each of the four principals of NCL in the amount of
$62,500 each. These notes are payable in 24 equal monthly installments with the
first payment due on August 15, 2000. As of December 31, 2000, the balance of
all four notes in total was $183,000. In addition, as part of the acquisition,
we also agreed to pay $250,000 on July 14, 2002, two years from the closing date
of the acquisition. This payment is to be distributed in equal amounts of
                                        38
<PAGE>   39

$62,500 to each of the four principals of NCL. As of December 31, 2000, no
payments have been made against this commitment.

     In December 2000, we entered into a three-year software license agreement
and a series of related agreements regarding maintenance, consulting and
services with i2 under which we will collaborate with i2 on product development,
marketing, sales and service activities. In connection with the license
agreement, we paid i2 a substantial upfront fee to license certain software for
use in our marketplaces. Pursuant to these agreements, we will share specified
revenues with i2 related to specified services and applications commencing
immediately, and on other marketplace related revenues commencing in fiscal
2002. Additionally, we will receive a revenue share from i2 under the agreements
for specified products and services sold in the healthcare vertical market.

     Net cash used in operating activities for the year ended December 31, 2000
was $62.5 million as compared to $25.8 million for the year ended December 31,
1999. Net cash used in operating activities related primarily to funding net
operating losses and increases in prepaid expenses and accounts receivable,
which were partially offset by increases in accrued expenses and accounts
payable.

     Net cash used in investing activities was $40.3 million for the year ended
December 31, 2000 as compared to $37.8 million for the year ended December 31,
1999. Net cash used in investing activities related primarily to the purchase of
equipment to operate our website and cash paid for the acquisitions of Pharos,
EquipMD, USL and the assets acquired from NCL, as well as our investments in
CarePortal and Pointshare.

     Net cash provided by financing activities was $100.1 million for the year
ended December 31, 2000 as compared to $88.0 million for the year ended December
31, 1999. Net cash provided from financing activities for the year ended
December 31, 1999 and 2000 related primarily to preferred stock issuances of
approximately $83.4 million in 1999, and the proceeds of $95.3 million generated
from our initial public offering of our common stock in January 2000.

     We currently anticipate that our available funds, consisting of cash, cash
equivalents and investments, combined with those funds available to us through
our lines of credit and other sources will be sufficient to meet our anticipated
needs for working capital and capital expenditures through at least the next 12
months. Our future long-term capital needs will depend significantly on the rate
of growth of our business, the timing of expanded service offerings, the success
of these services once they are launched and our ability to adjust our operating
expenses to an appropriate level if the growth rate of our business is slower
than expected. Any projections of future long-term cash needs and cash flows are
subject to substantial uncertainty. If our available funds and cash generated
from operations are insufficient to satisfy our long-term liquidity
requirements, we may seek to sell additional equity or debt securities, obtain
additional lines of credit, curtail expansion of our services including
reductions in our staffing levels and related expenses or potentially liquidate
selected assets. If we issue additional securities to raise funds, those
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our stockholders may experience dilution. We
cannot be certain that additional financing will be available to us on favorable
terms when required, or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," which amends SFAS No. 133 to be
effective for all fiscal years beginning after June 15, 2000. In June 2000, SFAS
No. 133 was amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which amended or modified certain
issues discussed in SFAS No. 133. SFAS No. 138 is also effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133 and SFAS No. 138 establish
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statements also require that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. The adoption of SFAS No. 133 and SFAS No. 138 did not have a
material impact on our financial statements.
                                        39
<PAGE>   40

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. We adopted SAB
101 as required in the fourth quarter of 2000, and as expected, adoption did not
have a material impact on our consolidated results of operations and financial
position.

                     QUARTERLY CONSOLIDATED FINANCIAL DATA
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                           FOR THE QUARTERS ENDED
                             ---------------------------------------------------
                             MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                               1999        1999         1999            1999
                             ---------   --------   -------------   ------------
                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                          <C>         <C>        <C>             <C>
Consolidated Statements of
  Operations Data:
Revenue:
  Sales of equipment.......   $    --    $    --      $     --        $     --
  Transaction fees.........        --         --           451             478
  Services.................        --         --            --              --
  Website sponsorship fees
    and other..............        --          7             6              62
                              -------    -------      --------        --------
        Total revenue......        --          7           457             540
Operating Expenses:
  Cost of equipment sold...        --         --            --              --
  Cost of services.........        --         --            --              --
  Operations...............       578        748         1,236           3,379
  Product development......     1,284      1,357         2,096           3,424
  Selling and marketing....       880      1,655         3,457          10,868
  General and
    administrative.........       611      1,054         8,334           7,938
  Amortization of
    intangibles............        --         --           230             485
  Amortization of
    partnership costs......        --         --            --              --
  Cost of warrant issued to
    recruiter..............        --         --         2,364              --
  Write off of acquired in-
    process research and
    development............        --         --            --              --
  Abandoned acquisition
    costs..................        --         --            --              --
  Restructuring............        --         --            --              --
  Costs of anticipated
    divestitures...........        --         --            --              --
                              -------    -------      --------        --------
        Loss from
          operations.......    (3,353)    (4,807)      (17,260)        (25,554)
Other Income (Expense):
  Interest income..........        48         80            45             486
  Interest expense.........       (16)       (79)         (242)           (339)
  Other income (expense)...        --         --           (30)              1
                              -------    -------      --------        --------
        Net loss...........   $(3,321)   $(4,806)     $(17,487)       $(25,406)
                              =======    =======      ========        ========
NET LOSS PER SHARE
  Basic and diluted........   $ (4.11)   $ (3.84)     $  (5.22)       $  (4.84)
                              =======    =======      ========        ========
  Weighted average shares--
    basic and diluted......       808      1,251         3,353           5,244
                              =======    =======      ========        ========
PRO FORMA NET LOSS PER
  SHARE
  Basic and diluted........   $ (0.15)   $ (0.17)     $  (0.57)       $  (0.58)
                              =======    =======      ========        ========
  Weighted average shares--
    basic and diluted......    22,829     28,372        30,474          43,453
                              =======    =======      ========        ========

<CAPTION>
                                           FOR THE QUARTERS ENDED
                             ---------------------------------------------------
                             MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                               2000        2000         2000            2000
                             ---------   --------   -------------   ------------
                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                          <C>         <C>        <C>             <C>
Consolidated Statements of
  Operations Data:
Revenue:
  Sales of equipment.......  $     76    $    491     $  2,738        $  1,324
  Transaction fees.........       801         440          633             399
  Services.................        --         458          485              16
  Website sponsorship fees
    and other..............       351         829          870             535
                             --------    --------     --------        --------
        Total revenue......     1,228       2,218        4,726           2,274
Operating Expenses:
  Cost of equipment sold...        22         142        2,398             982
  Cost of services.........        --         898        2,759           4,590
  Operations...............     3,714       3,377        3,169           3,257
  Product development......     6,131       6,127        6,403           5,938
  Selling and marketing....    12,153      17,041       12,750          11,272
  General and
    administrative.........     8,161       7,393        5,276           5,092
  Amortization of
    intangibles............     1,311       8,086        8,149           8,154
  Amortization of
    partnership costs......        --          --       11,958          18,533
  Cost of warrant issued to
    recruiter..............        --          --           --              --
  Write off of acquired in-
    process research and
    development............     3,000      15,000           --              --
  Abandoned acquisition
    costs..................        --       2,742           --              --
  Restructuring............        --       2,100           --              --
  Costs of anticipated
    divestitures...........        --          --           --          14,446
                             --------    --------     --------        --------
        Loss from
          operations.......   (33,264)    (60,688)     (48,136)        (69,990)
Other Income (Expense):
  Interest income..........     1,508       1,458          938             560
  Interest expense.........      (221)       (330)        (345)           (393)
  Other income (expense)...        --          --           21              67
                             --------    --------     --------        --------
        Net loss...........  $(31,977)   $(59,560)    $(47,522)       $(69,756)
                             ========    ========     ========        ========
NET LOSS PER SHARE
  Basic and diluted........  $  (0.77)   $  (1.02)    $  (0.46)       $  (0.53)
                             ========    ========     ========        ========
  Weighted average shares--
    basic and diluted......    41,520      58,219      103,919         132,134
                             ========    ========     ========        ========
PRO FORMA NET LOSS PER
  SHARE
  Basic and diluted........  $  (0.61)   $  (1.02)    $  (0.46)       $  (0.53)
                             ========    ========     ========        ========
  Weighted average shares--
    basic and diluted......    52,067      58,219      103,919         132,134
                             ========    ========     ========        ========
</TABLE>

                                        40
<PAGE>   41

                FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

     The risks described below are not the only ones we face. Additional risks
not presently known to us or that we currently deem immaterial may also impair
our business operations. Our business, financial condition or results of
operations may be seriously harmed by any of these risks.

BECAUSE WE HAVE RECENTLY DECIDED TO REFOCUS OUR DEVELOPMENT EFFORTS AND INTERNAL
RESOURCES TO BUILDING AND OPERATING INTERNET MARKETPLACES AND BECAUSE WE OPERATE
IN A NEW AND RAPIDLY EVOLVING MARKET, YOU MAY HAVE DIFFICULTY ASSESSING OUR
BUSINESS AND OUR FUTURE PROSPECTS

     We incorporated in March 1996. Prior to May 1999, our operations consisted
primarily of the initial planning and development of our public marketplace and
the building of our operating infrastructure. We introduced our Shop and Auction
services in mid-1999, and as a result, we have generated revenues of only $11.5
million from our inception through December 31, 2000. In late 2000, we decided
to refocus our development efforts and internal resources to our core business
of building and operating Internet marketplaces for our trading partners.
Because we have refocused our business efforts in this manner, it is difficult
to evaluate our business and our future prospects. For example, it is difficult
to predict whether we will succeed in increasing the number of marketplaces that
we operate, the number of trading partners that utilize our marketplaces or the
revenue we will derive from our marketplaces. Our business will be seriously
harmed, and may fail entirely, if we do not successfully execute our business
strategy or if we do not successfully address the risks we face. In addition,
due to our limited operating history, we believe that period-to-period
comparisons of our revenue and results of operations are not meaningful.

WE HAVE A HISTORY OF LOSSES, NO SIGNIFICANT REVENUE AND ANTICIPATE INCURRING
LOSSES IN THE FORESEEABLE FUTURE AND MAY NEVER ACHIEVE PROFITABILITY

     We have experienced losses from operations in each period since our
inception, including a net loss of $208.8 million for the year ended December
31, 2000. In addition, as of December 31, 2000, we had an accumulated deficit of
approximately $264.9 million. We have not achieved profitability, and we expect
to continue to incur substantial operating losses through at least 2001,
primarily as a result of increases in costs and expenses relating to executing
on our strategy of building and operating Internet marketplaces for our trading
partners. To achieve positive cash flow from operations by the first quarter of
2002, we must reduce our operating expenses and generate significantly increased
revenue from our marketplaces. We have taken measures to reduce our operating
expenses by reducing headcount through our restructuring in May 2000 and
divestiture of USL in April 2001, and intend to further reduce operating
expenses by divesting our Auction operations, including GAR and the assets
acquired from NCL. If our revenue does not increase substantially or if we do
not succeed in reducing expenses to the degree we expect, we will not achieve
positive cash flow from operations by the first quarter of 2002, and we may
never become profitable.

OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT, AND IF WE FAIL TO
MEET THE EXPECTATIONS OF INVESTORS OR SECURITIES ANALYSTS, THE MARKET PRICE OF
OUR COMMON STOCK WOULD LIKELY CONTINUE TO DECLINE

     Our revenue and operating results are likely to fluctuate significantly
from quarter to quarter, due to a number of factors. These factors include:

     - the amount and timing of payments to our strategic partners and
       technology partners;

     - the timing and size of future acquisitions;

     - the timing of and expenses incurred in building and operating new
       marketplaces;

     - the number of new trading partners that sign up to use our marketplaces
       and our ability to connect them to our marketplaces;

     - changes in the fees we charge users of our services;

     - budgetary fluctuations of purchasers of medical products, supplies and
       equipment; and

     - changes in general economic and market conditions.

                                        41
<PAGE>   42

     Fluctuations in our operating results may cause us to fail to meet the
expectations of investors or securities analysts. If this were to happen, the
market price of our common stock would likely continue to decline.

     In addition, as a result of our limited operating history, the emerging
nature of our market and the evolving nature of our business model, we have been
unable to accurately forecast our revenue. We incur expenses based predominantly
on operating plans and estimates of future revenue. Our expenses are to a large
extent fixed. We may be unable to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfalls. Accordingly, a failure to meet
our revenue projections would have an immediate and negative impact on operating
results.

IF OUR TRADING PARTNERS DO NOT ACCEPT OUR BUSINESS MODEL OF PROVIDING ONLINE
MARKETPLACES FOR THE PURCHASE AND SALE OF PRODUCTS AND SERVICES USED BY
HEALTHCARE PROVIDERS, DEMAND FOR OUR SERVICES MAY NOT DEVELOP AND THE PRICE OF
OUR COMMON STOCK MAY CONTINUE TO DECLINE

     We have recently refocused our efforts on building and operating Internet
marketplaces that aggregate buyers and suppliers of products and services used
by healthcare providers, including medical supplies and equipment. This business
model is new and unproven and depends upon buyers and sellers in this market
adopting a new way to purchase and sell products and services. If buyers and
sellers of products and services used by healthcare providers do not accept our
business model, demand for our services may not develop and the price of our
common stock would decline. Buyers and suppliers could be reluctant to accept
our relatively new and unproven approach, which involves new technologies and
may not be consistent with their existing internal organization and procurement
processes. Buyers and suppliers may prefer to use traditional methods of buying
and selling products and services, such as using paper catalogs and interacting
in person or by phone with representatives of manufacturers or distributors. In
addition, many of the individuals responsible for purchasing products and
services do not have ready access to the Internet and may be unwilling to use
the Internet to purchase products and services. Even if buyers and suppliers
accept the Internet as a means of buying and selling products, they may not
accept our online marketplaces for conducting this type of business. Instead,
they may choose to establish and operate their own websites to buy or sell
products and services. For example, a group of large suppliers of medical
products, including Johnson & Johnson, General Electric Medical Systems, Abbott
Laboratories and Medtronic, have created a healthcare exchange for the purchase
and sale of medical products. In addition, four large distributors of medical
products, AmeriSource Health Corp., Cardinal Health Inc., Fischer Scientific
International Inc. and McKesson HBOC, Inc., have formed a business-to-business
exchange for the sales of drugs and medical-surgical products, devices and other
laboratory products and services. Reluctance of buyers and suppliers to use our
marketplaces would seriously harm our business.

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS, WE
MAY BE UNABLE TO DEVELOP NEW ONLINE MARKETPLACES OR ENHANCE THE FUNCTIONALITY OF
OUR EXISTING MARKETPLACES, EXPAND OUR OPERATIONS, RESPOND TO COMPETITIVE
PRESSURES OR CONTINUE OUR OPERATIONS

     We currently anticipate that the $29.8 million of cash, cash equivalents
and investments we had as of December 31, 2000, together with the proceeds from
the sale of our common stock to VHA, UHC and i2 in January 2001 and our lines of
credit, will be sufficient to meet our anticipated needs for working capital and
capital expenditures for at least the next 12 months. We may need to raise
additional funds prior to the expiration of this period if, for example, we do
not generate significantly increased revenue from our online marketplaces,
experience operating losses that exceed our current expectations or pursue
additional acquisitions. We believe that it would be difficult to obtain
additional financing on favorable terms, if at all. We may try to obtain
additional financing by issuing shares of our common stock, which could dilute
our existing stockholders. If we cannot raise needed funds on acceptable terms,
or at all, we may not be able to develop new marketplaces or enhance our
existing online marketplaces, expand our operations, respond appropriately to
competitive pressures or continue our operations.

                                        42
<PAGE>   43

IF WE CANNOT QUICKLY BUILD A CRITICAL MASS OF BUYERS AND SUPPLIERS OF PRODUCTS
AND SERVICES USED BY HEALTHCARE PROVIDERS, WE MAY NOT ACHIEVE A NETWORK EFFECT
AND OUR BUSINESS MAY NOT SUCCEED

     To encourage suppliers to list their products and services on our online
marketplaces, we need to increase the number of buyers who use our marketplaces.
However, to encourage buyers to use our marketplaces, we must offer a broad
range of products from a large number of suppliers. If we are unable to quickly
build a critical mass of buyers and suppliers, we will not be able to benefit
from a network effect, where the value of our marketplaces to each participant
significantly increases with the addition of each new participant.

     We expect to rely in part on our relationships with Novation and Medbuy,
along with future strategic partners, to bring buyers and suppliers to our
marketplaces. Under our outsourcing and operating agreement with Novation,
Novation is our exclusive agent for signing up suppliers to participate in
Marketplace@Novation, subject to limited exceptions. Under our agreement with
Medbuy, Medbuy is our exclusive agent for signing up suppliers to participate in
Canadian Health Marketplace, subject to limited exceptions. Accordingly, we rely
in part on Novation and Medbuy to attract suppliers to our marketplaces and, if
they are unable to attract a sufficient number of suppliers, the value of our
online marketplaces to buyers will be substantially decreased and our business
will suffer. In addition, although our agreements with Novation and Medbuy,
respectively, provide that Novation and Medbuy will exclusively offer
Marketplace@Novation and Canadian Health Marketplace, respectively, to the
healthcare organizations participating in their purchasing programs, these
healthcare organizations are not obligated to use our marketplaces and may use
competing marketplaces or traditional procurement methods. Accordingly, these
buyers might not choose to use our marketplaces for their purchasing needs. If
this were to occur, the value of our marketplaces to suppliers would be
substantially decreased and our business will suffer.

     If the outsourcing and operating agreement were terminated by Novation, our
business and financial results could be seriously harmed. The outsourcing and
operating agreement may be terminated by Novation in the event of a material
breach of our obligations under the agreement or if the VHA and UHC stock
agreements are terminated. In addition, we will continue to incur significant
costs in providing functionality to our online marketplaces and in integrating
healthcare organizations and suppliers to our online marketplaces prior to
receiving related transaction fee revenue, and we may not generate sufficient
revenue to offset these costs.

IT IS IMPORTANT TO OUR SUCCESS THAT OUR MARKETPLACES BE USED BY LARGE HEALTHCARE
ORGANIZATIONS AND WE MAY NOT ACHIEVE MARKET ACCEPTANCE WITH THESE ORGANIZATIONS

     It is important to our success that our marketplaces be used by large
healthcare organizations, such as hospitals, IDNs and members of large GPOs. For
these large organizations to accept our marketplaces, we must integrate our
marketplaces with their information systems. For example, although 356
healthcare organizations have signed up to use Marketplace@Novation as of March
27, 2001, we had only completed implementations for 120 of these healthcare
organizations to connect them to Marketplace@Novation. We have not completed any
implementations of Medbuy healthcare organizations. In addition, we will need to
develop customer-specific pricing capabilities before these organizations can
use our services to purchase products covered by their negotiated agreements
with suppliers. Finally, we will need to significantly increase the number of
suppliers using our marketplaces to address the needs of these large
organizations, which typically require a wide range of products. If we are
unable to extend our capabilities and expand our registered user base as
described above, we may not provide an attractive alternative to these websites
or systems and may not achieve market acceptance by these large organizations.

     In addition, we believe that we must establish relationships with GPOs to
increase our access to these organizations. GPOs represent groups of buyers in
the negotiation of purchasing contracts with sellers and, consequently, have the
ability to significantly influence the purchasing decisions of their members.
Our relationships with Novation and Medbuy could make it more difficult to
attract other GPOs to our online marketplaces. The inability to enter into and
maintain favorable relationships with other GPOs and the hospitals they
represent could impact the breadth of our customer base and could harm our
growth and revenue. One of the largest GPOs, Premier Inc., has a long-term,
exclusive agreement for e-commerce

                                        43
<PAGE>   44

services with one of our competitors, medibuy.com, Inc. Medibuy also recently
acquired empactHealth.com, an online marketplace for medical products formed by
HCA-Healthcare Corp., a large owner and operator of hospitals and other
healthcare facilities. Ventro, a business-to-business e-commerce company
providing supply chain solutions, has formed a joint venture, Broadlane, with
Tenet Healthcare, a large owner and operator of hospitals and other healthcare
facilities.

IF WE DO NOT SUCCEED IN EXPANDING THE BREADTH OF THE PRODUCTS AND SERVICES
OFFERED THROUGH OUR ONLINE MARKETPLACES, SOME BUYERS OF PRODUCTS AND SERVICES
MAY CHOOSE NOT TO UTILIZE OUR MARKETPLACES WHICH WOULD LIMIT OUR POTENTIAL
MARKET SHARE

     The future success of our marketplaces depends upon our ability to offer
buyers a wide range of products and services. Large healthcare organizations
generally require a much broader range of products and services. To increase the
breadth of the products and services listed on our marketplaces, we have
recently established relationships with a number of suppliers, including Owens &
Minor, McKesson HBOC, Allegiance Healthcare, Kimberly Clark and Kodak, and we
must continue to establish relationships with additional suppliers and expand
the number and variety of products listed by existing suppliers. If we are
unable to maintain and expand the breadth of products and services listed on our
marketplaces, the attractiveness of our marketplaces to buyers will be
diminished, which would limit our potential market share.

     A number of factors could significantly reduce, or prevent us from
increasing, the number of suppliers and products offered on our online
marketplaces, including:

     - reluctance of suppliers to offer products in an online marketplace that
       potentially includes their competitors;

     - the fees charged to suppliers;

     - the ability to easily compare suppliers' products to those of other
       suppliers;

     - exclusive or preferential arrangements signed by suppliers with our
       competitors;

     - potential inability of Novation and Medbuy to attract suppliers to our
       online marketplaces;

     - perceptions by suppliers that we give other suppliers preferred treatment
       on our online marketplaces; and

     - consolidation among suppliers, which we believe is currently occurring.

THE SUCCESS OF OUR BUSINESS DEPENDS ON THE PARTICIPANTS IN THE HEALTHCARE MARKET
FOR PRODUCTS AND SERVICES ACCEPTING THE INTERNET FOR DISTRIBUTION AND
PROCUREMENT

     Business-to-business e-commerce is currently not a significant sector of
the healthcare market for products and services. The Internet may not be adopted
by buyers and suppliers in the healthcare market for products and services for
many reasons, including:

     - reluctance by the healthcare industry to adopt the technology necessary
       to engage in the online purchase and sale of products and services;

     - failure of the market to develop the necessary infrastructure for
       Internet-based communications, such as wide-spread Internet access,
       high-speed modems, high-speed communication lines and computer
       availability;

     - their comfort with existing purchasing habits, such as ordering through
       paper-based catalogs and representatives of manufacturers and
       distributors;

     - their concern with respect to security and confidentiality; and

     - their investment in existing purchasing and distribution methods and the
       costs required to switch methods.

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<PAGE>   45

     Should healthcare providers and suppliers of products and services to
healthcare organizations choose not to utilize or accept the Internet as a means
of buying and selling products and services, our business model would not be
viable.

IF WE FAIL TO DEVELOP THE CAPABILITY TO INTEGRATE OUR MARKETPLACES WITH
ENTERPRISE SOFTWARE SYSTEMS OF BUYERS AND SUPPLIERS OF PRODUCTS AND SERVICES
USED BY HEALTHCARE ORGANIZATIONS AND TO ENABLE OUR MARKETPLACES TO SUPPORT
CUSTOMER-SPECIFIC PRICING, THESE ENTITIES MAY CHOOSE NOT TO UTILIZE OUR
MARKETPLACES, WHICH WOULD HARM OUR BUSINESS

     If we do not maintain and expand the functionality and reliability of our
marketplaces, buyers and suppliers of products may not use our marketplaces. We
believe that we must develop the capability to integrate our marketplaces with
enterprise software systems used by many suppliers of products and by many large
healthcare organizations, and to enable our marketplaces to support
customer-specific pricing. We may incur significant expenses to develop these
capabilities, and may not succeed in developing them in a timely manner. In
addition, developing the capability to integrate our marketplaces with
suppliers' and buyers' enterprise software systems will require the cooperation
of and collaboration with the companies that develop and market these systems.
Suppliers and buyers use a variety of different enterprise software systems
provided by third-party vendors or developed internally. This lack of uniformity
increases the difficulty and cost of developing the capability to integrate with
the systems of a large number of suppliers and buyers. Failure to provide these
capabilities would limit the efficiencies that our marketplaces provide, and may
deter many buyers and suppliers from using our marketplaces, particularly large
healthcare organizations.

     To realize the benefits of our agreements with Novation and Medbuy, we will
be required to integrate the systems of the healthcare organizations purchasing
through Novation's and Medbuy's programs. For example, although 356 healthcare
organizations had signed up to use Marketplace@Novation as of March 27, 2001, we
had only completed implementations for 120 of these healthcare organizations to
connect them to Marketplace@Novation. We have not completed any implementations
of Medbuy healthcare organizations. If the costs required to integrate these
systems are substantially higher than anticipated, we may not realize the full
benefit of these agreements.

     If we are delayed or unable to integrate the systems of these
organizations, our revenue would be adversely affected. In addition, under the
Novation and Medbuy agreements, we must meet detailed functionality and service
level requirements. In our agreement with Novation, if we are unable to achieve
these required levels of functionality within the required time period, we may
be required to pay significant liquidated damages or the agreement could be
terminated, which would seriously harm our business and financial results. To
the extent we are unable to or delayed in providing this functionality, we may
be unable to attract buyers and sellers to our marketplaces and our revenue may
be adversely affected. We will be required to incur significant costs in
providing functionality to our online marketplaces and in integrating buyers and
suppliers to our online marketplaces prior to receiving any transaction fee
revenue, and we may never generate sufficient revenue to offset these costs.

IF OUR SYSTEMS ARE UNABLE TO PROVIDE ACCEPTABLE PERFORMANCE AS THE USE OF OUR
MARKETPLACES INCREASES, WE COULD LOSE TRADING PARTNERS THAT USE OUR
MARKETPLACES, AND WE WOULD HAVE TO SPEND CAPITAL TO EXPAND AND ADAPT OUR NETWORK
INFRASTRUCTURE, EITHER OF WHICH COULD HARM OUR BUSINESS AND RESULTS OF
OPERATIONS

     We have processed a limited number and variety of transactions on our
marketplaces compared to the number and variety we expect to process in the
future. Our systems may not accommodate increased use while providing acceptable
overall performance. We must continue to expand and adapt our network
infrastructure to accommodate additional trading partners and increased
transaction volumes. This expansion and adaptation will be expensive and will
divert our attention from other activities. If our systems do not continue to
provide acceptable performance as use of our marketplaces increases, our
reputation may be damaged and we may lose trading partners that use our
marketplaces.

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<PAGE>   46

WE EXPECT THAT A SIGNIFICANT PORTION OF THE PRODUCTS AND SERVICES USED BY
HEALTHCARE PROVIDERS THAT ARE SOLD THROUGH OUR MARKETPLACES WILL COME FROM A
LIMITED NUMBER OF KEY MANUFACTURERS AND DISTRIBUTORS, AND THE LOSS OF A KEY
MANUFACTURER OR DISTRIBUTOR COULD RESULT IN A SIGNIFICANT REDUCTION IN THE
REVENUE WE GENERATE THROUGH THIS SERVICE

     Although to date we have generated only limited revenue from our
marketplaces, we expect that a significant portion of the products to be sold
through and revenue to be generated from our marketplaces will come from a
limited number of key manufacturers and distributors or as a result of purchases
made from these manufacturers and distributors. These parties are generally not
obligated to list any products on our marketplaces. If any of these key
manufacturers or distributors cease doing business with us or reduce the number
of products they list on our marketplaces, the revenue we generate through this
service could be significantly reduced. Our supplier agreements are nonexclusive
and, accordingly, these suppliers can sell their products, supplies and
equipment to buyers directly or through our competitors.

WE MAY CONTINUE TO MAKE NEW ACQUISITIONS, WHICH COULD HARM OUR PROFITABILITY,
PUT A STRAIN ON OUR RESOURCES OR CAUSE DILUTION TO OUR STOCKHOLDERS

     We have acquired technologies and other companies to expand our business
and the services we offer, and we may make similar acquisitions in the future.
See "Management's Discussion and Analysis of Financial Condition and Future
Operating Results -- Overview" for a summary of our recent acquisitions.
Integrating newly acquired organizations and technologies into our company could
be expensive, time consuming and may strain our resources. In addition, we may
lose current users of our marketplaces if any acquired companies have
relationships with competitors of our users. Consequently, we may not be
successful in integrating any acquired businesses or technologies and may not
achieve anticipated revenue and cost benefits. In addition, future acquisitions
could result in potentially dilutive issuances of equity securities or the
incurrence of debt, contingent liabilities or amortization expenses related to
goodwill and other intangible assets, any of which could harm our business. For
example, in connection with the acquisitions of GAR, FDI, Pharos, USL, EquipMD
and some assets of NCL, we recorded approximately $9.7 million, $3.3 million,
$19.5 million, $6.5 million, $125.2 million and $3.2 million of intangibles,
respectively, which will be amortized over a period of three to seven years. In
addition, in connection with our recent agreement with Novation, we recorded
approximately $339 million of capitalized partnership costs relating to stock
and warrants issued to VHA and UHC as part of the outsourcing and operating
agreement.

IF WE DO NOT TIMELY ADD PRODUCT INFORMATION TO OUR ONLINE MARKETPLACES OR IF
THAT INFORMATION IS NOT ACCURATE, OUR REPUTATION MAY BE HARMED AND WE MAY LOSE
USERS OF OUR MARKETPLACES

     Currently, we are responsible for entering product information into our
database and categorizing the information for search purposes. If we do not do
so in a timely manner, we will encounter difficulties in expanding our online
marketplaces. We currently have a backlog of products to be entered in our
system. We will not derive revenue from the sale of products by these suppliers
until the information is entered in our system. Timely entering of this
information in our database depends upon a number of factors, including the
format of the data provided to us by suppliers and our ability to accurately
enter the data in our product database, any of which could delay the actual
entering of the data. We use an independent company to assist us in digitizing
and inputting the data provided to us by suppliers, and we rely on this company
to accurately input the data. If this company fails to input data accurately,
our reputation could be damaged, and we could lose users of our marketplaces.

     Additionally, we must cross-reference our product information with
appropriate vendor and contract identifiers to ensure that we can properly track
the transactions we process. Failure to adequately develop this cross-reference
over time could impede our ability to grow our transaction volume and collect
fees from suppliers.

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<PAGE>   47

WE FACE SIGNIFICANT COMPETITION, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY, WE
MAY BE UNABLE TO MAINTAIN OR EXPAND THE BASE OF BUYERS AND SELLERS OF PRODUCTS
USING OUR MARKETPLACES AND WE MAY LOSE MARKET SHARE OR BE REQUIRED TO REDUCE
PRICES

     The healthcare supply chain market is new, rapidly evolving and highly
competitive. Our competitors are diverse and offer a variety of solutions
directed at various segments of the healthcare supply chain. Competitors
include:

        - e-commerce providers that currently have or have announced plans for
          online marketplaces targeted at the healthcare supply chain, including
          medibuy, Broadlane, MedAssets, MedChannel and Medpool;

        - healthcare exchanges that have been formed by suppliers, namely Global
          Health Exchange, which was founded by five healthcare manufacturers,
          Abbott Laboratories, Baxter International, General Electric Medical
          Systems, Johnson & Johnson and Medtronic, and HealthNexis, which was
          formed by four healthcare distributors, Amerisource, Cardinal Health,
          Fisher Scientific and McKesson HBOC;

        - suppliers that have created their own websites that offer e-commerce
          functions to their customers for the sale of their products and
          services;

        - enterprise resource application software vendors that offer solutions
          in the healthcare market, such as SAP, Oracle, PeopleSoft, Lawson and
          McKesson HBOC;

        - vendors establishing electronic marketplaces and procurement
          capabilities, including Ariba and Commerce One; and

        - supply chain software vendors, including Manugistics and Logility.

     We believe that companies in our market compete to provide services to
suppliers based on:

        - brand recognition;

        - number of buyers using their services and the volume of their
          purchases;

        - level of bias, or perceived bias, towards particular suppliers;

        - existing relationships;

        - compatibility with suppliers' existing distribution methods;

        - the amount of the fees charged to suppliers;

        - functionality, ease of use and convenience;

        - ability to integrate their services with suppliers' existing systems
          and software; and

        - quality and reliability of their services.

     In addition, we believe that companies in our market compete to provide
services to buyers based on:

        - brand recognition;

        - breadth, depth and quality of product offerings;

        - ease of use and convenience;

        - number of suppliers available through their marketplace;

        - ability to integrate their services with buyers' existing systems and
          software;

        - quality and reliability of their services; and

        - customer service.

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<PAGE>   48

     Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:

        - enter into strategic or commercial relationships with larger, more
          established healthcare, medical products and Internet companies;

        - secure services and products from suppliers on more favorable terms;

        - devote greater resources to marketing and promotional campaigns;

        - secure exclusive arrangements with buyers that impede our sales; and

        - devote substantially more resources to website and systems
          development.

     Our current and potential competitors' services may achieve greater market
acceptance than ours. Our existing and potential competitors may have longer
operating histories in the healthcare supply chain market, greater name
recognition, larger customer bases or greater financial, technical and marketing
resources than we do. As a result of these factors, our competitors and
potential competitors may be able to respond more quickly to market forces,
undertake more extensive marketing campaigns for their brands and services and
make more attractive offers to buyers and suppliers, potential employees and
strategic partners. In addition, new technologies may increase competitive
pressures. We cannot be certain that we will be able to expand our buyer and
supplier base or retain our current buyers and suppliers. We may not be able to
compete successfully against our competitors, and competition could seriously
harm our revenue, gross margins and market share.

IF WE ARE UNABLE TO MAINTAIN OUR STRATEGIC ALLIANCES OR ENTER INTO NEW
ALLIANCES, WE MAY BE UNABLE TO INCREASE THE ATTRACTIVENESS OF OUR MARKETPLACES
OR PROVIDE SATISFACTORY SERVICES TO USERS OF OUR MARKETPLACES

     Our business strategy includes entering into strategic alliances with
leading technology and healthcare-related companies to increase the number of
marketplaces we build and operate, increase the number of trading partners that
utilize our marketplaces, increase the number and variety of products and
services that we offer and provide additional functionality, services and
content to our trading partners. We may not succeed in entering into new
strategic alliances, and even if we do succeed, we may not achieve our
objectives through these alliances. These agreements do not, and future
relationships may not, afford us any exclusive marketing or distribution rights.

     Many of these companies have multiple relationships and they may not regard
us as significant for their business. These companies may pursue relationships
with our competitors or develop or acquire services that compete with our
services. In addition, in many cases these companies may terminate these
relationships with little or no notice. If any existing alliance is terminated
or we are unable to enter into alliances with leading technology and
healthcare-related companies, we may be unable to increase the attractiveness of
our marketplaces or provide satisfactory services to buyers and suppliers of
products and services.

IF WE ARE NOT ABLE TO INCREASE RECOGNITION OF THE NEOFORMA BRAND NAME, OUR
ABILITY TO ATTRACT USERS TO OUR MARKETPLACES WILL BE LIMITED

     We believe that recognition and positive perception of the Neoforma brand
name in the healthcare industry are important to our success. We intend to
continue to invest in advertising and publicity efforts in the future. However,
we may not achieve our desired goal of increasing the awareness of the Neoforma
brand name. Even if recognition of our name increases, it may not lead to an
increase in the number of users of our marketplaces or an increase the number of
our trading partners.

IF PARTICIPATING SELLERS ON OUR MARKETPLACES DO NOT PROVIDE TIMELY AND
PROFESSIONAL DELIVERY OF PRODUCTS AND SERVICES, BUYERS MAY NOT CONTINUE USING
OUR MARKETPLACES

     Suppliers deliver the products and services sold through our marketplaces
to buyers. If these sellers fail to make delivery in a professional, safe and
timely manner, then our marketplaces will not meet the expectations

                                        48
<PAGE>   49

of buyers, and our reputation and brand will be damaged. In addition, deliveries
that are non-conforming, late or are not accompanied by information required by
applicable law or regulations could expose us to liability or result in
decreased adoption and use of our marketplaces.

IF SUPPLIERS DO NOT PROVIDE US WITH TIMELY, ACCURATE, COMPLETE AND CURRENT
INFORMATION ABOUT THEIR PRODUCTS AND COMPLY WITH GOVERNMENT REGULATIONS, WE MAY
BE EXPOSED TO LIABILITY OR THERE MAY BE A DECREASE IN THE ADOPTION AND USE OF
OUR MARKETPLACES

     If suppliers do not provide us in a timely manner with accurate, complete
and current information about the products they offer and promptly update this
information when it changes, our database will be less useful to buyers. We
cannot guarantee that the product information available from our marketplaces
will always be accurate, complete and current, or that it will comply with
governmental regulations. This could expose us to liability if this incorrect
information harms users of our services or result in decreased adoption and use
of our marketplaces. We also rely on suppliers using our marketplaces to comply
with all applicable governmental regulations, including packaging, labeling,
hazardous materials, health and environmental regulations and licensing and
record keeping requirements. Any failure of our suppliers to comply with
applicable regulations could expose us to civil or criminal liability or could
damage our reputation.

BECAUSE SOME OF THE PARTICIPANTS IN OUR MARKETPLACES ARE STOCKHOLDERS OR ARE
AFFILIATED WITH OUR STOCKHOLDERS OR HAVE STRATEGIC RELATIONSHIPS WITH US, WE MAY
FIND IT DIFFICULT TO ATTRACT COMPETING COMPANIES, WHICH COULD LIMIT THE BREADTH
OF PRODUCTS OFFERED ON AND USERS OF OUR MARKETPLACES

     Some participants in our marketplaces are our stockholders or are
affiliated with our stockholders or have strategic relationships with us. For
example, General Electric Medical Systems has agreed to conduct certain
activities with us, and an affiliate of General Electric Medical Systems owns
shares of our common stock. In addition, VHA and UHC, the owners of Novation,
own approximately 58.1 million and 16.5 million shares of our common stock,
respectively. In addition, VHA owns approximately 30.8 million shares of
restricted common stock and UHC owns approximately 5.6 million shares of
restricted common stock. These relationships may deter other suppliers, GPOs or
users, particularly those that compete directly with these participants, from
participating in our marketplaces due to perceptions of bias in favor of one
party over another. This could limit the array of products offered on our
marketplaces, damage our reputation and limit our ability to maintain or
increase the number of our trading partners.

WE MAY BE SUBJECT TO LITIGATION FOR DEFECTS IN PRODUCTS SUPPLIED BY SELLERS
USING OUR MARKETPLACES, AND THIS TYPE OF LITIGATION MAY BE COSTLY AND
TIME-CONSUMING TO DEFEND

     Because we facilitate the sale products by sellers using our marketplaces,
we may become subject to legal proceedings regarding defects in these products,
even though we generally do not take title to these products. Any claims, with
or without merit, could:

     - be time-consuming to defend;

     - result in costly litigation; or

     - divert management's attention and resources.

IF WE ARE UNABLE TO ATTRACT QUALIFIED PERSONNEL OR RETAIN OUR EXECUTIVE OFFICERS
AND OTHER KEY PERSONNEL, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN OUR
INDUSTRY

     Our success depends on our ability to attract and retain qualified,
experienced employees. Competition for qualified, experienced employees in both
the Internet and the healthcare industry, particularly in the San Francisco Bay
Area, is intense, and we may not be able to compete effectively to retain and
attract employees, especially in light of the decline in our stock price in the
last year which has decreased the value of the stock options held by our
employees. As a result, our employees may seek employment with larger, more
established companies or companies they perceive to have better prospects.
Should we fail to retain or attract qualified personnel, we may not be able to
compete successfully in our industry, and our business would be harmed.

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<PAGE>   50

     We believe that our ability to successfully execute our business strategy
will depend on the continued services of executive officers and other key
employees. Our executive employment agreements do not prevent these executives
from terminating their employment at any time. As a result, our employees,
including these executives, serve at-will and may elect to pursue other
opportunities at any time. The loss of any of our executive officers or other
key employees could harm our business.

OUR GROWTH AND ORGANIZATIONAL CHANGES HAVE PLACED A STRAIN ON OUR SYSTEMS AND
RESOURCES, AND IF WE FAIL TO SUCCESSFULLY MANAGE FUTURE GROWTH AND
ORGANIZATIONAL CHANGES, WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS EFFICIENTLY
AND MAY BE UNABLE TO EXECUTE OUR BUSINESS PLAN

     We have grown rapidly and will need to continue to grow our business to
execute our strategy. Our total number of employees grew from six as of December
31, 1997, to 59 as of December 31, 1998 and 269 as of December 31, 1999. In May
2000, we reduced the number of our employees from approximately 330 to
approximately 250. As of December 31, 2000, we had 251 employees. With the
divestiture of USL and the intended divestitures of our Auction operations,
including GAR and the assets acquired from NCL, we expect to reduce our
headcount by approximately 40 employees. These changes, and the growth in the
number of our trading partners and transaction volume through our marketplaces,
have placed significant demands on management as well as on our administrative,
operational and financial resources and controls. Any future growth would likely
cause similar, and perhaps increased, strain on our systems and controls.

OUR INFRASTRUCTURE AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED EVENTS, AND IF ANY OF THESE EVENTS OF A SIGNIFICANT MAGNITUDE WERE TO
OCCUR, THE EXTENT OF OUR LOSSES COULD EXCEED THE AMOUNT OF INSURANCE WE CARRY TO
COMPENSATE US FOR ANY LOSSES

     The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service and attract and
retain users of our services. Currently, our infrastructure and systems are
located at one site at Exodus Communications in Sunnyvale, California, which is
an area susceptible to earthquakes and currently experiencing an energy
shortage. We depend on our single-site infrastructure and any disruption to this
infrastructure resulting from a natural disaster, power outages or other event
could result in an interruption in our service, reduce the number of
transactions we are able to process and, if sustained or repeated, could impair
our reputation and the attractiveness of our services or prevent us from
providing our services entirely.

     Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan or alternative provider
of hosting services. In addition, we may not carry sufficient business
interruption insurance to compensate us for losses that could occur. Any failure
on our part to expand our system or Internet infrastructure to keep up with the
demands of our users, or any system failure that causes an interruption in
service or a decrease in responsiveness of our online services or website, could
result in fewer transactions and, if sustained or repeated, could impair our
reputation and the attractiveness of our marketplaces or prevent us from
providing our services entirely.

IF WE ARE UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF THE CONFIDENTIAL
INFORMATION OF THE TRADING PARTNERS THAT USE OUR MARKETPLACES, THESE USERS MAY
DISCONTINUE USING OUR MARKETPLACES

     A significant barrier to the widespread adoption of e-commerce is the
secure transmission of personally identifiable information of Internet users as
well as other confidential information over public networks. If any compromise
or breach of security were to occur, it could harm our reputation and expose us
to possible liability. We use SSL, or secure sockets layer, an Internet security
technology, at appropriate points in the transaction flow and encrypt
information on our servers to protect user information during transactions, and
we employ a security consulting firm that periodically tests our security
measures. Despite these efforts, a party may be able to circumvent our security
measures and could misappropriate proprietary information or cause interruptions
in our operations. We may be required to make significant expenditures to
protect against security breaches or to alleviate problems caused by any
breaches.

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<PAGE>   51

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITORS MAY GAIN
ACCESS TO OUR TECHNOLOGY, WHICH COULD HARM OUR BUSINESS

     We regard our intellectual property as critical to our success. If we are
unable to protect our intellectual property rights, our business would be
harmed. We rely on trademark, copyright and trade secret laws to protect our
proprietary rights. We have applied for registration of several marks including
Neoforma, Neoforma.com and associated logos. Our trademark registration
applications may not be approved or granted, or, if granted, may be successfully
challenged by others or invalidated through administrative process or
litigation.

WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY CLAIMS AND IF WE WERE TO SUBSEQUENTLY
LOSE OUR INTELLECTUAL PROPERTY RIGHTS, WE COULD BE UNABLE TO OPERATE OUR CURRENT
BUSINESS

     We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own trademarks, patents or other
intellectual property rights are invalid. For example, in a letter dated January
14, 2000, Forma Scientific, Inc. notified us that it believed our use of the
"Neoforma" and "Neoforma.com" trademarks violated its trademark rights in
"Forma" and "Forma Scientific. On September 12, 2000, we entered into a
settlement agreement under which we agreed to modify our logo so that the mark
"Neoforma" is presented to viewers as one word without any form of distinction
separating the "Neo" portion of the mark from the "Forma" portion of the mark.

     Any claims regarding our intellectual property, with or without merit,
could be time consuming and costly to defend, divert management attention and
resources or require us to pay significant damages. License agreements may not
be available on commercially reasonable terms, if at all. In addition, there has
been an increase in the number of patent applications related to the use of the
Internet to perform business processes. Enforcement of intellectual property
rights in the Internet sector will become a greater source of risk as the number
of business process patents increases. The loss of access to any key
intellectual property right, including use of the Neoforma brand name, could
result in our inability to operate our current business.

IF WE LOSE ACCESS TO THIRD-PARTY SOFTWARE INCORPORATED IN OUR MARKETPLACES, WE
MAY NOT BE ABLE TO OPERATE OUR MARKETPLACES

     We currently rely on software that we have licensed from a number of
suppliers. For example, we use software that we license from iPlanet, Inc., a
subsidiary of Sun Microsystems, to provide part of our website infrastructure,
we use information retrieval software that we license from SearchCafe
Development Corporation to provide part of our search capabilities, we use
software that we license from Oracle to further automate the order management
and transaction routing process within our marketplaces, we will use software
that we license from i2 to further enable us to offer our trading partners the
ability to automate and streamline the procurement process and we use software
that we license from CrossWorlds and TIBCO to integrate our marketplace
applications and services with buyers' and suppliers' systems. We license
TradeMatrix software from i2 to offer procurement, order management and supply
chain management functions. We also license Gentran software from Sterling
Commerce for the processing of order transactions from our customers. These
licenses may not continue to be available to us on commercially reasonable
terms, or at all. In addition, the licensors may not continue to support or
enhance the licensed software. In the future, we expect to license other third
party technologies to enhance our services, to meet evolving user needs or to
adapt to changing technology standards. Failure to license, or the loss of any
licenses of, necessary technologies could impair our ability to operate our
online marketplaces until equivalent software is identified, licensed and
integrated or developed by us. In addition, we may fail to successfully
integrate licensed technology into our services or to adapt licensed technology
to support our specific needs which could similarly harm development and market
acceptance of our services.

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<PAGE>   52

REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT
THE GROWTH OF E-COMMERCE AND LIMIT THE MARKET FOR OUR SERVICES

     A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, such as user privacy,
taxation of goods and services provided over the Internet and the pricing,
content and quality of services. The federal government has instituted a
moratorium on Internet taxation that applies to sales and access charges.
Recently, Congress proposed to extend the moratorium until 2006; however, it is
possible that Congress or state legislators will instead seek to impose taxes on
Internet transactions that would apply to us. Legislation could dampen the
growth in Internet usage and decrease or limit its acceptance as a
communications and commercial medium. If enacted, these laws and regulations
could limit the market for our services. In addition, existing laws could be
applied to the Internet, including consumer privacy laws. Legislation or
application of existing laws could expose companies involved in e-commerce to
increased liability, which could limit the growth of e-commerce.

FEDERAL AND STATE LEGISLATION AND REGULATION AFFECTING THE HEALTHCARE INDUSTRY
COULD SEVERELY RESTRICT OUR ABILITY TO OPERATE OUR BUSINESS

     We are subject to federal and state legislation and regulation affecting
the healthcare industry. Existing and new laws and regulations applicable to the
healthcare industry could have a material adverse effect on our ability to
operate our business. Legislation governing the distribution of health
information has been proposed at both the federal and state level. Some of the
transactions at our marketplaces may involve surgical case kits or purchases of
products for patient home delivery; these products may contain patient names and
other health information subject laws governing the distribution of health
information. It may be expensive to implement security or other measures
designed to comply with any new legislation. Moreover, we may be restricted or
prevented from delivering health information electronically. Other legislation
currently being considered at the federal level could also negatively affect our
business. For example, the Health Insurance Portability and Accountability Act
of 1996 mandates the use of standard transactions and identifiers, prescribed
security measures and other provisions within two years after the adoption of
final regulations by the Department of Health and Human Services. Because we
represent that our marketplaces meet these regulatory requirements, our success
will also depend on other healthcare participants complying with these
regulations. A federal law commonly known as the Medicare/Medicaid antikickback
law, and several similar state laws, prohibit payments that are intended to
induce the acquisition, arrangement for or recommendation of the acquisition of
healthcare products or services. The application and interpretation of these
laws are complex and difficult to predict and could constrain our financial and
marketing relationships, including but not limited to our fee arrangements with
suppliers or our ability to obtain supplier company sponsorship for our
products.

IF THERE ARE CHANGES IN THE POLITICAL, ECONOMIC OR REGULATORY HEALTHCARE
ENVIRONMENT THAT AFFECT THE PURCHASING PRACTICE OR OPERATION OF HEALTHCARE
ORGANIZATIONS, OR IF THERE IS CONSOLIDATION IN THE HEALTHCARE INDUSTRY, WE COULD
BE REQUIRED TO MODIFY OUR SERVICES OR TO INTERRUPT DELIVERY OF OUR SERVICES

     The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. Regulation of the healthcare
organizations with which we do business could impact the way in which we are
able to do business with these organizations. In addition, factors such as
changes in reimbursement policies for healthcare expenses, consolidation in the
healthcare industry and general economic conditions affect the purchasing
practices and operation of healthcare organizations. Changes in regulations
affecting the healthcare industry, such as any increased regulation by the Food
and Drug Administration of the purchase and sale of medical products, could
require us to make unplanned enhancements of our services, or result in delays
or cancellations of orders or reduce demand for our services. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry providers operate. We do not know what effect any proposals would have
on our business.

                                        52
<PAGE>   53

     Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide 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 fee reductions of
our services. If we were forced to reduce our fees, our operating results could
suffer if we cannot achieve corresponding reductions in our expenses.

OUR STOCK PRICE AND THOSE OF OTHER TECHNOLOGY COMPANIES HAVE EXPERIENCED EXTREME
PRICE AND VOLUME FLUCTUATIONS, AND, ACCORDINGLY, OUR STOCK PRICE MAY CONTINUE TO
BE VOLATILE WHICH COULD NEGATIVELY AFFECT YOUR INVESTMENT

     The trading price of our common stock has fluctuated significantly since
our initial public offering in January 2000 and is significantly below the
original offering price of $13 per share. An active public market for our common
stock may not be sustained in the future. Many factors could cause the market
price of our common stock to fluctuate, including:

     - variations in our quarterly operating results;

     - announcements of technological innovations by us or by our competitors;

     - introductions of new services by us or by our competitors;

     - departure of key personnel;

     - the gain or loss of significant strategic relationships or trading
       partners;

     - changes in the estimates of our operating performance or changes in
       recommendations by securities analysts; and

     - market conditions in our industry and the economy as a whole.

     In addition, stocks of technology companies have experienced extreme price
and volume fluctuations that often have been unrelated or disproportionate to
these companies' operating performance. Public announcements by companies in our
industry concerning, among other things, their performance, accounting practices
or legal problems could cause fluctuations in the market for stocks of these
companies. These fluctuations could lower the market price of our common stock
regardless of our actual operating performance.

     In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could harm our operating results and our business.

IF OUR COMMON STOCK PRICE FALLS BELOW AND REMAINS UNDER $1.00, OR IF WE
OTHERWISE FAIL TO COMPLY WITH NASDAQ RULES, OUR COMMON STOCK IS LIKELY TO BE
DELISTED FROM THE NASDAQ NATIONAL MARKET, WHICH COULD ELIMINATE THE TRADING
MARKET FOR OUR COMMON STOCK

     If the market price for our common stock falls and remains below $1.00 per
share or we otherwise fail to meet the criteria for continued listing on the
Nasdaq National Market, our common stock may be deemed to be penny stock. During
2000 and 2001, our common stock traded, at times, below $1.00 per share, and on
March 30, 2001 the closing price was $1.19. If our common stock is considered
penny stock, it would be subject to rules that impose additional sales practices
on broker-dealers who sell our securities. For example, broker-dealers must make
a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Also, a disclosure
schedule must be prepared prior to any transaction involving a penny stock and
disclosure is required about sales commissions payable to both the broker-dealer
and the registered representative and current quotations for the securities.
Monthly statements are also required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stock. Because of these additional obligations, some
brokers may be unwilling to effect transactions in penny stocks. This could have
an adverse effect on the liquidity of our common stock and your ability to sell
the common stock.

                                        53
<PAGE>   54

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Interest Rate Risk:

     Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. We invest in high-credit quality issuers and, by
policy, limit the amount of credit exposure to any one issuer. As stated in our
investment policy, we ensure the safety and preservation of our invested
principal funds by limiting default risk, market risk and reinvestment risk. We
mitigate default risk by investing in safe and high-credit quality securities
and by constantly positioning our portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer, guarantor or
depository. The portfolio includes only marketable securities with active
secondary or resale markets to ensure portfolio liquidity.

     The table below presents principal amounts and related weighted average
interest rates by date of maturity for our investment portfolio (in thousands):

<TABLE>
<CAPTION>
                                                    2001      2002     2003     2004     2005
                                                   -------    -----    -----    -----    -----
<S>                                                <C>        <C>      <C>      <C>      <C>
FISCAL YEARS
Cash equivalents and short-term investments:
  Fixed rate short-term investments..............  $23,874       --       --       --       --
  Average interest rate..........................     6.71%      --       --       --       --
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements required pursuant to this item are included in
Item 14 of this Annual Report on Form 10-K and are presented beginning on page
F-1.

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

     None.

                                        54
<PAGE>   55

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     The following table sets forth information regarding our executive officers
and directors as of March 31, 2001:

<TABLE>
<CAPTION>
                   NAME                     AGE                     POSITION
                   ----                     ---                     --------
<S>                                         <C>    <C>
Robert J. Zollars.........................  43     Chairman and Chief Executive Officer
Daniel A. Eckert..........................  36     President and Chief Operating Officer
Andrew L. Guggenhime......................  32     Chief Financial Officer
Steven E. Kane............................  51     Chief Administrative Officer and Corporate
                                                   Secretary
Charles D. Brennan........................  46     Executive Vice President of Sales and
                                                   Services
Steven J. Wigginton.......................  35     Executive Vice President of Marketing,
                                                   Operations and Development
Richard D. Helppie........................  44     Director
Andrew J. Filipowski......................  50     Director
Mark McKenna..............................  52     Director
Curt Nonomaque............................  44     Director
Jeffrey H. Hillebrand.....................  47     Director
Michael J. Murray.........................  56     Director
Robert J. Baker...........................  57     Director
C. Thomas Smith...........................  63     Director
</TABLE>

     Robert J. Zollars has served as our Chairman and Chief Executive Officer
since July 1999, and as our President from July 1999 to January 2001. From
January 1997 to July 1999, he served as Executive Vice President and Group
President of Cardinal Health, Inc., a healthcare products and services company,
where he was responsible for five of its wholly-owned subsidiaries: Pyxis
Corporation, Owen Healthcare, Inc., Medicine Shoppe International, Cardinal
Information Corporation and International. From January 1992 to December 1996,
he served as President of Hospital Supply, Scientific Products and U.S.
Distribution of Baxter Healthcare Corporation, which in October 1996 was spun
off as Allegiance Corporation, a healthcare products and service company. Mr.
Zollars holds an M.B.A. in finance from John F. Kennedy University and a B.S. in
marketing from Arizona State University.

     Daniel A. Eckert has served as our President and Chief Operating Officer
since January 2001. Mr. Eckert had previously served in several executive
capacities since joining us in August 1999, including Executive Vice President
of Sales, President of Neoforma Shop and Executive Vice President of
Marketplaces. From April 1998 to August 1999, Mr. Eckert was President and Chief
Operating Officer of Fisher Healthcare, a division of Fisher Scientific
International, which is a distributor of medical products. From September 1992
to April 1998, Mr. Eckert held several positions at McKesson Corporation, a
supplier of medical products, including Senior Vice President of Corporate Sales
for the Health Systems Group, Senior Vice President of Sales and Marketing for
McKesson/General Medical Corporation and Vice President of Acute Care. Mr.
Eckert holds an A.B. in English and political science from Occidental College,
and completed the Fuqua School of Business' Healthcare Distributor Executive
Program at Duke University.

     Andrew L. Guggenhime has served as our Chief Financial Officer since
October 2000. From January 2000 until October 2000, he was our Vice President of
Corporate Development. From August 1996 until January 2000, Mr. Guggenhime was
in the Healthcare Investment Banking group of Merrill Lynch & Co., most recently
as a Vice President. From July 1990 to August 1994, he served in a number of
capacities at Wells Fargo & Company, most recently as Assistant Vice President
in Wells Fargo's Debt Capital Markets group. Mr. Guggenhime holds a Master of
Management from the J.L. Kellogg Graduate School of Management at Northwestern
University and a B.A. in international politics and economics from Middlebury
College.

                                        55
<PAGE>   56

     Steven E. Kane has served as our Chief Administrative Officer and Corporate
Secretary since January 2001. Prior to that, he had served as our Senior Vice
President of Human Resources and Legal since joining us in May 2000. From
January 1999 to May 2000, Mr. Kane was a self-employed human resources
consultant. From 1985 to December 1998, Mr. Kane served in several senior human
resources and legal positions at Baxter Healthcare Corporation, including Group
Vice President of Human Resources, Associate General Counsel and Vice President
of Corporate Affairs. He also served on Baxter's North American Board. Mr. Kane
holds an M.B.A. from Cornell University, a B.S. from Cornell's School of
Industrial and Labor Relations and a J.D. from the University of Akron.

     Charles D. Brennan has served as our Executive Vice President of Sales and
Services since January 2001, our Senior Vice President of Services Delivery from
May 2000 to January 2001 and our Vice President of Professional Services from
January 2000 until May 2000. Previously, he was a Vice President in the
healthcare group of Computer Sciences Corporation, a consulting and information
technology services firm, and National Director of its supply chain practice
from June 1997 to December 1999. From September 1990 to June 1997, Mr. Brennan
was a consultant and managing partner with APM, a healthcare consulting firm
acquired by Computer Sciences Corporation in 1997. He holds a Master of
Education from Harvard University, an M.B.A. from Yale University and a B.A. in
psychology from Antioch University.

     Steven J. Wigginton has served as our Executive Vice President of
Marketing, Operations and Development since January 2001. Prior to that, he was
our Senior Vice President of Product Development from May 2000 to January 2001.
Mr. Wigginton joined Neoforma in January 2000 with the acquisition of Pharos
Technologies, Inc., of which he was co-founder. He also held executive positions
at Thomas Publishing Company from December 1997 to July 1999, and at Autodesk's
Data Publishing Group from December 1996 until November 1997. From August 1993
to November 1996, Mr. Wigginton worked at Industry.net, an e-commerce services
company. Mr. Wigginton holds a B.S. in finance from Indiana University.

     Richard D. Helppie has served as one of our directors since October 1999.
Since August 1996, he has served as Chairman of the Board and Chief Executive
Officer of Superior Consultant Holdings Corporation, a consulting firm comprised
of two subsidiaries founded by Mr. Helppie, Superior Consultant Company, Inc.
and UNITIVE Corporation. He has served as Chairman of the Board and Chief
Executive Officer of Superior Consultant Company, a healthcare management and
information systems consulting firm, since 1984 and as Chief Executive Officer
of UNITIVE Corporation, an information technology consulting firm, since 1993.
He has also served as President of Clearwater Aviation Company, Inc. since 1993.
In addition, Mr. Helppie is a director of drkoop.com, Inc.

     Andrew J. Filipowski has served as one of our directors since October 1999.
He is Chief Executive Officer and Chairman of the Board of divine inc., an
enterprise web solutions company that he co-founded in May 1999. He is also
Chairman of the Board of PLATINUM Venture Partners, Inc., a venture investment
firm that he founded in February 1992. Mr. Filipowski founded PLATINUM
technology, inc. in April 1987 and served as its President, Chief Executive
Officer and Chairman of the Board until it was acquired by Computer Associates
in June 1999. PLATINUM technology, inc. was a software company that produced,
acquired and distributed system software tools. Mr. Filipowski serves on the
board of directors of Blue Rhino Corporation and Bluestone Software, Inc.

     Mark McKenna has served as one of our directors since July 2000. He has
served as the President of Novation since February 1999. From January 1998 to
February 1999, Mr. McKenna was the Senior Vice President of Operations for
Novation. From 1987 to January 1998, he held several positions with VHA,
including interim Vice President for Supply Chain Management from May 1997 to
January 1998 and Vice President of Marketing from January 1996 to May 1997.
Prior to joining VHA, Mr. McKenna was Director of Marketing for IMED Corp., a
manufacturer of drug delivery systems. His previous experience includes sales
and marketing assignments with Johnson & Johnson and American Hospital Supply
Corp. Mr. McKenna serves as a director on the boards of Novation and HPPI and is
a member of the American Society for Hospital Materials Management, the Medical
Marketing Association and the American Management Association. He holds an
M.B.A. from Suffolk University in Boston and a B.S. in business from Boston
College.

                                        56
<PAGE>   57

     Curt Nonomaque has served as one of our directors since July 2000. He has
served as Chief Financial Officer of VHA since 1992 and as Executive Vice
President of VHA since 1996. Since 1989, he has served as Treasurer for both VHA
and VHA Enterprises. Prior to joining VHA in 1986, Mr. Nonomaque was a banking
officer for First City Bank in Dallas. From 1983 to 1985, he was a management
consultant with Arthur Andersen & Co. Mr. Nonomaque also serves as a director on
the boards of Novation and HPPI. He is Co-Chairman of the Board of Healthvision,
Chairman of the board of AIDS arms, Inc., and is a past President of the board
of the Society for the Prevention of Cruelty to Animals of Texas and a past
board member of Faith Properties, LLC. Mr. Nonomaque holds an M.B.A. from Baylor
University's Hankamer School of Business and a B.A. from Baylor University.

     Jeffrey H. Hillebrand has served as one of our directors since December
2000. Since 1998, he has served as Chief Operating Officer of Evanston
Northwestern Healthcare, where he has worked since 1979. Mr. Hillebrand is a
Fellow of the American College of Healthcare Executives and has served as one of
its regents. He is a member of the Young Presidents Organization and a
non-resident lecturer for the School of Public Health at the University of
Michigan. He has also served as a trustee of the village of Kennilworth,
Illinois. He is President of the Northeast Illinois Council of Boy Scouts of
America, and has served as Vice Chairman of the American Heart Association of
Metropolitan Chicago. Mr. Hillebrand holds a M.H.S.A. from the University of
Michigan and a B.A. from Dartmouth College.

     Michael J. Murray has served as one of our directors since December 2000.
Until August 2000, Mr. Murray served as President of Global Corporate and
Investment Banking at Bank of America Corporation and was a member of its Policy
Committee. From March 1997 until September 1998, Mr. Murray headed BankAmerica
Corporation's Global Wholesale Bank. From September 1995 to March 1997, he
served as BankAmerica Vice Chairman and head of the U.S. and International
Groups. Mr. Murray was responsible for BankAmerica's U.S. Corporate Group from
September 1994, after BankAmerica's merger with Continental Bank Corporation,
until September 1995. Prior to the merger, he was Vice Chairman and Head of
Corporate Banking for Continental Bank, which he joined in 1969. Mr. Murray
serves as a director on the boards of CNF, Inc., a global supply chain services
firm, and eLoyalty Corporation, an information technology services firm. He is
also Chairman of the Bay Area United Way, serves on the board of the California
Academy of Sciences and is a member of the Advisory Council for the School of
Business at the University of Notre Dame. Mr. Murray holds an M.B.A. from the
University of Wisconsin and a B.B.A. from the University of Notre Dame.

     Robert J. Baker has served as one of our directors since January 2001.
Since 1986, he has served as the first President and Chief Executive Officer of
UHC. Prior to that, he held several administrative positions at University of
Minnesota Hospital and was Chief Executive Officer of Nebraska Hospital. Mr.
Baker was awarded the John R. Hogness Award Lectureship from the Association of
Academic Health Centers and holds an M.B.A. from the University of Chicago and a
B.A. in economics from Kalamazoo College.

     C. Thomas Smith has served as one of our directors since January 2001. He
has served as President and Chief Executive Officer of VHA since 1991. From 1977
to 1991, Mr. Smith was President of Yale-New Haven Hospital and President of
Yale-New Haven Health Services Corp. From 1971 to 1976, he was Vice President
and Executive Director of Hospitals and Clinics and a member of the board of
trustees for Henry Ford Hospital in Detroit. From 1967 to 1971, Mr. Smith was
Associate Director of Hospitals and Director of Medical Center Planning for the
University of Minnesota Health Sciences Center. Prior to that, he held
administrative positions at Baptist Memorial Hospital from 1961 to 1967,
following an administrative residency. In 1991, Mr. Smith was the Chairman of
the American Hospital Board of Trustees. Since 1987, he has been a member of the
VHA board of directors. He also serves on the boards of Novation and the
Healthcare Leadership Council. Mr. Smith is a past Chairman of the Council of
Teaching Hospitals and a former member of the boards of the Association of
American Medical Colleges, the International Hospital Federation, the Hospital
Research and Educational Trust, the National Committee on Quality Healthcare,
the Jackson Hole Group and Genentech. He holds an M.B.A. from the University of
Chicago, two honorary degrees from Connecticut colleges, and a B.A. from Baylor
University.

                                        57
<PAGE>   58

BOARD COMMITTEES

     Our board of directors has an audit committee, a compensation committee and
a public policy committee.

     Audit Committee. The audit committee was created during the fourth quarter
of fiscal 1999 and currently consists of Messrs. Filipowski, Murray and
Nonomaque. The audit committee:

     - reviews our financial statements and accounting practices;

     - makes recommendations to our board of directors regarding the selection
       of independent public accountants; and

     - reviews the results and scope of the audit and other services provided by
       our independent public accountants.

     Compensation Committee. The compensation committee was created during the
fourth quarter of fiscal 1999 and currently consists of Messrs. Filipowski,
Helppie and Hillebrand. The compensation committee:

     - reviews and recommends to our board of directors the compensation and
       benefits of all of our officers, directors and consultants; and

     - reviews general policy relating to compensation and benefits.

     Public Policy Committee. The public policy committee was created during
fiscal 2000 and currently consists of Messrs. Baker, McKenna, Smith and Zollars.
The public policy committee reviews our policies and practices to ensure they
are consistent with our social responsibility to employees, customers,
stockholders and society in general.

ITEM 11. EXECUTIVE COMPENSATION

     The following table shows all compensation awarded to, earned by or paid
for services rendered to us in all capacities during 1998, 1999 and 2000 by our
Chief Executive Officer and the four other most highly compensated executive
officers who were serving as executive officers at the end of 2000.

                                        58
<PAGE>   59

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                        LONG-TERM
                                                                                       COMPENSATION
                                                      ANNUAL COMPENSATION                 AWARDS
                                            ---------------------------------------     SECURITIES
                                                                      OTHER ANNUAL      UNDERLYING
   NAME AND PRINCIPAL POSITION      YEAR     SALARY       BONUS       COMPENSATION       OPTIONS
   ---------------------------      ----    --------    ----------    -------------    ------------
<S>                                 <C>     <C>         <C>           <C>              <C>
Robert J. Zollars(1)..............  2000    $500,540    $  500,000     $        --      2,007,000
  Chairman and                      1999     250,000       250,000         338,000(2)   5,239,475
  Chief Executive Officer           1998          --            --              --             --

Daniel A. Eckert(3)...............  2000     255,438       122,917          97,996(4)     790,000
  President and                     1999     102,200            --          39,662(4)     450,000
  Chief Operating Officer           1998          --            --              --             --

Andrew L. Guggenhime(5)...........  2000     198,368        66,666              --        800,000
  Chief Financial Officer           1999          --            --              --             --
                                    1998          --            --              --             --

Charles D. Brennan(6).............  2000     204,455       114,167              --        790,000
  Executive Vice President of       1999          --            --              --             --
  Sales and Services                1998          --            --              --             --

Steven J. Wigginton(7)............  2000     175,750        64,167           3,424(8)     590,000
  Executive Vice President of       1999          --            --              --             --
  Marketing, Operations and         1998          --            --              --             --
  Development
</TABLE>

---------------
(1) Mr. Zollars joined us in July 1999.

(2) Represents a reimbursement related to bonuses earned but unpaid by Mr.
    Zollars' prior employer.

(3) Mr. Eckert joined us in July 1999.

(4) Represents reimbursements for relocation expenses paid to Mr. Eckert.

(5) Mr. Guggenhime joined us in January 2000.

(6) Mr. Brennan joined us in January 2000.

(7) Mr. Wigginton joined us in January 2000.

(8) Represents a reimbursement for relocation expenses paid to Mr. Wigginton.

                          OPTION GRANTS IN FISCAL 2000

     During 2000, we granted options to purchase a total of 14,422,250 shares of
common stock to employees. 3,828,850 of those options were granted under the
1997 Stock Plan, 10,558,400 were granted under the 1999 Equity Incentive Plan
and 35,000 were granted outside the stock plans. All options granted under the
1997 Stock Plan and outside the stock plans are immediately exercisable and
consisted of both incentive stock options and nonqualified stock options.
Options granted under the 1999 Equity Incentive Plan were both incentive stock
options and nonqualified stock options, and such options were exercisable only
to the extent of any vested shares. For options that have been exercised prior
to being vested, we have the right to repurchase the unvested shares upon
termination of the optionee's employment with us. We granted the options listed
below at an exercise price equal to the fair market value of our common stock,
as determined by the board of directors on the date of grant for options granted
prior to our initial public offering on January 24, 2000, or for options granted
subsequent to our initial public offering, as determined by the closing price of
our commons stock on the Nasdaq National Market on the date of grant. With
regard to the options granted to Messrs. Eckert, Guggenhime, Brennan and
Wigginton, 100,000, 250,000, 300,000 and 100,000 of the shares underlying
options, respectively, vest as to 25% of the underlying shares upon the first
anniversary of the date

                                        59
<PAGE>   60

of grant and as to an additional 2.083% each month thereafter. With regard to
the options granted to Messrs. Zollars, and to all other options granted to
Messrs. Eckert, Guggenhime, Brennan and Wigginton, the options vest as to 2.083%
per month over a 48 month period. The options have a term of 10 years from the
date of grant or three months after termination of employment.

     In the table below, potential realizable values were computed by (a)
multiplying the number of shares of common stock subject to a given option by
either (1) $0.81, which was the closing price of our common stock on the Nasdaq
National Market at December 31, 2000, for options with an exercise price less
than or equal to $0.81 or (2) the exercise price of the option for options with
an exercise price greater than $0.81, (b) compounding the aggregate stock value
derived from the foregoing calculation at an annual rate of 5% or 10% over the
10 year term of the option and (c) subtracting from that result the aggregate
option exercise price. The 5% and 10% assumed annual rate of compounded stock
price appreciation are based on Securities and Exchange Commission requirements
and do not represent our estimates or projections of future common stock prices.

<TABLE>
<CAPTION>
                                              INDIVIDUAL GRANTS                      POTENTIAL REALIZABLE
                                          --------------------------                   VALUE AT ASSUMED
                             NUMBER OF      PERCENT OF                               ANNUAL RATES OF STOCK
                             SECURITIES   TOTAL OPTIONS                               PRICE APPRECIATION
                             UNDERLYING     GRANTED TO     EXERCISE                    FOR OPTION TERMS
                              OPTIONS      EMPLOYEES IN      PRICE     EXPIRATION   -----------------------
           NAME               GRANTED     FISCAL YEAR(%)   PER SHARE      DATE          5%          10%
           ----              ----------   --------------   ---------   ----------   ----------   ----------
<S>                          <C>          <C>              <C>         <C>          <C>          <C>
Robert J. Zollars..........    507,000         3.52%         $3.94       8/1/2010   $1,255,470   $3,181,608
                             1,500,000        10.40           0.78     12/28/2010      813,415    1,867,547
Daniel A. Eckert...........    100,000         0.69           9.00      1/16/2010      566,005    1,434,368
                               190,000         1.32           3.94       6/1/2010      470,492    1,192,319
                               300,000         2.08           1.81     11/21/2010      341,961      866,597
                               200,000         1.39           0.81     12/29/2010      102,195      258,983
Andrew L. Guggenhime.......    250,000         1.73           7.00      1/14/2010    1,100,566    2,789,049
                                40,000         0.28           3.00      8/11/2010       75,467      191,249
                               510,000         3.54           0.78     12/26/2010      276,561      634,966
Charles D. Brennan.........    200,000         1.39           7.00      1/14/2010      880,452    2,231,239
                               100,000         0.69           8.13      6/13/2010      510,977    1,294,916
                               190,000         1.32           3.94       8/1/2010      470,492    1,192,319
                               300,000         2.08           1.81     11/21/2010      341,961      866,597
Steven J. Wigginton........    100,000         0.69           8.13      6/13/2010      510,977    1,294,916
                               190,000         1.32           3.94       8/1/2010      470,492    1,192,319
                               300,000         2.08           1.81     11/21/2010      341,961      866,597
</TABLE>

                                        60
<PAGE>   61

  AGGREGATE OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES

     The following table sets forth for each of our Chief Executive Officer and
the four other most highly compensated executive officers who were serving as
executive officers at the end of 2000, the number of shares of common stock
acquired and the value realized upon exercise of stock options during 2000 and
the number and value of shares of common stock subject to "vested" and
"unvested" options held as of December 31, 2000. Value at fiscal year end of
unexercised in the money options is the difference between the exercise price
and $0.81, which represents the closing price of our common stock on the Nasdaq
National Market as of December 31, 2000. None of the named executives below
exercised any of their stock options in 2000.

     In the table below, for those shares that relate to options issued under
our 1997 Stock Plan which were exercised prior to being vested, the heading
"vested" refers to shares as to which our right of repurchase has lapsed. The
heading "unvested" refers to shares that we have the right to repurchase upon
termination of the optionee's employment.

<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES
                                    NUMBER OF SECURITIES            UNDERLYING           VALUE OF UNEXERCISED
                                   UNDERLYING UNEXERCISED      UNEXERCISED OPTIONS       IN-THE-MONEY OPTIONS
                                 OPTIONS AT FISCAL YEAR END     AT FISCAL YEAR END        AT FISCAL YEAR END
                                 ---------------------------   --------------------   ---------------------------
             NAME                EXERCISABLE   UNEXERCISABLE   VESTED     UNVESTED    EXERCISABLE   UNEXERCISABLE
             ----                -----------   -------------   -------   ----------   -----------   -------------
<S>                              <C>           <C>             <C>       <C>          <C>           <C>
Robert J. Zollars..............     42,250       1,964,750     42,250    1,964,750      $    --      $   46,950
Daniel A. Eckert...............    122,082         667,918     22,082      767,918           --              --
Andrew L. Guggenhime...........    253,333         546,667      3,333      796,667           --          15,963
Charles D. Brennan.............    222,082         567,918     22,082      767,918           --              --
Steven J. Wigginton............     22,082         567,918     22,082      567,918           --              --
</TABLE>

COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS

     Mr. Zollars. In July 1999, we entered into an at-will employment agreement
with Robert J. Zollars for him to serve as our Chairman, President and Chief
Executive Officer. Under this agreement, Mr. Zollars receives a salary equal to
$500,000 for the first year of the agreement, which can be increased by us in
subsequent years. Mr. Zollars received a $250,000 bonus in December 1999.
Beginning in 2000 and for each following year while he is employed by us, Mr.
Zollars is eligible to receive a bonus payment of at least $500,000 for that
fiscal year, based upon whether we achieve revenue and profitability targets
and/or other organizational milestones to be specified by our board of
directors.

     Upon entering into this employment agreement, Mr. Zollars received an
option to purchase 1,637,160 shares of our common stock and an option to
purchase 3,602,315 shares of our common stock, each at an exercise price of
$0.10 per share. Both options were immediately exercisable and Mr. Zollars
exercised these options in full in July 1999. As of December 31, 2000, 2,326,495
of the shares purchased under the option for 3,602,315 shares were subject to a
repurchase right that lapses at a rate of 75,048 shares per month. If we are
acquired or if certain changes in control of Neoforma occur, the then unvested
portion of his option will become vested.

     Mr. Zollars is eligible to receive from us a moving assistance loan of $2.5
million, which will be forgiven in equal monthly installments on the last day of
each month from the date of closing on his new home through June 30, 2003. We
are currently in discussions with Mr. Zollars to restructure the payment terms
of this loan. Mr. Zollars also has the right to be reimbursed by us up to
$300,000 for any loss on the sale of his previous home. We are obligated to
reimburse Mr. Zollars for an additional $338,000 plus additional moving expenses
incurred in connection with his joining us.

     If Mr. Zollars' employment is terminated other than for disability or
cause, or if Mr. Zollars resigns for good reason, he will be entitled to receive
an amount equal to his annual salary, bonus and benefits. In addition, our right
to repurchase all outstanding stock held by Mr. Zollars will lapse and the
forgiveness of the home loan will be treated as if he had been employed by us
for 12 additional months after the termination of employment. Good reason
includes a reduction in his duties or responsibilities or a reduction in his
salary, bonus or other benefits.

                                        61
<PAGE>   62

     In October 2000, Mr. Zollars' Employment Agreement was clarified such that
if any severance and other benefits provided to him under his Employment
Agreement would constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986 and would be subject to the excise tax
imposed by Section 4999 of the Code, then Mr. Zollars' severance and other
benefits will be payable, at his election, either in full or in such lesser
amount as would result, after taking into account the applicable federal, state
and local income taxes and the excise tax imposed by Section 4999 of the Code,
in his receipt on an after-tax basis of the greatest amount of severance and
other benefits.

     Mr. Eckert. In July 1999, we entered into an offer letter with Daniel A.
Eckert for him to serve as our Executive Vice President of Sales. Under this
offer letter, Mr. Eckert receives a salary equal to $250,000 per year. Mr.
Eckert received $39,662 related to relocation costs and is entitled to receive a
bonus of $50,000 per year, based upon performance milestones to be specified by
our president and assessed by our board of directors. Upon entering into
employment with us, Mr. Eckert received an option to purchase 450,000 shares of
our common stock at $0.50 per share. This option is immediately exercisable and
Mr. Eckert has exercised the option in full. As of December 31, 2000, 300,001 of
the shares underlying the option were subject to a right of repurchase. The
shares underlying the option vest in equal monthly installments over four years,
for so long as he is employed by us. If Mr. Eckert's employment is terminated
other than for cause, he will be entitled to receive an amount equal to six
months of his salary. In the event of certain changes of control of Neoforma,
50% of the then unvested portion of Mr. Eckert's option shall immediately vest.

     In December 2000, the board of directors approved the promotion of Daniel
A. Eckert to President and Chief Operating Officer. Commensurate with this
promotion, his salary was increased to $300,000 annually, and his bonus
potential was increased to $165,000 per year based on performance milestones to
be specified by our Chief Executive Officer and assessed by our board of
directors. Upon this promotion, Mr. Eckert received an option to purchase
200,000 shares of our common stock at $0.8125 per share. The option vests in
equal monthly installments over four years.

     Mr. Brennan. In November 1999, we entered into an offer letter with Charles
D. Brennan for him to serve as our Vice President of Professional Services.
Under this offer letter, we agreed to pay Mr. Brennan a salary of $200,000 per
year, a bonus of up to $50,000 per year, based upon achievement of performance
milestones, and a signing bonus of $50,000. Mr. Brennan received an option to
purchase 200,000 shares of our common stock at $7.00 per share. The option vests
over four years, with 25% of the shares underlying the option vesting one year
from the date of grant, and an additional one-forty-eighth of the shares vesting
each succeeding month.

     Mr. Wigginton. In December 1999, we entered into an offer letter with
Steven J. Wigginton for him to serve as our Vice President of Sales and Business
Development. Under this offer letter, we agreed to pay Mr. Wigginton a salary of
$140,000 per year. Mr. Wigginton received an option to purchase 100,000 shares
of our common stock at $8.13 per share. The option vests over four years, with
25% of the shares underlying the option vesting one year from the date of grant,
and an additional one-forty-eighth of the shares vesting each succeeding month.

     Mr. Guggenhime. In January 2000, we entered into an offer letter with
Andrew L. Guggenhime for him to serve as our Vice President of Corporate
Development. Under this offer letter, we agreed to pay Mr. Guggenhime a salary
of $200,000 per year and a bonus of up to $50,000 per year, based upon
achievement of performance milestones, of which we guaranteed $12,500 in bonus
to Mr. Guggenhime for each of the first two quarters of his employment with us.
Mr. Guggenhime received an option to purchase 250,000 shares of our common stock
at $7.00 per share. The option vests over four years, with 25% of the shares
underlying the option vesting one year from the date of grant, and an additional
one-forty-eighth of the shares vesting each succeeding month. If Mr.
Guggenhime's employment is terminated or his responsibilities are reduced
without cause within one year after a change of control of Neoforma, then half
of the balance of the unvested portion of this option will vest at that time.

     Mr. Kane. In May 2000, we entered into an offer letter with Steven E. Kane
for him to serve as our Vice President of Human Resources. Under this offer
letter, we agreed to pay Mr. Guggenhime a salary of $165,000 per year and a
bonus of up to $41,250 per year, based upon achievement of performance
milestones.
                                        62
<PAGE>   63

Mr. Kane received an option to purchase 150,000 shares of our common stock at
$8.13 per share. The option vests over four years, with 25% of the shares
underlying the option vesting one year from the date of grant, and an additional
one-forty-eighth of the shares vesting each succeeding month. If Mr. Kane's
employment is terminated or his responsibilities are reduced without cause
within one year after a change of control of Neoforma, then half of the balance
of the unvested portion of this option will vest at that time.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The compensation committee of our board of directors is currently comprised
of Messrs. Filipowski, Helppie and Hillebrand. None of these individuals has at
any time been one of our officers or employees. For a description of the
transactions between us and members of the compensation committee and entities
affiliated with the compensation committee members, see "Item 13. -- Certain
Relationships and Related Transactions."

DIRECTOR COMPENSATION

     Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses for
attending board and board committee meetings.

     Each eligible director who is not our employee and who is or becomes a
member of our board will be automatically granted an option to purchase 100,000
shares of common stock under our 1999 Equity Incentive Plan, unless that
director has previously received an option grant. In December 2000, we granted
an option to purchase 100,000 shares of our common stock to each of Messrs.
Hillebrand and Murray, and in January 2001, we granted an option to purchase
100,000 shares of our common stock to each of Messrs. Smith and Baker upon their
becoming members of our board of directors. Immediately following each annual
meeting of stockholders, each eligible director will automatically be granted an
option to purchase 25,000 shares of common stock under our 1999 Equity Incentive
Plan, provided that the director is a member of the board on that date and has
served continuously as a member of the board for a period of at least one year
since the date of the director's initial grant. All options will have an
exercise price equal to the fair market value of our common stock on the date of
grant. The options will have 10-year terms and will terminate three months
following the date the director ceases to be one of our directors or consultants
or 12 months after any termination due to death or disability. Options granted
under the plan will generally vest over four years. Any unvested shares subject
to these options will become immediately vested and exercisable upon a
transaction which results in a change in our control.

                                        63
<PAGE>   64

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table presents information with respect to the beneficial
ownership of our common stock as of March 31, 2000 by:

     - each person who is known by us to own beneficially more than 5% of our
       common stock;

     - each of our directors;

     - our Chief Executive Officer and our four other most highly compensated
       executive officers who were serving as executive officers at the end of
       2000; and

     - all of our directors and executive officers as a group.

     The number and percentage of Neoforma common stock beneficially owned are
based on 182,781,670 shares of common stock outstanding at March 31, 2000.
Shares of common stock that are subject to options currently exercisable or
exercisable within 60 days of March 31, 2000, are deemed outstanding for the
purpose of computing the percentage ownership of the person holding those
options but are not deemed outstanding for computing the percentage ownership of
any other person. Unless otherwise indicated in the footnotes following the
table, the address for each listed stockholder is c/o Neoforma.com, Inc., 3061
Zanker Road, San Jose, California 95134. To our knowledge, except as indicated
in the footnotes to this table and under applicable community property laws, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable.

<TABLE>
<CAPTION>
                                                              SHARES BENEFICIALLY OWNED
                                                              --------------------------
                  NAME OF BENEFICIAL OWNER                      NUMBER       PERCENTAGE
                  ------------------------                    -----------    -----------
<S>                                                           <C>            <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Robert J. Zollars(1)........................................   5,490,786          3.0%
Daniel A. Eckert(2).........................................     643,956          *
Andrew L. Guggenhime(3).....................................     310,623          *
Charles D. Brennan(4).......................................     298,122          *
Steven J. Wigginton(5)......................................     291,734          *
Richard D. Helppie(6).......................................     966,782          *
Andrew J. Filipowski(7).....................................   1,206,338          *
Mark McKenna................................................          --          *
Curt Nonomaque..............................................     124,100          *
Jeffrey H. Hillebrand.......................................      12,500          *
Michael J. Murray...........................................     100,000          *
Robert J. Baker.............................................         600          *
C. Thomas Smith.............................................      10,000          *
All 14 directors and executive officers as a group(8).......   9,558,664          5.2
5% STOCKHOLDERS:
VHA Inc.(9).................................................  77,112,550         42.2
University HealthSystem Consortium(10)......................  18,798,586         10.3
</TABLE>

---------------
  *  Represents less than 1%.

 (1) Includes 3,602,315 shares of common stock subject to a repurchase right
     that lapses at a rate of 75,048 shares per month. Also includes 251,311
     shares subject to options that are exercisable within 60 days of March 31,
     2001.

 (2) Represents 450,000 shares of common stock that are subject to a repurchase
     right that lapses at a rate of 4,167 shares per month and 193,956 shares of
     common stock issuable under options that are exercisable within 60 days of
     March 31, 2001.

 (3) Includes 310,623 shares subject to options that are exercisable within 60
     days of March 31, 2001.

                                        64
<PAGE>   65

 (4) Represents 298,122 shares subject to options that are exercisable within 60
     days of March 31, 2001.

 (5) Represents 239,027 shares received as part of our acquisition of Pharos in
     January 2000, of which 95,611 shares were subject to a right of repurchase
     which lapses at a rate of 3,984 shares per month. Also includes 52,707
     shares subject to options that are exercisable within 60 days of March 31,
     2001.

 (6) Includes 816,782 shares of common stock held by Superior Consultant
     Holdings Corporation. Mr. Helppie, one of our directors, is the Chairman,
     Chief Executive Officer and President of Superior. Also includes 150,000
     shares of common stock issuable under an option held by Mr. Helppie that
     was granted after September 30, 1999. Mr. Helppie disclaims beneficial
     ownership of the shares held by Superior.

 (7) Includes 1,056,338 shares of common stock held by divine interVentures,
     Inc. Mr. Filipowski, one of our directors, is President, Chief Executive
     Officer and Chairman of the board of divine interVentures, Inc. Includes
     150,000 shares of common stock issuable under an option held by Mr.
     Filipowski which was granted after September 30, 1999. Mr. Filipowski
     disclaims beneficial ownership of the shares held by divine interVentures,
     Inc.

 (8) Includes 1,509,842 shares of common stock issuable under options held by
     directors and executive officers that are presently exercisable within 60
     days of March 31, 2000. Also includes 4,147,926 outstanding shares that are
     subject to repurchase rights that lapse over time.

 (9) Includes 30,845,020 shares of common stock subject to restrictions which
     lapse when specified performance criteria have been met. VHA's corporate
     headquarters are located at 220 E. Las Colinas Blvd., Irving, TX 75039.

(10) Includes 5,639,577 shares of common stock subject to restrictions which
     lapse when specified performance criteria have been met. UHC's corporate
     headquarters are located at 2001 Spring Rd., Suite 700, Oak Brook, Illinois
     60523.

                                        65
<PAGE>   66

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Other than compensation agreements and other arrangements, which are
described in "Item 11. -- Executive Compensation" and the transactions described
below, since January 1, 2000 there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
will be a party:

     - in which the amount involved exceeded or will exceed $60,000, and

     - in which any director, executive officer, holder of more than 5% of our
       common stock or any member of their immediate family had or will have a
       direct or indirect material interest.

LOANS

     On July 10, 1999, we made a loan to Robert J. Zollars, our Chairman,
President and Chief Executive Officer, in connection with his exercise of a
stock option granted to him under the terms of his employment agreement. The
loan is evidenced by a promissory note in the principal amount of $162,078.84,
with interest compounded quarterly on the unpaid balance at a rate of 5.70% per
year.

     On July 10, 1999, we made a loan to Robert J. Zollars in connection with
his exercise of a stock option granted to him under the terms of his employment
agreement. The loan is evidenced by a promissory note in the principal amount of
$356,629.19, with interest compounded quarterly on the unpaid balance at a rate
of 5.70% per year.

     On September 7, 1999, we made a loan to Daniel A. Eckert, our Executive
Vice President of Sales and President of Neoforma Shop, in connection with his
exercise of a stock option granted to him under the terms of his offer letter.
The loan is evidenced by a promissory note in the principal amount of $224,550,
with interest compounded quarterly on the unpaid balance of the note at a rate
of 5.85% per year.

     On January 14, 2000, we made a loan to Andrew L. Guggenhime, our Chief
Financial Officer, in connection with his exercise of a stock option granted to
him under the terms of his offer letter. The loan was evidenced by a promissory
note in the principal amount of $1,750,000, with interest compounded quarterly
on the unpaid balance at a rate of approximately 6% per year. On December 26,
2000, we agreed to rescind Mr. Guggenhime's stock option exercise and cancel the
note.

     On September 18, 2000, we made a loan to Steven J. Wigginton, our executive
Vice President of Marketing, Operations and Development. The loan has a one-year
term, and was extended for the purpose of allowing him to sell his home in
Illinois and purchase a residence in California. The loan was evidenced by a
promissory note in the principal amount of $175,000, with interest compounded
quarterly on the unpaid balance at a rate of 6.33% per year.

COMMERCIAL TRANSACTIONS

     In October 1999, Richard D. Helppie, the Chairman and Chief Executive
Officer of Superior Consultant Holdings Corporation, joined our board of
directors as the representative of the holders of our Series E preferred stock.
In addition, in October 1999, we entered into an agreement with Superior
Consultant Company, Inc., a wholly owned subsidiary of Superior Consultant
Holdings Corporation, providing for collaboration between us and Superior.
Superior is a supplier of Digital Business Transformation(TM) services to large
healthcare organizations, including Internet-related services, systems
integration, outsourcing and consulting, which enable Superior clients to
utilize digital technologies and process innovations to improve their
businesses. Under the agreement, we have agreed to market Superior's services to
our users, and Superior has agreed to introduce our services to appropriate
clients, based on their interests, and to incorporate our services into its
Digital Business Transformation(TM) offerings. The agreement also provides for
joint marketing activities. In consideration, we have agreed to make payments to
Superior in an aggregate amount of up to approximately $2.0 million, as well as
a percentage of specified Neoforma e-commerce transaction revenue and other
potential fixed payments based on the success of the joint marketing activities.
We have also agreed to utilize Superior's services on a preferred basis for
systems integration, development, infrastruc-

                                        66
<PAGE>   67

ture, process improvement and consulting assistance, totaling at least $1.5
million of services from Superior, at a discount from Superior's standard fees.
Our agreement with Superior expires in October 2002.

     On March 30, 2000, we entered an outsourcing and operating agreement with
Novation, VHA, UHC and HPPI and entered into agreements to issue our common
stock and warrants to purchase our common stock to VHA and UHC. On May 25, 2000,
we modified the structure and terms of our outsourcing and operating agreement
with Novation, HPPI, VHA and UHC and our stock and warrant agreements with VHA
and UHC.

     Under the terms of the modified stock and warrant agreements, which were
approved by our stockholders on July 26, 2000, VHA received approximately 46.3
million shares of our common stock, representing approximately 37% of our then
outstanding common stock, and UHC received approximately 11.3 million shares of
our common stock, representing approximately 9% of our then outstanding common
stock. We also issued warrants to VHA and UHC, allowing VHA and UHC the
opportunity to earn up to 30.8 million and 7.5 million additional shares of our
common stock, respectively, over a four-year period by meeting specified
performance targets. These targets are based upon the historical purchasing
volume of VHA- and UHC-member healthcare organizations that sign up to use
Marketplace@Novation. The targets increase annually to a level equivalent to
total healthcare organizations representing approximately $22 billion of
combined purchasing volume at the end of the fourth year.

     Under our outsourcing and operating agreement with Novation, we have agreed
to provide specific functionality to Marketplace@Novation, the online
marketplace only available to the patrons and members of the owners of Novation,
VHA, UHC and HPPI. Novation has agreed to act as our exclusive agent to
negotiate agreements with suppliers to offer their equipment, products, supplies
and services through our online marketplace, subject to some exceptions. VHA,
UHC, HPPI and Novation have each agreed not to develop or promote any other
Internet-based exchange for the acquisition or disposal of products, supplies,
equipment or services by healthcare organizations.

     On October 18, 2000, we canceled VHA's warrant to purchase up to 30,845,020
shares of our common stock and issued to VHA 30,845,020 shares of our restricted
common stock in substitution for such warrant. The restricted common stock that
we issued to VHA is subject to the identical performance-based vesting criteria
to which VHA's warrant was subject. On January 25, 2001, we also canceled UHC's
warrant to purchase up to 5,639,577 shares of our common stock and issued to UHC
5,639,577 shares of our restricted common stock in substitution for such
warrant. The restricted common stock that we issued to UHC is subject to the
identical performance-based vesting criteria to which UHC's warrant was subject.

     On January 25, 2001, we also amended the outsourcing and operating
agreement to revise terms relating to the payment of fees to us by Novation,
sharing of revenues by us with Novation and obligations of each of the parties
to the agreement. The amended outsourcing and operating agreement guarantees to
us a fee based on the gross volumes of purchases made by Novation members
through Marketplace@Novation. The amended outsourcing and operating agreement
also includes modifications to revenue sharing provisions under which we will
share certain fees we receive for products and services sold through or related
to our marketplaces. We will share with Novation revenue related to transactions
through Marketplace@Novation and from our other marketplaces, revenue related to
our Shop and Auction services and revenue related to the distribution or
licensing of software and other technology solutions. We will not share revenue
related to marketplaces sponsored by other GPOs except for certain types of
purchases. For the term of the agreement, we will not share with Novation
revenue related to any of the above transactions in any quarter until we have
achieved specified minimum transaction fees related to Marketplace@Novation
transactions. The amended outsourcing and operating agreement also includes
modifications to certain supplier recruitment and supplier implementation
provisions of the original agreement.

     In April 2001, we entered into a $25 million revolving credit agreement
with VHA. Under the credit agreement, until May 31, 2002, we are able to borrow
funds up to an amount based on a specified formula dependent on the gross volume
of transactions through the Marketplace@Novation. Any funds that we borrow under
this credit agreement will bear interest at a rate of 10% per annum and will be
secured by substantially all of our assets. In the event that we (1) sell any of
our stock as part of an equity financing,
                                        67
<PAGE>   68

(2) obtain funding in connection with a debt financing or other lending
transaction that is either unsecured or subordinate to the lien of VHA under the
credit agreement or (3) enter into a debt financing or other lending transaction
secured by assets we owned as of the date we entered into the credit agreement,
then the maximum of $25 million we could potentially borrow under the credit
agreement will be reduced by an amount equal to the cash proceeds we receive
from any of these transactions.

     We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions between us and our officers, directors and
principal stockholders and their affiliates will be approved by a majority of
the board, including a majority of the independent and disinterested directors
of the board, and will be on terms no less favorable to us than could be
obtained from unaffiliated third parties.

                                        68
<PAGE>   69

                                    PART IV

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

     (a)(1) Index To Consolidated Financial Statements

     The following Consolidated Financial Statements of the Registrant are filed
as part of this report:

        Report of Independent Public Accountants.
        Consolidated Balance Sheets as of December 31, 2000 and 1999.
        Consolidated Statements of Operations for the Years ended December 31,
         2000, 1999, and 1998.
        Consolidated Statements of Changes in Stockholders' Equity from December
         31, 1997 to December 31, 2000.
        Consolidated Statements of Cash Flows for the Years ended December 31,
         2000, 1999, and 1998.
        Notes to Consolidated Financial Statements.

     (a)(2) Index to Consolidated Financial Statement Schedules

     The following Consolidated Financial Statement Schedule of the Registrant
is filed as part of this report:

<TABLE>
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts and
  Reserves
</TABLE>

     Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
accompanying consolidated financial statements or Notes thereto.

     (a)(3) Index to Exhibits

<TABLE>
<CAPTION>
EXHIBIT                                                                           INCORPORATED BY REFERENCE
  NO.                                                                                                          EXHIBIT
 FILED                                                                                                         NO. AS
HEREWITH                             EXHIBIT                            FORM    FILE NO.      FILING DATE       FILED
--------                             -------                           ------   ---------   ----------------   -------
<C>         <S>                                                        <C>      <C>         <C>                <C>
  2.01      Securities Purchase Agreement by and among Neoforma GAR,   S-1      333-89077   January 21, 2000   2.01
            Inc. and Neoforma, Inc. and General Asset Recovery, LLC,
            Eric Tivin and Fred Tivin dated as of July 16, 1999.
            Certain schedules have been omitted and will be provided
            to the Commission upon request.
  2.02      Agreement for Purchase of Assets, dated November 18,       S-1      333-89077   January 21, 2000   2.02
            1999, by and among the Registrant, FDI Information
            Resources, Inc. and FDI Information LLC. Certain
            schedules have been omitted and will be provided to the
            Commission upon request.
  2.03      Agreement and Plan of Merger, dated as of December 23,     S-1      333-89077   January 21, 2000   2.03
            1999, by and among the Registrant, Pharos Technologies,
            Inc. and Mimimee, Inc.
  2.04      Agreement and Plan of Merger, dated March 24, 2000,        8-K                  April 3, 2000      2.01
            between the Registrant and EquipMD.
  2.05      Agreement and Plan of Merger, dated March 30, 2000, among  8-K                  April 4, 2000      2.1
            the Registrant, Neo III Acquisition Corp. and Eclipsys
            Corporation (including Voting Agreement Exhibits).
  2.06      Agreement and Plan of Merger, dated March 30, 2000,        8-K                  April 4, 2000      2.2
            between the Registrant and HEALTHvision, Inc. (including
            Exhibits A and B).
  3.01      Form of Fourth Amended and Restated Certificate of         DEF14A               June 29, 2000      Annex D
            Incorporation.
  3.02      Restated Bylaws of the Registrant, as adopted on November  S-1      333-89077   January 21, 2000   3.03
            12, 1999.
  4.01      Form of Specimen Certificate for Registrant's common       S-1      333-89077   January 21, 2000   4.01
            stock.
  4.02      Amended and Restated Registration Rights Agreement dated   X
            June 30, 2000.
  4.03      Amendment No. 1 to Registration Rights Agreement dated     X
            January 25, 2001.
</TABLE>

                                        69
<PAGE>   70

<TABLE>
<CAPTION>
EXHIBIT                                                                           INCORPORATED BY REFERENCE
  NO.                                                                                                          EXHIBIT
 FILED                                                                                                         NO. AS
HEREWITH                             EXHIBIT                            FORM    FILE NO.      FILING DATE       FILED
--------                             -------                           ------   ---------   ----------------   -------
<C>         <S>                                                        <C>      <C>         <C>                <C>
  4.04      Warrant to purchase common stock of the Registrant issued  S-1      333-89077   January 21, 2000   4.03
            to Heidrick & Struggles.
  4.05      QuickStart Warrant to purchase Series C preferred stock    S-1      333-89077   January 21, 2000   4.04
            of the Registrant dated June 25, 1998 issued to Silicon
            Valley Bank, as amended on March 5, 1999.
  4.06      Warrant to purchase Series D preferred stock of the        S-1      333-89077   January 21, 2000   4.05
            Registrant dated May 12, 1999 issued to Comdisco, Inc.
  4.07      QuickStart Warrant to purchase Series D preferred stock    S-1      333-89077   January 21, 2000   4.06
            of the Registrant dated July 20, 1999 issued to Silicon
            Valley Bank.
  4.08      Warrant to purchase Series D preferred stock of the        S-1      333-89077   January 21, 2000   4.07
            Registrant dated as of July 7, 1999 issued to Comdisco,
            Inc.
 10.01*     Form of Indemnity Agreement between the Registrant and     S-1      333-89077   January 21, 2000   10.01
            its directors and officers.
 10.02*     Neoforma.com, Inc. 1997 Stock Plan, as amended.            S-1      333-89077   January 21, 2000   10.02
 10.03*     Neoforma.com, Inc. 1999 Equity Incentive Plan.             S-1      333-89077   January 21, 2000   10.03
 10.04*     Neoforma.com, Inc. 1999 Employee Stock Purchase Plan.      S-1      333-89077   January 21, 2000   10.04
 10.05+     Development and License Agreement dated May 14, 1999       S-1      333-89077   January 21, 2000   10.05
            between ECRI and the Registrant.
 10.06+     Distribution and Services Agreement dated October 1, 1999  S-1      333-89077   January 21, 2000   10.06
            between Superior Consultant and the Registrant.
 10.07+     Strategic Alliance Agreement dated October 11, 1999        S-1      333-89077   January 21, 2000   10.07
            between Dell Marketing L.P. and the Registrant.
 10.08*     Employment Agreement dated July 1, 1999 between Robert J.  S-1      333-89077   January 21,        10.09
            Zollars and the Registrant.                                                     2000.
 10.09*     Promissory Note for $7,800,000 dated August 1999 payable   S-1      333-89077   January 21, 2000   10.15
            to Erik Tivin.
 10.10      QuickStart Loan and Security Agreement dated June 25,      S-1      333-89077   January 21, 2000   10.16
            1998 between Silicon Valley Bank and the Registrant, as
            amended on July 20, 1999.
 10.11      Subordinated Loan and Security Agreement dated May 12,     S-1      333-89077   January 21, 2000   10.17
            1999 between Comdisco, Inc. and the Registrant.
 10.12      Subordinated Promissory Note for $2,000,000 dated May 27,  S-1      333-89077   January 21, 2000   10.18
            1999 payable to Comdisco, Inc.
 10.13      Loan and Security Agreement dated July 7, 1999 between     S-1      333-89077   January 21, 2000   10.19
            Comdisco, Inc. and the Registrant.
 10.14      Hardware Security Promissory Note for $1,032,001.98 dated  S-1      333-89077   January 21, 2000   10.20
            September 3, 1999 payable to Camdisco, Inc.
 10.15      Softcost Promissory Note for $240,363.61 dated September   S-1      333-89077   January 21, 2000   10.21
            3, 1999 payable to Comdisco, Inc.
 10.16+     Co-Branding Agreement, dated as of November 19, 1999, by   S-1      333-89077   January 21, 2000   10.26
            and between the Registrant and VerticalNet, Inc.
 10.17      Amendment to Co-Branding Agreement, dated as of February   X
            6, 2001, by and between the Registrant and VerticalNet,
            Inc.
 10.18*     Offer Letter dated July 28, 1999 with Daniel A. Eckert.    S-1      333-89077   January 21, 2000   10.27
 10.19      Industrial Building Lease, dated as of October 1999, by    S-1      333-89077   January 21, 2000   10.28
            and between the Registrant and Centerpoint Properties
            Trust.
 10.20      Amended and Restated Common Stock and Warrant Agreement,   8-K                  April 4, 2000      99.1
            dated as of May 24, 2000, between the Registrant and VHA
            Inc. (including exhibits).
 10.21      Amended and Restated Common Stock and Warrant Agreement,   8-K                  April 4, 2000      99.2
            dated as of May 24, 2000, between the Registrant and
            University Healthsystem Consortium (including exhibits).
</TABLE>

                                        70
<PAGE>   71

<TABLE>
<CAPTION>
EXHIBIT                                                                           INCORPORATED BY REFERENCE
  NO.                                                                                                          EXHIBIT
 FILED                                                                                                         NO. AS
HEREWITH                             EXHIBIT                            FORM    FILE NO.      FILING DATE       FILED
--------                             -------                           ------   ---------   ----------------   -------
<C>         <S>                                                        <C>      <C>         <C>                <C>
 10.22      Termination Agreement, dated as of May 24, 2000, among     8-K                  May 31, 2000       10.22
            the Registrant, Neo III Acquisition Corp., Eclipsys
            Corporation, HEALTHvision, Inc., Novation, LLC, VHA Inc.,
            University HealthSystem Consortium and Healthcare
            Purchasing Partners International, LLC.
 10.23      Amended and Restated Common Stock and Warrant Agreement,   8-K                  May 31, 2000       99.1
            dated as of May 24, 2000, between the Registrant and VHA
            Inc. (including exhibits).
 10.24      Amended and Restated Common Stock and Warrant Agreement,   8-K                  May 31, 2000       99.2
            dated as of May 24, 2000, between the Registrant and
            University Healthsystem Consortium (including exhibits).
 10.25      Amendment to Amended and Restated Common Stock and         8-K                  October 19, 2000   99.3
            Warrant Agreement, dated as of October 18, 2000, between
            the Registrant and VHA Inc.
 10.26      Sublease Agreement dated March 7, 2000 between the         10-Q                 May 15, 2000       10.1
            Registrant and Seagate Technology, Inc.
 10.27      Sublease Agreement dated March 14, 2000 between the        10-Q                 May 15, 2000       10.2
            Registrant and Nelson & Associates.
 10.28+     Outsourcing Agreement dated March 30, 2000 between the     10-Q                 May 15, 2000       10.2
            Registrant and Novation, LLC, VHA Inc., University
            HealthSystem Consortium and Healthcare Purchasing
            Partners International, LLC.
 10.29*     Amendment to Employment Agreement between Robert J.        X
            Zollars and the Registrant
 10.30*     Offer letter for Andrew L. Guggenhime dated January 14,    X
            2000.
 10.31*     Offer letter for Steven E. Kane dated May 30, 2000.        X
 10.32*     Offer letter for Steven J. Wigginton dated December 2,     X
            1999.
 10.33*     Offer letter for Charles D. Brennan dated November 22,     X
            1999.
 10.34**    Public Marketplace License Agreement dated December 29,    X
            2000 by and between i2 Technologies, Inc. and the
            Registrant.
 10.35**    Application Service Provider Agreement dated December 29,  X
            2000 by and between i2 Technologies, Inc. and the
            Registrant.
 10.36**    Services Agreement dated December 29, 2000 by and between  X
            i2 Technologies, Inc. and the Registrant.
 10.37      Common Stock Purchase Agreement dated December 29, 2000    X
            by and between i2 Technologies, Inc. and the Registrant.
 21.1       Subsidiaries.                                              X
 23.1       Consent of Arthur Andersen LLP, independent public         X
            accountants.
 24.1       Power of Attorney (see signature page).                    X
</TABLE>

---------------
 + Indicates that portions of this agreement were granted confidential treatment
   by the Commission

 * Indicates a management contract or compensatory plan or arrangement

** Confidential treatment has been requested for portions of this agreement.

     Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or the
notes thereto.

     (b) Reports on Form 8-K

     None.

                                        71
<PAGE>   72

     (c) Exhibits

     The Registrant hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) above. Exhibits which are incorporated herein
by reference can be inspected and copied at the public reference facilities
maintained by the Commission, 450 Fifth Street, NW, Room 1024, Washington, D.C.
and at the Commission's regional offices at 219 South Dearborn Street, Room
1204, Chicago, Illinois; 26 Federal Plaza, Room 1102, New York, New York and
5757 Wilshire Boulevard, Suite 1710, Los Angeles, California. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.

     (d) Financial Statement Schedules

     The Company hereby files as part of this Annual Report on Form 10-K the
consolidated financial statement schedules listed in Item 14(a)(2) above.

                                        72
<PAGE>   73

                                   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.

DATE: April 16, 2001                      NEOFORMA.COM, INC

                                          By:     /s/ ANDREW GUGGENHIME
                                            ------------------------------------
                                                     Andrew Guggenhime
                                                  Chief Financial Officer

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

                 /s/ ROBERT J. ZOLLARS                       Chief Executive Officer      April 16, 2001
--------------------------------------------------------  (Principal Executive Officer)
                   Robert J. Zollars

                 /s/ ANDREW GUGGENHIME                       Chief Financial Officer      April 16, 2001
--------------------------------------------------------     (Principal Financial and
                   Andrew Guggenhime                           Accounting Officer)

                   /s/ CURT NONOMAQUE                                Director             April 16, 2001
--------------------------------------------------------
                     Curt Nonomaque

                    /s/ MARK MCKENNA                                 Director             April 16, 2001
--------------------------------------------------------
                      Mark McKenna

                                                                     Director             April   , 2001
--------------------------------------------------------
                   Richard D. Helppie

                 /s/ JEFFREY HILLEBRAND                              Director             April 16, 2001
--------------------------------------------------------
                   Jeffrey Hillebrand

                /s/ ANDREW J. FILIPOWSKI                             Director             April 16, 2001
--------------------------------------------------------
                  Andrew J. Filipowski

                   /s/ MICHAEL MURRAY                                Director             April 16, 2001
--------------------------------------------------------
                     Michael Murray

                  /s/ ROBERT J. BAKER                                Director             April 16, 2001
--------------------------------------------------------
                    Robert J. Baker

                  /s/ C. THOMAS SMITH                                Director             April 16, 2001
--------------------------------------------------------
                    C. Thomas Smith
</TABLE>

                                        73
<PAGE>   74

                               NEOFORMA.COM, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
CONSOLIDATED FINANCIAL STATEMENTS
  Report of Independent Public Accountants..................   F-2
  Consolidated Balance Sheets...............................   F-3
  Consolidated Statements of Operations.....................   F-4
  Consolidated Statements of Changes in Stockholders' Equity
     (Deficit)..............................................   F-5
  Consolidated Statements of Cash Flows.....................   F-8
  Notes to Consolidated Financial Statements................  F-10
</TABLE>

                                       F-1
<PAGE>   75

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
of Neoforma.com, Inc.:

     We have audited the accompanying consolidated balance sheets of
Neoforma.com, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements and the schedule
referred to below 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neoforma.com, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.

     Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)(2)
is presented for purposes of complying with the Securities and Exchange
Commission rules and is not part of the basic financial statements. The 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.

                                          /s/ ARTHUR ANDERSEN LLP
San Jose, California
April 16, 2001

                                       F-2
<PAGE>   76

                               NEOFORMA.COM, INC.

                          CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                               --------------------
                                                                 1999       2000
                                                               --------   ---------
<S>                                                            <C>        <C>
                                      ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................   $ 25,292   $  22,597
  Short-term investments....................................     21,483       7,163
  Accounts receivable, net of allowance for doubtful
    accounts of $4 and $384 in 1999 and 2000,
    respectively............................................        151       1,353
  Unbilled revenue..........................................         --         946
  Prepaid expenses and other current assets.................      2,226       3,770
  Deferred debt costs, current portion......................        413         413
                                                               --------   ---------
        Total current assets................................     49,565      36,242
                                                               --------   ---------
LONG-TERM INVESTMENTS.......................................      2,027          --
PROPERTY AND EQUIPMENT, net.................................      8,771      32,529
INTANGIBLES, net of amortization............................     12,319     127,799
CAPITALIZED PARTNERSHIP COSTS, net of amortization..........         --     308,330
NON-MARKETABLE INVESTMENTS..................................      2,500       8,400
OTHER ASSETS................................................      1,585         456
DEFERRED DEBT COSTS, less current portion...................        602         182
                                                               --------   ---------
        Total assets........................................   $ 77,369   $ 513,938
                                                               ========   =========
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
  Notes payable, current portion............................   $  3,360   $   8,089
  Accounts payable..........................................      7,123      22,744
  Accrued payroll...........................................      1,410       3,106
  Other accrued liabilities.................................        685       2,303
  Deferred revenue..........................................         99         947
                                                               --------   ---------
        Total current liabilities...........................     12,677      37,189
                                                               --------   ---------
NOTES PAYABLE, less current portion.........................      7,743       7,958
                                                               --------   ---------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
  Series C --
    Authorized -- 5,110 shares at December 31, 2000
    Issued and outstanding: 5,065 shares and none at
     December 31, 1999 and 2000, respectively; par
     value -- $0.001; liquidation preference -- $3,900......      3,884          --
                                                               --------   ---------
  Series D --
    Authorized -- 10,573 shares at December 31, 2000
    Issued and outstanding: 10,196 shares and none at
     December 31, 1999 and 2000, respectively; par value
     $0.001; liquidation preference -- $12,032..............     11,986          --
                                                               --------   ---------
  Series E and E-1 --
    Authorized -- 13,204 shares at December 31, 2000
    Issued and outstanding: 12,870 shares and none at
     December 31, 1999 and 2000, respectively; par value
     $0.001; liquidation preference -- $73,102..............     72,942          --
                                                               --------   ---------
STOCKHOLDERS' EQUITY (DEFICIT):
  Series A --convertible preferred stock
    Authorized -- 9,000 shares at December 31, 2000
    Issued and outstanding: 9,000 and none at December 31,
     1999 and 2000, respectively; par value $0.001;
     liquidation preference -- $2,250.......................          9          --
  Series B --convertible preferred stock
    Authorized -- 2,860 shares at December 31, 2000
    Issued and outstanding: 2,860 and none at December 31,
     1999 and 2000, respectively; par value $0.001;
     liquidation preference -- $1,430.......................          3          --
  Common Stock $0.001 par value:
    Authorized -- 300,000 shares at December 31, 2000
    Issued and outstanding: 14,406 and 134,935 shares at
     December 31, 1999 and 2000, respectively...............         14         135
Warrants....................................................      3,621      11,733
Additional paid-in capital..................................     76,216     761,252
Notes receivable from stockholders..........................     (8,245)     (7,112)
Deferred compensation.......................................    (47,388)    (32,346)
Unrealized loss on available-for-sale securities............        (40)         (3)
Accumulated deficit.........................................    (56,053)   (264,868)
                                                               --------   ---------
        Total stockholders' equity (deficit)................    (31,863)    468,791
                                                               --------   ---------
        Total liabilities and stockholders' equity
        (deficit)...........................................   $ 77,369   $ 513,938
                                                               ========   =========
</TABLE>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.
                                       F-3
<PAGE>   77

                               NEOFORMA.COM, INC

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                               1998       1999       2000
                                                              -------   --------   ---------
<S>                                                           <C>       <C>        <C>
REVENUE
  Sales of equipment........................................  $    --   $     --   $   4,629
  Transaction fees..........................................       --        929       2,273
  Services..................................................       --         --         959
  Website sponsorship fees and other........................       --         75       2,585
                                                              -------   --------   ---------
          Total revenue.....................................       --      1,004      10,446
OPERATING EXPENSES:
  Cost of equipment sold....................................       --         --       3,544
  Cost of services..........................................       --         --       8,247
  Operations................................................      627      5,941      13,517
  Product development.......................................    1,494      8,161      24,599
  Selling and marketing.....................................    1,411     16,860      53,216
  General and administrative................................    1,075     17,937      25,922
  Amortization of intangibles...............................       --        715      25,700
  Amortization of partnership costs.........................       --         --      30,491
  Cost of warrant issued to recruiter.......................       --      2,364          --
  Write off of acquired in-process research and
     development............................................       --         --      18,000
  Abandoned acquisition costs...............................       --         --       2,742
  Restructuring.............................................       --         --       2,100
  Cost of anticipated divestitures..........................       --         --      14,446
                                                              -------   --------   ---------
          Total operating expenses..........................    4,607     51,978     222,524
                                                              -------   --------   ---------
          Loss from operations..............................   (4,607)   (50,974)   (212,078)
OTHER INCOME (EXPENSE):
  Interest income...........................................       66        659       4,464
  Interest expense..........................................      (22)      (676)     (1,289)
  Other income (expense)....................................       --        (29)         88
                                                              -------   --------   ---------
          Net loss..........................................  $(4,563)  $(51,020)  $(208,815)
                                                              =======   ========   =========
NET LOSS PER SHARE:
  Basic and diluted.........................................  $ (1.65)  $ (19.15)  $   (2.49)
                                                              =======   ========   =========
  Weighted average shares -- basic and diluted..............    2,762      2,664      83,948
                                                              =======   ========   =========
PRO FORMA NET LOSS PER SHARE (unaudited):
  Basic and diluted.........................................  $ (0.36)  $  (1.63)  $   (2.41)
                                                              =======   ========   =========
  Weighted average shares -- basic and diluted..............   12,848     31,282      86,585
                                                              =======   ========   =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>   78

                               NEOFORMA.COM, INC.

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                   PREFERRED STOCK
                                          ---------------------------------
                                             SERIES A          SERIES B        COMMON STOCK                ADDITIONAL
                                          ---------------   ---------------   ---------------               PAID-IN
                                          SHARES   AMOUNT   SHARES   AMOUNT   SHARES   AMOUNT   WARRANTS    CAPITAL
                                          ------   ------   ------   ------   ------   ------   --------   ----------
<S>                                       <C>      <C>      <C>      <C>      <C>      <C>      <C>        <C>
BALANCE, DECEMBER 31, 1997..............     --     $--        --     $--      8,188    $ 8      $   --     $    72
                                          -----     ---     -----     ---     ------    ---      ------     -------
  Common stock issued for cash at $0.25
    per share in February 1998..........     --      --        --      --        800      1          --         199
  Common stock issued in exchange for
    consulting services valued at $0.25
    per share in March 1998.............     --      --        --      --        500     --          --         125
  Conversion of founders stock to Series
    A preferred stock at $0.00375 per
    share in April 1998.................  8,000       8        --      --     (8,000)    (8)         --          --
  Conversion of common stock to Series A
    preferred stock at $0.25 per share
    in April 1998.......................  1,000       1        --      --     (1,000)    (1)         --          --
  Preferred stock issued for cash at
    $0.50 per share in April and May
    1998, net of issuance costs.........     --      --     2,520       3         --     --          --       1,252
  Conversion of notes payable to Series
    B preferred stock at $0.50 per share
    in May 1998.........................     --      --       340      --         --     --          --         170
  Common stock issued for cash as a
    result of options exercised at $0.05
    per share in May 1998...............     --      --        --      --        516      1          --          25
  Issuance of warrants to purchase
    common stock in November 1998.......     --      --        --      --         --     --           7          --
  Common stock issued for cash as a
    result of options exercised at $0.10
    per share in November 1998..........     --      --        --      --        200     --          --          20
  Deferred compensation.................     --      --        --      --         --     --          --          52
  Amortization of deferred
    compensation........................     --      --        --      --         --     --          --          --
  Net loss..............................     --      --        --      --         --     --          --          --
                                          -----     ---     -----     ---     ------    ---      ------     -------
BALANCE, DECEMBER 31, 1998..............  9,000       9     2,860       3      1,204      1           7       1,915

<CAPTION>

                                             NOTES                          UNREALIZED                         TOTAL
                                           RECEIVABLE                     GAIN (LOSS) ON                   STOCKHOLDERS'
                                              FROM         DEFERRED     AVAILABLE FOR SALE   ACCUMULATED      EQUITY
                                          STOCKHOLDERS   COMPENSATION       SECURITIES         DEFICIT       (DEFICIT)
                                          ------------   ------------   ------------------   -----------   -------------
<S>                                       <C>            <C>            <C>                  <C>           <C>
BALANCE, DECEMBER 31, 1997..............    $    --        $     --            $ --           $   (470)      $   (390)
                                            -------        --------            ----           --------       --------
  Common stock issued for cash at $0.25
    per share in February 1998..........         --              --              --                 --            200
  Common stock issued in exchange for
    consulting services valued at $0.25
    per share in March 1998.............         --              --              --                 --            125
  Conversion of founders stock to Series
    A preferred stock at $0.00375 per
    share in April 1998.................         --              --              --                 --             --
  Conversion of common stock to Series A
    preferred stock at $0.25 per share
    in April 1998.......................         --              --              --                 --             --
  Preferred stock issued for cash at
    $0.50 per share in April and May
    1998, net of issuance costs.........         --              --              --                 --          1,255
  Conversion of notes payable to Series
    B preferred stock at $0.50 per share
    in May 1998.........................         --              --              --                 --            170
  Common stock issued for cash as a
    result of options exercised at $0.05
    per share in May 1998...............         --              --              --                 --             26
  Issuance of warrants to purchase
    common stock in November 1998.......         --              --              --                 --              7
  Common stock issued for cash as a
    result of options exercised at $0.10
    per share in November 1998..........        (10)             --              --                 --             10
  Deferred compensation.................         --             (52)             --                 --             --
  Amortization of deferred
    compensation........................         --               5              --                 --              5
  Net loss..............................         --              --              --             (4,563)        (4,563)
                                            -------        --------            ----           --------       --------
BALANCE, DECEMBER 31, 1998..............        (10)            (47)             --             (5,033)        (3,155)

<CAPTION>

                                          COMPREHENSIVE
                                             (LOSS)
                                          -------------
<S>                                       <C>
BALANCE, DECEMBER 31, 1997..............    $   (416)
                                            --------
  Common stock issued for cash at $0.25
    per share in February 1998..........          --
  Common stock issued in exchange for
    consulting services valued at $0.25
    per share in March 1998.............          --
  Conversion of founders stock to Series
    A preferred stock at $0.00375 per
    share in April 1998.................          --
  Conversion of common stock to Series A
    preferred stock at $0.25 per share
    in April 1998.......................          --
  Preferred stock issued for cash at
    $0.50 per share in April and May
    1998, net of issuance costs.........          --
  Conversion of notes payable to Series
    B preferred stock at $0.50 per share
    in May 1998.........................          --
  Common stock issued for cash as a
    result of options exercised at $0.05
    per share in May 1998...............          --
  Issuance of warrants to purchase
    common stock in November 1998.......          --
  Common stock issued for cash as a
    result of options exercised at $0.10
    per share in November 1998..........          --
  Deferred compensation.................          --
  Amortization of deferred
    compensation........................          --
  Net loss..............................    $ (4,563)
                                            --------
BALANCE, DECEMBER 31, 1998..............      (4,563)
</TABLE>

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

                                       F-5
<PAGE>   79

                               NEOFORMA.COM, INC.

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                            PREFERRED STOCK
                                                   ---------------------------------
                                                      SERIES A          SERIES B        COMMON STOCK                ADDITIONAL
                                                   ---------------   ---------------   ---------------               PAID-IN
                                                   SHARES   AMOUNT   SHARES   AMOUNT   SHARES   AMOUNT   WARRANTS    CAPITAL
                                                   ------   ------   ------   ------   ------   ------   --------   ----------
<S>                                                <C>      <C>      <C>      <C>      <C>      <C>      <C>        <C>
BALANCE, December 31, 1998.......................   9,000    $ 9      2,860    $ 3      1,204    $  1    $      7    $  1,915
                                                   ------    ---     ------    ---     ------    ----    --------    --------
Repayment of note receivable from shareholder....      --     --         --     --         --      --          --          --
Common stock issued as a result of options
 exercised at $0.10 to $7.00 per share...........      --     --         --     --     12,855      13          --       9,102
Common stock repurchased at $0.10 per share......      --     --         --     --        (14)     --          --          (1)
Valuation of options issued to consultants.......      --     --         --     --         --      --          --         850
Valuation of shares reserved for issuance to
 consultants.....................................      --     --         --     --         --      --          --           8
Issuance of warrants to purchase common stock....      --     --         --     --         --      --          10          --
Valuation of preferred stock warrants issued to
 lender in conjunction with debt.................      --     --         --     --         --      --       1,240          --
Valuation of common stock issued to
 consultants.....................................      --     --         --     --         11      --          --         641
Valuation of warrants to purchase common stock
 issued to consultants at $0.10 per share........      --     --         --     --         --      --       2,364          --
Common stock issued in connection with the
 acquisition of the assets of FDI Information
 Resources, LLC..................................      --     --         --     --        350      --          --       3,149
Deferred compensation............................      --     --         --     --         --      --          --      60,552
Unrealized losses on available for sale
 securities......................................      --     --         --     --         --      --          --          --
Amortization of deferred compensation............      --     --         --     --         --      --          --          --
Net loss.........................................      --     --         --     --         --      --          --          --
                                                   ------    ---     ------    ---     ------    ----    --------    --------
BALANCE, December 31, 1999.......................   9,000    $ 9      2,860    $ 3     14,406    $ 14    $  3,621    $ 76,216

<CAPTION>

                                                      NOTES                          UNREALIZED                         TOTAL
                                                    RECEIVABLE                     GAIN (LOSS) ON                   STOCKHOLDERS'
                                                       FROM         DEFERRED     AVAILABLE FOR SALE   ACCUMULATED      EQUITY
                                                   STOCKHOLDERS   COMPENSATION       SECURITIES         DEFICIT       (DEFICIT)
                                                   ------------   ------------   ------------------   -----------   -------------
<S>                                                <C>            <C>            <C>                  <C>           <C>
BALANCE, December 31, 1998.......................    $   (10)       $    (47)           $ --           $  (5,033)     $  (3,155)
                                                     -------        --------            ----           ---------      ---------
Repayment of note receivable from shareholder....         60              --              --                  --             60
Common stock issued as a result of options
 exercised at $0.10 to $7.00 per share...........     (8,295)             --              --                  --            820
Common stock repurchased at $0.10 per share......         --              --              --                  --             (1)
Valuation of options issued to consultants.......         --              --              --                  --            850
Valuation of shares reserved for issuance to
 consultants.....................................         --              --              --                  --              8
Issuance of warrants to purchase common stock....         --              --              --                  --             10
Valuation of preferred stock warrants issued to
 lender in conjunction with debt.................         --              --              --                  --          1,240
Valuation of common stock issued to
 consultants.....................................         --              --              --                  --            641
Valuation of warrants to purchase common stock
 issued to consultants at $0.10 per share........         --              --              --                  --          2,364
Common stock issued in connection with the
 acquisition of the assets of FDI Information
 Resources, LLC..................................         --              --              --                  --          3,149
Deferred compensation............................         --         (60,552)             --                  --             --
Unrealized losses on available for sale
 securities......................................         --              --             (40)                 --            (40)
Amortization of deferred compensation............         --          13,211              --                  --         13,211
Net loss.........................................         --              --              --             (51,020)       (51,020)
                                                     -------        --------            ----           ---------      ---------
BALANCE, December 31, 1999.......................    $(8,245)       $(47,388)           $(40)          $ (56,053)     $ (31,863)

<CAPTION>

                                                   COMPREHENSIVE
                                                      (LOSS)
                                                   -------------
<S>                                                <C>
BALANCE, December 31, 1998.......................    $  (4,563)
                                                     ---------
Repayment of note receivable from shareholder....
Common stock issued as a result of options
 exercised at $0.10 to $7.00 per share...........
Common stock repurchased at $0.10 per share......
Valuation of options issued to consultants.......
Valuation of shares reserved for issuance to
 consultants.....................................
Issuance of warrants to purchase common stock....
Valuation of preferred stock warrants issued to
 lender in conjunction with debt.................
Valuation of common stock issued to
 consultants.....................................
Valuation of warrants to purchase common stock
 issued to consultants at $0.10 per share........
Common stock issued in connection with the
 acquisition of the assets of FDI Information
 Resources, LLC..................................
Deferred compensation............................
Unrealized losses on available for sale
 securities......................................    $     (40)
Amortization of deferred compensation............
Net loss.........................................      (51,020)
                                                     ---------
BALANCE, December 31, 1999.......................    $ (51,060)
</TABLE>

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

                                       F-6
<PAGE>   80

                               NEOFORMA.COM, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                          PREFERRED STOCK
                                                 ---------------------------------
                                                    SERIES A          SERIES B        COMMON STOCK                ADDITIONAL
                                                 ---------------   ---------------   ---------------               PAID-IN
                                                 SHARES   AMOUNT   SHARES   AMOUNT   SHARES   AMOUNT   WARRANTS    CAPITAL
                                                 ------   ------   ------   ------   ------   ------   --------   ----------
<S>                                              <C>      <C>      <C>      <C>      <C>      <C>      <C>        <C>
BALANCE, December 31, 1999.....................   9,000    $ 9      2,860    $ 3     14,406    $ 14    $  3,621    $ 76,216
                                                 ------    ---     ------    ---     ------    ----    --------    --------
Repayment of notes receivable from
 stockholders..................................      --     --         --     --         --      --          --          --
Common stock issued as a result of options
 exercised at $0.10 to $7.00...................      --     --         --     --        141      --          --         178
Common stock repurchased at $0.10 to $7.00.....      --     --         --     --     (1,774)     (2)         --      (2,179)
Valuation of options issued to consultants.....      --     --         --     --         --      --          --         212
Valuation of warrants issued to consultants....      --     --         --     --         --      --          67          --
Conversion of Preferred Stock to common
 stock.........................................  (9,000)    (9)    (2,860)    (3)    39,991      40          --      88,743
Issuance of common stock for Initial Public
 Offering net of issuance costs of $9.3
 million.......................................      --     --         --     --      8,050       8          --      95,329
Common stock issued in connection with exercise
 of warrant, net of shares repurchased.........      --     --         --     --        706       1          --          --
Common stock issued and Notes receivable from
 stockholders assumed in connection with the
 acquisition of Pharos Technologies, Inc.......      --     --         --     --      1,975       2          --      22,980
Common stock issued in connection with the
 acquisition of U.S. Lifeline..................      --     --         --     --         61      --          --       2,769
Common stock issued in connection with the
 acquisition of EquipMD........................      --     --         --     --      4,374       5          --     133,610
Common stock issued in connection with the
 acquisition of certain assets of NCL..........      --     --         --     --        300      --          --       2,162
Common stock issued to VHA and UHC in
 connection with the Outsourcing Agreement.....      --     --         --     --     57,547      58          --     291,273
Valuation of warrants earned by VHA and UHC....      --     --         --     --         --      --      38,105          --
Common stock issued to UHC in connection with
 exercise of warrant...........................      --     --         --     --      1,880       2      (8,224)      8,241
Conversion of VHA warrants to Restricted Common
 Stock.........................................      --     --         --     --      7,101       7     (21,836)     21,829
Deferred compensation on Employee Stock
 Options.......................................      --     --         --     --         --      --          --       4,656
Deferred compensation on options to purchase
 common stock assumed as part of the
 acquisition of EquipMD........................      --     --         --     --         --      --          --      23,053
Reduction in deferred compensation as a result
 of restructuring activities and employee
 attrition.....................................      --     --         --     --         --      --          --      (8,461)
Amortization of deferred compensation..........      --     --         --     --         --      --          --          --
Common stock issued under the employees stock
 purchase plan.................................      --     --         --     --        177      --          --         641
Unrealized gain on available for sale
 securities....................................      --     --         --     --         --      --          --          --
Net loss.......................................      --     --         --     --         --      --          --          --
                                                 ------    ---     ------    ---     ------    ----    --------    --------
BALANCE, December 31, 2000.....................      --    $--         --    $--     134,935   $135    $ 11,733    $761,252
                                                 ======    ===     ======    ===     ======    ====    ========    ========

<CAPTION>

                                                    NOTES                           UNREALIZED                           TOTAL
                                                  RECEIVABLE                        GAIN (LOSS)                      STOCKHOLDERS'
                                                     FROM         DEFERRED         ON AVAILABLE        ACCUMULATED      EQUITY
                                                 STOCKHOLDERS   COMPENSATION    FOR SALE SECURITIES      DEFICIT       (DEFICIT)
                                                 ------------   ------------   ---------------------   -----------   -------------
<S>                                              <C>            <C>            <C>                     <C>           <C>
BALANCE, December 31, 1999.....................    $(8,245)       $(47,388)            $(40)            $ (56,053)     $ (31,863)
                                                   -------        --------             ----             ---------      ---------
Repayment of notes receivable from
 stockholders..................................        212              --               --                                  212
Common stock issued as a result of options
 exercised at $0.10 to $7.00...................         --              --               --                    --            178
Common stock repurchased at $0.10 to $7.00.....      1,903              --               --                    --           (278)
Valuation of options issued to consultants.....         --              --               --                    --            212
Valuation of warrants issued to consultants....         --              --               --                    --             67
Conversion of Preferred Stock to common
 stock.........................................         --              --               --                    --         88,771
Issuance of common stock for Initial Public
 Offering net of issuance costs of $9.3
 million.......................................         --              --               --                    --         95,337
Common stock issued in connection with exercise
 of warrant, net of shares repurchased.........         --              --               --                    --              1
Common stock issued and Notes receivable from
 stockholders assumed in connection with the
 acquisition of Pharos Technologies, Inc.......       (982)             --               --                    --         22,000
Common stock issued in connection with the
 acquisition of U.S. Lifeline..................         --              --               --                    --          2,769
Common stock issued in connection with the
 acquisition of EquipMD........................         --              --               --                    --        133,615
Common stock issued in connection with the
 acquisition of certain assets of NCL..........         --              --               --                    --          2,162
Common stock issued to VHA and UHC in
 connection with the Outsourcing Agreement.....         --              --               --                    --        291,331
Valuation of warrants earned by VHA and UHC....         --              --               --                    --         38,105
Common stock issued to UHC in connection with
 exercise of warrant...........................         --              --               --                    --             19
Conversion of VHA warrants to Restricted Common
 Stock.........................................         --              --               --                    --             --
Deferred compensation on Employee Stock
 Options.......................................         --          (4,656)              --                    --             --
Deferred compensation on options to purchase
 common stock assumed as part of the
 acquisition of EquipMD........................         --         (23,053)              --                    --             --
Reduction in deferred compensation as a result
 of restructuring activities and employee
 attrition.....................................         --           8,461               --                    --             --
Amortization of deferred compensation..........         --          34,290               --                    --         34,290
Common stock issued under the employees stock
 purchase plan.................................         --              --               --                    --            641
Unrealized gain on available for sale
 securities....................................         --              --               37                                   37
Net loss.......................................         --              --               --              (208,815)      (208,815)
                                                   -------        --------             ----             ---------      ---------
BALANCE, December 31, 2000.....................    $(7,112)       $(32,346)            $ (3)            $(264,868)     $ 468,791
                                                   =======        ========             ====             =========      =========

<CAPTION>

                                                  COMPREHENSIVE
                                                     INCOME
                                                     (LOSS)
                                                 ---------------
<S>                                              <C>
BALANCE, December 31, 1999.....................     $ (51,060)
                                                    ---------
Repayment of notes receivable from
 stockholders..................................
Common stock issued as a result of options
 exercised at $0.10 to $7.00...................
Common stock repurchased at $0.10 to $7.00.....
Valuation of options issued to consultants.....
Valuation of warrants issued to consultants....
Conversion of Preferred Stock to common
 stock.........................................
Issuance of common stock for Initial Public
 Offering net of issuance costs of $9.3
 million.......................................
Common stock issued in connection with exercise
 of warrant, net of shares repurchased.........
Common stock issued and Notes receivable from
 stockholders assumed in connection with the
 acquisition of Pharos Technologies, Inc.......
Common stock issued in connection with the
 acquisition of U.S. Lifeline..................
Common stock issued in connection with the
 acquisition of EquipMD........................
Common stock issued in connection with the
 acquisition of certain assets of NCL..........
Common stock issued to VHA and UHC in
 connection with the Outsourcing Agreement.....
Valuation of warrants earned by VHA and UHC....
Common stock issued to UHC in connection with
 exercise of warrant...........................
Conversion of VHA warrants to Restricted Common
 Stock.........................................
Deferred compensation on Employee Stock
 Options.......................................
Deferred compensation on options to purchase
 common stock assumed as part of the
 acquisition of EquipMD........................
Reduction in deferred compensation as a result
 of restructuring activities and employee
 attrition.....................................
Amortization of deferred compensation..........
Common stock issued under the employees stock
 purchase plan.................................
Unrealized gain on available for sale
 securities....................................            37
Net loss.......................................      (208,815)
                                                    ---------
BALANCE, December 31, 2000.....................     $(208,778)
</TABLE>

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

                                       F-7
<PAGE>   81

                               NEOFORMA.COM, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                               1998        1999        2000
                                                              -------    --------    ---------
<S>                                                           <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Loss..................................................  $(4,563)   $(51,020)   $(208,815)
  Adjustment to reconcile net loss to net cash used in
    operating activities:
  Amortization resulting from issuance of Series E preferred
    stock in connection with prepaid consulting services....       --         269          958
  Common stock issued in connection with consulting
    services................................................      125           7           --
  Valuation of common stock options issued in connection
    with consulting services................................       --       1,484          212
  Valuation of common stock reserved for future issuance in
    connection with consulting services.....................        8           8           --
  Valuation of warrants to purchase common stock in exchange
    for consulting services.................................       --       2,364           67
  Provision for doubtful accounts...........................       --          --          440
  Depreciation and amortization of property and equipment...       96         980        8,277
  Amortization of intangibles...............................       --         715       25,715
  Amortization of partnership costs.........................       --          --       30,491
  Amortization of deferred compensation.....................        5      13,211       34,290
  Amortization of deferred debt costs.......................        6         236          420
  Write off of acquired in-process research and
    development.............................................       --          --       18,000
  Write down of intangible assets related to anticipated
    divestitures............................................       --          --       13,250
  Change in assets and liabilities, net of acquisitions:
    Accounts receivable.....................................       --        (151)      (1,380)
    Unbilled revenue........................................       --          --         (946)
    Prepaid expenses and other assets.......................      (97)     (2,385)      (1,071)
    Inventory...............................................       --          --         (300)
    Accounts payable........................................      263       6,738       15,152
    Accrued liabilities and accrued payroll.................      192       1,678        2,663
    Deferred revenue........................................       --          77           47
                                                              -------    --------    ---------
      Net cash used in operating activities.................   (3,973)    (25,789)     (62,530)
                                                              -------    --------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of marketable investments.......................       --     (23,550)      (6,592)
  Proceeds from the sale of marketable investments..........       --          --       23,182
  Cash paid for the acquisition of General Asset Recovery
    Inc., net of cash acquired..............................       --      (1,800)          --
  Cash paid for the acquisition of Pharos Technologies,
    Inc., net of cash acquired..............................       --          --         (669)
  Cash paid for the acquisition of US Lifeline, Inc., net of
    cash acquired...........................................       --          --       (3,772)
  Cash paid for the acquisition of EquipMD, Inc., net of
    cash acquired...........................................       --          --       (3,908)
  Cash paid for costs related to establishing
    partnerships............................................       --          --       (9,000)
  Purchase of non-marketable investments....................       --      (2,500)      (5,900)
  Cash paid on note issued in connection with the
    acquisition of
    General Asset Recovery Inc. ............................       --        (917)      (1,651)
  Purchases of property and equipment.......................     (825)     (9,009)     (32,003)
                                                              -------    --------    ---------
      Net cash used in investing activities.................     (825)    (37,776)     (40,313)
                                                              -------    --------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of notes payable...............      418       4,434        6,000
  Repayments of notes payable...............................     (215)       (633)      (1,933)
  Proceeds from the issuance of Series B preferred stock,
    net of issuance costs...................................    1,255          --           --
  Proceeds from the issuance of Series C mandatorily
    redeemable convertible preferred stock, net of issuance
    costs...................................................    3,884          --           --
  Proceeds from the issuance of Series D mandatorily
    redeemable convertible preferred stock, net of issuance
    costs...................................................       --      11,986           --
  Proceeds from the issuance of Series E and E-1 mandatorily
    redeemable convertible preferred stock, net of issuance
    costs...................................................               71,380           --
  Repayments of notes receivable from stockholders..........       --          60          212
  Cash received related to options exercised, net of
    repurchases.............................................       --          --          178
  Proceeds from the issuance of common stock under the
    employee stock purchase plan............................       --          --          641
  Common stock repurchased net of notes receivable issued to
    common stockholders.....................................       --          --         (278)
  Proceeds from the issuance of common stock, net of notes
    receivable issued to common stockholders................      236         818       95,328
                                                              -------    --------    ---------
    Net cash provided by financing activities...............    5,578      88,045      100,148
                                                              -------    --------    ---------
    Net increase (decrease) in cash and cash equivalents....      780      24,480       (2,695)
CASH AND CASH EQUIVALENTS, beginning of period..............       32         812       25,292
                                                              -------    --------    ---------
CASH AND CASH EQUIVALENTS, end of period....................  $   812    $ 25,292    $  22,597
                                                              =======    ========    =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for interest..................  $    14    $    439    $     869
                                                              =======    ========    =========
</TABLE>

                                       F-8
<PAGE>   82

                               NEOFORMA.COM, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                               1998        1999        2000
                                                              -------    --------    ---------
<S>                                                           <C>        <C>         <C>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
  Conversion of common stock into Series A preferred
    stock...................................................  $   280    $     --    $      --
                                                              =======    ========    =========
  Conversion of notes payable into Series B preferred
    stock...................................................  $   170    $     --    $      --
                                                              =======    ========    =========
  Issuance of warrants to purchase common stock.............  $     7    $  2,364    $  38,172
                                                              =======    ========    =========
  Issuance of warrants to purchase mandatorily redeemable
    convertible
    preferred stock.........................................  $    --    $  1,240    $      --
                                                              =======    ========    =========
  Issuance of note payable to related party in connection
    with acquisition of
    General Asset Recovery LLC..............................  $    --    $  7,800    $      --
                                                              =======    ========    =========
  Issuance of common stock in connection with the
    acquisition of FDI......................................  $    --    $  3,150    $      --
                                                              =======    ========    =========
  Conversion of preferred stock to common stock.............  $    --    $     --    $  88,771
                                                              =======    ========    =========
  Issuance of common stock in connection with acquisition of
    Pharos Technologies, Inc. ..............................  $    --    $     --    $  22,000
                                                              =======    ========    =========
  Issuance of common stock in connection with the
    acquisition of
    US Lifeline, Inc........................................  $    --    $     --    $   2,769
                                                              =======    ========    =========
  Issuance of common stock in connection with the
    acquisition of
    EquipMD, Inc. ..........................................  $    --    $     --    $ 133,615
                                                              =======    ========    =========
  Notes receivable from common stockholders cancelled in
    repurchase of common shares.............................  $    --    $     --    $  (1,903)
                                                              =======    ========    =========
  Issuance of common stock in connection with partnership
    agreements..............................................  $    --    $     --    $ 291,331
                                                              =======    ========    =========
  Issuance of common stock in connection with the
    acquisition of certain assets of National Content
    Liquidators, Inc........................................  $    --    $     --    $   2,200
                                                              =======    ========    =========
</TABLE>

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

                                       F-9
<PAGE>   83

                               NEOFORMA.COM, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. DESCRIPTION OF BUSINESS:

     Neoforma.com, Inc. (the "Company") builds and maintains private Internet
marketplaces for trading partners in the healthcare industry on both the
provider side (hospitals and physicians' offices) and on the supplier side
(distributors and manufacturers). The Company's supply chain technology
solutions enable the participants in the healthcare supply chain market,
principally providers, manufacturers, distributors, group purchasing
organizations and integrated delivery networks, to significantly improve
business processes within their organizations and among their trading partners.

     The Company was incorporated as Neoforma, Inc. on March 4, 1996 in the
state of California for the purpose of providing business-to-business e-commerce
services for the medical products, supplies and equipment marketplace. On
November 4, 1998, the Company re-incorporated in the state of Delaware. On
September 14, 1999, the Company changed its name to Neoforma.com, Inc. In
January 2000, the Company completed its initial public offering of its common
stock on the Nasdaq National Market.

     Since inception, the Company has incurred significant losses, and, as of
December 31, 2000, had an accumulated deficit of $264.9 million. Operating
losses and negative cash flow are expected to continue through fiscal 2001. The
Company currently anticipates that currently available funds, consisting of
cash, cash equivalents and investments, combined with those funds available
through lines of credit (see Note 17) and other sources will be sufficient to
meet anticipated needs for working capital and capital expenditures through at
least the next 12 months. The Company's future long-term capital needs will
depend significantly on the rate of growth of the business, the timing of
expanded service offerings, the success of these services once they are launched
and the Company's ability to adjust its operating expenses to an appropriate
level if the growth rate of our business is slower than expected. Any
projections of future long-term cash needs and cash flows are subject to
substantial uncertainty. If available funds and cash generated from operations
are insufficient to satisfy its long-term liquidity requirements, the Company
may seek to sell additional equity or debt securities, obtain additional lines
of credit, curtail expansion of its services, including reductions in its
staffing levels and related expenses, or potentially liquidate selected assets.
The Company cannot be certain that additional financing will be available on
favorable terms when required, or at all.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries General Asset Recovery, LLC ("GAR"), Pharos
Technologies, Inc. ("Pharos"), U.S. Lifeline, Inc. ("USL") and EquipMD, Inc.
("EquipMD"). All significant intercompany accounts and transactions have been
eliminated in consolidation.

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 amounts 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.

RECLASSIFICATIONS

     Certain reclassifications have been made to the historical consolidated
financial statements to conform to the 2000 presentation.

                                       F-10
<PAGE>   84
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION

     The Company categorizes its services into four primary service lines. These
service lines are Shop, Auction, Plan and Services Delivery. Shop revenue is
derived from transaction fees paid or payable by suppliers of medical products
on the Company's website and development fees from participating suppliers to
digitize the supplier product information for display on the Company's website.
Auction revenue is derived from transaction fees paid or payable by suppliers of
medical products on the Company's website and from consigned inventory sold at
live auctions and online auctions. In addition, Auction revenue includes gross
sales of purchased inventory, with the direct costs of such purchased inventory
being shown in cost of equipment sold in the consolidated statement of
operations. Plan revenue is derived from licensing software and its related
maintenance, website sponsorship fees and subscription fees for asset management
and facilities planning services. Service Delivery revenue is generated from
implementation and setup related fees related to work primarily for the
Company's acute care customers.

     In general, the Company recognizes revenues when there is persuasive
evidence of an arrangement, the fee is fixed and determinable, the product has
been delivered to the customer or the service has been rendered and collection
is probable. If an acceptance period is required, revenues are recognized upon
the earlier of customer acceptance or the expiration of the acceptance period.
Deferred revenue primarily consists of revenue deferred under annual maintenance
contracts on which amounts have been received from customers and for which the
earnings process has not been completed.

     Transaction fee revenue, except in the case where the Company purchases
inventory for sale in auctions, represents the Company's negotiated percentage
of the purchase price or gross transaction fee at the time an order which was
originated by a purchaser of medical equipment or supplies ("purchaser") is
confirmed or accepted by the supplier. Thus, the Company reports transaction fee
revenue net of amounts retained by the supplier. The gross transaction fee on a
transaction is the price of a product listed on the website. The Company reports
transaction fees on a net basis, as the Company does not believe that it acts as
a principal in connection with orders to be shipped or delivered by a supplier
to a purchaser because, among other things: the Company does not establish the
prices of products listed on the website; the Company does not take title to
products to be shipped from the supplier to the purchaser, nor does it take
title to or assume the risk of loss of products prior to or during shipment; the
Company does not bear the credit and collections risk of the purchaser to the
supplier; and the Company does not bear the risk that the product will be
returned. In the case of sales associated with purchased inventory, the revenue
represents the fee from the purchaser while the direct costs of purchased
inventory are reflected in the cost of equipment sold line in the consolidated
statement of operations. Revenue associated with purchased inventory is
recognized at the time of shipment or delivery, depending on the shipping terms
associated with each transaction. The Company defers a portion of the
transaction fee at the time of acceptance for potential transaction fee returns,
which are related primarily to orders placed by non-bona fide purchasers or
orders for which a supplier's content on the website is not posted according to
the specifications of the supplier.

     Website sponsorship fees and other revenue includes sponsorship fees,
development fees, asset management consulting fees, license fees, maintenance
fees and subscription fees. Sponsorship, development and asset management
consulting fee revenue is recognized as services are performed and billable
according to the terms of the service arrangement. License fees are recognized
when the software has been delivered and there are no other contingencies
related to the Company's performance. If license fees are contingent upon the
Company's performance subsequent to delivery, the Company defers recognition of
such fees or the fair market value of the undelivered element requiring
performance until performance is complete. Subscription and maintenance fee
revenue is recognized ratably over the period of the service agreement. Services
revenue, as it generally relates to the implementation of our e-commerce
solution, is generally recognized ratably over the term of the underlying
e-commerce agreement.

                                       F-11
<PAGE>   85
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONCENTRATION OF CREDIT RISK

     Financial instruments that may subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. Cash is on deposit with one financial institution. Cash investments
include high quality, short-term money market instruments through a high credit
quality financial institution. The Company does not require collateral on trade
accounts receivable, as the Company's customer base primarily consists of
healthcare providers, and suppliers of medical products, equipment and supplies.
The Company provides reserves for credit losses.

MAJOR CUSTOMERS

     No customers made up more than 10% of total revenues for any of the periods
presented.

     The following customers accounted for 10% or more of total outstanding
receivables.

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                              1999    2000
                                                              ----    ----
<S>                                                           <C>     <C>
Customer A..................................................   23%     16%
Customer B..................................................   17%     12%
</TABLE>

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of cash in banks, investments in money
market accounts, treasury bills and marketable securities with remaining
maturities of three months or less and are stated at fair market value.

INVESTMENTS

     The Company accounts for short-term and long-term investments in accordance
with Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Instruments."
Accordingly, all of the Company's short-term and long-term investments are
classified as "available-for-sale" and stated at fair market value.

     Investments with maturities greater than ninety days and less than one year
are classified as short-term investments. Investments with maturities greater
than one year are classified as long-term investments.

     The difference between amortized cost (cost adjusted for amortization of
premiums and accretion of discounts which are recognized as adjustments to
interest income) and fair value, representing unrealized holding gains and
losses on short-term and long-term investments, are recorded as a separate
component of stockholders' equity until realized. The Company's policy is to
record debt securities as available-for-sale because the sale of such securities
may be required before maturity. Any gains or losses on the sale of debt
securities are determined on a specific identification basis.

     Realized gains and losses are netted and included in interest income in the
accompanying consolidated statements of operations. At December 31, 2000, the
Company's available-for-sale securities mature on various dates through May
2001.

                                       F-12
<PAGE>   86
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The amortized cost, aggregate fair value and gross unrealized holding gains
and losses by major security type were as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1999
                                                      -------------------------------------
                                                                                 UNREALIZED
                                                      AMORTIZED    AGGREGATE      HOLDING
                                                        COST       FAIR VALUE       LOSS
                                                      ---------    ----------    ----------
                                                                 (IN THOUSANDS)
<S>                                                   <C>          <C>           <C>
Debt securities issued by states of the United
  States and political subdivisions of the states...   $ 3,500      $ 3,500         $ --
Corporate debt securities...........................    42,526       42,486          (40)
                                                       -------      -------         ----
                                                       $46,026      $45,986         $(40)
                                                       =======      =======         ====
</TABLE>

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2000
                                                      -------------------------------------
                                                                                 UNREALIZED
                                                      AMORTIZED    AGGREGATE      HOLDING
                                                        COST       FAIR VALUE       LOSS
                                                      ---------    ----------    ----------
                                                                 (IN THOUSANDS)
<S>                                                   <C>          <C>           <C>
Debt securities issued by states of the United
  States and political subdivisions of the states...   $ 8,350      $ 8,350         $--
Corporate debt securities...........................    15,527       15,524          (3)
                                                       -------      -------         ---
                                                       $23,877      $23,874         $(3)
                                                       =======      =======         ===
</TABLE>

     Investments classified as cash equivalents amounted to approximately $22.5
million and $16.7 million at December 31, 1999 and 2000, respectively.

ACCOUNTS RECEIVABLE

     Accounts receivable consists primarily of net amounts to be collected from
purchasers of services rendered, or in the case of the Company's live auction
services, amounts due from purchasers for services rendered or for product
purchased. Accounts receivable is recorded net of allowance for doubtful
accounts.

PREPAID CONSULTING FEES

     In October 1999, the Company issued 275,000 shares of its Series E-1
preferred stock, valued at $1.6 million, in exchange for marketing consulting
services to be rendered by General Electric Medical Systems ("GEMS") through
December 31, 2000. As a result, the Company recorded prepaid consulting fees
which were amortized into sales and marketing expenses on a straight-line basis
through December 31, 2000. The net unamortized portion of the prepaid consulting
fees at December 31, 1999 are included in prepaids and other current assets in
the accompanying consolidated financial statements.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost, and are depreciated on a
straight-line basis over two to four years. Leasehold improvements are
amortized, using the straight-line method, over the shorter of the lease term or
the useful lives of the improvements. Purchased software is capitalized at cost
when purchased and amortized over the license period commencing once the
software is placed in service. Direct costs to place purchased software into
service are capitalized and depreciated over the same period as the software.
Internal costs incurred to develop software for use in operations are expensed
as incurred and are included in product development costs in the accompanying
statement of operations. Repairs and maintenance costs are expensed as incurred.

                                       F-13
<PAGE>   87
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     As of December 31, 1999 and 2000, property and equipment consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Computers and test equipment................................  $ 5,751    $12,130
Software....................................................    3,172     25,109
Furniture and fixtures......................................      756      2,275
Leasehold improvements......................................      179      2,374
                                                              -------    -------
                                                                9,858     41,888
                                                              -------    -------
Less: Accumulated depreciation and amortization.............   (1,087)    (9,359)
                                                              -------    -------
Property and equipment, net.................................  $ 8,771    $32,529
                                                              =======    =======
</TABLE>

INTANGIBLES

     Intangibles consist of acquired assembled work force, customer lists,
software, developed technology and goodwill which represent the amount of the
purchase price in excess of the fair value of the tangible net assets in the
acquisitions of GAR, FDI Information Resources, LLC ("FDI"), Pharos, USL,
EquipMD and NCL. The intangibles are amortized on a straight-line basis over a
period of 3 to 7 years.

     Intangible assets include the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1999        2000
                                                              -------    --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Assembled work force........................................  $   240    $    340
Software....................................................      600         600
Developed technology........................................       --       3,000
Customer lists..............................................       --      19,000
Goodwill....................................................   12,194     144,575
                                                              -------    --------
                                                               13,034     167,515
                                                              -------    --------
Less: Accumulated amortization..............................     (715)    (39,716)
                                                              -------    --------
                                                              $12,319    $127,799
                                                              =======    ========
</TABLE>

     As of December 31, 2000, the Company had formally adopted a plan to divest
itself of its GAR, NCL and USL subsidiaries, as none of these subsidiaries were
aligned with the core business of the Company going forward. As a result of the
pending divestitures, the Company reassessed the value of all three subsidiaries
based primarily on the expected sales price of the respective businesses. The
resulting write downs of the intangible balances relating to each subsidiary was
a direct result of the revised valuation of each of the businesses in light of
the pending divestitures. See Note 10 for further discussion.

CAPITALIZED PARTNERSHIP COSTS

     Capitalized Partnership Costs consists primarily of capitalized charges
related to the issuances of common stock and warrants in connection with an
outsourcing and operating agreement entered into by the Company during the year
ended December 31, 2000 and is shown net of accumulated amortization. Certain
direct costs associated with the completion of that agreement have also been
capitalized in this account. See Note 16 for discussion of both the outsourcing
and operating agreement and the related costs that have been capitalized.

                                       F-14
<PAGE>   88
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NON-MARKETABLE INVESTMENTS

     In December 1999, the Company purchased 526,250 shares of common stock of
CarePortal.com, LLC ("CarePortal"), formerly known as IntraMedix, LLC
("IntraMedix"), a privately held corporation, in exchange for $2.5 million.
CarePortal is a company that provides procurement services related to the
distribution of geriatric care products to the nursing home community.
CarePortal is a related party to GeriMedix, a supplier with which the Company
has an agreement to perform e-commerce services. On May 26, 2000, the Company
issued a 30-day note receivable to CarePortal in the amount of $1.0 million,
evidenced by a promissory note bearing interest at a rate of 8% per annum. On
August 8, 2000 the Company exercised its option to convert the promissory note
into shares of CarePortal common stock. Additionally, the Company invested $1.5
million in CarePortal in exchange for common stock. In November 2000, the
Company issued a 30-day note receivable to CarePortal in the amount of $400,000,
evidenced by a promissory note bearing interest at a rate of 11% per annum. On
December 31, 2000 the Company exercised its option to convert the promissory
note into shares of CarePortal common stock. As of December 31, 2000, the
Company owned CarePortal common stock representing an ownership percentage of
approximately 9.6% of the total outstanding common stock of CarePortal. The
Company accounts for its investments in CarePortal using the cost method.

     In March 2000, the Company purchased 600,000 shares of the Series D
preferred stock of Pointshare, Inc. ("Pointshare"), a privately held
corporation, in exchange for $3.0 million. Pointshare is a company that provides
on-line business-to-business administrative services to healthcare communities.
The Company's ownership represented approximately 2% of the Pointshare common
shares outstanding at the time of the investment and as of December 31, 2000,
assuming a 1:1 conversion ratio of preferred stock to common stock. The Company
accounts for this investment using the cost method.

IMPAIRMENT OF LONG-LIVED ASSETS

     The Company periodically evaluates the recoverability of long-lived assets
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. To date the only such
impairment the Company has identified is the impairment of the net asset values
of the GAR, NCL and USL subsidiaries as a result of the planned divestitures of
these operations (see Note 10 for further discussion).

PRODUCT DEVELOPMENT COSTS

     Product development costs include expenses incurred by the Company to
develop and enhance the Company's website and related website services. Product
development costs are expensed as incurred.

COST OF WARRANT ISSUED TO RECRUITER

     For the year ended December 31, 1999, the Company expensed $2.4 million
related to the valuation of a warrant issued to an executive search firm in
connection with services rendered in the search for the Company's Chief
Executive Officer (see Note 13).

STOCK BASED COMPENSATION

     The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," which establishes a fair value method
of accounting for stock-based compensation plans. As allowed under the
provisions of SFAS No. 123, the Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its

                                       F-15
<PAGE>   89
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

employee stock option plans. The Company follows the provisions of SFAS No. 123
for options granted to consultants and non-employees.

     In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an Interpretation of APB Opinion No. 25" ("FIN No. 44"). FIN No.
44 addresses the application of APB No. 25 to clarify, among other issues: (a)
the definition of employee for purposes of applying APB No. 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN No. 44 became effective as of
July 1, 2000, but certain conclusions cover specific events that occur after
either December 15, 1998 or January 12, 2000. To the extent FIN No. 44 covers
events occurring during the period after December 15, 1998 or January 12, 2000,
but before the effective date of July 1, 2000, the effects of applying the
interpretation should be recognized on a prospective basis from July 1, 2000.
The adoption of FIN No. 44 did not have a material effect on the Company's
financial position or results of operations.

COMPREHENSIVE INCOME (LOSS)

     Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income (loss), as defined, includes all changes in equity (net
assets) during a period from non-owner sources. For the years ended December 31,
2000 and 1999, the Company recorded approximately $37,000 of unrealized holding
gains and $40,000 of unrealized holding losses, respectively. Other than net
loss, the Company had no components of comprehensive income (loss) for the year
ended December 31, 1998. The Company has integrated the presentation of
comprehensive income (loss) with the Consolidated Statements of Changes in
Stockholders' Equity (Deficit).

SEGMENT INFORMATION

     Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the years ended
December 31, 1998, 1999 and 2000 the Company operated in a single business
segment building and operating e-commerce marketplaces for healthcare providers
and suppliers in the medical product, supplies and equipment industry in the
U.S.

BASIC AND DILUTED NET LOSS PER SHARE AND PRO FORMA BASIC AND DILUTED NET LOSS
PER SHARE

     Basic net loss per share on a historical basis is computed using the
weighted-average number of shares of common stock outstanding. Diluted net loss
per common share was the same as basic net loss per share for all periods
presented since the effect of any potentially dilutive securities are excluded,
as they are anti-dilutive as a result of the Company's net losses. The total
number of shares excluded from the diluted loss per share calculation relating
to these securities was approximately 18 million, 44 million and 50 million
shares for the years ended December 31, 1998, 1999 and 2000, respectively.

     Pro forma basic and diluted net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding
for the appropriate period (excluding shares subject to repurchase) plus the
weighted average number of common shares resulting from the automatic conversion
of outstanding shares of convertible preferred stock, which occurred upon the
closing of the Company's initial public offering.

                                       F-16
<PAGE>   90
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                              1998        1999        2000
                                                             -------    --------    ---------
<S>                                                          <C>        <C>         <C>
Net loss...................................................  $(4,563)   $(51,020)   $(208,815)
                                                             =======    ========    =========
Basic and diluted:
  Weighted average shares of common stock outstanding......    2,977       5,854       90,227
  Less: Weighted average shares of common stock subject to
     repurchase............................................     (215)     (3,190)      (6,279)
                                                             -------    --------    ---------
  Weighted average shares used in computing basic and
     diluted net loss per share............................    2,762       2,664       83,948
                                                             =======    ========    =========
  Basic and diluted net loss per common share..............  $ (1.65)   $ (19.15)   $   (2.49)
                                                             =======    ========    =========
  Pro forma:
     Net loss..............................................  $(4,563)   $(51,020)   $(208,815)
                                                             =======    ========    =========
Shares used above..........................................    2,762       2,664       83,948
Pro forma adjustment to reflect weighted average effect of
  assumed conversion of convertible preferred stock
  (unaudited)..............................................   10,086      28,618        2,637
                                                             -------    --------    ---------
Weighted average shares used in computing pro forma basic
  and diluted net loss per share (unaudited)...............   12,848      31,282       86,585
                                                             =======    ========    =========
Pro forma basic and diluted net loss per share
  (unaudited)..............................................  $ (0.36)   $  (1.63)   $   (2.41)
                                                             =======    ========    =========
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," which amends SFAS No. 133 to be
effective for all fiscal years beginning after June 15, 2000. In June 2000, SFAS
No. 133 was amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which amended or modified certain
issues discussed in SFAS No. 133. SFAS No. 138 is also effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133 and SFAS No. 138 establish
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statements also require that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. The adoption of SFAS No. 133 and SFAS No. 138 on January 1,
2001 did not have a material impact on the Company's financial statements.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
adopted SAB 101 as required in the fourth quarter of 2000. As expected, the
adoption did not have a material impact on its consolidated results of
operations and financial position.

                                       F-17
<PAGE>   91
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

 3. ACQUISITIONS:

     In August 1999, the Company acquired substantially all of the assets of
General Asset Recovery LLC ("GAR"), a live auction house and asset management
company focused on medical products. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price was allocated
to the tangible and intangible assets acquired and liabilities assumed on the
basis of their respective fair values on the acquisition date. According to the
terms of the agreement, a segment of GAR's operations related to the auction of
non-medical industrial products ("Industrial") was sold back to one of the
original owners of GAR for nominal consideration. Accordingly, the revenue and
direct costs associated with the Industrial operations have been eliminated in
the pro forma tables presented below.

     The total purchase price of approximately $9.7 million consisted of $1.7
million in cash, a note payable of $7.8 million, the assumption of $100,000 of
liabilities and acquisition-related expenses of $100,000. In the initial
allocation of the purchase price, $25,000 was allocated to tangible assets and
$9,675,000 was allocated to intangible assets. The intangible assets are being
amortized over an estimated life of seven years. The note payable is due over a
five-year period and bears interest at a rate of 7% per annum.

     In November 1999, the Company acquired certain assets of FDI Information
Resources, LLC ("FDI"), a company in the business of developing and licensing
equipment planning software. Under the terms of the agreement, the Company
acquired the rights to software and certain customer contracts. The acquisition
was accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to the intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.

     The total purchase price of approximately $3.4 million consisted of 350,000
shares of common stock valued at $3,150,000, estimated assumed liabilities of
approximately $97,000 and estimated acquisition-related expenses of
approximately $112,000. In the allocation of the purchase price, $600,000,
$240,000 and $2,519,000 were allocated to acquired software, assembled workforce
and trade names, and goodwill, respectively. The acquired software, assembled
workforce and trade names and goodwill are being amortized over an estimated
useful life of three years.

     The unaudited pro forma results of operations of the Company, GAR and FDI
for the years ended December 31, 1998 and 1999, assuming the acquisitions took
place at the beginning of each period, are as follows (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1998        1999
                                                              -------    --------
<S>                                                           <C>        <C>
Revenue.....................................................  $ 1,561    $  2,764
                                                              =======    ========
Net loss....................................................  $(8,254)   $(53,193)
                                                              =======    ========
Basic and diluted net loss per share........................  $ (1.61)   $ (19.97)
                                                              =======    ========
</TABLE>

     In January 2000, the Company acquired Pharos Technologies, Inc. ("Pharos"),
a developer of content management software that facilitates the locating,
organizing and updating of product information in an online marketplace. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the intangible assets acquired
and liabilities assumed on the basis of their respective fair values on the
acquisition date.

     The total purchase price of approximately $22.8 million consisted of
approximately 2.0 million shares of common stock valued at $22.0 million,
forgiveness of a loan outstanding to Pharos of $500,000, estimated assumed
liabilities of approximately $94,000 and estimated acquisition-related expenses
of approximately $230,000. Of the shares issued to the previous owners of
Pharos, approximately 700,000 were subject to repurchase rights which lapse over
the vesting period of the original terms of the shares, which specify a

                                       F-18
<PAGE>   92
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

vesting period of four years. As of December 31, 2000, approximately 105,000 of
these shares were subject to repurchase. In the initial allocation of the
purchase price, $367,000, $3.0 million, $3.0 million and $16.5 million were
allocated to tangible assets, acquired in-process research and development,
developed technology and goodwill, respectively. The acquired in-process
research and development was expensed upon consummation of the acquisition. The
developed technology is being amortized over the period that the technology is
being put to productive use over an estimated useful life of three years. The
goodwill is being amortized over an estimated useful life of five years.

     In connection with the acquisition of Pharos, the Company allocated $3.0
million of the purchase price to in-process research and development projects.
This allocation represented the estimated fair value based on risk-adjusted cash
flows related to the incomplete research and development projects. At the date
of acquisition, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
acquisition date.

     The Company allocated values to the in-process research and development
based on an assessment of the research and development projects. The value
assigned to these assets was limited to significant research projects for which
technological feasibility had not been established, including development,
engineering and testing activities associated with the introduction of the
Pharos' next-generation technologies.

     The value assigned to in-process research and development was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development was based on
estimates of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by
Pharos and its competitors.

     The nature of the efforts to develop the acquired in-process technology
into commercially viable products and services principally related to the
completion of planning, designing, coding, prototyping and testing activities
that were necessary to establish that the developmental Pharos technologies met
their design specifications including functional, technical and economic
performance requirements. Anticipated completion dates ranged from six to nine
months, at which times Pharos expected to begin selling the developed products.
Development costs to complete the research and development were estimated at
approximately $2.0 million.

     Pharos' primary in-process research and development projects involved
designing new technologies and an application platform for a next generation
content syndication solution, including enterprise application integration. The
estimated revenue for the in-process projects was expected to peak within three
years of acquisition and then decline as other new products and technologies
were expected to enter the market.

     Operating expenses were estimated based on historical results and
management's estimates regarding anticipated profit margin improvements. Due to
purchasing power increases and general economics of scale, estimated operating
expense as a percentage of revenues were expected to decrease after the
acquisition.

     The rates utilized to discount the net cash flows to their present value
were based on the estimated cost of capital calculations. Due to the nature of
the forecast and the risks associated with the projected growth, profitability
and developmental projects, discount rates of 35 to 40% were appropriate for the
in-process research and development, and discount rates of 25% were appropriate
for the existing products and technology. These discount rates were commensurate
with Pharos' stage of development and the uncertainties in the economic
estimates described below.

     In March 2000, the Company acquired USL, a healthcare content company. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the

                                       F-19
<PAGE>   93
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date.

     The total purchase price of approximately $7.2 million consisted of
approximately 61,000 shares of common stock valued at $2.8 million, $3.5 million
in cash and estimated assumed liabilities of approximately $912,000. In the
initial allocation of the purchase price, $682,000 and $6.5 million were
allocated to tangible assets and goodwill, respectively. The goodwill is being
amortized over an estimated useful life of five years.

     In April 2000, the Company acquired EquipMD, a business-to-business
procurement company serving the physician market. The acquisition was accounted
for as a purchase. Accordingly, the purchase price was allocated to the
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the date of the acquisition.

     The total purchase price of approximately $141.7 million consisted of
approximately 4.4 million shares of the Company's common stock valued at
approximately $126.4 million, 269,000 vested options valued at approximately
$7.2 million and estimated assumed liabilities and acquisition costs of $8.1
million. In addition, the Company assumed approximately 807,000 unvested
options. In the initial allocation of the purchase price, $1.5 million,
$100,000, $19.0 million, $106.1 million and $15.0 million were allocated to
tangible assets, assembled workforce, customer lists, goodwill and acquired in
process research and development, respectively. The intangible assets are being
amortized over an estimated useful life of five years.

     In connection with the acquisition of EquipMD, the Company allocated
approximately $15.0 million of the purchase price to in-process research and
development projects. This allocation represented the estimated fair value based
on risk-adjusted cash flows related to the incomplete research and development
projects. At the date of acquisition, the development of these projects had not
yet reached technological feasibility, and the research and development in
progress had no alternative future uses. Accordingly, these costs were expensed
as of the acquisition date.

     At the acquisition date, EquipMD was conducting design, development,
engineering and testing activities associated with the completion of a real-time
commerce engine. The projects under development at the valuation date
represented next-generation technologies that were expected to address emerging
market demands for healthcare related business-to-business e-commerce.

     At the acquisition date, the technologies under development were
approximately 60% complete based on engineering man-month data and technological
progress. EquipMD had spent approximately $1.2 million on the in-process
projects, and expected to spend approximately $1.0 million to complete all
phases of the research and development. Anticipated completion dates ranged from
three to nine months, at which time the Company expected to begin benefiting
from the developed technologies.

     In developing the purchase price allocation, the Company considered present
value calculations of income, an analysis of project accomplishments and
remaining outstanding items, an assessment of overall contributions, as well as
project risks. The value assigned to purchased in-process technology was
determined by estimating the costs to develop the acquired technology into
commercially viable products, estimating the resulting net cash flows from the
projects, and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development was based on
estimates of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by us
and our competitors. The resulting net cash flows from such projects were based
on the Company's estimates of cost of sales, operating expenses and income taxes
from such projects.

     Aggregate revenue for the developmental EquipMD products was estimated to
grow at a compounded annual growth rate of approximately 100% for the five years
following introduction, assuming the successful completion and market acceptance
of the major research and development programs. The estimated revenue

                                       F-20
<PAGE>   94
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for the in-process projects was expected to peak within three years of
acquisition and then decline sharply as other new projects and technologies were
expected to enter the market.

     The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. Due to the nature of the
forecast and the risks associated with the projected growth and profitability of
the developmental projects, a discount rate of 35% was considered appropriate
for the in-process research and development. These discount rates were
commensurate with EquipMD's stage of development and the uncertainties in the
economic estimates described above.

     If these projects are not successfully developed, the Company's sales and
ability to achieve profitability may be adversely affected in future periods.
Additionally, the value of other acquired intangible assets may become impaired.

     The estimates used by the Company in valuing in-process research and
development for the Pharos and EquipMD acquisitions were based upon assumptions
the Company believed to be reasonable, but which are inherently uncertain and
unpredictable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events and circumstances will not
occur. Accordingly, actual results may vary from the projected results.

     In July 2000, the Company acquired certain assets of National Content
Liquidators, Inc. ("NCL"), an asset management company focused on healthcare
facility liquidations and the resale of used medical products. The acquisition
was accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to the intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
The total purchase price of approximately $3.2 million consisted of
approximately 300,000 shares of common stock valued at $2.2 million, $500,000 in
cash and $500,000 in notes payable to the principals of NCL. In the initial
allocation of the purchase price, the full $3.2 million was allocated to
goodwill, as there were no material tangible assets acquired. The goodwill is
being amortized over an estimate useful life of 7 years.

     The unaudited pro forma results of operations of the Company, GAR, FDI,
Pharos, USL, EquipMD and NCL for the twelve months ended December 31, 1999 and
2000, assuming the acquisitions took place at the beginning of the respective
periods, are as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                               TWELVE MONTHS ENDED
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1999        2000
                                                              --------    ---------
<S>                                                           <C>         <C>
Revenue.....................................................  $  4,707    $  12,274
                                                              ========    =========
Net loss....................................................  $(81,879)   $(218,795)
                                                              ========    =========
Basic and diluted net loss per share........................  $  (8.71)   $   (2.55)
                                                              ========    =========
</TABLE>

 4. LOANS AND NOTES PAYABLE:

     In June 1998, the Company entered into a $750,000 secured credit facility
with a bank. This facility included a $225,000 term loan due December 1999 and
an equipment loan facility providing for up to $525,000 of equipment loans. In
July 1999, the Company converted $433,000 of outstanding equipment loans into a
term loan due June 2000. At December 31, 2000, there were no borrowings
outstanding under either the term loan or the equipment loan. In consideration
for this credit facility, the Company granted the bank a warrant to purchase
45,000 shares of Series C preferred stock at an exercise price of $0.77 per
share. In July 1999, in consideration for the conversion of the equipment loan
to a term loan and the release of the security interest in equipment, the
Company granted the bank a warrant to purchase 10,000 shares of Series D
preferred stock at an exercise price of $1.18 per share (see Note 13).

                                       F-21
<PAGE>   95
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In May 1999, the Company entered into a subordinated loan agreement (the
"loan agreement") with a lender under which it can borrow up to $2.0 million.
The loan agreement bears interest at 12.5% and expires in July 2002. At December
31, 2000 there were borrowings of approximately $1.1 million outstanding under
the loan agreement. The loan agreement is collateralized by all of the assets of
the Company. In addition, a warrant to purchase 228,813 shares of preferred
Series D stock at an exercise price of $1.18 per share was issued in conjunction
with the loan agreement (see Note 13).

     In July 1999, the Company entered into a $2.5 million loan/lease facility
with a lender to finance computer hardware and software equipment. Hardware
amounts bear interest at 9% per annum and are payable in 48 monthly installments
consisting of interest-only payments for the first nine months and principal and
interest payments for the remaining 39 months, with a balloon payment of the
remaining principal payable at maturity. Software amounts bear interest at 8%
per annum and are payable in 30 monthly installments consisting of interest-only
for the first four months and principal and interest for the remaining 26
months, with a balloon payment of the remaining principal payable at maturity.
The computer equipment purchased secures this facility. In connection with this
facility, the Company issued the lender a warrant to purchase 137,711 shares of
our Series D preferred stock at $1.18 per share (see Note 13). At December 31,
2000, the principal balance was $1.7 million.

     As part of the purchase price of GAR (see Note 3), the Company issued in
August 1999 a promissory note payable to an owner of GAR in the amount of $7.8
million. The note bears interest at 7% per annum and is payable in 60 monthly
installments of scheduled principal amounts plus interest through August 2004.
At December 31, 2000, the remaining principal balance was approximately $5.1
million.

     As part of the purchase of EquipMD, the Company assumed the balance on an
unsecured line of credit. The maximum borrowings allowed under the agreement are
$300,000, of which none was available at December 31, 2000.

     As part of the purchase of EquipMD, the Company assumed a note payable in
the amount of $1.8 million which is related to EquipMD's purchase of Central
Point Services, LLC. The note bears interest at 7.5% per annum and is payable in
eight quarterly installments after which the unpaid principal balance and
accrued interest become due and payable through January 2002. At December 31,
2000, the remaining principal balance was $1.5 million. According to the
provisions of the note, a payment amounting to $250,000 on the note was due upon
change of control. As a result of the purchase of EquipMD by the Company (see
Note 3), under the change of control provisions, the Company made a $250,000
payment in July 2000.

     In July 2000, the Company entered into an unsecured promissory note with
its investment bankers in the amount of $6.0 million. The note bears no interest
and is payable in 4 quarterly payments of $1.5 million, commencing on January 1,
2001. At December 31, 2000 the remaining balance on the note was $6.0 million.
In April 2001, the Company and its bankers entered into an agreement to modify
the payment terms of the remaining balance on the note whereby $3.5 million was
payable in 2001, and the remaining $2.5 million was payable in May 2002.

     In July 2000, as part of the acquisition of NCL, the Company issued a
non-interest bearing promissory note to each of the four principals of NCL in
the amount of $62,500 each. The notes are payable in 24 equal monthly
installments, commencing on August 15, 2000. As of December 31, 2000, the
balance of these notes on the Company's books was $183,000. In addition, the
Company also agreed to pay $250,000 on July 14, 2002, two years from the closing
date of the acquisition. This payment is to be distributed in equal amounts of
$62,500 to each of the four principals of NCL. As of December 31, 2000, no
payments have been made against this commitment.

                                       F-22
<PAGE>   96
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Future maturities of principal on the loans and notes payable as of
December 31, 2000 are as follows (in thousands):

<TABLE>
<S>                                                          <C>
2001.......................................................  $ 8,089
2002.......................................................    5,696
2003.......................................................    1,829
2004 and thereafter........................................      433
                                                             -------
                                                             $16,047
                                                             =======
</TABLE>

 5. COMMITMENTS:

     The Company leases its various office facilities under operating leases.
Rent expense for the years ended December 31, 1998, 1999 and 2000 was
approximately $304,000, $793,000 and $4.4 million, respectively.

     Future minimum obligations under non-cancelable operating leases are as
follows (in thousands):

<TABLE>
<S>                                                          <C>
2001.......................................................  $ 3,468
2002.......................................................    3,430
2003.......................................................    3,071
2004.......................................................    3,042
2005.......................................................    3,132
                                                             -------
                                                             $16,143
                                                             =======
</TABLE>

     In October 2000, the Company entered into a sublease agreement whereby the
Company is subleasing approximately 27% of the space in the building which
serves as the Company's headquarters to a third party tenant corporation. The
sublease commits this third party to sublease payments to the Company totaling
$2.1 million, $2.2 million and $1.7 million in 2001, 2002 and 2003. These
payments are reflected as reductions in the Company's rent expense in each
period.

     In May 1999, the Company entered into an agreement with a non-profit health
services research organization (the "organization"), which allows the Company to
use content from the organization's database of information about medical
products and manufacturers and obtain a license to use elements of its
classification system. Additionally, the agreement provides for joint marketing
activities and collaboration in the creation of a database of product and vendor
information. This agreement requires the Company to make revenue sharing
payments to the organization during the three-year term of the agreement and for
two years following expiration or termination of the agreement with respect to
revenue derived from the Company's Plan service. During the second and third
years, the Company is required to pay a nonrefundable fee of $600,000 per year,
in equal monthly installments, which shall be credited against any revenue
sharing profits payable. As of December 31, 2000, the Company had paid $350,000
under the terms of this agreement.

     In October 1999, the Company entered into a three-year agreement with a
consulting firm (the "Consultant"), which is a stockholder as a result of the
Series E financing, in which the Consultant agreed to introduce the Company's
services to appropriate clients, based on their interests, and to incorporate
the Company's services into certain of its service offerings. The agreement also
provides for joint marketing activities. In consideration, the Company has
agreed to make payments to the Consultant in an aggregate amount of up to
approximately $2.0 million, as well as a percentage of specified Neoforma.com
e-commerce transaction revenue and other payments. The Company has also agreed
to utilize the Consultant's services on a preferred basis for systems
integration, development, infrastructure, process improvement and consulting
assistance, totaling at least $1.5 million of services from the Consultant, at a
discount from the Consultant's standard fees. For the year ended December 31,
2000, the Company recorded expenses amounting to $1.7 million related to this
agreement which are included in sales and marketing expenses in the accompanying
consolidated financial statements.

                                       F-23
<PAGE>   97
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In October 1999, the Company entered into an agreement with a hardware
vendor, which is a stockholder as a result of the Series E financing, pursuant
to which the Company agreed to develop complementary marketing programs with the
vendor and establish hyperlinks between their respective Internet websites. The
Company agreed to use the vendor as its exclusive supplier of certain hardware
products and agreed to purchase at least $5,000,000 of the vendor's products
under a schedule to be mutually agreed upon by the Company and the vendor and
$100,000 of consulting services on a mutually agreed upon schedule. This
agreement can be terminated by either party for any reason with 30 days' prior
written notice. For the year ended December 31, 2000, the Company recorded
expenditures amounting to $1.3 million related to this agreement which are
included primarily in property and equipment in the accompanying consolidated
financial statements.

     In November 1999, the Company entered into a co-branding agreement with a
corporation. Under the agreement, the corporation will transfer to the Company's
website all listings of new and used medical products offered for sale through
the corporation's website (on an exclusive basis to the extent the corporation
has the right to do so), and the Company will transfer to the corporation all
listings of used and excess laboratory products offered for sale on the
Company's website (on an exclusive basis to the extent the Company has the right
to do so). The parties also agreed to establish links between their respective
websites. In addition, the corporation will develop and maintain a co-branded
career center and a co-branded training and education center, and will provide
the Company with specified content created for its medical online communities.
This corporation also has the non-exclusive right to sell sponsorships on the
Company's Plan service and the exclusive right to sell advertising on the
co-branded sites. Under this agreement, the Company agreed to pay this
corporation $2,000,000 of development and promotional fees over the first two
years of this agreement. In February 2001, the Company entered into an amendment
to this agreement whereby the Company was relieved of substantially all of its
remaining obligations to pay any development or promotional fees, and under
which the corporation was relieved of certain obligations, including the
exclusivity of its relationship with the Company.

     In July 1999, as part of the employment agreement entered by and between
the Company's Chief Executive Officer ("CEO") and the Company, the CEO is
eligible to receive a moving assistance loan up to $2.5 million. The loan is to
be forgiven in equal monthly installments from the date of closing on his new
home through June 30, 2003. As of December 31, 2000, no amounts were outstanding
under such a loan, and the Company was in discussions with the CEO to
restructure the timing of the cash payments under the loan.

 6. LITIGATION:

     On January 14, 2000, Forma Scientific, Inc, notified the Company that it
believed the Company's use of "Neoforma" and "Neoforma.com" violated its
trademark rights in "Forma" and "Forma Scientific" and that it had filed
complaint in federal court. On May 11, 2000, the Company was formally served
with the complaint entitled Forma Scientific, Inc. v. Neoforma.com, Inc., Docket
No. C200-0045, U.S. District Court, Southern District of Ohio, Eastern Division
of Columbus, alleging trademark infringement. On September 12, 2000, the Company
entered into a settlement agreement under which the Company agreed to modify its
logo so that the mark NEOFORMA is presented to viewers as one word without any
form of distinction separating the NEO portion of the mark from the FORMA
portion of the mark.

     On October 30, 2000, the Company was formally served with a complaint
entitled Healthworks, Inc. against Neoforma.com, Inc. and Jeffrey H. Kleck,
Index No. 604682-00, Supreme Court of the State of New York, County of New York.
The complaint indicated that Healthworks, Inc. ("Healthworks") had filed suit
against the Company seeking relief of its obligations under two contracts
between itself and the Company. Healthworks alleges that the Company failed to
fulfill its obligations under the Basic Commerce Agreement and Letter of Intent
(the "Basic Agreement"), and is thus in breach of the agreement. Further,
Healthworks is claiming that the Consulting Services and Capital Equipment
Purchasing Agreement (the "Consulting

                                       F-24
<PAGE>   98
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Agreement") was obtained via fraudulent means, and, as a result, should be
rescinded. The Company believes that Healthworks' case is without merit, and
plans to vigorously defend this action. The Company does not believe this
litigation will have a material impact on its financial statements.

     On October 30, 2000 the Company filed a complaint for breach of contract
entitled Neoforma.com, Inc. v. Continuum Health Partners, Inc. and Healthworks,
Inc., in the Superior Court of the State of California, County of Santa Clara.
The complaint indicates that Healthworks and Continuum Health Partners, Inc.
("Continuum") are in breach of both the Basic Agreement and the Consulting
Agreement, both of which were entered into by Healthworks acting as an agent for
Continuum. The Complaint indicates that the breach was created by Healthworks'
and Continuum's refusal to pay amounts due to the Company under the agreements,
despite the fact that the Company had performed on its obligations under those
agreements. The Company is seeking amounts owed and compensatory damages
totaling in excess of $1.0 million.

 7. DEFERRED COMPENSATION

     In connection with the grant of certain stock options to employees during
fiscal 1998, 1999 and 2000, the Company recorded deferred compensation of
approximately $65.2 million, representing the difference between the estimated
fair value of the common stock for accounting purposes and the option exercise
price of these options at the date of grant. This amount is presented as a
reduction of stockholders' equity and amortized over the vesting period of the
applicable options using an accelerated method of amortization. Under the
accelerated method, each vested tranche of options is accounted for as a
separate option grant awarded for past services. Accordingly, the compensation
expense is recognized over the period during which the services have been
provided; however, the method results in a front-loading of the compensation
expense. Based on the above assumptions, the weighted average fair values per
share of options granted were $0.29, $3.81 and $9.15 for the years ended
December 31, 1998 and 1999 and for the period from January 1, 2000 to January
24, 2000 (the date of the Company's initial public offering), respectively. In
May 2000, the Company decreased deferred compensation by approximately $5.1
million as a result of a reduction in workforce related to restructuring
activities (see Note 9 for further discussion). Additionally, during the
remainder of the year ended December 31, 2000, the Company recorded $3.4 million
in additional reductions of deferred compensation as a result of normal employee
attrition. The Company recorded amortization of deferred compensation of $25.3
million during the year ended December 31, 2000 which is allocated to the
various operating expense categories consistent with the salary expense for the
employees who received the options.

     In connection with the assumption of certain stock options granted to
employees of EquipMD prior to the acquisition of EquipMD, the Company recorded
deferred compensation of approximately $23.1 million, representing the
difference between the estimated fair value of the common stock for accounting
purposes and the option exercise price of these options at the date of
announcement of the acquisition. This amount is presented as a reduction of
stockholders' equity and amortized over the vesting period of the applicable
options using an accelerated method of amortization. Based on the above
assumptions, the weighted-average fair values per share of options assumed was
$31.50. The Company recorded amortization of deferred compensation related to
these options of $9.0 million during the year ended December 31, 2000 which is
allocated to the various operating expense categories consistent with the
employee salary expenses for the employees the charge relates to.

 8. ABANDONED ACQUISITION COSTS

     On March 30, 2000, the Company entered into agreements to acquire Eclipsys
Corporation ("Eclipsys") and HEALTHvision, Inc., ("HEALTHvision") as part of
entering into the Outsourcing and Operating Agreement with Novation.

     On May 25, 2000, all three parties agreed by mutual consent to terminate
the proposed mergers, and instead the Company entered into a strategic
commercial relationship with Eclipsys and HEALTHvision that

                                       F-25
<PAGE>   99
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

includes a co-marketing and distribution arrangement between the Company and
HEALTHvision. The arrangement includes the use of Eclipsys' eWebIT enterprise
application integration technology and professional services to enhance the
integration of legacy applications with the Company's e-commerce platform. In
addition, the Company modified the structure and terms of its stock and warrant
transactions with VHA and UHC (see Note 16 for further discussion of the
resulting Outsourcing and Operating Agreement).

     As a result of the termination of the mergers, a number of costs the
Company incurred during the due diligence and acquisition process, including
investment banker fees, legal advisory fees and financial and accounting fees,
no longer have any realizable future value. As such the Company expensed all
such costs in the third quarter of the year ended December 31, 2000. As of
December 31, 2000, there was no remaining accrual on the books relating to these
abandoned acquisition costs.

 9. RESTRUCTURING

     As a result of the acquisition of EquipMD, as well as entering into the
Outsourcing and Operating Agreement with Novation (see Note 16 for further
discussion) in May 2000, management identified a need to refocus the Company's
operations around the two markets represented by those activities, Integrated
Delivery Networks and Hospitals, and Physician Practices. As a result, the
Company underwent a restructuring involving both changes in executive management
and the overall organizational structure. The resulting reduction in force of
approximately 80 employees was across functions and eliminated positions which
were largely duplicative or unnecessary. The resulting $2.1 million
restructuring charge consisted entirely of accrued severance and other employee
related costs. As of December 31, 2000, the accrual had been fully utilized and
there were no remaining expenses related to this restructuring.

10. COSTS OF ANTICIPATED DIVESTITURES

     In the fourth quarter of 2000, the Company's management, working with the
Board of Directors, finalized a plan to refocus the Company's operations on the
building and managing private Internet marketplaces for trading partners. As
part of this process, the Company announced its intention to divest itself of
two of its operations that were not aligned with that strategy. The operations
to be divested are Auction which consists primarily of GAR and the assets
acquired from NCL, as well as the USL subsidiary. As of December 31, 2000, the
Company's management had received approval from the Board of Directors for its
plan to divest the Company of these two operations.

     As a result of this plan, as of December 31, 2000, the Company has written
down the assets of both operations to the estimated net realizable disposal
value based on the activity through December 31, 2000. Additionally, the Company
has recorded an accrual for the anticipated costs to sell these two operations.
As of December 31, 2000, the operations to be divested had total tangible assets
of $1.7 million and total liabilities of $843,000. Additionally, prior to any
write down, the Company had recorded approximately $16.1 million of unamortized
intangible assets relating to the operations held for sale.

     The Costs of Anticipated Divestitures of $14.4 million for the year ended
December 31, 2000 was made up of approximately $13.3 million of reduction in the
net realizable value of the assets relating to the operations to be sold to
reflect the estimated disposal value, and $1.1 million of accruals for
anticipated deal costs including severance, accrued rent relating to idle
facilities, as well as financial and legal advisory fees. As of December 31,
2000, the remaining accrual relating to the Costs of Anticipated Divestitures
was $1.1 million.

11. STOCKHOLDERS' EQUITY:

     On July 26, 2000, the Company amended and restated its certificate of
incorporation to increase the number of authorized shares of its common stock to
300,000,000.

                                       F-26
<PAGE>   100
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMMON STOCK

     As of December 31, 2000, the Company has reserved the following shares of
common stock for future issuance as follows (in thousands):

<TABLE>
<S>                                                           <C>
Stock Option Plans..........................................  16,243
Conversion of warrants outstanding..........................   5,735
Employee Stock Purchase Plan................................     573
                                                              ------
                                                              22,551
                                                              ======
</TABLE>

     In January 2000, the Company completed its initial public offering of
8,050,000 shares of its common stock, which raised $104.7 million. Proceeds, net
of underwriters discount of $7.3 million and offering costs of $2.0 million,
amounted to $95.4 million.

PREFERRED STOCK

     Preferred stock consisted of 9,000,000 shares designated as Series A
preferred stock ("Series A") and 2,860,000 shares designated as Series B
preferred stock ("Series B"). The Series A preferred stock was issued in
exchange for 9,000,000 shares of previously issued common stock. The Series B
preferred stock was issued for cash at $0.50 per share.

     The rights and preferences of the Series A and B preferred stock were as
follows:

  DIVIDENDS

     The holders of Series A and B preferred stock were entitled to receive
non-cumulative dividends at $.02 and $.04 per share, respectively, or, if
greater, an amount equal to that paid on any other outstanding shares of the
Company, except that the shares of a given series of preferred stock would not
receive any greater dividend as a result of the Company's payment of a dividend
on any such series of preferred stock. Such dividends were to be payable only
when, as, and if declared by the Board of Directors. No dividends were to be
payable on any common stock until dividends to Series A and Series B preferred
stock were paid or declared by the Board of Directors. No such dividends were
ever paid or declared.

  LIQUIDATION PREFERENCE

     In the event of any liquidation, dissolution or winding up of the Company,
holders of Series A and B were entitled to receive (along with the liquidation
preference available to Series C and Series D stockholders -- see Note 12), in
preference to holders of common stock, the amount of $0.25 and $0.50 per share,
respectively, plus all declared but unpaid dividends. Such amounts were to be
adjusted for any stock split, stock dividends and recapitalizations. If such
assets of the Company were not available to sufficiently satisfy the full
preferential amount of all series of preferred stock then the entire assets and
funds of the Company were to be distributed among the holders of all series of
the preferred stock in accordance with the aggregate preference payment to which
they were entitled. After the payment or the setting aside of the payment set
forth above, the remaining assets of the corporation were to be distributed on a
pro-rata basis to the holders of the preferred stock, on an as-converted basis,
and the holders of common stock until the holders of the Series A, B, C and D
had received an additional $0.25, $0.50, $0.77 and $1.18 per share,
respectively. After the distributions to the holders of preferred stock and
redeemable preferred stock had been made, the remaining assets of the
corporation available for distribution to stockholders were to be distributed
pro-rata among the holders of common stock.

                                       F-27
<PAGE>   101
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  VOTING RIGHTS

     The holders of the Series A and Series B were entitled to a number of votes
equal to a number of shares of common stock into which such preferred stock was
convertible.

  CONVERSION

     Each share of Series A and Series B was convertible into one share of
common stock at the option of the holder at any time after the date of issuance
of such shares, and automatically converted at the consummation of the Company's
sale of common stock in an underwritten public offering (the "IPO") which
resulted in net cash proceeds to the Company of at least $60,000,000 and an
offering price to the public of a least $7.00 per share. The conversion rate was
subject to adjustment for dilution, including but not limited to, stock splits,
stocks dividends and stock combinations.

     Upon the Company's initial public offering in January 2000, all outstanding
shares of convertible preferred stock were converted into common stock.

12. MANDATORILY REDEEMABLE PREFERRED STOCK:

     In August 1998, the Company completed an offering of 5,064,937 shares of
Series C mandatorily redeemable preferred stock ("Series C") at $0.77 per share.
Total proceeds of the offering amounted to approximately $3.9 million.

     On February 19, 1999, the Company completed an offering of 10,196,361
shares of Series D mandatorily redeemable preferred stock ("Series D") at $1.18
per share. Total proceeds of the offering amounted to approximately $12.0
million.

     On October 12, 1999, the Company completed an offering of 10,658,070 shares
of Series E mandatorily redeemable preferred stock ("Series E") and 2,035,563
shares of Series E-1 mandatorily redeemable preferred stock ("Series E-1") at
$5.68 per share. Included in the issuance of the Series E-1 is 275,000 shares
issued in connection with a strategic alliance the Company entered into in
October 1999. Thus, the net cash proceeds amounted to approximately $70.5
million. In addition, the Company agreed to issue 176,057 shares of the
Company's Series E at $5.68 per share in settlement of a lawsuit in exchange for
cash and reimbursement of legal fees.

     Upon the Company's initial public offering in January 2000, all outstanding
shares of mandatorily redeemable preferred stock were converted into common
stock.

     The rights and preferences of the Series C, D, E and E-1 redeemable
preferred stock were as follows:

  DIVIDENDS

     The holders of Series C, Series D, Series E and Series E-1 redeemable
preferred stock were entitled to receive non-cumulative dividends at $0.062,
$0.0944, $0.4544, and $0.4544 per share annum, respectively, or, if greater, an
amount equal to that paid on any other outstanding shares of the Company, except
that the shares of a given series of preferred stock would not receive any
greater dividend as a result of the Company's payment of a dividend on any such
series of preferred stock. Such dividends were to be payable only when, as, and
if declared by the Board of Directors. No such dividends were ever paid or
declared.

     If the offering price to the public of the Company's common stock in the
IPO was at least $7.00 per share but less than $10.00 per share, the Company
would have recorded a preferred stock dividend of up to approximately $22
million relating to the Series E and E-1 beneficial conversion rights that would
have been triggered on the effective date of the Company's IPO. Because the
public offering price was $10.00 per share, there was no preferred stock
dividend charge.

                                       F-28
<PAGE>   102
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  LIQUIDATION PREFERENCE

     In the event of any liquidation, dissolution or winding up of the Company,
holders of preferred stock of Series C, Series D, Series E and Series E-1 were
entitled to receive (along with the liquidation preference available to Series A
and Series B stockholders -- See Note 11) in preference to the amount of $0.77,
$1.18, $5.68 and $5.68 per share, respectively, plus all declared but unpaid
dividends. Such amounts were to be adjusted for any stock split, stock dividends
and recapitalizations. In the occurrence, or in the event the Company assets and
funds were unable to sufficiently satisfy the full preferential amounts of all
series of preferred stock, the Company would have distributed its entire assets
and funds that were legally available among the holders of all series of
preferred stock in accordance with the aggregate preference payment to which
they were entitled.

     After the payment or the setting aside of the payment set forth above, the
remaining assets and funds of the Company that were legally available were to be
distributed, on a pro-rata basis, to the holders of the preferred stock, on an
as-converted basis, and the holders of common stock until the holders of the
series A, B, C, D, E and E-1, received an additional $0.25, $0.50, $0.77, $1.18,
$5.68 and $5.68 per share, respectively.

     After the distributions to the holders of preferred stock and redeemable
preferred stock had been made, the remaining assets of the Company available for
distribution to stockholders were to be distributed pro rata solely among the
holders of common stock.

  VOTING RIGHTS

     The holders of the Series C, D, E and E-1 were entitled to the number of
votes equal to a number of shares of common stock into which such redeemable
preferred stock was convertible.

  CONVERSION

     Each share of Series C, D, E and E-1 was convertible into one share of
common stock at the option of the holder at any time after the date of issuance
of such shares, and automatically converted at the consummation of the Company's
sale of common stock in an underwritten public offering which resulted in net
cash proceeds to the Company of at least $60,000,000 and an offering price to
the public of at least $7.00 per share. The conversion rate was subject to
adjustment for dilution, including, but not limited to, stock splits, stock
dividends and stock combinations.

  MANDATORY REDEMPTION

     Upon the affirmative vote of the holders of the majority of the Series C,
Series D, Series E and Series E-1, the Company could have been required to
redeem all shares of Series C, Series D, Series E and Series E-1 outstanding as
of the date of such demand, which date shall hereinafter be referred to as the
"Redemption Date." The Redemption Price of the Series C, Series D, Series E and
Series E-1 would have been $0.77, $1.18, $5.68 and $5.68 per share,
respectively, subject to adjustment for dilution. The stockholders could not
have required redemption prior to seven years after the issuance of the Series
C, Series D, Series E and Series E-1.

     Beginning with the first year anniversary of the Redemption Date, the
Company could have been required to redeem annually no more than that number of
shares of Series C, Series D, Series E and Series E-1 equal to 25% of the Series
C, Series D, Series E and Series E-1 outstanding as of the Redemption Date. From
and after the Redemption Date, all rights of the shares designated for
redemption would have ceased with respect to such shares. If the funds of the
Company legally available for redemption of Series C, Series D, Series E and
Series E-1 on any Redemption Date were insufficient to redeem the total number
of shares of the Series C, Series D, Series E and Series E-1 to be redeemed on
such date, those funds which were legally available would have been used to
redeem the maximum number of such shares on a pro rata basis among the

                                       F-29
<PAGE>   103
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

holders of Series C, Series D, Series E and Series E-1 based on each holder's
share of the total redemption price. At any time thereafter when additional
funds of the Company were legally available for the redemption of the shares of
the Series C, Series D, Series E and Series E-1, such funds would have been
immediately set aside for the Redemption Date.

13. WARRANTS:

     In June 1998, the Company issued a warrant to purchase 45,000 shares of
Series C preferred stock at an exercise price of $0.77 per share in conjunction
with a loan agreement. The fair value of the warrant at the date of issuance was
determined to be approximately $7,000 and was estimated using the Black-Scholes
valuation model with the following assumptions: risk-free rate of 5.6%; expected
life of one year; and expected volatility of 70%. This amount is being
recognized as additional interest expense over the expected life of the loan
agreement.

     In May 1999, the Company issued a warrant to purchase 228,813 shares of
Series D preferred stock at an exercise price of $1.18 per share in conjunction
with a loan agreement. The warrant is exercisable immediately and expires May
12, 2006. The fair value of the warrant at the date of issuance was determined
to be approximately $640,000 and was estimated using the Black-Scholes valuation
model with the following assumptions: risk-free interest rate of 5.0%; expected
life of one year; and expected volatility of 70%. This amount is being
recognized as additional interest expense over the expected life of the loan
agreement.

     In July 1999, the Company issued a warrant to purchase 10,000 shares of
Series D at an exercise price of $1.18 per share in conjunction with a loan
agreement. The fair value of the warrant at the date of issuance was determined
to be approximately $40,000 and was estimated using the Black-Scholes valuation
model with the following assumptions: risk-free rate of 5.3%; expected life of
one year; and expected volatility of 70%. This amount is being recognized as
additional interest expense over the expected life of the loan agreement.

     In July 1999, the Company issued a warrant to purchase 137,711 shares of
Series D at $1.18 per share in connection with an equipment lease line. The
warrant is exercisable immediately and expires July 7, 2006. The fair value of
the warrant at the date of issuance was determined to be approximately $559,000
and was estimated using the Black-Scholes valuation model with the following
assumptions: risk-free interest rate of 5.3%; expected life of one year; and
expected volatility of 70%. This amount is being recognized as additional
interest expense over the expected life of the lease line.

     In September 1999, the Company issued to a retained executive search firm a
warrant to purchase 436,623 shares of the Company's common stock at an exercise
price of $0.10 per share. The warrant is exercisable immediately and expires on
September 9, 2009. The fair value of the warrant was determined to be
approximately $2.4 million and was estimated using the Black-Scholes valuation
model with the following assumptions: risk-free interest rate of 5.5%; expected
life of four months; and expected volatility of 70%. This expense is included in
cost of warrant issued to recruiter for the year ended December 31, 1999.

14. STOCK OPTIONS:

1997 STOCK PLAN

     The Company, under the 1997 Stock Plan (the "1997 Plan"), reserved
approximately 14.7 million shares of common stock. The stock is reserved for the
Company's employees, directors and consultants. The term of each option will be
stated in the option agreement and is not to exceed 10 years after the grant
date. If the optionee owns stock representing more than 10% of the Company's
voting power, the term of the option will not exceed 5 years after the grant
date.

     Option pricing shall be no less than 85% of the fair market value per share
on the date of the grant. If the optionee owns stock representing more than 10%
of the Company's voting power the option price shall not be

                                       F-30
<PAGE>   104
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

less than 110% of the fair market value per share on the date of the grant. If
the stock option is an incentive stock option, then the price for the stock
cannot be less than 100% of the fair market value per share on the date of the
grant.

     Any option granted shall be exercisable at such times and under such
conditions as determined by the Board of Directors. However, for most options,
25% of the shares subject to the option shall vest 12 months after the vesting
commencement date, and 1/48 of the shares shall vest each month thereafter.
Options under the 1997 Plan are exercisable immediately, subject to repurchase
rights held by the Company, which lapse over the vesting period as determined.

     The Company's right of repurchase will lapse at a rate determined by the
Board of Directors. However, for most options the Company's right to repurchase
will lapse at a rate of 25% of the shares after the first 12 months and 1/48 of
the shares, per month, after the vesting commencement date.

1999 EQUITY INCENTIVE PLAN

     In November 1999, the board of directors approved the 1999 Equity Incentive
Plan ("the 1999 Plan") to replace the 1997 Stock Plan. The Company has reserved
approximately 5,000,000 shares of common stock for issuance under the 1999 Plan,
and the number of shares reserved for issuance under this plan was increased to
include shares of the Company's common stock reserved under the 1997 Plan that
were not issued or subject to outstanding grants on the date the IPO was
completed. The 1999 Plan stipulates that the amount authorized will
automatically be increased each year by the number of shares required to
increase the total shares available for future grants under the plan to an
amount equal to 5% of the Company's total outstanding shares as of December 31
of the preceding year. Incentive stock options may only be granted to employees
under the 1999 Plan, and they must be granted at an option price no less than
100% of the fair market value of the common stock on the date of grant. If the
optionee owns stock representing more than 10% of the Company's outstanding
voting stock, incentive stock options must be granted at an option price no less
than 110% of the fair market value of the common stock on the date of grant.
Nonqualified stock options may be granted to employees, officers, directors,
consultants, independent contractors or advisors to the Company, and must be
granted at an option price no less than 85% of the fair market value of the
common stock on the date of grant. All options granted under the 1999 Plan carry
a maximum term of 10 years from the date of grant, and shall be exercisable at
such times and under such conditions as determined by the board of directors at
the date of grant. However, for most options 1/4 of the shares subject to the
option shall vest 12 months after the vesting commencement date, and 1/48 of the
shares subject to the option shall vest each month thereafter.

                                       F-31
<PAGE>   105
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Activity under the 1997 and 1999 Plans was as follows (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
                                                                            OUTSTANDING OPTIONS
                                                                         -------------------------
                                                             SHARES                   WEIGHTED-
                                                            AVAILABLE                  AVERAGE
                                                            FOR GRANT    NUMBER     EXERCISE PRICE
                                                            ---------    -------    --------------
<S>                                                         <C>          <C>        <C>
BALANCE, DECEMBER 31, 1997................................       700         300        $ 0.05
  Authorized for issuance under the 1997 Plan.............     1,000          --
  Granted.................................................    (1,458)      1,458        $ 0.08
  Exercised...............................................        --        (716)       $ 0.06
  Canceled................................................        30         (30)       $ 0.10
                                                             -------     -------        ------
BALANCE, DECEMBER 31, 1998................................       272       1,012        $ 0.09
  Authorized for issuance under the 1997 Plan.............    12,656          --
  Authorized for issuance under the 1999 Plan.............     5,000          --
  Granted.................................................    (8,116)      8,116        $ 1.88
  Granted outside of the Plans (a)........................        --       8,402        $ 0.93
  Exercised...............................................        --     (12,855)       $ 0.71
  Repurchased.............................................        14         (14)       $ 0.20
  Canceled................................................       809        (809)       $ 0.10
                                                             -------     -------        ------
BALANCE, DECEMBER 31, 1999................................    10,635       3,852        $ 3.57
  Granted.................................................   (14,661)     14,661        $ 4.59
  Granted outside the Plans (a)...........................        --          35        $13.00
  Exercised...............................................        --        (140)       $ 0.80
  Repurchased.............................................       820          --        $ 1.21
  Canceled................................................     3,586      (3,621)       $ 6.32
                                                             -------     -------        ------
BALANCE, DECEMBER 31, 2000................................       380      14,787        $ 4.02
                                                             =======     =======        ======
</TABLE>

---------------
(a) During the years ended December 31, 1999 and 2000, the Company granted
    options to purchase approximately 8,402,000 and 35,000 shares of common
    stock, respectively, to certain Company executives, directors, and
    consultants. Such options were issued outside of the 1997 and 1999 Plans.

     In April 2000, as part of the acquisition of EquipMD, the Company assumed
outstanding options to purchase 1,075,501 shares of common stock at exercise
prices ranging from $2.86 to $4.14. As of December 31, 2000, approximately
403,000 of the shares underlying these options were vested but none of the
options had been exercised.

     The Company accounts for the Plans under the provisions of APB No. 25 and
related interpretations. Had compensation expense for the stock option plans
been determined consistent with SFAS No. 123, net losses would have amounted to
the following pro forma amounts (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                      1998        1999        2000
                                                     -------    --------    ---------
<S>                                                  <C>        <C>         <C>
Net loss as reported...............................  $(4,563)   $(51,020)   $(208,815)
Net loss pro forma.................................  $(4,597)   $(60,311)   $(208,403)
Net loss per share as reported.....................  $ (1.65)   $ (19.15)   $   (2.49)
Net loss per share pro forma.......................  $ (1.66)   $ (22.64)   $   (2.48)
</TABLE>

     The weighted-average fair value of options granted during the years ended
December 31, 1998, 1999 and 2000 was $0.07, $4.60 and $3.50, respectively. The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following assumptions: risk-free
interest rates

                                       F-32
<PAGE>   106
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ranging from 4.07 to 6.81 percent; expected dividend yields of zero percent for
all three periods; an average expected life of 3.5 years; and expected
volatility of 0%, 0% and 70% for the years ended December 31, 1998, 1999 and
2000.

     The following table summarizes all stock options outstanding and
exercisable as of December 31, 2000 (shares in thousands):

<TABLE>
<CAPTION>
                OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
---------------------------------------------------    -------------------
                             WEIGHTED-    WEIGHTED-              WEIGHTED-
                              AVERAGE      AVERAGE                AVERAGE
   EXERCISE                  REMAINING    EXERCISE               EXERCISE
     PRICE         NUMBER      YEARS        PRICE      NUMBER      PRICE
---------------    ------    ---------    ---------    ------    ---------
<S>                <C>       <C>          <C>          <C>       <C>
$0.10 to $ 0.78    2,928       9.51        $ 0.62        918       $0.26
$0.80 to $ 2.94    2,924       9.75        $ 1.96        326       $2.69
$3.00 to $ 3.00    3,465       9.53        $ 3.00        616       $3.00
$3.03 to $ 4.00    2,053       9.42        $ 3.88        554       $3.89
$4.14 to $ 7.00    3,168       9.10        $ 6.52      2,382       $6.70
$7.69 to $63.88    1,325       9.19        $12.16        725       $9.97
                   ------      ----        ------      -----       -----
                   15,863      9.44        $ 3.96      5,521       $5.13
                   ======      ====        ======      =====       =====
</TABLE>

     During October 1999, the Board of Directors approved a change in the 1997
Plan providing for the exercise of options prior to an employee's vesting date.
In January 2000, as part of the acquisition of Pharos, the Company assumed
certain options that had been exercised in advance of their vesting. At December
31, 1999 and 2000, 9,908,501 and 956,074 shares previously issued were subject
to repurchase at a weighted-average price of $0.88 and $1.20 per share,
respectively.

1999 EMPLOYEE STOCK PURCHASE PLAN

     In November 1999, the Board of Directors approved the 1999 Employee Stock
Purchase Plan (the "ESPP") which became effective on January 24, 2000. The
Company has reserved 750,000 shares of common stock for issuance under the ESPP,
and the terms of the ESPP stipulate that amount will automatically be increased
each year by shares equal to the amount necessary such that the total shares
available for issuance under the plan is equal to 1% of the total outstanding
shares of common stock as of December 31 of the preceding year. Subject to
certain eligibility requirements, employees may elect to withhold up to a
maximum of 15% of their cash compensation for participation in the ESPP. Each
offering period under the ESPP will be two years in duration and will consist of
four six-month purchase periods. The first offering period commenced on January
24, 2000 at which time price quotations were available for the Company's common
stock on the Nasdaq National Market with subsequent purchasing periods
commencing on February 1 and August 1 of each year. The purchase price for
common stock purchased under this plan will be 85% of the lesser of the fair
market value of our common stock on the first day of the applicable offering
period or the last day of the purchase period.

15. INCOME TAXES:

     Effective January 1, 1998, the Company accounts for income taxes pursuant
to the provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS 109
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined using the current applicable enacted tax rate and
provisions of the enacted tax law.

     Due to the Company's loss position, there was no provision for income taxes
for the years ended December 31, 1998, 1999 and 2000.

                                       F-33
<PAGE>   107
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At inception, the Company elected S-Corporation status. As of January 1,
1998, the Company elected C-Corporation status for Federal and state purposes.
As a result, the Company is not entitled to any tax benefits associated with the
period prior to C-Corporation election.

     At December 31, 2000, the Company had cumulative net operating loss
carryforwards of approximately $153.1 and $105.7 million for Federal and state
income tax purposes, respectively, expiring in various years ending through
2020, respectively.

     At December 31, 2000, the Company had cumulative credit carry forwards of
approximately $654,000 and $1,369,000 for Federal and state income tax purposes,
respectively. These credits are subject to expiration through various periods
through 2020.

     The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss and credit carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership.

     The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1999        2000
                                                              --------    --------
<S>                                                           <C>         <C>
Temporary differences.......................................  $  3,900    $  9,634
Net operating loss carryforwards............................    12,926      59,943
Tax credits.................................................       558       1,544
                                                              --------    --------
                                                                17,384      71,121
Valuation allowance.........................................   (17,384)    (71,121)
                                                              --------    --------
                                                              $     --    $     --
                                                              ========    ========
</TABLE>

     Due to uncertainty surrounding the realization of the deferred tax
attributes in future years, the Company has recorded a valuation allowance
against its net deferred tax assets.

     The deferred tax assets at December 31, 2000 also include approximately
$0.7 million related to the acquisition of Pharos (including Federal net
operating losses of $1.7 million) and if realized, will be used to reduce the
amount of goodwill recorded at the date of the acquisition.

     The provision for income taxes at the Company's effective tax rate differed
from the benefit from income taxes at the statutory rate due mainly to the
increase in valuation allowance and no benefit of the operating losses was
recognized.

     The provision for income taxes differs from the expected tax benefit amount
computed by applying the statutory federal income tax rate of 35% to loss before
taxes is as follows:

                                       F-34
<PAGE>   108
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                              1998       1999       2000
                                                              -----      -----      -----
<S>                                                           <C>        <C>        <C>
Federal statutory rate......................................  (35.0)%    (35.0)%    (35.0)%
State taxes, net of Federal benefit.........................   (5.8)      (4.4)      (5.9)
Change in valuation allowance...............................   43.1       28.4       25.7
Deferred compensation.......................................     --       10.2        6.7
Tax credits.................................................   (2.3)       1.4       (0.3)
Goodwill amortization.......................................     --         --        4.5
In process R&D..............................................     --         --        3.5
Discontinued operations.....................................     --         --        2.8
Other.......................................................     --       (0.6)      (2.0)
                                                              -----      -----      -----
0.0%                                                            0.0%       0.0%
                                                              =====      =====      =====
</TABLE>

16. RELATED PARTY TRANSACTIONS:

     On July 26, 2000, the Company's stockholders voted to approve the amended
"Outsourcing and Operating Agreement" (the "Agreement") entered into among the
Company and Novation, LLC ("Novation"), VHA Inc. ("VHA"), University
HealthSystem Consortium ("UHC"), and Healthcare Purchasing Partners
International LLC ("HPPI") on May 24, 2000. Under the terms of the Agreement,
the Company agreed to develop and manage an e-commerce marketplace (the
"Marketplace") to be used by VHA, UHC and HPPI member healthcare organizations
as their primary purchasing tool for medical equipment and supplies. Novation
agreed to serve as a contracting agent for the Company by recruiting,
contracting and managing relationships with healthcare equipment manufacturers
and service suppliers on the Company's behalf. VHA and UHC agreed to provide
marketing support for the Marketplace, guarantee Novation's obligations under
the Agreement and agreed to enter into certain exclusivity provisions contained
in the Agreement.

     In consideration for the services agreed to be rendered, the Company issued
warrants to VHA and UHC to purchase up to 30,845,020 shares and 7,519,436
shares, respectively, of the Company's common stock, at an exercise price of
$0.01 per share. Vesting on the warrants is performance based, and is driven by
historical gross purchasing levels of VHA and UHC member healthcare
organizations, that enter into commerce agreements with the Company to use the
Marketplace. Additionally, Neoforma issued to VHA and UHC 46,267,530 shares and
11,279,150 shares, respectively, of the Company's common stock, which are
subject to certain voting restrictions.

     On July 26, 2000, once stockholder approval was obtained for the Agreement
and the related issuance of shares, the common stock discussed above was issued
to VHA and UHC. The common stock was issued in consideration for their entering
into the Agreement, and the total valuation of those shares of $291.3 million
was capitalized. This amount has been recorded in Capitalized Partnership Costs
in the accompanying consolidated balance sheets, and will be amortized over the
estimated beneficial life of five years. Due to the performance criteria on the
warrants, the valuation of the warrants is not calculated until earned. During
the year ended December 31, 2000, VHA and UHC earned a total of 9.6 million
shares of the warrants resulting in a valuation of $38.1 million of additional
consideration being capitalized on the Company's books. The valuation of
warrants earned was calculated using the Black-Scholes pricing model using a
risk free interest rate of 5.8%, expected dividend yield of zero, an average
life equal to the remaining term of the outsourcing agreement and volatility of
70%. This amount has also been recorded in the Capitalized Partnership Costs
account in the accompanying consolidated balance sheets. The portion of the
charge that relates to the warrant shares earned for each healthcare
organization will be amortized over the life of the commerce agreement signed
between the Company and that healthcare organization (between 2 - 3 years). As
of December 31, 2000, the Company has recorded amortization against these
Capitalized Partnership Costs of $30.5 million.

                                       F-35
<PAGE>   109
                               NEOFORMA.COM, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On October 18, 2000, the Company entered into an agreement with VHA to
replace the warrant issued to VHA to purchase up to 30,845,020 shares of its
common stock with 30,845,020 shares of restricted common stock. On January 25,
2001, the Company entered into an agreement with UHC to replace the warrant
issued to UHC to purchase up to 5,639,577 shares of its common stock with
5,639,577 shares of restricted common stock. In each case, the restrictions on
the stock are identical to the vesting performance criteria that were in place
on the warrant, and thus there will be no change in the accounting treatment
relating to the restricted common stock versus the warrant.

     On December 31, 2000, the Company entered into a three-year software
license agreement and a series of related agreements regarding maintenance,
consulting and services with i2 Technologies, Inc. ("i2"). Under these
agreements, the Company and i2 will collaborate on product development,
marketing, sales and service activities. These agreements also provide for
revenue sharing from the Company to i2 commencing immediately on services and
applications sales, and commencing in 2002 on other marketplace related revenue.
Additionally, the agreements contain revenue sharing provisions under which i2
will share revenue with the Company for products and services it sells in the
healthcare vertical market.

     On January 25, 2001, the Company entered into stock purchase agreements
with VHA and UHC to purchase shares of the Company's common stock. VHA and UHC
acquired 11,834,320 and 3,254,438 shares, respectively, at a purchase price of
$1.69 per share. Including i2, which participated in the strategic financing,
acquiring 2,958,580 shares, the Company raised a total of approximately $30.5
million prior to costs associated with the sale of the shares, which are
currently estimated to be approximately $1.1 million. After the closing of the
financing, VHA and UHC owned approximately 48.8% and 12.1%, respectively, of the
total shares of outstanding common stock assuming conversion of all outstanding
common stock equivalents.

     Concurrent with the financing, the Company also further amended the
Outsourcing and Operating Agreement (the "Amendment"), which we had originally
entered into with Novation, VHA, UHC and HPPI on May 24, 2000. Under the terms
of the Amendment, which was effective January 1, 2001, Novation agreed to
guarantee a minimum fee level to the Company, which is directly derived from the
gross transaction volume processed through the private marketplace which the
Company maintains for Novation member health care organizations. The Amendment
also included modifications to certain revenue sharing, supplier recruitment and
supplier implementation provisions of the original agreement.

17. SUBSEQUENT EVENTS

  SALE OF US LIFELINE

     In April 2001, the Company entered into an agreement with Medical
Distribution Solutions, Inc. ("MDSI") to sell substantially all the assets of
USL, the Company's healthcare content subsidiary, for $1.25 million. The
purchase price was made up of $500,000 of cash delivered to the Company upon the
closing, and a $750,000 promissory note payable to the Company over five years.

  LINE OF CREDIT

     In April 2001, the Company entered into a $25 million revolving credit
agreement with VHA. Under the credit agreement, until May 21, 2001, the Company
can borrow funds up to an amount based on a specified formula dependent on the
gross volume of transactions through Marketplace@Novation. Any funds borrowed
under this credit agreement will bear interest at a rate of 10% per annum and
will be secured by substantially all of the Company's asset. In the event that
the Company (1) sells any stock as part of an equity financing, (2) obtains
funding in connection with a debt financing or other lending transaction that is
either unsecured or subordinate to the lien of VHA under the credit agreement or
(3) enters into a debt financing or other lending transaction secured by owned
assets as of the effective date of the credit agreement, then the maximum of $25
million potentially available under the credit agreement will be reduced by an
amount equal to the cash proceeds received from any of these transactions.

                                       F-36
<PAGE>   110

                                                                     SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
     ALLOWANCE FOR           BALANCE AT                                                 BALANCE AT
   DOUBTFUL ACCOUNTS      BEGINNING OF THE   ADDITIONS CHARGED                            END OF
      DECEMBER 31,             PERIOD           TO EXPENSE       WRITE-OFFS    OTHER      PERIOD
------------------------  ----------------   -----------------   ----------   -------   ----------
<S>                       <C>                <C>                 <C>          <C>       <C>
1998....................      $    --            $     --        $      --    $    --    $     --
1999....................      $    --            $  4,000        $      --    $    --    $  4,000
2000....................      $ 4,000            $440,000        $(129,000)   $69,000    $384,000
</TABLE>

<TABLE>
<CAPTION>
   RESTRUCTURING AND
  DIVESTITURE RELATED        BALANCE AT      ADDITIONS                      BALANCE AT
        ACCRUALS          BEGINNING OF THE   CHARGED TO                       END OF
      DECEMBER 31,             PERIOD         EXPENSES    USE OF ACCRUALS     PERIOD
------------------------  ----------------   ----------   ---------------   ----------
<S>                       <C>                <C>          <C>               <C>
1998....................        $--           $    --        $     --         $   --
1999....................        $--           $    --        $     --         $   --
2000....................        $--           $16,546        $(15,405)        $1,141
</TABLE>
<PAGE>   111

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            EXHIBIT TITLE
-------                           -------------
<S>        <C>
4.02       Amended and Restated Registration Rights Agreement dated
           June 30, 2000
4.03       Amendment No. 1 to Registration Rights Agreement dated
           January 25, 2001
10.17      Amendment to Co-Branding Agreement, dated as of February 6,
           2001, by and between the Registrant and VerticalNet, Inc.
10.29      Amendment to Employment Agreement between Robert J. Zollars
           and the Registrant
10.30      Offer letter for Andrew L. Guggenhime dated January 2000
10.31      Offer letter for Steven E. Kane dated May 2000
10.32      Offer letter for Steven J. Wigginton dated December 1999
10.33      Offer letter for Charles D. Brennan dated November 1999
10.34 *    Public Marketplace License Agreement dated December 31, 2000
           by and between i2 Technologies, Inc. and the Registrant
10.35 *    Application Service Provider Agreement dated December 31,
           2000 by and between i2 Technologies, Inc. and the Registrant
10.36 *    Services Agreement dated December 31, 2000 by and between i2
           Technologies, Inc. and the Registrant
10.37      Common Stock Purchase Agreement dated December 31, 2000 by
           and between i2 Technologies, Inc. and the Registrant
21.1       Subsidiaries
23.1       Consent of Arthur Andersen LLP, independent public
           accountants.
</TABLE>

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

* Confidential treatment has been requested for portions of this agreement.