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                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

              __X__ Annual Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 1997

              ____ Transition Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                         Commission File Number. 0-21819

                             HealthDesk Corporation
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                 (Exact name of Company as specified in charter)

          California                                      94-3165144
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)   

  2560 Ninth Street, Suite 220, Berkeley, California                   94710
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       (Address of principal executive offices)                     (Zip Code)

                                 (510) 883-2160
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                (Company's telephone number, including area code)

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<S>                                                                    <C>                              
Securities registered pursuant to Section 12 (b) of the Exchange Act:  None
Securities registered pursuant to Section 12 (g) of the Exchange Act:  Common Stock, no Par Value
                                                                       Redeemable Warrants to purchase
                                                                       Common Stock
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     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. 
                                                               Yes __X__ No ____

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     The issuer's revenue for the most recent fiscal year is $382,362.

     As of February 20, 1998, the aggregate market value of the Company's voting
stock held by non-affiliates was $9,788,496 (Excludes 2,681,000 shares of voting
stock held by directors, officers and 5% or more shareholders). As of February
20, 1998 there were 5,692,845 shares of the Company's Common Stock outstanding
and 2,125,000 Redeemable Warrants to purchase Common Stock outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

     (1) Parts of the definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to regulation 14A not later than 120 days after
the end of the Company's fiscal year and relating to the Company's 1998 Annual
Meeting of Shareholders (Item 10-12 of Part III of Form 10-KSB are incorporated
by reference into Part III of the Form 10-KSB report.)

     Transitional Small Business Disclosure Format Yes ____ No __X__
     The exhibit index appears on page 30 of this Form 10-KSB Report.

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                                                       INDEX


                    Part I                                                                                                      Page

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Item 1   Description of Business................................................................................................ 3

Item 2   Description of Properties..............................................................................................19

Item 3   Legal Proceedings......................................................................................................19

Item 4   Submission of Matters to a Vote of Security Holders....................................................................19

                  Part II

Item 5   Market for Common Equity and Related Stockholder Matters...............................................................20

Item 6   Management's Discussion and Analysis of Financial Condition and Results of Operations..................................20

Item 7   Financial Statements...................................................................................................24

Item 8   Changes In & Disagreements with Accountants on Accounting & Financial Disclosures......................................25


                  Part III

Item 9   Directors, Executive Officers, Promoters & Control Persons; Compliance with Section 16(a) of the
         Exchange Act..........................................................................................................25

Item 10  Executive Compensation................................................................................................26

Item 11  Security Ownership of Certain Beneficial Owners and Management........................................................27

Item 12  Certain Relationships & Related Transactions..........................................................................27

Item 13  Exhibits and Reports on Form 8-K......................................................................................27

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                                       2
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                                     Part I

Item 1. Description of Business.

Background

       HealthDesk Corporation (the "Company"), is engaged in designing,
developing and marketing HealthDesk OnLine (TM), a consumer-focused healthcare
management and information system. When installed on a personal computer with
Internet access, the software enables all members of a household to develop
password protected individual health records and take a more active role in
their personal and family health decision making. The Company's existing and
proposed products are designed to lower the cost and improve the quality of
healthcare by promoting preventive care, patient compliance and more informed
decision making. HealthDesk OnLine and related disease, lifestage and clinical
products are being developed in response to perceived market opportunities,
which include increased consumer demand for healthcare information, continued
pressure on providers to control costs of healthcare, demand for linkage to
consumers on the part of care providers and companies who manage health risk,
and expanded access to personal computer technology, including the Internet.

Market Trends

       According to the Congressional Budget Office, annual healthcare
expenditures in the United States have grown from approximately $470 billion in
1982 to more than $1 trillion in 1995, representing more than 14% of the gross
national product. It is estimated that more than $270 billion is spent on the
treatment and related costs of chronic diseases such as diabetes, HIV/AIDS,
cancer, cardio-vascular disease, obstructive pulmonary disease and asthma. In
response to escalating healthcare costs, federal and state government
authorities have increasingly emphasized stringent cost containment measures. As
a result, healthcare payers and providers have focused on programs which reduce
the costs of providing medical products and services and managing chronic
diseases. Inasmuch as the Company is a development stage company seeking to
develop and commercialize a new product, aggregate expenditures on healthcare in
general and chronic diseases in particular, may not be directly relevant to the
Company's current prospects.

       The Company believes that the broad range of capabilities combined in
HealthDesk OnLine, including the system's desktop and online functionality, and
the system's ability to link consumers with healthcare payers and providers,
differentiate HealthDesk OnLine from competitive products and make it attractive
to potential sponsoring organizations. The Company believes that the following
key trends will contribute favorably to expected demand for HealthDesk OnLine:

     o    Proliferation of Managed Care and Competitive Pressures: The
          healthcare industry has undergone significant transformation in recent
          years. With the proliferation of managed care, employers, consumers
          and other purchasers of healthcare have greater access to an
          increasing number of managed care organizations which are experiencing
          competitive pressures to differentiate their healthcare product and
          service offerings to attract and retain members.

     o    Continuing Penetration of Computers and Modems in the Home: An
          increasing percentage of computer owners also own modems, which are
          being pre-installed in a growing number of new computers. The Software
          Publishers Association estimates that approximately 33.9 million or
          34% of households in the United States owned a personal computer as of
          1995, of which approximately 70% also owned a modem. The Company
          believes that this growth is accompanied by increasing use of
          computers for communications such as facsimile transmissions and
          electronic mail.

     o    Growth of the Informational and Commercial Applications and Resources
          of the Internet: Use of the Internet has grown rapidly since
          commercialization in the early 1990s. An increasing number of servers
          and Websites are being connected to the Internet, making available
          educational and healthcare text, graphics and audio and video
          information which may be accessed by consumers. Traditional and
          emerging Internet applications, including electronic mail and the
          World Wide Web, are also increasing in popularity. Internet use is
          also being promoted by the development of user-friendly navigation and
          search tools designed to simplify consumer access to the Internet's
          resources.



                                       3
<PAGE>
     o    Rapidly Changing Consumer Demands: The Company believes that demand
          for healthcare information and services is increasing as the "baby
          boomer" generation reaches its peak healthcare consuming years.
          Consumers are assuming greater responsibility for their healthcare
          decisions, seeking as much information as possible when choosing a
          health plan, doctor or treatment. According to the New York Times, the
          number of health related sites on the World Wide Web has grown
          significantly, reflecting the growing demand from consumers for
          information to help them make more informed choices about their own
          care.

HealthDesk OnLine

       HealthDesk OnLine software contains several modules for recording
information (Administrative and Health History) and several modules for planning
and tracking nutrition and fitness activities (Meal Planner and Meal Tracker;
Fitness Planner and Fitness Tracker). These modules allow users to create an
extensive database that can be appended, reviewed and printed at any time. The
Company's software also contains modules that provide access to healthcare
information from the Company's private website and over the Internet.

       HealthDesk OnLine has been designed to operate on IBM compatible desktop
computers with a minimum requirement of a 80486DX central processing unit and
sixteen megabytes of random access memory. The system runs under Windows 95.
Consumers may access the electronic mail system, the Company's private website
and the Internet via an Internet service provider. The Company currently offers
AT&T Worldnet service for its customers at standard Internet service provider
market rates. The minimum technical requirement to access the electronic
communications features is a 9600 Baud modem.

Plan

     Fitness Planner. The fitness planner module is designed to allow users to
plan their exercise activities on a seven-day schedule and view the caloric
expenditure associated with their exercises.

     Meal Planner. The meal planner module is designed to allow users to plan
their meals on a seven-day schedule and view the nutritional values associated
with the foods they eat - by meal, by day or by week.

     Reminders. The reminders module is designed to track and present
user-defined alerts for upcoming appointments, target dates for fitness goals,
medication supply refills, etc. Reminders also contain pre-programmed
recommended preventative care measures based on the user's age and gender.

Track

     Fitness Tracker. The fitness tracker module is designed to track exercise
activity in terms of calories burned, duration and intensity level.

     Meal Tracker. The meal tracker module is designed to track nutrition intake
in terms of total calories, calories from fat, fiber, sodium, cholesterol, total
fat, saturated fat, protein and carbohydrates.

     Health Indicators. The health indicators module is designed to track blood
pressure, cholesterol, resting heart rate and weight over time, in list and
graphical formats.

     Medicine Chest. The medicine chest module is designed to track medications
and medical supplies.

File Cabinet

     Administrative. The administrative module is designed to store the
       following health records: 
     Personal information - name, phone number, address, education, etc. 
     Health care coverage - plan names, group and member numbers, phone numbers 
     Care providers - names, addresses, phone numbers, email addresses 
     Pharmacy information - name, address, phone number, email address

                                       4
<PAGE>

     Health History. The health history module is designed to store the
       following health records: 
     Vital stats - height, weight, blood type, smoking history
     Allergies - allergies, reactions 
     Vaccinations - childhood and adult vaccinations, dates received 
     Illnesses - past and current illnesses and conditions, treating physicians 
     Current care - therapies received for certain conditions, completion dates 
     Inpatient & Surgery - reason for hospital stay, dates, treating physician 
     Family history - known conditions among blood relations 
     Gender specific - history of exams and events specific to males or females

Gateways and Services

       Library. The HealthDesk OnLine library module contains an extensive
database of healthcare information, consisting primarily of licensed content.
Healthcare information currently includes pamphlets addressing specific diseases
and medical issues; a medical encyclopedia; a pharmacy reference; information
relating to self-help groups; and numerous articles from prominent healthcare
periodicals such as the New England Journal of Medicine and the Journal of the
American Medical Association. Healthcare information is stored in the Company's
private website and is accessed through the use of a web browser incorporated
into the Company's software.

       Internet Gateway. The Internet gateway module permits access to the World
Wide Web for additional healthcare information through the use of a web browser.
Access is limited to websites which the Company believes provide the most
relevant healthcare information.

       Feedback. The feedback module allows users to access user surveys and
technical support forms.

       Health Risk Assessment. The Company has incorporated content and
algorithms designed to assist in health risk assessment by providing feedback
with respect to the likelihood of risk of certain diseases based on health
information input by the user. The Company has licensed the LifeView(R) system
from Windom Health Enterprises and integrated it into the resources section of
the product on the private website.

       Symptom Triage. The Company has incorporated into its products software
obtained from Healthwise, Inc. pursuant to a non-exclusive license. Such
software is designed to provide specific responses for treatment based on
information relating to symptoms input by the user.

Electronic Mail

       HealthDesk OnLine is designed to permit secure electronic messaging
between consumers and healthcare payers and providers. Anticipated
communications between consumers, payers and providers relate to enrollment;
physician selection; test results and patient information; appointment
scheduling; reminders; provider directories; surveys; home treatment; and
explanation of benefits. The Company intends to employ encryption software on
both the desktop and database server.

HealthDesk Online for Diabetes

     In July 1997, the Company completed the first version release of the
product for HealthDesk OnLine for Diabetes. This disease management application
tracks and monitors diabetes specific care indicators and offers diabetes
specific content including the American Diabetes Association's handbook and
related content in electronic format. The program is designed to accept
downloaded glucose readings which automatically update the tracking facility.

Product Development

       The Company's principal efforts to date have been devoted to the design
and development of HealthDesk OnLine. For the fiscal years ended December 31,
1995, 1996 and 1997, the Company expended approximately $681,000, $1,623,000 and
$2,248,000 respectively, on product development and disease module development
products. Product development expenses are expected to increase through 1998 in
connection with 



                                       5
<PAGE>

commercialization activities and disease and lifestage module development
products. Eleven of the Company's twenty-four employees were engaged in product
development as of December 31, 1997.

       Although the Company believes that its development efforts relating to
the technological aspects of the basic HealthDesk OnLine platform are
substantially completed, the Company is continually seeking to refine and
enhance the capabilities of its products. The Company intends to continue its
research and development efforts to refine, enhance and develop system
capabilities and features, including the following:

       "Chat" Capabilities. The Company will seek to develop and incorporate
online "chat" capabilities and sponsored healthcare forums into HealthDesk
OnLine. The Company anticipates that these features will provide consumers with
an opportunity to discuss healthcare issues with other consumers and healthcare
experts.

       Medical Device Integration. The Company may also seek to develop features
which will facilitate the input of data from additional medical devices, such as
blood pressure cuffs and peak flow meters, directly into HealthDesk OnLine. Any
such feature may require the Company and/or the medical device manufacturer to
obtain pre-marketing regulator approvals. See "Government Regulation."

       Call Center. In the future, the Company may evaluate the feasibility of
offering or integrating its products with a call center service which would
allow consumers to speak with a nurse or other medical practitioner by phone.
The Company believes that a call center capability would enhance patient
compliance with disease management programs. In the event that the Company seeks
to develop such capability, it will become subject to increased government
regulation. See "Government Regulation."

       Data Center. The Company intends to further develop its Data
Center/server capacity enhancing search capabilities and expanding its content
offering which may include video and audio.

       CareTeam Connect. The Company is developing a case management browser
based application which links the care manager and provider to the installed
HealthDesk OnLine end users. The product is expected to provide communication
and analytical capabilities to the providers of care such as physicians and case
managers.

       Disease and Lifestage Modules. In addition, the Company intends to
develop additional specific disease and lifestage management modules designed to
monitor these conditions. The Company believes that specific disease management
modules may increase compliance with treatment programs designed to address the
lifestyle of chronically-ill patients.

       The markets for the Company's products are characterized by rapidly
changing technology and evolving industry standards, often resulting in product
obsolescence or short product life cycles. Accordingly, the ability of the
Company to compete will be dependent on the Company's ability to complete
development and introduce HealthDesk OnLine into the marketplace in a timely
manner, to continually enhance and improve its software and to successfully
develop and market new products. There can be no assurance that competitors will
not develop technologies or products that render the Company's products obsolete
or less marketable or that the Company will be able to successfully enhance its
products or develop new products.

     The healthcare industry is subject to extensive, stringent and frequently
changing federal and state regulation which is interpreted and enforced by
regulatory authorities with broad discretion. Among other things, these
regulations govern the provision of healthcare services and the marketing of
medical devices. These regulations generally predate the development of products
and services such as those offered by the Company and the application and
enforcement of such regulations to the Company and its products and services is
uncertain. However, certain of the statutes governing the provision of
healthcare services could be construed by regulatory authorities to apply to the
Company's proposed business activities. There can be no assurance that
regulatory authorities do not or will not deem the Company's business activities
to constitute the unlicensed practice of medicine.



                                       6
<PAGE>

Sales and Marketing

     The Company's primary marketing strategy is to distribute its core health
product, existing and future disease and lifestage modules, and the clinical
CareTeam Connect management product, through sponsoring organizations with large
numbers of potential users and which are at risk for the cost of care and member
turnover. These include integrated health systems, managed care organizations,
disease management companies, and employers. The Company is also pursuing a
secondary strategy of distributing its products directly to consumers through
marketing distribution agreements with consumer health, pharmaceutical, medical
device and other health related companies.

     In September, 1997, the Company entered into a three (3) year marketing
agreement with HBO & Company ("HBOC"), one of the leading suppliers of health
care related information systems and services. The purpose of the agreement was
to use the HBOC sales force to accelerate the visibility and penetration of the
Company's products with potential sponsoring organizations. Subsequent to
entering into this agreement, the Company has devoted a substantial portion of
its sales and marketing efforts to support HBOC's sales of HealthDesk Online.
Under this agreement, the Company has completed its first contract with
Scottsdale Memorial Health Systems. The Company contemplates that the HealthDesk
OnLine product will be integrated into HBOC's Community Health Management
Strategy. The Community Health Management Strategy is focused on linking the
consumer and community with the integrated delivery networks via the use of a
call center and computer/on-line technology. The Company anticipates that the
HealthDesk OnLine product will be distributed via HBOC's sales force into both
new and existing customers. HBOC has a current customer base of 8,400 healthcare
organizations including approximately 2,500 hospitals, 5,000 physicians
practices and 600 home healthcare organizations. Subject to HBOC meeting certain
minimum royalty requirements, during the term of the agreement the Company may
not grant distribution rights to other health information technology companies
whose primary markets are integrated health systems, managed care organizations
and certain other specified HBOC competitors. There can be no assurance that the
marketing agreement with HBOC will result in the successful commercialization of
HealthDesk OnLine.

     In the near term, the Company anticipates that its principal sources of
revenue will be derived from license fees and subscription revenues from
sponsoring organizations developed as part of its agreement with HBOC. Because
of the nature of the exclusive distribution rights granted pursuant to the HBOC
agreement and given the focus of the Company on supporting such relationship, if
the marketing agreement with HBOC is not successful, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Factors Affecting the Company's Business, Operating Results and
Financial Condition - Dependence upon HBOC Agreement."

     In January 1997, the Company entered into a development contract with the
Medical Inter-Insurance Exchange ("MIIX"), a medical malpractice insurance
carrier, to develop and market the HealthDesk OnLine for Diabetes module. The
Company's agreement with MIIX requires that the Company pay royalties to MIIX
ranging from 3% to 10% of revenues derived from the sale or license of the
HealthDesk OnLine for Diabetes module. In December 1997, the Company and MIIX
agreed to discontinue further development and investment in the diabetes module,
and jointly pursue the commercialization of the current diabetes product.

     The Company's prospects will be substantially affected by its ability to
successfully develop and maintain relationships with key sponsoring
organizations, which will promote their services using HealthDesk OnLine and at
the same time attract significant numbers of subscribers. The Company's revenues
from third-party marketing arrangements are generally expected to be lower than
if the Company sold its products directly to end-users, although the Company
would not incur the expense of creating a distribution network and would
anticipate a greater volume of end-user sales. To the extent that the Company is
ultimately able to enter into satisfactory third-party marketing arrangements,
the Company will be largely dependent on the efforts of such third parties. In
the case of any such arrangements, the Company's products will require
adaptation for specific customers, which could delay product commercialization.
In addition, the Company will be dependent on the marketing efforts of third
parties and on the marketability and sales of their products. There can be no
assurance that the Company will be able to enter into third-party marketing
arrangements, that it will be able to adapt its products for specific customers
on a timely basis, or at all, or that the Company will realize substantial
revenues from any such arrangements.



                                       7
<PAGE>

     The Company seeks to develop advertising relationships with targeted
companies who will benefit from the focused HealthDesk user base. The commercial
viability of the advertising program is contingent on HealthDesk first
developing a critical mass of subscribers. There can be no assurance that either
will occur.

     The Company's executive officers and marketing staff of six persons are
currently responsible for substantially all of the Company's marketing efforts.
Because of the nature of the Company's business, the Company's executive
officers are expected to continue to devote significant time to develop personal
relationships with senior contacts at sponsoring organizations. The Company's
ability to market HealthDesk OnLine may be limited by the number of marketing
personnel and will be largely dependent upon the efforts of such individuals.

     The Company's marketing strategy and preliminary and future marketing plans
may be unsuccessful and are subject to change as a result of a number of
factors, including progress or delays in the Company's marketing efforts,
changes in market conditions (including the emergence of potentially significant
related market segments for applications of the Company's technology), the
nature of possible license and distribution arrangements which may become
available to it in the future and economic, political, regulatory and
competitive factors. There can be no assurance that the Company's strategy will
result in successful product commercialization.

Market Testing

     The Company currently proposes to conduct market testing of HealthDesk
OnLine on an ongoing basis with potential sponsoring organizations. The
Company's success may be highly dependent upon the results of market testing and
there can be no assurance that such tests will be successful. If such tests are
not successful, the Company will be required to attempt to enhance or modify
HealthDesk OnLine so that it will meet with sponsoring organization and consumer
acceptance. There can be no assurance that the Company will be able to modify
HealthDesk OnLine so that positive test results can be demonstrated. Even if
test results are positive, there can be no assurance that sponsoring
organizations will be sufficiently encouraged by the results to commit to use
HealthDesk OnLine on a non-market test basis. They may elect to utilize other
products, services or technologies which they believe to be more efficient or
have other cost advantages over the Company's system. In addition, there can be
no assurance that positive test results will translate into consumer acceptance
over a longer period of time or that sponsoring organizations or consumers will
be satisfied with operational results.

     During 1996 and 1997, the Company conducted preliminary market testing of
HealthDesk OnLine pursuant to license agreements with Blue Cross Blue Shield of
Massachusetts ("BCMA") and Blue Cross Blue Shield of Iowa ("BCI"). Such market
testing has now been completed and the Company has incorporated functionality
and design modifications from these tests into its HealthDesk OnLine product.
Although the Company does not have any currently active arrangements with either
of these organizations, the Company intends to seek to expand the relationships
with these pilot HMO's.

     In 1994, Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc. and
Quantum Health Resources conducted limited consumer acceptance testing
activities with respect to the Company's initial product and a specific disease
software module. While the Company believes that the results of such testing
were positive, the Company does not have any further arrangements with either
Kaiser or Quantum to test such products. See "Factors Affecting the Company's
Business Operating Results and Financial Condition - Uncertainty of Market
Testing Results."


                                       8
<PAGE>

Competition

       The markets that the Company intends to enter are characterized by
intense competition and an increasing number of new market entrants who have
developed or are developing potentially competitive products. The Company will
face competition from numerous sources, including prospective customers which
may develop and market their own competitive products and services, health
information system vendors, software companies and online and Internet service
providers. The Company believes that competition will be based primarily on ease
of use, features (including communications capabilities and content) and price.
The Company believes that the combination of desktop and online functionality of
HealthDesk OnLine may provide the Company with a competitive advantage.

     In addition, certain companies have developed or may be expected to develop
technologies or products in related market segments which could compete with
certain technologies or products being developed by the Company. The Company
expects that companies which have developed or are developing such technologies
or products, as well as other companies (including established and newly formed
companies) may attempt to develop products directly competitive with HealthDesk
OnLine. In particular, several companies, including Healtheon, IBM Global Health
Village, Med Access Corporation, CareSoft, Inc., Access Health, Inc., America's
Housecalls Network, Softwatch, Cerner and SMS have announced plans to develop
and commercialize competitive product and service offerings. Among other things,
these products and services include the use of the Internet for electronic
communication between health plans and consumers regarding plan matters, World
Wide Web sites with information regarding healthcare related matters and other
Internet based products which are to offer health related information. Certain
of such competitors have substantially greater financial, technical, marketing,
distribution, personnel and other resources than the Company, permitting such
companies to implement extensive marketing campaigns, both generally and in
response to efforts by additional competitors to enter into new markets and
market new products and services. See "Factors Affecting the Company's Business,
Operating Results and Financial Condition, Competition" "- Technological
Obsolescence."

Infrastructure, Operations and Technology

       The Company intends to make HealthDesk OnLine available to users through
a set of network servers housed in Berkeley, California. Access to the service
is provided on a 24 hour a day, seven days a week basis through various
communications line providers.

       The Company's operations will depend upon the capacity, reliability and
security of its system infrastructure. The Company currently has limited system
capacity and will be required to continually expand its system infrastructure to
accommodate significant numbers of users and increasing amounts of information
they may wish to access. Expansion of the Company's system infrastructure will
require substantial financial, operational and management resources. In
addition, the Company will be dependent upon Web browsers and third-party
Internet and online service providers for access to the Company's services,
hardware suppliers for prompt delivery, installation and service of computer
equipment used to deliver the Company's services and online content providers to
provide current healthcare information for use by consumers.

       The Company has entered into an Online Vendor License Agreement with
Information Access Company ("IAC") for online access to an electronic database
of proprietary content. The IAC database is currently the principal source of
content available on the Company's private website and includes a wide range of
consumer-oriented health publications, medical journals, articles, pamphlets and
reference books. The non-exclusive, worldwide, royalty-bearing license requires
the Company to include IAC's standard terms and conditions in the Company's
standard subscriber terms and conditions, and display certain IAC legends and
copyright notices. Either party may terminate the agreement with ninety days'
notice on each year's renewal date after completion of a nine-month beta test
period, which test expired in May 1997. As of the date of this Form 10-KSB the
Company has continued its relationship with IAC.

       The Company has entered into a Content License Agreement with Healthwise,
Inc. ("Healthwise"), a publisher of self care health information for consumers.
The agreement provides a non-exclusive, worldwide, license to the Company for
the use of certain content published by Healthwise, including the Healthwise
Handbook 


                                       9
<PAGE>

and Pathways. The agreement continues indefinitely and is terminable for cause
upon two weeks' advance notice and without cause upon six months' advance
notice. In addition, the Company has entered into a Software License Agreement
with Healthwise for the use of Healthwise's KnowledgeBase Symptom Manager and
Health and Disease Manager software in the Company's products. Such software is
designed to allow the Company's customers to triage their symptoms and locate
information on specific disease states. The agreement provides for a
non-exclusive, worldwide, royalty-bearing license. The agreement has renewable
one-year terms, unless terminated by either party upon ninety-days' advance
notice prior to expiration of the then current term.

       The Company has entered into a Content License Agreement with Windom
Health Enterprises. The agreement provides a non-exclusive, worldwide license to
the Company for the use of Windom's LifeView health risk assessment product.

     The Company believes that if any of such licenses are terminated, that
there are multiple other sources from which the Company will be able to license
appropriate content or similar technology. See "Factors Affecting the Company's
Business, Operating Results and Financial Condition - Dependence on Third-Party
Licenses."

Potential Liability and Insurance

       In recent years, participants in the healthcare industry have been
subject to an increasing number of lawsuits alleging malpractice, product
liability and related legal theories, many of which involve large claims and
significant defense costs. Due to the nature of its business, the Company could
become involved in litigation regarding the healthcare information transmitted
over its system with the risk of adverse publicity, significant defense costs
and substantial damage awards. The Company has adopted policies and procedures
intended to reduce the risk of claims, which include the provision of
disclaimers in connection with its services. The Company does not maintain
malpractice liability insurance.

     In addition, because healthcare information and materials may be downloaded
and may be subsequently distributed to others, there is a potential that claims
will be made against the Company for defamation, negligence, copyright or
trademark infringement or other theories based on the nature and content of such
materials. The Company also could be exposed to liability in connection with the
selection of materials that may be accessible over its system. Claims could be
made against the Company if material deemed inappropriate for viewing by
children could be accessed. The Company carries an umbrella insurance policy
with a limit of $4 million in the aggregate, general liability insurance with a
limitation of $2 million in the aggregate and $1 million per occurrence and
errors and omissions insurance with a limitation of $1 million in the aggregate.
Nevertheless, the Company's insurance may not cover potential claims of this
type or may not be adequate to cover liability that may be imposed or related
defense costs. There can be no assurance that the Company will not face claims
resulting in substantial liability for which the Company is partially or
completely uninsured. Any partially or completely uninsured claim against the
Company, if successful and of sufficient magnitude, would have a material
adverse effect on the Company.

Government Regulation

     The healthcare industry is subject to extensive, stringent and frequently
changing federal and state regulation which is interpreted and enforced by
regulatory authorities with broad discretion. Among other things, these
regulations govern the provision of healthcare services and the marketing of
medical devices. These regulations generally predate the development of products
and services such as those offered by the Company and the application and
enforcement of such regulations to the Company and its products and services is
uncertain. However, certain of the statutes governing the provision of
healthcare services could be construed by regulatory authorities to apply to the
Company's proposed business activities. There can be no assurance that
regulatory authorities do not or will not deem the Company's business activities
to constitute the unlicensed practice of medicine.

     Furthermore, in the event of the Company develops features which facilitate
the input of data from medical devices directly into HealthDesk OnLine, it is
possible that the Federal Food and Drug Administration could require the Company
and/or an equipment manufacturer to obtain pre-marketing clearance with respect
to any such product. The process of obtaining and maintaining required
regulatory approval can be lengthy, expensive and uncertain. Even if regulatory
approvals are obtained, a marketed product and its manufacturer are subject to
continuing 



                                       10
<PAGE>

regulatory review, and discovery of previously unknown problems could result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market. Amendments to or interpretation and enforcement of
existing statutes or regulations, the adoption of new statutes or regulations or
the development of new enhancements and features to HealthDesk OnLine could
subject the Company to increased regulation and require the Company to alter
methods of operation at costs which could be substantial. Failure to comply with
applicable laws and regulations could subject the Company to civil remedies,
including substantial fines, penalties and injunctions, as well as possible
criminal sanctions.

     Although there are currently few laws or regulations directly applicable to
access to or commerce on the Internet, due to the increasing popularity and use
of the Internet, it is possible that laws and regulations may be adopted with
respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. Although the enforcement
of such statute has been enjoined and is currently subject to challenge in the
courts, the adoption of any such laws or regulations may limit the growth of the
Internet, which could in turn decrease the demand for the Company's products and
services and increase the Company's cost of doing business. Inasmuch as the
applicability to the Internet of the existing laws governing issues such as
property ownership, libel and personal privacy is uncertain, any such new
legislation or regulation or the application of existing laws and regulations to
the Internet could have an adverse effect on the Company's proposed business and
prospects.

Proprietary Information and Trademarks

       The Company does not hold any patents or registered copyrights. The
Company regards certain computer software it has developed for HealthDesk OnLine
as proprietary and attempts to protect it with copyrights, trade secret laws,
proprietary rights agreements and internal nondisclosure agreements and
safeguards. However, such methods may not afford complete protection and there
can be no assurance that others will not independently develop know-how or
obtain access to the Company's know-how or software codes, concepts, ideas and
documentation. Furthermore, there can be no assurance that nondisclosure
agreements with the Company's employees will adequately protect the Company's
trade secrets. Although the Company believes that its proposed products do not
and will not infringe patents or violate proprietary rights of others, it is
possible that infringement of existing or future patents or proprietary rights
of others have occurred or may occur. In the event the Company's proposed
products infringe patents or proprietary rights of others, the Company may be
required to modify the design of its proposed products or obtain a license.
There can be no assurance that the Company will be able to do so in a timely
manner, upon acceptable terms and conditions, or at all. The failure to do any
of the foregoing could have a material adverse effect upon the Company. In
addition, there can be no assurance that the Company will have the financial or
other resources necessary to enforce or defend a patent infringement action and
the Company could, under certain circumstances, become liable for damages, which
also could have a material adverse effect on the Company.

     The Company currently holds a United States trademark registration for the
"HealthDesk" name and related logo. The Company is not aware of any claims or
infringement or other challenges to the Company's rights to use this mark.

Employees

     As of December 31, 1997, the Company had twenty four (24) full time
employees, of which four (4) were executive officers, eleven (11) were engaged
in product development, six (6) were engaged in marketing and three (3) were
engaged in administrative activities. The Company's employees are not
represented by a collective bargaining unit. The Company believes that its
relations with its employees are good.



                                       11
<PAGE>

Factors Affecting the Company's Business, Operating Results and Financial
Condition

     Development Stage Company. The Company was organized in August 1992 and is
still in the development stage. Since its inception, the Company has been
engaged primarily in product development activities. The Company's initial
product was introduced in early 1993 and has not yet proven to be commercially
viable. As a result, the Company has no relevant operating history upon which an
evaluation of its performance and prospects can be made. The Company will be
subject to all of the risks, uncertainties, expenses, delays, problems and
difficulties typically encountered in the establishment of a new business and
the development and commercialization of new products. The Company has limited
experience in developing and commercializing new products based on innovative
technologies and there is limited information available concerning the potential
performance of the Company's software or market acceptance of the Company's
proposed products. There can be no assurance that unanticipated expenses,
problems or technical difficulties will not occur which would result in material
delays in product commercialization or that the Company's efforts will result in
successful product commercialization.

     Limited Revenues; Significant and Continuing Losses. The Company has not
yet generated any meaningful revenues, and will not generate any meaningful
revenues until after the Company successfully completes development and market
testing of HealthDesk OnLine and attracts and retains a significant number of
subscribers. For the period August 28, 1992 (inception) to December 31, 1997,
the Company incurred a cumulative net loss of approximately $10,166,000. Since
December 31, 1997, the Company has continued to incur increasing and significant
losses, and the Company anticipates that it will continue to incur significant
losses until, at the earliest, it generates sufficient revenues to offset the
substantial up-front expenditures and operating costs associated with developing
and commercializing its proposed products. The Company also recorded a
non-recurring non-cash charge relating to a bridge financing in October 1996 of
approximately $884,000 through December 31, 1996 and $145,000 in January 1997.
There can be no assurance that the Company will be able to attract and retain a
sufficient number of subscribers to generate meaningful revenues or achieve
profitable operations or that HealthDesk OnLine will prove to be commercially
viable.

     Working Capital Deficit; Negative Cash Flow; Need for Additional Financing.
The Company's capital requirements relating to the development and
commercialization of HealthDesk OnLine have been and will continue to be
significant. In February 1998, the Company received $800,000 in equity financing
from two existing shareholders. Based on currently proposed plans and
assumptions relating to its operations (including the timetable of, and costs
associated with, product development and commercialization), the Company
believes that its current working capital position and $1 million funding
commitments from existing shareholders is sufficient to address its contemplated
cash requirements over the next twelve (12) months. Of the $1 million funding
commitment, $200,000 has been received in February 1998. See "Financial
Statements - Subsequent Events." The Company is currently seeking additional
financing. However, there can be no assurance that the Company will be able to
secure additional financing or that the proceeds of any financing will be
sufficient to permit the Company to successfully develop and commercialize
HealthDesk OnLine or that any assumptions relating to the Company's operations
will prove to be accurate. To the extent that the proceeds of any financing are
not sufficient to enable the Company to generate meaningful revenues or achieve
profitable operations, the inability to obtain additional financing will have a
material adverse effect on the Company, including possibly requiring the Company
to significantly curtail or cease its operations. In addition, any
implementation of the Company's business plans will require proceeds greater
than the proceeds currently available to the Company. There can be no assurance
that any additional financing will be available to the Company on commercially
reasonable terms, or at all. Any additional financing involving the issuance of
equity securities could result in substantial dilution to the interests of the
Company's shareholders.

       Possible Delisting of Securities from NASDAQ System; Disclosure Relating
to Low-Priced Stocks. The Company's Common Stock and warrants to purchase Common
Stock are currently quoted on NASDAQ SmallCap Market ("NASDAQ"). NASDAQ has
recently imposed new maintenance criteria. In order to continue to be included
in NASDAQ, a company must, among other things, maintain $2,000,000 in net
tangible assets, or $35 million market capitalization or $500,000 net income in
the most recently completed fiscal year or in two of the last three most
recently completed fiscal years. In addition, continued inclusion requires two
registered and active market makers, a minimum bid price of $1.00 per share, and
a minimum of 300 round lot holders of the common stock. As of December 31, 1997,
the Company was not in compliance with the recently revised Nasdaq continued



                                       12
<PAGE>

listing criteria as to minimum net tangible assets. In connection with the
adoption of such new criteria, Nasdaq listed companies had until February 23,
1998 to comply. In order to address the net tangible assets requirement, the
Company has recently completed the private placement of 400,000 shares of Common
Stock to two shareholders for aggregate proceeds of $800,000. With such
issuance, on a pro-forma basis the Company was in compliance with the net assets
requirement as of December 31, 1997 and January 31, 1998. The Company is
currently seeking additional capital to fund ongoing operating losses in order
to address the Nasdaq listing requirements. Failure to meet these maintenance
criteria will result in the delisting of the Company's securities from NASDAQ
and trading, if any, in the Company's securities would thereafter be conducted
in the non-NASDAQ over-the-counter market. As a result of such delisting, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities. In addition, if
the Common Stock were delisted from trading on NASDAQ and the trading price of
the Common Stock was less than $5.00 per share, trading in the Common Stock
would also be subject to certain rules promulgated under the Securities Exchange
Act, which require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a penny stock (generally, any non-NASDAQ
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stock to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transactions prior to sale. On February 20, 1998, the closing price for the
Common Stock was $3.25 per share. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in the Common Stock, which could severely limit the market
liquidity of the Common Stock and the ability of purchasers in the offering to
sell the Common Stock in the secondary market.

     Uncertainty of Product Development. Although the Company believes that the
development efforts relating to the technological aspects of the basic
HealthDesk OnLine platform are substantially completed, the Company has not yet
completed third-party testing of the basic platform or the development or
testing of any system enhancements, or specific disease management modules or
CareTeam Connect. The Company will be required to commit considerable time,
effort and resources to finalize such development and adapt its software to
satisfy specific requirements of potential customers. Continued system
refinement, enhancement and development efforts are subject to all of the risks
inherent in the development of new products and technologies, including
unanticipated delays, expenses, technical problems or difficulties, as well as
the possible insufficiency of funds to satisfactorily complete development,
which could result in abandonment or substantial change in product
commercialization. There can be no assurance that product development efforts
will be successfully completed on a timely basis, or at all, that the Company
will be able to successfully adapt its software to satisfy specific requirements
of potential customers, or that unanticipated events will not occur which would
result in increased costs or material delays in product development or
commercialization. In addition, while the Company believes that its software
performs the principal functions for which it has been designed, the Company has
only conducted limited tests of its software in connection with preliminary
market testing activities. Consequently, there can be no assurance that such
software will perform all of the function for which it has been designed or
prove to be sufficiently reliable in widespread commercial use. Technologies as
complex as those incorporated into the Company's software may contain errors
which become apparent subsequent to commercial use. Remedying such errors could
delay the Company's plans and cause it to incur substantial additional costs.

     New Concept; Uncertainty of Market Acceptance and Commercialization
Strategy. HealthDesk OnLine represents a new business concept. As is typical in
the case of a new business concept, demand and market acceptance for HealthDesk
OnLine as a newly introduced product is subject to a high level of uncertainty.
Achieving market acceptance for HealthDesk OnLine will require significant
efforts and expenditures by the Company to create awareness and demand by
healthcare payers, providers and consumers. The Company's prospects will be
significantly affected by its ability to successfully develop and maintain
relationships with sponsoring organizations, which will promote their services
using HealthDesk OnLine and, at the same time, attract significant numbers of
subscribers. Because demand by payers, providers and consumers are substantially
inter-related, any lack or lessening of demand by any of these would have an
adverse effect on market acceptance for HealthDesk OnLine. The Company has not
yet commenced significant marketing activities and has limited experience and
limited financial, technical, personnel and other resources to independently
undertake extensive marketing activities. Although the Company is currently
evaluating a number of possible product marketing and 


                                       13
<PAGE>

distribution strategies, the Company initially intends to offer HealthDesk
OnLine with a reduced license fee to potential sponsoring organizations willing
to participate in market testing in order to closely monitor performance and
provide support for the users of such product. Such activities are expected to
allow the Company to adjust and revise its proposed products in light of market
needs and user feedback, to develop pricing strategies relative to cost
structure, to test new products and to correct software or product defects which
may arise. Thereafter, although the Company will seek to develop and
commercialize specific disease management modules, the Company's primary
marketing strategy is to license and sell HealthDesk OnLine to sponsoring
organizations with access to significant numbers of potential subscribers. The
Company's marketing strategy and preliminary and future marketing plans may be
unsuccessful and are subject to change as a result of a number of factors,
including progress or delays in the Company's marketing efforts, changes in
market conditions (including the emergence of potentially significant related
market segments for applications of the Company's technology), the nature of
possible license and distribution arrangements which may become available to it
in the future and economic, political, regulatory and competitive factors. To
the extent that the Company is able to enter into satisfactory third-party
marketing and distribution arrangements in the future, it will be largely
dependent on the efforts of such third parties and on the marketability and
sales of their products. There can be no assurance that the Company's strategy
will result in successful product commercialization or that the Company's
efforts will result in initial or continued market acceptance for the Company's
proposed products.

     Dependence upon HBOC Agreement. In September, 1997, the Company entered
into a three (3) year marketing agreement with HBOC. Subsequent to entering into
this agreement, the Company has devoted a substantial portion of its sales and
marketing efforts to support HBOC's sales of HealthDesk Online. Subject to HBOC
meeting certain cumulative revenue requirements, during the term of the
agreement the Company may not grant distribution rights to other health
information technology companies whose primary markets are integrated health
systems, managed care organizations and certain other specified HBOC
competitors. There can be no assurance that the marketing agreement with HBOC
will result in the successful commercialization of HealthDesk OnLine. In the
near term, the Company anticipates that its principal sources of revenue will be
derived from license fees and subscription revenues from sponsoring
organizations developed as part of its agreement with HBOC. Because of the
nature of the exclusive distribution rights granted pursuant to the HBOC
agreement and given the focus of the Company on supporting such relationship, if
the marketing agreement with HBOC is not successful, the Company's business,
financial condition and results of operations would be materially adversely
affected.

     Uncertainty of Market Testing Results. The Company currently proposes to
conduct market testing of HealthDesk OnLine with potential sponsoring
organizations. The Company's success may be highly dependent upon the results of
these market tests and there can be no assurance that such tests will be
successful. If such tests are not successful, the Company will be required to
attempt to enhance or modify HealthDesk OnLine so that it will meet with
sponsoring organization and consumer acceptance. There can be no assurance that
the Company will be able to modify HealthDesk OnLine so that positive test
results can be demonstrated. Even if test results are positive, there can be no
assurance that sponsoring organizations will be sufficiently encouraged by the
results to commit to use HealthDesk OnLine on a non-market test basis. They may
elect to utilize other products, services or technologies which they believe to
be more efficient or have other cost advantages over the Company's system. In
addition, there can be no assurance that positive test results will translate
into consumer acceptance over a longer period of time or that sponsoring
organizations or consumers will be satisfied with operational results or that
the results of market testing will be indicative of the ultimate success of
product commercialization, particularly if installed in geographic areas with
demographic characteristics different from those of test markets.

     Competition; Technological Obsolescence. The markets that the Company
intends to enter are characterized by intense competition and an increasing
number of new market entrants who have developed or are developing potentially
competitive products. The Company will face competition from numerous sources,
including prospective customers which may develop and market their own
competitive products and services, health information system vendors, software
companies, online and Internet service providers and others with the technical
capabilities and expertise which would encourage them to develop and
commercialize competitive products or services. Several companies, including
Healtheon Corp. ("Healtheon"), IBM Global Health Village, Med Access
Corporation, CareSoft, Inc., Access Health, Inc., America's Housecalls Network,
Softwatch, Cerner and SMS have announced plans to develop and commercialize
competitive product and service offerings. Certain of such competitors have
substantially greater financial, technical, marketing, distribution, personnel
and other resources 



                                       14
<PAGE>

than the Company, permitting such companies to implement extensive marketing
campaigns, both generally and in response to efforts by additional competitors
to enter into new markets and market new products and services. Healtheon has
entered into an agreement with BCMA relating primarily to the electronic
exchange of health plan benefit information between consumers and health plans.
There can be no assurance that Healtheon's relationship with BCMA will not
adversely affect the Company's ability to successfully market HealthDesk OnLine
to BCMA. In addition, the markets for the Company's proposed products are
characterized by rapidly changing technology and evolving industry standards
which could result in product obsolescence or short product life cycles.
Accordingly, the ability of the Company to compete will be dependent upon the
Company's ability to complete development and introduce HealthDesk OnLine into
the marketplace in a timely manner, to continually enhance and improve its
software and to successfully develop and market new products. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the Company's
products obsolete or less marketable or that the Company will be able to
successfully enhance its products or develop new products.

     Capacity Constraints; System Failure and Security Risks. The Company's
operations will depend upon the capacity, reliability and security of its system
infrastructure. The Company currently has limited system capacity and will be
required to continually expand its system infrastructure to accommodate
significant numbers of users and increasing amounts of healthcare information
they may wish to access. Expansion of the Company's system infrastructure will
require substantial financial, operational and management resources. There can
be no assurance that the Company will be able to expand its system
infrastructure to meet potential demand on a timely basis, at a commercially
reasonable cost, or at all. Failure by the Company to expand its system
infrastructure on a timely basis would have a material adverse effect on the
Company. In addition, the Company will be dependent upon Web browsers and
third-party Internet and online service providers for access to the Company's
services, hardware suppliers for prompt delivery, installation and service of
computer equipment used to deliver the Company's services and on content
providers to provide current healthcare information for use by consumers.

     The Company's operations will also be dependent on the Company's ability to
protect its computer equipment against damage from fire, earthquakes, power
loss, telecommunications failure and similar events. The Company does not have
earthquake insurance or redundant, multiple site capacity in the event of any
such occurrence. The Company does maintain fire insurance with an aggregate
limitation of $1 million and business interruption insurance with an aggregate
limitation of $4 million. The Company's system infrastructure will be also
vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with the Company's computer systems. Computer viruses or
problems caused by third parties could lead to material interruptions, delays or
cessation in service to consumers. Inappropriate use of the Internet by third
parties could also potentially jeopardize the security of confidential
information stored in the computer systems of consumers. Security and privacy
concerns of consumers may limit the Company's ability to develop a significant
subscriber base.

     Potential Liability and Insurance. In recent years, participants in the
healthcare industry have been subject to an increasing number of lawsuits
alleging malpractice, product liability and related legal theories, many of
which involve large claims and significant defense costs. Due to the nature of
its business, the Company could become involved in litigation regarding the
healthcare information transmitted over the system with the risk of adverse
publicity, significant defense costs and substantial damage awards. The Company
has adopted policies and procedures intended to reduce the risk of claims, which
include the provision of disclaimers in connection with its services. The
Company does not currently maintain malpractice liability insurance. In
addition, because healthcare information and materials may be downloaded and may
be subsequently distributed to others, there is a potential that claims will be
made against the Company for defamation, negligence, copyright or trademark
infringement or other theories based on the nature and content of such
materials. The Company also could be exposed to liability in connection with the
selection of materials that may be accessible over its system. Claims could be
made against the Company if material deemed inappropriate for viewing by
children could be accessed. The Company carries an umbrella insurance policy
with a limit $4 million in the aggregate, general liability insurance with a
limitation of $2 million in the aggregate and $1 million per occurrence and
errors and omissions insurance with a limitation of $1 million. Nevertheless,
the Company's insurance may not cover potential claims of this type or may not
be adequate to cover liability that may be imposed or related defense costs.
There can be no assurance that the Company will not face claims resulting in
substantial liability for which the Company is partially or completely
uninsured. Any partially or completely uninsured claim against the Company, if
successful and of sufficient magnitude, would have a material adverse effect on
the Company.



                                       15
<PAGE>

     Government Regulation. The healthcare industry is subject to extensive,
stringent and frequently changing federal and state regulation which is
interpreted and enforced by regulatory authorities with broad discretion. Among
other things, these regulations govern the provision of healthcare services and
the marketing of medical devices. These regulations generally predate the
development of products and services such as those offered and proposed to be
offered by the Company and the application and enforcement of such regulations
to the Company and its products and services is uncertain. However, certain of
the statutes governing the provision of healthcare services could be construed
by regulatory authorities to apply to the Company's proposed business
activities. There can be no assurance that regulatory authorities do not or will
not deem the Company's business activities to constitute the unlicensed practice
of medicine. Furthermore, in the event the Company develops features which
facilitate the input of data from medical devices directly into HealthDesk
OnLine, it is possible that the United States Food and Drug Administration would
require the Company and/or an equipment manufacturer to obtain pre-marketing
clearance with respect to any such product. The process of obtaining and
maintaining required regulatory approvals can be lengthy, expensive and
uncertain. Even if regulatory approvals are obtained a marketed product and its
manufacturer are subject to continuing regulatory review, and discovery of
previously unknown problems could result in restrictions on such product or
manufacturer, including withdrawal of the product from the market. Amendments to
or interpretation and enforcement of existing statutes or regulations, the
adoption of new statutes or regulations or the development of new enhancements
and features to HealthDesk OnLine could subject the Company to increased
regulation and require the Company to alter methods of operation at costs which
could be substantial. Failure to comply with applicable laws and regulations
could subject the Company to civil remedies, including substantial fines,
penalties and injunctions, as well as possible criminal sanctions.

     Although there are currently few laws or regulations directly applicable to
access to or commerce on the Internet, due to the increasing popularity and use
of the Internet, it is possible that laws and regulations may be adopted with
respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. While the enforcement of
such statute has been enjoined and is currently subject to challenge in the
courts, the adoption of any such laws or regulations may limit the growth of the
Internet, which could in turn decrease the demand for the Company's proposed
products and services and increase the Company's cost of doing business.
Inasmuch as the applicability to the Internet of the existing laws governing
issues such as property ownership, libel and personal privacy is uncertain, any
such new legislation or regulation or the application of existing laws and
regulations to the Internet could have an adverse effect on the Company's
business and prospects.

     Dependence on Third-Party Licenses. Substantially all of the information
content currently included in HealthDesk OnLine has been licensed by the Company
from unaffiliated third parties. The licenses granted to the Company are subject
to termination on relatively short notice. Although the Company believes that
similar healthcare information is available from multiple sources, in the event
of any termination of such licenses, the Company may be required to
independently develop information content or license such information content
from other providers. There can be no assurance that the Company would be able
to do so in a timely manner, upon acceptable terms and conditions, or at all.
The failure to obtain current healthcare information for use by consumers on a
timely and competitive basis could have a material adverse effect on the
Company.

     Dependence on Limited Customer Base. To date, the Company's revenues have
been derived from a limited number of customers. One customer accounted for
approximately 96% and 92%, respectively, of revenues in 1996 and 1997. Although
the Company is not currently generating meaningful revenues, in the event that
the Company is able to successfully commercialize HealthDesk OnLine or obtain
third party funding of the costs of developing new software modules, there can
be no assurance that the Company will not continue to be dependent on a limited
customer base for all or a substantial portion of its revenues. The Company's
agreement with MIIX requires that the Company grant to MIIX a right of first
offer to fund the development of additional software modules. In December 1997,
the Company and MIIX mutually agreed to discontinue further development and
investment in the Diabetes module and jointly pursue the commercialization of
the current product.

     Industry Factors; Lengthy Sales Cycle. The healthcare industry has
experienced significant changes in recent years, primarily due to rising
healthcare costs. Healthcare payers are increasingly challenging the price of
medical services and products, which have had and could continue to have a
significant effect on the procurement practices of healthcare providers,
generally causing them to be more selective in the purchase of new technologies.
Several proposals have been made by federal and state government officials that
may lead to substantial healthcare reform, 



                                       16
<PAGE>

including the implementation of government-directed national healthcare system
and stringent healthcare cost containment measures. Adoption of such proposed
measures could result in reduction or deferral of capital expenditures by
potential customers. Also, there has been substantial consolidation in the
healthcare industry in recent years, which could make it more difficult for the
Company to achieve market acceptance by larger potential customers. Moreover, a
sponsoring organization's decision to purchase new products and technology is
often lengthy and requires the approval of a significant number of
administrators. The period in which a sponsoring organization distributes the
Company's software to its members may also be lengthy, depending upon the level
of acceptance and usage by its members, which could delay the Company's plans in
particular markets.

     Proprietary Information. Although the Company intends to evaluate the
feasibility to obtaining patent protection for certain aspects of HealthDesk
OnLine, the Company does not hold any patents or registered copyrights. The
Company regards certain computer software it has developed for HealthDesk OnLine
as proprietary and attempts to protect it with copyrights, trade secret laws,
proprietary rights agreements and internal nondisclosure agreements and
safeguards. However, such methods may not afford complete protection and there
can be no assurance that others will not independently develop know-how or
obtain access to the Company's know-how or software codes, concepts, ideas and
documentation. Furthermore, there can be no assurance that nondisclosure
agreements with the Company's employees will adequately protect the Company's
trade secrets. Although the Company believes that its proposed products do not
and will not infringe patents or violate proprietary rights of others, it is
possible that infringement of existing or future patents or proprietary rights
of others have occurred or may occur. In the event the Company's proposed
products infringe patents or proprietary rights of others, the Company may be
required to modify the design of its proposed products or obtain a license.
There can be no assurance that the Company will be able to do so in a timely
manner, upon acceptable terms and conditions or at all. The failure to do any of
the foregoing could have a material adverse effect upon the Company. In
addition, there can be no assurance that the Company will have the financial or
other resources necessary to enforce or defend a patent infringement action and
the Company could, under certain circumstances, become liable for damages, which
also could have a material adverse effect on the Company.

     Dependence on Key Personnel. The success of the Company will be dependent
on the personal efforts of Peter O'Donnell, its President and Chief Executive
Officer, Gerald Zieg, Senior Vice President of Sales & Marketing, Terry Brandt,
Chief Technology Officer, Timothy S. Yamauchi, its Chief Financial Officer, and
other key personnel. The loss of the services of such individuals could have a
material adverse effect on the Company's business and prospects. The Company has
obtained "key-person" insurance on the life of each of Mr. O'Donnell and Mr.
Yamauchi in the amounts of $2 million and $1 million, respectively. The success
of the Company is also dependent upon its ability to hire and retain additional
qualified management, marketing, technical, financial and other personnel.
Competition for qualified personnel is intense and there can be no assure that
the Company will be able to hire or retain qualified personnel. Any inability to
attract and retain qualified management and other personnel could have a
material adverse effect on the Company.

     Control by Management. As of February 20, 1998, the officers and directors
of the Company beneficially own, in the aggregate, approximately 49.3% of the
outstanding shares of Common Stock (assuming no exercise of outstanding warrants
to purchase common stock). Accordingly, such persons, acting together, are in a
position to exercise significant influence over the Company's affairs.

     Potential Conflicts of Interest. The Company has entered into various
transactions with certain of its directors and principal shareholders and their
affiliates, which could result in potential conflicts of interest Mr. John
Pappajohn and Edgewater, principal shareholders of the Company, have from time
to time made loans to the Company, and the Company has entered into a marketing
agreement with an entity of which Mr. Pappajohn is a director and principal
shareholder. On February 25, 1998, the Company completed a private placement of
400,000 shares of Common Stock for $800,000 from Mr. Pappajohn and Edgewater.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Events" and "Note 13 to Financial Statements." The Company
believes that all of such transactions or arrangements were fair and reasonable
to the Company and were on terms no less favorable than could have been obtained
from unaffiliated third parties. There can be no assurance, however, that future
transactions or arrangements between the Company and its affiliates will
continue to be advantageous to the Company, that conflicts of interest will not
arise with respect thereto, or that if conflicts do arise, they will be resolved
in a manner favorable to the Company. Any such future transactions will be on
terms no less favorable to the Company than could be obtained from unaffiliated
parties and will be approved by a majority 



                                       17
<PAGE>

of the independent and disinterested members of the Board of Directors, outside
the presence of any interested directors and, to the extent deemed appropriate
by the Board of Directors, the Company will be obtain shareholder approval or
fairness opinions in connection with any such transactions.

     Outstanding Options. As of December 31, 1997, the Company had outstanding
options to purchase an aggregate of 707,652 shares of Common Stock at exercise
prices ranging from $1.04 to $5.00. Exercise of any of the foregoing options
will have a dilutive effect on the Company's shareholders. Furthermore, the
terms upon which the Company may be able to obtain additional equity financing
may be adversely affected, since the holders of the options can be expected to
exercise them, if at all, at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the options.

     No Dividends. To date, the Company has not paid any cash dividends and does
not expect to declare or pay dividends on the Common Stock in the foreseeable
future.

     Authorized Preferred Stock. The Company's Restated Articles of
Incorporation authorizes the Company's Board of Directors to issue 1,800,000
shares of "blank check" Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares, without
further shareholder approval. The rights of the holders of the Company's Common
Stock will be subject to and may be adversely affected by the rights of holders
of any Preferred Stock that may be issued in the future. The ability to issue
Preferred Stock without shareholder approval could have the effect of making it
more difficult for a third party to acquire a majority of the voting stock of
the Company thereby delaying, deferring or preventing a change in control of the
Company.

     Volatility of Stock and Warrants Prices. The Company's Common Stock and
warrants to purchase Common Stock have experienced substantial price
fluctuations since the Company's initial public offering. In addition, the stock
market has experienced significant price and volume fluctuations that have
especially affected the market prices of equity securities of many high
technology companies, particularly Internet-related companies, and that often
have been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
common stock and warrants. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against such a company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on the Company's business, operating
results and financial condition.




                                       18
<PAGE>

Item 2. Description of Properties.

Facilities

       The Company's facilities are located in 5,701 square feet of leased
office space in Berkeley, California. The lease expires in January 1999 and
provides for an annual rental of $108,376.

       The Company's operations will be dependent on the Company's ability to
protect its computer equipment against damage from fire, earthquakes, power
loss, telecommunications failures and similar events. The Company does not
presently have redundant, multiple site capacity in the event of any such
occurrence. Notwithstanding the implementation of system security measures by
the Company, its servers will also be vulnerable to computer viruses, break-ins
and similar disruptions from unauthorized tampering with the Company's computer
systems. Computer viruses or problems caused by third parties could lead to
material interruptions, delays or cessation in service to consumers.

Item 3. Legal Proceedings.

       The Company is subject to a complaint filed by a former employee with the
California Department of Fair Employment & Housing. This claim alleges wrongful
termination as a result of alleged denial of reasonable accommodation for a
wrist and neck injury. The Company intends to defend these matters vigorously.
There can be no assurance, however, that such matter will be resolved in a
manner favorable to the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

       Not applicable.




                                       19
<PAGE>

                                     Part II

Item 5. Market for Common Equity and Related Stockholder Matters.

     Market Information. The Company's common stock (the "Common Stock") and
redeemable warrants (the "Warrants") are currently traded on the Nasdaq SmallCap
Market under the symbol "HDSK" and "HDSKW", respectively. In January 1997, the
Company consummated an initial public offering of 1,700,000 shares of its Common
Stock and warrants to purchase 2,125,000 shares of Common Stock. As of February
20, 1998 , there were 5,692,845 shares of Common Stock and warrants for
2,125,000 shares of Common Stock outstanding. See "Factors Affecting the
Company's Business, Operating Results and Financing Conditions - Possible
Delisting of Securities from NASDAQ System; Disclosure Relating to Low-Priced
Stocks."

     The following table sets forth the range of the high and low bid
information (as provided by Nasdaq) of the Common Stock and Warrants for the
period from January 16, 1997 (the effective date of the IPO) through December
31, 1997. Such information may reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not reflect actual transactions.
<TABLE>
<CAPTION>

                                               Common Stock                                Warrants
                                               ------------                                --------
Period                                 Low Bid              High Bid             Low Bid              High Bid
------                                 -------              --------             -------              --------
<S>                                 <C>                 <C>                   <C>                 <C> 
1/17/97 to 3/31/97                      3 3/4                 5 1/2                 3/4                 1 7/8
4/1/97 to 6/30/97                       3                     4 1/4                 5/8                 1 1/8
7/1/97 to 9/30/97                       3 1/4                 4 1/4                 7/8                 1 1/2
10/1/97 to 12/31/97                     3 1/4                 4 3/4                13/16                1 3/8
</TABLE>

     Approximate Number of Security Holders. As of February 20, 1998, there were
approximately 83 holders of record of the Common Stock and 5 holders of record
of the Warrants. As of January 17, 1998, there were approximately 427 beneficial
holders of the Common Stock.

     Dividends. The Company has never paid any cash dividends on the Common
Stock, and its Board of Directors does not intend to declare or pay any
dividends on the Common Stock in the foreseeable future. The Board currently
intends to retain all available earnings (if any) generated by the Company's
operations for the development and growth of its business. The declaration in
the future of any cash or stock dividends on the Common Stock will be at the
discretion of the Board and will depend upon a variety of factors, including the
earnings, capital requirements, debt and interest payments, and the financial
position of the Company and general economic conditions at the time in question.
Although there currently are no restrictions on the ability of the Company to
pay cash or other dividends on the Common Stock, the payment of dividends on the
Common Stock in the future could be limited or prohibited by the terms of
financing agreements that may be entered into by the Company (e.g., a bank line
of credit or an agreement relating to the issuance of other debt securities of
the Company) or by the terms of any series of Preferred Stock that may be
issued. There are currently no such financing agreements in place and no
outstanding series of any Preferred Stock.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

     Overview

     The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below includes "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended the (the "Exchange Act"), and is subject to the safe harbor
created by the section. Readers are cautioned not to place undue reliance on
these forward-looking statements as they speak only as of the date hereof.
Reference is also made to the matters set forth under the heading "Factors
Affecting the Company's Business, Operating Results and Financial Condition" in
Part I hereof.

     The Company was organized in August 1992 and is still in the development
stage. Since its inception, the Company has been engaged primarily in product
development activities. The Company's initial product was introduced in early
1993 and the Company has not yet proven to be commercially viable.



                                       20
<PAGE>

     The Company has not yet generated any meaningful revenues, and will not
generate any meaningful revenues until after the Company successfully completes
development and market testing of HealthDesk OnLine and attracts and retains a
significant number of subscribers. For the period August 28, 1992 (inception) to
December 31, 1997, the Company incurred a cumulative net loss of approximately
$10,166,000. Since December 31, 1997, the Company has continued to incur
increasing and significant losses and anticipates that it will continue to incur
significant losses until, at the earliest, the Company generates sufficient
revenues to offset the substantial up-front expenditures and operating costs
associated with developing and commercializing its products. Contributing to the
Company's losses were the non-recurring amortization charges related to a bridge
financing which was completed in October 1996 (the "Bridge Financing") of
$884,227 for the year ended December 31, 1996 and $145,023 for the year ended
December 31, 1997. There can be no assurance that the Company will be able to
attract and retain a sufficient number of subscribers to generate meaningful
revenues or achieve profitable operations or that HealthDesk OnLine will prove
to be commercially viable.

     The Company expects to incur significant expenses in connection with its
operations, including expenses associated with hiring additional marketing and
sales personnel and the research and development of product lines. The Company
believes that it has working capital which together with a $1 million funding
commitment from existing shareholders is sufficient to meet its next twelve (12)
months projected cash requirements. Of the $1 million funding commitment,
$200,000 was received in February 1998. The Company is actively seeking
additional equity financing. There can be no assurance, that the Company would
be able to obtain public or private third-party sources of financing or, if
obtained, that favorable terms for such financing would be obtained. In
addition, given the trading history of the Company's Common Stock and Warrants
since the initial public offering, there can be no assurance that the Company
will be able to raise additional cash through public or private offerings of its
common stock. There also can be no assurance that the Company's funding
requirements will not increase significantly as a result of unforeseen
circumstances or that the Company's cash used for operating activities will not
increase.

     The statements regarding the Company's future cash requirements are forward
looking statements that are subject to risks and uncertainties which could
result in the Company's inability to meet its funding requirements for the time
period indicated. Such risk and uncertainties include, but are not limited to,
those described under the heading "Factors Affecting the Company's Business,
Operating Results and Financial Condition" in Part I hereof.

     Recent Events

     In September, 1997, the Company entered into a three (3) year marketing
agreement with HBO & Company ("HBOC"), one of the leading suppliers of health
care related information systems and services. The purpose of the agreement was
to use the HBOC sales force to accelerate the visibility and penetration of the
Company's products with potential sponsoring organizations. Subject to HBOC
meeting certain cumulative revenue requirements, during the term of the
agreement the Company may not grant distribution rights to other health
information technology whose primary markets are integrated health systems,
managed care organizations and certain other specified HBOC competitors. There
can be no assurance that the marketing agreement with HBOC will result in the
successful commercialization of HealthDesk OnLine. In the near term, the Company
anticipates that its principal sources of revenue will be derived from license
fees and subscription revenues from sponsoring organizations developed as part
of its agreement with HBOC. Because of the nature of the exclusive distribution
rights granted pursuant to the HBOC agreement and given the focus of the Company
on supporting such relationship, if the marketing agreement with HBOC is not
successful, the Company's business, financial condition and results of
operations would be materially adversely affected. See "Factors Affecting the
Company's Business, Operating Results and Financial Condition - Dependence upon
HBOC Agreement."

     On February 25, 1998, the Company completed a $800,000 private placement.
The placement consisted of the sale of 400,000 shares of Common Stock, at a
price of $2.00 per share to two of the Company's shareholders.

     Results of Operations

     Revenue increased by 632.1% from $52,225 for the year ended December 31,
1996 to $382,362 for the year ended December 31, 1997. In 1997, the increase was
primarily attributable to an increase in development fee revenue associated with
a progress payment for a delivery of a version of HealthDesk OnLine for
Diabetes. During 



                                       21
<PAGE>

1996, the Company focused its efforts on the original development of HealthDesk
OnLine and reduced its marketing and sales efforts relating to its original
HealthDesk product.

     Product development costs increased by 38.5% from $1,622,601 for the year
ended December 31, 1996 to $2,248,018 for the year ended December 31, 1997. The
increase in expenditures was principally related to the expansion of the
programming staff and associated costs related to the development of HealthDesk
OnLine version 2.0 and HealthDesk OnLine for Diabetes. To date, all product
development costs have been expensed as incurred. The Company believes that
significant investments in product development will be incurred to enhance the
functionality of HealthDesk OnLine and increase the product line with new
disease and lifestage modules.

     Sales and marketing costs increased by 16.4% from $1,222,183 for the year
ended December 31, 1996 to $1,422,111 for the year ended December 31, 1997. This
increase resulted primarily from the hiring of additional marketing personnel,
associated collateral, travel and entertainment expenses in connection with the
marketing of HealthDesk OnLine for Diabetes during the year ended December 31,
1997. The Company anticipates that sales and marketing costs will increase in
future periods as the Company expands its marketing efforts.

     General and administrative costs decreased by 25.8% from $681,993 for the
year ended December 31, 1996 to $506,132 for the year ended December 31, 1997.
This decrease was primarily attributable to a change in the allocation of
resources to marketing and development activities in 1997 and the write-off of
deferred offering costs of $118,113 in 1996 related to the Company's initial
public offering.

     Other expense, net (including interest expense, interest income and
amortization of discount and issuance cost) decreased by 97.5% from $916,102 for
the year ended December 31, 1996 to $22,548 for the year ended December 31,
1997. This decrease was primarily attributable to amortization of the
non-recurring bridge discount and deferred debt issuance costs of $884,227 in
1996 and $145,023 in 1997, and higher interest expense incurred in 1996 ($60,654
in 1996 as compared to $14,900 in 1997), offset primarily by higher interest
income earned in 1997.

     As a result of the foregoing, the Company incurred a net loss of $3,817,247
for the year ended December 31, 1997, as compared to a net loss of $4,391,454
for the prior comparable year.

     Liquidity and Capital Resources

     At December 31, 1997, the Company had cash and cash equivalents of
$1,405,430, as compared to $198,277 at December 31, 1996. In fiscal 1997,
$3,643,123 of cash was used in operating activities, principally as a result of
the $3,817,247 loss for fiscal 1997 and a $723,436 decrease in accounts payable.
This decrease in accounts payable occurred due to the Company's non-recurring
accounting, legal and printing charges of $466,411 related to the initial public
offering ("IPO") and the Bridge Financing and a non-recurring bonus of $80,000
paid to an officer pursuant to the terms of an employment agreement. The
decrease in cash was offset by $145,023 attributable to the amortization of the
non cash discount associated with the Bridge Financing, and a $585,680 decrease
in prepaid expenses and deferred offering costs associated with the IPO. In
fiscal 1996, $2,833,315 of cash was used in operating activities, principally as
a result of the $4,391,454 loss for fiscal 1996 which was offset by $884,227 in
amortization of non cash discount and $203,410 in depreciation and amortization
charges. Working capital at December 31, 1997 was $999,092, as compared to a
deficit in working capital of $2,804,411 at December 31, 1996.

     The Company's primary capital requirements will be to fund the development
and commercialization of HealthDesk OnLine. The Company has historically
financed its operations through the issuance of debt and equity securities.

     During the period from June through September 1995, the Company issued 6%
convertible promissory notes in the aggregate principal amount of $800,000 to
John Pappajohn and Edgewater, principal shareholders of the Company. The notes
were converted into an aggregate of 768,000 shares of Common Stock in September
1995.

     In December 1995, Mr. Pappajohn exercised an option to purchase 96,000
shares of Common Stock for an aggregate exercise price of $100,000.

     In December 1995 and February 1996, the Company completed a private
placement of an aggregate of 



                                       22
<PAGE>

1,059,600 shares of Series A Preferred Stock and received net proceeds of
approximately $2,183,000. Each share of Series A Preferred Stock automatically
converted into one share of Common Stock upon consummation of the Company's
initial public offering.

     In July and August 1996, the Company issued an aggregate of $500,000
principal amount 8% promissory notes to Mr. Pappajohn and Edgewater. Such notes
will automatically converted into 100,000 shares of Common Stock on the closing
of the Company's initial public offering.

     In October 1996, the Company consummated the Bridge Financing pursuant to
which it issued $2,000,000 principal amount of notes and 400,000 shares of
Common Stock, and received net proceeds of $1,765,000.

     In January 1997, the Company consummated an underwritten IPO of 1,700,000
shares of Common Stock at an offering price of $5.00 per share and warrants to
purchase 2,125,000 shares of Common Stock at an offering price of $.10 per
warrant. The net proceeds to the Company were $7,018,788 after deducting
issuance costs of $1,676,712. Each warrant entitles the registered holder
thereof to purchase one share of Common Stock at an price of $5.00, subject to
adjustment in certain circumstances, at any time through and including January
16, 2002. The warrants are redeemable by the Company, upon the consent of the
Underwriter, at any time, upon notice of not less than 30 days, at a price of
$.10 per warrant, provided that the closing bid quotation of Common Stock on all
30 of the trading days ending on the third day prior to the day which the
Company gives notice has been at least 150% (currently $7.50, subject to
adjustment) of the then effective exercise price of the warrants.

     Upon the closing of the IPO, the Company repaid $2,000,000 principal amount
of bridge notes financing and converted the outstanding convertible notes into
100,000 shares of Common Stock. In addition, all outstanding shares of the
Company's Series A Preferred Stock were converted into 1,059,600 shares of
Common Stock.

     In February 1998, the Company completed a private placement of 400,000
shares of Common Stock at $2.00 per share to Mr. Pappajohn and Edgewater. See
"Factors Affecting the Company's Business, Operating Results and Financial
Conditions - Potential Conflicts of Interest and Note 13 to the Financial
Statements."

     Since its inception, the Company has engaged primarily in research and
development and has generated limited revenues. The Company expects to incur
significant up-front expenses in connection with product development and
commercialization (including the payment of salaries for management, technical,
marketing and other personnel), which will result in significant losses for the
foreseeable future.

     The Company's capital requirements relating to the development and
commercialization of HealthDesk OnLine have been and will continue to be
significant. Other than as described in this Form 10-KSB, the Company has no
material commitments for capital expenditures. The Company anticipates, based on
its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the progress and timing of its product
development efforts and revenue), that its working capital will be sufficient to
fund the Company's operations and capital requirements through the next twelve
months. The Company received a financing commitment of $1 million from two
existing shareholders in February 1998. Of the $1 million funding commitment,
$200,000 was received in February 1998. For the period from August 28, 1992
(inception) to December 31, 1997, the Company had capital expenditures of
approximately $1,091,154 relating primarily to computer equipment.


                                       23
<PAGE>


Item 7. Financial Statements.

     The following Financial Statements are filed with this report as pages F-1
      through F-15 following the signature page:
     Index to Financial Statements                                           F-1
     Report of Coopers & Lybrand L.L.P., independent accountants             F-2
     Balance Sheets                                                          F-3
     Statements of Operations                                                F-4
     Statements of Shareholders' Equity (Deficit)                            F-5
     Statements of Cash Flows                                                F-6
     Notes to Financial Statements                                           F-7

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

     Not applicable.



                                       24
<PAGE>

                                    Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

The following are the names and ages of all directors and executive officers of
the Company as of February 20, 1998, as well as the positions and officers that
each such person holds with the Company:
<TABLE>
<CAPTION>

Name                                Age              Position
----                                ---              --------
<S>                                 <C>              <C>  

Peter O'Donnell                     49               President, Chief Executive Officer and Chairman of the Board
Gerald W. Zieg                      46               Senior Vice President of Sales
Timothy S. Yamauchi                 36               Chief Financial Officer, Secretary and Treasurer
Terry Brandt                        40               Chief Technology Officer
John Pappajohn                      68               Director
James A. Gordon                     46               Director
Dr. Joseph Rudick, Jr.              41               Director
David Sengpiel                      45               Director
Dr. Molly J. Coye                   50               Director
</TABLE>

     Peter O'Donnell has been President, Chief Executive Officer and Chairman of
the Board of the Company since September 1995. From May 1995 to August 1995 Mr.
O'Donnell was a consultant to the Company. From February 1993 to April 1995, Mr.
O'Donnell was Executive Vice President of Sales and Marketing at the Partnership
Group, a company which provides consulting services to employees regarding child
and elder care matters. From October 1991 to February 1993, Mr. O'Donnell was
Executive Vice President of Sales and Marketing for Wellmark Inc., a healthcare
company offering electronic data interchange services that allow hospitals and
other healthcare providers to transmit files electronically to payers. Mr.
O'Donnell received an M.A. degree in government in 1972 from Rutgers University
and a B.A. degree in psychology in 1971 from Pennsylvania State University.

     Gerald W. Zieg has been Senior Vice President of Sales of the Company since
December 1996. Mr. Zieg was Senior Vice President of Business Development of
Ambulatory Pharmaceutical Services of America, Inc., a home health care company,
from April 1996 to November 1996. From 1991 until April 1996, Mr. Zieg was
Director of Marketing, Infusion/Chronic Homecare Program for Apria Healthcare
Incorporated, a medical services company. Mr. Zieg received a B.S. in Pharmacy
from the University of Michigan in 1973 and a M.S. in Pharmacy from Wayne State
University in 1979.

     Timothy S. Yamauchi has been Chief Financial Officer, Secretary and
Treasurer of the Company since September 1995. From May 1994 to June 1995, Mr.
Yamauchi served as Chief Financial Officer of Innofusion Corporation, a private
home healthcare company. From May 1991 to May 1994, Mr. Yamauchi was employed by
Total Pharmaceutical Care Inc., a public healthcare service company, as
Treasurer and Director of Planning and Analysis. Mr. Yamauchi received a B.S.
degree in Accounting from California State University, Los Angeles in 1983, an
M.B.A. from Harvard Graduate School of Business Administration in 1991 and is a
Certified Public Accountant.

     Terry M. Brandt has been Chief Technology Officer since March 1997. Mr.
Brandt has over ten years of healthcare technology experience. Most recently Mr.
Brandt was technical director for Isys Idea Systems, Inc. a company specializing
in the development of educational and promotional properties for the World Wide
Web. From 1993 to 1995 he was the Vice President and Chief Technology Officer
for Hospital Cost Consultants, Inc. Previously he was the Director of
Information Services for Shands Teaching Hospital in Gainesville, Florida. He
received his undergraduate degree from the University of Central Florida and his
M.S. in Marketing and Consumer Behavior from the University of Florida.

     John Pappajohn has been a director of the Company since 1993. Mr. Pappajohn
also serves as a director of the following companies: CareGroup, Inc.; Core,
Inc.; Drug Screening Systems, Inc.; Fuisz Technologies Ltd.; GalaGen, Inc.;
OncorMed Inc.; PACE Health Management Systems, Inc.; and, Patient Infosystems,
Inc. Mr. 



                                       25
<PAGE>

Pappajohn has been the sole owner of Pappajohn Capital Resources, a venture
capital firm, and has served as President of Equity Dynamics, Inc., a financial
consulting firm, since 1969. Mr. Pappajohn received a B.S.C. degree from the
University of Iowa in 1952.

     James A. Gordon has been director of the Company since September 1996. Mr.
Gordon is the President of the General Partner of Edgewater II Management, L.P.,
a venture capital management firm. Mr. Gordon is also the General Partner of
Edgewater Private Equity Fund II, L.P., a venture capital firm. Mr. Gordon also
serves as a director of the following companies: IMNET Systems, Inc.; Advanced
Photonix, Inc.; Dac Vision; Pride Industries; Microware Systems; Pangea, Ltd.;
Ultimo, Ltd.; and Cellular World Corp. Mr. Gordon has been President of Gordon
Management, an investment management company, since February 1992. Mr. Gordon
received a B.A. degree summa cum laude from Northwestern University.

     Dr. Joseph Rudick, Jr., a founder of the Company, has been a director of
the Company since August 1992. Dr. Rudick has been employed as a physician with
Associate Ophthalmologist, P.C. since 1988. Dr. Rudick has also served as Vice
President of Castle Group/Paramount Capital, a venture capital firm, since 1993.
Dr. Rudick currently serves as a director of Headland Technologies, Optex
Ophthalmics and Channel Pharmaceuticals. Dr. Rudick received a B.A. from
Williams College in 1978 and an M.D. from University of Pennsylvania in 1983.

     David Sengpiel has been a director of the Company since September 1995. Mr.
Sengpiel is the Chief Operating Officer of CareMedic Systems a medicare software
reimbursement company. Mr. Sengpiel also serves as a director of Image Guided
Technologies and Neural Applications Corporation, and was formerly a Vice
President of Equity Dynamics, a venture capital firm from March 1995 to August
1997. From January 1993 to March 1995, Mr. Sengpiel was employed as an
Alternative Investment Manager with Farm Bureau Insurance, a life insurance
company. From August 1990 to January 1993, Mr. Sengpiel served as President of
Vantage Cable International, a telecommunications company.

     Dr. Molly J. Coye is currently the Director of the West of Coast Office for
The Lewin Group. Until September 1997 Dr. Coye served as Senior Vice President
of Strategic Development for the Company. Dr. Coye served as Senior Vice
President of the Good Samaritan Health System, a non-profit, integrated health
care system form September 1993 to January 1996. From June 1991 to September
1993, Dr. Coye served as Director of the California Department of Health
Services. From 1986 to 1990 Dr. Coye was the Commissioner of Health for the
State of New Jersey. Dr. Coye received a B.S. degree in political science from
the University of California at Berkeley in 1968, an M.A. degree in Asian
history from Stanford University in 1972, and an M.D. and an M.P.H. from Johns
Hopkins University in 1977. Dr. Coye completed an internship in Family Medicine
at San Francisco General Hospital and a residency in Preventative Medicine at
the Robert Wood Johnson Foundation Clinical Scholars Program at the University
of California at San Francisco.

     Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors or officers of the Company.

       The Company has established a Compensation Committee of the Board of
Directors which is currently comprised of Messrs. Pappajohn and Sengpiel. The
Compensation Committee makes recommendations the Board concerning salaries and
incentive compensation for the Company's executive officers and key personnel
and administers the Company's Stock Option Plan. The Company has also
established an Audit Committee of the Board of Directors which is currently
comprised of Messrs. Pappajohn and Gordon.

Item 10. Executive Compensation.

     The information required by this item regarding executive compensation is
incorporated by reference to information set forth in the sections entitled
"Proposal No. 1: Election of Directors-Director Compensation" and "Executive
Officer Compensation" in the Company's Proxy Statement for the 1998 Annual
Meeting of Shareholders (the "definitive Proxy Statement") to be filed with the
Commission within 120 days after the end of the Company's fiscal year ended
December 31, 1997.

     The information required by this item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the section entitled, "Executive Officer



                                       26
<PAGE>

Compensation" in the Company's definitive Proxy Statement to be filed within 120
days after the end of the Company's fiscal year ended December 31, 1997.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive Proxy Statement to
be filed with the Commission within 120 days after the end of the Company's
fiscal year ended December 31, 1997.

Item 12. Certain Relationships and Related Transactions.

     The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Transactions" in the Company's definitive Proxy
Statement to be filed with the Commission within 120 days after the end of the
Company's fiscal year ended December 31, 1997.

Item 13. Exhibits and Reports on Form 8-K.

a) Exhibits:

     3.1*         Amended and Restated Articles of Incorporation of the Company

     3.2*         Bylaws of the Company

     4.1*         Form of Stock Certificate

     4.2*         Form of Warrant Agreement

    10.1*         1994 Founder's Stock Option Plan, as amended

    10.2*         Form of Indemnification Agreement

    10.3*         Registration Rights Agreement dated March 1993 by and among 
                  Registrant and the Investors named therein

    10.4*         Form of Registration Rights Agreement between the Registrant
                  and Purchasers of the Registrant's Series A Preferred Stock

    10.5*         Employment Agreement dated as of September 19, 1996 between
                  the Registrant and Peter O'Donnell

    10.6*         Employment Agreement dated as of September 19, 1996 between
                  the Registrant and Molly Coye

    10.7*         Employment Agreement dated as of September 19, 1996 between
                  the Registrant and Timothy Yamauchi

    10.8*         Form of Warrant Agreement to be granted to Whale Securities
                  Limited

    10.9*         Form of Bridge Financing Registration Rights Agreement dated
                  October 11, 1996

    10.10*        Form of Underwriters Agreement with Whale Securities Limited

    10.11**       Marketing Agreement dated as of September 30, 1997 between the
                  Registrant and HBO & Company of Atlanta, Georgia.



                                       27
<PAGE>

    11.1          Statement Regarding computation of earnings per share

    23.1          Consent of Independent Accountants

    24.1          Powers of Attorney (included on page 29)

    27            Financial Data Schedule

*    Incorporated by reference to the Registrant's Form SB-2 (Registration No.
     333-14519)

**   Incorporated by reference to the Registrant's Form 10-QSB for the quarter
     ended September 30, 1997, filed with the Commission on November 13, 1997.

b) No reports have been filed on Form 8-K in the Quarter ended December 31,
1997.



                                       28
<PAGE>
                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized thereunto duly authorized on this 9th day of March 1998.

                            HealthDesk Corporation

                            By: /s/ Timothy S. Yamauchi
                                -----------------------------------------------
                                Timothy S. Yamauchi
                                Chief Financial Officer, Secretary & Treasurer

                                POWER OF ATTORNEY

     KNOW ALL THESE PERSON BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy S. Yamauchi and Peter S.
O'Donnell and each of them, jointly and severally, his attorneys-in-fact, each
with full power of substitution, for him in any and all capacities, to sign any
and all amendments to this Form 10-KSB, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact or his substitute or substitutes, may do or cause to be done
by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-KSB has been signed below by the following persons on the date indicated
on behalf of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>

Name                                            Title                                   Date
----                                            -----                                   ----
<S>                                             <C>                                  <C>
/s/ Peter S. O'Donnell                          President & Chief Executive             March 9, 1998
---------------------------------               Officer & Chair of the Board                    
Peter S. O'Donnell                              (principal executive officer)     
                                                

/s/ Timothy S. Yamauchi                         Chief Financial Officer                 March 9, 1998
---------------------------------               Secretary & Treasurer  
Timothy S. Yamauchi                             (principal financial   
                                                and accounting officer)
                                                

/s/ John Pappajohn                              Director                                March 9, 1998
---------------------------------  
John Pappajohn

/s/ James A. Gordon                             Director                                March 9, 1998
---------------------------------  
James A. Gordon

/s/ Dr. Joseph Rudick, Jr.                      Director                                March 9, 1998
--------------------------------- 
Dr. Joseph Rudick, Jr.

/s/ David Sengpiel                              Director                                March 9, 1998
David Sengpiel

/s/Molly C. Coye M.D.                           Director                                March 9, 1998
--------------------------------- 
Molly C. Coye, M.D.
</TABLE>

                                       29
<PAGE>


                                  Exhibit Index

                  Description
                  -----------

     3.1*         Amended and Restated Articles of Incorporation of the Company

     3.2*         Bylaws of the Company

     4.1*         Form of Stock Certificate

     4.2*         Form of Warrant Agreement

    10.1*         1994 Founder's Stock Option Plan, as amended

    10.2*         Form of Indemnification Agreement

    10.3*         Registration Rights Agreement dated March 1993 by and among
                  Registrant and the Investors named therein

    10.4*         Form of Registration Rights Agreement between the Registrant
                  and Purchasers of the Registrant's Series A Preferred Stock

    10.5*         Employment Agreement dated as of September 19, 1996 between
                  the Registrant and Peter O'Donnell

    10.6*         Employment Agreement dated as of September 19, 1996 between
                  the Registrant and Molly Coye

    10.7*         Employment Agreement dated as of September 19, 1996 between
                  the Registrant and Timothy Yamauchi

    10.8*         Form of Warrant Agreement to be granted to Whale Securities
                  Limited

    10.9*         Form of Bridge Financing Registration Rights Agreement dated
                  October 11, 1996

    10.10*        Form of Underwriters Agreement with Whale Securities Limited

    10.11**       Marketing Agreement dated as of September 30, 1997 between the
                  Registrant and HBO & Company of Atlanta, Georgia.

    11.1          Statement Regarding computation of earnings per share

    23.1          Consent of Independent Accountants

    24.1          Powers of Attorney (included on page 29)

    27            Financial Data Schedule

*    Incorporated by reference to the Registrant's Form SB-2 (Registration No.
     333-14519)

**   Incorporated by reference to the Registrant's Form 10-QSB for the quarter
     ended September 30, 1997, filed with the Commission on November 13, 1997.


                                       30
<PAGE>


                             HealthDesk Corporation
                          (a Development Stage Company)

                                    CONTENTS

<TABLE>
<CAPTION>

                                                                                                    Page

<S>                                                                                                <C>
Independent Accountants' Report..................................................................    F-2

Balance Sheets as of December 31, 1996 and 1997..................................................    F-3

Statements of Operations for the Years ended December 31, 1996 and 1997 and period from
   inception to December 31, 1997................................................................    F-4

Statements of Shareholders' Equity (Deficit) for the period from inception to  December 31,
   1992, and years ended December 31, 1993, 1994, 1995, 1996 and 1997 ...........................    F-5

Statements of Cash Flows for the years ended December 1996 and 1997 and period from inception
   to December 31, 1997..........................................................................    F-6

Notes to Financial Statements ...................................................................    F-7

</TABLE>



                                      F-1
<PAGE>




Report of Independent Accountants



To the Shareholders and Board of Directors of HealthDesk Corporation:

     We have audited the accompanying balance sheets of HealthDesk Corporation
(a development stage company) as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity (deficit), and cash flows for the
years then ended, and for the period from August 28, 1992 (inception) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 HealthDesk Corporation as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended, and for the period from August 28, 1992 (inception) to
December 31, 1997, in conformity with generally accepted accounting principles.




                                                        COOPERS & LYBRAND L.L.P.


San Francisco, California
February 6, 1998, except for information relating to the $800,000 financing in
Note 1 and Note 13 as to which the date is February 25, 1998.


                                      F-2
<PAGE>

                             HealthDesk Corporation
                          (a Development Stage Company)

                                 Balance Sheets

<TABLE>
<CAPTION>

                                                              December 31,            December 31,
                        ASSETS                                    1996                    1997
                                                              ------------            ------------
<S>                                                           <C>                     <C>         
    Current assets:
         Cash and cash equivalents ................           $    198,277            $  1,405,430
         Prepaid expenses and other ...............                172,294                  78,724
         Deferred offering  and debt issuance
           costs ..................................                492,109                    --
                                                              ------------            ------------
             Total current assets .................                862,680               1,484,154
    Property and equipment, net ...................                568,040                 472,561
    Other assets ..................................                 17,517                  15,850
                                                              ------------            ------------
             Total assets .........................           $  1,448,237            $  1,972,565
                                                              ============            ============


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
    Current liabilities:
         Accounts payable .........................           $    857,428            $    133,992
         Accrued liabilities ......................                441,076                 351,070
         Notes payable ............................              1,851,546                    --
         Convertible notes payable and accrued
          interest ................................                517,041                    --
                                                              ------------            ------------
             Total liabilities ....................              3,667,091                 485,062
                                                              ------------            ------------
    Commitments and contingencies (Note 7)
    Shareholders' equity (deficit):
         Convertible preferred stock, no par value;
          authorized 3,000,000 shares; issued and
          outstanding 1,059,600 shares at
          December 31, 1996 and none at
          December 31, 1997 .......................              2,183,036                    --
         Common stock, no par value; authorized
          17,000,000 shares; issued and
          outstanding 2,530,120, and 5,392,845
          shares at December 31, 1996 and 1997,
          respectively ............................              1,946,552              11,457,505
         Warrants .................................                   --                   195,687
         Deficit accumulated during the
          development stage .......................             (6,348,442)            (10,165,689)
                                                              ------------            ------------
             Total shareholders' equity (deficit)..             (2,218,854)              1,487,503
                                                              ------------            ------------
             Total liabilities and shareholders'
                equity (deficit) ..................           $  1,448,237            $  1,972,565
                                                              ============            ============
</TABLE>

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



                                      F-3
<PAGE>
                             HealthDesk Corporation
                          (a Development Stage Company)

                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                       August 28, 1992
                                                   Year Ended         Year Ended       (Inception) to
                                                December 31, 1996  December 31, 1997  December 31, 1997
                                                -----------------  -----------------  -----------------
<S>                                              <C>                <C>                <C>          
Revenue:
  Software development and licensing.........    $     52,225       $    379,806       $   1,123,345
  Other......................................            ----              2,556              12,714
                                                 ------------       ------------       -------------
   Total revenue.............................          52,225            382,362           1,136,059
                                                 ------------       ------------       -------------

Costs and expenses:
  Product development........................       1,622,601          2,248,018           4,958,135
  Sales and marketing........................       1,222,183          1,422,111           3,348,601
  General and administrative.................         681,993            506,132           1,991,562
                                                 ------------       ------------       -------------
     Total costs and expenses................       3,526,777          4,176,261          10,298,298
                                                 ------------       ------------       -------------
     Loss from operations....................      (3,474,552)        (3,793,899)         (9,162,239)

  Interest expense...........................         (60,654)           (14,900)           (127,232)
  Interest income............................          28,779            137,375             172,154
  Amortization of discount and issuance costs
   associated with bridge financing (See Note
   6)........................................        (884,227)          (145,023)         (1,029,250)
  Other expenses.............................            ----               ----             (14,322)
                                                 ------------       ------------       --------------
     Loss before income taxes................      (4,390,654)        (3,816,447)        (10,160,889)

Provision for income taxes...................            (800)              (800)             (4,800)
                                                 -------------      -------------      --------------
     Net loss................................    $ (4,391,454)      $ (3,817,247)      $ (10,165,689)
                                                 =============      =============      ==============

Basic net loss per share.....................    $      (1.12)       $     (0.73)
                                                 ============       ============
Diluted net loss per share...................    $      (1.12)       $     (0.73)
                                                 ============       ============

Weighted average number of shares of  common
   stock, basic and diluted..................       3,913,433          5,212,060
                                                 =============      =============
</TABLE>











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


                                      F-4
<PAGE>
                             HealthDesk Corporation
                          (a Development Stage Company)

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>

                                                                                                        Deficit
                                                                                                      Accumulated     Total
                                                                                                       During the   Shareholders'
                                      Preferred Stock       Common Stock        Common Stock           Development    Equity
                                   Shares        Amount       Warrants      Shares        Amount          Stage      (Deficit)
                                   ------        ------       --------      ------        ------          -----      ---------
<S>                               <C>          <C>          <C>             <C>            <C>           <C>             <C>      
Balances at August 28, 1992
   (inception) ..............        --             --             --            --             --             --             --
Common stock issued for cash
  on October 1, 1992 at              
  $0.003 per share...........        --             --             --         960,000   $      2,480           --     $      2,480
Net loss ....................        --             --             --                                  $    (92,744)       (92,744)
                               ----------   ------------   ------------  ------------   ------------   ------------   ------------
Balances at December 31, 1992        --             --             --         960,000          2,480        (92,744)       (90,264)
Common stock issued for cash
  in April and May 1993 at           
  $1.04 per share............        --             --             --         240,000        250,000           --          250,000
Net loss ....................        --             --             --            --             --         (190,749)      (190,749)
                               ----------   ------------   ------------  ------------   ------------   ------------   ------------
Balances at December 31, 1993        --             --             --       1,200,000        252,480       (283,493)       (31,013)
Common stock issued for cash
  on May 2, 1994 at $1.04            
  per share..................        --             --             --          60,000         62,500           --           62,500
Net loss ....................        --             --             --            --             --         (237,022)      (237,022)
                               ----------   ------------   ------------  ------------   ------------   ------------   ------------
Balances at December 31, 1994        --             --             --       1,260,000        314,980       (520,515)      (205,535)
Common stock issued in
  exchange for convertible
  debt on September 29, 1995         
  at $1.04 per share.........        --             --             --         768,000        800,000           --          800,000
Common stock issued upon
  exercise of options in
  June and December 1995 at          
  $1.04 per share............        --             --             --         102,000        106,250           --          106,250
Preferred stock issued for
  cash in November and
  December 1995 at $2.08 per
  share, net of issuance          
  costs of $21,693...........     939,600   $  1,935,807           --            --             --             --        1,935,807
Net loss ....................        --             --             --            --             --       (1,436,473)    (1,436,473)
                               ----------   ------------   ------------  ------------   ------------   ------------   ------------
Balances on December 31, 1995     939,600      1,935,807           --       2,130,000      1,221,230     (1,956,988)     1,200,049
Common stock issued upon
  exercise of options on
  February 1, 1996 at $1.04          
  per share..................        --             --             --             120            125           --              125
Preferred stock issued for
  cash in February 1996 at
  $2.08 per share, net of         
  issuance costs of $2,771...     120,000        247,229           --            --             --             --          247,229
Common Stock issued for cash
  in October 1996 at $2.25
  per share, net of issuance         
  cost of $174,803...........        --             --             --         400,000        725,197           --          725,197
Net loss ....................        --             --             --            --             --       (4,391,454)    (4,391,454)
                               ----------   ------------   ------------  ------------   ------------   ------------   ------------
Balances at December 31, 1996   1,059,600      2,183,036           --       2,530,120      1,946,552     (6,348,442)    (2,218,854)
Common Stock and Warrants
  issued in connection with
  the initial public                 
  offering on January 23,
  1997.......................        --             --     $    195,500     1,700,000      6,823,101           --        7,018,601
Preferred Stock converted to
  common stock ..............  (1,059,600)    (2,183,036)          --       1,059,600      2,183,036           --             --
Convertible notes converted
  to common stock ...........        --             --             --         100,000        500,000           --          500,000
Issuance of warrants in
  connection with the
  initial public offering in         
  January 1997...............        --             --              187          --             --             --              187
Common Stock issued upon
  exercise of options in
  March at $1.04 and $2.08           
  per share..................        --             --             --           3,125          4,816           --            4,816
Net loss ....................        --             --             --            --             --       (3,817,247)    (3,817,247)
                               ----------   ------------   ------------  ------------   ------------   ------------   ------------
Balances on December 31, 1997        --             --     $    195,687     5,392,845   $ 11,457,505   $(10,165,689)  $  1,487,503
                               ==========   ============   ============  ============   ============   ============   ============

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


                                      F-5
<PAGE>
                             HealthDesk Corporation
                          (a Development Stage Company)

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                             August 28, 1992
                                                         Year Ended         Year Ended       (inception) to
                                                        December 31,        December 31        December 31
                                                            1996               1997               1997
                                                        -------------       ------------        ------------
<S>                                                     <C>                 <C>                 <C>          
Cash flows from operating activities:
   Net loss .....................................       $ (4,391,454)       $ (3,817,247)       $(10,165,689)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization ..............            203,410             268,805             563,516
     Amortization of non cash discount ..........            884,227             145,023           1,029,250
     Other ......................................             17,244                --                28,800
     Changes in operating assets and liabilities:
      (Increase) decrease in prepaid expenses and
       deferred costs ...........................           (636,113)            585,680             (55,879)
     (Increase) decrease in other assets ........             77,133               1,667             (15,850)
     Increase (decrease) in accounts payable ....            752,669            (723,436)            133,992
     Increase (decrease) in accrued liabilities .            259,569            (103,615)            354,502
                                                        ------------        ------------        ------------
       Net cash used in operating activities ....         (2,833,315)         (3,643,123)         (8,127,358)
                                                        ------------        ------------        ------------

Cash flows from investing activities:
   Additions to property and equipment ..........           (553,731)           (173,328)         (1,091,154)
                                                        ------------        ------------        ------------
   Net cash used in investing activities ........           (553,731)           (173,328)         (1,091,154)
                                                        ------------        ------------        ------------

Cash flows from financing activities:
   Payments of short-term notes payable .........               --            (2,000,000)         (2,000,000)
   Proceeds from short-term notes payable, net of
    accrued offering costs ......................            970,750                --               970,750
   Repayment of convertible notes payable .......           (500,000)               --              (500,000)
   Proceeds from issuance of convertible notes
    payable .....................................            500,000                --             1,800,000
   Proceeds from issuance of common stock and
    warrants, net of accrued offering costs .....            725,197           7,018,788           8,058,965
   Net proceeds from issuance of preferred stock             235,217                --             2,183,036
   Proceeds from shareholders' loans ............               --                  --               118,164
   Repayment of loans from shareholders .........               --                  --              (118,164)
   Proceeds from the exercise of stock options ..            100,125               4,816             111,191
                                                        ------------        ------------        ------------
     Net cash provided by financing  activities .          2,031,289           5,023,604          10,623,942
                                                        ------------        ------------        ------------
     Net increase (decrease) in cash and cash
      equivalents ...............................         (1,355,757)          1,207,153           1,405,430
Cash and cash equivalents at beginning of year ..          1,554,034             198,277                --
                                                        ------------        ------------        ------------
Cash and cash equivalents at end of year ........       $    198,277        $  1,405,430        $  1,405,430
                                                        ============        ============        ============

Cash paid during the year for:
   Interest .....................................       $     82,753        $     70,192        $    155,153
                                                        ============        ============        ============
   Income taxes .................................       $        800        $        800        $      4,000
                                                        ============        ============        ============
</TABLE>

                      Noncash Financing Activities (Note 9)




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



                                      F-6
<PAGE>

                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

1. Organization and Basis of Presentation:

     HealthDesk Corporation (the Company), a development stage company, is
engaged in designing, developing and marketing HealthDesk(R) OnLine, a
consumer-focused healthcare management and information system which enables
consumers to take a more active role in their personal and family health.
HealthDesk OnLine features easy-to-use Windows-based software designed to
develop personal medical records and health management programs and access
educational, health related information from the Company's private website and
over the Internet.

     The Company is still in the development stage and substantially all of its
revenues were derived from certain development contracts relating to specific
disease management modules in its initial product. Since inception, the Company
has incurred losses and negative cash flows from its product development
activities. The Company is seeking to achieve profitable operations by
commercializing its products and obtaining contracts with potential sponsoring
organizations. The Company received net proceeds of $7,018,788 from its initial
public offering in January 1997. As discussed in Note 13, the Company received
proceeds of $800,000 from its sale of 400,000 shares of Common Stock to two of
its existing shareholders in February 1998. Management expects that the Company
will require additional capital resources prior to achieving profitable
operations. The Company is actively seeking additional financing and two of the
Company's existing shareholders have committed to provide the Company with up to
an aggregate of $1,000,000 to finance its operations through February 20, 1999,
of which $200,000 has been received in February 1998 in conjunction with the
stock issuance referred to above.

2. Summary of Significant Accounting Policies:

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.

Revenue Recognition:

     During 1996, the Company's revenue was generated primarily from a
cross-licensing and marketing contract. The revenue was recognized ratably over
the related period under the agreement. During 1997, the Company's revenue was
generated primarily from a software development contract. This revenue was
recognized when the Company achieved designated milestones and received customer
acceptance as specified in the related contract.

Cash and Cash Equivalents:

     Cash and cash equivalents include all cash balances, money market
instruments and other highly liquid investments with insignificant interest rate
risk and original maturities of three months or less.

Software Development Costs:

     Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS 86),
requires that software development costs be capitalized once the technological
feasibility of the software product has been established. To date, such amounts
eligible for capitalization have been insignificant and have been charged to
product development expense in the period incurred.



                                      F-7
<PAGE>

                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies:   --   (Continued)

Property and Equipment:

     Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of three years for
computer hardware and purchased computer software and five years for furniture
and fixtures, and over the remaining term of the facility lease for leasehold
improvements.

     When assets are sold or retired, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in operations. Maintenance and repairs are charged to operations.

Income Taxes:

     Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Under
SFAS No. 109, deferred income tax liabilities and assets are determined based on
the difference between the financial reporting amounts and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates in effect for the years in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

Computation of Net Loss Per Share:

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, which
establishes standards for computing and presenting earnings (loss) per share.
Under the new standard, basic earnings per share is computed based on the
weighted average number of common shares outstanding and excludes any potential
dilution; diluted earnings per share reflects potential dilution from the
exercise or conversion of securities into common stock. The financial statements
presented have been prepared in accordance with SFAS No. 128 and earnings per
share data for all prior periods presented have been restated to conform with
current year presentation. Options to purchase 747,058 and 707,652 shares of the
Company's Common Stock were outstanding as of December 31, 1996 and 1997,
respectively. In addition, warrants to purchase 2,125,000 shares of the
Company's Common Stock were outstanding as of December 31, 1997. Both options
and warrants were excluded from the loss per share calculation for the years
ended December 31, 1996 and 1997 as they have the effect of decreasing loss per
share.

Shareholders' Equity:

     On September 19, 1996, the Company's Board of Directors approved a 1.2 for
1 stock split of the Company's common and preferred stock. All share, stock
option and per share amounts included in these financial statements have been
restated to retroactively reflect the stock split.

     On September 19, 1996, the Company also amended its Articles of
Incorporation to increase its authorized shares of common stock and preferred
stock to 17,000,000 and 3,000,000, respectively, and to increase the number of
shares of preferred stock designated as Series A to 1,200,000.



                                      F-8
<PAGE>

                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies: - (Continued)

Recently Issued Accounting Pronouncements:

     In June 1997, Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" and Statement of Financial Accounting Standards
No 131 "Disclosures About Segments of An Enterprise and Related Information"
were issued and are effective for the year ending December 31, 1998. The Company
has not determined the impact of the implementation of these pronouncements.

     In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition, which
delineates the accounting for software product and maintenance revenue. SOP 97-2
supersedes the Accounting Standards Executive Committee Statement of Position
91-1, Software Revenue Recognition, and is effective for transactions entered
into in fiscal years beginning after December 15, 1997. The Company is
evaluating the requirements of SOP 97-2 and the effects, if any, on the
Company's current revenue recognition policies.

Reclassifications:

     Certain prior year balances have been reclassified to conform to the
current year presentation. Such reclassifications had no impact on net loss or
shareholders' deficit as previously reported.

3. Concentrations of Credit Risk:

     The Company places its temporary cash investments with one financial
institution. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. One customer accounted for
approximately 96% and 92% of revenues in fiscal 1996 and 1997, respectively.

4. Property and Equipment:

     Property and equipment at December 31, 1996 and 1997, consisted of the
following:

                                                     December 31,  December 31,
                                                        1996          1997
                                                     ------------  ------------
Computer equipment and software...................    $  662,676   $  817,501
Furniture and fixtures............................       101,406      115,805
Leasehold improvements............................        12,651       15,086
                                                      ----------   ----------
                                                         776,733      948,392
Less accumulated depreciation and amortization....       208,693      475,831
                                                      ----------   ----------
   Total property and equipment, net..............    $  568,040   $  472,561
                                                      ==========   ==========

     Depreciation expense amounted to $203,410, $267,138 and $475,831 for the
years ended December 31, 1996 and 1997, and for the period from August 28, 1992
(inception) to December 31, 1997, respectively.

5. Income Taxes:

     The provision for income taxes for the years ended December 31, 1996 and
1997 relates to current state income tax. Differences between the 1996 and 1997
statutory and effective tax rates are due to valuation allowances recorded to
offset deferred tax benefits associated with net operating losses and tax
credits.


                                      F-9
<PAGE>
                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

5. Income Taxes: - (Continued)

     The estimated tax effect of significant temporary differences and carry
forwards that gave rise to deferred income tax assets as of December 31, 1996
and 1997, is as follows:

<TABLE>
<CAPTION>
                                                          1996                                  1997
                                             ------------------------------        ------------------------------
                                               Federal             State             Federal              State
                                             -----------        -----------        -----------        -----------
<S>                                          <C>                <C>                <C>                <C>        
Deferred tax assets:
   Net operating loss carryforwards ..       $ 2,000,000        $   180,000        $ 3,370,000        $   460,000
   Research and experimentation credit
     carryforwards and other .........           116,000             57,000            160,000            110,000
                                             -----------        -----------        -----------        -----------
                                               2,116,000            237,000          3,530,000            570,000
Valuation allowance ..................        (2,116,000)          (237,000)        (3,530,000)          (570,000)
                                             -----------        -----------        -----------        -----------
Net deferred tax assets ..............       $      --          $      --          $      --          $      --
                                             ===========        ===========        ===========        ===========

</TABLE>
     Due to the uncertainty of realization, a valuation allowance has been
provided to eliminate the net deferred tax assets at both December 31, 1996 and
1997. The increase in the valuation allowance was $1,655,500 and $1,747,000
during the years ended December 31, 1996 and 1997, respectively.

     As of December 31, 1997, the Company had net operating loss carryforwards
of approximately $9,900,000 and $7,500,000 for federal income tax and California
state franchise tax purposes, respectively. The federal carryforwards expire
through 2012 (through 2002 for state carryforwards). As of December 31, 1997,
the Company also had research and experimentation tax credit carryforwards of
$140,000 and $100,000 for federal and state tax purposes, respectively. These
carryforwards expire in the years ending 2008 through 2012.

     Pursuant to the provisions of the Tax Reform Act of 1986, utilization of
these net operating loss and tax credit carryforwards will be subject to an
annual limitation due to the occurrence of a greater than 50% change in the
ownership of the Company during fiscal 1996 and 1997.

6. Notes Payable:

     On May 23, 1994, the Company entered into a $500,000 convertible promissory
note agreement with simple interest at the rate of 7% per annum. The agreement
provided the holder with the option of converting the principal amount plus the
accrued interest into shares of the Company's common stock at a conversion price
of $3.33 per share prior to the due date. Both principal and accrued interest
thereof were due and payable two years from the agreement date. The Company paid
the balance due on the note with the proceeds in October 1996 from the Bridge
Financing (see below). Accrued interest relating to this note was $81,083 and
was paid during the year ended December 31, 1996.

     In July and August 1996, the Company issued two term notes (the Notes) to
two existing shareholders and directors for a total of $500,000. The Notes bore
interest at 8% per annum and converted into 100,000 shares of the Company's
common stock on the closing date of the Company's initial public offering in
January 1997. At December 31, 1996 accrued interest relating to the Notes
amounted to $17,041 and interest paid at December 31, 1997 amounted to $18,904.



                                      F-10
<PAGE>

                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

6. Notes Payable: - (Continued)

     On October 11, 1996, the Company consummated a bridge financing (the Bridge
Financing) pursuant to which it issued an aggregate of (i) $2,000,000 principal
amount of promissory notes (the Bridge Notes) which bore interest at the rate of
9% per annum and were due on the consummation of the Company's initial public
offering, and (ii) 400,000 shares of the Company's common stock. The Company
recorded the Bridge Notes at a discount of $900,000, which discount was
allocated to the 400,000 shares of common stock issued. Additionally, $130,000
for debt issuance costs was recorded in connection with the Bridge Financing.
Net proceeds from the Bridge Financing amounted to $1,765,000, of which 55%, or
$970,750, was allocated to short-term notes payable and 45%, or $794,250, was
allocated to common stock. At December 31, 1996, accrued interest related to the
Bridge Notes amounted to $39,945 and interest paid at December 31, 1997 amounted
to $51,288.

     The Company recorded non-recurring amortization charges related to the
Bridge Financing of $884,227 for the year ended December 31, 1996 and $145,023
for the year ended December 31, 1997. Payment of the Bridge Notes was made upon
completion of the initial public offering in January 1997.

     The Company believes that the carrying amounts of the Notes and the Bridge
Notes approximated fair value due to their short maturities and conversion
features.

7. Commitments and Contingencies:

Leases:

     The Company entered into a noncancellable lease for its office in January
1996 which expires in early 1999. Additionally, the Company has other
noncancelable operating leases for equipment expiring through February 2001.
Total rent expense for 1996 and 1997 aggregated $107,384 and $112,253,
respectively. Minimum future rentals under these operating leases as of December
31, 1997, are as follows:

Year ending December 31:
                                1998                        $  129,954
                                1999                            26,360
                                2000                            14,398
                                2001                             1,800
                                                            ----------
                                                            $  172,512
                                                            ----------

Agreements:

     In May 1996, the Company entered into a cross-licensing agreement with
another company. Pursuant to this agreement, the two companies granted each
other a non-exclusive right to market the other party's principal product in
exchange for a semiannual licensing fee of $25,000.

     The Company has also entered into various agreements granting it a
non-exclusive right to use products of third parties in exchange for royalties
based on usage levels. The Company has incurred $95,308 in royalty expenses
under these agreements as of December 31, 1997.

     The Company has entered into an agreement with a content provider pursuant
to which it is committed to pay, as of December 31, 1997, non-refundable minimum
royalties of approximately $540,000 ($190,000 in fiscal 1998, $225,000 in fiscal
1999 and $125,000 in fiscal 2000).

     In September 1997, the Company entered into an exclusive three year
marketing agreement with a reseller. The exclusivity of the agreement is
contingent upon the reseller meeting specified revenue requirements.



                                      F-11
<PAGE>

                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

7. Commitments and Contingencies: - (Continued)

Legal Proceedings:

     The Company is subject to a complaint filed by a former employee with the
California Department of Fair Employment and Housing. Management believes this
claim is without merit and intends to defend its position in this matter
vigorously. Since the financial impact of the ultimate outcome of this matter is
neither probable nor estimable, no amounts have been accrued in the accompanying
financial statements.

8. Employee Benefits Plans:

     On February 28, 1996, the Company adopted a 401 (k) plan for employees. All
employees who meet certain service requirements are eligible to participate.
Matching contributions are at the discretion of the Company. As of December 31,
1997, the Company had not elected to make any discretionary contributions.

9. Related Party Transactions:

     At December 31, 1996 and 1997, loans payable to related parties consisted
of the following:

                                                                 Shareholders
                                                                 ------------
Proceeds from convertible term note.......................              500,000
Proceeds from bridge financing notes......................              198,000
                                                               ----------------
Balance of loans payable at December 31, 1996.............     $        698,000
                                                               ================

Term notes converted to Common Stock......................             (500,000)
Repayment of bridge financing notes.......................             (198,000)
                                                               -----------------
Balance of loans payable at December 31, 1997.............     $           ----
                                                               ================

     During the period from June 7, 1995 through September 28, 1995, the Company
issued two convertible promissory notes to two existing shareholders for
$800,000. The notes bore interest at 6% per annum. On September 29, 1995, the
principal of the notes was converted at a rate of $1.04 per share into 768,000
shares of Common Stock of the Company.

     On August 15, 1995, the Company granted an option to acquire 96,000 shares
of common stock at $1.04 per share to a board member and existing shareholder of
the Company. The option was exercised on December 29, 1995 and proceeds of
$100,000 were received by the Company on January 8, 1996.

     In December 1995, two principal shareholders and related Board members
purchased 69,000 and 129,000 shares of the Company's Series A Preferred Stock
for an aggregate purchase price of approximately $144,000 and $268,000,
respectively, in connection with the Company's Series A financing.

     As discussed in Note 6, in July and August 1996, the Company issued two
convertible term notes to two existing shareholders and related Board members.

     In October 1996, two of the Company's shareholders each purchased $100,000
of units consisting of 20,000 shares of common stock at an attributed price of
$2.25 per share and a 9% promissory note in the principal amount of $100,000 in
connection with the Bridge Financing.



                                      F-12
<PAGE>

                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

10. Preferred Stock:

     The Company is authorized to issue 3,000,000 shares of preferred stock. Of
the authorized preferred stock, 1,200,000 shares are designated as Series A. As
of December 31, 1996, the Company had issued 1,059,600 shares of Series A
preferred stock for net proceeds of $2,183,036. On January 16, 1997, all
outstanding shares of convertible Series A preferred stock were automatically
converted into 1,059,600 shares of Common Stock upon the closing of the
Company's initial public offering in January 1997. As of December 31, 1997,
there was no shares of preferred stock issued or outstanding.

11. Common Stock:

     On January 16, 1997, the Company completed its initial public offering
(IPO) of 1,700,000 shares of common stock at a price of $5.00 per share and
redeemable warrants (Warrants) to purchase 2,125,000 shares of common stock.
Each Warrant entitles the registered holder thereof to purchase one share of
common stock at a price $5.00, subject to adjustment in certain circumstances,
at any time through and including January 16, 2002. The Warrants are redeemable
by the Company, upon the consent of the underwriter, at any time, upon notice of
not less than 30 days, at a price of $.10 per Warrant, provided that the closing
bid quotation of the Common Stock on all 30 of the trading days ending on the
third day prior to the day on which the Company gives notice has been at least
150% (currently $7.50, subject to adjustment) of the then effective exercise
price of the Warrants.

     The IPO yielded gross proceeds of $8,695,500 and net proceeds of $7,018,788
after deducting the underwriter's discount, fees and other financing costs
aggregating $1,676,712. In addition, the Company sold to the underwriter, for an
aggregate of $187, warrants (Underwriter's Warrants) to purchase up to 170,000
shares of Common Stock at an exercise price of $6.00 per share and provided for
the right to purchase up to 170,000 additional warrants at a purchase price of
$.12 per warrant (each exercisable to purchase one share of Common Stock at a
price of $8.25 per share). The Underwriter's Warrants are exercisable over a
five-year period beginning January 16, 1997.

12. Stock Options:

     In June 1994, the Company adopted the 1994 Stock Option Plan (the Plan)
under which eligible employees, directors, and consultants can receive options
to purchase shares of the Company's common stock at a price generally not less
than 100% and 85% of the fair value of the common stock on the date of the grant
for incentive stock options and nonstatutory stock options, respectively.
However, the Company never granted options at below fair value as determined by
the Board of Directors. The Plan, as amended, allows for the issuance of a
maximum of 950,000 shares of the Company's common stock. This number of shares
of common stock has been reserved for issuance under the Plan. The options
granted under the Plan are exercisable over a maximum term of ten years from the
date of grant and are immediately exercisable. Shares purchased under the Plan
are subject to a right of repurchase by the Company at the original exercise
price. This repurchase right lapses with respect to 25% of the shares upon
completion of one year of service and the balance in equal successive monthly
installments upon completion of each of the next 36 months of service. With
respect to certain of the options issued, the repurchase right is eliminated in
the event there is a change in control of the Company.




                                      F-13
<PAGE>
                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

12. Stock Options: - (Continued)

     A summary of the activity under the Plan is set forth below:
<TABLE>
<CAPTION>

                                                              Outstanding Options
                                    --------------------------------------------------------------------
                                    Number of              Price Per      Aggregate        Weighted Avg.
                                      Share                  Share          Price          Exercise Price
                                    --------------       ----------   ---------------      --------------
<S>                                        <C>             <C>         <C>                        <C>  
Balance, January 1, 1994                      ----         ----                  ----              ----
Options granted                            352,800         $1.04       $      366,912             $1.04
                                    --------------                     --------------
Balance, December 31, 1994                 352,800         1.04               366,912              1.04
Options granted                            771,300      1.04 - 2.08         1,126,713              1.46
Options exercised                         (102,000)        1.04              (106,080)             1.04
Options forfeited                         (475,900)     1.04 - 1.67          (620,432)             1.30
                                    ---------------                    ---------------
Balance, December 31, 1995                 546,200      1.04 - 2.08           767,113              1.40
Options granted                            485,000      2.08 - 5.00         2,081,908              4.29
Options exercised                             (120)        1.04                  (125)             1.04
Options forfeited                         (284,022)     2.08 - 5.00          (574,324)             2.02
                                    ---------------                    ---------------
Balance, December 31, 1996                 747,058      1.04 - 5.00         2,274,572              3.04
Options granted                            362,150      3.13 - 3.75         1,170,645              3.23
Options exercised                           (3,125)     1.04 - 2.08            (4,819)             1.54
Options forfeited/canceled                (398,431)     1.04 - 5.00        (1,540,523)             3.87
                                    ---------------                    ---------------
Balance, December 31, 1997                 707,652     $1.04 - $5.00   $    1,899,875             $2.64
                                    ==============                     ==============

</TABLE>
     At December 31, 1997, 425,553 of the exercisable options are subject to the
Company's repurchase provision.

     The following table summarizes information with respect to stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
                                                     Options Outstanding                           Options Exercisable
                                                     -------------------                           -------------------
                                               Weighted Avg.                             Number 
                      Number Outstanding        Remaining                              Exercisable 
 Range of Exercise     December 31,          Contractual Life       Weighted Avg.       December 31,          Weighted Avg.
       Price               1997                   (Years)               Price              1997                   Price  
       -----               ----                   -------               -----              ----                   -----  
<S>                          <C>                    <C>                  <C>                <C>                    <C> 
   1.04 to 2.08              206,934                7.31                 1.08               137,328                1.08
   2.08 to 3.13              163,966                8.51                 2.75                61,719                2.62
   3.25 to 5.00              336,752                9.03                 3.53                83,052                3.60
                      --------------                                                 --------------
   1.04 to 5.00              707,652                8.41                 2.64               282,099                2.16
                      ==============                                                 ==============
</TABLE>


     The following information concerning the Company's stock option plan is
provided in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted under SFAS No. 123, the Company applies the
"Disclosure-only" provisions of SFAS No. 123 and continues to account for such
plan in accordance with Accounting Principles Board Opinion (APB) No. 25 and
related interpretations.

     The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1997:

                                           1996                       1997
                                           ----                       ----
Risk-Free Interest Rates                   5.7%                       5.7%
Expected Life                             4 years                   4 years
Volatility                                  .57                       .50
Dividend Yield                             ----                       ----

     The weighted average expected life was calculated based on the estimated
exercise behavior of the Company's employees.



                                      F-14
<PAGE>
                             HealthDesk Corporation
                          (a Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

12. Stock Options:  -  (Continued)

     The weighted average fair value of those options granted in 1996 and 1997
was $1.90 and $1.47, respectively.

     The following pro-forma information presents net loss and per share
information as if stock options were accounted for pursuant to SFAS No. 123:

                                                    1996            1997
                                                    ----            ----
Net loss - pro-forma...................            $4,451,416      $4,100,259
Basic loss per share - pro-forma.......               $1.14           $0.79

13. Subsequent Events:

     The Company received a total financing commitment of $1,000,000 from two
existing shareholders on February 20, 1998. This financing will be available to
the Company on an as needed basis for at least twelve months from the date of
this commitment. These commitments were partially utilized on February 25, 1998
for a total of $200,000 in the private placement, noted below.

     On February 25, 1998, the Company completed an $800,000 private placement.
The placement consisted of the sale of 400,000 shares of Common Stock, at a
price of $2.00 per share to two of the Company's existing shareholders. See
below the pro-forma unaudited balance sheet impact of this placement, as if the
private placement were consummated at December 31, 1997.
<TABLE>
<CAPTION>

                                                                            Summary Balance Sheet
                                                                                 (unaudited)
                                                               As of                                   Pro-Forma
                                                           December 31,           Financing          December 31,
                                                               1997                Impact                1997
                                                               ----                ------                ----
<S>                                                     <C>                  <C>                  <C>            
    Total assets.....................................   $     1,972,565      $      800,000       $     2,772,565
                                                        ===============      ==============       ===============
    Liabilities......................................           485,062                ----               485,062
                                                        ---------------      --------------       ---------------
    Shareholders' equity.............................         1,487,503             800,000             2,287,503
                                                        ---------------      --------------       ---------------
    Total liabilities and shareholders' equity.......   $     1,972,565      $      800,000       $     2,772,565
                                                        ===============      ==============       ===============
</TABLE>


                                      F-15