##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|   |  |                                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
	2001                                              
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
	OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
	from           to                                              

Commission file number: 0-24975



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WebMD Corporation

(Exact name of registrant as specified in its
charter)


|                                                                                            |  |                                     
|------------------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                                    |  | 94-3236644                          
|(State of incorporation)                                                                    |  | (I.R.S. employer identification no.)
|                                                                                           
|669 River Drive, Center 2
	Elmwood Park, New Jersey(Address of principal executive
	office) |  | 07407-1361(Zip code)                

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

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

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, par value $.0001 per
share

(Title of each class)


Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports); and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

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

The aggregate market value of the voting stock
held by non-affiliates of the registrant (based upon the closing
sale price of $8.17 on March 15, 2002, as reported on the
Nasdaq Stock Markets National Market and, for purposes of
this computation only, the assumption that all of the
registrants directors and executive officers are
affiliates) was approximately $2,325,775,845. As of
March 15, 2002, the registrant had outstanding 312,383,902
shares of common stock.



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TABLE OF CONTENTS



|                                                                                             |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                                                           
|CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS                                   
|PART I                                                                                      
|                                                                                             | Item 1. Business                                                                             
|                                                                                             | Item 2. Properties                                                                           
|                                                                                             | Item 3. Legal Proceedings                                                                    
|                                                                                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                                                             | Item 4A. Executive Officers                                                                  
|PART II                                                                                     
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters               
|                                                                                             | Item 6. Selected Financial Data                                                              
|                                                                                             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                             | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                                                                             | Item 8. Financial Statements and Supplementary Data                                          
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|PART III                                                                                    
|                                                                                             | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                                                             | Item 11. Executive Compensation                                                              
|                                                                                             | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                                                             | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                                                                     
|                                                                                             | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                                                                  
|REPORT OF INDEPENDENT AUDITORS                                                              
|Consolidated Balance Sheets                                                                 
|Consolidated Statements of Operations                                                       
|Consolidated Statements of Stockholders Equity                                             
|Consolidated Statements of Cash Flows                                                       
|                                                                                             | Schedule II. Valuation and Qualifying Accounts                                               
|INDEX TO EXHIBITS                                                                           
|Agreement dated October 8, 2001 (Martin J. Wygod)                                           
|Subsidiaries of Registrant                                                                  
|Consent of Ernst & Young LLP, Independent Auditors                                          



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##### Table of Contents






TABLE OF CONTENTS

|                                                           |  |                                                                                        |     |      |    | 
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                                           |  |                                                                                        |     | Page
|                                                           |  |                                                                                        |     |     
|Cautionary Statement Regarding Forward-Looking
	Statements |  |                                                                                        | 2   |     
|PART I                                                    
|Item 1.                                                    |  | Business                                                                               |     |      | 3  | 
|Item 2.                                                    |  | Properties                                                                             |     |      | 28 | 
|Item 3.                                                    |  | Legal Proceedings                                                                      |     |      | 29 | 
|Item 4.                                                    |  | Submission of Matters to a Vote of Security
	Holders                                   |     |      | 31 | 
|Item 4A.                                                   |  | Executive Officers                                                                     |     |      | 32 | 
|PART II                                                   
|Item 5.                                                    |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |     |      | 34 | 
|Item 6.                                                    |  | Selected Financial Data                                                                |     |      | 36 | 
|Item 7.                                                    |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |     |      | 38 | 
|Item 7A.                                                   |  | Quantitative and Qualitative Disclosures about
	Market Risk                            |     |      | 65 | 
|Item 8.                                                    |  | Financial Statements and Supplementary Data                                            |     |      | 65 | 
|Item 9.                                                    |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |     |      | 65 | 
|PART III                                                  
|Item 10.                                                   |  | Directors and Executive Officers of the Registrant                                     |     |      | 66 | 
|Item 11.                                                   |  | Executive Compensation                                                                 |     |      | 66 | 
|Item 12.                                                   |  | Security Ownership of Certain Beneficial Owners
	and Management                        |     |      | 66 | 
|Item 13.                                                   |  | Certain Relationships and Related Transactions                                         |     |      | 66 | 
|PART IV                                                   
|Item 14.                                                   |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |     |      | 67 | 
|Signatures                                                 |  |                                                                                        | 68  |     
|Financial Statements                                       |  |                                                                                        | F-1 |     
|Index to Exhibits                                          |  |                                                                                        | E-1 |     

WebMD®, Web-MD®, WebMD Health®,
The Medical Manager®, Envoy®, and Medscape® are
registered trademarks of WebMD Corporation or its subsidiaries.

1



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K contains
both historical and forward-looking statements. All statements
other than statements of historical fact are, or may be deemed
to be, forward-looking statements. These forward-looking
statements are not based on historical facts, but rather reflect
managements current expectations concerning future results
and events. These forward-looking statements generally can be
identified by use of expressions such as believe,
expect, anticipate, intend,
plan, foresee, likely,
will or other similar words or phrases. Similarly,
statements that describe our objectives, plans or goals are or
may be forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or
achievements to be different from any future results,
performance and achievements expressed or implied by these
statements. In addition to the risk factors described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Factors That May
Affect Our Future Financial Condition or Results of
Operations beginning on page 54, the following
important risks and uncertainties could affect future results,
causing these results to differ materially from those expressed
in our forward-looking statements:



| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the failure to achieve sufficient levels of
	customer utilization and market acceptance of new services or
	newly integrated services                             
|
| |  | the inability to successfully deploy new
	applications or newly integrated applications                                                                           
|
| |  | difficulties in forming and maintaining mutually
	beneficial relationships with customers and strategic partners                                                  
|
| |  | the inability to attract and retain qualified
	personnel                                                                                                          
|
| |  | general economic, business or regulatory
	conditions affecting the healthcare, information technology and
	Internet industries being less favorable than expected.

These factors and the risk factors described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Factors That May
Affect Our Future Financial Condition or Results of
Operations beginning on page 54 are not necessarily
all of the important factors that could cause actual results to
differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable
factors also could have material adverse effects on our future
results. The forward-looking statements included in this Annual
Report on Form 10-K are made only as of the date of this
Annual Report. We expressly disclaim any intent or obligation to
update any forward-looking statements to reflect subsequent
events or circumstances.

2



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PART I




Item 1.     Business

General Information

WebMD Corporation is a Delaware corporation that
was incorporated in December 1995 and commenced operations in
January 1996 as Healtheon Corporation. Our principal executive
offices are located at 669 River Drive, Center 2,
Elmwood Park, New Jersey 07407-1361 and our telephone number is
(201) 703-3400.

Our common stock has traded on the Nasdaq
National Market under the symbol HLTH since
February 11, 1999. In May 1998, Healtheon Corporation
completed a merger with ActaMed Corporation. In November 1999,
Healtheon completed mergers with WebMD, Inc., MedE America
Corporation and Greenberg News Networks, Inc., known as Medcast.
Following these mergers, Healtheon changed its name to
Healtheon/ WebMD Corporation. Healtheon/ WebMD completed
acquisitions of Kinetra LLC and Envoy Corporation in January
2000 and May 2000, respectively. On September 12, 2000,
Healtheon/ WebMD completed mergers with Medical Manager
Corporation, CareInsite, Inc. and OnHealth Network Company and
changed its name to WebMD Corporation. In December 2001, WebMD
acquired the portal assets of MedicaLogic/ Medscape, Inc., which
we refer to as Medscape. For additional information regarding
these transactions, see note 2 to the consolidated
financial statements in this Annual Report.

Overview of Our Business

We provide a range of transaction and information
services and technology solutions for participants across the
entire continuum of healthcare, including physicians and other
healthcare providers, payers, suppliers and consumers. Our
products and services promote administrative efficiency and
assist in reducing the cost of healthcare and creating better
patient outcomes. Our business is divided into the following
three segments:



| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Transaction Services or WebMD
	Envoy.Through our WebMD Envoy
	transaction network, we transmit electronic transactions between
	healthcare payers and physicians, pharmacies, dentists,
	hospitals, laboratory companies and other healthcare providers.
	The transactions that we facilitate include:



| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | administrative transactions, such as claims
	submission and status inquiry, eligibility and patient coverage
	verification, referrals and authorizations, and electronic
	remittance advice; and
|
| |  | clinical transactions, such as lab test ordering
	and reporting of results.                                                                                                                     



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Most of our electronic transactions are conducted
	by healthcare providers using computers, modems and ordinary
	phone lines to connect to our clearinghouse. Information is
	typically sent from the providers billing or practice
	management system to our clearinghouse, where it is validated
	for format and completeness and then sent to the payers
	computer. Some of these transactions are transmitted securely
	over the Internet. In either case, there are important
	advantages for healthcare participants in using electronic
	transactions as compared to mail, fax or telephone: electronic
	transactions significantly reduce processing time and costs,
	which increases efficiency and productivity for both payers and
	providers. We are focused on continuing to increase the
	percentage of healthcare transactions that are handled
	electronically and on providing value-added services to
	providers and payers in connection with our transmission of
	transactions.



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Physician Services or WebMD Medical
	Manager.We develop and market
	integrated physician practice management systems under The
	Medical Manager brand. Our practice management solutions include:



| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | administrative and financial applications that
	enable physicians and their administrative personnel to manage
	their practices more efficiently; and

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| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | clinical applications that assist physicians in
	delivering quality patient care.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Medical Manager systems allow physician
	offices to automate their scheduling, billing and other
	administrative tasks, to maintain electronic medical records and
	to automate documentation of patient encounters. In addition,
	The Medical Manager systems provide integrated access to our
	WebMD Envoy transaction services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | The ongoing development of ULTIATM,
	our wireless handheld solution, is one of the ways in which we
	continue to meet the changing demands of physicians. Physicians
	are able to use ULTIA in their offices, at the point-of-care, to
	access data within The Medical Manager system and perform a
	range of clinical and administrative tasks. ULTIA also provides
	a range of offsite functionality and can easily be used at
	hospitals and other remote locations. Up to ten days of hospital
	rounds and patient data can be downloaded to the handheld
	device. This information is then accessible to the physician
	when working at a remote location. The physician can enter new
	data and capture patient charges, all of which are then uploaded
	to The Medical Manager system when the physician returns to the
	office.



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Portal Services or WebMD
	Health.WebMD Health offers a
	variety of online resources and services for consumers and
	healthcare professionals.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WebMD Health Consumer
	Portal.WebMD Health, our consumer
	portal, is located at www.my.webmd.com. WebMD Health helps
	people become better informed about healthcare choices and
	assists them in playing an active role in managing their own
	health. We provide online access to health and wellness news and
	information, support communities, special events, interactive
	tools and other services. Our communities and events allow
	consumers to participate in real-time discussions in our chat
	rooms and on our message boards, with experts and with people
	who share similar health conditions or concerns. Consumers are
	also welcome to access content at our Medscape professional
	portal. We recently began the integration of Medscape
	Healths content and tools into WebMD Health.
|
| |  | Medscape Professional
	Portal.Medscape, our portal for
	physicians and allied healthcare professionals, is located at
	www.medscape.com. At Medscape, physicians and other healthcare
	professionals can access continuing medical education services,
	medical journals, textbooks and data bases, specialty-focused
	medical news and medical conference coverage, and opportunities
	to purchase other products and services. We recently began the
	integration of the WebMD professional portals content and
	tools into Medscape.                                                                                                                                                                                                                                                                    
|
| |  | Portal
	Relationships.We also distribute our
	content and services to leading general consumer Internet
	portals and media distribution partners, including MSN, AOL and
	News Corporation. In addition, we provide content and services
	to payers and other healthcare partners Web sites
	for use by their affiliated physicians and consumers.                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We believe that our user base of consumers and
	healthcare professionals represents an attractive audience to a
	variety of advertisers and sponsors who are interested in
	influencing healthcare decisions. We are working with our
	advertisers and sponsors to develop innovative online and
	offline programs that provide demonstrable results and
	complement their offline education, marketing and customer
	service programs.

For a more complete description of our services
and the solutions that we offer, see Our Products and
Services beginning on page 6. For information
regarding the revenues of each of our segments, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Results of
Operations for 2001 by Operating Segment on page 50
and note 7 to the consolidated financial statements in this
Annual Report.

We believe that the combination, in one company,
of WebMD Envoy, WebMD Medical Manager and WebMD Health makes us
well positioned to create significant improvements in the way
that

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information is used by the healthcare system,
enabling increased efficiency, better decision-making and,
ultimately, higher quality patient care at a lower cost.


Restructuring and Integration

After our mergers with Medical Manager,
CareInsite and OnHealth in the third quarter of 2000, our Board
of Directors approved a restructuring and integration plan, with
the objective of eliminating duplication and redundancies that
resulted from the acquisitions made by our company since
November 1999 and consolidating our operational infrastructure
into a common platform to more efficiently serve our customers.
Our restructuring and integration efforts continued in 2001, and
a new plan to include the impact of eliminating duplicate
functions resulting from the acquisition of Medscape was
initiated in the fourth quarter of 2001.

In connection with our restructuring and
integration efforts:



| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately 615 employees during 2001 and
	approximately 1,100 employees during 2000 were identified and
	notified of termination, principally as a result of eliminating
	duplicate functions resulting from acquisitions;
|
| |  | we have terminated leases, allowed leases to
	expire or entered into subleases with respect to approximately
	100 leased facilities;                                                                                         
|
| |  | we have consolidated our sales forces into groups
	focused on specific products and customers;                                                                                                                               
|
| |  | we have reduced the number of switches that we
	use to provide transaction services from more than 25 to less
	than 10; and                                                                                                  
|
| |  | we have phased out products and services that
	were duplicative or unprofitable and rationalized our product
	and service lines.                                                                                             

Additionally, as part of our restructuring and
integration efforts, we undertook a review of our strategic
relationships in light of several criteria, including strategic
relevance to us and to the other party, potential conflicts with
other relationships as a result of the numerous acquisitions we
had made, profitability and impact on future revenue streams. As
a result of this process, we entered into negotiations to revise
or terminate many of those relationships. In some cases, we were
able to redefine the relationships in a manner that better
serves the needs of each party. In other cases, these
discussions have resulted in termination of the relationships.
As a result of the revisions to and terminations of our
relationships, we have eliminated obligations or commitments
that no longer fit with our core businesses and strategies,
substantially reduced our obligations to share our revenues with
third parties and other future payment and funding obligations,
removed restrictions on the areas in which we can conduct
business, and made WebMD a better partner for the relationships
that continue. For additional information regarding some of our
significant relationships and transactions, see note 3 to
the consolidated financial statements in this Annual Report.

In connection with our restructuring and
integration efforts, we have recorded restructuring and
integration charges of:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | $266.8 million, of which $185.5 million
	were non-cash charges, in the year ended December 31, 2001;
	and
|
| |  | $452.9 million, of which $380.0 million
	were non-cash charges, in the year ended December 31, 2000.     

We expect that our restructuring and integration
efforts will be completed during 2002.

For additional information regarding our
restructuring and integration efforts, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Restructuring
and Integration Initiatives on page 41 and
note 5 to the consolidated financial statements in this
Annual Report.

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Our Products and Services

There are many types of transactions, information
exchanges and other communications that occur between the
various participants in the healthcare industry, including
physicians, patients, pharmacies, dentists, hospitals, billing
services, commercial health insurance companies, pharmacy
benefit management companies, managed care organizations, state
and federal government agencies and others. We offer a
comprehensive suite of transaction and information services and
technology solutions to healthcare industry participants. These
integrated and stand-alone products and services are designed to
facilitate transactions, information exchange and communication
among healthcare industry participants and to operate on various
platforms, including the Internet, private intranets and other
networks.

Transaction
Services or WebMD Envoy

Our Systems.WebMD
Envoy provides an electronic link between multiple third party
healthcare payers and healthcare providers in the medical,
pharmacy and dental markets. WebMD Envoy includes certain
transaction operations of Envoy, Healtheon, Kinetra, MedE
America, ActaMed, WebMD, Inc. and CareInsite. The customers for
our transaction services consist of healthcare providers, such
as physicians, pharmacies, dentists and hospitals, and
healthcare payers, including Medicare and Medicaid agencies,
Blue Cross and Blue Shield organizations, pharmacy benefit
management companies, commercial health insurance companies and
managed care organizations. We provide those customers the
administrative and clinical connectivity and transaction
services described below through an integrated electronic
transaction processing system, which includes proprietary
software, host computer hardware, network management, switching
services and interfaces. We refer to these services as
electronic data interchange or EDI. Healthcare payers and
providers pay fees to us for these services, generally on a per
transaction basis or, in the case of some providers, as a flat
rate per month. Transaction fees vary according to the type of
transaction and other factors, such as volume level commitments.
We may also charge one-time implementation fees to providers and
payers.

Connectivity.Providers access our transaction services both directly and
through their affiliations with integrated delivery networks,
clinics and physician practice and hospital information
management companies. Providers initiate transactions using our
proprietary applications, their practice management systems or
other computer systems or networks. Providers submit
transactions to our clearinghouse by modem connections using
regular telephone lines, using dedicated high speed
telecommunications services and over the Internet. At our
clearinghouse, the transaction is edited for accuracy, validated
for format and completeness, then translated in accordance with
the payers specifications and sent to the payers
claims adjudication and/or real-time database systems.

Our clearinghouse maintains direct connections
with many healthcare payers, including Medicare contractors and
Medicaid agencies, Blue Cross and Blue Shield organizations,
commercial health insurance companies, pharmacy benefit
management companies and managed care organizations. These
direct connections typically consist of dedicated networks
between the payer and our clearinghouse. Most transactions are
currently transmitted to the payers using our proprietary
software, data format specifications and dedicated telephone
lines, with some transmitted securely over the Internet. We have
developed innovative programs that work with payers, providers
and practice management system vendors to try to increase the
percentage of healthcare transactions that are transmitted
electronically and the value of such transactions to our
customers. Other clearinghouses also use our services to
transmit transactions to payers that they have received from
providers. We make payments, based on volume, to some of these
clearinghouses as an inducement to use WebMD Envoy to complete
the transactions submitted through their systems.

Medical, Dental and Pharmacy Administrative
Services.Our administrative services
provide the connectivity and transaction processing services
needed for providers and payers in the healthcare industry to
automate key business functions and communicate with each other.
Our administrative services include claims submission and status
inquiry, eligibility and patient benefit coverage verification,
referrals and authorizations, claims data capture and editing,
electronic remittance advice and patient billing services.

6



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Our administrative services reduce paperwork and
the need for communication by mail, telephone and fax, resulting
in cost savings for payers and providers. These services also
expedite the reimbursement process, which can result in a lower
average number of outstanding accounts receivable days for
providers. A further benefit to payers is that they are able to
more easily detect fraud and screen for unusual utilization
trends. In addition, the availability of online encounter and
referral information provides more efficient medical cost
management for managed care organizations and networked
providers.


Providers can use our services to verify patient
enrollment and eligibility and to obtain authorization from
payers, at the point of care, for services and referrals to
other providers. Providers can submit real-time or batch claims
to us for processing and reimbursement by payers and inquire as
to the status of claims previously submitted. Most claims are
submitted to us as batch claims, which are collected by
providers throughout the day and submitted to us in bulk. We
then sort, format and edit the claims to meet a particular
payers requirements before transmission to the payer.
Providers can receive an electronic remittance advice which
provides payer payment information and an explanation of the
settlement of a related claim. We also offer automated patient
billing services to providers that include electronic data
transmission and formatting, statement printing and mailing
services.

A typical pharmacy benefit transaction takes
place in a real-time setting using a pharmacy management system
or other claim submission product. The claim is submitted to
WebMD Envoy in a standard format and includes all required
information about the prescription. The claim is then routed to
the appropriate adjudicating processor where the claim is
processed within seconds. Response information includes patient
coverage, formulary compliance (specific drug coverage),
potential drug interactions, patients co-payment due and
anticipated reimbursement amount due to the pharmacy from the
payer. Final dollar amounts due to the pharmacy are typically
paid by the payer 15-30 days after claim submission.

Value-Added
Services.We have initiated steps to
enhance the quantity, quality and value to payers and providers
of our administrative transactions.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are working with our practice management
	system vendor partners to integrate real-time transactions into
	their provider software systems. Medical Manager is
	incorporating our full suite of real-time services into their
	software, making these transactions available to the provider in
	their normal office workflow. These real-time services reduce
	administrative cost for payers and providers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | We also offer payers the opportunity to work with
	us in targeted programs to educate physicians to send more
	electronic claims. When a payer agrees to participate in such a
	program, WebMD utilizes information supplied by the payer to
	target providers that may not be sending claims electronically.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Our all-payer suite of services
	includes the capture, validation and routing of claims
	transactions on behalf of not just commercial payers, but also
	Blue Cross Blue Shield payers, Medicare and Medicaid.
	Additionally, our all-payer services include the return of an
	electronic remittance transaction, which is the equivalent of a
	paper explanation of benefits, from all the payers
	back to the originating provider. The goal is to provide a
	single source EDI reimbursement cycle management solution for
	providers and practice management system vendors. A single EDI
	solution reduces administrative burdens on the provider office
	in sending claims transactions and receiving electronic
	remittance advice transactions and, more importantly, allows us
	to provide a single report back to the provider office regarding
	those transactions. That, in turn, allows the provider office to
	determine more easily whether it has been paid on a particular
	claim and how much. Provider offices without such a solution
	typically receive five or more different reports that they then
	have to reconcile in order to manage their accounts receivable.
	We are expanding our connectivity to support a broader set of
	transaction services to non-commercial payers in key markets as
	well as improving the functional capability of our claims and
	accounts receivable management solutions in order to improve the
	quality and value of our services to both payers and providers.
	We have initiated a phased roll-out plan of our
	all-payer services in 15 target states, both
	directly to

7



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| |  |                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------
| |  | healthcare providers and through our practice
	management system partners. We plan a broader rollout later in
	2002.

Lab Ordering and Reporting
Services.We provide clinical lab
ordering and reporting services through dedicated terminals and
teleprinters and through WebMD Clinician, our Internet-based
product. These products support the ordering of clinical tests
and the reporting of test results between healthcare providers
and labs. WebMD Clinician reduces costs and improves the quality
of patient care by improving order entry accuracy and expediting
the delivery of lab results, while enhancing the ability to
share those results with multiple physicians.

Relationships with Practice Management System
Vendors.We work with numerous
practice management system vendors and other physician service
providers to provide integrated transaction processing between
their systems and our clearinghouse. Most practice management
systems support, and can be integrated with, WebMD Envoy
transaction services. Practice management system vendors are in
a position to market EDI transactions to healthcare providers
that use their systems, but require a clearinghouse through
which they can connect to payers in order to complete the
processing of the transactions. Many practice management system
vendors, including WebMD Medical Manager, market a private label
brand of our transaction services that they have integrated with
their systems. We pay a sales commission, based on volume, to
some of these vendors as an inducement to use WebMD Envoy as the
clearinghouse for the transactions made through their systems.
We have long-standing relationships with many vendors of
physician practice management systems, including Misys
Healthcare Systems, IDX Systems Corporation and Vitalworks Inc.
on a national level, as well as over 500 regional and local
vendors. We work together with these vendors to increase the
percentage of healthcare transactions that are handled
electronically.

HIPAA.We believe
that we are an industry leader in regulatory compliance
practices and that we are well-positioned to assist payers,
providers and other healthcare participants with the
implementation of their own regulatory compliance practices,
including their need to meet the requirements of regulations
issued under the Healthcare Insurance Portability and
Accountability Act of 1996, or HIPAA. We will market HIPAA-ready
provider transaction methods, as well as offer our payer
customers and other healthcare participants support in their own
compliance efforts. In addition, healthcare payers and providers
who are unable to exchange data in the required standard formats
can achieve HIPAA transaction standards compliance by
contracting with a clearinghouse, like WebMD Envoy, to translate
between standard and non-standard formats. We are continuing to
develop our HIPAA-ready solutions and our business strategy for
marketing those solutions and services. Changes in compliance
deadlines or in other aspects of the HIPAA regulations may cause
us to make changes to our strategy or require us to develop
different solutions. For additional information regarding HIPAA,
see Business  Government Regulation
beginning on page 20.

WebMD Office.Through our WebMD Office
Internet-based service, accessible through WebMD.com, physician
office staff, hospital emergency room, admitting and business
office staff, as well as lab and billing services can access our
Internet-based transaction services. WebMD Office automates key
business office functions and processes multiple transactions
with healthcare payers. The service can be accessed through
either a standard dial-up or high speed DSL or cable modem.
WebMD Office can be used as a stand-alone system or as a
complement to a practice management system through an import and
data management function that allows transactions to be
generated from the practice management system and submitted
through WebMD Office.

Long-Term Goals.Our
long-term goals include achieving bi-directional, real-time
information flows between healthcare providers and payers that
are fully integrated into the workflow of the provider. We
intend to try to generate additional revenue by communicating
clinical messages at the point-of-care in accordance with
patient-and plan-specific guidelines, including messaging
regarding formulary compliance and disease management programs.
However, our ability to achieve these goals is limited by, among
other things, the current state of the communications
infrastructure in most physician offices. In the future, as
persistent broadband connections become more widespread, we
believe that our ability to deliver

8



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coordinated and integrated healthcare information
technology products and services will provide us with a strong
foundation for succeeding in these goals.




| |                                             
| | --------------------------------------------
| | Physician Services or WebMD Medical
	Manager

Overview.We provide
comprehensive physician practice management information systems
to physician organizations and other providers of healthcare
services in the United States. We develop, market and support
The Medical Manager® practice management system, which
addresses the financial, administrative, clinical and practice
management needs of physician practices. The system has been
implemented in a wide variety of practice settings from small
physician groups to large clinics. These proprietary systems
enable physicians and their administrative staffs to efficiently
manage their practices while delivering quality patient care in
a dynamic healthcare environment.

The Medical Manager software is an integrated
practice management system encompassing patient care, clinical,
financial and management applications. Due to its scalable
design, The Medical Manager software is a cost-effective
solution in a stand-alone or enterprise-wide environment. The
Medical Manager system is designed to operate on a wide range of
hardware platforms used by small, medium and large sized
practices. Its modular, fully integrated product portfolio
allows clients to add incremental capabilities to existing
information systems while minimizing the need for capital
investments. We also offer The Medical Manager system in
customized formats to meet the functionality needs of
radiologists, public health and community health markets and
family planning clinics.

We are preparing for the release of
Version 10 of The Medical Manager software, which includes
new features that, among other things, provide enhanced
reporting and billing capabilities. We anticipate that we will
be commercially releasing Version 10 at the end of the
second quarter of 2002.

We also seek to develop additional products and
services to continue to meet the changing demands of providers,
including:



| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ULTIA, our wireless handheld solution, is
	approaching full release throughout the United States. Providers
	are able to use ULTIA at the point-of-care to access data within
	The Medical Manager system and enter new information, as
	described more fully below on page 12.
|
| |  | Intergy, our new practice management system
	product, is described below on page 12. Intergy has been
	designed to provide a user-friendly interface with data storage
	capacity that will accommodate the largest of our installations.                                       

Healthcare providers pay us one-time fees for the
purchase of The Medical Manager practice management systems or
of additional system modules and also pay us recurring fees for
maintenance and support of their practice management systems,
including the hardware and software. We license ULTIA to
physician practices on a per provider per month subscription
basis.

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The Medical Manager.The Medical Manager system provides physician practices with a
broad range of patient care and practice management features,
including:



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Core Application.The Medical Manager Core Application includes base financial,
	clinical and practice management functions.

|                             |  |                                                                                                                                                                                                                                                                                                  
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                      |  | Description                                                                                                                                                                                                                                                                                      
|                             |  |                                                                                                                                                                                                                                                                                                  
|The Medical Manager software |  |  Provides accounts receivable,
	insurance billing, basic appointment scheduling and recalls,
	clinical history, financial history, referral of physician
	information, encounter form tracking, e-mail, office notes,
	advanced notice generator, hospital rounds and over 150 standard
	reports
|MMClient®                    |  |  A Graphical User Interface/
	Windows®-based Ultra-Thin Client user interface to The
	Medical Manager software connecting to either a Windows 2000/
	NT® or a UNIX server                                                                                                                       



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Office Management.The Medical Manager Office Management application automates the
	essential administrative tasks of a physician practice.

|                             |  |                                                                                                                                                                                                                                                                           
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                      |  | Description                                                                                                                                                                                                                                                               
|                             |  |                                                                                                                                                                                                                                                                           
|Automated Collections        |  |  Maintains notes, promise to pay
	dates, budget payments, next action to be taken indicators and
	prints collection letters                                                                                                                                              
|                             |  |  Automates tickler system
	to alert the user when an account needs attention                                                                                                                                                                                           
|Chart and X-Ray Locator      |  |  Tracks the location of a
	patients medical and X-ray charts                                                                                                                                                                                                            
|Advanced Billing             |  |  Handles sophisticated billing needs                                                                                                                                                                                                                                     
|Custom Report Writer         |  |  Provides access to all data elements
	of The Medical Manager software                                                                                                                                                                                                   
|                             |  |  Allows for the creation of
	user-defined custom reports                                                                                                                                                                                                                 
|Multiple Resource Scheduling |  |  Includes multi-resource display,
	search and posting of scheduled appointments; coordinates the
	utilization of exam rooms and equipment and schedules of teams
	of physicians, nurses, therapists and others whose services are
	needed within a specific time sequence
|Patient Flow Tracking        |  |  Allows patient encounters to be
	tracked from the time the patient makes the appointment, through
	encounters in the waiting room, examination rooms, labs and
	other areas                                                                                             
|Case Management System       |  |  Tracks all clinical events related to
	a specific case                                                                                                                                                                                                                  
|Laser Form Generator         |  |  Encounter forms, prescriptions,
	insurance forms, patient bills and statements, referrals,
	letterheads and other forms can be printed                                                                                                                                  

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| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managed Care
	Applications.The Medical Manager
	Managed Care Applications allow physicians to contain costs and
	deliver a higher quality of care in capitated environments.

|                    |  |                                                                                                                                                                                                                                                                                                
|------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product             |  | Description                                                                                                                                                                                                                                                                                    
|                    |  |                                                                                                                                                                                                                                                                                                
|Managed Care        |  |  In addition to the managed care
	features offered in the base system, supports the full functions
	required to track incoming as well as outgoing referrals to
	facilities and specialists                                                                                                   
|Claims Adjudication |  |  Fully integrated with the Managed
	Care module, provides full risk management capabilities,
	including the processing of received claims, comparing the claim
	against authorized services to determine amounts due, generating
	checks for payments and producing an Explanation of Benefits



| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Imaging
	Applications.The Medical Manager
	Document and Image Management suite of products provides
	practices with the ability to move toward a paperless office.

|                                                                   |  |                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                                                            |  | Description                                                                                                                                                                                                                                                                                  
|                                                                   |  |                                                                                                                                                                                                                                                                                              
|Document and Image Management System with Digital
	Office Manager® |  |  Allows a practice to scan, store,
	catalog and retrieve documents and images in an electronic form
	while maintaining their original format. The scanned
	documentation becomes part of the patients medical record
	and can be accessed from multiple workstations simultaneously.       
|DIM DXTM                                                           |  |  The diagnostic version of the
	Document and Image Management System, allows a practice to
	organize and store X-rays and other diagnostic images, as well
	as forms and documents, as images and to instantly retrieve
	these images to the screen as part of the patients medical
	record



| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Clinical Applications.The Medical Manager Clinical
	Applications provide fully-integrated components of a
	patients medical record that contain the functionality and
	knowledge bases required in todays practices.

|                        |  |                                                                                                                                                                                                                                                           
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                 |  | Description                                                                                                                                                                                                                                               
|                        |  |                                                                                                                                                                                                                                                           
|Quality Care Guidelines |  |  Automates the process of tracking
	both the curative and preventive services the practice has
	specified that it wishes to perform                                                                                                                      
|OmniChart®              |  |  Enables the practice to create and
	maintain a patients medical record using the laboratory
	interface module, prescription writer, view patient chart,
	clinical task manager and the transcription management system,
	and the phone messaging system
|OmniDoc                |  |  Automates the documentation of a
	patient encounter at the point of care by allowing a provider to
	easily generate progress notes using a medical knowledge base,
	eliminating the need for dictation and transcription                                

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We believe that the HIPAA privacy standards rule
will drive increased adoption of electronic imaging applications
and clinical applications because such solutions can make it
easier for providers to fulfill their obligations under the
rule, including with respect to managing and documenting usage
restrictions, as well as with respect to providing patients with
access to and the ability to amend their records. We believe
that, as a result of the need to be HIPAA-compliant, existing
users of The Medical Manager software will become more likely to
add our integrated imaging and clinical solutions to their
current configuration of The Medical Manager practice management
system. For additional information regarding HIPAA, see
Business  Governmental Regulation 
Health Insurance Portability and Accountability Act of
1996 on page 20.

ULTIA Handheld
Solution.ULTIA, our wireless
point-of-care solution, is approaching full release throughout
the United States. This product combines the power of The
Medical Manager softwares proven clinical and
administrative systems with the convenience of mobile handheld
connectivity using a palm size handheld device, such as a
Compaq® iPaq®. From anywhere in the office, healthcare
providers can use this wireless local area network, or LAN,
device to access information stored within, or to enter data
into, The Medical Manager system, giving them instant access at
the point-of-care to:



| |   |                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | appointment schedules, hospital rounds
	information and clinical tasks needing the providers
	attention;                                                                                                                                                                                                                                          
|
| |  | a user-friendly electronic prescription writer,
	with integrated drug utilization review, or DUR, and formulary
	checking, which electronically submits prescriptions to the
	patients chosen pharmacy and, at the same time, adds
	prescription information directly to the patients
	electronic medical record in The Medical Manager software;
|
| |  | electronic lab ordering and reporting of results
	that can be viewed using ULTIA, available through The Medical
	Manager system in the providers office;                                                                                                                                                                                          
|
| |  | their patients electronic medical records,
	including demographic data, progress notes, medications, lab
	results, procedure histories and other information and
	transcribed patient documentation;                                                                                                                                              
|
| |  | a fully customized, online encounter form for
	capturing patient charges, which displays procedure and
	diagnosis codes in customized checklists and automatically posts
	charge information to The Medical Manager system; and                                                                                                                    
|
| |  | the customized professional portal content of The
	Medical Manager Integrated WebMD Portal, as described below.                                                                                                                                                                                                                                    

In addition, ULTIA provides a range of offsite
functionality and can easily be used at hospitals and other
remote locations. Using the wireless LAN connection, up to ten
days of hospital rounds and patient data can be downloaded to
the handheld device. This information is then accessible to the
provider when he or she is working at a remote location. The
provider can enter new data and capture patient charges, all of
which is then uploaded to The Medical Manager system when the
provider returns to the office.

Physicians can also use ULTIA to digitally record
dictation and then send the voice file electronically for
transcription, reducing the number of devices the physician has
to carry and reducing turn-around time.

Intergy.
Intergy is WebMD Medical Managers newest product offering
for the physician practice/clinical management market. Designed
from the ground up, Intergy combines a graphical user interface,
or GUI, and a relational database environment with integrated
clinical and financial subsystems. Intergy has been designed to
provide a user-friendly interface with data storage capacity
that will accommodate the largest of our installations. This
product will incorporate the functionality of The Medical
Manager software, including imaging, OmniChart, OmniDoc and the
ULTIA handheld solution.

The Intergy product is currently in controlled
release for smaller practices and will begin limited rollout for
larger practices in the second half of 2002. We believe that,
when Intergy moves into full release, it will comprise the
majority of our new sales of practice management systems.
However, we intend to continue to develop and support The
Medical Manager system following the release of Intergy.

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Medical Manager Integrated WebMD
Portal.The Medical Manager Integrated
WebMD Portal allows physicians whose offices use The Medical
Manager practice management system to remotely access, via the
Internet through our professional portal, information contained
in their offices practice management system, including
daily schedules and patient records and customized professional
portal content. This remote access feature enables physicians to
view, in a secure manner, information residing on their
office-based computer system from any personal computer or other
device with a connection to the Internet. Other important
features include the ability to send and receive secure email
messages, the ability to connect with patients via a customized
practice Web site, online CME management, and comprehensive
healthcare related content designed for healthcare providers. We
plan to build on our successful deployment of the Integrated
WebMD Portal by adding functionality and improving usability.
Planned enhancements to the system include additional
capabilities to perform interactive functions such as writing
prescriptions and signing off on lab results and transcription.

Electronic
Connectivity.The Medical Manager
software supports, and can be integrated with, our WebMD Envoy
transaction services, as well as similar services from other
connectivity providers, through Medical Manager Network
Services. We market transaction services to customers of The
Medical Manager software under the Medical Manager Network
Services brand, including electronic claims, claims status,
automated eligibility verification, electronic referral
authorization/status, patient statements, remittances, patient
payment processing, automated eligibility verification and
related services. Healthcare providers pay us fees for these
transactions services, generally on a monthly subscription basis
or a per transaction basis.

Using The Medical Manager system with Medical
Manager Network Services, providers have access to EDI
functionality that is integrated into their practice workflow.
Integrated EDI allows providers and their staff to send and
receive EDI transactions from within The Medical Manager
software. Using The Medical Manager system, providers can
generate reports regarding electronically submitted claims that
have been accepted or rejected.

We believe that the HIPAA transaction standards
rule will result in increased use of electronic submissions of
claims and additional types of transactions and will provide us
the opportunity to increase usage of Medical Manager Network
Services. We intend that Medical Manager Network Service EDI
transactions will be HIPAA-ready ahead of applicable deadlines.
For additional information regarding HIPAA, see
Business  Governmental Regulation 
Health Insurance Portability and Accountability Act of
1996 on page 20.

Other Practice Management
Systems.Through our acquisitions of
various businesses, we have also obtained ownership of other
practice management systems with smaller user bases. We
currently maintain these other systems and may provide periodic
updates to the users of these systems.



| |                                 
| | --------------------------------
| | Portal Services or WebMD
	Health

We offer a variety of online resources and
services for consumers and healthcare professionals. WebMD
Health includes the combined portal services businesses of
Healtheon, WebMD, Medscape, Medcast and OnHealth.



| |   |                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WebMD Health, our consumer portal, is located at
	www.my.webmd.com. WebMD Health helps people become better
	informed about healthcare choices and assists them in playing an
	active role in managing their own health.                                                                                                                                                                     
|
| |  | Medscape, our portal for physicians and allied
	health professionals, is located at www.medscape.com. At
	Medscape, physicians and other healthcare professionals can
	access continuing medical education services, medical journals,
	textbooks and databases, specialty-focused medical news and
	medical conference coverage, and opportunities to purchase other
	products and services.

Our editorial, design and production team
includes board-certified physicians, Masters and Ph.D. level
medical editors, award-winning journalists, medical illustrators
and community moderators. We have

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assembled scientific advisory boards consisting
of experts from different specialties, who advise us on our
content.


We believe that the user base of our portals
represents an attractive audience to a variety of advertisers
and sponsors who are interested in influencing healthcare
decisions. We are working with our advertisers and sponsors to
develop innovative online programs that provide demonstrable
results and complement their offline education, marketing and
customer service programs. These online programs are designed to
deliver on the promise of the Internet as an interactive medium,
as opposed to merely trying to create awareness of a particular
product or brand.

WebMD Health Consumer
Portal.Consumer interest in
convenient and reliable sources of general information on health
and wellness topics continues to grow. In addition, consumers
increasingly seek to educate themselves about available
treatment options for specific health conditions or injuries. We
believe that these trends are likely to continue, as consumers
are asked to bear an increasingly large portion of their
healthcare expenditures as a result of changes in the design of
the medical plans and prescription drug plans being offered by
payers. Traditional media have sought to meet this demand by
introducing magazines focused on health and wellness and by
increasing news coverage of healthcare-related issues. The
Internet allows us to offer consumers the resources they are
looking for, with immediate access to searchable information and
dynamic interactive content.

WebMD Health provides access to health and
wellness news and information, support communities, interactive
tools and opportunities to purchase health-related products and
services. Consumers are also welcome to access content at our
Medscape professional portal. We recently began the integration
of Medscape Healths content and tools into WebMD Health.
The content and service offerings on WebMD Health include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Original and Licensed
	Content.We offer proprietary,
	medically reviewed health and wellness news articles written
	daily by our staff of journalists. We also offer searchable
	access to a library of health and wellness articles, reference
	information and interactive presentations, some of which we own
	and some of which we have licensed from others. Our articles and
	other content cover various health-related topics, including:
	specific diseases and chronic health conditions, medical tests,
	pregnancy and parenting, diet and nutrition, fitness and sports
	medicine, and sexuality and relationships.
|
| |  | Sponsored Content.We also provide consumers with access to content sponsored by
	other companies, including pharmaceutical manufacturers, medical
	device companies, health plans and healthcare consumer products
	and services companies. This content is identified as sponsored
	so our users will not confuse it with our other content.                                                                                                                                                                                                                                                                                  



| |   |                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sponsors choose our portals as a means of
	distributing educational materials and promotional programs
	because our user base represents a large audience of
	health-involved consumers.                               
|
| |  | We also attract sponsors by demonstrating that
	the types of interactions available through the Internet provide
	a useful complement to their existing offline promotional,
	educational and customer service efforts.



| |   |                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Membership.Consumers can choose to become members of WebMD Health, which
	allows them to create a personalized home page, tailored to
	their interests. Members can also select from more than 20
	different e-mail newsletters on health-related topics or
	specific conditions and have access to our communities and
	events, as described below.
|
| |  | Communities.Our
	communities allow our members to participate in real-time
	discussions in our chat rooms and on our message boards. Members
	share experiences and exchange information with other members
	who share their health condition or concern.                                                                                           
|
| |  | Events.Our events
	include one-time programs and series in which experts make
	presentations and answer questions on specific health-related
	topics. Members can also use our Ask the Experts                                                                                                                                                    

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | service to post their health questions for
	experts. Our events also include WebMD University programs,
	which are four week courses, live moderated by experts, on
	specific subjects. WebMD University programs have included: 4
	Weeks to an Easier Pregnancy, 4 Weeks to a Healthier Heartand 4 Weeks to Breathe Free.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Interactive Personal Health Management Tools
	and Other Features.We provide access
	to interactive calculators, quizzes and slide shows to assess or
	demonstrate health topics, including an immunization planner,
	health risk appraisal, diet and fitness journal, body mass
	index, calorie counter and target heart rate calculator. WebMD
	Health also has features that allow consumers to search for a
	physician or clinic in their area or for a clinical trial
	program. We also offer MyHealthRecord, which allows members to
	establish and maintain a private record of their familys
	health in a single, secure place and to print out health reports
	and medical emergency information cards for their family.

Medscape Professional
Portal.Medscape is designed to meet
the needs of medical professionals in a personalized and
easy-to-use manner. We organize our professional information by
medical specialty area, such as oncology and cardiology, to make
it easier for our members to access the information most
relevant to them. Our extensive and up-to-date medical content
and easy-to-use search capabilities assist medical professionals
in keeping abreast of medical advances and obtaining fast,
accurate answers to medical questions online. In addition,
physicians and their office staffs can access tools for creating
customized practice Web sites and opportunities to purchase
other products and services. There are no membership fees and no
general usage charges for the site; however, we do charge usage
or subscription fees for some premium content and services.

Our Medscape content and service offerings are
generally offered by specialty and include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Medical News.We
	provide original, daily medical news stories written by our
	staff of journalists and reviewed by our staff of physicians. We
	also provide daily synopses of medical stories in mass media,
	including items from major newspapers and national television
	networks, together with links back to the original source and to
	further information on Medscape or WebMD Health.
|
| |  | Medical Library.We
	supplement our extensive original content with one of the
	Webs largest collections of peer-reviewed, full-text
	medical articles. We also provide monthly summaries of articles
	published in major peer-reviewed journals  a
	time-saving resource for physicians. Our medical reference
	applications include:                                                         



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | a custom drug information database                                                                                                     
|
| |  | a medical dictionary                                                                                                                   
|
| |  | an easy-to-use interface to MEDLINE, a database
	of abstracts of medical journals                                                      
|
| |  | proprietary medical illustrations that can be
	used by physicians as an important visual aid in communicating
	information to patients.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continuing Medical
	Education.Over 30 states and many
	medical societies require physicians and selected other medical
	professionals to certify annually that they have accumulated a
	minimum number of CME hours to maintain licensure or membership.
	We offer a selection of free, regularly updated CME activities
	for physicians, registered nurses, pharmacists and other
	healthcare professionals, including original programs and online
	multimedia adaptations of live events. We also provide services
	that track CME credits accumulated through our site for our
	users.



| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The majority of our CME activities have been
	planned and implemented in accordance with the Essential Areas
	and Policies of the Accreditation Council for Continuing Medical
	Education, or ACCME, which oversee providers of CME credit, and
	have been produced in collaboration with ACCME-accredited CME
	providers.
|
| |  | Medscape awarded over 200,000 CME credit hours
	last year (an increase of approximately 100% over the prior
	year) to physicians and other health professionals                                                                                                                                                           

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| |  |                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | registered on Medscape. We believe that we are
	one of the leading providers of online continuing medical
	education programs for healthcare professionals.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Medical Conference
	Coverage.We provide summaries of key
	data and presentations from major medical meetings. This
	benefits our members who were unable to attend, as well as the
	sponsors of the conferences by increasing the size of the
	audience.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Newsletters.Members
	receive MedPulse®, our weekly e-mail newsletter, which is
	published in over 25 specialty-specific editions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Tools for Creating Customized Web
	Sites.We offer our members registered
	as physicians the opportunity to create home pages for their
	medical practices that can be accessed by their patients and the
	general public. In addition to details about their practice,
	including office address, phone number, medical specialty, types
	of insurance accepted, hospital affiliations and languages
	spoken, our physician Web sites permit a physician to offer
	links to health information from Medscape and WebMD Health.                                                                                                                                
|
| |  | Ask-the-Expert.Our
	Ask-the-Expert feature provides physician members with access to
	leading experts to advise them on best practices in patient
	care. Cases and questions are discussed by a panel of experts
	and the responses are available to the entire community of
	physician members. The accumulated questions and answers form a
	unique searchable repository of clinical advice and information.
	This feature reflects our broader strategy of creating a
	community of physicians that can share information with each
	other and with experts in order to improve the dissemination of
	medical information and the quality of patient care.
|
| |  | Remote Access
	Capabilities.We provide remote access
	capabilities that allow physicians whose offices use The Medical
	Manager practice management system to remotely access, via the
	Internet, information contained in their offices practice
	management system through our professional portal. See
	Business  Physician Services or WebMD Medical
	Manager  Medical Manager Integrated WebMD
	Portal on page 13. We intend to offer this capability
	for other practice management systems in the future.                                                                                                                                         
|
| |  | Non-Medical Content.We provide an array of non-medical content on subjects of
	interest to medical professionals, including personal finance
	features and practice management features. Members can also
	learn about the developments in managed care in a special
	Managed Care topic area.                                                                                                                                                                                                                                                                                                                                                                

To utilize all of Medscapes features, users
must register as members. This enables us to deliver targeted
medical content based on our members registration
profiles. The registration process enables professional members
to choose a home page tailored to their medical specialty or
interest. For example, a member registered as a cardiologist is
automatically directed to Medscape Cardiology, rather than a
more generic home page. Every member, however, regardless of
medical specialty or professional status, has access to the full
suite of original and licensed content through a uniform,
easy-to-use interface.

Medical Reference
Services.These services include the
medical textbooks WebMD Scientific American Medicineand
ACS Surgery: Principles and Practice. Our editors and
authors for these texts are internationally recognized experts
and both texts are considered standards in their fields, with
WebMD Scientific American Medicine celebrating its 25th
anniversary this year. WebMD Scientific American Medicine was
the first continuously updated medical reference, the first
CD-ROM textbook and the first online textbook. ACS Surgery is
the only reference work sponsored by the American College of
Surgeons and the only comprehensive online surgical reference.

International.WebMD
Health operates principally in the United States. However, we
also provide content to a small network of partners in Europe,
Asia and the Americas. The content is marketed on a co-branded
basis using our Medscape brand and the local partners
brand. Our international operations are structured so that our
partners are responsible for translation, marketing and sales to
local advertisers and sponsors, while we contribute content. In
return, we receive a share of the revenues generated by these

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operations. This structure allows us to increase
the scope of our distribution, while limiting the cost of doing
so. We believe that an international network of these
partnerships, when more fully developed, will provide us with a
strategic advantage in marketing programs to advertisers and
sponsors who distribute their products internationally,
including pharmaceutical companies and medical device
manufacturers.


We intend to continue to try to expand our
international operations and to continue to use licensing and
partnership transactions in order to try to limit the
incremental costs to us of such expansion. While the focus of
our international operations has been on providing content for
physicians and allied healthcare professionals, we expect our
consumer licensing outside of the United States to grow in
importance.

Revenue
Opportunities.Our portals generate
revenues from multiple sources, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Advertising.We sell
	advertising on our portals and on the online and offline
	properties of our strategic partners. Advertisers on our portals
	can target very specific demographic groups, condition-specific
	groups or specialty-specific groups, measure the effectiveness
	of advertising campaigns and quickly revise them in response to
	the prompt feedback allowed by the Internet.                                                                                                                    
|
| |  | Sponsorships.Companies can sponsor specific pages or sections of our portals
	and specific events, programs and newsletters, all of which are
	clearly labeled as sourced from or sponsored by the specific
	sponsor. General sponsorships are sold for a longer term than
	online advertising placements and may be sold based on duration,
	portion of our Web sites sponsored, number of impressions
	delivered and other factors.                                                                              
|
| |  | Value-Based
	Programs.We also sell value-based
	programs to sponsors and advertisers, including market research,
	integrated sampling and coupons, personalized newsletters,
	health management tools and continuing medical education. In
	these programs, our compensation may be based on numbers of
	specified actions taken by users, including program enrollments,
	e-mail subscriptions, completion of surveys, printing of lists
	of questions to ask a doctor and responses to trial incentive
	programs.
|
| |  | Content Syndication and
	Distribution.We distribute our
	content and services to leading general consumer Internet
	portals and media distribution partners, including MSN, AOL and
	News Corporation. We also provide our content and services to
	health plans and other healthcare partners Web sites
	for use by their affiliated physicians and consumers.                                                                                                                                                  

We believe that our advertising, sponsorship and
syndication relationships with participants in the healthcare
industry also foster our ability to develop broader
relationships that can assist us in our efforts to develop,
deploy and increase utilization levels of our other products and
services.

Sales and Marketing

WebMD Envoy.WebMD Envoys primary sales and marketing strategy focuses
on promoting its transaction services to organizations that have
relationships with or access to a large number of providers,
such as practice management systems vendors, hospital
information systems vendors, practice management companies and
other clearinghouses. In certain cases, we agree to pay a sales
commission based on transaction volume to these organizations as
an inducement to use WebMD Envoy as the clearinghouse for the
transactions made through their systems or by providers with
which they have relationships.

We also market our transaction services directly
to healthcare payers, as well as to small and large physician
practices, dentists, hospitals and other healthcare providers.
In addition, WebMD Envoy works closely with national and
regional practice management system vendors to develop and
co-market integrated solutions to providers.

In the pharmacy transactions area, WebMD Envoy
has established relationships with large retail pharmacy chains
and pharmacy software vendors.

WebMD Envoys sales and marketing efforts
are conducted by approximately 335 sales, marketing and account
management personnel located throughout the United States.

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WebMD Medical
Manager.WebMD Medical Manager
markets and distributes physician practice management systems,
as well as ancillary products and services, nationally through a
direct sales organization consisting of over 300 sales and
marketing personnel, who are also supported by over 825 field
technicians and training and support personnel, and through our
network of independent dealers and resellers. This distribution
effort is responsible for sales to new clients, ranging in size
from sole practitioners to enterprise-wide clients, and
follow-up sales of upgrades, enhancements and additional
products and services to existing clients. Medical Manager
Network Services is marketed through our existing distribution
channels, supplemented by a dedicated team of Network Services
specialists located throughout the United States.

Since February 1997, we have acquired a
significant number of our independent dealers and resellers and
we expect to continue to make these acquisitions in the future.
We believe that the acquisition of independent dealers and
resellers enables us to establish direct relationships with end
users of our software products, thereby enhancing our ability to
sell additional products and services to these end users.

WebMD Health.WebMD Health has a direct sales organization of over 50 sales
and marketing personnel, many of whom have significant
experience in selling advertising and sponsorships to
pharmaceutical companies, health plans and other healthcare and
consumer companies and their advertising agencies. Our sales and
marketing personnel represent the combined portal assets of
WebMD Health to sponsors as the WebMD Medscape Health Network.

We seek to attract traffic and new members to
WebMD Health through a variety of methods, including online and
offline media campaigns. Online we work with a broad range of
third party sites to attract and register qualified members.
Offline we use television and other media available through our
relationship with News Corporation to drive traffic to the site.
The primary focus of our media campaigns has been member
registration. As a result, member registration grew
substantially in 2001.

We seek to attract traffic and new members to
Medscape through a variety of methods, including advertising on
other Internet sites and in medical journals, pharmaceutical and
other healthcare publications and other targeted publications.
We also promote Medscape at industry conferences, trade shows
and medical meetings and by using direct mail.

Development and Engineering

We have developed internally and acquired through
acquisitions our products and services. As of December 31,
2001, we employed approximately 500 people in development and
engineering. Our development and engineering expense totaled
$39.6 million in 2001, $58.8 million in 2000 and
$29.7 million in 1999.

The markets for some of our products and services
are characterized by rapid change and technological advances.
Our future success will depend, in part, upon our ability to
enhance our existing products and services, to respond
effectively to technological changes, and to introduce new and
newly integrated applications and technologies that address the
changing needs of our customers. Accordingly, we intend to
continue to make investments in development and engineering and
to recruit and hire experienced development personnel. However,
we cannot provide assurance that we will be able to successfully
complete the development of new products or services,
enhancements to existing products or services or the migration
of products and services to new platforms. Further, there can be
no assurance that products or technologies developed by others
will not adversely affect our competitive position or render our
products, services or technologies noncompetitive or obsolete.

Competition

The markets in which we operate are intensely
competitive, continually evolving and, in some cases, subject to
rapid technological change. We have many competitors, including:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | healthcare information system vendors and support
	providers, including physician practice management system
	vendors and support providers;

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| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | transaction processing companies, including those
	providing EDI and/or Internet-based services and those providing
	services through other means, such as paper and fax;                                                     
|
| |  | large information technology consulting service
	providers;                                                                                                                                                                   
|
| |  | online services, portals or Web sites targeted to
	the healthcare industry, healthcare consumers and/or physicians
	generally;                                                                                                
|
| |  | consortiums of health insurance companies and of
	pharmacy benefit management companies that have announced that
	they are developing electronic transaction services for use by
	their members and other potential customers;
|
| |  | publishers and distributors of traditional
	offline media, including those targeted to healthcare
	professionals, many of which have established or may establish
	their own Web sites or partner with other Web sites;       
|
| |  | general purpose consumer online services and
	portals and other high-traffic Web sites that provide access to
	healthcare-related content and services;                                                                       
|
| |  | public sector and non-profit Web sites that
	provide healthcare information without advertising or commercial
	sponsorships; and                                                                                              
|
| |  | vendors of healthcare information, products and
	services distributed through other means, including direct
	sales, mail and fax messaging.                                                                                   

We also compete, in some cases, with alliances
formed by the above competitors, including alliances that are
intended to allow the participants to pursue a strategy similar
to our strategy of integrating transaction processing
capabilities and portal services with physician practice
management systems. Major software, hardware and information
systems companies, both with and without healthcare companies as
their partners, offer or have announced their intention to offer
products or services that are competitive with some of our
solutions, including wireless handheld solutions that will
compete with ULTIA, our handheld solution.

In addition, there can be no assurance that
healthcare payers and providers will continue to use WebMD and
other independent companies to transmit healthcare transactions.
Some of our existing payer and provider customers and some of
our strategic partners may compete with us or plan to do so or
belong to alliances that compete with us or plan to do so. For
example, some payers currently offer electronic data
transmission services to healthcare providers that establish a
direct link between the provider and payer, bypassing third
party EDI service providers such as WebMD Envoy. Any significant
increase in the utilization of direct links between healthcare
providers and payers could have a material adverse effect on our
business and results of operations. We cannot provide assurance
that we will be able to maintain our existing links to payers or
develop new connections on satisfactory terms, if at all.

WebMD Health faces competition both in attracting
members and visitor traffic and in generating revenue from
advertisers, sponsors and others. We compete with numerous
companies and organizations for the attention of healthcare
professionals and consumers including traditional offline media
such as network and cable television, print journals,
conferences, continuing medical education programs and symposia.
We also face significant competition from online information
resources. There are thousands of healthcare-related Web sites
on the Internet. In addition, there are many companies that
provide non-Internet based marketing and advertising services to
the healthcare industry. These competitors include advertising
agencies, consulting firms, marketing and communications
companies and contract sales and marketing organizations. In
addition, to the extent that we are successful in increasing
revenue from our portals, competition for our portals audience
and the potential sources of revenue are likely to increase.

Many of our competitors have greater financial,
technical, product development, marketing and other resources
than we do. These organizations may be better known than we are
and have more customers than we do. We cannot provide assurance
that we will be able to compete successfully against these
organizations or any alliances they have formed or may form.

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Government Regulation

The healthcare industry is highly regulated and
is subject to changing political, regulatory and other
influences. These factors affect the purchasing practices and
operations of healthcare organizations as well as the behavior
and attitudes of consumers. Federal and state legislatures and
agencies periodically consider programs to reform or revise the
United States healthcare system. These programs may contain
proposals to increase governmental involvement in healthcare,
lower reimbursement rates or otherwise change the environment in
which healthcare industry participants operate. Healthcare
industry participants may respond by reducing their investments
or postponing investment decisions, including investments in our
products and services. We are unable to predict future proposals
with any certainty or to predict the effect they would have on
our businesses.

Existing laws and regulations also could create
liability, cause us to incur additional cost and restrict our
operations. Many healthcare laws are complex, applied broadly
and subject to interpretation by courts and other governmental
authorities. In addition, many existing healthcare laws and
regulations, when enacted, did not anticipate the methods of
healthcare e-commerce and other products and services that we
provide. However, these laws and regulations may nonetheless be
applied to our products and services. Our failure, or the
failure of our business partners, to accurately anticipate the
application of these healthcare laws and regulations, or other
failure to comply, could create liability for us, result in
adverse publicity and negatively affect our businesses.



| |                                                             
| | ------------------------------------------------------------
| | Health Insurance Portability and
	Accountability Act of 1996

General.Under the
Health Insurance Portability and Accountability Act of 1996, or
HIPAA, Congress mandated a package of interlocking
administrative simplification rules to establish standards and
requirements for the electronic transmission of certain health
information. As more fully described below, portions of these
rules apply to our operations and create both risks to and
opportunities for our businesses.

Five of these rules were published in proposed
form in 1998, with two of the five published in final form. The
two rules published in final form are Standards for Electronic
Transactions, published August 17, 2000, and Standards for
Privacy of Individually Identifiable Health Information,
published December 28, 2000. These rules took effect on
October 16, 2000 and April 14, 2001, respectively,
with compliance by healthcare providers, healthcare
clearinghouses and large health plans originally required two
years following the respective effective dates. Small health
plans are given an additional year to comply. On
December 27, 2001, President Bush signed into law H.R.
3323, the Administrative Simplification Compliance Act (now
known as Public Law 107-105). This law provides for a one-year
extension, to October 16, 2003, of the date for complying
with the HIPAA standard transactions and code set requirements
for any covered entity that submits to the Secretary of Health
and Human Services a plan of how the entity will come into
compliance with the requirements by the new deadline.

HIPAA Transaction
Standards.The HIPAA Standards for
Electronic Transactions rule is commonly referred to as the
transaction standards rule. This rule establishes format and
data content standards for eight of the most common healthcare
transactions, using technical standards promulgated by
recognized standards publishing organizations. These
transactions include healthcare claims, enrollment, payment and
eligibility. The intent of the rule was to promulgate new
standards, under which any party transmitting or receiving any
of these eight healthcare transactions electronically would send
and receive data in a single format, rather than the large
number of different data formats currently used. The transaction
standards are applicable to that portion of our business
involving the processing of healthcare transactions among
physicians, payers, patients and other healthcare industry
participants. The transaction standards also are applicable to
our customers and to our relationships with those customers.

We believe that the intent of the HIPAA
transaction standards rule represents sound business practice
and that the rule could lead to improvements in the efficiency
of healthcare administration. At WebMD, we have the continuing
goal of increasing uniformity, efficiency and speed of
electronic medical information interchange. HIPAA begins a new
era of cooperation among all generators and users of

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electronic medical information. We expect that
HIPAA will act as a catalyst to expand usage, by payers and
providers, of a broader group of medical EDI transactions.


In addition, we believe that we are
well-positioned to assist payers, providers and other healthcare
participants in their efforts to comply with the HIPAA
transaction standards and in their management of the period
during which they and others are migrating to compliance. See
Business  Transaction Services or WebMD
Envoy  HIPAA on page 8. However, the
effect of the HIPAA transaction standards rule on our business
is difficult to predict and there can be no assurances that we
will adequately address the business risks created by the HIPAA
transaction standards rule and its implementation or that we
will be able to take advantage of any resulting business
opportunities. In addition, we are unable to predict what
changes to the transaction standards rule will be made in the
future or how those changes could affect our business.

HIPAA Privacy Standards.The HIPAA Standards for Privacy of
Individually Identifiable Health Information rule is commonly
referred to as the privacy standards rule. This rule establishes
a set of basic national privacy standards and fair information
practices for the protection by health plans, healthcare
clearinghouses, healthcare providers and their business
associates of individually identifiable health information. This
rule became effective on April 14, 2001 and the compliance
date for most entities is April 14, 2003. On March 21,
2002, the United States Department of Health and Human Services
issued a notice of proposed rulemaking which makes several
critical modifications to the regulation. After a 30-day comment
period that is to begin on March 27, 2002, Secretary
Thompson plans to finalize the regulation, including possible
further modifications before the compliance date of
April 14, 2003. The privacy standards rule applies to the
portions of our business that process healthcare transactions
and provide technical services to other participants in the
healthcare industry. This rule provides for civil and criminal
liability for its breach and requires us, our customers and our
partners to use health information in a highly restricted
manner, to establish policies and procedures to safeguard the
information, to obtain individual authorizations for some
activities, and to provide certain access rights to individuals.
This rule may require us to incur significant costs to change
our products and services, may restrict the manner in which we
transmit and use the information, and may adversely affect our
ability to generate revenue from the provision of de-identified
information to third parties. The effect of the HIPAA privacy
standards rule on our business is difficult to predict and there
can be no assurances that we will adequately address the
business risks created by the privacy standards rule and its
implementation or that we will be able to take advantage of any
resulting business opportunities. In addition, we are unable to
predict what changes to the privacy standards rule will be made
in the future or how those changes could affect our business.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Other Restrictions Regarding
	Confidentiality and Privacy of Patient Information

Numerous state and federal laws other than HIPAA
govern the collection, dissemination, use, access to and
confidentiality of patient health information. Many states are
considering new laws and regulations that further protect the
confidentiality of medical records or medical information. These
state laws are not in most cases preempted by the HIPAA privacy
standard and may be subject to interpretation by various courts
and other governmental authorities, thus creating potentially
complex compliance issues for us and our customers and strategic
partners. Definitions in the various state and federal laws
concerning what constitutes individually identifiable data
sometimes differ and sometimes are not provided, creating
further complexity. In addition, determining whether data has
been sufficiently de-identified may require complex factual and
statistical analyses. The HIPAA privacy standards rule contains
a restrictive definition of de-identified information, which is
information that is not individually identifiable, that could
create a new standard of care for the industry. These other
privacy laws at a state or federal level, or new interpretations
of these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business. In
addition, parties may also have contractual rights that provide
additional limits on our collection, dissemination, use, access
to and confidentiality of patient health information. Claims of
privacy rights or contractual breaches, even if we are not found
liable, could be expensive and time-consuming to defend and
could result in adverse publicity that could harm our business.

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| |                                          
| | -----------------------------------------
| | Other Regulation of Transaction
	Services

Other state and federal statutes and regulations
governing transmission of healthcare information may affect our
operations. For example, Medicaid rules require some processing
services and eligibility verification to be maintained as
separate and distinct operations. We carefully review our
practices with regulatory experts in an effort to ensure that we
are in compliance with all applicable state and federal laws.
These laws, though, are complex and changing, and the courts and
other governmental authorities may take positions that are
inconsistent with our practices.



| |                              
| | -----------------------------
| | International Data Regulation

Other countries also have, or are developing,
their own laws governing the collection, use, storage and
dissemination of personal information or patient data. These
laws could create liability for our international operations,
impose additional operations requirements or restrictions on our
business, affect the manner in which we use or transmit data and
increase our cost of doing business.



| |                                
| | -------------------------------
| | Consumer Protection
	Regulation

The Federal Trade Commission, or FTC, and many
state attorneys general are applying federal and state consumer
protection laws to require that the online collection, use and
dissemination of data, and the presentation of Web site content,
comply with certain standards for notice, choice, security and
access. Courts may also adopt these developing standards. In
many cases, the specific limitations regarding these standards
are subject to interpretation by courts and other governmental
authorities. We believe that we are in compliance with these
consumer protection standards, but a determination by a state or
federal agency or court that any of our practices do not meet
these standards could result in liability and adversely affect
our business. New interpretations of these standards could also
require us to incur additional costs and restrict our business
operations.

In addition, several foreign governments have
regulations dealing with the collection and use of personal
information obtained from their citizens. Those governments may
attempt to apply such laws extra-territorially or through
treaties or other arrangements with U.S. governmental entities.
We might unintentionally violate such laws, such laws may be
modified and new laws may be enacted in the future. Any such
developments (or developments stemming from enactment or
modification of other laws) or the failure to accurately
anticipate the application or interpretation of these laws could
create liability to us, result in adverse publicity and
negatively affect our businesses.



| |                                        
| | ---------------------------------------
| | Regulation of Healthcare
	Relationships

There are federal and state laws that govern
patient referrals, physician financial relationships and
inducements to beneficiaries of federal healthcare programs. The
federal anti-kickback law prohibits any person or entity from
offering, paying, soliciting or receiving anything of value,
directly or indirectly, for the referral of patients covered by
Medicare, Medicaid and other federal healthcare programs or the
leasing, purchasing, ordering or arranging for or recommending
the lease, purchase or order of any item, good, facility or
service covered by these programs. The anti-kickback law is
broad and may apply to some of our activities or our
relationships with our customers, advertisers or strategic
partners. Penalties for violating the anti-kickback law include
imprisonment, fines and exclusion from participating, directly
or indirectly, in Medicare, Medicaid and other federal
healthcare programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. We
carefully review our practices with regulatory experts in an
effort to ensure that we comply with all applicable laws.
However, the laws in this area are both broad and vague and it
is often difficult or impossible to determine precisely how the
laws will be applied, particularly to new services similar to
ours. Any determination by a state or federal regulatory agency
that any of our practices violate any of these laws could
subject us to civil or criminal penalties and require us to
change or terminate some portions of our business.

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We currently provide billing services to
healthcare providers and, therefore, may be subject to state and
federal laws that govern the submission of claims for medical
expense reimbursement. These laws generally prohibit an
individual or entity from knowingly presenting or causing to be
presented a claim for payment from Medicare, Medicaid or other
third party payers that is false or fraudulent, or is for an
item or service that was not provided as claimed. These laws
also provide civil and criminal penalties for noncompliance, and
can be enforced by individuals through qui tam actions. We have
designed our current transaction services and will design any
future services to place the responsibility for compliance with
these laws on provider customers. However, we cannot guarantee
that state and federal agencies will regard billing errors
processed by us as inadvertent and not in violation of these
laws. In addition, changes in current healthcare financing and
reimbursement systems could cause us to make unplanned
modifications of products or services, or result in delays or
cancellations of orders or in the revocation of endorsement of
our products and services by healthcare participants.



| |                              
| | -----------------------------
| | Regulation of Medical Devices

The Food and Drug Administration, or the FDA, has
jurisdiction under the 1976 Medical Device Amendments to the
Federal Food, Drug and Cosmetic Act, or the FDA Act, to regulate
computer products and software as medical devices if they are
intended for use in the diagnosis, cure, mitigation, treatment
or prevention of disease in humans.

Our DIMDX System is considered by the
FDA to be a medical image management device regulated under the
FDA Act. Prior to marketing it, we were required to obtain
510(k) clearance from the FDA by submitting a
premarket notification demonstrating that the
DIMDX System is substantially equivalent in intended
use and in safety and effectiveness to a previously 510(k)
cleared device. The FDA granted 510(k) clearance to the
DIMDX System on August 25, 2000.

The DIMDX System is subject to
numerous postmarket regulatory requirements. These include: the
Quality System Regulation, which requires manufacturers to
follow design, testing, control, documentation and other quality
assurance procedures during the manufacturing process; labeling
regulations; the FDAs general prohibition against
promoting products for unapproved or off-label uses;
and the Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or
serious injury if it were to recur. We are subject to inspection
and marketing surveillance by the FDA to determine our
compliance with regulatory requirements. If the FDA finds that
we have failed to comply, it can institute a wide variety of
civil and criminal enforcement actions and sanctions.

Under the FDAs regulations, any
modification of the DIMDX System that could
significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, requires a new
510(k) clearance or approval of a premarket application, or PMA,
which requires proof of the safety and effectiveness of a device
to the FDAs satisfaction. The 510(k) clearance process
typically takes three to twelve months, although it can last
longer. The PMA approval process is even more time consuming,
costly, and uncertain. It typically takes one to two years or
longer.

We have made modifications to the
DIMDX System since clearance that we believe do not
require new 510(k) clearance. The FDA requires each manufacturer
to make the determination in the first instance as to whether
the modification requires a new 510(k) clearance or PMA
approval, but the FDA can review such decisions. If the FDA
disagrees with our decisions, it may retroactively require new
510(k) clearance or PMA approval. The FDA also can require us to
cease marketing and/or recall the modified device until 510(k)
clearance or PMA approval is obtained.

Although the FDA regulates many computer products
and software as medical devices, the FDA has a long-standing
draft software policy exempting such products from active
regulation if they are decision support systems intended to
involve competent human intervention before any impact on human
health occurs (in other words, where clinical judgment and
experience can be used to check, interpret and potentially
challenge a systems output). Except for the cleared
DIMDX System, we believe that, under the

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draft software policy, The Medical Manager
practice management system is exempt from active regulation and
does not, among other things, require a 510(k) clearance or PMA
approval.


We have created an interface between The Medical
Manager practice management system and the image device and are
marketing the interface and the image device as the
DIMDX System. We believe that the addition of our
practice management system to the image device does not require
a new 510(k) clearance or PMA approval.

The ULTIA product will access The Medical Manager
practice management system and make it available in a wireless
handheld format, including allowing access to the medical images
stored in the DIMDX System. We believe that the ULTIA
products display of the practice management system will
not be subject to active FDA regulation. Because any displayed
medical images would not be intended for diagnostic use, we
believe that ULTIAs ability to access such medical images
would not subject it to a 510(k) clearance requirement. We
cannot assure you, however, that the FDA would agree with either
of these conclusions. If the FDA does not agree, we may be
required to obtain 510(k) clearance or PMA approval for ULTIA.

The FDAs draft software policy has been
under review for several years, and there is a risk that The
Medical Manager software or other of our software or hardware
components could in the future become subject to some or all of
the medical device regulation requirements. In addition, the FDA
may take the position that other products and services we offer,
such as ULTIA, are subject to FDA regulation or we may expand
our services in the future to areas that subject us to FDA
regulation.

Except with respect to WebMD Medical Manager and
Porex, we have no experience in complying with FDA medical
device regulations. We believe that additional FDA regulations,
if applicable to us, may be time consuming, burdensome and
expensive to comply with and could delay our introduction of new
products or services.

FDA and FTC
Regulation of Advertising

The FDA and the FTC regulate the form, content
and dissemination of labeling, advertising and promotional
materials, including direct-to-consumer prescription drug and
medical device advertising, prepared by, or for, pharmaceutical
or medical device companies. The FTC regulates over-the-counter
drug advertising and, in some cases, medical device advertising,
as well as general product or service advertising. Generally,
based on FDA requirements, regulated companies must limit their
advertising and promotional materials to discussions of
FDA-approved claims. In limited circumstances, regulated
companies may disseminate non-promotional scientific information
regarding products or claims not yet approved by the FDA. Any
information that promotes the use of pharmaceutical products or
medical devices that is put on our Web site is subject to the
full array of the FDA and FTC requirements and enforcement
actions and any information regarding other products and
services is subject to FTC requirements. Areas of our Web site
that we believe would be the primary focus of the FDA and FTC
include banner advertisements, sponsorship links, and any
educational programs that discuss use of an FDA-regulated
product or that lack editorial independence from the influence
of sponsoring pharmaceutical or medical device companies.
Television broadcast advertisements by WebMD may also be subject
to FTC regulation and FDA regulation depending on the content.
The FDA and the FTC place the principal burden of compliance
with advertising and promotional regulations on the company that
advertises on our Web site to make truthful, substantiated
claims. If the FDA or the FTC finds that any information on our
Web site violates FDA or FTC regulations, they may take
regulatory or judicial action against us or the advertiser or
sponsor of that information.

Any increase in FDA regulation of the Internet or
other media for direct-to-consumer advertisements of
prescription drugs could make it more difficult for WebMD Health
to obtain advertising and sponsorship revenue. In the last
15 years, the FDA has gradually relaxed its formerly
restrictive policies on direct-to-consumer advertising of
prescription drugs. Companies can now advertise prescription
drugs for serious conditions to consumers in any medium.
However, physician groups and others have criticized the
FDAs current policies, and have called for restrictions on
any advertising of prescription drugs to

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consumers. These critics point to both public
health concerns and to the laws of many other countries that
make direct-to-consumer advertising of prescription drugs a
criminal offense. In response to these critics, the FDA or the
FTC may alter its present policies on the direct-to-consumer
advertising of prescription drugs or medical devices in a way
that would materially reduce our advertising and sponsorship
revenues.


Medical
Professional Regulation

The practice of most healthcare professions
requires licensing under applicable state law. In addition, the
laws in some states prohibit business entities from practicing
medicine, which is referred to as the prohibition against the
corporate practice of medicine. We do not believe that we engage
in the practice of medicine and we have attempted to structure
our Web site, strategic relationships and other operations to
avoid violating these state licensing and professional practice
laws. A state, however, may determine that some portion of our
business violates these laws and may seek to have us discontinue
those portions or subject us to penalties or licensure
requirements. We provide Web site capabilities for our physician
customers. Many states regulate the ability of medical
professionals to advertise or maintain referral services. We do
not represent that a physicians use of our Web site will
comply with these or other state laws regulating professional
practice and we do not monitor or control the content that
physicians post on their individual practice Web sites using our
Web site application. It is possible a state or a court may
determine we are responsible for any non-compliance with these
laws, which could affect our ability to offer this service to
our customers. We employ and contract with physicians who
provide only medical information to consumers, and we have no
intention to provide medical care or advice. Any determination
that we are a healthcare provider and acted improperly as a
healthcare provider may result in liability to us.

Childrens
Online Privacy Protection Act

The Childrens Online Privacy Protection
Act, or COPPA, extends to operators of commercial Web sites and
online services directed to U.S. children under the age of 13
that collect personal information from children, and operators
of general audience sites with actual knowledge that they are
collecting information from U.S. children under 13. WebMDs
sites are not directed at children and its general audience
site, WebMD Health, states that no one under the applicable age
is entitled to use the site. In addition, WebMD Health employs a
kick-out procedure whereby anyone identifying themselves as
being under the age of 13 during the registration process is not
allowed to register for the sites member only services,
such as message boards and live chat events. COPPA, however, is
a relatively new law, can be applied broadly and is subject to
interpretation by courts and other governmental authorities. The
failure to accurately anticipate the application or
interpretation of this law could create liability to us, result
in adverse publicity and negatively affect our business.

Intellectual Property

We rely upon a combination of patent, trade
secret, copyright and trademark laws, license agreements,
confidentiality procedures, employee and client nondisclosure
agreements and technical measures to protect our intellectual
property.

We use several trademarks in the United States
and internationally, including WebMD®, Web-MD®, WebMD
Health®, The Medical Manager®, Envoy®, and
Medscape®. Each of those marks has been registered in the
United States, and we have an additional United States
application for WebMD Health pending. We have
registered WebMD in numerous international
jurisdictions; however, some of our international applications
for WebMD are still pending. We use numerous other
registered and unregistered trademarks and service marks for our
various products and services in the United States and
internationally. In jurisdictions where trademark rights are
acquired by the first to register the mark with the relevant
governmental authority or where common law rights are acquired
by being the first entity to adopt, use and continue to use a
particular mark in connection with particular goods or services,
we may be unable to obtain superior trademark rights. In
addition to our trademark registrations and applications, we
have registered the domain names webmd.com,
my.webmd.com and medscape.com and

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numerous other domain names that either are or
may be relevant to conducting our business. Our inability to
protect our marks and domain names adequately could have a
material adverse effect on our business and hurt us in
establishing and maintaining our brand.


We also rely on a variety of intellectual
property rights that we license from third parties, including
our Internet server software and healthcare content used on our
WebMD.com Web site, as well as various products incorporated
into our physician practice management systems. These third
party licenses may not continue to be available to us on
commercially reasonable terms. Our loss of or inability to
maintain or obtain upgrades to any of these licenses could
significantly harm us. In addition, because we license a
majority of our content from third parties, we may be exposed to
copyright infringement actions if these parties are subject to
claims regarding the origin and ownership of licensed content.

The steps we have taken to protect our
proprietary rights may not be adequate, and we may not be able
to secure trademark or service mark registrations for marks in
the United States or in foreign countries. Third parties may
infringe upon or misappropriate our copyrights, trademarks,
service marks and similar proprietary rights. In addition,
effective copyright and trademark protection may be unavailable
or limited in many foreign countries, and the global nature of
the Internet makes it impossible to control the ultimate
destination of our services. It is possible that competitors or
others will adopt product or service names similar to our names,
which could impede our efforts to build brand identity and
possibly lead to customer confusion. Moreover, because domain
names derive value from the individuals ability to
remember such names, our domain name will lose its value if, for
example, users begin to rely on mechanisms other than domain
names to access online resources. Our inability to protect our
marks and domain names adequately would hurt our ability to
establish and maintain our brands. In the future, litigation may
be necessary to enforce and protect our trade secrets,
copyrights and other intellectual property rights. Litigation
would divert management resources and be expensive and may not
effectively protect our intellectual property.

Substantial litigation regarding intellectual
property rights exists in the software industry, and we expect
that software products may be increasingly subject to third
party infringement claims as the number of competitors in our
industry grows and the functionality of products overlaps.
Although we believe that our products do not infringe on the
intellectual property rights of others, we cannot provide
assurance that such a claim will not be asserted against us in
the future, or that a license or similar agreement will be
available on reasonable terms in the event of an unfavorable
ruling on any such claim.

We have several patents covering our software
technology. Due to the nature of our application software, we
believe that patent protection is less significant than our
ability to further develop, enhance and modify our current
services and products. However, any infringement or
misappropriation of our proprietary software and databases could
disadvantage us in our efforts to attract and retain customers
in a highly competitive market and could cause us to lose
revenue or incur substantial litigation expense. Moreover, in
recent years, there have been a large number of patents issued
in general and numerous patents issued related to Internet
business methods. While we are unaware of any patent that would
impact our ability to conduct our business, defense of a patent
infringement claim against us could divert management and
monetary resources, and an adverse judgment in any such matter
may negatively impact our ability to conduct our business in the
manner we desire.

Employees

As of December 31, 2001, we had
approximately 4,500 employees, excluding Porex employees.

Disposition of Plastics and Filtration
Technologies Business

Our plastics and filtration technologies business
manufactures and distributes porous and solid plastic components
and products used in life sciences, healthcare, industrial and
consumer applications. As we announced on September 28,
2000, our Board of Directors approved managements plan to
dispose of this business, which includes Porex Corporation and
related companies. We acquired these companies in our merger
with Medical Manager on September 12, 2000 and we refer to
this business as Porex.

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The proposed disposition of Porex has taken
longer than originally expected. We determined not to accept any
of the offers made by potential buyers because we believed that
the offers did not reflect the value of the business. We plan to
continue to explore various divestiture alternatives for this
business. The expected net proceeds and the cash flows of Porex
until sold were initially allocated to assets held for sale in
the allocation of the Medical Manager purchase price and were
included as a single line item in current assets as provided by
the consensus reached by Emerging Issues Task Force of the
Financial Accounting Standards Board on Issue No. 87-11,
Allocation of Purchase Price to Assets to be Sold,
referred to as EITF 87-11. As the divestiture of Porex was not
completed within the one-year time period allotted by EITF
87-11, we now record the results of operations of Porex in the
statement of operations as a discontinued operation in
accordance with EITF 90-6, Accounting for Certain Events
Not Addressed in Issue No. 87-11 Relating to an Acquired
Operating Unit to be Sold. A description of our plastics
and filtration technologies business follows.

Porex is a leading developer, manufacturer and
distributor of proprietary porous plastic products and
components. Porex also manufactures and distributes proprietary
injection molded solid plastic components. Porexs porous
and solid plastic components are used in other
manufacturers products for healthcare applications as well
as for life sciences, industrial and consumer applications.
Porexs finished porous plastic products are used in the
medical device, research and clinical laboratory and surgical
markets. These finished products are sold under Porexs own
brands and its customers private label brands.
Porexs business consists of four primary product groups:
the Porous Products Group, the Bio Products Group, the Medical
Products Group and the Surgical Products Group.

The Porous Products Group designs, engineers,
manufactures and markets porous plastic products and components
used to control the flow of fluids and gases. These products and
components include:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | medical device components, such as intravenous
	catheter and sterilization vents,  
|
| |  | serum filters and pipette tip filters, used in
	research and clinical laboratories,
|
| |  | air and water filtration devices, dust collectors
	and fuel filters, and           
|
| |  | writing instrument components.                                                     

Porous plastics are permeable plastic structures
having omni-directional (i.e., porous in all directions to the
flow of fluids and gases) inter-connecting pores. These pores,
depending upon the number and size, control the flow of liquids
and gases. We manufacture porous plastics with pore sizes
between approximately 1 and 500 micrometers (one micrometer is
equal to one-millionth of a meter; an object of 40 micrometers
in size is about as small as can be discerned by the naked eye).
Our ability to control pore size provides the opportunity to
serve numerous applications, including filtering, venting,
wicking, diffusing and muffling. We produce porous plastic
products in our own manufacturing facilities, which are equipped
to manufacture products for our customers in custom-molded
shapes, sheets, tubes or rods depending on customer needs.

The Bio Products Group designs, engineers,
manufactures and markets disposable plastic laboratory products
for liquid handling and other critical applications, such as
sample collection, sample preparation and sample storage, used
in the research, clinical laboratory and diagnostic testing
markets, including:



| |   |                                 
| | - | --------------------------------
| |  | pipette tips,                   
|
| |  | microcentrifuge tubes,          
|
| |  | polymerese chain reaction tubes,
|
| |  | test tubes, and                 
|
| |  | closure devices.                

We market these products under our own brands as
well as numerous private label arrangements and generic
packaging for our distributor customers. Our distributors sell
our products to research and clinical laboratories worldwide.
Research laboratories include leading pharmaceutical and
biotechnology companies, electronics companies, medical schools,
veterinary institutes, government-funded research institutes and
colleges and universities. Clinical laboratories include
hospital laboratories, reference laboratories, physician
practice management laboratories, alternative site laboratories
and government facilities.

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The Medical Products Group designs, engineers,
manufactures and markets injection molded medical components and
finished medical devices and high volume, high performance
tooling. These components and devices are primarily incorporated
into or used with the products of other manufacturers. The
Medical Products Group also provides design and engineering
services to medical device companies and designs and fabricates
molds for internal use and outside sales. The groups
products include:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | caps and connectors used with the tubing for
	intravenous delivery of fluids,                                                                               
|
| |  | manifolds with access ports for the intravenous
	administration of fluids during surgical procedures, and                                                   
|
| |  | needleless access connector ports for the
	administration of IV fluids, which eliminates the need for
	special adapters or sharp needles for fluid delivery.

The Medical Products Group provides its products
and services to a global marketplace that includes many of the
largest manufacturers of medical devices serving the drug/fluid
delivery and diagnostic medical equipment markets.

The Surgical Products Group designs, engineers,
manufactures and markets sterile surgical products for use in
hospitals, clinics and private practices, including:



| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | surgical implants used in facial reconstructive
	and aesthetic surgery,
|
| |  | surgical drains, and                                                   
|
| |  | surgical markers.                                                      

The biocompatible nature of the porous plastic
material used in our surgical implants and the ability of our
proprietary technology to produce complex shapes make it an
excellent surgical alternative to bone and cartilage grafts.
Since the initial product introduction in 1985, we have
continued to introduce new products expanding the uses of porous
plastics products for reconstructive surgery, oculoplastic
surgery and aesthetic surgery.

Porex is an international business, with
operations in North America, Europe and Asia. Porex sells its
products to customers in more than 60 countries and has a
diverse domestic and international customer base of over 2,000
healthcare, life sciences, industrial and consumer products
customers.






|        |           
|------- | ----------
|Item 2. | Properties

We lease our corporate headquarters offices in
Elmwood Park, New Jersey, which consists of approximately 40,000
square feet of space, under leases that expire in March 2006.

We lease additional important facilities in:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | Nashville, Tennessee for WebMD Envoys
	headquarters and primary data and call centers;        
|
| |  | Alachua, Florida for WebMD Medical Managers
	development and engineering operations; and      
|
| |  | New York, New York for WebMD Healths
	headquarters and its editorial and marketing operations.

We use facilities in approximately 110 additional
locations throughout the United States, 10 of which are owned
and the rest of which are leased. These locations include sales
and other offices, production centers, data centers and call
centers. We believe that our offices and other facilities are
adequate for our current operations.

Since September 2000, we have terminated leases,
allowed leases to expire or entered into subleases with respect
to approximately 90 leased facilities in connection with our
restructuring and integration efforts. See
Business  Restructuring and Integration
on page 5. However, we still lease approximately 30
properties and own three properties that we have vacated or are
in the process of vacating as part of our integration,
consolidation and restructuring efforts. We continue to seek to
sell, lease or sublease our surplus properties or to negotiate
the termination of leases for these properties, as appropriate.

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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Porex Mammary Implant Litigation

From 1988 through 1990, Porex distributed
silicone mammary implants in the United States pursuant to a
distribution arrangement with a Japanese manufacturer. Porex
believes that, after accounting for implants returned to Porex,
the aggregate number of persons who received implants
distributed by Porex totals approximately 2,500. Since March
1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of mammary implants. The
typical case or claim alleges that the individuals mammary
implants caused one or more of a wide range of ailments. These
implant cases and claims generally raise difficult and complex
factual and legal issues and are subject to many uncertainties
and complexities, including, but not limited to, the facts and
circumstances of each particular case or claim, the jurisdiction
in which each suit is brought, and differences in applicable
law. Porex does not have sufficient information to evaluate each
case and claim.

Certain of the actions against Porex have been
dismissed, where it was determined that the implant in question
was not distributed by Porex. In addition, as of
February 12, 2002, approximately 300 actions have been
settled by the manufacturer, or by Porexs insurance
carriers, without material cost to Porex. As of
February 12, 2002, six actions and two out-of-court claims
were pending against Porex. During calendar year 2001, there
were two implant-related claims made against Porex by
individuals as compared with two claims made during calendar
year 2000, 39 claims during calendar year 1999 and nine claims
during calendar year 1998. The majority of claims made during
1999 were claims that were filed by individuals following a
court ruling in 1999 that cases filed in earlier years would not
proceed as class actions, as a result of which such individuals
would not be members of a class in such cases.

In 1994, Porex was notified that its insurance
carrier would not renew its then-existing insurance coverage
after December 31, 1994 with respect to actions and claims
arising out of its distribution of implants. However, Porex
exercised its right, under such policy, to purchase extended
reporting period coverage with respect to such actions and
claims. Such coverage provides insurance subject to existing
policy limits, but for an unlimited time period with respect to
actions and claims made after December 31, 1994 based on
events that occurred during the policy period. In addition,
Porex has purchased extended reporting period coverage with
respect to other excess insurance. This coverage also extends
indefinitely, replacing coverage that would, by its terms, have
otherwise expired by December 31, 1997. Porex will continue
to evaluate the need to purchase further extended reporting
period coverage from excess insurers to the extent such coverage
is reasonably available.

We believe that Porexs present coverage,
together with its insurance policies in effect on or before
December 31, 1994, should provide adequate coverage against
liabilities that could result from actions or claims arising out
of Porexs distribution of silicone mammary implants.
However, we cannot be certain that particular cases and claims
will not result in liability that is greater than expected based
on Porexs prior experience. If so, Porexs liability
could exceed the amount of its insurance coverage. Furthermore,
certain actions and claims seek punitive and compensatory
damages arising out of alleged intentional torts. If these
claims are successful, such damages may or may not be covered,
in whole or in part, by Porexs insurance policies.

Envoy Securities Litigation

Envoy and some of its officers were named as
defendants in three identical lawsuits filed in the United
States District Court for the Middle District of Tennessee,
Nashville Division. The plaintiff in each of these lawsuits
purported to represent a class of persons who purchased the
securities of Envoy during the class period from
February 12, 1997 through August 18, 1998. In these
three original complaints, the plaintiffs sued the defendants
for violations of the federal securities laws. The District
Court ordered the three cases consolidated under the caption In
re Envoy Corporation Securities Litigation, and on
December 28, 1998, the plaintiffs, pursuant to the district
courts consolidation orders, filed a consolidated class
action complaint. The consolidated complaint reasserted the
federal securities law claims and also asserted additional
claims under Tennessee common law for fraud and negligent
misrepresentation.

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Plaintiffs allege that the defendants made
material misrepresentations and omissions in Envoys public
filings and public statements concerning Envoys financial
statements and Envoys accounting for some charges taken in
connection with acquisitions. Plaintiffs allege that, as a
result of defendants alleged actions, Envoys
reported earnings during the class period were overstated and
the price for Envoys common stock was artificially
inflated. Plaintiffs seek recovery of an unspecified sum in
damages on behalf of persons who allegedly purchased
Envoys stock at allegedly inflated prices.

On March 1, 1999, the defendants filed a
motion to dismiss all of plaintiffs claims. Plaintiffs
then voluntarily dismissed their state law claims. On
September 17, 1999, the court dismissed the consolidated
complaint without prejudice. On November 23, 1999, the
plaintiffs filed an amended consolidated complaint. On
May 31, 2000, defendants filed a motion to dismiss the
amended consolidated complaint. The court on February 2,
2001 entered an order denying in part and granting in part
defendants motion to dismiss the amended consolidated
complaint. Specifically, the court denied the motion to dismiss
as to defendants Envoy and one of the individual defendants and
granted the motion to dismiss as to two of the individual
defendants.

The parties have engaged in preliminary
settlement discussions which have not yet resulted in agreements
on terms for a settlement.

The Agreement and Plan of Merger among Healtheon/
WebMD, Pine Merger Corp., Envoy, Quintiles Transnational Corp.,
and QFinance, Inc. dated as of January 22, 2000 provides
that Quintiles will indemnify us with respect to this litigation.

Litigation Regarding Distribution of Shares in
Healtheon Initial Public Offering

Since July 2001, seven purported class action
lawsuits have been filed against Morgan Stanley & Co.
Incorporated and Goldman Sachs & Co., underwriters of the
initial public offering of the Company (then known as Healtheon)
in the United States District Court for the Southern District of
New York. Three of these suits also named the Company and
certain former officers and directors of the Company as
defendants. The complaints against the Company and its former
officers and directors allege violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 under
that Act and Section 11 of the Securities Act of 1933
because of failure to disclose certain practices alleged to have
occurred in connection with the distribution of shares in the
Healtheon IPO. Claims under Section 12(a)(2) of the
Securities Act of 1933 have also been brought against the
underwriters. Similar suits have been filed in connection with
well over 100 other initial public offerings that occurred in
1999 and 2000, following reports of governmental investigations
of the underwriters practices in the distribution of
shares in certain initial public offerings. We believe that the
claims alleged in the lawsuits are primarily directed at the
underwriters and, as they relate to us, are without merit. To
the extent that these claims concern practices and disclosures
relating to the plan of distribution in the Healtheon initial
public offering, we believe that we will have a claim for
indemnification from the underwriters.

Other Legal Proceedings

In the normal course of business, we are involved
in various other claims and legal proceedings. While the
ultimate resolution of these matters, and those discussed above,
has yet to be determined, we do not believe that their outcome
will have a material adverse effect on our financial position or
results of operations.

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

At our Annual Meeting of stockholders held on
November 16, 2001, our stockholders voted with respect to
the following matters:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | To elect Mark J. Adler, M.D., Herman Sarkowsky
	and Michael A. Singer as Class III directors to serve three
	year terms ending in 2004:

|                  |  |                  |  |            
|----------------- |  | ---------------- |  | -----------
|Mark J. Adler     |  |  votes for      |  | 262,962,932
|                  |  |  votes withheld |  | 3,345,292  
|Herman Sarkowsky  |  |  votes for      |  | 262,955,164
|                  |  |  votes withheld |  | 3,353,060  
|Michael A. Singer |  |  votes for      |  | 256,823,537
|                  |  |  votes withheld |  | 9,484,687  



| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | To ratify and approve an amendment to
	WebMDs 2000 Long-Term Incentive Plan to increase the
	number of shares of common stock reserved for issuance under
	that Plan by 10,000,000 shares, to a total of 20,000,000 shares:

|                  |  |            
|----------------- |  | -----------
|Votes for:        |  | 211,361,532
|Votes against:    |  | 54,374,378 
|Abstentions:      |  | 572,314    
|Broker non-votes: |  | 0          

In addition to the directors elected at the
Annual Meeting, our Board of Directors consists of L. John Doerr
and Joseph E. Smith, our Class I directors whose terms
expire in 2002, and Paul A. Brooke, James V. Manning and Martin
J. Wygod, our Class II directors whose terms expire in 2003.

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Item 4A.     Executive
Officers

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

|                   |  |     |    |          |  |                                                                                       
|------------------ |  | --- | -- | -------- |  | --------------------------------------------------------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|Martin J. Wygod    |  |     | 62 |          |  | Chairman of the Board and Chief Executive Officer                                     
|Thomas P. Apker*   |  |     | 46 |          |  | Chief Operating Officer                                                               
|Kevin Cameron*     |  |     | 35 |          |  | Executive Vice President, Business Development                                        
|Roger C. Holstein* |  |     | 49 |          |  | Chief Executive Officer, WebMD Health                                                 
|Michael A. Singer* |  |     | 54 |          |  | Chief Executive Officer and President, WebMD
	Medical Manager                         
|K. Robert Draughon |  |     | 41 |          |  | Executive Vice President, Business Development                                        
|Charles A. Mele    |  |     | 45 |          |  | Executive Vice President, General Counsel and
	Secretary                              
|Steven E. Simpson  |  |     | 42 |          |  | Executive Vice President, Sales and Product
	Management                               
|Anthony Vuolo      |  |     | 44 |          |  | Executive Vice President and Chief Financial
	Officer                                 
|Steven Zatz, M.D.  |  |     | 45 |          |  | Executive Vice President, Professional
	Information Services and Chief Medical Officer



---



|  |                                      
|- | -------------------------------------
|* | Member of the Office of the President

Martin J. Wygodhas
served as Chairman of the Board of Directors of WebMD since
March 2001, as our Chief Executive Officer since October 2000
and as a director since September 2000. From September 2000
until October 2000, Mr. Wygod served as Co-Chief Executive
Officer of WebMD. From May 1989 until September 2000,
Mr. Wygod was Chairman of the Board and a director of
Medical Manager and its predecessor, Synetic, until 1999. For
part of that time, he was also Chief Executive Officer of
Medical Manager. He also served as Chairman of the Board of
CareInsite from 1999 until September 2000. He is also engaged in
the business of racing, boarding and breeding thoroughbred
horses, and is President of River Edge Farm, Inc.

Thomas P. Apkerhas
served as Chief Operating Officer of WebMD since December 2000
and as a member of the Office of the President since September
2001. From March 1990 until January 1999, Mr. Apker was
Senior Vice President of Operations at Merck-Medco Managed Care,
L.L.C., a pharmacy benefits management company.

Kevin Cameronhas
served as Executive Vice President, Business Development of
WebMD since September 2000 and as a member of the Office of the
President since September 2001. Mr. Cameron was Executive
Vice President, Corporate Development of Medical Manager and
CareInsite from April 2000 until the Medical Manager merger.
From March 1999 until April 2000, he was Managing Director of
the Health Care Group in the Investment Banking division of UBS
Warburg. Prior to March 1999, Mr. Cameron held various
positions over a nine-year period at Salomon Smith Barney,
including Director of Health Care Investment Banking.

Roger C. Holsteinhas served as Chief Executive Officer,
WebMD Health since June 2001 and as a member of the Office of
the President since September 2001. He served as Executive Vice
President, Marketing and Strategic Planning of WebMD from
October 2000 until June 2001. Mr. Holstein served as
Executive Vice President  Sales & Marketing and a
director of CareInsite from March 1999 until the

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CareInsite merger. Mr. Holstein was
Executive Vice President  Marketing and Sales of
Medical Manager from 1997 to July 1999. He was a Special
Consultant to Merck-Medco from 1996 to 1998.


Michael A. Singerhas served as Chief Executive Officer
and President, WebMD Medical Manager and as a director of WebMD
since September 2000 and, since September 2001, as a member of
WebMDs Office of the President. He served as a director of
CareInsite from 1999 until September 2000. Mr. Singer was
Vice Chairman and Co-Chief Executive Officer of Medical Manager
from July 1999 until September 2000. Mr. Singer was
Chairman of the Board and a Chief Executive Officer of Medical
Manager Health Systems, Inc., then known as Medical Manager
Corporation, and its predecessors for more than five years prior
to July 1999.

K. Robert Draughonhas served as WebMDs Executive
Vice President, Business Development since November 1999. From
February 1998 until November 1999, he served as Chief Financial
Officer of WebMD, Inc. From January 1988 to February 1998, he
served as Chief Investment Officer for Fuqua Capital
Corporation, a private investment firm based in Atlanta, Georgia.

Charles A. Melehas
served as Executive Vice President, General Counsel and
Secretary of WebMD since January 2001. He served as Executive
Vice President and Co-General Counsel of WebMD from September
2000 until January 2001. He served as a director of CareInsite,
Inc. from 1998 until its acquisition by WebMD. Mr. Mele was
Executive Vice President  General Counsel of Medical
Manager from March 1998 until its acquisition by WebMD and was
Vice President  General Counsel of Medical Manager
from July 1995 to March 1998. Mr. Mele is also a director
of Group 1 Software, Inc., a computer software company.

Steven E. Simpsonhas served as Executive Vice
President, Sales and Product Management of WebMD since April
2001. Mr. Simpson served as our President of Transaction
Services from November 2000 until April 2001. He served as Chief
Operating Officer of Envoy Corporation from July 1999 until
November 2000. Mr. Simpson served as Senior Vice President
of Sales and Product Development for Columbia/ HCA Inc. from
1996 until 1998. Prior to that time, Mr. Simpson spent
11 years with Johnson & Johnson, a health and personal
care products manufacturing and sales company, where he held
senior level positions in the Pharmaceutical Sales, Marketing
and Managed Care divisions.

Anthony Vuolohas
served as Executive Vice President and Chief Financial Officer
of WebMD since September 2000. Mr. Vuolo was Senior Vice
President  Business Development and Treasurer of
Medical Manager from March 1999 until the Medical Manager merger
and was Executive Vice President  Finance and
Administration and Chief Financial Officer of Medical Manager
from March 1998 until March 1999. Mr. Vuolo served as an
executive officer of Medical Manager from May 1997 until the
Medical Manager merger and as an officer for more than five
years.

Steven Zatz, M.D.has served as Executive Vice
President, Professional Information Services since January 2002
and as Chief Medical Officer since September 2001. Dr. Zatz
served as Executive Vice President, Internet Portals and
Applications Services of WebMD from October 2000 to January
2002. Dr. Zatz was a Senior Vice President, Medical
Director of CareInsite from June 1999 until the CareInsite
merger. Prior to joining CareInsite, Dr. Zatz was senior
vice president of RR Donnelley Financial in charge of its
healthcare business from October 1998 to May 1999. From August
1995 to May 1998, Dr. Zatz was the president of
Physicians Online.

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PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

We completed the initial public offering of our
common stock on February 10, 1999. Our common stock has been
traded on the Nasdaq National Market under the symbol
HLTH since February 11, 1999.

The high and low prices for each quarterly period
during the last two fiscal years are as follows:

|     |                |      |   |       |  |  |   |       | 
|---- | -------------- | ---- | - | ----- |  |  | - | ----- | 
|     |                | High |   | Low  
|     |                |      |   |      
|2000 |                |      |   |       |  |  |   |      
|     | First quarter  |      | $ | 71.06 |  |  | $ | 23.00 | 
|     | Second quarter |      |   | 29.19 |  |  |   | 12.56 | 
|     | Third quarter  |      |   | 18.25 |  |  |   | 11.25 | 
|     | Fourth quarter |      |   | 14.94 |  |  |   | 5.50  | 
|2001 |                |      |   |       |  |  |   |      
|     | First quarter  |      | $ | 10.63 |  |  | $ | 4.56  | 
|     | Second quarter |      |   | 9.44  |  |  |   | 4.50  | 
|     | Third quarter  |      |   | 7.10  |  |  |   | 3.22  | 
|     | Fourth quarter |      |   | 7.15  |  |  |   | 3.29  | 

On March 15, 2002, there were 4,864 holders
of record of our common stock. Because many of these shares are
held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.

The market price of our common stock has
fluctuated since the date of our initial public offering and is
likely to fluctuate in the future. Changes in the market price
of our common stock may result from, among other things:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | quarter-to-quarter variations in operating results                                                    
|
| |  | operating results being less than analysts
	estimates                                                
|
| |  | changes in analysts earnings estimates                                                               
|
| |  | announcements of new technologies, products and
	services or pricing policies by us or our competitors
|
| |  | announcements of acquisitions or strategic
	partnerships by us or our competitors                     
|
| |  | developments in existing customer or strategic
	relationships                                         
|
| |  | actual or perceived changes in our business
	strategy                                                 
|
| |  | developments in pending litigation and claims                                                         
|
| |  | sales of large amounts of our common stock                                                            
|
| |  | changes in market conditions in the healthcare,
	information technology or Internet industries        
|
| |  | changes in general economic conditions                                                                
|
| |  | fluctuations in the securities markets in general.                                                    

In addition, the market prices of Internet and
healthcare information technology stocks in general, and of our
common stock in particular, have experienced large fluctuations,
sometimes quite rapidly. These fluctuations often may be
unrelated or disproportionate to the operating performance of
these companies. Any negative change in the publics
perception of the prospects of these companies, as well as other
broad market and industry factors, may result in changes in the
price of our common stock.

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We have never declared or paid any cash dividends
on our common stock, and we do not anticipate paying cash
dividends in the foreseeable future. We intend to retain
earnings to finance the expansion of our operations.

Sales of Unregistered Securities During the
Fourth Quarter of 2001

On October 11, 2001, we issued to a service
provider, as consideration for its services, an option to
acquire 400,000 shares of our common stock at an exercise
price of $4.00 per share. The option is immediately
exercisable and expires on October 11, 2006. The issuance
of the option was exempt from registration under
Section 4(2) of the Securities Act of 1933.

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Item 6. Selected Financial
Data

The following selected consolidated financial
data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and with the consolidated financial statements
and notes thereto, which are included elsewhere in this Annual
Report. Our financial information presented reflects our
combined financial position and results of operations with
ActaMed Corporation for all dates and periods presented,
reflects the results of operations for WebMD, Inc., MedE America
and Medcast from the closing date of these mergers,
November 12, 1999 forward, for Kinetra from the closing
date of January 31, 2000 forward, for Envoy from the
closing date of May 26, 2000 forward, and for Medical
Manager, CareInsite and OnHealth from the closing date of
September 12, 2000 forward. All of these acquisitions were
accounted for as purchases, except for ActaMed, which was
accounted for as a pooling of interests. The consolidated
statements of operations data for the three-year period ended
December 31, 2001 and the consolidated balance sheet data
at December 31, 2001 and 2000 are derived from, and are
qualified by reference to, the audited consolidated financial
statements included elsewhere in this Annual Report. The
consolidated statements of operations data for the two-year
period ended December 31, 1998 and the consolidated balance
sheet data at December 31, 1999, 1998 and 1997 are derived
from, and are qualified by reference to, audited consolidated
financial statements that are not included in this report.

|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |        |   | 
|-------------------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ---------- | ------------------------------------- | --------- | ---- | ---------- | --------- | - | ---- | -------- | ------- | - | - | ------- | ------ | - | - | ------- | ------ | - | 
|                                                                                                   |                                              |                                          
|                                                                                                   |                                              | Years Ended December 31,                 
|                                                                                                   |                                              |                                          
|                                                                                                   |                                              | 2001                                      |            | 2000                                  |           | 1999 |            | 1998      |   | 1997
|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |     
|                                                                                                   |                                              |                                           |            |                                       |           |     
|                                                                                                   |                                              |                                           |            | (In thousands, except per share data) |           |     
|Consolidated Statements of Operations
	Data:                                                       |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|Revenue                                                                                            |                                              | $                                         | 706,595    |                                       |           | $    | 517,153    |           |   | $    | 102,149  |         |   | $ | 48,838  |        |   | $ | 13,390  |       
|Costs and expenses:                                                                                |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|                                                                                                   | Cost of operations                           |                                           |            | 468,688                               |           |      |            | 383,565   |   |      |          | 88,576  |   |   |         | 43,014 |   |   |         | 10,446 |  
|                                                                                                   | Development and engineering                  |                                           |            | 39,615                                |           |      |            | 58,788    |   |      |          | 29,669  |   |   |         | 19,002 |   |   |         | 12,267 |  
|                                                                                                   | Sales, marketing, general and administrative |                                           |            | 433,653                               |           |      |            | 530,927   |   |      |          | 82,315  |   |   |         | 25,605 |   |   |         | 12,966 |  
|                                                                                                   | Depreciation, amortization and other         |                                           |            | 2,389,766                             |           |      |            | 2,186,986 |   |      |          | 193,067 |   |   |         | 16,055 |   |   |         | 6,004  |  
|                                                                                                   |                                              | Impairment of long-lived and other assets |            |                                       | 3,826,893 |      |            |           |  |      |          |         |  |   |         |        |  |   |         |        |  | 
|                                                                                                   | Restructuring and integration charge         |                                           |            | 266,755                               |           |      |            | 452,919   |   |      |          |        |   |   |         |       |   |   |         |       |  
|                                                                                                   | Loss on investments                          |                                           |            |                                      |           |      |            | 39,602    |   |      |          |        |   |   |         |       |   |   |         |       |  
|                                                                                                   | Interest income, net                         |                                           |            | 29,106                                |           |      |            | 50,026    |   |      |          | 3,486   |   |   |         | 790    |   |   |         | 288    |  
|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|Loss from continuing operations                                                                    |                                              |                                           | (6,689,669 | )                                     |           |      | (3,085,608 | )         |   |      | (287,992 | )       |   |   | (54,048 | )      |   |   | (28,005 | )     
|Discontinued operations:                                                                           |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|                                                                                                   | Net income from discontinued operations      |                                           |            | 5,351                                 |           |      |            |          |   |      |          |        |   |   |         |       |   |   |         |       |  
|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|Net loss                                                                                           |                                              | $                                         | (6,684,318 | )                                     |           | $    | (3,085,608 | )         |   | $    | (287,992 | )       |   | $ | (54,048 | )      |   | $ | (28,005 | )     
|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|Basic and diluted net loss per common share:                                                       |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|                                                                                                   | Loss from continuing operations              |                                           | $          | (19.19                                | )         |      | $          | (12.61    | ) |      | $        | (3.58   | ) |   | $       | (1.54  | ) |   | $       | (3.88  | )
|                                                                                                   | Net income from discontinued operations      |                                           |            | .01                                   |           |      |            |          |   |      |          |        |   |   |         |       |   |   |         |       |  
|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|                                                                                                   | Net loss per common share                    |                                           | $          | (19.18                                | )         |      | $          | (12.61    | ) |      | $        | (3.58   | ) |   | $       | (1.54  | ) |   | $       | (3.88  | )
|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       
|Weighted-average shares outstanding used in
	computing basic and diluted net loss per common share |                                              |                                           | 348,570    |                                       |           |      | 244,688    |           |   |      | 80,367   |         |   |   | 34,987  |        |   |   | 7,223   |       
|                                                                                                   |                                              |                                           |            |                                       |           |      |            |           |   |      |          |         |   |   |         |        |   |   |         |       

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|                                                  |  |                    |           |      |  |      |           |      |  |      |           |  |  |   |        |  |  |   |        |  
|------------------------------------------------- |  | ------------------ | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | ------ |  |  | - | ------ | -
|                                                  |  |                   
|                                                  |  | As of December 31,
|                                                  |  |                   
|                                                  |  | 2001               |           | 2000 |  | 1999 |           | 1998 |  | 1997
|                                                  |  |                    |           |      |  |      |           |      |  |     
|                                                  |  |                   
|                                                  |  | (In thousands)    
|Consolidated Balance Sheet Data:                  |  |                    |           |      |  |      |           |      |  |      |           |  |  |   |        |  |  |   |        |  
|Cash, cash equivalents and short-term investments |  | $                  | 352,205   |      |  | $    | 490,797   |      |  | $    | 291,286   |  |  | $ | 36,817 |  |  | $ | 21,804 |  
|Working capital                                   |  |                    | 432,103   |      |  |      | 629,312   |      |  |      | 216,304   |  |  |   | 27,934 |  |  |   | 14,790 |  
|Total assets                                      |  |                    | 1,556,338 |      |  |      | 8,455,631 |      |  |      | 4,123,668 |  |  |   | 79,940 |  |  |   | 53,747 |  
|Other long-term liabilities                       |  |                    | 1,208     |      |  |      | 15,260    |      |  |      | 2,695     |  |  |   | 2,984  |  |  |   | 932    |  
|Convertible redeemable preferred stock            |  |                    | 10,000    |      |  |      | 10,000    |      |  |      |          |  |  |   |       |  |  |   | 50,948 |  
|Convertible preferred stock                       |  |                    |          |      |  |      | 710,746   |      |  |      |          |  |  |   |       |  |  |   |       |  
|Stockholders equity (net capital deficiency)     |  |                    | 1,238,772 |      |  |      | 8,091,985 |      |  |      | 3,973,672 |  |  |   | 59,413 |  |  |   | (9,930 | )

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
	of Financial Condition and Results of Operations

This Item 7 contains forward-looking
statements with respect to possible events, outcomes or results
that are, and are expected to continue to be, subject to risks,
uncertainties and contingencies, including those identified in
this Item. See Cautionary Statement Regarding
Forward-Looking Statements on page 2.

WebMD Corporation is a Delaware corporation that
was incorporated in December 1995 and commenced operations in
January 1996 as Healtheon Corporation. Our common stock has
traded on the Nasdaq National Market under the symbol
HLTH since February 11, 1999. In May 1998,
Healtheon merged with ActaMed Corporation. In November 1999,
Healtheon completed mergers with WebMD, Inc., MedE America and
Medcast. Following these mergers, Healtheon changed its name to
Healtheon/ WebMD Corporation. Healtheon/ WebMD completed
acquisitions of Kinetra and Envoy in January 2000 and May 2000,
respectively. On September 12, 2000, Healtheon/ WebMD
completed mergers with Medical Manager, CareInsite and OnHealth
and changed its name to WebMD Corporation.

Critical Accounting Policies and
Estimates

Our discussion and analysis of WebMDs
financial condition and results of operations are based upon our
Consolidated Financial Statements and Notes to Consolidated
Financial Statements, which were prepared in conformity with
generally accepted accounting principles in the United States.
The preparation of the financial statements requires us to make
estimates and assumptions that affect the amounts reported in
the financial statements. We base our estimates on historical
experience, current business factors, and various other
assumptions that we believe are necessary to form a basis for
making judgments about the carrying values of assets and
liabilities and disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.

We evaluate our estimates on an ongoing basis,
including those related to revenue recognition, carrying value
of short-term and long-term investments, deferred tax assets,
collectibility of customer receivables, assets held for sale,
prepaid content and distribution services, long-lived assets
including goodwill and other intangible assets, certain accrued
expenses, accruals related to our restructuring program,
contingencies and litigation.

We believe the following reflect our critical
accounting policies and our more significant judgments and
estimates used in the preparation of our consolidated financial
statements:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | Revenue
	Our revenue recognition policies for each reportable segment are
	as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Transaction Services or WebMD
	Envoy.Healthcare payers and providers
	pay us fees for our services, generally on a per transaction
	basis or monthly basis. We recognize revenue as we perform the
	service. Healthcare payers and providers also pay us one-time
	implementation and annual maintenance fees. We recognize revenue
	from these fees ratably over the term of the respective
	agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Physician Services or WebMD Medical
	Manager.Healthcare providers pay us
	one-time fees for the purchase of our Medical Manager practice
	management system. We recognize revenue from these one-time fees
	when we enter into noncancelable agreements with our customers,
	the products have been delivered and there are no uncertainties
	regarding product acceptance and delivery and no significant
	future performance obligations. Amounts received in advance of
	meeting these criteria are deferred until we meet these
	criteria. Healthcare providers also pay us fees for maintenance
	and support of their practice management system, including the
	hardware and software. We recognize revenue from these fees
	ratably over the contract period, typically in one year or less.
	Healthcare providers may also pay us fees for sending
	transactions to payers and patients. We recognize revenue from
	these fees, which are generally paid on a monthly or per
	transaction basis, as we provide the service.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Portal Services or WebMD
	Health.Customers pay us for
	advertising, sponsorship, continuing medical education
	(CME), content syndication and distribution, and
	e-commerce transactions related to our online distribution
	channels and the online and offline distribution channels of our
	strategic partners. In 2000, we also were paid subscription fees
	to our physician portal. Revenue from advertising is recognized
	as advertisements are delivered. Revenue from sponsorship
	arrangements is recognized ratably over the term of the
	applicable agreement. Revenue from CME arrangements is
	recognized over the period we satisfy the minimum credit hour
	requirements of the applicable agreements. Revenue from fixed
	fee content license or carriage fees is recognized ratably over
	the term of the applicable agreement. E-Commerce revenue is
	recognized when a subscriber or consumer utilizes our
	Internet-based services or purchases goods or services through
	our Web site or co-branded Web site with one of our strategic
	partners. Subscription revenue, including subscriptions revenue
	from sponsorship arrangements, is recognized over the
	subscription period.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Long-Lived
	Assets Our long-lived
	assets consist of property and equipment, goodwill and other
	intangible assets. Goodwill and other intangible assets arise
	from the several acquisitions we have made. The amount assigned
	to intangible assets is subjective and based on our estimates of
	the future benefit of the intangible asset using accepted
	valuation techniques, such as discounted cash flow and
	replacement cost models. Our long-lived assets are amortized
	over their estimated useful lives, which we determined based on
	the consideration of several factors including the period of
	time the asset is expected to remain in service. We evaluate the
	carrying value of long-lived assets whenever indicators of
	impairment are present. During 2001 we identified certain
	indicators of possible impairment of our long-lived assets,
	primarily goodwill and other intangible assets. We evaluated our
	long-lived assets for impairment by determining identifiable
	cash flows to related asset groupings, and compared the
	projected undiscounted cash flows for each asset grouping to its
	carrying value. Once we determined there was an impairment we
	quantified the impairment based on projected discounted cash
	flows. Other unknown future indications of possible impairment
	charges, such as a significant downturn in one of our business
	segments or general economic conditions, could result in an
	additional assessment of our long-lived assets for impairment
	and could result in an additional impairment charge in the
	future.
|
| |  | Investments Our
	investments at December 31, 2001 consist principally of
	U.S. Treasury Notes, Federal Agency Notes and Certificates of
	Deposit. Each reporting period we evaluate the carrying value of
	our investments and record a loss on investments when we believe
	an investment has experienced a decline in value that is other
	than temporary. We do not recognize gains on an investment until
	sold. Our carrying value is not necessarily indicative of the
	underlying value of an investment. Future changes in market or
	economic conditions or operating results of our investments
	could result in gains or losses or an inability to recover the
	carrying value of the investments that may not be reflected in
	an investments carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Deferred Tax
	Assets Our deferred
	tax assets are comprised primarily of net operating loss
	carryforwards. At December 31, 2001, we had net operating
	loss carryforwards of approximately $1.9 billion. These
	loss carryforwards may be used to offset taxable income in
	future periods reducing the amount of taxes we might otherwise
	be required to pay. Due to a lack of a history of generating
	taxable income, we record a valuation allowance equal to 100% of
	our net deferred tax assets. In the event that we are able to
	generate taxable earnings in the future and determine that we
	can realize our deferred tax assets, an adjustment to the
	valuation allowance would be made which may increase income in
	the period that such determination was made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Allowance for Doubtful
	Accounts We maintain
	allowances for doubtful accounts for estimated amounts of
	accounts receivable that may not be recoverable. Actual future
	events and experience may require revisions in our estimates for
	bad debt expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Assets Held for
	Sale Our board of
	directors approved our plan to dispose of our plastics and
	filtration technologies subsidiaries, collectively referred to
	as Porex. Our estimate of Porexs fair value is classified
	as assets held for sale on our balance sheet. Porexs
	ability to continue to generate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | earnings in the future could affect the carrying
	amount, and possibly result in a future impairment charge.
	Additionally, our completion of the divestiture of this asset
	could result in a gain or loss in the future to the extent that
	proceeds received differs from our carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Restructuring and
	Integration In connection
	with our restructuring and integration efforts, modifications to
	our strategic relationship with News Corporation resulted in a
	change in the carrying value of the domestic advertising service
	we have the rights to, classified as prepaid content, services
	and distribution. We estimated the fair value of our rights
	under the new agreement using a discounted cash flow approach.
	This estimate also affects the amortization of this asset in
	future periods over the contractual term. Also, in connection
	with our restructuring and integration effort, we recorded
	charges for estimated future lease obligations and lease
	cancellation penalties related to exited facilities based on
	many different variables, such as the term to expiration,
	contractual rights under the lease agreement and current real
	estate market conditions. Future changes in any of these
	variables, such as a change in real estate market conditions
	could have an impact on these estimates.
|
| |  | Warrants We
	have issued warrants to acquire shares of our common stock as
	consideration for services. The value of these warrants has been
	determined using the Black-Scholes model which may not
	necessarily be representative of the cash consideration we could
	have received in exchange for the warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Acquisition History

We rapidly and significantly expanded our
operations through acquisitions. We completed the following
significant acquisitions during 1999 and 2000:

|                            |  |               |                |                 |  |               |     |             |  |  |             |  |  |  |            | 
|--------------------------- |  | ------------- | -------------- | --------------- |  | ------------- | --- | ----------- |  |  | ----------- |  |  |  | ---------- | 
|                            |  |               |                | Shares of Our   |  | Shares of Our |     | Options and
|                            |  |               |                | Preferred Stock |  | Common Stock  |     | Warrants   
|Company Acquired            |  | Date Acquired |                | Issued          |  | Issued        |     | Assumed    
|                            |  |               |                |                 |  |               |     |            
|WebMD, Inc.                 |  |               | November 1999  |                 |  |               |    |             |  |  | 63,932,659  |  |  |  | 49,012,168 | 
|MedE America                |  |               | November 1999  |                 |  |               |    |             |  |  | 10,404,454  |  |  |  | 468,584    | 
|Medcast                     |  |               | November 1999  |                 |  |               |    |             |  |  | 2,528,465   |  |  |  | 164,036    | 
|Kinetra                     |  |               | January 2000   |                 |  |               |    |             |  |  | 7,437,248   |  |  |  |           | 
|Envoy                       |  |               | May 2000       |                 |  |               |    |             |  |  | 35,000,000  |  |  |  |           | 
|OnHealth                    |  |               | September 2000 |                 |  |               |    |             |  |  | 4,678,609   |  |  |  | 1,384,113  | 
|Medical Manager/ CareInsite |  |               | September 2000 |                 |  |               | 100 |             |  |  | 134,370,010 |  |  |  | 81,084,865 | 

All of these acquisitions were accounted for
using the purchase method. Our financial information presented
reflects the results of operations for WebMD, Inc., MedE America
and Medcast from the closing date of November 12, 1999
forward, Kinetra from the closing date of January 31, 2000
forward, Envoy from the closing date of May 26, 2000
forward, and Medical Manager, CareInsite and OnHealth from the
closing date of September 12, 2000 forward.

As a result of our acquisition of WebMD, Inc.,
MedE America and Medcast, we recorded total intangible assets of
$3.7 billion, consisting primarily of $3.4 billion of
goodwill and $319.5 million of other intangible assets. The
identifiable intangibles are being amortized over their
estimated useful lives of one to five years. Goodwill is being
amortized over three to four years.

As a result of our acquisition of Kinetra, we
recorded total intangible assets of $284.0 million,
consisting primarily of $35.1 million of customer lists,
$5.7 million of acquired technology, $4.3 million of
covenants not-to-compete, $2.3 million of workforce,
$1.6 million of trademarks and $235.0 million of
goodwill. The identifiable intangibles are being amortized over
their estimated useful lives of one to three years. Goodwill is
being amortized over three years.

As a result of our acquisition of Envoy, we
recorded total intangible assets of $2.4 billion,
consisting primarily of $159.2 million of customer lists,
trademarks and acquired technology and $2.2 billion of

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goodwill. The identifiable intangibles are being
amortized over their estimated useful lives of one to three
years. Goodwill is being amortized over three years.


As a result of our acquisition of OnHealth, we
recorded total goodwill of $374.6 million which will be
amortized over its estimated useful life of three years.

As a result of our acquisition of Medical Manager
and CareInsite, we recorded total intangible assets of
$2.3 billion, consisting primarily of $24.5 million of
physician relationships, $16.8 million of trademarks,
$12.7 million of workforce and $2.3 billion of
goodwill. The identifiable intangibles are being amortized over
their estimated useful lives of three to fifteen years. Goodwill
is being amortized over three years. As we announced on
September 28, 2000, our Board of Directors approved
managements plan to dispose of Porex, which we acquired in
our merger with Medical Manager on September 12, 2000.
Porex designs, manufactures and distributes porous and solid
plastic components and products used in life sciences,
healthcare, industrial and consumer applications. In accordance
with the consensus reached by the Emerging Issues Task Force of
the Financial Accounting Standards Board on Issue
No. 87-11, referred to as EITF 87-11, the expected net
proceeds and the cash flows of Porex until sold were initially
allocated to assets held for sale in the allocation of the
Medical Manager purchase price and are included in current
assets. At that time, we reduced the consolidated balance sheet
for all items that pertained specifically to Porex. As the
divestiture of Porex was not completed within the one-year
period allotted by EITF 87-11, we are now required to record the
results of Porex in our statement of operations as of
September 13, 2001, as a discontinued operation in
accordance with the consensus reached by the Emerging Issues
Task Force on Issue No. 90-6. We expect Porex to continue
to generate earnings while we continue to explore various
divestiture alternatives. We estimated the fair value of Porex
to be $185.0 million at September 30, 2001. The fair
value of Porex continues to be recorded in assets held for sale
and its cash flow activity has been excluded from the
consolidated statement of operations and the consolidated
statement of cash flows through September 12, 2001.

In 2001, we also completed 11 additional
acquisitions. In December 2001, we acquired the portal assets of
MedicaLogic/ Medscape, Inc. (Medscape) for
$9.2 million in cash plus $1.2 million of estimated
expenses. In connection with this acquisition, we recorded
goodwill of $7.3 million and intangible assets of
$2.4 million. The intangible assets are being amortized
over their estimated useful lives of 3 to 5 years. In 2001,
we acquired ten small physician services companies for the total
cost of $8.2 million, paid primarily in cash in connection
with these acquisitions. We recorded goodwill and other
intangible assets of $13.5 million associated with these
acquisitions.

For additional information related to our
amortization of intangible assets, see  Results
of Operations  2001 and 2000 
Depreciation, Amortization and Other on page 46 and
the discussion of SFAS No. 141 and SFAS No. 142 in
 Recent Accounting Pronouncements on
page 53.

Restructuring and Integration
Initiatives

After the mergers with Medical Manager,
CareInsite and OnHealth, our board of directors approved a
restructuring and integration plan, with the objective of
eliminating duplication and redundancies which resulted from the
acquisitions made by us since November 1999 and consolidating
our operational infrastructure into a common platform to more
efficiently serve our customers.

Additionally, as part of our restructuring and
integration efforts, we also undertook a review of our existing
strategic relationships in light of several criteria, including
strategic relevance to both us and our partners, potential
conflicts with other agreements as a result of the numerous
acquisitions made by us, profitability, and impact on future
revenue streams. These discussions have resulted in significant
revisions to some of our strategic relationships. Although we
are substantially complete with this process, we are still in
discussions with certain of our partners in an effort to
redefine those relationships in a manner that better serves the
needs of each party. It is possible that, as a result of
continuing discussions, these relationships may be revised or
terminated, which may result in the elimination of existing
revenue of as much as $5.0 million on a quarterly basis
beginning in the June 2002 quarter. We do not expect an adverse
impact on profitability as a result of any potential elimination
of revenues.

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In connection with our restructuring and
integration efforts, we recorded restructuring and integration
charges of $266.8 million, of which $185.5 million
were non-cash charges in 2001 and $452.9 million, of which
$380.0 million were non-cash in 2000. Our efforts are
substantially complete and our remaining obligation related to
these efforts, is estimated to be $44.4 million, which is
included in accrued expenses. For additional information
regarding our restructuring and integration efforts, see
Business  Restructuring and Integration
beginning on page 5 and note 5 to the consolidated
financial statements in this Annual Report.

Operating Segments

For the years 2000 and 1999, we reported and
managed our operations within a single segment: provider of
connectivity to participants in the healthcare industry. As a
result of the substantial completion of restructuring and
integration efforts that began in the third quarter of 2000, we
recently have aligned our business into three operating segments
as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Transaction Services or WebMD
	Envoy.We transmit electronic and
	Internet transactions between healthcare payers and physicians,
	pharmacies, dentists, hospitals, laboratory companies and other
	healthcare providers. We provide connectivity and transaction
	services through an integrated electronic transaction processing
	system. These services assist the groups customers in
	automating key administrative and clinical functions. This
	segment includes certain operations from the former Healtheon,
	and the ActaMed, MedE America, WebMD, Inc., Kinetra, Envoy and
	CareInsite acquisitions.                                                 
|
| |  | Physician Services or WebMD Medical
	Manager.We develop and market
	integrated physician practice management systems, including
	administrative, financial and clinical applications and
	services, under The Medical Manager brand. These systems and
	services allow physician offices to automate their scheduling,
	billing and other administrative tasks, to maintain electronic
	medical records and to automate documentation of patient
	encounters. This segment includes certain operations from
	Medical Manager and other small physician services companies
	acquired in 2001.                                                                     
|
| |  | Portal Services or WebMD
	Health.We provide online
	healthcare information and related resources and services for
	consumers and healthcare professionals, both directly and
	through our relationships with leading general consumer Internet
	portals. We also provide online content for use by media and
	healthcare partners in their Web sites. We develop and sell
	online and offline programs for advertisers and sponsors,
	particularly those who are interested in influencing healthcare
	decisions. This segment includes certain operations from the
	former Healtheon and the ActaMed, WebMD, Inc., Medcast, Medscape
	and OnHealth acquisitions.

We evaluate the performance of our business
segments based upon income or loss before restructuring and
non-cash items. Non-cash items include depreciation,
amortization, impairment charges, losses on investments and
non-cash expenses related to content and distribution services
acquired in exchange for our equity securities in acquisitions
and strategic alliances and stock compensation primarily related
to stock options issued and assumed in connection with
acquisitions. The accounting policies of the segments are the
same as the accounting policies for the consolidated company. We
record inter-segment revenues at rates comparable to those
charged to third parties for comparable services.

We are not able to provide certain segment
information for the years 2000 and 1999 as our operations and
internal reporting were not organized in a manner consistent
with the current reportable segments and it is impracticable to
create this information.

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Results of Operations

The following table sets forth certain data
expressed as a percentage of total revenue for the periods
indicated:

|                                |                                              |                          |        |       |  |      |        |       |  |  |        |       | 
|------------------------------- | -------------------------------------------- | ------------------------ | ------ | ----- |  | ---- | ------ | ----- |  |  | ------ | ----- | 
|                                |                                              |                         
|                                |                                              | Years Ended December 31,
|                                |                                              |                         
|                                |                                              | 2001                     |        | 2000  |  | 1999
|                                |                                              |                          |        |       |  |     
|Revenue                         |                                              |                          | 100.0  | %     |  |      | 100.0  | %     |  |  | 100.0  | %    
|Costs and expenses:             |                                              |                          |        |       |  |      |        |       |  |  |        |      
|                                | Cost of operations                           |                          |        | 66.3  |  |      |        | 74.2  |  |  |        | 86.7  | 
|                                | Development and engineering                  |                          |        | 5.6   |  |      |        | 11.4  |  |  |        | 29.0  | 
|                                | Sales, marketing, general and administrative |                          |        | 61.4  |  |      |        | 102.6 |  |  |        | 80.6  | 
|                                | Depreciation, amortization and other         |                          |        | 338.1 |  |      |        | 422.9 |  |  |        | 189.0 | 
|                                | Impairment of long-lived and other assets    |                          |        | 541.6 |  |      |        |      |  |  |        |      | 
|                                | Restructuring and integration charge         |                          |        | 37.8  |  |      |        | 87.6  |  |  |        |      | 
|                                | Loss on investments                          |                          |        |      |  |      |        | 7.6   |  |  |        |      | 
|                                | Interest income, net                         |                          |        | 4.1   |  |      |        | 9.7   |  |  |        | 3.4   | 
|                                |                                              |                          |        |       |  |      |        |       |  |  |        |      
|Loss from continuing operations |                                              |                          | (946.7 | )     |  |      | (596.6 | )     |  |  | (281.9 | )    
|                                |                                              |                          |        |       |  |      |        |       |  |  |        |      
|                                | Net income from discontinued operations      |                          |        | 0.7   |  |      |        |      |  |  |        |      | 
|                                |                                              |                          |        |       |  |      |        |       |  |  |        |      
|Net loss                        |                                              |                          | (946.0 | )%    |  |      | (596.6 | )%    |  |  | (281.9 | )%   
|                                |                                              |                          |        |       |  |      |        |       |  |  |        |      

Revenue is derived from our three business
segments: transaction services, physician services and portal
services. Our transaction services include administrative
services, such as transaction processing for medical, dental and
pharmacy claims, automated patient statements and clinical lab
and reporting services, such as lab test orders and results. Our
physician services include sales of The Medical Manager practice
management system, which addresses the administrative,
financial, clinical and practice management needs of physician
practices. Portal services include advertising, sponsorship,
continuing medical education, content syndication and
distribution, and e-commerce transactions through our online
distribution channels and the online and offline distribution
channels of our strategic partners.

Cost of operations consists of costs related to
services we provide to customers and costs associated with the
operation and maintenance of our networks. These costs include
salaries and related expenses for network operations personnel
and customer support personnel, telecommunication costs,
maintenance of network equipment, cost of hardware related to
the sale of practice management systems by physician services, a
portion of facilities expenses, leased personnel and facilities
costs, and sales commissions paid to certain re-sellers of our
transaction services products. Also included are non-cash
expenses related to content and distribution services.

Development and engineering expense consists
primarily of salaries and related expenses associated with the
development of applications and services. Expenses include
compensation paid to development and engineering personnel, fees
to outside contractors and consultants, and the maintenance of
capital equipment used in the development process.

Sales, marketing, general and administrative
expense consists primarily of advertising, product and brand
promotion, salaries and related expenses for sales,
administrative, finance, legal, information technology, human
resources and executive personnel. These expenses include items
related to account management and marketing personnel,
commissions, costs and expenses for marketing programs and trade
shows, and fees for professional marketing and advertising
services, as well as fees for professional services, costs of
general insurance, costs of accounting and internal control
systems to support our operations. Also included are non-cash
expenses related to content and distribution services acquired
for our equity securities and stock compensation expense
primarily related to the amortization of deferred compensation.
Content and distribution services consist of advertising,
promotion and distribution services from our

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arrangements with News Corporation, Microsoft,
AOL and other partners. Stock compensation primarily relates to
deferred compensation associated with the fair value of stock
options issued in exchange for outstanding stock options of
companies acquired in 2000, and the excess of the market price
over the exercise price of options granted to employees.


2001 and
2000

The following discussion includes a comparison of
the results of operations for 2001 and 2000 on both an actual
and pro forma basis. The pro forma information gives effect to
the acquisitions of Kinetra, Envoy, Medical Manager, CareInsite
and OnHealth (the 2000 Acquisitions) as if they had
occurred at the beginning of each period presented. The effect
of all other business combinations was not material to the pro
forma information presented below. The information is provided
for illustrative purposes only and is not necessarily indicative
of the operating results that would have occurred if the
transactions had been consummated at the dates indicated, nor is
it necessarily indicative of future operating results of the
combined company and should not be construed as representative
of these amounts for any future periods.

|                   |                                              |                                 |  |         |          |                |  |       |        |   |  |         |          |   |  |       |        |   |  |         |          |   |  |       |        |  
|------------------ | -------------------------------------------- | ------------------------------- |  | ------- | -------- | -------------- |  | ----- | ------ | - |  | ------- | -------- | - |  | ----- | ------ | - |  | ------- | -------- | - |  | ----- | ------ | -
|                   |                                              |                                
|                   |                                              | Years Ended December 31,       
|                   |                                              |                                
|                   |                                              |                                 |  |         |          |               
|                   |                                              | 2001                            |  | 2000    |          | Pro Forma 2000
|                   |                                              |                                 |  |         |          |               
|                   |                                              | $                               |  | %       |          | $              |  | %     |        | $ |  | %      
|                   |                                              |                                 |  |         |          |                |  |       |        |   |  |        
|                   |                                              |                                
|                   |                                              | (in millions)                  
|Revenue            |                                              |                                 |  |         |          |                |  |       |        |   |  |         |          |   |  |       |        |   |  |         |          |   |  |      
|                   | Transaction services                         |                                 |  | 384.0   |          |                |  | 54.3  |        |   |  | 270.4   |          |   |  | 52.3  |        |   |  | 373.7   |          |   |  | 47.1  |       
|                   | Physician services                           |                                 |  | 260.2   |          |                |  | 36.8  |        |   |  | 83.6    |          |   |  | 16.2  |        |   |  | 248.7   |          |   |  | 31.3  |       
|                   | Portal services                              |                                 |  | 74.6    |          |                |  | 10.6  |        |   |  | 140.1   |          |   |  | 27.1  |        |   |  | 150.2   |          |   |  | 18.9  |       
|                   | Inter-segment eliminations and other         |                                 |  | (12.2   | )        |                |  | (1.7  | )      |   |  | 23.1    |          |   |  | 4.4   |        |   |  | 21.7    |          |   |  | 2.7   |       
|                   |                                              |                                 |  |         |          |                |  |       |        |   |  |         |          |   |  |       |        |   |  |         |          |   |  |      
|                   |                                              | Total                           |  |         | 706.6    |                |  |       | 100.0  |   |  |         | 517.2    |   |  |       | 100.0  |   |  |         | 794.3    |   |  |       | 100.0  |  
|Costs and Expenses |                                              |                                 |  |         |          |                |  |       |        |   |  |         |          |   |  |       |        |   |  |         |          |   |  |      
|                   | Cost of operations                           |                                 |  | 468.7   |          |                |  | 66.3  |        |   |  | 383.6   |          |   |  | 74.2  |        |   |  | 531.5   |          |   |  | 66.9  |       
|                   | Development and engineering                  |                                 |  | 39.5    |          |                |  | 5.6   |        |   |  | 58.8    |          |   |  | 11.4  |        |   |  | 96.2    |          |   |  | 12.1  |       
|                   | Sales, marketing, general and administrative |                                 |  | 433.7   |          |                |  | 61.4  |        |   |  | 530.9   |          |   |  | 102.6 |        |   |  | 746.0   |          |   |  | 93.9  |       
|                   | Depreciation, amortization and other         |                                 |  | 2,389.8 |          |                |  | 338.1 |        |   |  | 2,187.0 |          |   |  | 422.9 |        |   |  | 3,140.3 |          |   |  | 395.4 |       
|                   | Impairment of long-lived and other assets    |                                 |  | 3,826.9 |          |                |  | 541.6 |        |   |  |        |          |   |  |      |        |   |  |        |          |   |  |      |       
|                   | Restructuring and integration charge         |                                 |  | 266.8   |          |                |  | 37.8  |        |   |  | 452.9   |          |   |  | 87.6  |        |   |  | 452.9   |          |   |  | 57.0  |       
|                   | Loss on investments                          |                                 |  |        |          |                |  |      |        |   |  | 39.6    |          |   |  | 7.6   |        |   |  | 39.6    |          |   |  | 5.0   |       
|                   | Interest income, net                         |                                 |  | 29.1    |          |                |  | 4.1   |        |   |  | 50.0    |          |   |  | 9.7   |        |   |  | 54.9    |          |   |  | 6.9   |       
|                   |                                              |                                 |  |         |          |                |  |       |        |   |  |         |          |   |  |       |        |   |  |         |          |   |  |      
|                   |                                              | Loss from continuing operations |  |         | (6,689.7 | )              |  |       | (946.7 | ) |  |         | (3,085.6 | ) |  |       | (596.6 | ) |  |         | (4,157.3 | ) |  |       | (523.4 | )
|                   |                                              |                                 |  |         |          |                |  |       |        |   |  |         |          |   |  |       |        |   |  |         |          |   |  |      

Revenue.Our total
revenue increased to $706.6 million in 2001 from
$517.2 million in 2000. Increases in our transaction
services and physician services revenues were partially offset
by a decline in our portal services revenue and inter-segment
eliminations and other. The increase in transaction services
revenue was primarily attributable to the full year impact of
the acquisitions of Envoy in May 2000 and CareInsite in
September 2000. The increase in physician services revenue was
attributable to the full year impact of the September 2000
acquisition of Medical Manager. The decrease in portal services
revenue was primarily due to the elimination of revenue as a
result of the termination of our strategic relationship with
DuPont and the revisions to our strategic relationship with
Microsoft. Revenues associated with these relationships were
$48.5 million in 2000, primarily related to the sponsorship
of subscriptions to the

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WebMD professional portal. There were no revenues
from these strategic relationships in 2001. Also contributing to
the decline in portal services revenue was the impact of the
softness in the market for Internet advertising on us and
certain of our carriage partners. The decrease in inter-segment
eliminations and other reflects our decision during 2000 to exit
our technology consulting and outsourcing relationships and
other non-core products, and an increase in the elimination of
inter-segment revenues included across the reportable segments
to $14.1 million from $3.1 million.


Our total revenue decreased to
$706.6 million in 2001 from $794.3 million in 2000 on
a pro forma basis. Decreases in our portal services revenue as
well as inter-segment eliminations and other were partially
offset by increases in our transaction services and physician
services revenues. The decrease in portal services revenue was
primarily attributable to the elimination of revenues from
sponsored subscriptions to our physician portal and the impact
of the softness in the market for Internet advertising on us and
certain of our carriage partners. The decrease in inter-segment
eliminations and other is primarily attributable to our decision
during 2000 to exit our technology consulting and outsourcing
relationships and other non-core products and an increase in the
elimination of inter-segment revenues included across reportable
segments to $14.1 million from $9.4 million. The
increase in transaction services revenue was primarily
attributable to higher transaction volumes. This increase was
offset by a reduction in revenues of $6.0 million related
to certain terminated product offerings or relationships such as
hospital and laboratory physician connectivity arrangements. The
increase in physician services revenue was primarily
attributable to the increase in sales of products and services
to existing customers.

Revenue from related parties was
$3.0 million in 2001 and $45.3 million in 2000. These
revenues consist of services provided to Microsoft (who ceased
being a related party in October 2001) and News Corporation (who
ceased being a related party in February 2001). None of our
customers individually accounted for more than 10% of our
revenue in 2001 or 2000.

We expect that revenue will increase in 2002, as
a result of our acquisition of Medscape in our portal services
segment as well as new product distribution in the physician
services and transaction services segments. This increase will
be partially offset by the impact of the phase out of non-core
products and services, primarily in the transaction and portal
services segments. We expect that the increase in revenues will
occur in the latter half of 2002 as a result of the timing of
new product introductions.

Costs and
Expenses

Cost of Operations.Cost of operations increased to $468.7 million in 2001 from
$383.6 million in 2000. The increase is attributable to
expenses related to the full year impact of the companies
acquired during 2000, increased personnel and network operation
costs and $1.5 million of non-cash distribution service
expense, partially offset by the elimination of costs as a
result of our restructuring and integration efforts. As a result
of the revision or termination of our strategic relationships,
primarily with Microsoft, News Corporation and DuPont, costs of
$37.8 million included in cost of operations in 2000 were
eliminated in 2001. Cost of operations as a percentage of
revenue declined to 66.3% from 74.2%. The decrease in cost of
operations as a percentage of revenues is primarily due to
changes in product mix as well as the elimination of costs as a
result of our restructuring and integration efforts.

Cost of operations decreased to
$468.7 million in 2001 from $531.5 million in 2000 on
a pro forma basis. As a percent of revenue, our cost of
operations declined to 66.3% from 66.9%. This decrease resulted
from the elimination of costs from our restructuring and
integration initiatives and from a change in the mix of revenues.

We expect cost of operations as a percentage of
revenues to improve further in 2002 as a result of continued
efficiencies from our consolidation initiatives.

Development and
Engineering.Development and
engineering expense decreased to $39.5 million in 2001 from
$58.8 million in 2000. The decrease was the result of cost
reductions related to our restructuring and integration efforts,
partially offset by the full year impact for companies acquired
during 2000.

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Development and engineering expense decreased to
$39.5 million in 2001 from $96.2 million in 2000 on a
pro forma basis. The decrease is primarily due to the impact of
cost reductions resulting from our restructuring and integration
efforts.

We expect that development and engineering costs
will slightly increase in 2002 primarily as a result of
investment in new product initiatives. We expect development and
engineering costs to remain flat as a percentage of revenues.

Sales, Marketing, General and
Administrative.Sales, marketing,
general and administrative expense decreased to
$433.7 million in 2001 from $530.9 million in 2000.
Sales, marketing, general and administrative expense excluding
non-cash expenses was $311.2 million in 2001 compared to
$370.9 million in 2000. The decrease in sales, marketing,
general and administrative expense excluding non-cash expenses
resulted from the elimination of costs as a result of our
restructuring and integration efforts, offset partially by costs
associated with the 2000 acquisitions and $3.0 million in
severance cost associated with the departure of our former
President. As a result of the revision or termination of our
strategic relationships, primarily with Microsoft, News
Corporation and DuPont, costs of $36.5 million included in
selling, marketing, general and administrative expense in 2000
were eliminated in 2001. Non-cash expenses include content and
distribution services expenses of $44.0 million and
$87.5 million in 2001 and 2000, respectively and stock
compensation of $78.5 million and $72.5 million in
2001 and 2000, respectively. The decrease in non-cash content
and distribution services expense reflects the impact of our
revised strategic relationships with News Corporation and
Microsoft and the termination of the DuPont relationship.

Sales, marketing, general and administrative
expense decreased to $433.7 million in 2001 from
$746.0 million in 2000 on a pro forma basis. Sales,
marketing, general and administrative expense excluding non-cash
was $311.2 million in 2001 and $526.8 million in 2000
on a pro forma basis. The decrease in sales, marketing, general
and administrative expense excluding non-cash expenses is
primarily due to the impact of cost reductions resulting from
our restructuring and integration efforts. Non-cash expenses
related to content and distribution services was
$44.0 million in 2001 and $87.5 million in 2000 on a
pro forma basis. The decrease in non-cash content and
distribution services expense reflects the impact of our revised
strategic relationships with News Corporation and Microsoft and
the termination of the DuPont relationship. Non-cash stock
compensation was $78.5 million in 2001 and
$131.7 million in 2000 on a pro forma basis. The decrease
in non-cash stock compensation is primarily related to the
vesting schedules of stock options issued and assumed in
connection with acquisitions.

We expect that sales, marketing, general and
administrative expense will continue to decrease in 2002, in
both absolute dollars and as a percentage of revenues.

Depreciation, Amortization and
Other.Depreciation, amortization and
other increased to $2.390 billion in 2001 from
$2.187 billion in 2000. The increase is due primarily to
the full year impact of amortization of intangible assets
associated with the companies acquired in 2000, offset by the
reduced amortization as a result of the impairment charge of
$3.827 billion related to the write-down of our long-lived
assets during 2001 and the elimination of $108.2 million of
dividends and accretion of discount related to the Series A
convertible preferred stock in 2000.

Depreciation, amortization and other decreased to
$2.390 billion in 2001 from $3.140 billion in 2000 on
a pro forma basis. This decrease is due to reduced amortization
as a result of the impairment charge related to the write-down
of our long-lived assets and elimination of $108.2 million
of dividends and accretion of discount on the Series A
convertible preferred stock.

As a result of the write-down related to our
long-lived and other assets, and upon the adoption of SFAS
No. 142 on January 1, 2002, goodwill will no longer be
subject to amortization and, as a result, we expect depreciation
and amortization expense to be approximately $120 million
to $130 million in 2002.

Impairment of Long-Lived and Other
Assets.During 2001, we identified
certain indicators of possible impairment of long-lived assets,
primarily goodwill and other acquired intangible assets. These
indicators included a further decline in the price of our common
stock to its lowest price in the last twelve months accompanied
by a significant decline in the volatility of our stock price, a
sustained decline in

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valuations in the e-health, technology and
Internet sectors, and the impact of recent trends in general
economic conditions. Based on these indicators, we reviewed
substantially all of our long-lived assets for impairment. As a
result of this review, we determined that our long-lived and
other assets, primarily goodwill and other acquired intangibles,
were impaired and recorded a write-down of $3.827 billion
during 2001.


Restructuring and Integration
Charges.In connection with our
restructuring and integration efforts, we recorded a total
charge in 2001 of $266.8 million, which consists of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $123.2 million relating to the restructuring
	and exiting of contracts primarily associated with Microsoft, of
	which $133.5 million represented non-cash charges related
	to the write-off of intangible assets associated with the
	original relationships with Microsoft recorded as part of our
	acquisition of WebMD, Inc. in 1999 offset by a
	$15.6 million benefit for the settlement of certain
	obligations from the original Microsoft agreement as well as
	$5.3 million related to net settlements to exit contractual
	obligations.                                                                                                                                                                                           
|
| |  | $52.0 million associated with the settlement
	of the original Quintiles agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | personnel-related restructuring costs of
	$67.6 million, of which $52.0 million represented
	non-cash stock compensation charges primarily related to the
	resignation of certain executives, pursuant to the applicable
	employment and separation arrangements. The balance relates to
	severance and outplacement services for approximately
	615 employees that we identified and notified of
	termination, principally as a result of eliminating duplicate
	functions within the combined company. This includes personnel
	related restructuring costs of $2.8 million related to
	severance and outplacement services for 115 employees that
	we notified of termination in relation to our Medscape
	acquisition and restructuring.
|
| |  | facilities charges of $15.5 million,
	comprised of future lease obligations and lease cancellation
	penalties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | $8.4 million of integration costs, which
	consist primarily of employee retention arrangements related to
	exit activities, moving and relocation expenses, as well as
	outside professional fees related to the integration of our
	business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Interest Income,
Net.Net interest income decreased to
$29.1 million in 2001 from $50.0 million in 2000 and
$54.9 million in 2000 on a pro forma basis. These decreases
were due to lower average balances available for investment as a
result of cash used to settle certain contracts with certain of
our strategic partners, repurchases of our common stock,
acquisitions during 2001 and 2000, and payments made under our
restructuring and integration program.

We expect interest income to decrease
significantly in 2002 due to lower balances available for
investment as well as lower rates of return available in the
marketplace.

2000 and 1999

Revenue.Revenue for 2000 and 1999 is as follows:

|                                     |  |               |       |      |  |   |       |   |  |  |       |  |  |  |       | 
|------------------------------------ |  | ------------- | ----- | ---- |  | - | ----- | - |  |  | ----- |  |  |  | ----- | 
|                                     |  |               |       |     
|                                     |  | 2000          |       | 1999
|                                     |  |               |       |     
|                                     |  | $             |       | %    |  | $ |       | %
|                                     |  |               |       |      |  |   |       |  
|                                     |  |              
|                                     |  | (in millions)
|Transaction services                 |  |               | 270.4 |      |  |   | 52.3  |   |  |  | 46.3  |  |  |  | 45.3  | 
|Physician services                   |  |               | 83.6  |      |  |   | 16.2  |   |  |  |      |  |  |  |      | 
|Portal services                      |  |               | 140.1 |      |  |   | 27.1  |   |  |  | 6.8   |  |  |  | 6.7   | 
|Inter-segment eliminations and other |  |               | 23.1  |      |  |   | 4.4   |   |  |  | 49.0  |  |  |  | 48.0  | 
|                                     |  |               |       |      |  |   |       |   |  |  |       |  |  |  |       | 
|                                     |  |               | 517.2 |      |  |   | 100.0 |   |  |  | 102.1 |  |  |  | 100.0 | 
|                                     |  |               |       |      |  |   |       |   |  |  |       |  |  |  |       | 

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Our total revenue increased to
$517.2 million in 2000 from $102.1 million in 1999.
The increase is due primarily to the revenue sources that were
acquired in our 1999 and 2000 acquisitions. Transaction services
revenue increased to 52.3% of total revenue in 2000 from 45.3%
in 1999 as a result of our acquisition of Envoy in May 2000 and
CareInsite in September 2000. Physician services revenue
comprised 16.2% of total revenue in 2000. There was no physician
services revenue in 1999. This increase is related to the
revenue from our acquisition of Medical Manager in September
2000. Portal services revenue increased to 27.1% of total
revenue in 2000 from 6.7% in 1999 primarily resulting from the
full year impact of revenue from sponsorships of the WebMD, Inc.
physician portal acquired in November 1999 and the acquisition
of OnHealth in September 2000. Inter-segment eliminations and
other comprised 4.4% of total revenue in 2000 as compared to
48.0% in 1999. This decrease reflects the decision to exit our
technology consulting and outsourcing relationships and other
non-core product offerings as well as the increase of
$3.1 million in the elimination of inter-segment revenues
in 2000. There were no inter-segment revenues in 1999.

Revenue from related parties, which consists
primarily of services provided to Microsoft and News Corporation
in 2000 and of services provided to Microsoft, UnitedHealth
Group and SmithKline Labs in 1999, increased to
$45.3 million in 2000 from $37.2 million in 1999. The
increase was primarily due to increases in subscription and
third party advertising revenue through our Microsoft strategic
alliance and from health-related syndicated content licensed to
News Corporation. Revenue from SmithKline Labs ceased being
related party revenue in August 1999 when SmithKline Labs was
sold to a third party that was not a stockholder, and revenue
from UnitedHealth Group ceased being related party revenue in
January 2000, when the Chairman and Chief Executive Officer of
UnitedHealth Group resigned from our Board of Directors.

Three of our customers, SmithKline Labs, Beech
Street Corporation and UnitedHealth Group, each accounted for
more than 10% of our revenue in 1999, and together accounted for
approximately 40.7% of our revenue for the same period. None of
our customers individually accounted for more than 10% of our
revenue in 2000.

Cost of Operations.Cost of operations increased to $383.6 million in 2000 from
$88.6 million in 1999. The increase is attributable to
expenses related to the companies acquired in 2000 and 1999,
which contributed $141.5 million of the increase and
increased personnel and network operation costs, the cost to
acquire exclusive arrangements to provide consumer
healthcare-related content to other Web sites and other costs
required to support increased service revenue. Cost of
operations as a percentage of revenues was 74.2% for the year
ended December 31, 2000 compared to 86.7% for the year
ended December 31, 1999. The decrease in cost of operations
as a percentage of revenue is primarily related to product mix.

Development and
Engineering.Development and
engineering expense increased to $58.8 million in 2000 from
$29.7 million in 1999. The increase was the result of a
significant increase in the number of engineers engaged in the
development of our applications and services. Expenses related
to the companies acquired in 2000 were $5.1 million.

Sales, Marketing, General and
Administrative.Sales, marketing,
general and administrative expense increased to
$530.9 million in 2000 from $82.3 million in 1999.
Sales, marketing, general and administrative expense excluding
non-cash expenses was $370.9 million in 2000 compared to
$66.8 million in 1999. This increase was primarily
attributable to the companies acquired in late 1999 and 2000.
Non-cash expenses include content and distribution services
expense of $87.5 million in 2000 and $7.9 million in
1999 and stock compensation expense of $72.5 million in
2000 and $7.6 million in 1999. The increase was due to
non-cash expenses related to content and distribution services
that resulted from the strategic alliances with News
Corporation, which was consummated in January 2000, and
Microsoft and DuPont which were established in November 1999
with our acquisition of WebMD, Inc. The increase in non-cash
stock compensation was a result of the acquisitions made during
2000. Of the increase in sales, marketing, general and
administrative expense, $120.4 million is a result of
expenses incurred by the companies acquired in 2000.

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Depreciation, Amortization and
Other.Depreciation, amortization and
other increased to $2.187 billion in 2000 from
$193.1 million in 1999. The increase is due primarily to
the amortization of intangible assets associated with the
companies acquired in 2000 and 1999 and $108.2 million of
dividends and accretion of discount related to the Series A
convertible preferred stock which was issued in 2000.

Restructuring and Integration
Charges.In connection with our
restructuring and integration efforts, we recorded a total
charge in the year ended December 31, 2000 of
$452.9 million, which consisted of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $320.9 million relating to the restructuring
	of contracts primarily associated with News Corporation and
	DuPont, of which $312.8 million represented non-cash charges                                                                                                                                                                                                                                                                                                                                         
|
| |  | personnel-related restructuring costs of
	$70.1 million, of which $53.1 million represented
	non-cash stock option compensation charges primarily related to
	the resignation of certain executives, pursuant to the
	applicable employment and separation arrangements. The balance
	relates to severance and outplacement services for approximately
	1,100 employees that we identified and notified of termination,
	principally as a result of eliminating duplicate functions
	within the combined company
|
| |  | facilities charges of $51.3 million,
	comprised of $37.2 million of future lease obligations and
	lease cancellation penalties and $14.1 million of non-cash fixed
	asset write-offs related to vacating duplicate facilities                                                                                                                                                                                                                                                                                   
|
| |  | $10.6 million of integration costs, which
	consist primarily of employee retention arrangements related to
	exit activities, moving and relocation expenses, as well as
	outside professional fees related to the integration of our
	business.                                                                                                                                                                                                                                                                 

Loss on Investments.During 2000, we recorded a loss on equity investments in certain
Internet-related companies of $39.6 million. We assessed
various factors related to these investments, including the
decline in the market prices where available, the review of each
of the companies financial statements, including their
cash positions and negative cash flow, as well as the change in
market conditions with respect to the ability of companies such
as these Internet start-up companies to raise additional
capital. Based on this assessment, we determined that a
permanent impairment existed in these investments.

Interest Income,
Net.Net interest income increased to
$50.0 million in 2000 from $3.5 million in 1999. The
increase was due to higher average cash balances resulting from
the proceeds of Janus Capital Corporations
$930 million investment in us through its managed mutual
funds and $100 million from our strategic alliance with
News Corporation, offset by the net cash paid for the companies
acquired in 2000.

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Results of Operations for 2001 by Operating
Segment

The following table presents the results of our
operations for 2001 by quarter for each of our reportable
segments:

|                                                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|------------------------------------------------------------------ |  | ------------- | -------- | -------- |  | --------- | ------ | -------- |  | ------------- | -------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                   |  |               |          |         
|                                                                   |  | Quarter Ended |          |         
|                                                                   |  |               |          |         
|                                                                   |  | March 31,     |          | June 30, |  | Sept. 30, |        | Dec. 31, |  | Year Ended   
|                                                                   |  | 2001          |          | 2001     |  | 2001      |        | 2001     |  | Dec. 31, 2001
|                                                                   |  |               |          |          |  |           |        |          |  |              
|                                                                   |  |              
|                                                                   |  | (in millions)
|Revenues                                                           |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|Transaction services                                               |  | $             | 98.6     |          |  | $         | 97.8   |          |  | $             | 92.6     |   |  | $ | 95.0   |   |  | $ | 384.0    |  
|Physician services                                                 |  |               | 66.1     |          |  |           | 66.5   |          |  |               | 62.1     |   |  |   | 65.5   |   |  |   | 260.2    |  
|Portal services                                                    |  |               | 21.6     |          |  |           | 17.0   |          |  |               | 15.9     |   |  |   | 20.1   |   |  |   | 74.6     |  
|Inter-segment eliminations and other, net(a)                       |  |               | (1.8     | )        |  |           | (2.6   | )        |  |               | (3.6     | ) |  |   | (4.2   | ) |  |   | (12.2    | )
|                                                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|                                                                   |  | $             | 184.5    |          |  | $         | 178.7  |          |  | $             | 167.0    |   |  | $ | 176.4  |   |  | $ | 706.6    |  
|                                                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|Income (loss) before restructuring and
	non-cash items             |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|Transaction services                                               |  | $             | 8.9      |          |  | $         | 8.9    |          |  | $             | 10.6     |   |  | $ | 13.6   |   |  | $ | 42.0     |  
|Physician services                                                 |  |               | 5.3      |          |  |           | 6.6    |          |  |               | 3.4      |   |  |   | 5.5    |   |  |   | 20.8     |  
|Portal services                                                    |  |               | (27.1    | )        |  |           | (21.1  | )        |  |               | (18.6    | ) |  |   | (12.6  | ) |  |   | (79.4    | )
|Corporate and other                                                |  |               | (30.7    | )        |  |           | (26.2  | )        |  |               | (21.3    | ) |  |   | (16.6  | ) |  |   | (94.8    | )
|Interest income, net                                               |  |               | 10.9     |          |  |           | 8.1    |          |  |               | 6.4      |   |  |   | 3.7    |   |  |   | 29.1     |  
|                                                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|                                                                   |  | $             | (32.7    | )        |  | $         | (23.7  | )        |  | $             | (19.5    | ) |  | $ | (6.4   | ) |  | $ | (82.3    | )
|                                                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|Restructuring and non-cash items                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|Depreciation, amortization and other                               |  | $             | (759.8   | )        |  | $         | (755.1 | )        |  | $             | (751.5   | ) |  | $ | (123.4 | ) |  | $ | (2,389.8 | )
|Non-cash content and distribution services and
	stock compensation |  |               | (38.2    | )        |  |           | (31.8  | )        |  |               | (26.4    | ) |  |   | (27.5  | ) |  |   | (123.9   | )
|Impairment of long-lived and other assets                          |  |               |         |          |  |           |       |          |  |               | (3,826.9 | ) |  |   |       |   |  |   | (3,826.9 | )
|Restructuring and integration                                      |  |               | (208.7   | )        |  |           | (11.2  | )        |  |               | (.3      | ) |  |   | (46.6  | ) |  |   | (266.8   | )
|                                                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  
|Loss from continuing operations                                    |  | $             | (1,039.4 | )        |  | $         | (821.8 | )        |  | $             | (4,624.6 | ) |  | $ | (203.9 | ) |  | $ | (6,689.7 | )
|                                                                   |  |               |          |          |  |           |        |          |  |               |          |   |  |   |        |   |  |   |          |  



---



|    |                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes revenues related to technology
	outsourcing and consulting relationships and other non-core
	products that we decided to exit as a result of restructuring
	and integration efforts that commenced in the third quarter of
	2000, and elimination of inter-segment revenues of $3.1, $3.2,
	$3.6 and $4.2 in the four quarters of 2001, respectively.

The following is a discussion of the trends in
quarterly results in each of our segments for 2001.

Transaction Services.Revenues declined slightly between the
March and June quarters primarily due to seasonality in this
segment. Revenues declined between the June and September
quarters due to seasonality and the elimination of revenues
related to certain terminated product offerings or
relationships, such as hospital and laboratory connectivity
arrangements and the consolidation of duplicate product
offerings. Revenues increased between the September and December
quarters primarily as a result of seasonality. Medical related
transactions tend to be highest in the December and March
quarters as a result of a combination of the impact of the
winter season and the resetting of insurance deductibles for
patient visits to healthcare providers.

Income before restructuring and non-cash items
improved each consecutive quarter in both absolute dollars and a
percentage of revenue as a result of our consolidation and
integration efforts, particularly in the September and December
quarters when the more significant operating facilities were
combined.

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We may exit additional non-core products or
relationships that could decrease revenues by as much as
$5 million per quarter, beginning in the June 2002 quarter.
We expect this to be more than offset by growth from new
products and normal market growth. We do not anticipate that any
loss of non-core revenues will have a negative impact on
operating results. We anticipate continued improvements in
operating efficiencies in 2002.

Physician Services.Revenues increased slightly between the March and June quarters
primarily as a result of increased sales of transaction
processing subscription products to our installed base of
physicians and the revenues from acquisitions completed at the
end of the March quarter, offset in part by lower levels of new
product sales due to the uncertain economy and its impact on the
investment spending decisions of physician practices. Revenues
declined between the June and September quarters primarily due
to the impact of disruptions in sales and installation activity
with physician offices resulting from the after-effects of the
events of September 11, 2001. Revenues increased between
the September and December quarters as the after-effects of
September 11, 2001 abated.

Income before restructuring and non-cash items
increased between the March and June quarters due to the impact
of certain large high margin sales in the June quarter. Income
before restructuring and non-cash items decreased between the
June and September quarters because of the impact of the
after-effects of the events of September 11, 2001 on
revenues and on shipping and traveling expenses. Income before
restructuring and non-cash items increased in the December
quarter as the after-effects of the events of September 11,
2001 abated.

We expect some sequential quarter revenue growth
in 2002 as we begin the introduction of our new product
offerings. We expect income before restructuring and non-cash
items for the year will increase in 2002, although sequential
quarterly results may be impacted by roll out costs of new
products in advance of revenue generation.

Portal Services.Revenues declined between the March, June and September quarters
as a result of the impact of the softening of the market for
advertising on us and certain of our customers and partners and
the timing of advertising placement based on the product
marketing initiatives of our customers. Revenue increased
between the September and December quarters due to higher
revenues from our existing customers as they launched their
product marketing initiatives, offset in part by a reduction in
barter advertising revenues as we renegotiated the volume and
site placement of advertising on our online distribution
channels.

Loss before restructuring and non-cash items
declined each sequential quarter in 2001 as a result of our
restructuring and integration and cost containment efforts. We
have not yet completed the technology integration of our portal
assets as well as the integration of the Medscape operations and
WebMD portal operations. These efforts will continue during the
first half of 2002.

We anticipate portal revenues will increase
slightly in 2002 as a result of the acquisition of the Medscape
portal operations which occurred on December 26, 2001, and
growth in sales to both new and existing customers, offset by a
reduction in revenues as we eliminated certain non-core and
non-profitable arrangements in 2001. We expect quarterly losses
before restructuring and non-cash items to continue to decline
each quarter in 2002 and generate income before non-cash and
restructuring expenses in the December 2002 quarter.

Inter-Segment Eliminations and Other, Netincludes residual revenues from
technology outsourcing and consulting relationships and other
non-core products that were exited in 2001 of $1.1 million
and $0.6 million in the March and June quarters. The
increases in inter-segment eliminations each consecutive quarter
results from the increased sales of transaction services
products into the physician services customer base.

We expect the trend in selling the transaction
products into the physician service customer base to continue in
2002.

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Corporate and Otherincludes expenses shared across all
segments, such as executive personnel, corporate finance,
corporate legal, human resources and risk management as well as
the residual costs during the March and June quarters related to
the exit of discontinued products resulting from our
restructuring and integration efforts. Corporate and other
expenses declined each consecutive quarter in 2001 as a result
of consolidating many duplicative corporate functions that
existed in the companies acquired in 1999 and 2000.

We expect that the corporate and other expenses
will continue to decline in 2002 both in absolute dollars and as
a percentage of revenues as we gain efficiencies as a result of
the integration of these functions.

Interest Income, Netdeclined in each consecutive quarter
in 2001 due to a decline in cash available for investment and a
continuing decline in interest rates.

We anticipate that interest income will continue
to decline in 2002 because of the significant amount of cash we
used to repurchase our stock during the December 2001 quarter,
cash used for acquisitions in the December 2001 quarter, and the
continuing trend in lower interest rates.

Liquidity and Capital Resources

We have incurred significant operating and net
losses since we began operations and, as of December 31,
2001, we had an accumulated deficit of $10.2 billion. We
plan to continue to invest in the integration of our
acquisitions, strategic relationships, infrastructure and
applications development. Our current expectation is to generate
income before restructuring and integration charges,
depreciation, amortization and other non-cash items in 2002.

As of December 31, 2001, we had
approximately $352.2 million in cash and cash equivalents
and short-term investments. As of December 31, 2001, our
working capital was $432.1 million. Subsequent to
December 31, 2001, we invested approximately
$150 million of cash and cash equivalents and short-term
investments into securities with maturities of up to three
years. As a result, we expect working capital will decrease when
compared to December 31, 2001 as a result of classifying
these investments as non-current assets.

Cash used in operating activities was
$139.2 million in 2001 compared to $461.6 million in
2000 and $76.0 million in 1999. The cash used during these
periods was primarily attributable to the net losses of
$6.684 billion in 2001, $3.086 billion in 2000 and
$288.0 million in 1999, offset in part by non-cash charges
of $6.526 billion, $2.767 billion and
$208.6 million in 2001, 2000 and 1999, respectively. These
non-cash charges consist of depreciation and amortization,
impairment of long-lived and other non-cash expenses related to
stock compensation, and content and distribution services, loss
on investments and the non-cash portion of the restructuring and
integration charge.

Cash provided by investing activities was
$83.2 million in 2001, compared to cash used in investing
activities of $361.0 million in 2000 and cash provided by
investing activities of $281.2 million in 1999. Cash
provided in 2001 primarily related to maturities of federal
agency notes. Cash used in 2000 primarily related to
$286.9 million in net cash paid when we acquired Envoy,
Medical Manager, CareInsite and OnHealth. Cash provided in 1999
primarily related to $296.5 million in net cash acquired
when we merged with WebMD, Inc., MedE America and Medcast.
Investments in property and equipment, excluding equipment
acquired under capital leases, and internally developed software
were $24.2 million in 2001, $30.2 million in 2000 and
$27.0 million in 1999. We invest our excess cash
principally in U.S. Treasury obligations and federal agency
notes and expect to do so in the future.

Cash used in financing activities was
$181.7 million in 2001, primarily related to repurchase of
our common stock, offset by proceeds from exercises of employee
stock options. Cash provided by financing activities was
$1.028 billion in 2000, primarily related to the net
proceeds of the sale of our common stock to Janus and News
Corporation and its affiliates, partially offset by repurchases
of our common stock. Cash provided by financing activities was
$61.1 million in 1999, primarily from the net proceeds of
our initial public offering of $41.4 million, as well as
proceeds from exercises of employee stock options.

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In connection with the acquisition of CareInsite,
we issued $10.0 million of Series B convertible
redeemable preferred stock. On March 15, 2002, we redeemed
the outstanding Series B preferred stock for
$10.0 million in accordance with its terms.

As of December 31, 2001, we did not have any
material commitments for capital expenditures. Our principal
commitments at December 31, 2001 consisted primarily of
obligations under operating leases and guaranteed payments under
our strategic agreements. We had entered into agreements that
provided for us to make aggregate guaranteed payments in the
following estimated amounts, net of sublease income, under
operating leases and our strategic relationships. The lease
amounts include leases identified in our restructuring and
integration effort.

|                         |  |               |      |               |  |       |     |  |  |   |      | 
|------------------------ |  | ------------- | ---- | ------------- |  | ----- | --- |  |  | - | ---- | 
|                         |  |               |      | Strategic     |  |      
|                         |  | Leases        |      | Relationships |  | Total
|Year Ending December 31, |  |               |      |               |  |      
|                         |  |              
|                         |  | (In millions)
|2002                     |  | $             | 22.6 |               |  | $     | 7.3 |  |  | $ | 29.9 | 
|2003                     |  |               | 19.0 |               |  |       | .6  |  |  |   | 19.6 | 
|2004                     |  |               | 15.7 |               |  |       |    |  |  |   | 15.7 | 
|2005                     |  |               | 13.3 |               |  |       |    |  |  |   | 13.3 | 
|2006                     |  |               | 11.2 |               |  |       |    |  |  |   | 11.1 | 
|Thereafter               |  |               | 52.7 |               |  |       |    |  |  |   | 52.7 | 

We believe that we will have sufficient cash
resources to meet our presently anticipated working capital and
capital expenditure requirements, including the capital
requirements related to the roll-out of our new products in
2002, for the foreseeable future. Our future liquidity and
capital requirements will depend upon numerous factors,
including the success of the integration of our businesses, our
existing and new application and service offerings, competing
technological and market developments, potential future
acquisitions and additional repurchases of our common stock. We
may need to raise additional funds to support expansion, develop
new or enhanced applications and services, respond to
competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities.
If required, we may raise such additional funds through public
or private debt or equity financing, strategic relationships or
other arrangements. There can be no assurance that such
financing will be available on acceptable terms, if at all, or
that such financing will not be dilutive to our stockholders.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards
Board, or FASB, issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. We adopted
SFAS No. 133 for the year ending December 31, 2001.
SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities.
Derivatives that are not designated as part of a hedging
relationship must be adjusted to fair value through income. If
the derivative is a hedge, depending on the nature of the hedge,
the effective portion of the hedges change in fair value
is either offset against the change in fair value of the hedged
asset, liability or firm commitment through income, or held in
equity until the hedged item is recognized in income. The
ineffective portion of a hedges change in fair value is
immediately recognized in income. Adoption of SFAS No. 133
did not have a material impact on our financial condition or
results of operations.

On July 20, 2001, the FASB issued SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
We are required to adopt these pronouncements beginning
January 1, 2002. SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting. SFAS No. 142
changes the accounting for goodwill and other intangible assets.
Goodwill will no longer be subject to amortization over its
estimated useful life. Rather, goodwill will be subject to at
least an annual assessment for impairment by applying a
fair-value-based test. All other acquired intangibles should be
separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, or
exchanged, regardless of the acquirers intent to do so.
Other intangibles will be

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amortized over their useful lives. As a result of
adopting SFAS No. 141 and SFAS No. 142 effective as of
January 1, 2002, the amortization of goodwill will be
eliminated, resulting in a significant reduction of amortization
expense for goodwill and certain other intangible assets.
Additionally, we will be required to assess goodwill for
impairment at least annually. We do not expect the impact of
adopting the fair value based impairment test to be significant.


On August 1, 2001, FASB issued SFAS
No. 144, Accounting For Impairment of Long-Lived
Assets. We are required to adopt this pronouncement
beginning January 1, 2002. SFAS No. 144 prescribes the
accounting for long-lived assets (excluding goodwill) to be
disposed of by sale. SFAS No. 144 retains the requirement
of SFAS No. 121 to measure long-lived assets classified as
held for sale at the lower of its carrying value or fair market
value less the cost to sell. Therefore, discontinued operations
are no longer measured on a net realizable basis, and future
operating results are no longer recognized before they occur.
The impact of adopting SFAS No. 144 will not have a
material impact on our financial condition or results of
operations.

On November 15, 2001, the FASB issued a
Staff Announcement regarding EITF Topic D-103, which
relates to the income statement classification of reimbursements
received for out-of-pocket expenses. This Announcement requires
reimbursements received for out-of-pocket expenses to be
classified as revenue as opposed to being offset against the
related expense. Application of this Announcement is required
for financial reporting periods beginning after
December 15, 2001. Upon application, comparative financial
statements for prior periods are required to be reclassified to
comply with the guidance in this Announcement. We will begin to
apply the accounting prescribed in this Announcement in 2002.
Upon application of this Announcement, we will reclassify
reimbursements we have received for out-of-pocket expenses
related to postage for customized billing statements mailed to
patients on behalf of healthcare providers. This
reclassification will result in an increase in revenue and cost
of operations of $73.4 million for 2001 and
$39.4 million for 2000.

Factors That May Affect Our Future Financial
Condition or Results of Operations



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to generate revenue could
	suffer if we do not continue to update and improve our existing
	products and services and develop new ones

We must introduce new products and services and
improve the functionality of our existing products and services
in a timely manner in order to retain existing customers and
attract new ones. However, we may not be successful in
responding to technological developments and changing customer
needs. The pace of change in the markets we serve is rapid and
there are frequent new product and service introductions by our
competitors and by vendors whose products and services we use in
providing our own products and services. If we do not respond
successfully to technological changes and evolving industry
standards, our products and services may become obsolete.
Technological changes may also result in the offering of
competitive products and services at lower prices than we are
charging for our products and services, which could result in
our losing sales unless we lower the prices we charge.

We rely on a combination of internal development,
strategic relationships, licensing and acquisitions to develop
our products and services. The cost of developing new healthcare
information technology products and services is inherently
difficult to estimate. Our development of proposed products and
services may take longer than originally expected, require more
testing than originally anticipated and require the acquisition
of additional personnel and other resources. In addition, there
can be no assurance that the products we develop or license will
be able to compete with the alternatives available to our
customers. See Business  Competition
beginning on page 18.



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | New or newly integrated products and
	services will not become profitable unless they achieve
	sufficient levels of physician penetration and market
	acceptance

There can be no assurance that physicians and
payers will accept from us new products and services or products
and services that result from integrating existing and/or
acquired products and services,

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including the products and services we are
developing to integrate our transaction services and portal
services into the physician office workflow, such as our
handheld solution.


Even physicians and payers who are already our
customers may not purchase new or newly integrated products or
services, especially when they are initially offered. Physicians
using our existing products and services may refuse to adopt new
or newly integrated products and services when they have made
extensive investments in hardware, software and training
relating to those existing products and services. Similarly,
other healthcare participants may not accept new or newly
integrated products and services from us developed for their
use. In addition, there can be no assurance that any pricing
strategy that we implement for any such products and services
will be economically viable or acceptable to the target markets.
Failure to achieve broad penetration in target markets with
respect to new or newly integrated products and services could
have a material adverse effect on our business prospects.

Achieving market acceptance for new or newly
integrated products and services is likely to require
substantial marketing efforts and expenditure of significant
funds to create awareness and demand by participants in the
healthcare industry. In addition, deployment of new or newly
integrated products may require the use of additional resources
for training our existing sales force and customer service
personnel and for hiring and training additional salespersons
and customer service personnel. There can be no assurance that
the revenue opportunities from new or newly integrated products
and services will justify amounts spent for their development,
marketing and roll-out.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Developments in the healthcare industry
	could adversely affect our revenues

Almost all of our revenues come from customers in
various parts of the healthcare industry. Developments that
result in a reduction of expenditures by customers or potential
customers in the healthcare industry could have a material
adverse effect on our business. The healthcare industry has
changed significantly in recent years and we expect that
significant changes will continue to occur. However, the timing
and impact of developments in the healthcare industry are
difficult to predict. Reductions in expenditures by healthcare
industry participants could result from, among other things:



| |   |                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | government regulation or private initiatives that
	affect the manner in which healthcare providers interact with
	patients, payers or other healthcare industry participants,
	including changes in pricing or means of delivery of healthcare
	products and services;        
|
| |  | decreases in marketing expenditures by
	pharmaceutical companies or medical device manufacturers,
	including as a result of governmental regulation or private
	initiatives that discourage or prohibit promotional activities
	by pharmaceutical or medical device companies;
|
| |  | consolidation of healthcare industry participants;                                                                                                                                                                                                                            
|
| |  | reductions in governmental funding for
	healthcare; and                                                                                                                                                                                                                       
|
| |  | adverse changes in business or economic
	conditions affecting healthcare payers or providers,
	pharmaceutical companies, medical device manufacturers or other
	healthcare industry participants.                                                                             

In addition, even if general expenditures by
industry participants remain the same or increase, developments
in the healthcare industry may result in reduced spending on
information technology and services or in some or all of the
specific segments of that market we serve or are planning to
serve. Expectations of our customers regarding pending or
potential developments may also affect their budgeting processes
and spending plans. We cannot provide assurance that the markets
for our products and services will expand and develop or that we
will have adequate technical, financial and marketing resources
to maintain or increase our share of these markets or to enter
additional markets.

For additional discussion of the potential
effects of regulatory matters on our business and on
participants in the healthcare industry, see
Business  Government Regulation beginning
on page 20.

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| |                                                                
| | ---------------------------------------------------------------
| | We have incurred and will continue to incur
	substantial losses

We began operations in January 1996 and have
incurred net losses from operations in each year since our
inception. During 2001, we identified certain indicators of
possible impairment of long-lived assets, primarily goodwill and
other acquired intangible assets and reviewed substantially all
of our long-lived assets for impairment. These indicators
included a further decline in the price of our common stock to
its lowest price in the last twelve months accompanied by a
significant decline in the volatility of our stock price, a
sustained decline in valuations in the e-health, technology and
Internet sectors, and the impact of recent trends in general
economic conditions. As a result of this review, we determined
that our long-lived and other assets, primarily goodwill and
other acquired intangibles, were impaired and recorded a
write-down of $3.827 billion during 2001. Other unknown future
indications of possible impairment charges, such as a
significant downturn in one of our business segments or general
economic conditions, could result in an additional assessment of
our long-lived assets for impairment and could result in an
additional impairment charge in the future.

As of December 31, 2001, we had
approximately $660.3 million of goodwill and other
intangible assets reflected on our financial statements as a
result of acquisitions. In the past, amortization of goodwill
and other intangibles comprised a significant portion of our
total net losses. However, as a result of the write-down related
to our long-lived and other assets, primarily goodwill and other
acquired intangibles, during the third quarter of 2001, and upon
the adoption of SFAS No. 142 on January 1, 2002,
goodwill will no longer be subject to amortization and, as a
result, we expect depreciation and amortization expense to be
approximately $120 million to $130 million in 2002. We
will be required to assess goodwill for impairment at least
annually.

In addition, we currently intend to continue to
invest in infrastructure development, applications development,
sales and marketing, and acquisitions in order to execute on our
business plan. We expect that we will incur losses for at least
the next 12 months and there can be no assurances that we
will ever be profitable.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Revisions to or terminations of our
	strategic relationships could adversely affect our
	revenue

As part of our restructuring and integration
efforts, we undertook a review of our strategic relationships in
light of several criteria, including strategic relevance to us
and to the other party, potential conflicts with other
relationships as a result of the numerous acquisitions we had
made, profitability and impact on future revenue streams. As a
result of this process, we entered into negotiations to revise
or terminate many of those relationships. In some cases, we were
able to redefine the relationships in a manner that better
serves the needs of each party. In other cases, these
discussions have resulted in termination of the relationships.
These revisions and terminations have resulted in the
elimination of potential revenues. Although we have
substantially completed this process, we are still in
discussions with certain of our partners in an effort to
redefine those relationships in a manner that better serves the
needs of each party. It is possible that, as a result of
continuing discussions, these relationships may be revised or
terminated, which may result in the elimination of additional
revenue.



| |                                                               
| | --------------------------------------------------------------
| | We face significant competition for our
	products and services

The markets in which we operate are intensely
competitive, continually evolving and subject to rapid
technological change. There can be no assurance that healthcare
payers and providers will continue to use independent
clearinghouses, such as WebMD Envoy, to transmit healthcare
transactions. Some of our existing payer and provider customers
and some of our strategic partners compete with us or plan to do
so or belong to alliances that compete with us or plan to do so.
We cannot provide assurance that we will be able to maintain our
existing links to payers or develop new connections on
satisfactory terms, if at all. Many of our competitors have
greater financial, technical, product development, marketing and
other resources than we do. These organizations may be better
known than we are and have more customers than we do. We cannot
provide assurance that we will be able to compete successfully
against these

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organizations or any alliances they have formed
or may form. For more information about the competition we face,
see Business  Competition beginning on
page 18.




| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | WebMD Envoys transaction volume and
	financial results could be adversely affected if we do not
	maintain relationships with practice management system vendors
	and large submitters of healthcare EDI
	transactions

To market and increase the usage of our WebMD
Envoy transaction services, we have developed relationships with
practice management system vendors and large submitters of
healthcare claims. WebMD Medical Manager is a competitor of
these practice management system vendors. These vendors, as a
result of our ownership of WebMD Medical Manager or for other
reasons, may choose in the future to diminish or terminate their
relationships with WebMD Envoy. Some other large submitters of
claims compete with, or may have significant relationships with
entities that compete with, WebMD Envoy or WebMD Health. To the
extent that we are not able to maintain mutually satisfactory
relationships with the larger practice management system vendors
and large submitters of healthcare EDI transactions, WebMD
Envoys transaction volume and financial results could be
adversely affected.



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | WebMD Envoys transaction volume and
	financial results could be adversely affected if payers and
	providers conduct EDI transactions without using a
	clearinghouse

There can be no assurance that healthcare payers
and providers will continue to use WebMD Envoy and other
independent companies to transmit healthcare transactions. Some
payers currently offer electronic data transmission services to
healthcare providers that establish a direct link between the
provider and payer, bypassing third party EDI service providers
such as WebMD Envoy. Any significant increase in the utilization
of direct links between healthcare providers and payers could
have a material adverse effect on WebMD Envoys transaction
volume and financial results. We cannot provide assurance that
we will be able to maintain our existing links to payers or
develop new connections on satisfactory terms, if at all.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Our ability to generate sufficient
	advertising and sponsorship revenue from our portal services is
	unproven

We derive a portion of our revenues from
advertising and sponsorships on our Web sites and other Web
sites that license our content. The Internet advertising and
sponsorship market is new and rapidly evolving, and no standards
have been widely accepted to measure its effectiveness as
compared to traditional media advertising. Demand for Internet
advertising in general has, during the past year, been weaker
than in prior periods and there can be no assurance that such
demand will return to the levels seen previously. We cannot
provide assurance that we will be able to generate sufficient
advertising or sponsorship revenue from our portal services to
make these services profitable.

We are seeking to enter into relationships with
advertisers and sponsors in which we will be compensated based
on specific negotiated criteria designed to demonstrate the
value of our portal services to the advertisers and sponsors.
The amount of compensation that we receive from such
arrangements is inherently difficult to estimate and may be less
than we believed it would be at the time of entering into such
arrangements and at the time of performing the services.



| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Loss of a small number of key advertisers
	and sponsors could have a material adverse effect on our portal
	services revenues

We expect that a substantial portion of our
portal services revenue from advertising and sponsorship sales
in any given future period may continue to come from a
relatively small number of advertisers and sponsors. Thus, the
loss of a small number of relationships with key advertisers and
sponsors or reduction of their purchases could have a material
adverse effect on our portal services revenues. We may lose such
relationships or experience a reduction in purchases if we fail
to meet our customers expectations or needs or to keep up
with our competition or for reasons outside our control,
including changes in economic and regulatory conditions
affecting the healthcare industry. See Developments in the
healthcare industry could

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adversely affect our revenues on
page 55 and Business  Government
Regulation beginning on page 20.




| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | The WebMD Health Network has limited
	experience with international operations and in adapting its
	services in non-United States markets

To date, we have had limited experience in
developing localized versions of our portal services and in
marketing and operating our portal services internationally.
However, we intend to continue to devote resources to expanding
our portals business to select non-United States markets. To
achieve this, we may enter into relationships with foreign
business partners. We may experience difficulty in obtaining
these partners and managing international operations because of
distance, trade regulation, language barriers and cultural
differences. The financial results of our international
operations may be harmed by a variety of factors, including
changes in foreign currency exchange rates, changes in a
countrys or regions political, regulatory and
economic conditions, and difficulties we may encounter in
protecting our intellectual property.



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business could suffer if our software
	products and information technology systems contain errors,
	experience failures or do not meet customer
	expectations

The software products and information technology
systems we offer are inherently complex. Despite testing and
quality control, we cannot be certain that errors will not be
found in prior versions, current versions or future versions or
enhancements of our software products and information technology
systems. We could face breach of warranty or other claims or
additional development costs if our software contains undetected
errors, or if our products experience failures, do not perform
in accordance with their documentation, or do not meet the
expectations that our customers have for them. Even if these
claims do not result in liability to us, investigating and
defending against them could be expensive and time consuming and
could divert managements attention away from our
operations. In addition, negative publicity caused by these
events may delay market acceptance of our products and services,
including unrelated products and services.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We could be subject to product liability
	claims if our products malfunction or provide inaccurate
	information

We provide products and services that assist in
healthcare decision-making, including some that relate to
patient medical histories and treatment plans. If these products
malfunction or fail to provide accurate and timely information,
we could be subject to product liability claims. Even if these
claims do not result in liability to us, investigating and
defending against them could be expensive and time consuming and
could divert managements attention away from our
operations. We attempt to limit, by contract, our liability for
damages arising from negligence, errors or mistakes. However,
contractual limitations on liability may not be enforceable in
certain circumstances or may otherwise not provide sufficient
protection to us from liability for damages. We maintain general
liability insurance coverage, including coverage for errors and
omissions. However, it is possible that claims could exceed the
amount of our applicable insurance coverage. In addition, this
coverage may not continue to be available on acceptable terms or
may not be available in sufficient amounts.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | We could lose customers and revenue if we
	fail to meet the performance standards in our
	contracts

Many of our customer contracts contain
performance standards. If we fail to meet these standards, our
customers may seek to terminate their agreements with us,
withhold payments due to us, seek refunds from us of part or all
of the fees charged under those agreements or initiate
litigation or other dispute resolution procedures. Despite
testing and quality control, we cannot be certain that we will
meet these performance standards. To the extent we fail to
achieve these standards, our revenues and customer relationships
could be adversely affected.

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| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Performance problems with WebMD
	Envoys systems could adversely affect our
	business

Our payer and provider customer satisfaction and
our business could be harmed if WebMD Envoy experiences delays,
failures or loss of data in its systems. We currently process
our payer and provider transactions and data at our facilities
and at a data center in Tampa, Florida that is operated by
Verizon Data Services. We have contingency plans for emergencies
with our systems; however, we have limited backup facilities to
process information if these facilities are not functioning. The
occurrence of a major catastrophic event or other system failure
at any of our facilities or at the Verizon facility could
interrupt data processing or result in the loss of stored data,
which could have a material adverse impact on our business.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Some of our services will not be widely
	adopted until broadband connectivity is more generally
	available

Some of our services and planned services require
a continuous broadband connection between the physicians
office and our data center and/or the Internet. The availability
of broadband connectivity varies widely from location to
location and even within a single geographic area, due to
factors such as the distance of a site from the central
switching office. The future availability of broadband
connections is unpredictable and is not within our control.
While we expect that many physician office locations will remain
without ready access to broadband connectivity for some period
of time, we cannot predict how long that will be. Accordingly,
the lack of these broadband connections will continue to place
limitations on the number of sites that are able to utilize our
Internet-based services and the revenue we can expect to
generate from those services.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | If our systems or the Internet experience
	security breaches or are otherwise perceived to be insecure, our
	business could suffer

A security breach could damage our reputation or
result in liability. We retain confidential information,
including patient health information, in our processing centers
and other facilities. It is critical that these facilities and
infrastructure remain secure and be perceived by the marketplace
as secure. We may be required to expend significant capital and
other resources to protect against security breaches and hackers
or to alleviate problems caused by breaches. Despite the
implementation of security measures, this infrastructure may be
vulnerable to physical break-ins, hackers, improper employee or
contractor access, computer viruses, programming errors, attacks
by third parties or similar disruptive problems. In addition,
any well-publicized compromise of Internet security, whether or
not related to our own operations, could reduce demand for our
Internet-based services.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Our Internet-based services are dependent
	on the development and maintenance of the Internet
	infrastructure

Our ability to deliver our Internet-based
services is dependent on the development and maintenance of the
infrastructure of the Internet by third parties. This includes
maintenance of a reliable network backbone with the necessary
speed, data capacity and security, as well as timely development
of complementary products such as high-speed modems, for
providing reliable Internet access and services. The Internet
has experienced, and is likely to continue to experience,
significant growth in the number of users and the amount of
traffic. If the Internet continues to experience increased
usage, the Internet infrastructure may be unable to support the
demands placed on it. In addition, the performance of the
Internet may be harmed by increased usage.

The Internet has experienced a variety of outages
and other delays as a result of damages to portions of its
infrastructure, and it could face outages and delays in the
future. These outages and delays could reduce the level of
Internet usage as well as the availability of the Internet to us
for delivery of our Internet-based services. In addition, our
customers who utilize our Web-based services depend on Internet
service providers, online service providers and other Web site
operators for access to our Web site. All of these providers
have experienced significant outages in the past and could
experience outages, delays and other difficulties in the future
due to system failures unrelated to our systems. Any significant
interruptions

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in our services or increases in response time
could result in a loss of potential or existing users of and
advertisers and sponsors on our Web site and, if sustained or
repeated, could reduce the attractiveness of our services.




| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The performance of our business depends on
	attracting and retaining qualified executives and
	employees

Our performance depends on attracting and
retaining key personnel, including executives, product managers,
software developers and other technical personnel and sales and
marketing personnel. Failure to do so could have a material
adverse effect on the performance of our business and the
results of our operations.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business will suffer if we fail to
	successfully integrate acquired businesses and technologies or
	to assess the risks in particular transactions

We have in the past acquired, and may in the
future acquire, businesses, technologies, services, product
lines and other assets. The successful integration of the
acquired businesses and assets into our operations can be
critical to our future performance. The amount and timing of the
expected benefits of any acquisition are subject to significant
risks and uncertainties. These risks and uncertainties include,
but are not limited to, those relating to:



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to cross-sell products and services
	to customers with which we have established relationships and
	those with which the acquired business has established
	relationships;
|
| |  | our ability to retain or replace key personnel;                                                                                                                                       
|
| |  | potential conflicts in payer, provider, strategic
	partner, sponsor or advertising relationships;                                                                                     
|
| |  | our ability to coordinate organizations that are
	geographically diverse and may have different business cultures;
	and                                                               
|
| |  | compliance with regulatory requirements.                                                                                                                                              

We cannot guarantee that any acquired businesses
will be successfully integrated with our operations in a timely
manner, or at all. Failure to successfully integrate acquired
businesses or to achieve anticipated operating synergies,
revenue enhancements or cost savings could have a material
adverse effect on our business, financial condition and results
of operations.

Although our management attempts to evaluate the
risks inherent in each transaction and to value acquisition
candidates appropriately, we cannot assure you that we will
properly ascertain all such risks or that acquired businesses
and assets will perform as we expect or enhance the value of our
company as a whole. In addition, acquired companies or
businesses may have larger than expected liabilities that are
not covered by the indemnification, if any, we are able to
obtain from the seller.



| |                                           
| | ------------------------------------------
| | Our business may be subject to
	litigation

Our business and operations may subject us to
claims, litigation and other proceedings brought by private
parties and governmental authorities. For information regarding
certain proceedings to which we are currently a party, see
Legal Proceedings beginning on page 29.



| |                                                           
| | ----------------------------------------------------------
| | Healthcare regulation could adversely
	affect our business

The healthcare industry is highly regulated and
is subject to changing political, regulatory and other
influences. These factors affect the purchasing practices and
operations of healthcare organizations. Federal and state
legislatures and agencies periodically consider programs to
reform or revise the United States healthcare system. These
programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry
participants operate. Healthcare industry participants may
respond by reducing their investments or

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postponing investment decisions, including
investments in our applications and services. We are unable to
predict future proposals with any certainty or to predict the
effect they would have on our business.


Existing laws and regulations also could create
liability, cause us to incur additional cost or restrict our
operations. Many healthcare laws are complex, applied broadly
and subject to interpretation by courts and other governmental
authorities. In addition, many existing healthcare laws and
regulations, when enacted, did not anticipate the methods of
healthcare e-commerce and other products and services that we
provide. However, these laws and regulations may nonetheless be
applied to our products and services. Our failure, or the
failure of our business partners, to accurately anticipate the
application of these healthcare laws, or other failure to
comply, could create liability for us, result in adverse
publicity and negatively affect our business.

For more information regarding healthcare
regulation to which we are or may be subject, see
Business  Government Regulation beginning
on page 20.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The effect of HIPAA on our business is
	difficult to predict and its implementation may cause unexpected
	problems

As described under Business 
Government Regulation  Health Insurance Portability
and Accountability Act of 1996 beginning on page 20
and Business  Our Products and
Services  Transaction Services or WebMD
Envoy  HIPAA on page 8, we believe that we
are well-positioned to assist payers, providers and other
healthcare participants with their efforts to comply with HIPAA
and in their management of the period during which they and
others are migrating to compliance. We are continuing to develop
our HIPAA-ready solutions and our business strategy for
marketing those solutions and services. Changes in compliance
deadlines or in other aspects of the HIPAA regulations may cause
us to make changes to our strategy or require us to develop
different solutions. The effect of HIPAA on our business is
difficult to predict and there can be no assurances that we will
adequately address the business risks created by HIPAA and its
implementation or that we will be able to take advantage of any
resulting business opportunities. In addition, we are unable to
predict what changes to the HIPAA regulations will be made in
the future or how those changes could affect our business.

The extension of the deadline for complying with
the HIPAA transaction standards will cause us to have a longer
period of time in which we must accommodate our customers
varying states of readiness to test new systems and move to the
new standards. There can be no assurance that we will be able to
meet our customers requested deadlines because of our
inability to predict or significantly affect the timing of our
customers requests for testing and validation of new
systems and connections. The extended compliance period also may
allow certain of our customers time to build compliant
transaction systems that may diminish their need for certain of
our transaction services.



| |                                                                
| | ---------------------------------------------------------------
| | Regulation of the Internet could adversely
	affect our business

The Internet and its associated technologies are
subject to government regulation. Our failure, or the failure of
our business partners, to accurately anticipate the application
of applicable laws and regulations, or any other failure to
comply, could create liability for us, result in adverse
publicity, or negatively affect our business. In addition, new
laws and regulations, or new interpretations of existing laws
and regulations, may be adopted with respect to the Internet or
other online services covering user privacy, patient
confidentiality, consumer protection and other issues, including
pricing, content, copyrights and patents, distribution, and
characteristics and quality of products and services. We cannot
predict whether these laws or regulations will change or how
such changes will affect our business. Government regulation of
the Internet could limit the effectiveness of the Internet for
the methods of healthcare e-commerce that we are providing or
developing or even prohibit the sale of particular products and
services.

For more information regarding government
regulation of the Internet to which we are or may be subject,
see Business  Government Regulation
beginning on page 20.

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| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | We face potential liability related to the
	privacy and security of personal information we collect on our
	Web sites

Internet user privacy has become a controversial
issue both in the United States and abroad. We have privacy
policies posted on our consumer portal and our professional
portal that we believe comply with applicable laws requiring
notice to users about our information collection, use and
disclosure practices. However, whether and how existing privacy
and consumer protection laws in various jurisdictions apply to
the Internet is still uncertain and may take years to resolve.
Any legislation or regulation in the area of privacy of personal
information could affect the way we operate our Web sites and
could harm our business. Further, we can give no assurance that
the statements on our portals, or our practices, will be found
sufficient to protect us from liability or adverse publicity in
this area.

For more information regarding regulation of the
collection, use and disclosure of personal information to which
we may be subject, see Business  Government
Regulation beginning on page 20.



| |                                                                         
| | ------------------------------------------------------------------------
| | Third parties may challenge the
	enforceability of our online agreements

The law governing the validity and enforceability
of online agreements and other electronic transactions is
evolving. We could be subject to claims by third parties that
our online agreements with consumers and physicians that provide
the terms and conditions for use of our portal services and
physician services are unenforceable. A finding by a court that
these agreements are invalid could harm our business and require
costly changes to our portals.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Third parties may bring claims as a result
	of the activities of our strategic partners

We could be subject to claims by third parties,
and to liability, as a result of the activities, products or
services of our strategic partners. We state on our portals that
we do not control or endorse the products or services of our
strategic partners. However, there can be no assurance that the
statements made in our portal will be found to be sufficient to
ensure that we are not held responsible for such activities,
products or services. Furthermore, even if these claims do not
result in liability to us, investigating and defending these
claims could be expensive, time-consuming and result in adverse
publicity that could harm our business.



| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Third parties may bring claims against us
	as a result of content provided on our Web site, which may be
	expensive and time consuming to defend

We could be subject to third party claims based
on the nature and content of information supplied on our Web
site by us or third parties, including content providers,
medical advisors or users. We could also be subject to liability
for content that may be accessible through our Web site or third
party Web sites linked from our Web site or through content and
information that may be posted by users in chat rooms, bulletin
boards or on Web sites created by professionals using our Web
site application. Even if these claims do not result in
liability to us, investigating and defending against these
claims could be expensive and time consuming and could divert
managements attention away from our operations.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Our intellectual property may be subject to
	infringement claims or may be infringed upon

Our intellectual property is important to our
business. The steps we take to protect our intellectual property
and proprietary information may prove to be inadequate and,
whether or not adequate, may be expensive. There can be no
assurance that we will be able to detect potential or actual
misappropriation or infringement of our intellectual property or
proprietary information. Even if we do detect misappropriation
or infringement by a third party, there can be no assurance that
we will be able to enforce our rights at a reasonable cost, or
at all. In addition, our rights to intellectual property and
proprietary information may not prevent independent third-party
development and commercialization of competing products or
services.

We could be subject to claims that we are
misappropriating or infringing intellectual property or other
proprietary rights of others. These claims, even if not
meritorious, could be expensive to defend and divert

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managements attention from our operations.
If we become liable to third parties for infringing these
rights, we could be required to pay a substantial damage award
and to develop non-infringing technology, obtain a license or
cease selling the applications that contain the infringing
intellectual property. We may be unable to develop
non-infringing technology or obtain a license on commercially
reasonable terms, or at all. We may also be required to
indemnify our customers if they become subject to third party
claims relating to intellectual property that we license or
otherwise provide to them.




| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We may not be able to raise additional
	funds when needed for our business or to exploit
	opportunities

Our future liquidity and capital requirements
will depend upon numerous factors, including the success of the
integration of our businesses, our existing and new applications
and service offerings, competing technologies and market
developments, potential future acquisitions and additional
repurchases of our common stock. We may need to raise additional
funds to support expansion, develop new or enhanced applications
and services, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of
unanticipated opportunities. If required, we may raise such
additional funds through public or private debt or equity
financing, strategic relationships or other arrangements. There
can be no assurance that such financing will be available on
acceptable terms, if at all, or that such financing will not be
dilutive to our stockholders.



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | The proposed disposition of our plastics
	and filtration technologies business may not be completed in
	accordance with our expectations

The proposed disposition of our Porex plastics
and filtration technologies business has taken longer than
originally expected. We determined not to accept any of the
offers made by potential buyers because we believed that the
offers did not reflect the value of the Porex business. We plan
to continue to explore various divestiture alternatives for the
Porex business.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Until we dispose of our plastics and
	filtration technologies business, we will be subject to risks
	associated with that business

Until the proposed disposition of our Porex
plastic and filtration technologies business is completed, we
will continue to operate that business and to be subject to
additional risks associated with that business, which include:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face significant competition for the
	products and services of our plastic and filtration technologies
	business.Competition in our plastics
	and filtration technology business is characterized by the
	introduction of competitive products at lower prices. We believe
	that Porexs principal competitive strengths are its
	manufacturing processes, quality control, relationships with its
	customers and distribution of its proprietary healthcare
	products.                                                                                                                                                                                                                                                                       
|
| | In the porous plastics area, Porexs
	competitors include other producers of porous plastic materials
	as well as companies that manufacture and sell products made
	from materials other than porous plastics which can be used for
	the same purposes as Porexs products. In this area, Porex
	has several direct competitors in the United States, Europe and
	Asia. Porexs porous plastic pen nibs compete with felt and
	fiber tips manufactured by a variety of suppliers worldwide.
	Other Porex industrial products made of porous plastic compete,
	depending on the industrial application, with porous metals,
	metal screens, fiberglass tubes, pleated paper,
	resin-impregnated felt, ceramics and other substances and
	devices.
|
| | The market for Porexs injection molded
	solid plastic components and products, including its medical
	products, is highly competitive and highly fragmented.
	Porexs pipette tips and racks also compete with similar
	products manufactured by domestic and foreign manufacturers.
	Porexs injection molding and mold making services compete
	with services offered by several foreign and domestic companies.
	The MEDPOR® Biomaterial products compete for surgical use
	against autogenous and allograph materials and alloplastic
	biomaterials. Porexs surgical drains and markers compete
	against a variety of products from several manufacturers.                                                                                 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Healthcare regulation could adversely affect
	our plastics and filtration technologies
	business.Porex manufactures and
	distributes medical/surgical devices, such as plastic and
	reconstructive surgical implants and tissue expanders, which are
	subject to government regulations, under the FDA Act and
	additional regulations promulgated by the FDA. Future healthcare
	products may also be subject to these regulations and approval
	processes. Compliance with these regulations and the process of
	obtaining approvals can be costly, complicated and
	time-consuming, and we cannot assure you that these approvals
	will be granted on a timely basis, if ever.                                                                                                                                                                                                                                                                                                                 
|
| | The nature of Porexs products exposes it
	to product liability claims and may make it difficult to get
	adequate insurance coverage.The
	products sold by Porex expose it to potential risk for product
	liability claims, particularly with respect to Porexs life
	sciences, clinical, surgical and medical products. We believe
	that Porex carries adequate insurance coverage against product
	liability claims and other risks. We cannot assure you, however,
	that claims in excess of Porexs insurance coverage will
	not arise. In addition, Porexs insurance policies must be
	renewed annually. Although Porex has been able to obtain
	adequate insurance coverage at an acceptable cost in the past
	and believes that it is adequately indemnified for products
	manufactured by others and distributed by it, we cannot assure
	you that in the future Porex will be able to obtain this
	insurance at an acceptable cost or be adequately protected by
	this indemnification.
|
| | Since March 1991, Porex has been named as one of
	many co-defendants in a number of actions brought by recipients
	of silicone gel mammary implants. For more information regarding
	these actions, see the information under Legal
	Proceedings beginning on page 29.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Environmental regulation could adversely
	affect our plastics and filtration business.Certain environmental regulations
	apply to Porexs business and Porex is subject to scheduled
	and random checks by environmental authorities. Porex seeks to
	conduct its business in substantial compliance with applicable
	regulations relating to the environment and hazardous wastes.
	However, we cannot be certain that Porex will not be found to
	have violated those regulations or taken other actions that
	cause it to be required to pay fines, remediation costs and
	damages, the amounts of which could be material.                                                                                                                                                                                                                                                                                                                                                                    

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|         |                                                            
|-------- | -----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
	about Market Risk

Interest Rate Sensitivity

The primary objective of our investment
activities is to preserve principal and maintain adequate
liquidity, while at the same time maximizing the yield we
receive from our investment portfolio. This objective is
accomplished by adherence to our investment policy, which
establishes the list of eligible securities and credit
requirements for each investment.

Changes in prevailing interest rates will cause
the principal amount of the investment to fluctuate. To minimize
this risk, we maintain our portfolio of cash equivalents,
short-term investments and marketable securities in commercial
paper, non-government debt securities, money market funds and
highly liquid United States Treasury notes. We view these high
grade securities within our portfolio as having similar market
risk characteristics. Principal amounts for short-term
investments and marketable securities expected to mature are
$99.2 million during 2002.

We have not utilized derivative financial
instruments in our investment portfolio.

Exchange Rate Sensitivity

Currently, substantially all of our sales and
expenses are denominated in United States dollars and, as a
result, we have experienced no significant foreign exchange
gains and losses to date. We conduct only limited transactions
in foreign currencies, and we do not anticipate that foreign
exchange gains or losses will be significant in the foreseeable
future. We have not engaged in foreign currency hedging
activities to date.






|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary
	Data

Financial Statements

Our financial statements required by this item
are contained on pages F-1 through F-35 of this Annual Report on
Form 10-K. See Item 14(a)(1) for a listing of
financial statements provided.






|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
	Accountants on Accounting and Financial Disclosure

None.

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PART III

Information required by Items 10, 11, 12 and
13 of Part III is omitted from this Annual Report and will
be filed in a definitive proxy statement or by an amendment to
this Annual Report not later than 120 days after the end of
the fiscal year covered by this Annual Report.






|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the
	Registrant

Except for the information regarding our
executive officers required by Item 401 of
Regulation S-K included in Part I of this Report, we will
provide information that is responsive to this Item 10 in
our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal
year covered by this Annual Report, in either case under the
caption Directors and Executive Officers, and
possibly elsewhere therein. That information is incorporated in
this Item 10 by reference.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

We will provide information that is responsive to
this Item 11 regarding compensation paid to our executive
officers in our definitive proxy statement or in an amendment to
this Annual Report not later than 120 days after the end of
the fiscal year covered by this Annual Report, in either case
under the caption Executive Compensation, and
possibly elsewhere therein. That information is incorporated in
this Item 11 by reference.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
	Owners and Management

We will provide information that is responsive to
this Item 12 regarding ownership of our securities by some
beneficial owners and our directors and executive officers in
our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal
year covered by this Annual Report, in either case under the
caption Security Ownership of Certain Beneficial Owners
and Management, and possibly elsewhere therein. That
information is incorporated in this Item 12 by reference.






|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related
	Transactions

We will provide information that is responsive to
this Item 13 regarding transactions with related parties in
our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal
year covered by this Annual Report, in either case under the
caption Certain Relationships and Related
Transactions, and possibly elsewhere therein. That
information is incorporated in this Item 13 by reference.

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PART IV






|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K

(a)(1)-(2) Financial Statements and
Schedules

The financial statements and schedules listed in
the accompanying Index to Consolidated Financial Statements and
Supplemental Data on page F-1 are filed as part of this
Report.

(a)(3) Exhibits

See Index to Exhibits beginning on
page E-1, which is incorporated by reference herein.

(b) Reports on Form 8-K

During the last quarter of the fiscal year ended
December 31, 2001, the Registrant filed the following
Report on Form 8-K:



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Report on Form 8-K filed on October 15,
	2001 pursuant to which the Registrant announced the settlement
	agreement between the Registrant and Quintiles Transnational
	Corp.

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereto duly authorized, on the 25th day
of March, 2002.



| |                  
| | -----------------
| | WEBMD CORPORATION



| |     |                  
| | --- | -----------------
| | By: | /s/ ANTHONY VUOLO

| |                             
| | ----------------------------
| |                             
| | Anthony Vuolo               
| | Executive Vice President and
| | Chief Financial Officer     

POWER OF ATTORNEY

KNOW BY ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
jointly and severally, Anthony Vuolo and Charles A. Mele, and
each one of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and
all amendments to this Annual Report on Form 10-K 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 Annual Report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                     |  |                                                                                                    |  |                |  | 
|------------------------------------ |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                     |  |                                                                                                    |  |               
|Signature                            |  | Capacity                                                                                           |  | Date          
|                                     |  |                                                                                                    |  |               
|                                    
|/s/ MARTIN J. WYGODMartin J. Wygod   |  | Chairman of the Board of Directors and Chief
	Executive Officer (principal executive officer)      |  | March 25, 2002
|                                    
|/s/ ANTHONY VUOLOAnthony Vuolo       |  | Executive Vice President and Chief Financial
	Officer (principal financial and accounting officer) |  | March 25, 2002
|                                    
|/s/ MARK J. ADLERMark J. Adler, M.D. |  | Director                                                                                           |  | March 25, 2002
|                                    
|/s/ PAUL A. BROOKEPaul A. Brooke     |  | Director                                                                                           |  | March 25, 2002
|                                    
|/s/ L. JOHN DOERRL. John Doerr       |  | Director                                                                                           |  | March 25, 2002
|                                    
|/s/ JAMES V. MANNINGJames V. Manning |  | Director                                                                                           |  | March 25, 2002

68



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|                                       |  |          |  |                |  | 
|-------------------------------------- |  | -------- |  | -------------- |  | 
|                                       |  |          |  |               
|Signature                              |  | Capacity |  | Date          
|                                       |  |          |  |               
|                                      
|/s/ HERMAN SARKOWSKYHerman Sarkowsky   |  | Director |  | March 25, 2002
|                                      
|/s/ MICHAEL A. SINGERMichael A. Singer |  | Director |  | March 25, 2002
|                                      
|/s/ JOSEPH E. SMITHJoseph E. Smith     |  | Director |  | March 25, 2002

69



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WebMD Corporation

Index to Consolidated Financial Statements and
Supplemental Data


The following financial statements of the Company
and its subsidiaries required to be included in
Item 14(a)(1) of Form 10-K are listed below:

|                                 |                                                                                                                                                             |      |  |     | 
|-------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | --- | 
|                                 |                                                                                                                                                             | Page
|                                 |                                                                                                                                                             |     
|Historical Financial Statements: |                                                                                                                                                             |      |  |    
|                                 | Report of Independent Auditors                                                                                                                              |      |  | F-2 | 
|                                 | Consolidated Balance Sheets at December 31,
	2001 and 2000                                                                                                  |      |  | F-3 | 
|                                 | Consolidated Statements of Operations for the
	Years Ended December 31, 2001, 2000 and 1999                                                                 |      |  | F-4 | 
|                                 | Consolidated Statements of Stockholders
	Equity for the Years Ended December 31, 2001, 2000 and 1999                                                       |      |  | F-5 | 
|                                 | Consolidated Statements of Cash Flows for the
	Years Ended December 31, 2001, 2000 and 1999                                                                 |      |  | F-6 | 
|                                 | Notes to Consolidated Financial Statements                                                                                                                  |      |  | F-7 | 
|Supplemental Financial Data:     |                                                                                                                                                             |      |  |    
|                                 | The following financial supplementary data of the
	Registrant and its subsidiaries required to be included in
	Item 14(a)(2) of Form 10-K are listed below: |      |  |     | 
|                                 | Schedule II  Valuation and
	Qualifying Accounts                                                                                                            |      |  | S-1 | 

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

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

WebMD Corporation


We have audited the accompanying consolidated
balance sheets of WebMD Corporation as of December 31, 2001
and 2000, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2001. 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
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of WebMD Corporation at
December 31, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.



| |                      
| | ---------------------
| | /S/ ERNST & YOUNG LLP

New York, New York

February 28, 2002


F-2



---



##### Table of Contents



WebMD Corporation






Consolidated Balance Sheets


(In thousands, except share and per share
data)


|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |            |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ----------- | - | ------- | --------- | ---------- | ------- | ------- | 
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                  
|                                                                                                                                                         |                                                                                                                                   | December 31,                                                                                                                                     
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                  
|                                                                                                                                                         |                                                                                                                                   | 2001                                                                                                                                              |                           | 2000       
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |            
|ASSETS                                                                                                                                                   |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|Current assets:                                                                                                                                          |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         | Cash and cash equivalents                                                                                                         |                                                                                                                                                   | $                         | 253,011     |   |         | $         | 490,797    |        
|                                                                                                                                                         | Short-term investments                                                                                                            |                                                                                                                                                   |                           | 99,194      |   |         |           |           |        
|                                                                                                                                                         | Accounts receivable, net of allowance for
	doubtful accounts of $26,497 in 2001 and $26,205 in 2000                               |                                                                                                                                                   |                           | 150,252     |   |         |           | 195,071    |        
|                                                                                                                                                         | Current portion of prepaid content and
	distribution services                                                                     |                                                                                                                                                   |                           | 28,818      |   |         |           | 28,333     |        
|                                                                                                                                                         | Assets held for sale                                                                                                              |                                                                                                                                                   |                           | 188,118     |   |         |           | 214,556    |        
|                                                                                                                                                         | Other current assets                                                                                                              |                                                                                                                                                   |                           | 19,068      |   |         |           | 38,941     |        
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   | Total current assets      |             |   | 738,461 |           |            |         | 967,698 | 
|                                                                                                                                                        
|Marketable securities                                                                                                                                    |                                                                                                                                   |                                                                                                                                                   | 15,707                    |             |   |         | 219,686   |           
|Property and equipment, net                                                                                                                              |                                                                                                                                   |                                                                                                                                                   | 47,333                    |             |   |         | 90,356    |           
|Prepaid content and distribution services                                                                                                                |                                                                                                                                   |                                                                                                                                                   | 71,579                    |             |   |         | 206,016   |           
|Goodwill, net                                                                                                                                            |                                                                                                                                   |                                                                                                                                                   | 506,761                   |             |   |         | 6,329,739 |           
|Intangible assets, net                                                                                                                                   |                                                                                                                                   |                                                                                                                                                   | 153,538                   |             |   |         | 439,455   |           
|Other assets                                                                                                                                             |                                                                                                                                   |                                                                                                                                                   | 22,959                    |             |   |         | 202,681   |           
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         |                                                                                                                                   | $                                                                                                                                                 | 1,556,338                 |             |   | $       | 8,455,631 |           
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                                                                                    |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|Current liabilities:                                                                                                                                     |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         | Accounts payable                                                                                                                  |                                                                                                                                                   | $                         | 16,180      |   |         | $         | 19,563     |        
|                                                                                                                                                         | Accrued expenses                                                                                                                  |                                                                                                                                                   |                           | 224,317     |   |         |           | 272,932    |        
|                                                                                                                                                         | Deferred revenue                                                                                                                  |                                                                                                                                                   |                           | 65,861      |   |         |           | 45,891     |        
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   | Total current liabilities |             |   | 306,358 |           |            |         | 338,386 | 
|                                                                                                                                                        
|Other long-term liabilities                                                                                                                              |                                                                                                                                   |                                                                                                                                                   | 1,208                     |             |   |         | 15,260    |           
|                                                                                                                                                        
|Series B convertible redeemable preferred
	stock, $.0001 par value; 200 shares authorized; 100 shares
	issued at December 31, 2001 and December 31, 2000 |                                                                                                                                   |                                                                                                                                                   | 10,000                    |             |   |         | 10,000    |           
|                                                                                                                                                        
|Commitments and contingencies                                                                                                                            |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|Stockholders equity:                                                                                                                                    |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         | Preferred stock, $.0001 par value; 5,000,000
	shares authorized:                                                                  |                                                                                                                                                   |                           |             |   |         |           |            |        
|                                                                                                                                                         |                                                                                                                                   | Series A convertible preferred stock; 2001:
	213,000 shares authorized; no shares issued; 2000: 213,000
	shares authorized, 155,951 shares issued |                           |             |  |         |           |            | 710,746 |        
|                                                                                                                                                         | Common stock, $.0001 par value; 600,000,000
	shares authorized; 2001: 366,956,160 shares issued; 2000:
	361,233,643 shares issued |                                                                                                                                                   |                           | 37          |   |         |           | 36         |        
|                                                                                                                                                         | Additional paid-in capital                                                                                                        |                                                                                                                                                   |                           | 11,652,743  |   |         |           | 11,028,461 |        
|                                                                                                                                                         | Treasury stock, at cost, 56,091,935 shares at
	December 31, 2001; 5,163,509 shares at December 31,
	2000.                         |                                                                                                                                                   |                           | (222,582    | ) |         |           | (30,759    | )      
|                                                                                                                                                         | Accumulated other comprehensive income                                                                                            |                                                                                                                                                   |                           | 12,093      |   |         |           | 4,996      |        
|                                                                                                                                                         | Deferred stock compensation                                                                                                       |                                                                                                                                                   |                           | (42,173     | ) |         |           | (144,467   | )      
|                                                                                                                                                         | Accumulated deficit                                                                                                               |                                                                                                                                                   |                           | (10,161,346 | ) |         |           | (3,477,028 | )      
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   | 1,238,772                 |             |   |         | 8,091,985 |           
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           
|                                                                                                                                                         |                                                                                                                                   | $                                                                                                                                                 | 1,556,338                 |             |   | $       | 8,455,631 |           
|                                                                                                                                                         |                                                                                                                                   |                                                                                                                                                   |                           |             |   |         |           |           

See accompanying notes.

F-3



---



##### Table of Contents



WebMD Corporation






Consolidated Statements of
Operations


(In thousands, except share and per share
data)


|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |         |  
|-------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------ | ----------- | --------- | - | ---- | ----------- | --------- | - | - | ---------- | ------- | -
|                                                                                                   |                                              |                         
|                                                                                                   |                                              | Years Ended December 31,
|                                                                                                   |                                              |                         
|                                                                                                   |                                              | 2001                     |             | 2000      |   | 1999
|                                                                                                   |                                              |                          |             |           |   |     
|Revenue(1)                                                                                         |                                              | $                        | 706,595     |           |   | $    | 517,153     |           |   | $ | 102,149    |        
|Costs and expenses:                                                                                |                                              |                          |             |           |   |      |             |           |   |   |            |        
|                                                                                                   | Cost of operations                           |                          |             | 468,688   |   |      |             | 383,565   |   |   |            | 88,576  |  
|                                                                                                   | Development and engineering                  |                          |             | 39,615    |   |      |             | 58,788    |   |   |            | 29,669  |  
|                                                                                                   | Sales, marketing, general and administrative |                          |             | 433,653   |   |      |             | 530,927   |   |   |            | 82,315  |  
|                                                                                                   | Depreciation, amortization and other         |                          |             | 2,389,766 |   |      |             | 2,186,986 |   |   |            | 193,067 |  
|                                                                                                   | Impairment of long-lived and other assets    |                          |             | 3,826,893 |   |      |             |          |   |   |            |        |  
|                                                                                                   | Restructuring and integration charge         |                          |             | 266,755   |   |      |             | 452,919   |   |   |            |        |  
|                                                                                                   | Loss on investments                          |                          |             |          |   |      |             | 39,602    |   |   |            |        |  
|                                                                                                   | Interest income, net                         |                          |             | 29,106    |   |      |             | 50,026    |   |   |            | 3,486   |  
|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |        
|Loss from continuing operations                                                                    |                                              |                          | (6,689,669  | )         |   |      | (3,085,608  | )         |   |   | (287,992   | )      
|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |        
|Discontinued operations:                                                                           |                                              |                          |             |           |   |      |             |           |   |   |            |        
|                                                                                                   | Net income from discontinued operations      |                          |             | 5,351     |   |      |             |          |   |   |            |        |  
|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |        
|Net loss                                                                                           |                                              | $                        | (6,684,318  | )         |   | $    | (3,085,608  | )         |   | $ | (287,992   | )      
|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |        
|Basic and diluted net loss per common share:                                                       |                                              |                          |             |           |   |      |             |           |   |   |            |        
|                                                                                                   | Loss from continuing operations              |                          | $           | (19.19    | ) |      | $           | (12.61    | ) |   | $          | (3.58   | )
|                                                                                                   | Net income from discontinued operations      |                          |             | .01       |   |      |             |          |   |   |            |        |  
|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |        
|                                                                                                   | Net loss per common share                    |                          | $           | (19.18    | ) |      | $           | (12.61    | ) |   | $          | (3.58   | )
|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |        
|Weighted-average shares outstanding used in
	computing basic and diluted net loss per common share |                                              |                          | 348,569,519 |           |   |      | 244,688,375 |           |   |   | 80,366,695 |        
|                                                                                                   |                                              |                          |             |           |   |      |             |           |   |   |            |        



---



|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes revenue from related parties of $3,000,
	$45,277 and $37,210 for the years ended December 31, 2001,
	2000 and 1999, respectively.

See accompanying notes.

F-4



---



##### Table of Contents



WebMD Corporation







Consolidated Statements of Stockholders
Equity


(In thousands, except share data)


|                                                                                                                                        |  |                 |     |                 |  |                                               |        |            |  |          |            |        |  |         |          |              |  |  |             |   |  |   |    |  |  |   |            |   |  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --- | --------------- |  | --------------------------------------------- | ------ | ---------- |  | -------- | ---------- | ------ |  | ------- | -------- | ------------ |  |  | ----------- | - |  | - | -- |  |  | - | ---------- | - |  | - | -------- | -
|                                                                                                                                        |  |                 |     |                 |  |                                              
|                                                                                                                                        |  |                 |     |                 |  | Stockholders Equity (continues on next page)
|                                                                                                                                        |  |                 |     |                
|                                                                                                                                        |  | Convertible     |     |                 |  |                                              
|                                                                                                                                        |  | Redeemable      |     | Convertible     |  |                                               |        |           
|                                                                                                                                        |  | Preferred Stock |     | Preferred Stock |  | Common Stock                                  |        | Additional |  | Deferred
|                                                                                                                                        |  |                 |     |                 |  |                                               |        | Paid-In    |  | Stock   
|                                                                                                                                        |  | Shares          |     | Amount          |  | Shares                                        |        | Amount     |  | Shares   |            | Amount |  | Capital |          | Compensation
|                                                                                                                                        |  |                 |     |                 |  |                                               |        |            |  |          |            |        |  |         |          |             
|Balance at December 31, 1998                                                                                                            |  |                 |    |                 |  | $                                             |       |            |  |          | 7,683,341  |        |  | $       | 46,101   |              |  |  | 54,463,097  |   |  | $ | 5  |  |  | $ | 123,670    |   |  | $ | (6,935   | )
|Net loss and comprehensive loss                                                                                                         |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Issuance of common stock for option exercises,
        warrant exercises and ESPP issuances                                             |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 7,113,128   |   |  |   | 1  |  |  |   | 21,919     |   |  |   |         |  
|Repurchase of employee common stock                                                                                                     |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | (147,201    | ) |  |   |   |  |  |   | (608       | ) |  |   |         |  
|Issuance of common stock in connection with
        initial public offering, net of issuance costs of $4,602                            |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 5,750,000   |   |  |   | 1  |  |  |   | 41,398     |   |  |   |         |  
|Conversion of preferred stock to common stock in
        connection with initial public offering                                        |  |                 |    |                 |  |                                               |       |            |  |          | (7,683,341 | )      |  |         | (46,101  | )            |  |  | 7,683,341   |   |  |   | 1  |  |  |   | 46,100     |   |  |   |         |  
|Issuance of common stock for services                                                                                                   |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 8,020       |   |  |   |   |  |  |   | 48         |   |  |   |         |  
|Issuance of common stock for asset purchase                                                                                             |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 1,833,333   |   |  |   |   |  |  |   | 11,000     |   |  |   |         |  
|Issuance of common stock and assumption of
        options and warrants in connection with the 1999 mergers                             |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 76,865,578  |   |  |   | 8  |  |  |   | 4,120,851  |   |  |   |         |  
|Deferred stock compensation                                                                                                             |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   | 6,261      |   |  |   | (6,261   | )
|Adjustment to deferred stock compensation for
        terminations                                                                      |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   | (474       | ) |  |   | 474      |  
|Stock compensation expense                                                                                                              |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   | 7,633    |  
|                                                                                                                                        |  |                
|Balances at December 31, 1999                                                                                                           |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 153,569,296 |   |  |   | 16 |  |  |   | 4,370,165  |   |  |   | (5,089   | )
|Net loss                                                                                                                                |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Unrealized gains on securities                                                                                                          |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Comprehensive loss                                                                                                                      |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Issuance of common stock for option exercises,
        warrant exercises, ESPP and 401(K) issuances                                     |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 9,106,550   |   |  |   | 1  |  |  |   | 35,581     |   |  |   |         |  
|Issuance of stock in connection with private
        placements, strategic alliances and services                                       |  |                 |    |                 |  |                                               |       |            |  |          | 155,951    |        |  |         | 602,550  |              |  |  | 17,071,930  |   |  |   | 2  |  |  |   | 1,019,183  |   |  |   |         |  
|Reacquisition of warrants in connection with
        termination of a strategic alliance                                                |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   | (33,199    | ) |  |   |         |  
|Accretion of preferred stock                                                                                                            |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         | 108,196  |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Issuance of common and preferred stock and
        assumption of options and warrants in connection with the 2000
        mergers       |  |                 | 100 |                 |  |                                               | 10,000 |            |  |          |           |        |  |         |         |              |  |  | 181,485,867 |   |  |   | 17 |  |  |   | 5,499,835  |   |  |   | (117,402 | )
|Deferred stock compensation                                                                                                             |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   | 83,752     |   |  |   | (94,435  | )
|Stock compensation expense                                                                                                              |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   | 53,144     |   |  |   | 72,459   |  
|Purchase of treasury stock                                                                                                              |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|                                                                                                                                        |  |                
|Balances at December 31, 2000                                                                                                           |  |                 | 100 |                 |  |                                               | 10,000 |            |  |          | 155,951    |        |  |         | 710,746  |              |  |  | 361,233,643 |   |  |   | 36 |  |  |   | 11,028,461 |   |  |   | (144,467 | )
|Net loss                                                                                                                                |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Unrealized gains on securities                                                                                                          |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Comprehensive loss                                                                                                                      |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Issuance of common stock for option exercises,
        ESPP, 401(K) and other issuances                                                 |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 3,722,517   |   |  |   | 1  |  |  |   | 12,994     |   |  |   |         |  
|Issuance, net of reductions, and exercise of
        warrants in connection with strategic alliances and services                       |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  | 2,000,000   |   |  |   |   |  |  |   | 24,739     |   |  |   |         |  
|Reacquisition of convertible preferred stock and
        issuance of warrants in connection with revision of strategic
        alliance |  |                 |    |                 |  |                                               |       |            |  |          | (155,951   | )      |  |         | (710,746 | )            |  |  |            |   |  |   |   |  |  |   | 559,575    |   |  |   |         |  
|Stock compensation expense                                                                                                              |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   | 40,909     |   |  |   | 88,359   |  
|Purchase of treasury stock                                                                                                              |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   |           |   |  |   |         |  
|Adjustment to deferred stock compensation for
        terminations                                                                      |  |                 |    |                 |  |                                               |       |            |  |          |           |        |  |         |         |              |  |  |            |   |  |   |   |  |  |   | (13,935    | ) |  |   | 13,935   |  
|                                                                                                                                        |  |                
|Balances at December 31, 2001                                                                                                           |  |                 | 100 |                 |  | $                                             | 10,000 |            |  |          |           |        |  | $       |         |              |  |  | 366,956,160 |   |  | $ | 37 |  |  | $ | 11,652,743 |   |  | $ | (42,173  | )
|                                                                                                                                        |  |                 |     |                 |  |                                               |        |            |  |          |            |        |  |         |          |              |  |  |             |   |  |   |    |  |  |   |            |   |  |   |          |  



---



##### Table of Contents



WebMD Corporation




Consolidated Statements of Stockholders
Equity


(In thousands, except share data)


|                                                                                                                                        |  |                                                  |            |             |  |               |          |               |  |        |             |   |  |   |        |  |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ---------- | ----------- |  | ------------- | -------- | ------------- |  | ------ | ----------- | - |  | - | ------ |  |  | - | ---------- | -
|                                                                                                                                        |  |                                                 
|                                                                                                                                        |  | Stockholders Equity (continued from prior page)
|                                                                                                                                        |  |                                                 
|                                                                                                                                        |  |                                                  |            |             |  | Accumulated   |          |              
|                                                                                                                                        |  | Treasury Stock                                   |            |             |  | Other         |          | Total        
|                                                                                                                                        |  |                                                  |            | Accumulated |  | Comprehensive |          | Stockholders
|                                                                                                                                        |  | Shares                                           |            | Amount      |  | Deficit       |          | Income        |  | Equity
|                                                                                                                                        |  |                                                  |            |             |  |               |          |               |  |       
|Balance at December 31, 1998                                                                                                            |  |                                                  |           |             |  | $             |         |               |  | $      | (103,428    | ) |  | $ |       |  |  | $ | 59,413     |  
|Net loss and comprehensive loss                                                                                                         |  |                                                  |           |             |  |               |         |               |  |        | (287,992    | ) |  |   |       |  |  |   | (287,992   | )
|Issuance of common stock for option exercises,
        warrant exercises and ESPP issuances                                             |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 21,920     |  
|Repurchase of employee common stock                                                                                                     |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | (608       | )
|Issuance of common stock in connection with
        initial public offering, net of issuance costs of $4,602                            |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 41,399     |  
|Conversion of preferred stock to common stock in
        connection with initial public offering                                        |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   |           |  
|Issuance of common stock for services                                                                                                   |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 48         |  
|Issuance of common stock for asset purchase                                                                                             |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 11,000     |  
|Issuance of common stock and assumption of
        options and warrants in connection with the 1999 mergers                             |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 4,120,859  |  
|Deferred stock compensation                                                                                                             |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   |           |  
|Adjustment to deferred stock compensation for
        terminations                                                                      |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   |           |  
|Stock compensation expense                                                                                                              |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 7,633      |  
|                                                                                                                                        |  |                                                 
|Balances at December 31, 1999                                                                                                           |  |                                                  |           |             |  |               |         |               |  |        | (391,420    | ) |  |   |       |  |  |   | 3,973,672  |  
|Net loss                                                                                                                                |  |                                                  |           |             |  |               |         |               |  |        | (3,085,608  | ) |  |   |       |  |  |   | (3,085,608 | )
|Unrealized gains on securities                                                                                                          |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   | 4,996  |  |  |   | 4,996      |  
|                                                                                                                                        |  |                                                  |            |             |  |               |          |               |  |        |             |   |  |   |        |  |  |   |            |  
|Comprehensive loss                                                                                                                      |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | (3,080,612 | )
|Issuance of common stock for option exercises,
        warrant exercises, ESPP and 401(K) issuances                                     |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 35,582     |  
|Issuance of stock in connection with private
        placements, strategic alliances and services                                       |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 1,621,735  |  
|Reacquisition of warrants in connection with
        termination of a strategic alliance                                                |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | (33,199    | )
|Accretion of preferred stock                                                                                                            |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 108,196    |  
|Issuance of common and preferred stock and
        assumption of options and warrants in connection with the 2000
        mergers       |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 5,382,450  |  
|Deferred stock compensation                                                                                                             |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | (10,683    | )
|Stock compensation expense                                                                                                              |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 125,603    |  
|Purchase of treasury stock                                                                                                              |  |                                                  | 5,163,509  |             |  |               | (30,759  | )             |  |        |            |   |  |   |       |  |  |   | (30,759    | )
|                                                                                                                                        |  |                                                 
|Balances at December 31, 2000                                                                                                           |  |                                                  | 5,163,509  |             |  |               | (30,759  | )             |  |        | (3,477,028  | ) |  |   | 4,996  |  |  |   | 8,091,985  |  
|Net loss                                                                                                                                |  |                                                  |           |             |  |               |         |               |  |        | (6,684,318  | ) |  |   |       |  |  |   | (6,684,318 | )
|Unrealized gains on securities                                                                                                          |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   | 7,097  |  |  |   | 7,097      |  
|                                                                                                                                        |  |                                                  |            |             |  |               |          |               |  |        |             |   |  |   |        |  |  |   |            |  
|Comprehensive loss                                                                                                                      |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | (6,677,221 | )
|Issuance of common stock for option exercises,
        ESPP, 401(K) and other issuances                                                 |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 12,995     |  
|Issuance, net of reductions, and exercise of
        warrants in connection with strategic alliances and services                       |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 24,739     |  
|Reacquisition of convertible preferred stock and
        issuance of warrants in connection with revision of strategic
        alliance |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | (151,171   | )
|Stock compensation expense                                                                                                              |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   | 129,268    |  
|Purchase of treasury stock                                                                                                              |  |                                                  | 50,928,426 |             |  |               | (191,823 | )             |  |        |            |   |  |   |       |  |  |   | (191,823   | )
|Adjustment to deferred stock compensation for
        terminations                                                                      |  |                                                  |           |             |  |               |         |               |  |        |            |   |  |   |       |  |  |   |           |  
|                                                                                                                                        |  |                                                 
|Balances at December 31, 2001                                                                                                           |  |                                                  | 56,091,935 |             |  | $             | (222,582 | )             |  | $      | (10,161,346 | ) |  | $ | 12,093 |  |  | $ | 1,238,772  |  
|                                                                                                                                        |  |                                                  |            |             |  |               |          |               |  |        |             |   |  |   |        |  |  |   |            |  

See accompanying notes.

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##### Table of Contents



WebMD Corporation






Consolidated Statements of Cash
Flows


(In thousands)


|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |         |         |  
|------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------- | ---------- | --------- | ------- | ---- | ---------- | --------- | ------- | - | --------- | ------- | ------- | -
|                                                                                                                                |                                                                    |                                          
|                                                                                                                                |                                                                    | Years Ended December 31,                 
|                                                                                                                                |                                                                    |                                          
|                                                                                                                                |                                                                    | 2001                                      |            | 2000      |         | 1999
|                                                                                                                                |                                                                    |                                           |            |           |         |     
|Cash flows from operating
	activities:                                                                                          |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Net loss                                                                                                                        |                                                                    | $                                         | (6,684,318 | )         |         | $    | (3,085,608 | )         |         | $ | (287,992  | )      
|Adjustments to reconcile net loss to net cash
	used in operating activities:                                                    |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|                                                                                                                                | Depreciation, amortization and other                               |                                           |            | 2,389,766 |         |      |            | 2,186,986 |         |   |           | 193,067 |        
|                                                                                                                                | Impairment of long-lived and other assets                          |                                           |            | 3,826,893 |         |      |            |          |         |   |           |        |        
|                                                                                                                                | Non-cash content and distribution services and
	stock compensation |                                           |            | 123,925   |         |      |            | 159,932   |         |   |           | 15,567  |        
|                                                                                                                                | Non-cash portion of restructuring charge                           |                                           |            | 185,498   |         |      |            | 380,013   |         |   |           |        |        
|                                                                                                                                | Loss on investments                                                |                                           |            |          |         |      |            | 39,602    |         |   |           |        |        
|                                                                                                                                | Changes in operating assets and liabilities:                       |                                           |            |           |         |      |            |           |         |   |           |         |        
|                                                                                                                                |                                                                    | Accounts receivable                       |            |           | 46,933  |      |            |           | (31,419 | ) |           |         | (20,653 | )
|                                                                                                                                |                                                                    | Other assets                              |            |           | 20,842  |      |            |           | 16,342  |   |           |         | (9,051  | )
|                                                                                                                                |                                                                    | Accounts payable                          |            |           | (5,970  | )    |            |           | (45,441 | ) |           |         | (29,356 | )
|                                                                                                                                |                                                                    | Accrued expenses                          |            |           | (46,688 | )    |            |           | (90,372 | ) |           |         | 61,283  |  
|                                                                                                                                |                                                                    | Prepaid content and distribution services |            |           | (7,609  | )    |            |           | 5,171   |   |           |         | (1,868  | )
|                                                                                                                                |                                                                    | Deferred revenue                          |            |           | 11,508  |      |            |           | 3,223   |   |           |         | 3,017   |  
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Net cash used in operating activities                                                                                           |                                                                    |                                           | (139,220   | )         |         |      | (461,571   | )         |         |   | (75,986   | )      
|                                                                                                                               
|Cash flows from investing
	activities:                                                                                          |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Purchases of short-term investments                                                                                             |                                                                    |                                           |           |           |         |      |           |           |         |   | (23,954   | )      
|Maturities of short-term investments                                                                                            |                                                                    |                                           | 124,725    |           |         |      | 5,667      |           |         |   | 35,715    |        
|Purchases of long-term investments                                                                                              |                                                                    |                                           |           |           |         |      | (49,600    | )         |         |   |          |        
|Purchases of property and equipment                                                                                             |                                                                    |                                           | (24,223    | )         |         |      | (30,221    | )         |         |   | (27,045   | )      
|Cash paid in business combinations, net of cash
	acquired                                                                       |                                                                    |                                           | (17,334    | )         |         |      | (286,851   | )         |         |   | 296,450   |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Net cash provided by (used in) investing
	activities                                                                            |                                                                    |                                           | 83,168     |           |         |      | (361,005   | )         |         |   | 281,166   |        
|                                                                                                                               
|Cash flows from financing
	activities:                                                                                          |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Proceeds from issuance of common stock                                                                                          |                                                                    |                                           | 12,995     |           |         |      | 1,065,848  |           |         |   | 62,711    |        
|Purchase of treasury shares                                                                                                     |                                                                    |                                           | (191,823   | )         |         |      | (30,759    | )         |         |   |          |        
|Payment of notes payable and other                                                                                              |                                                                    |                                           | (2,906     | )         |         |      | (7,335     | )         |         |   | (1,661    | )      
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Net cash (used in) provided by financing
	activities                                                                            |                                                                    |                                           | (181,734   | )         |         |      | 1,027,754  |           |         |   | 61,050    |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Net (decrease) increase in cash and cash
	equivalents                                                                           |                                                                    |                                           | (237,786   | )         |         |      | 205,178    |           |         |   | 266,230   |        
|Cash and cash equivalents at beginning of year                                                                                  |                                                                    |                                           | 490,797    |           |         |      | 285,619    |           |         |   | 19,389    |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Cash and cash equivalents at end of year                                                                                        |                                                                    | $                                         | 253,011    |           |         | $    | 490,797    |           |         | $ | 285,619   |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Supplemental disclosure of cash flow
	information:                                                                              |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Interest paid                                                                                                                   |                                                                    | $                                         | 479        |           |         | $    | 651        |           |         | $ | 527       |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Supplemental schedule of non-cash investing
	and financing activities:                                                          |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Issuance of equity securities in connection with
	business combinations, strategic alliances and services, and
	asset purchases |                                                                    | $                                         | 24,739     |           |         | $    | 7,014,185  |           |         | $ | 4,131,907 |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Reacquisition of convertible preferred stock and
	issuance of warrants in connection with revision of strategic
	alliances      |                                                                    | $                                         | (151,171   | )         |         | $    |           |           |         | $ |          |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Equipment acquired under capital lease obligations                                                                              |                                                                    | $                                         | 168        |           |         | $    | 215        |           |         | $ | 9,374     |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Deferred stock compensation related to
	acquisitions and options granted                                                        |                                                                    | $                                         |           |           |         | $    | 211,837    |           |         | $ | 6,261     |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        
|Conversion of convertible preferred stock to
	common stock                                                                      |                                                                    | $                                         |           |           |         | $    |           |           |         | $ | 46,101    |        
|                                                                                                                                |                                                                    |                                           |            |           |         |      |            |           |         |   |           |        

See accompanying notes.

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##### Table of Contents



WebMD Corporation

Notes to Consolidated Financial
Statements

December 31, 2001


(In thousands, except share and per share
data)


1.     Summary of
Significant Accounting Policies

Organization

WebMD Corporation (the Company) was
incorporated in December 1995 and commenced operations in
January 1996, as Healtheon Corporation. In May 1998, the Company
merged with ActaMed Corporation (ActaMed) in a
transaction accounted for as a pooling of interests. In November
1999, the Company completed the acquisitions of WebMD, Inc.,
MedE America Corporation (MedE America) and
Greenberg News Networks, Inc. (Medcast) and changed
its name from Healtheon Corporation to Healtheon/ WebMD
Corporation. In January 2000, the Company completed its
acquisition of Kinetra LLC (Kinetra). In May 2000,
the Company completed its acquisition of Envoy Corporation
(Envoy). In September 2000, the Company completed
its acquisitions of Medical Manager Corporation (Medical
Manager), CareInsite, Inc. (CareInsite) and
OnHealth Network Company (OnHealth) and changed its
name from Healtheon/ WebMD Corporation to WebMD Corporation. All
financial information has been presented to reflect the combined
operations of the Company and ActaMed for all years presented
and for the WebMD, Inc., MedE America, Medcast, Kinetra, Envoy,
Medical Manager, CareInsite, OnHealth and other acquisitions for
the period subsequent to each respective acquisition date.

As a result of the Companys restructuring
and integration initiatives related to the above mentioned
acquisitions, the Company has recently aligned its business into
three operating segments as follows:

Transaction Services or WebMD Envoytransmits electronic and Internet
transactions between healthcare payers and physicians,
pharmacies, dentists, hospitals, laboratory companies and other
healthcare providers. This group provides connectivity and
transaction services through an integrated electronic
transaction processing system. These services assist the
groups customers in automating key administrative and
clinical functions. This segment includes certain operations
from the former Healtheon and the ActaMed, WebMD, Inc., MedE
America, Kinetra, Envoy and CareInsite acquisitions.

Physician Services or WebMD Medical Managerdevelops and markets integrated
physician practice management systems, including administrative,
financial and clinical applications and services, under The
Medical Manager brand. These systems and services allow
physician offices to automate their scheduling, billing and
other administrative tasks, to maintain electronic medical
records and to automate documentation of patient encounters.
This segment includes certain operations of Medical Manager and
subsequent acquisitions.

Portal Services or WebMD Healthprovides online healthcare information
and related resources and services for consumers and healthcare
professionals, both directly and through its relationships with
leading general consumer Internet portals. The group also
provides online content for use by media and healthcare partners
in their Web sites. The group develops and sells on-line
programs for advertisers and sponsors, particularly those who
are interested in influencing healthcare decisions. This segment
includes certain operations of the former Healtheon and the
ActaMed, WebMD, Inc., Medcast, OnHealth and subsequent
acquisitions.

Principles of Consolidation

The accompanying consolidated financial
statements include the accounts of the Company and its
subsidiaries after elimination of all material intercompany
accounts and transactions. Porex Corporation and the
Companys other plastics and filtration technology
subsidiaries (collectively referred to as Porex) are
reflected as an asset held for sale.

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Accounting Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual
results could differ from these estimates. Significant estimates
and assumptions by management affect: the Companys
allowance for doubtful accounts, the carrying value of its
prepaid content and distribution services, the carrying value of
its assets held for sale, the carrying value of its long-lived
assets (including goodwill and intangible assets), the
amortization period of long-lived assets, the capitalization of
software development costs, the carrying value of short-term and
long-term investments, certain accrued expenses, revenue
recognition and restructuring costs.

Cash and Cash Equivalents

All highly liquid investments with an original
maturity from the date of purchase of three months or less are
considered to be cash equivalents. These short-term investments
are stated at cost, which approximates market. The
Companys cash and cash equivalents are invested in various
investment-grade commercial paper, money market accounts and
federal agency notes.

Marketable Securities

Management determines the appropriate
classification of its investments in debt securities at the time
of purchase and re-evaluates such determinations at each balance
sheet date. Debt securities are classified as held to maturity
when the Company has the positive intent and ability to hold the
securities to maturity. Debt securities that the Company does
not have the intent or ability to hold to maturity are
classified as available-for-sale. Investments in marketable
equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value as of
the balance sheet date.

Long-Lived Assets



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost, net of
accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful life of the
related asset, generally three to seven years for equipment and
up to thirty-nine years for buildings. Leasehold improvements
and equipment acquired under capital leases are depreciated over
the shorter of the lease term or the estimated useful life of
the related asset. Expenditures for maintenance, repair and
renewals of minor items are charged to expense as incurred.
Major betterments are capitalized.



| |                                
| | -------------------------------
| | Goodwill and Intangible
	Assets

Goodwill and intangible assets result from
acquisitions accounted for under the purchase method.
Amortization of intangible assets is computed on the
straight-line basis over the respective estimated useful lives
of the assets. For acquisitions completed prior to June 30,
2001, goodwill is being amortized over estimated useful lives of
three to four years. In accordance with Statement of Financial
Accounting Standard (SFAS) No. 141,
Business Combinations (SFAS
No. 141), and SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142),
goodwill recorded for acquisitions completed after June 30,
2001 is no longer subject to amortization (see Recent Accounting
Pronouncements). Intangible assets related to acquired
technology, customer lists, trademarks and other intangibles are
being amortized on a straight-line basis over the estimated
useful life of the related asset, generally one to five years.

F-8



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)



| |               
| | --------------
| | Recoverability

In accordance with SFAS No. 121,
Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of, whenever events or changes in
circumstances indicate that carrying amounts may not be
recoverable, the Company reviews the recoverability of
long-lived assets using an undiscounted cash flow methodology.
The Company measures impairment losses using a discounted cash
flow methodology.

Software Development Costs



| |                                                   
| | --------------------------------------------------
| | Software to be Sold, Leased or Otherwise
	Marketed

SFAS No. 86 Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise
Marketed, requires the capitalization of certain software
development costs subsequent to the establishment of
technological feasibility. Based upon the Companys product
development process, technological feasibility is established
upon the completion of a working model. The costs incurred from
the time a working model is available until general release are
immaterial. There were no software costs capitalized in 2001,
2000 or 1999.



| |                      
| | ---------------------
| | Internal Use Software

The Company accounts for internal use software
development costs in accordance with Statement of Position
No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use
(SOP 98-1). Software development costs that are
incurred in the preliminary project stage are expensed as
incurred. Once the specified criteria of SOP 98-1 have been
met, internal and external direct costs incurred in developing
or obtaining computer software are capitalized. Training and
data conversion costs are expensed as incurred. As of
December 31, 2001, net capitalized software costs totaled
$2,544, compared to $6,451 as of December 31, 2000.
Capitalized software costs are amortized over a three-year
period. In 2000, the Company capitalized $3,422 of internal
direct costs in connection with the implementation of certain
software projects. There were no such costs capitalized in 2001
and 1999.

Revenue Recognition

Revenue is derived from the Companys
transaction services, physician services and portal services.

The Companys transaction services include
administrative services, such as transaction processing for
medical, dental, pharmacy claims, automated patient statements,
and clinical lab and reporting services, such as lab test orders
and results. Healthcare payers and providers pay fees to the
Company for these services, generally on a per transaction
basis. Transaction fees vary according to the type of
transaction and other factors, such as volume level commitments.
The Company also charges one-time implementation fees to
providers and payers, that are recognized ratably over the
contract term. Revenue from transaction services, which are
generally priced on a per transaction or monthly basis, is
recognized when the services are provided. Amounts received from
healthcare providers related to postage, primarily for the
mailing of customized billing statements to their patients, is
recorded as a reduction of cost of operations. Such amounts were
$73,408 and $39,357 for 2001 and 2000, respectively. See Recent
Accounting Pronouncements for New Financial Accounting Standards
Board (FASB) Staff Announcement Regarding the
Classification of Such Reimbursements.

The Companys physician services include
sales of The Medical Manager practice management system and
related hardware, as well as the support and maintenance of
these systems. Revenue from software licenses is recognized in
accordance with SOP No. 97-2, Software Revenue
Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions, for its
software licenses. Software license fee revenue is recognized
when a customer enters into a noncancelable license agreement,
the software product has been delivered, there are

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

no uncertainties surrounding product acceptance,
there are no significant future performance obligations, the
license fees are fixed or determinable and collection of the
license fee is considered probable. Additionally, the total
contract revenue is allocated to the various elements of the
contract based upon objective evidence of the fair values of
such elements and the allocated revenue is recognized upon
completion of those elements. Amounts billed in advance of
recognized revenue are deferred. Revenue from the sale of
hardware is recognized upon delivery to the customer. Revenue
from support and maintenance contracts is recognized ratably
over the contract period, which typically does not exceed one
year. The Company also markets a variety of transaction
processing services to physician practices, such as medical
claim processing and automated patient statements. Payment for
these services is typically monthly on a per transaction or
fixed fee basis. Revenues are recognized when these services are
provided.

Portal services include advertising, sponsorship,
continuing medical education (CME), content
syndication and distribution, and e-commerce transactions
related to the Companys online distribution channels and
the online and offline distribution channels of the
Companys strategic partners, as well as subscription fees
to the Companys physician portal. Subscription fees to the
Companys physician portal were discontinued as of
December 31, 2000. Revenue from advertising is recognized
as advertisements are delivered. Revenue from sponsorship
arrangements is recognized ratably over the term of the
applicable agreement. Revenue from CME arrangements is
recognized over the period the Company satisfies the minimum
credit hour requirements of the applicable agreements. Revenue
from fixed fee content license or carriage fees is recognized
ratably over the term of the applicable agreement. E-commerce
revenue is recognized when a subscriber or consumer utilizes the
Companys Internet-based services or purchases goods or
services through the Companys Web site or co-branded Web
site with one of its strategic partners. Subscription revenue,
including subscription revenue from sponsorship arrangements, is
recognized over the subscription period.

The Company recognizes revenue related to the
nonmonetary exchange of advertising for advertising when such
exchanges are objectively determinable based on the criteria set
forth in Accounting Principles Board Opinion No. 29,
Accounting for Nonmonetary Transactions for
contractual agreements entered into prior to January 20,
2000. Revenues from these exchanges are recorded at the fair
value of the products and services provided or received,
whichever is more clearly evident. For contractual arrangements
after January 20, 2000, the Company recognizes revenue
based on the criteria set forth in Emerging Issues Task Force
(EITF) of the Financial Accounting Standards Board
(FASB) on Issue No. 99-17, Accounting for
Advertising Barter Transactions (EITF 99-17).
EITF 99-17 requires that an entity recognize revenue and
expenses from advertising barter transactions at the fair value
of the advertising surrendered only when an entity received cash
for similar transactions. Revenue recognized from arrangements
deemed to be nonmonetary exchanges totaled approximately
$19,009, $21,743 and $6,000 in 2001, 2000 and 1999,
respectively. The costs related to these transactions were equal
to the revenues and are included in sales, marketing, general
and administrative expenses.

Concentration of Credit Risk

None of the Companys customers individually
accounted for more than 10% of the Companys revenue in
2001 or 2000. Three of the Companys customers each
accounted for more than 10% of its revenue in 1999, and together
accounted for approximately 41% of the Companys revenue
for the same period.

The Companys revenues are principally
generated in the United States. An adverse change in economic
conditions in the United States could negatively affect the
Companys revenues and results of operations.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

The Company places its short-term investments in
a variety of financial instruments and, by policy, limits the
amount of credit exposure through diversification and by
restricting its investments to highly rated securities.

Income Taxes

Income taxes are accounted for using the
liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this method,
deferred income taxes are recognized for the future tax
consequence of differences between the tax and financial
reporting basis of assets and liabilities at each year end. A
valuation allowance is established to reduce deferred tax assets
to the amounts expected to be realized.

Accounting for Stock-Based
Compensation

As permitted under SFAS No. 123,
Accounting for Stock-Based Compensation, the Company
accounts for stock option grants to employees and directors
using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations.
Stock-based awards to non-employees are accounted for based on
the provisions of SFAS No. 123 and EITF 96-18,
Accounting for Equity Instruments That are Issued to Other
Than Employees for Acquiring, or in Conjunction With, Selling
Goods or Services.

Net Loss Per Common Share

Basic net loss per common share and diluted net
loss per common share are presented in conformity with SFAS
No. 128, Earnings Per Share, for all periods
presented. In accordance with SFAS No. 128, basic net loss
per common share has been computed using the weighted-average
number of shares of common stock outstanding during the period,
less shares subject to repurchase.

The following table presents the calculation of
basic and diluted net loss per common share:

|                                            |                                                                                        |                          |            |             |  |      |            |             |  |   |          |            |  
|------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------ | ---------- | ----------- |  | ---- | ---------- | ----------- |  | - | -------- | ---------- | -
|                                            |                                                                                        |                         
|                                            |                                                                                        | Years Ended December 31,
|                                            |                                                                                        |                         
|                                            |                                                                                        | 2001                     |            | 2000        |  | 1999
|                                            |                                                                                        |                          |            |             |  |     
|Net loss                                    |                                                                                        | $                        | (6,684,318 | )           |  | $    | (3,085,608 | )           |  | $ | (287,992 | )         
|                                            |                                                                                        |                          |            |             |  |      |            |             |  |   |          |           
|Basic and diluted:                          |                                                                                        |                          |            |             |  |      |            |             |  |   |          |           
|                                            | Weighted-average shares of common stock
	outstanding                                   |                          |            | 348,569,519 |  |      |            | 244,688,375 |  |   |          | 81,330,212 |  
|                                            | Less: Weighted-average shares subject to
	repurchase                                   |                          |            |            |  |      |            |            |  |   |          | (963,517   | )
|                                            |                                                                                        |                          |            |             |  |      |            |             |  |   |          |           
|                                            | Weighted-average shares used in computing basic
	and diluted net loss per common share |                          |            | 348,569,519 |  |      |            | 244,688,375 |  |   |          | 80,366,695 |  
|                                            |                                                                                        |                          |            |             |  |      |            |             |  |   |          |           
|Basic and diluted net loss per common share |                                                                                        | $                        | (19.18     | )           |  | $    | (12.61     | )           |  | $ | (3.58    | )         
|                                            |                                                                                        |                          |            |             |  |      |            |             |  |   |          |           

The Company has excluded all convertible
redeemable preferred stock, convertible preferred stock,
warrants, outstanding stock options and shares subject to
repurchase by the Company from the calculation of diluted loss
per common share because all such securities are anti-dilutive
for all periods presented. The total number of shares excluded
from the calculation of diluted loss per share was 159,058,030
in 2001, 169,664,930 in 2000 and 63,898,198 in 1999.

Recent Accounting Pronouncements

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities for the year ended December 31, 2001. SFAS
No. 133 establishes methods of accounting for

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

derivative financial instruments and hedging
activities related to those instruments as well as other hedging
activities. Derivatives that are not designated as part of a
hedging relationship must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of
the hedge, the effective portion of the hedges change in
fair value is either (i) offset against the change in fair
value of the hedged asset, liability of firm commitment through
income or (ii) held in equity until the hedged item is
recognized in income. The ineffective portion of a hedges
change in fair value is immediately recognized in income. There
was no material impact on the Companys financial condition
or results of operations from the adoption of SFAS No. 133.

On July 20, 2001, the FASB issued SFAS
No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
The Company is required to adopt these pronouncements beginning
January 1, 2002, with certain provisions related to
business combinations completed after June 30, 2001. SFAS
No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method
of accounting. SFAS No. 142 changes the accounting for
goodwill and other intangible assets. Goodwill will no longer be
subject to amortization over its estimated useful life. Rather,
goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. All other
acquired intangibles should be separately recognized if the
benefit of the intangible asset is obtained through contractual
or other legal rights, or if the intangible asset can be sold,
transferred, licensed, or exchanged, regardless of the
acquirers intent to do so. Other intangibles will be
amortized over their useful lives. As a result of the
Companys adoption of SFAS No. 141 and SFAS
No. 142: (i) no amortization was recorded for goodwill
resulting from business combinations completed after
June 30, 2001, (ii) effective as of January 1,
2002, the amortization of goodwill will be eliminated, resulting
in a material reduction of amortization expense for goodwill and
certain other intangible assets, and (iii) certain amounts
previously classified as intangible assets will be reclassified
as goodwill and consequently, no longer be subject to
amortization. As a result of adopting SFAS No. 141 and
No. 142, amortization expense is estimated to be
approximately $100,000 in 2002. The Company does not expect the
impact of adopting the fair value based impairment test to have
a material impact on the Companys financial condition or
results of operations.

On August 1, 2001, the FASB issued SFAS
No. 144, Accounting For Impairment of Long-Lived
Assets. The Company is required to adopt this
pronouncement beginning January 1, 2002. SFAS No. 144
prescribes the accounting for long-lived assets (excluding
goodwill) to be disposed of by sale. SFAS No. 144 retains
the requirement of SFAS No. 121 to measure long-lived
assets classified as held for sale at the lower of its carrying
value or fair market value less the cost to sell. Therefore,
discontinued operations are no longer measured on a net
realizable basis, and future operating results are no longer
recognized before they occur. Adoption of SFAS No. 144 will
not have a material impact on the Companys financial
condition or results of operations.

On November 15, 2001, the FASB issued a
Staff Announcement regarding EITF Topic D-103, Income
Statement Classification of Reimbursements Received for
Out-of-Pocket Expenses Incurred. This Announcement
requires reimbursements received for out-of-pocket expenses to
be classified as revenue as opposed to offset against the
related expense. Application of this Announcement is required
for financial reporting periods beginning after
December 15, 2001. Upon application, comparative financial
statements for prior periods are required to be reclassified by
this Announcement. The Company will adopt the accounting
prescribed in this Announcement in 2002. Upon adoption, the
Company will reclassify amounts it has received for expenses
related to postage, primarily for the mailing of customized
billing statements to patients on behalf of healthcare
providers. This reclassification will result in an increase in
both revenue and cost of operations of $73,408 for 2001 and
$39,357 for 2000.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Reclassifications

Certain reclassifications have been made to the
financial statements to conform with the current year
presentation. These reclassifications had no effect on
previously reported financial position or results of operations.

2.     Business
Combinations

2001 Acquisitions

On December 26, 2001, the Company completed
its acquisition of the portal assets of MedicaLogic/ Medscape,
Inc. (Medscape). Medscape operates both consumer and
professional websites. The total purchase consideration for
these assets was approximately $10,442 comprised of $9,242 in
cash and estimated acquisition costs of $1,200. The acquisition
was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the preliminary allocation of the purchase price, goodwill of
$7,346 and intangible assets subject to amortization totaling
$2,420 were recorded. The Company expects that substantially all
of the goodwill recorded will be deductible for tax purposes.
The intangible assets are comprised of $800 related to a
tradename and $1,620 related to customer relationships with
useful lives of 3 and 5 years, respectively. The results of
operations of Medscape have been included in the financial
statements of the Company from December 26, 2001, the
closing date of the acquisition. Medscapes results of
operations are included in the Portal services segment.

In 2001, the Company acquired ten physician
services companies for a total cost of $8,159, that was paid
primarily in cash. These acquisitions were accounted for using
the purchase method of accounting with the purchase price being
allocated to assets acquired and liabilities assumed based on
their fair values. In connection with the preliminary allocation
of the purchase price, goodwill of $13,353 and an intangible
asset subject to amortization of $100 were recorded. The Company
expects that substantially all of the goodwill recorded will be
deductible for tax purposes. Amortization of goodwill related to
business combinations completed prior to June 30, 2001 has
been provided based on an estimated useful life of three years.
The intangible asset recorded has an estimated useful life of
five years. The results of operations of these companies have
been included in the financial statements of the Company from
the respective acquisition closing dates and are included in the
Physician Services segment.

2000 Acquisitions



| |                                
| | -------------------------------
| | Medical Manager and
	CareInsite

On September 12, 2000, the Company completed
its acquisition of Medical Manager, a provider of physician
practice management systems in the U.S., and its publicly traded
subsidiary CareInsite, a developer of an Internet-based
healthcare e-commerce network that links physicians, suppliers
and patients. The Company exchanged 2.5 shares of its common
stock for each share of Medical Manager common stock, 1.3 shares
of its common stock for each share of CareInsite common stock
and one share of its newly created Series B preferred stock
for each share of CareInsite preferred stock. The total purchase
consideration for Medical Manager and CareInsite was
approximately $2,906,586, comprised of the issuance of
134,370,010 shares of the Companys common stock having an
aggregate value of $2,145,722, the issuance of 100 shares of the
Companys Series B convertible redeemable preferred
stock with a value of $10,000, the assumption of options and
warrants to purchase 81,084,865 shares of common stock with an
aggregate fair value of $710,475 and estimated acquisition costs
of $40,389, consisting principally of investment banking fees,
professional service fees, including attorneys, accountants and
printers, filing and registration costs. Both acquisitions were
accounted for using the purchase method of accounting and,
accordingly, the purchase prices are allocated to the tangible
and intangible assets

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

acquired and the liabilities assumed on the basis
of their respective fair values. In connection with the
allocation of purchase price, the Company recorded $54,000 for
identifiable intangibles (primarily customer lists, trademarks
and workforce) and $2,266,496 in goodwill. The identifiable
intangibles are being amortized over their estimated useful
lives of three to fifteen years. Goodwill is being amortized
over three years. Medical Managers and CareInsites
results of operations have been included in the Companys
consolidated financial statements from September 12, 2000,
the closing date of the acquisition.

In connection with the acquisition of Medical
Manager and the related integration and consolidation, the
Companys Board of Directors approved managements
plan to dispose of Porex Corporation and its other plastics and
filtration technologies subsidiaries (collectively referred to
as Porex). See note 6.



| |         
| | --------
| | OnHealth

On September 12, 2000, the Company completed
its acquisition of OnHealth, a source of consumer-oriented
health and wellness information, products and services on the
Web. The Company exchanged 0.189435 shares of its common stock
for each share of OnHealth common stock. The total purchase
consideration was approximately $363,010, comprised of $25,000
in loans to OnHealth, approximately 4,678,609 shares of common
stock having an aggregate fair value of $287,267, the assumption
of options and warrants to purchase 1,384,113 shares of common
stock with an aggregate fair value of $46,893 and estimated
acquisition costs of $3,850 consisting principally of investment
banking fees, professional service fees, including attorneys,
accountants and printers, filing and registration costs. The
acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price is allocated to
the tangible and intangible assets acquired and the liabilities
assumed on the basis of their respective fair values. In
connection with the allocation of purchase price, total goodwill
recorded in connection with the purchase was $374,634 and is
being amortized over three years. OnHealths results of
operations have been included in the consolidated financial
statements from September 12, 2000, the closing date of the
acquisition.



| |      
| | -----
| | Envoy

On May 26, 2000, the Company completed its
acquisition of Envoy, a provider of electronic data interchange
and transaction processing services to participants in the
healthcare market, from Envoys parent, Quintiles
Transnational Corp. (Quintiles). The total purchase
consideration was approximately $2,440,240, comprised of a
$400,000 cash payment, 35,000,000 shares of common stock having
an aggregate fair value of $2,022,781 and an estimated $17,459
in acquisition costs (consisting principally of investment
banking fees, professional service fees, including attorneys,
accountants and printers, filing and registration costs). Stock
received by Quintiles in the transaction was subject to
restrictions on sale for one to two years from the date of
issuance. The acquisition was accounted for using the purchase
method of accounting and accordingly, the purchase price is
allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their respective fair
values. In connection with the allocation of the purchase price,
the Company recorded $159,200 for identifiable intangibles
(primarily customer lists and trademarks) and goodwill of
$2,211,565. The identifiable intangibles are being amortized
over their estimated useful lives of one to three years.
Goodwill is being amortized over three years. Envoys
results of operations have been included in the Companys
consolidated financial statements from May 26, 2000, the
closing date of the acquisition. In October 2001, the Company
reacquired the 35,000,000 shares of common stock owned by
Quintiles. See Note 3.



| |        
| | -------
| | Kinetra

On January 31, 2000, the Company completed
its acquisition of Kinetra, a joint venture between Electronic
Data Systems Corporation and Eli Lilly and Company. Kinetra is a
provider of health

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

information networks and healthcare e-commerce
services that enhance decision-critical information flow within
the healthcare field. The total purchase consideration for
Kinetra was approximately $291,538, comprised of 7,437,248
shares of common stock having an aggregate value of $286,288,
$5,250 of acquisition costs and a nominal amount of cash. The
acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price is allocated to
the tangible and intangible assets acquired and the liabilities
assumed on the basis of their respective fair values. In
connection with the allocation of the purchase price, the
Company recorded $49,000 for identifiable intangibles (primarily
customer lists, trademarks and acquired technology) and goodwill
of $235,000. The identifiable intangibles are being amortized
over their estimated useful lives of one to three years.
Goodwill is being amortized over three years. Kinetras
results of operations have been included in the Companys
consolidated financial statements from January 31, 2000,
the closing date of the acquisition.

1999 Acquisitions



| |            
| | -----------
| | WebMD, Inc.

On November 12, 1999, the Company completed
its acquisition of WebMD, Inc., a provider of Web-based
solutions for the administrative, communications and information
needs of healthcare professionals and the healthcare
informational needs of consumers. The Company exchanged 1.796
shares of its common stock for each share of WebMD, Inc. common
stock. The total purchase consideration was approximately
$3,659,921, comprised of the issuance of 63,932,659 shares of
common stock with an aggregate fair value of $2,204,478, the
assumption of options and warrants to purchase 49,012,168 shares
of common stock with an aggregate fair value of approximately
$1,409,746, and $45,697 of acquisition costs (consisting
principally of investment banking fees, professional service
fees, including attorneys, accountants and printers, filing and
registration costs) and approximately $2,530 of merger-related
restructuring costs. The acquisition has been accounted for
using the purchase method and, accordingly, the purchase price
has been allocated to the tangible and intangible assets
acquired and the liabilities assumed on the basis of their
respective fair values on the acquisition date. The total
goodwill recorded in connection with the purchase was $2,944,804
and is being amortized over three years. Identifiable intangible
assets of approximately $196,307, primarily related to acquired
technology, customer lists, and trademarks are being amortized
over one to five years. WebMD, Inc.s results of operations
have been included in the consolidated financial statements from
November 12, 1999, the closing date of the acquisition.



| |             
| | ------------
| | MedE America

On November 12, 1999, the Company completed
its acquisition of MedE America, a provider of healthcare
transaction services for hospitals, pharmacies, physicians,
dentists, payers and pharmacy benefit managers. The Company
exchanged 0.7494 shares of its common stock for each share of
MedE America stock. The total purchase consideration was
approximately $417,292, comprised of the issuance of 10,404,454
shares of the Companys common stock with an aggregate fair
value of $388,221, the assumption of options to purchase 468,584
shares of the Companys common stock with an aggregate fair
value of approximately $13,644, and $15,427 of acquisition
costs. Acquisition costs consisted principally of investment
banking fees, professional service fees, including attorneys,
accountants and printers, filing and registration costs and
approximately $4,756 of merger-related restructuring costs. The
acquisition has been accounted for using the purchase method
and, accordingly, the purchase price has been allocated to the
tangible and intangible assets acquired and the liabilities
assumed on the basis of their respective fair values on the
acquisition date. The total goodwill recorded in connection with
the purchase was $324,983 and is being amortized over four
years. Identifiable intangible assets of approximately $105,545,
primarily related to customer lists, trademarks and acquired
technology, are being amortized over three to four years.

F-15



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

MedE Americas results of operations have
been included in the consolidated financial statements from
November 12, 1999, the closing date of the acquisition.



| |        
| | -------
| | Medcast

On November 12, 1999, the Company completed
its acquisition of Medcast, an Internet-based medical news and
information service. The total purchase consideration was
approximately $112,953, comprised of the issuance of 2,528,465
shares of the Companys common stock with an aggregate fair
value of $101,391, the assumption of options to purchase 164,036
shares of the Companys common stock with an aggregate fair
value of approximately $3,378, $2,336 in cash and $5,848 of
acquisition costs. The acquisition has been accounted for using
the purchase method and, accordingly, the purchase price is
allocated to the tangible and intangible assets acquired and the
liabilities assumed on the basis of their respective fair values
on the acquisition date. The total goodwill recorded in
connection with the purchase was approximately $109,755 and is
being amortized over three years. Identifiable intangible assets
of $17,700, primarily related to customer lists, trademarks and
acquired technology are being amortized over two to three years.
Medcasts results of operations have been included in the
consolidated financial statements from November 12, 1999,
the closing date of the acquisition.



| |                                        
| | ---------------------------------------
| | Acquisition of Certain Clinical
	Assets

In January 1999, the Company purchased certain
assets from SmithKline Beecham Corporation, used by its
subsidiary SmithKline Labs, to provide laboratory results
delivery services in exchange for $2,000 in cash and 1,833,333
shares of the Companys common stock with a value of
$11,000. In conjunction with the asset acquisition agreement,
the Company entered into a services agreement with SmithKline
Labs under which the Company will provide certain electronic
laboratory results delivery services to various provider sites.
On August 16, 1999, SmithKline Labs was sold by SmithKline
Beecham to an unrelated third party.



| |                                 
| | --------------------------------
| | Unaudited Pro Forma
	Information

The following unaudited pro forma financial
information for 2000 and 1999 gives effect to the acquisitions
of WebMD, Inc., MedE America, Medcast, Kinetra, Envoy, Medical
Manager, CareInsite and OnHealth including the amortization of
goodwill and other intangible assets as if they had occurred as
of the beginning of each period presented. The information is
provided for illustrative purposes only and is not necessarily
indicative of the operating results that would have occurred if
the transactions had been consummated at the dates indicated,
nor is it necessarily indicative of future operating results of
the combined companies, and should not be construed as
representative of these amounts for any future periods. The 2001
acquisitions have been excluded as the pro forma impact of such
acquisitions was not significant.

|                                     |  |                         |            |      |  |   |            |  
|------------------------------------ |  | ----------------------- | ---------- | ---- |  | - | ---------- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |            | 1999
|                                     |  |                         |            |     
|Net revenue                          |  | $                       | 794,272    |      |  | $ | 631,857    |  
|                                     |  |                         |            |      |  |   |            |  
|Net loss                             |  | $                       | (4,157,317 | )    |  | $ | (3,589,792 | )
|                                     |  |                         |            |      |  |   |            |  
|Basic and diluted net loss per share |  | $                       | (11.63     | )    |  | $ | (10.87     | )
|                                     |  |                         |            |      |  |   |            |  

F-16



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

3.     Significant
Transactions

Quintiles Transnational Corporation

As part of the transaction in which the Company
acquired Envoy from Quintiles Transnational Corp. in May 2000,
Quintiles and the Company entered into a Data Rights Agreement
and an Internet Product Development and Marketing Agreement. In
February 2000, Quintiles filed an action for breach of the Data
Rights Agreement against the Company. On October 12, 2001,
the Company and Quintiles entered into an agreement to settle
this litigation (Settlement Agreement). Pursuant to
the Settlement Agreement, the Company and Quintiles terminated
the Data Rights Agreement and the Internet Product Development
and Marketing Agreement and all other agreements between them.
Pursuant to the court order in the litigation, Quintiles
continued to receive de-identified data from the Company until
February 28, 2002. The Company and Envoy have no further
obligation to provide, and no longer provide, any data to
Quintiles.

In accordance with the terms of the Settlement
Agreement, the Company purchased from Quintiles all 35,000,000
shares of WebMD common stock held by Quintiles for $185,000 in
cash. The fair market value of the repurchased shares on the
date of settlement was $126,000 and has been recorded as
treasury stock. The excess of the purchase price of the shares
over their fair market value was $59,000 and has been recorded
as a component of restructuring and integration charges along
with a benefit of $7,000 related to the release from certain
obligations in relation to the Companys acquisition of
Envoy.

The Settlement Agreement also provides that
Quintiles will have the right to receive a payment (payable at
the Companys option in cash and/or stock) in the event
that, on or before June 30, 2004, a transaction closes in
which the Company is acquired at a price per the Companys
common share greater than $4.00 or in which Envoy is sold at an
aggregate price of greater than $500,000. The Company is under
no obligation to pursue either of these types of transactions.
In the event an acquisition of the Company agreed to on or
before June 30, 2003 closes on or before June 30,
2004, the payment to Quintiles will equal the amount by which
the price paid in the acquisition exceeds $4.00 per share,
multiplied by 35,000,000. In the event a sale of Envoy agreed to
on or before June 30, 2003 closes on or before
June 30, 2004, the payment to Quintiles will equal 10% of
the amount by which the price received in the sale exceeds
$500,000. If the acquisition of the Company or sale of Envoy is
agreed to after June 30, 2003 and closes on or before
June 30, 2004, the payment will be 80% of the
above-mentioned payments.

America Online, Inc.

In May 2001, the Company entered into an
agreement for a strategic alliance with AOL Time Warner, Inc.
(AOL). The term of the agreement is three years.
Under the agreement, the Company is the primary provider of
healthcare content, tools and services for use on AOL properties
that include AOL, AOL.com, CompuServe and Netscape.com. In
addition, the Company created a co-branded personalized health
service for AOL that features the Companys personalized
news, health assessment and monitoring tools, communities and
newsletters, integrated with AOLs calendaring and
reminders. The Company and AOL intend, through the co-branded
services, to provide users with the ability to communicate with
their health plans, physicians, pharmacies and other providers.
The Company and AOL will share revenue from advertising (whether
or not related to healthcare), commerce and programming on the
health channels of the AOL properties and on the co-branded
service, with the Company receiving 80% of revenues up to an
agreed-upon annual threshold and 60% thereafter. In connection
with the strategic alliance, the Company issued to AOL a warrant
to purchase 2,408,908 shares of the Companys common stock
at an exercise price of $9.25 per share. The warrant was valued
at approximately $17,500 using the Black-Scholes option pricing
model and is being amortized over the term of the strategic
alliance as a non-cash distribution expense included in sales,
marketing, general and administrative expense.

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

News Corporation

Pursuant to an agreement signed and publicly
announced in December 1999 and closed in January 2000, the
Company entered into a strategic relationship with News
Corporation. On December 29, 2000, this strategic alliance
was revised by the parties. On February 15, 2001, the
Company completed all transactions related to its revised
strategic relationship with News Corporation. The original
relationship and the new relationship are each described below.



| |                      
| | ---------------------
| | Original Relationship

The financial terms of the strategic relationship
included: $700,000 in media services by News Corporation,
comprised of $400,000 domestically and $300,000 internationally
over 10 years; $100,000 cash investment commitment by News
Corporation in an international joint venture; a $60,000
five-year licensing agreement for syndication of WebMD daily
broadcast content; and the transfer to the Company of 50%
interests in The Health Network, a health-focused cable network,
and thehealthnetwork.com. The Company issued an aggregate of
155,951 shares of Series A preferred stock, convertible
into 21,282,645 shares of the Companys common stock. In
addition, affiliates of News Corporation purchased 2,000,000
shares of the Companys common stock for an aggregate
purchase price of $100,000 in cash.



| |                 
| | ----------------
| | New Relationship

The Company retained the right to receive
$205,000 in domestic media services from News Corporation over
ten years and will continue to provide content for use across
News Corporations media properties for the next four years
for cash payments totaling $12,000 annually. News Corporation
transferred its 50% interest in the international joint venture
to the Company and was relieved of its commitment to provide any
future capital to the international joint venture and its
commitment to provide any international media services. The
Company transferred its interest in The Health Network to News
Corporation. The Company was also relieved of all future capital
commitments to The Health Network. In connection with the
revisions to the relationship, News Corporation surrendered
155,951 shares of WebMDs Series A convertible
preferred stock. The Company granted to News Corporation a
warrant to acquire 3,000,000 shares of its common stock at an
exercise price of $15 per share. The Company included
approximately $17,759, determined using the Black-Scholes option
pricing model, as a non-cash restructuring charge related to
this issuance.

Microsoft

The Company entered into a five-year strategic
alliance with Microsoft in May 1999. In March 2001, the Company
executed a non-binding letter of intent with Microsoft with
respect to a new relationship. In April 2001, the Company
entered into definitive agreements with Microsoft to implement
the new relationship, which is effective as of January 1,
2001. In connection with the original strategic relationship,
Microsoft acquired shares of common stock and a warrant to
purchase shares of common stock of WebMD, Inc. These securities
were converted into securities of the Company as a result of the
merger of the Company and WebMD, Inc. in November 1999. As of
December 31, 2001, Microsoft had a warrant to purchase
13,676,389 shares of the Companys common stock at an
exercise price of $30.16 per share. The warrant is fully vested
and expires on May 12, 2004. The original relationship and
the new relationship are each described below.



| |                      
| | ---------------------
| | Original Relationship

Under the terms of the original strategic
relationship, the Company developed, hosted and maintained on
its servers a health channel for MSN and was required to pay
Microsoft an aggregate of $162,000 in carriage fees for the
distribution of that content. In addition, Microsoft and the
Company each committed

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

co-marketing funds of $50,000 over the first two
years of the term. As of December 31, 2000, the Company had
recorded $30,562 as sales, marketing, general and administrative
expense related to the carriage fees.

Microsoft was required to remit to the Company
100% of the net revenue over the term of the agreement from
banner and other advertising and e-commerce transactions
generated on the health channel or advertising that Microsoft
placed on WebMD.com each year during the term until the Company
received an amount equal to that years carriage fees,
including guaranteed minimum amounts of $22,500 in each of the
first two years of the term, and was required to share revenue
equally with the Company after that. The Company was required to
pay Microsoft a 25% commission on the portion of the revenue
received up to the annual guaranteed minimum amounts for all
advertisements placed by Microsoft. The Company recognized this
advertising revenue when Microsoft notified it that
advertisements had been placed on the health channel and billed
by Microsoft, not based on the guaranteed minimum amounts.
During 2000, the Company recognized $5,996, net of commissions,
related to health channel advertising.

Microsoft agreed to sponsor up to
5.0 million subscriber months, for $29.95 per month, of
subscriptions to the Companys physician Web site over the
term of the agreement. The Company was required to pay a $5 per
month commission on all subscriptions placed by Microsoft.
During 2000, the Company recorded $16,114 as revenue, net of
commissions, related to subscriptions sponsored by Microsoft.

The Company was required to share with Microsoft
50% of net revenue from banner and other advertising on the
Companys physician Web site generated by sponsored
subscriptions until Microsoft received the amount it had
incurred for its sponsored subscriptions. Thereafter, the
Company was required to share 25% of this revenue with
Microsoft. In addition, the Company was required to share with
Microsoft 15% of the Companys net revenue from e-commerce
transactions and additional services not included in the basic
subscription to the Companys physician Web site generated
by these sponsored subscriptions. There were no obligations to
Microsoft as of December 31, 2000 relating to this
provision.

New
Relationship

To implement the new relationship, the parties
entered into two definitive agreements. The first agreement
related to technology matters and was terminated by the parties
on September 14, 2001. No payments were made by either
party under the terminated agreement. Under the second
agreement, the Company will program the majority of the MSN
health channel, and the Company and MSN will share revenues
derived from advertising, sponsorship and e-commerce on the MSN
health channel site, with the Company receiving 100% of revenues
up to an agreed upon annual threshold (or until an agreed upon
maximum for the contract period is reached) and 60% thereafter.
The Company will no longer pay carriage fees to Microsoft. The
term of this agreement is scheduled to expire on June 30,
2004. In connection with the new relationship, the parties
agreed that Microsoft would no longer be responsible for funding
the sponsorship of subscriptions to the Companys physician
portal, and the Company would no longer be required to share
with Microsoft revenue generated by physician usage of the
Companys healthcare portals.

E.I. du Pont de Nemours and Company

Prior to its merger with the Company, WebMD, Inc.
entered into a strategic relationship under which E.I. du Pont
de Nemours and Company (DuPont) agreed to be the
exclusive provider of life science content. DuPont also agreed
to certain co-promotion, marketing and banner rights on the
Companys Web site. DuPont agreed to pay carriage fees
totaling $26,000 over three years. In addition, DuPont agreed to
sponsor approximately 6 million subscriber months during
the five-year term of the agreement. The

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Company and DuPont agreed to share in the revenue
generated by the Web site for advertising, third party carriage
fees and e-commerce. In connection with the agreement, the
Company issued a warrant to DuPont to purchase 9,946,966 shares
of common stock at $8.00 per share. The warrant vested
immediately upon issuance and expires five years from the
issuance date.

In December 2000, in connection with its
restructuring and integration efforts, the Company and DuPont
agreed to terminate their strategic alliance. In connection with
the termination of the existing agreement, DuPont surrendered a
portion of its warrant to purchase common stock of the Company,
and retained a right to purchase 3,000,000 shares of the
Companys common stock at an exercise price of $8.00 per
share. The Company recorded $33,199 in paid in capital related
to the reacquisition of a portion of the warrant and a non-cash
charge of $33,785 related to the write-off of prepaid content
and distribution services as a component of restructuring and
integration charges for the year ended December 31, 2000.

4.     Impairment of
Long-Lived and Other Assets

During 2001, the Company identified certain
indicators of possible impairment of its long-lived assets,
primarily goodwill and other acquired intangible assets. The
indicators of possible impairment that were identified included
a decline in the price of the Companys common stock to its
lowest price in the previous twelve months accompanied by a
significant decline in the volatility of the Companys
stock price, a sustained decline in valuations in the e-health,
technology and Internet sectors and the impact of recent trends
in general economic conditions.

The Company reviewed substantially all of its
long-lived assets for impairment. The Companys long-lived
assets primarily related to goodwill and other acquired
intangible assets recorded in connection with the acquisitions
of WebMD, Inc., MedEAmerica and Medcast in November 1999 and the
acquisitions of Kinetra, Envoy, Medical Manager, CareInsite and
OnHealth during 2000. The Company utilized its common stock as
the primary consideration for the acquisitions.

The Company evaluated its long-lived assets for
impairment by determining identifiable cash flows to related
asset groupings at the lowest level that were largely
independent of the cash flows of other asset groupings. The
projected undiscounted cash flows for each asset grouping was
compared to the related carrying value. As a result of these
comparisons, the Company determined its long-lived assets were
impaired.

The Company determined the amount of the
impairment by comparing the fair value of each asset grouping to
the related carrying value. The fair value for each asset
grouping was determined primarily using a discounted cash flow
approach. As a result of these comparisons and the adjustment to
reflect the carrying value of the Companys plastic and
filtration technologies business to fair value (see
note 6), the Company recorded a write-down of $3,826,893
related to its long-lived assets reflecting the difference
between the carrying value and fair value of the asset
groupings. The write-down consisted of $3,663,233 of goodwill,
$94,186 of other acquired intangibles, $42,979 of other
long-lived assets and $26,495 of assets held for sale.

5.     Restructuring
and Integration Charges

In the third quarter of 2000, the Companys
board of directors approved a restructuring and integration
plan, with the objective of eliminating duplication and
redundancies that resulted from the acquisitions made by the
Company since November 1999 and consolidating the Companys
operational infrastructure into a common platform to more
efficiently serve its customers.

As part of the Companys restructuring and
integration efforts, the Company also undertook a review of its
existing strategic relationships in light of several criteria,
including strategic relevance to both the Company and the other
party, potential conflicts with other relationships as a result
of the numerous

F-20



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

acquisitions made by the Company, profitability
and impact on future revenue streams. As a result of this
process, the Company entered into discussions to revise or
terminate many of those relationships. In some cases, the
Company and the other party have agreed to redefine the
relationships in a manner that better serves the needs of each
party. In other cases, these discussions have resulted in the
termination of relationships.

In connection with the Companys
restructuring and integration efforts, the Company recorded a
total charge in the year ended December 31, 2000 of
$452,919 that consists of: (i) $320,879 relating to the
restructuring of contracts primarily associated with News
Corporation and DuPont, of which $312,791 represented non-cash
charges, (ii) personnel-related restructuring costs of
$70,173, of which $53,144 represented non-cash stock option
compensation charges primarily related to the resignation of
certain executives, pursuant to the applicable employment and
separation arrangements, with the remaining personnel-related
charge relating to severance and outplacement services for
approximately 1,100 employees that the Company identified and
notified of termination, principally as a result of eliminating
duplicate functions within the combined company,
(iii) facilities charges of $51,262, comprised of $37,184
of future lease obligations and lease cancellation penalties and
$14,078 of non-cash fixed asset write-offs related to vacating
duplicate facilities, and (iv) $10,605 of integration
costs, consisting primarily of employee retention arrangements
related to exit activities, moving and relocation expenses, as
well as outside professional fees related to the integration of
the Companys business. Integration costs are recorded as
expense in the period in which they arise.

The Companys restructuring and integration
efforts continued in 2001, and a new plan to include the impact
of eliminating duplicate functions resulting from the
acquisition of Medscape (Medscape Restructuring) was
initiated. As a result of the Medscape Restructuring, 115
employees were notified of termination in December 2001. In
connection with the continuing restructuring and integration
efforts, a charge was recorded for the twelve months ended
December 31, 2001 of $266,755, that consists of:
(i) $123,206 primarily relating to the restructuring of the
original strategic relationship with Microsoft, of which
$133,500 represented non-cash charges for the write-off of
intangible assets associated with the Companys original
Microsoft agreement recorded as part of the Companys
acquisition of WebMD, Inc. in 1999 offset by a $15,610 benefit
for the settlement of certain obligations from the original
strategic relationship with Microsoft , as well as net payments
of $5,316 made to exit contractual obligations,
(ii) $52,000 associated with the settlement of the original
Quintiles agreements, of which $59,000 was a charge recorded for
the difference between the purchase price and fair value of the
35,000,000 shares of the Companys common stock acquired in
October 2001, offset by a $7,000 benefit related to the release
of the Company from certain obligations in relation to the
Companys acquisition of Envoy,
(iii) personnel-related costs of $67,604, of which $51,998
represented non-cash stock option compensation charges primarily
related to the resignation or termination of certain employees
pursuant to the applicable employment and separation
arrangements, with the remaining personnel-related charge
relating to severance and outplacement services for
approximately 615 additional employees that the Company
identified and notified of termination during the twelve months
ended December 31, 2001, of which $2,777 related to 115
employees notified of termination as a result of the Medscape
Restructuring, (iv) facilities charges of $15,538,
comprised of future lease obligations and lease cancellation
penalties related primarily to additional anticipated costs of
exiting previously vacated facilities as a result of declines in
rental values in certain markets and vacating additional
facilities identified during the twelve months ended
December 31, 2001, and (v) $8,407 of integration
costs, consisting of employee retention arrangements related to
exit activities, moving and relocation expenses, as well as
outside professional fees related to the integration of our
business.

F-21



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

The following table presents cash activity in the
restructuring and integration related accrual:

|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|---------------------------- |  | --------- | ------- | ---------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|                             |  | Severance |         | Facilities |  | Other |         | Total
|                             |  |           |         |            |  |       |         |      
|Initial accrual              |  | $         | 17,029  |            |  | $     | 37,184  |       |  | $ | 18,693  |   |  | $ | 72,906  |  
|Cash payments                |  |           | (8,430  | )          |  |       | (1,341  | )     |  |   | (10,010 | ) |  |   | (19,781 | )
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|Balance at December 31, 2000 |  |           | 8,599   |            |  |       | 35,843  |       |  |   | 8,683   |   |  |   | 53,125  |  
|Accrual                      |  |           | 15,606  |            |  |       | 15,538  |       |  |   | 50,113  |   |  |   | 81,257  |  
|Cash payments                |  |           | (20,749 | )          |  |       | (10,484 | )     |  |   | (58,796 | ) |  |   | (90,029 | )
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|Balance at December 31, 2001 |  | $         | 3,456   |            |  | $     | 40,897  |       |  | $ |        |   |  | $ | 44,353  |  
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  

As of December 31, 2001, $2,777 related to
the Medscape Restructuring is included in the severance portion
of the accrual. The Company expects to pay substantially all the
remaining restructuring and integration liabilities noted above,
other than those related to lease payments that are long-term in
nature, during 2002.

6.     Discontinued
Operations

In connection with the acquisition of Medical
Manager and the related integration and consolidation of the
Companys acquired businesses, the Companys board of
directors approved managements plan to dispose of Porex
Corporation. Porex was wholly owned by Medical Manager prior to
the completion of the Companys acquisition of Medical
Manager on September 12, 2000. Porex designs, manufactures
and distributes porous and solid plastic components and products
used in life sciences, healthcare, industrial and consumer
applications.

The expected net proceeds and the cash flows of
Porex until sold were initially allocated to assets held for
sale in the allocation of the Medical Manager purchase price and
were included as a single line item in current assets as
provided by the consensus reached by EITF No. 87-11,
Allocation of Purchase Price to Assets to be Sold
(EITF 87-11). In accordance with
EITF 87-11, the results of operations of Porex were
excluded from the Companys consolidated statements of
operations prior to September 12, 2001. Porex had net
income of $12,000 for the period from January 1, 2001
through September 12, 2001, and net income of $16,000 from
the acquisition date through September 12, 2001.
Porexs net income reflects the impact of tax benefits from
being included in the Companys consolidated tax return.

As the divestiture of Porex was not completed
within the one year time period allotted by EITF 87-11, the
Company is now required to record the results of operations of
Porex in the statement of operations beginning
September 13, 2001 as a discontinued operation in
accordance with EITF 90-6, Accounting for Certain
Events Not Addressed in Issue No. 87-11 Relating to an
Acquired Operating Unit to be Sold. The Company expects
Porex to generate earnings while the Company continues to
explore various divestiture alternatives. The fair value of
Porex was estimated by management to be $185,000 in September
2001. As a result, the Company recorded an adjustment to its
carrying value of $26,495. The adjustment to the carrying value
is included in the impairment of long-lived and other assets
(see note 4). The fair value of Porex continues to be
recorded as assets held for sale. The net income for Porex for
the period from September 13, 2001 to December 31,
2001 is reflected in the Companys consolidated statement
of operations as net income from discontinued operations. The
Company received $5,294 of cash distributions from Porex in
2001. These distributions were recorded as a reduction of the
carrying value in Porex.

F-22



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Assets and liabilities of the discontinued
operations were as follows:

|                                   |  |   |         |  
|---------------------------------- |  | - | ------- | -
|Current assets                     |  | $ | 72,440  |  
|Property, plant and equipment, net |  |   | 46,725  |  
|Other long term assets, net        |  |   | 135,944 |  
|Current liabilities                |  |   | (22,557 | )
|Long term liabilities              |  |   | (44,434 | )
|                                   |  |   |         |  
|Assets held for sale               |  | $ | 188,118 |  
|                                   |  |   |         |  

7.     Segment
Information

Segment information has been prepared in
accordance with SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information. For the
years ended December 31, 1999 and 2000, the Company
reported and managed its operations within a single segment, as
a provider of connectivity to participants in the healthcare
industry. As a result of the substantial completion of the
Companys restructuring and integration efforts that began
in the third quarter of 2000, the Company has recently aligned
itself into three operating segments. Inter-segment revenues are
reflected at rates comparable to those charged to third parties
for comparable services. The performance of the Companys
business is monitored based on income or loss before
restructuring and non-cash items. Non-cash items include
depreciation, amortization, impairment charges, loss on
investments and other non-cash expenses primarily comprised of
stock compensation expense and the non-cash expenses related to
content, distribution, advertising and services acquired in
exchange for the Companys equity securities in
acquisitions and strategic alliances.

Summarized financial information for each of the
reportable segments is presented below. Segment information
related to income or loss before restructuring and non-cash
items for 2000 and 1999 has not been provided as the
Companys operations and internal reporting were not
organized in a manner consistent with the current reportable
segments and the Company has determined it is impracticable to
identify such information.

|                                                       |  |                          |         |      |  |      |          |   |  |   |         |  
|------------------------------------------------------ |  | ------------------------ | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                       |  |                         
|                                                       |  | Years Ended December 31,
|                                                       |  |                         
|                                                       |  | 2001                     |         | 2000 |  | 1999
|                                                       |  |                          |         |      |  |     
|Revenues                                               |  |                          |         |      |  |      |          |   |  |   |         |  
|Transaction services                                   |  | $                        | 384,040 |      |  | $    | 270,392  |   |  | $ | 46,302  |  
|Physician services                                     |  |                          | 260,209 |      |  |      | 83,633   |   |  |   |        |  
|Portal services                                        |  |                          | 74,626  |      |  |      | 140,045  |   |  |   | 6,839   |  
|Eliminations and other, net(a)                         |  |                          | (12,280 | )    |  |      | 23,083   |   |  |   | 49,008  |  
|                                                       |  |                          |         |      |  |      |          |   |  |   |         |  
|                                                       |  | $                        | 706,595 |      |  | $    | 517,153  |   |  | $ | 102,149 |  
|                                                       |  |                          |         |      |  |      |          |   |  |   |         |  
|Income (loss) before restructuring and
	non-cash items |  |                          |         |      |  |      |          |   |  |   |         |  
|Transaction services                                   |  | $                        | 41,987  |      |  | $    |         |   |  | $ |        |  
|Physician services                                     |  |                          | 20,827  |      |  |      |         |   |  |   |        |  
|Portal services                                        |  |                          | (79,437 | )    |  |      |         |   |  |   |        |  
|Corporate and other                                    |  |                          | (94,813 | )    |  |      |         |   |  |   |        |  
|Interest income, net                                   |  |                          | 29,106  |      |  |      |         |   |  |   |        |  
|                                                       |  |                          |         |      |  |      |          |   |  |   |         |  
|                                                       |  | $                        | (82,330 | )    |  | $    | (246,169 | ) |  | $ | (79,358 | )
|                                                       |  |                          |         |      |  |      |          |   |  |   |         |  

F-23



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

|                                                                   |                                 |                          |            |            |   |      |            |            |   |   |          |          |  
|------------------------------------------------------------------ | ------------------------------- | ------------------------ | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | -------- | -------- | -
|                                                                   |                                 |                         
|                                                                   |                                 | Years Ended December 31,
|                                                                   |                                 |                         
|                                                                   |                                 | 2001                     |            | 2000       |   | 1999
|                                                                   |                                 |                          |            |            |   |     
|Restructuring and non-cash items                                   |                                 |                          |            |            |   |      |            |            |   |   |          |         
|Depreciation, amortization and other                               |                                 | $                        | (2,389,766 | )          |   | $    | (2,186,986 | )          |   | $ | (193,067 | )       
|Non-cash content and distribution services and
	stock compensation |                                 |                          | (123,925   | )          |   |      | (159,932   | )          |   |   | (15,567  | )       
|Impairment of long lived and other assets                          |                                 |                          | (3,826,893 | )          |   |      |           |            |   |   |         |         
|Restructuring and integration                                      |                                 |                          | (266,755   | )          |   |      | (452,919   | )          |   |   |         |         
|Loss on investments                                                |                                 |                          |           |            |   |      | (39,602    | )          |   |   |         |         
|                                                                   |                                 |                          |            |            |   |      |            |            |   |   |          |         
|                                                                   | Loss from continuing operations |                          | $          | (6,689,669 | ) |      | $          | (3,085,608 | ) |   | $        | (287,992 | )
|                                                                   |                                 |                          |            |            |   |      |            |            |   |   |          |         



---



|    |                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes revenues related to information
	technology outsourcing, consulting and other operations that the
	Company began to exit as a result of restructuring and
	integration efforts that began in the third quarter of 2000, and
	elimination of inter-segment revenues of $14,061, $3,108 and $0
	in 2001, 2000 and 1999, respectively.

The Company does not disaggregate assets for
internal management reporting and, therefore, such information
is not presented.

8.     Prepaid
Content and Distribution Services

In connection with obtaining Web site content and
distribution services, the Company paid cash or issued equity
instruments to certain service providers, in conjunction with
business combinations or strategic alliances. The amount of
payments made or the fair value of equity instruments issued has
been capitalized and is being amortized over the term of the
related agreement. Prepaid content and distribution services are
summarized as follows:

|                  |              |              |        |        |  |   |         |         | 
|----------------- | ------------ | ------------ | ------ | ------ |  | - | ------- | ------- | 
|                  |              |             
|                  |              | December 31,
|                  |              |             
|                  |              | 2001         |        | 2000  
|                  |              |              |        |       
|Current Portion   |              |              |        |        |  |   |         |        
|                  | Content      |              | $      | 549    |  |   | $       | 4,589   | 
|                  | Services     |              |        | 21,133 |  |   |         | 23,065  | 
|                  | Distribution |              |        | 7,136  |  |   |         | 679     | 
|                  |              |              |        |        |  |   |         |        
|                  |              | $            | 28,818 |        |  | $ | 28,333  |        
|                  |              |              |        |        |  |   |         |        
|Long-Term Portion |              |              |        |        |  |   |         |        
|                  | Content      |              | $      | 417    |  |   | $       | 417     | 
|                  | Services     |              |        | 63,384 |  |   |         | 64,321  | 
|                  | Distribution |              |        | 7,778  |  |   |         | 141,278 | 
|                  |              |              |        |        |  |   |         |        
|                  |              | $            | 71,579 |        |  | $ | 206,016 |        
|                  |              |              |        |        |  |   |         |        

9.     Long-Lived
Assets

During 2001, the Company recorded an impairment
charge of $3,826,893 to write-down the carrying value of
long-lived and other assets, primarily goodwill and acquired
intangibles to fair value. See note 4.

F-24



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Property and
Equipment

Property and equipment consists of the following:

|                                         |                             |              |         |        |  |   |         |        | 
|---------------------------------------- | --------------------------- | ------------ | ------- | ------ |  | - | ------- | ------ | 
|                                         |                             |             
|                                         |                             | December 31,
|                                         |                             |             
|                                         |                             | 2001         |         | 2000  
|                                         |                             |              |         |       
|Computer equipment                       |                             | $            | 33,369  |        |  | $ | 88,832  |       
|Land and buildings                       |                             |              | 4,201   |        |  |   | 6,001   |       
|Office equipment, furniture and fixtures |                             |              | 12,660  |        |  |   | 19,975  |       
|Purchased software for internal use      |                             |              | 14,096  |        |  |   | 20,197  |       
|Leasehold improvements                   |                             |              | 6,520   |        |  |   | 19,095  |       
|                                         |                             |              |         |        |  |   |         |       
|                                         |                             |              | 70,846  |        |  |   | 154,100 |       
|Less accumulated depreciation            |                             |              | (23,513 | )      |  |   | (63,744 | )     
|                                         |                             |              |         |        |  |   |         |       
|                                         | Property and equipment, net |              | $       | 47,333 |  |   | $       | 90,356 | 
|                                         |                             |              |         |        |  |   |         |       

Depreciation expense was $30,500, $29,548 and
$9,710 for the years ended December 31, 2001, 2000 and
1999, respectively.



| |                                
| | -------------------------------
| | Goodwill and Intangible
	Assets

Goodwill and intangible assets consist of the
following:

|                              |                                     |              |           |              |  |      |            |         |  |   |            |           | 
|----------------------------- | ----------------------------------- | ------------ | --------- | ------------ |  | ---- | ---------- | ------- |  | - | ---------- | --------- | 
|                              |                                     |              |           |             
|                              |                                     |              |           | December 31,
|                              |                                     | Amortization |           |             
|                              |                                     | Period       |           | 2001         |  | 2000
|                              |                                     |              |           |              |  |     
|Goodwill                      |                                     |              | 3-4 years |              |  | $    | 2,418,004  |         |  | $ | 8,407,226  |          
|Customer lists                |                                     |              | 3-5 years |              |  |      | 204,052    |         |  |   | 232,730    |          
|Other                         |                                     |              | 2-5 years |              |  |      | 184,092    |         |  |   | 372,509    |          
|                              |                                     |              |           |              |  |      |            |         |  |   |            |          
|                              |                                     |              |           |              |  |      | 2,806,148  |         |  |   | 9,012,465  |          
|Less accumulated amortization |                                     |              |           |              |  |      | (2,145,849 | )       |  |   | (2,243,271 | )        
|                              |                                     |              |           |              |  |      |            |         |  |   |            |          
|                              | Goodwill and intangible assets, net |              |           |              |  |      | $          | 660,299 |  |   | $          | 6,769,194 | 
|                              |                                     |              |           |              |  |      |            |         |  |   |            |          

Amortization expense was $2,359,265, $2,049,242
and $181,009 for the years ended December 31, 2001, 2000
and 1999, respectively.

10.     Accrued
Expenses

Accrued expenses consist of the following:

|                            |                        |              |         |         |  |   |         |         | 
|--------------------------- | ---------------------- | ------------ | ------- | ------- |  | - | ------- | ------- | 
|                            |                        |             
|                            |                        | December 31,
|                            |                        |             
|                            |                        | 2001         |         | 2000   
|                            |                        |              |         |        
|Accrued outside services    |                        | $            | 37,072  |         |  | $ | 26,302  |        
|Accrued merger costs        |                        |              | 1,200   |         |  |   | 37,722  |        
|Accrued restructuring costs |                        |              | 44,353  |         |  |   | 53,125  |        
|Accrued compensation        |                        |              | 41,543  |         |  |   | 29,288  |        
|Other accrued liabilities   |                        |              | 100,149 |         |  |   | 126,495 |        
|                            |                        |              |         |         |  |   |         |        
|                            | Total accrued expenses |              | $       | 224,317 |  |   | $       | 272,932 | 
|                            |                        |              |         |         |  |   |         |        

F-25



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

11.     Commitments
and Contingencies

Legal Matters



| |                                  
| | ---------------------------------
| | Porex Mammary Implant
	Litigation

Porex has been named as one of many co-defendants
in a number of actions brought by recipients of silicone mammary
implants. The typical case or claim alleges that the
individuals mammary implants caused one or more of a wide
range of ailments. Certain of the actions against Porex have
been dismissed or settled by the manufacturer or insurance
carriers of Porex without material cost to Porex. The Company
believes its insurance coverage provides adequate coverage
against liabilities that could arise from actions or claims
arising out of Porexs distribution of implants.



| |                            
| | ---------------------------
| | Envoy Securities Litigation

Envoy and some of its officers were named as
defendants in three identical lawsuits filed in the United
States District Court for the Middle District of Tennessee,
Nashville Division. The plaintiff in each of these lawsuits
purported to represent a class of persons who purchased the
securities of Envoy during the class period from
February 12, 1997 through August 18, 1998. In these
three original complaints, the plaintiffs sued the defendants
for violations of the federal securities laws. The District
Court ordered the three cases consolidated under the caption In
re Envoy Corporation Securities Litigation, and on
December 28, 1998, the plaintiffs, pursuant to the district
courts consolidation orders, filed a consolidated class
action complaint. The consolidated complaint reasserted the
federal securities law claims and also asserted additional
claims under Tennessee common law for fraud and negligent
misrepresentation.

Plaintiffs allege that the defendants made
material misrepresentations and omissions in Envoys public
filings and public statements concerning Envoys financial
statements and Envoys accounting for some charges taken in
connection with acquisitions. Plaintiffs allege that, as a
result of defendants alleged actions, Envoys
reported earnings during the class period were overstated and
the price for Envoys common stock was artificially
inflated. Plaintiffs seek recovery of an unspecified sum in
damages on behalf of persons who allegedly purchased
Envoys stock at allegedly inflated prices.

On March 1, 1999, the defendants filed a
motion to dismiss all of plaintiffs claims. Plaintiffs
then voluntarily dismissed their state law claims. On
September 17, 1999, the court dismissed the consolidated
complaint without prejudice. On November 23, 1999, the
plaintiffs filed an amended consolidated complaint. On
May 31, 2000, defendants filed a motion to dismiss the
amended consolidated complaint. The court on February 2,
2001 entered an order denying in part and granting in part
defendants motion to dismiss the amended consolidated
complaint. Specifically, the court denied the motion to dismiss
as to defendants Envoy and one of the individual defendants and
granted the motion to dismiss as to two of the individual
defendants.

The parties have engaged in preliminary
settlement discussions which have not yet resulted in agreement
on terms for a settlement.

The Agreement and Plan of Merger among Healtheon/
WebMD, Pine Merger Corp., Envoy, Quintiles and QFinance, Inc.
dated as of January 22, 2000 provides that Quintiles will
indemnify the Company with respect to this litigation.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Litigation Regarding Distribution of Shares
	in Healtheon Initial Public Offering

Since July 2001, seven purported class action
lawsuits have been filed against Morgan Stanley & Co.
Incorporated and Goldman Sachs & Co., underwriters of the
initial public offering of the Company (then known as Healtheon)
in the United States District Court for the Southern District of
New York. Three of these suits also named the Company and
certain former officers and directors of the Company as

F-26



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

defendants. The complaints against the Company
and its former officers and directors allege violations of
Section 10(b) of the Securities Exchange Act of 1934 and
rule 10b-5 under that Act and Section 11 of the Securities
Act of 1933 because of failure to disclose certain practices
alleged to have occurred in connection with the distribution of
shares in the Healtheon IPO. Claims under
Section 12(a)(2) of the Securities Act of 1933 have
also been brought against the underwriters. Similar suits have
been filed in connection with well over 100 other initial public
offerings that occurred in 1999 and 2000, following reports of
governmental investigations of the underwriters practices
in the distribution of shares in certain initial public
offerings. The Company believes that the claims alleged in the
lawsuits are primarily directed at the underwriters and, as they
relate to the Company, are without merit. To the extent that
these claims concern practices and disclosures relating to the
plan of distribution in the Healtheon initial public offering,
the Company believes that it will have a claim for
indemnification from the underwriters.



| |                        
| | -----------------------
| | Other Legal Proceedings

In the normal course of business, the Company is
involved in various other claims and legal proceedings. While
the ultimate resolution of these matters, and those discussed
above, has yet to be determined, we do not believe that their
outcome will have a material adverse effect on the
Companys financial position and results of operations.

Strategic Relationships

The Company has agreements with various content
providers and strategic partners whereby the Company is
committed to pay certain amounts in connection with content and
distribution services obtained for use on its Web site and
certain distribution arrangements. The Companys
non-cancelable future commitments under these agreements are as
follows:

|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|                        
|Year Ending December 31,
|2002                     |  | $ | 7,305 | 
|2003                     |  |   | 625   | 
|Thereafter               |  |   |      | 
|                         |  |   |       | 
|                         |  | $ | 7,930 | 
|                         |  |   |       | 

Leases

The Company leases its office and other
facilities under operating lease agreements that expire at
various dates through February 2013. Total rent expense for all
operating leases was approximately $18,968, $14,376 and $2,925
in 2001, 2000 and 1999, respectively. Future minimum lease
commitments under non-cancelable lease agreements (including
leases identified as part of the Companys restructuring
and integration efforts) at December 31, 2001 were as
follows:

|                         |                              |                 |        |          |  |               |      |      |   |   |        |         | 
|------------------------ | ---------------------------- | --------------- | ------ | -------- |  | ------------- | ---- | ---- | - | - | ------ | ------- | 
|                         |                              | Gross Operating |        | Sublease |  | Net Operating
|                         |                              | Leases          |        | Income   |  | Leases       
|Year Ending December 31, |                              |                 |        |          |  |              
|2002                     |                              | $               | 22,837 |          |  | $             | (240 | )    |   | $ | 22,597 |        
|2003                     |                              |                 | 19,212 |          |  |               | (197 | )    |   |   | 19,015 |        
|2004                     |                              |                 | 15,891 |          |  |               | (160 | )    |   |   | 15,731 |        
|2005                     |                              |                 | 13,306 |          |  |               | (25  | )    |   |   | 13,281 |        
|2006                     |                              |                 | 11,160 |          |  |               |     |      |   |   | 11,160 |        
|Thereafter               |                              |                 | 52,650 |          |  |               |     |      |   |   | 52,650 |        
|                         |                              |                 |        |          |  |               |      |      |   |   |        |        
|                         | Total minimum lease payments |                 | $      | 135,056  |  |               | $    | (622 | ) |   | $      | 134,434 | 
|                         |                              |                 |        |          |  |               |      |      |   |   |        |        

F-27



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

12.     Retirement
Plan

The Company maintains various defined
contribution retirement plans covering substantially all of its
employees. Certain of these plans provide for Company matching
and discretionary contributions. The Company has recorded
expenses related to these plans of $5,449 and $222 for 2001 and
2000, respectively. There were no Company contributions to the
plans in 1999.

13.     Stockholders
Equity

Common Stock

On February 10, 1999, the Company completed
its initial public offering and sold 5,750,000 shares of common
stock realizing net proceeds of $41,399.

On January 27, 2000, Janus Capital
Corporation, through its managed mutual funds, invested $930,000
in exchange for 15,000,000 shares of common stock at $62.00 per
share in a private transaction.

During December 2000, the Company repurchased
5,163,509 shares of common stock for an aggregate price of
$30,759. These shares are reflected as treasury shares in the
accompanying consolidated balance sheet.

On March 29, 2001, the Company announced a
stock repurchase program (the Program). Under the
Program, the Company was authorized to use up to $50,000 to
purchase shares of its common stock from time to time beginning
on April 2, 2001, subject to market conditions. On
November 2, 2001, the Company announced that its Board of
Directors authorized an additional $50,000 under the Program. As
of December 31, 2001, the Company has repurchased
15,928,426 shares at a cost of approximately $65,823 under the
Program. These shares are reflected as treasury shares in the
accompanying consolidated balance sheet.

On October 12, 2001, the Company and
Quintiles Transnational Corporation settled the litigation
between the two companies. Under the terms of the settlement,
the companies agreed to terminate all of their business
agreements and the Company agreed to purchase from Quintiles for
$185,000 in cash all 35,000,000 shares of the Companys
common stock held by Quintiles. These shares are reflected as
treasury shares in the accompanying consolidated balance sheet.
The fair market value of these shares on the date of the
settlement was $126,000 and has been recorded as treasury stock.
The excess of the purchase price of the shares over their fair
market value was $59,000 and has been recorded as a component of
restructuring and integration charges.

Series A Convertible Preferred
Stock



| |              
| | -------------
| | 1998 Series A

In November 1998, the Company issued 7,683,341
shares of Series A Convertible Preferred Stock (1998
Series A Preferred) for $46,101 of cash proceeds.
Upon the closing of the initial public offering in February
1999, all of the outstanding shares of 1998 Series A
Preferred were converted into shares of common stock.



| |              
| | -------------
| | 2000 Series A

In January 2000, the Board of Directors
authorized 213,000 shares of Series A Convertible Preferred
Stock (2000 Series A Preferred) with a par
value of $0.0001 per share and a face value of $5,000 per share.
The 2000 Series A Preferred is entitled to quarterly
dividends at a per annum rate of 10.5% of the face amount plus
any accrued and unpaid dividends, payable in additional shares
of 2000 Series A Preferred. With respect to dividend
rights, other than the right to receive additional shares of
2000 Series A Preferred, rights on liquidation, winding up
or dissolution, whether voluntary or involuntary, the

F-28



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Series A Preferred ranks on a parity with
the Companys common stock and junior to the Series B
Preferred. The 2000 Series A Preferred converts into common
stock automatically on the third anniversary of the date of
issuance. The 2000 Series A Preferred holders are entitled
to vote with common stockholders on an as converted basis.

At December 31, 2000, there were 155,951
shares of 2000 Series A Preferred stock outstanding,
convertible into 21,282,645 shares of the Companys common
stock. In connection with the revised strategic alliance during
2001 with News Corporation, the 155,951 shares of 2000
Series A Preferred were surrendered to the Company and at
December 31, 2001 no shares of Series A Preferred
stock were outstanding.

Included in depreciation, amortization and other
in the accompanying statement of operations for the year ended
December 31, 2000 is $108,196 representing dividends and
accretion of discount related to the 2000 Series A
Preferred Stock.

Series B Convertible Redeemable Preferred
Stock

In September 2000, the Board of Directors
authorized 200 shares of Series B Convertible Redeemable
Preferred Stock (Series B Preferred). In
connection with the acquisition of CareInsite, the Company
issued 100 shares of Series B Preferred in exchange for all
the outstanding shares of CareInsites preferred stock. The
Series B Preferred ranks, with respect to the payment of
dividends and to distribution of assets upon liquidation,
dissolution or winding up, whether voluntary or involuntary,
senior to all of the Companys common stock and to the 2000
Series A Preferred. The Series B Preferred pays no
annual dividend and shares in any dividends paid on the common
stock on an as converted basis. The Series B Preferred is
convertible in March 2002 into an aggregate of 263,957 shares of
common stock (conversion price of $37.885) plus a warrant to
acquire an equal number of shares at $37.885 per share.
Additionally, the Series B Preferred is redeemable for an
aggregate of $10,000 by the Company or the holder in March 2002
or by the holder following the notice of a change of control of
the Company. In March 2002, the Company will redeem the
outstanding Series B Preferred for $10,000 in accordance
with its terms.

The Series B Preferred holder generally has
no voting rights. However, as long as Series B Preferred
are outstanding, the Company may not, without the affirmative
vote or consent of the holder of a majority of the Series B
Preferred voting separately as a class, directly or indirectly
or through merger or consolidation, (i) amend, alter or
repeal any provision of the certificate of incorporation or
corporate bylaws so as to adversely affect the rights,
preferences, privileges or powers of the Series B
Preferred; (ii) authorize or issue any new class of shares
of capital stock having a preference with respect to dividends,
redemption and/or liquidation over the Series B Preferred;
or (iii) reclassify any capital stock into shares having a
preference with respect to the dividends, redemption and/or
liquidation over the Series B Preferred.

Warrants

The Company has warrants outstanding to purchase
35,873,529 shares of common stock at prices ranging from $.67 to
$74.22 per share, with a weighted average exercise price of
$24.39 per share. Substantially all of the outstanding warrants
are currently vested and exercisable.

In January 2000, in connection with an
Internet marketing and services agreement entered into with a
distributor, the Company issued a warrant to purchase 4,376,445
shares of the Companys common stock at $1.00 per share.
The warrant vests over a four-year period, subject to certain
performance thresholds. As of December 31, 2000, the
Company estimated that the performance thresholds were not
achieved and no value was assigned to the warrants. As of
December 31, 2001, the Company estimated the distributor
was entitled to a warrant for 2,000,000 shares and recorded
$13,418, determined using the Black-Scholes option

F-29



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

pricing model, as a non-cash distribution
services expense included in sales, marketing, general and
administrative expense. In January 2002, the Internet marketing
and services agreement was terminated and the distributor
retained a warrant to purchase 2,000,000 shares of the
Companys common stock at $1.00 per share. The warrant is
fully vested and expires on January 24, 2007.

14.     Stock Option
Plans

The Company has various stock option plans
(collectively, the Plans) for directors, officers
and key employees that provide for non-qualified and incentive
stock options and restricted stock grants. Generally, options
become exercisable ratably over a three to five year period
based on their individual grant dates. Options are generally
granted at prices not less than the fair market value on the
date of grant. Options granted under the Plans expire within
four to fifteen years from the date of grant. An aggregate of
16,548,218 shares of common stock remain reserved for issuance
under the Plans at December 31, 2001.

In addition to the Plans, the Company has granted
options to certain directors, consultants and key employees. At
December 31, 2001, there were options to purchase 7,437,500
shares of common stock outstanding to these individuals. The
terms of these grants are similar to the terms of the options
granted under the Plans.

In connection with the mergers with Medical
Manager, CareInsite and OnHealth, the Company assumed all the
outstanding options issued under the respective stock option
plans and arrangements and, after the application of the
exchange ratio, reserved 76,640,029 shares for Medical Manager
and CareInsite and 1,354,482 shares for OnHealth of common stock
for issuance upon exercise of the assumed options. No further
options can be granted under these plans. At the time of these
acquisitions, options for 21,265,330 and 1,067,796 shares,
respectively, were fully vested. The remainder of the shares
vest based upon the terms of the original plans ranging from
three to five years.

In 1999, the Company assumed all outstanding
options issued under the respective stock option plans and
arrangements and, after application of the exchange ratio,
reserved the following shares of common stock per merger:
14,734,986 for WebMD, Inc., 468,584 for MedE America, and
164,036 for Medcast, for issuance upon exercise of the assumed
options. No further options can be granted under these plans. At
the time of these acquisitions, the number of fully vested
options were: 8,637,406 for WebMD, Inc., 60,136 for MedE
America, and 83,626 for Medcast. The remainder of the options
vest based upon the terms of the original plans, generally four
years.

The Company recorded deferred stock compensation
as a component of stockholders equity of approximately
$211,837 and $6,261 in 2000 and 1999, respectively. No deferred
stock compensation was recorded in 2001. These amounts
represented the difference between the exercise price and the
deemed fair value of common stock on the date the stock options
were granted. The components of the $211,837 of deferred stock
compensation recorded in 2000 are: (i) $117,402 related to
54,538,222 unvested options assumed in the Medical Manager,
CareInsite and OnHealth mergers, (ii) $79,577 related to
7,943,761 options granted to Envoy employees at $4.23 per share
on June 20, 2000 and (iii) $14,858 related to
1,365,416 options granted to certain Company executives in May
and June of 2000 with exercise prices ranging from $2.00 to
$9.06. At December 31, 2001, the Company had a total of
approximately $42,173 remaining to be amortized on a graded
vesting method over the remaining three years.

The Company recorded stock compensation expense,
primarily related to deferred stock compensation recorded in
connection with acquisitions, of $129,268, $125,603 and $7,633
in 2001, 2000 and 1999, respectively, of which $51,998 and
$53,144 were included in restructuring and integration charges
in 2001 and 2000, respectively.

F-30



---



##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

A summary of the status of the Companys
stock option plans for the three year period ended
December 31, 2001 is presented below:

|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |            |            |   |   |      |       | 
|---------------------------------------- | --------- | ------------------------ | ----------- | -------------- | - | --------- | ----- | -------------- |  | --------- | ----------- | -------------- | - | - | ----- | ----- |  |  | ---------- | ---------- | - | - | ---- | ----- | 
|                                         |           |                         
|                                         |           | Years Ended December 31,
|                                         |           |                         
|                                         |           |                          |             |                |   |          
|                                         |           | 2001                     |             | 2000           |   | 1999     
|                                         |           |                          |             |                |   |          
|                                         |           |                          |             | Weighted       |   |           |       | Weighted       |  |           |             | Weighted      
|                                         |           |                          |             | Average        |   |           |       | Average        |  |           |             | Average       
|                                         |           | Number of                |             | Exercise Price |   | Number of |       | Exercise Price |  | Number of |             | Exercise Price
|                                         |           | Shares                   |             | per Share      |   | Shares    |       | per Share      |  | Shares    |             | per Share     
|                                         |           |                          |             |                |   |           |       |                |  |           |             |               
|Outstanding at the beginning of the year |           |                          | 128,045,133 |                |   | $         | 15.79 |                |  |           | 27,644,846  |                |   | $ | 9.98  |       |  |  | 11,512,800 |            |   | $ | 2.06 |      
|                                         | Granted   |                          |             | 23,057,311     |   |           |       | 4.39           |  |           |             | 41,419,515     |   |   |       | 15.85 |  |  |            | 7,407,738  |   |   |      | 20.41 | 
|                                         | Assumed   |                          |             |               |   |           |       |               |  |           |             | 77,994,511     |   |   |       | 17.18 |  |  |            | 15,367,606 |   |   |      | 7.95  | 
|                                         | Exercised |                          |             | (2,701,776     | ) |           |       | 3.17           |  |           |             | (7,769,440     | ) |   |       | 3.49  |  |  |            | (5,501,438 | ) |   |      | 2.71  | 
|                                         | Cancelled |                          |             | (27,216,167    | ) |           |       | 19.34          |  |           |             | (11,244,299    | ) |   |       | 19.85 |  |  |            | (1,141,860 | ) |   |      | 7.54  | 
|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |            |            |   |   |      |      
|Outstanding at the end of the year       |           |                          | 121,184,501 |                |   |           | 12.99 |                |  |           | 128,045,133 |                |   |   | 15.79 |       |  |  | 27,644,846 |            |   |   | 9.98 |      
|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |            |            |   |   |      |      
|Exercisable at the end of the year       |           |                          | 65,352,769  |                |   | $         | 14.15 |                |  |           | 43,800,961  |                |   | $ | 13.54 |       |  |  | 9,207,424  |            |   | $ | 3.91 |      
|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |            |            |   |   |      |      

The following table summarizes information with
respect to options outstanding and options exercisable at
December 31, 2001:

|                     |  |             |             |             |  |             |         |        |  |          |      |  |  |  |            |  |  |   |         | 
|-------------------- |  | ----------- | ----------- | ----------- |  | ----------- | ------- | ------ |  | -------- | ---- |  |  |  | ---------- |  |  | - | ------- | 
|                     |  |             |             |            
|                     |  | Outstanding |             | Exercisable
|                     |  |             |             |            
|                     |  |             |             | Weighted    |  |            
|                     |  |             |             | Average     |  |            
|                     |  |             |             | Weighted    |  | Remaining   |         |        |  | Weighted
|                     |  |             |             | Average     |  | Contractual |         |        |  | Average 
|                     |  |             |             | Exercise    |  | Life        |         |        |  | Exercise
|Exercise Prices      |  | Shares      |             | Price       |  | (In Years)  |         | Shares |  | Price   
|                     |  |             |             |             |  |             |         |        |  |         
|$0.0500 - $3.4300    |  |             | 20,039,149  |             |  | $           | 3.0506  |        |  |          | 8.89 |  |  |  | 2,840,175  |  |  | $ | 0.7556  | 
|$3.5300 - $6.0400    |  |             | 18,672,675  |             |  |             | 4.8874  |        |  |          | 6.10 |  |  |  | 14,936,426 |  |  |   | 4.9188  | 
|$6.0500 - $11.5500   |  |             | 22,768,829  |             |  |             | 10.2653 |        |  |          | 7.65 |  |  |  | 9,270,519  |  |  |   | 9.8634  | 
|$11.5625 - $13.8462  |  |             | 17,816,657  |             |  |             | 13.1068 |        |  |          | 7.45 |  |  |  | 10,167,327 |  |  |   | 13.1655 | 
|$13.8750 - $18.7500  |  |             | 18,721,513  |             |  |             | 16.0076 |        |  |          | 7.38 |  |  |  | 14,331,065 |  |  |   | 15.9461 | 
|$18.8125 - $34.2308  |  |             | 19,965,413  |             |  |             | 25.4522 |        |  |          | 6.55 |  |  |  | 11,878,985 |  |  |   | 25.7098 | 
|$34.3269 - $105.0000 |  |             | 3,200,265   |             |  |             | 45.8460 |        |  |          | 6.93 |  |  |  | 1,928,272  |  |  |   | 46.6424 | 
|                     |  |             |             |             |  |             |         |        |  |          |      |  |  |  |            |  |  |   |         | 
|                     |  |             | 121,184,501 |             |  | $           | 12.9902 |        |  |          | 7.35 |  |  |  | 65,352,769 |  |  | $ | 14.1506 | 
|                     |  |             |             |             |  |             |         |        |  |          |      |  |  |  |            |  |  |   |         | 

The Company has elected to follow APB No. 25
and related interpretations in accounting for employee stock
options because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123 requires use of
option valuation models that were not developed for use in
valuing employee stock options. Under APB No. 25, no
compensation expense is recognized when the exercise price of
stock options granted to employees equals the market price of
the underlying stock on the date of grant.

Pro forma information regarding net loss is
required by SFAS No. 123 and has been determined as if
employee stock options granted subsequent to December 31,
1994 were accounted for under the fair value

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

method of SFAS No. 123. The fair value for
these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following
weighted-average assumptions:

|                                                                                        |  |      |         |      |  |      |         |   |  |   |      |  
|--------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ---- | -
|                                                                                        |  | 2001 |         | 2000 |  | 1999
|                                                                                        |  |      |         |      |  |     
|Expected dividend yield                                                                 |  |      | 0       | %    |  |      | 0       | % |  |   | 0    | %
|Expected volatility                                                                     |  |      | 0.9     |      |  |      | 1.0     |   |  |   | 1.0  |  
|Risk free interest rate                                                                 |  |      | 3.04    | %    |  |      | 5.29    | % |  |   | 5.60 | %
|Expected option lives (years)                                                           |  |      | 0.5-3.5 |      |  |      | 0.5-3.5 |   |  |   | 3.3  |  
|Weighted fair value of options granted at prices
	equal to market price during the year |  | $    | 2.70    |      |  | $    | 11.79   |   |  | $ | 8.08 |  
|Weighted fair value of options granted at prices
	below market price during the year    |  | $    |        |      |  | $    | 11.19   |   |  | $ |     |  

The pro forma information is as follows:

|                                            |             |                         |   |            |   |      |   |            |   |  |   |          |  
|------------------------------------------- | ----------- | ----------------------- | - | ---------- | - | ---- | - | ---------- | - |  | - | -------- | -
|                                            |             |                        
|                                            |             | Year Ended December 31,
|                                            |             |                        
|                                            |             | 2001                    |   | 2000       |   | 1999
|                                            |             |                         |   |            |   |     
|Net loss (in thousands):                    |             |                         |   |            |   |      |   |            |   |  |   |         
|                                            | As reported |                         | $ | (6,684,318 | ) |      | $ | (3,085,608 | ) |  | $ | (287,992 | )
|                                            |             |                         |   |            |   |      |   |            |   |  |   |         
|                                            | Pro forma   |                         | $ | (6,728,997 | ) |      | $ | (3,280,942 | ) |  | $ | (322,999 | )
|                                            |             |                         |   |            |   |      |   |            |   |  |   |         
|Basic and diluted net loss per common share |             |                         |   |            |   |      |   |            |   |  |   |         
|                                            | As reported |                         | $ | (19.18     | ) |      | $ | (12.61     | ) |  | $ | (3.58    | )
|                                            |             |                         |   |            |   |      |   |            |   |  |   |         
|                                            | Pro forma   |                         | $ | (19.30     | ) |      | $ | (13.41     | ) |  | $ | (4.02    | )
|                                            |             |                         |   |            |   |      |   |            |   |  |   |         

The pro forma results indicated above are not
intended to be indicative of or a projection of future results.

The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price
volatility. Because the Companys employee stock options
have characteristics significantly different from those of
traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimates, in
managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of the Companys employee stock options.

Employee Stock Purchase Plan

The Companys 1998 Employee Stock Purchase
Plan, as amended from time to time, (the 1998 Purchase
Plan) became effective upon the completion of the initial
public offering on February 10, 1999. The 1998 Purchase
Plan allows eligible employees the opportunity to purchase
shares of the Companys common stock through payroll
deductions, up to 15% of a participants annual
compensation with a maximum of 5,000 shares available per
participant during each purchase period. The purchase price of
the stock is 85% of the lesser of the fair market value on the
first and last day of each purchase period. A total of 1,981,194
shares of common stock remain reserved for issuance under the
1998 Purchase Plan. The 1998 Purchase Plan, as amended in
connection with the 2000 mergers, provides for annual increases
equal to the lesser of 1,500,000 shares, 0.5% of the outstanding
common shares, or a lesser amount determined by the Board of
Directors. A total of 876,960 and 1,006,645 shares were issued
under this plan during 2001 and 2000, respectively.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

15.     Income
Taxes

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets (liabilities) were as
follows:

|                                        |                                      |              |          |         |   |   |          |          |  
|--------------------------------------- | ------------------------------------ | ------------ | -------- | ------- | - | - | -------- | -------- | -
|                                        |                                      |             
|                                        |                                      | December 31,
|                                        |                                      |             
|                                        |                                      | 2001         |          | 2000   
|                                        |                                      |              |          |        
|Deferred tax assets:                    |                                      |              |          |         |   |   |          |         
|                                        | Net operating loss carryforwards     |              | $        | 715,424 |   |   | $        | 429,736  |  
|                                        | Restructuring costs                  |              |          | 30,905  |   |   |          | 52,188   |  
|                                        | Research and development tax credits |              |          | 11,607  |   |   |          | 2,353    |  
|                                        | Other accrued expenses               |              |          | 19,328  |   |   |          | 10,107   |  
|                                        | Fair value of investments            |              |          | 11,209  |   |   |          | 15,094   |  
|                                        | Allowance for doubtful accounts      |              |          | 10,495  |   |   |          | 9,958    |  
|                                        | Depreciation                         |              |          | 3,281   |   |   |          | 3,963    |  
|                                        | Other                                |              |          | 677     |   |   |          | 946      |  
|                                        |                                      |              |          |         |   |   |          |         
|Total deferred tax assets               |                                      |              | 802,926  |         |   |   | 524,345  |         
|Valuation allowance                     |                                      |              | (728,915 | )       |   |   | (277,152 | )       
|                                        |                                      |              |          |         |   |   |          |         
|Net deferred tax assets                 |                                      |              | 74,011   |         |   |   | 247,193  |         
|                                        |                                      |              |          |         |   |   |          |         
|Deferred tax liabilities:               |                                      |              |          |         |   |   |          |         
|                                        | Intangible assets                    |              |          | (35,032 | ) |   |          | (189,484 | )
|                                        | Tax basis                            |              |          | (15,327 | ) |   |          | (38,000  | )
|                                        | Other                                |              |          | (23,652 | ) |   |          | (19,709  | )
|                                        |                                      |              |          |         |   |   |          |         
|Total deferred tax liabilities          |                                      |              | (74,011  | )       |   |   | (247,193 | )       
|                                        |                                      |              |          |         |   |   |          |         
|Net deferred tax assets and liabilities |                                      | $            |         |         |   | $ |         |         
|                                        |                                      |              |          |         |   |   |          |         

The reconciliation between the federal statutory
rate and the effective income tax rate is as follows:

|                                      |  |      |       |      |  |      |       |    |  |  |       |   
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                      |  | 2001 |       | 2000 |  | 1999
|                                      |  |      |       |      |  |     
|United States federal statutory rate  |  |      | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )%
|Impairment and restructuring expenses |  |      | 18.3  |      |  |      | 3.0   |    |  |  |      |   
|Goodwill amortization                 |  |      | 11.3  |      |  |      | 23.8  |    |  |  | 21.6  |   
|Valuation allowance                   |  |      | 4.9   |      |  |      | 8.1   |    |  |  | 12.8  |   
|Other                                 |  |      | (0.5  | )    |  |      | (0.9  | )  |  |  | (0.4  | ) 
|                                      |  |      |       |      |  |      |       |    |  |  |       |   
|Effective income tax rate             |  |      |      |      |  |      |      |    |  |  |      |   
|                                      |  |      |       |      |  |      |       |    |  |  |       |   

A valuation allowance equal to 100% of the
deferred tax assets and liabilities has been established because
of the uncertainty of realization of the deferred tax assets due
to the lack of earnings history. The valuation allowance for
deferred tax assets increased by $451,763 and $159,660 in 2001
and 2000, respectively.

At December 31, 2001, the Company had net
operating loss carryforwards for federal income tax purposes of
approximately $1,882,695, that expire in 2004 through 2021, and
federal tax credits of approximately $11,607, which expire in
2006 through 2021.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

A portion of net operating loss carryforwards and
tax credit carryforwards may be subject to an annual limitation
regarding their utilization against taxable income in future
periods due to the change of ownership provisions of
the Internal Revenue Code and similar state provisions. A
portion of these carryforwards may expire before becoming
available to reduce future income tax liabilities.

16.     Related Party
Transactions

Revenue from related parties consists of revenue
attributable to News Corporation (until February 15, 2001,
the date News Corporation surrendered its Series A
Convertible Preferred Stock), Microsoft (until October 22,
2001, the date Charles G.V. Stevens, Vice President of
Microsofts Enterprise Partner Group, resigned from the
Board of Directors), UnitedHealth Group (until January 23, 2000,
the date William W. McGuire, M.D., the Chairman and Chief
Executive Officer of UnitedHealth Group, resigned from the Board
of Directors) and SmithKline Labs (until August 16, 1999,
the date SmithKline Labs was sold to an unrelated third party).

17.     Fair Value Of
Financial Instruments

The following disclosure of the estimated fair
value of financial instruments is made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments. The estimated fair values
have been determined using available market information.
However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.

|                          |  |              |         |            |  |            |         |            |  |   |         |  |  |   |         | 
|------------------------- |  | ------------ | ------- | ---------- |  | ---------- | ------- | ---------- |  | - | ------- |  |  | - | ------- | 
|                          |  |             
|                          |  | December 31,
|                          |  |             
|                          |  |              |         |           
|                          |  | 2001         |         | 2000      
|                          |  |              |         |           
|                          |  | Cost Basis   |         | Fair Value |  | Cost Basis |         | Fair Value
|                          |  |              |         |            |  |            |         |           
|Cash and cash equivalents |  | $            | 253,011 |            |  | $          | 253,011 |            |  | $ | 490,797 |  |  | $ | 490,797 | 
|                          |  |              |         |            |  |            |         |            |  |   |         |  |  |   |         | 
|Short-term investments    |  |              | 97,005  |            |  |            | 99,194  |            |  |   |        |  |  |   |        | 
|Marketable Securities     |  |              | 5,803   |            |  |            | 15,707  |            |  |   | 214,690 |  |  |   | 219,686 | 
|                          |  |              |         |            |  |            |         |            |  |   |         |  |  |   |         | 
|                          |  | $            | 355,819 |            |  | $          | 367,912 |            |  | $ | 705,487 |  |  | $ | 710,483 | 
|                          |  |              |         |            |  |            |         |            |  |   |         |  |  |   |         | 

As of December 31, 2001, the Companys
short-term investments consisted principally of U.S. Treasury
Notes and Certificates of Deposit. At December 31, 2000, the
Companys marketable securities consisted principally of
U.S. Treasury Notes and Federal Agency Notes. At
December 31, 2001, marketable securities represented equity
investments in publicly traded companies.

A summary of the fair value and gains and losses
relating to the Companys financial instruments is as
follows:

|                   |                   |              |         |            |  |      |         |            |  |            |        |       |  |   |         |         |  |   |         |         |  |   |       |       | 
|------------------ | ----------------- | ------------ | ------- | ---------- |  | ---- | ------- | ---------- |  | ---------- | ------ | ----- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ----- | ----- | 
|                   |                   |             
|                   |                   | December 31,
|                   |                   |             
|                   |                   |              |         |           
|                   |                   | 2001         |         | 2000      
|                   |                   |              |         |           
|                   |                   | Cost Basis   |         | Fair Value |  | Gain |         | Cost Basis |  | Fair Value |        | Gain 
|                   |                   |              |         |            |  |      |         |            |  |            |        |      
|Available for sale |                   |              |         |            |  |      |         |            |  |            |        |       |  |   |         |         |  |   |         |         |  |   |       |      
|                   | Debt securities   |              | $       | 97,005     |  |      | $       | 99,194     |  |            | $      | 2,189 |  |   | $       | 214,690 |  |   | $       | 219,686 |  |   | $     | 4,996 | 
|                   | Equity securities |              |         | 5,803      |  |      |         | 15,707     |  |            |        | 9,904 |  |   |         |        |  |   |         |        |  |   |       |      | 
|                   |                   |              |         |            |  |      |         |            |  |            |        |       |  |   |         |         |  |   |         |         |  |   |       |      
|                   |                   | $            | 102,808 |            |  | $    | 114,901 |            |  | $          | 12,093 |       |  | $ | 214,690 |         |  | $ | 219,686 |         |  | $ | 4,996 |      
|                   |                   |              |         |            |  |      |         |            |  |            |        |       |  |   |         |         |  |   |         |         |  |   |       |      

The Companys investments in debt securities
have contractual maturities of one year or less.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

18.     Quarterly
Financial Data (Unaudited)

The following table summarizes the quarterly
financial data for the years ended December 31, 2001 and
2000. Net loss per share calculations for each of the quarters
are based on the weighted average number of shares for each
period; therefore, the sum of the quarters may not necessarily
be equal to the full year per share amount.

|                             |  |          |         |          |  |                     |            |   |  |   |        |  
|---------------------------- |  | -------- | ------- | -------- |  | ------------------- | ---------- | - |  | - | ------ | -
|                             |  |          |         |          |  | Net loss per share 
|                             |  | Revenues |         | Net Loss |  | (Basic and Diluted)
|                             |  |          |         |          |  |                    
|2001                         |  |          |         |          |  |                     |            |   |  |   |        |  
|March 31, 2001               |  | $        | 184,491 |          |  | $                   | (1,039,359 | ) |  | $ | (2.91  | )
|June 30, 2001                |  |          | 178,714 |          |  |                     | (821,783   | ) |  |   | (2.30  | )
|September 30, 2001           |  |          | 167,035 |          |  |                     | (4,623,646 | ) |  |   | (12.86 | )
|December 31, 2001            |  |          | 176,355 |          |  |                     | (199,530   | ) |  |   | (.62   | )
|                            
|Year Ended December 31, 2001 |  |          | 706,595 |          |  |                     | (6,684,318 | ) |  |   | (19.18 | )
|                            
|2000                         |  |          |         |          |  |                     |            |   |  |   |        |  
|March 31, 2000               |  | $        | 65,881  |          |  | $                   | (431,465   | ) |  | $ | (2.47  | )
|June 30, 2000                |  |          | 101,074 |          |  |                     | (518,304   | ) |  |   | (2.64  | )
|September 30, 2000           |  |          | 151,247 |          |  |                     | (786,925   | ) |  |   | (3.17  | )
|December 31, 2000            |  |          | 198,951 |          |  |                     | (1,348,914 | ) |  |   | (3.75  | )
|                            
|Year Ended December 31, 2000 |  |          | 517,153 |          |  |                     | (3,085,608 | ) |  |   | (12.61 | )

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##### Table of Contents






Schedule
II.     Valuation and Qualifying
Accounts

|                  |                                             |                                               |  |            |  |          |  |            |  |             |  |         |   |  |  |         |   |  |  |         | 
|----------------- | ------------------------------------------- | --------------------------------------------- |  | ---------- |  | -------- |  | ---------- |  | ----------- |  | ------- | - |  |  | ------- | - |  |  | ------- | 
|                  |                                             |                                              
|                  |                                             | Years Ended December 31, 2001, 2000, and 1999
|                  |                                             |                                              
|                  |                                             | Balance at                                    |  | Charged to |  |         
|                  |                                             | Beginning                                     |  | Costs and  |  |          |  | Balance at
|                  |                                             | of Year                                       |  | Expenses   |  | Acquired |  | Write-offs |  | End of Year
|                  |                                             |                                               |  |            |  |          |  |            |  |            
|                  |                                             |                                              
|                  |                                             | (In thousands)                               
|December 31, 2001 |                                             |                                               |  |            |  |          |  |            |  |             |  |         |   |  |  |         |   |  |  |        
|                  | Allowance for Doubtful Accounts             |                                               |  | 26,205     |  |          |  | 26,739     |  |             |  | 484     |   |  |  | (26,931 | ) |  |  | 26,497  | 
|                  | Valuation Allowance for Deferred Tax Assets |                                               |  | 277,152    |  |          |  | 329,942    |  |             |  | 121,821 |   |  |  |        |   |  |  | 728,915 | 
|December 31, 2000 |                                             |                                               |  |            |  |          |  |            |  |             |  |         |   |  |  |         |   |  |  |        
|                  | Allowance for Doubtful Accounts             |                                               |  | 2,681      |  |          |  | 11,867     |  |             |  | 14,859  |   |  |  | (3,202  | ) |  |  | 26,205  | 
|                  | Valuation Allowance for Deferred Tax Assets |                                               |  | 117,492    |  |          |  | 249,783    |  |             |  | (90,123 | ) |  |  |        |   |  |  | 277,152 | 
|December 31, 1999 |                                             |                                               |  |            |  |          |  |            |  |             |  |         |   |  |  |         |   |  |  |        
|                  | Allowance for Doubtful Accounts             |                                               |  | 152        |  |          |  | 3,531      |  |             |  | 1,011   |   |  |  | (2,013  | ) |  |  | 2,681   | 
|                  | Valuation Allowance for Deferred Tax Assets |                                               |  | 40,530     |  |          |  | 36,783     |  |             |  | 40,179  |   |  |  |        |   |  |  | 117,492 | 

S-1



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##### Table of Contents






INDEX TO EXHIBITS

|        |      |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ---- |  |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |            
|No.     |      |  |  | Description
|        |      |  |  |            
|        | 2.1  |  |  |            |  | Agreement and Plan of Reorganization dated as of
	February 24, 1998 among Registrant, MedNet Acquisition
	Corp. and ActaMed Corporation (incorporated by reference to
	Exhibit 2.0 to Registrants Registration Statement on
	Form S-1 (No. 333-70553) filed January 14, 1999)                                                                                                                                                      
|        | 2.2  |  |  |            |  | Agreement and Plan of Reorganization dated as of
	April 20, 1999, as amended, among Registrant, Merc
	Acquisition Corp. and MedE America Corporation (incorporated by
	reference to Exhibit 2.2 to Registrants Registration
	Statement on Form S-4 (No. 333-86685) filed
	September 17, 1999)                                                                                                                                      
|        | 2.3  |  |  |            |  | Agreement and Plan of Reorganization dated as of
	May 20, 1999, as amended, among Registrant, WebMD, Inc. and
	Water Acquisition Corp. (incorporated by reference to
	Exhibit 2.1 to Registrants Registration Statement on
	Form S-4 (No. 333-86685) filed September 17, 1999)                                                                                                                                                     
|        | 2.4  |  |  |            |  | Agreement and Plan of Merger dated as of
	June 30, 1999, as amended, among Registrant, WebMD, Inc.,
	Healtheon/ WebMD Corporation, GNN Merger Corp. and Greenberg
	News Networks, Inc. (incorporated by reference to
	Exhibit 2.3 to Registrants Registration Statement on
	Form S-4 (No. 333-86685) filed September 17, 1999)                                                                                                     
|        | 2.5  |  |  |            |  | Purchase Agreement dated as of December 20,
	1999 among Electronic Data Systems Corporation, Eli Lilly and
	Company, Integrated Medical Systems, Inc., Kinetra LLC and
	Registrant (incorporated by reference to Exhibit 2.1 to
	Registrants Report on Form 8-K filed
	February 10, 2000)                                                                                                                                          
|        | 2.6  |  |  |            |  | Agreement and Plan of Merger dated as of
	January 22, 2000 among Registrant, Envoy Corporation,
	Quintiles Transnational Corp. and QFinance, Inc. (incorporated
	by reference to Exhibit 2.1 to Registrants Report on
	Form 8-K filed January 27, 2000)                                                                                                                                                                            
|        | 2.7  |  |  |            |  | Agreement and Plan of Merger dated as of
	February 13, 2000 between Registrant and Medical Manager
	Corporation (incorporated by reference to Exhibit 2.1 to
	Registrants Report on Form 8-K/ A filed February 24,
	2000), as amended by Amendment No. 1 dated as of
	June 18, 2000 (incorporated by reference to
	Exhibit 2.1 to Registrants Report on Form 8-K
	filed July 24, 2000)                                            
|        | 2.8  |  |  |            |  | Agreement and Plan of Merger dated as of
	February 13, 2000 among Registrant, Avicenna Systems
	Corporation and CareInsite, Inc. (incorporated by reference to
	Exhibit 2.2 to Registrants Report on Form 8-K/ A
	filed February 24, 2000), as amended by Amendment
	No. 1 dated as of June 18, 2000 (incorporated by
	reference to Exhibit 2.2 to Registrants Report on
	Form 8-K filed July 24, 2000)                           
|        | 2.9  |  |  |            |  | Agreement and Plan of Merger dated as of
	February 15, 2000 among Registrant, Tech Acquisition
	Corporation and OnHealth Network Company (incorporated by
	reference to Exhibit 2.1 to Registrants Report on
	Form 8-K/ A filed February 22, 2000)                                                                                                                                                                                 
|        | 2.10 |  |  |            |  | Asset Purchase Agreement dated as of
	December 26, 2001 by and among Registrant, Medscape, Inc.,
	Medscape Enterprises, Inc., and MedicaLogic/ Medscape, Inc.
	(incorporated by reference to Exhibit 2.1 to MedicaLogic/
	Medscape, Inc.s Report on Form 8-K filed
	January 10, 2002)                                                                                                                                              
|        | 3.1  |  |  |            |  | Tenth Amended and Restated Certificate of
	Incorporation of Registrant, as currently in effect
	(incorporated by reference to Exhibit 3.1 to
	Registrants Report on Form 8-K filed
	September 13, 2000), as amended by Certificate of Change of
	Registered Agent and Location of Registered Office (incorporated
	by reference to Exhibit 3.1 to Registrants Quarterly
	Report on Form 10-Q for the quarter ended June 30,
	2001)
|        | 3.2  |  |  |            |  | Amended and Restated Bylaws of Registrant, as
	currently in effect (incorporated by reference to
	Exhibit 3.2 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended June 30, 2001)                                                                                                                                                                                                                                   
|        | 4.1  |  |  |            |  | Specimen Common Stock certificate (incorporated
	by reference to Exhibit 4.1 to Registrants Annual
	Report on Form 10-K for the year ended December 31,
	2000)                                                                                                                                                                                                                                                                     
|        | 4.2  |  |  |            |  | Form of Convertible Promissory Note (incorporated
	by reference to Exhibit 4.1 to Registrants Quarterly
	Report on Form 10-Q for the quarter ended June 30,
	2001)                                                                                                                                                                                                                                                                 

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##### Table of Contents



|        |        |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ------ |  |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |  |            
|No.     |        |  |  | Description
|        |        |  |  |            
|        | 10.1   |  |  |            |  | Form of Indemnification Agreement to be entered
	into by Registrant with each of its directors and officers
	(incorporated by reference to Exhibit 10.1 to
	Registrants Registration Statement on Form S-1
	(No. 333-70553) filed January 14, 1999)                                                                                                                                                                                                                                                                                                     
|        | 10.2   |  |  |            |  | Form of Series B Preferred Stock Purchase
	Warrant between Registrant and certain of Registrants
	Investors (incorporated by reference to Exhibit 10.22 to
	Registrants Registration Statement on Form S-1
	(No. 333-70553) filed January 14, 1999)                                                                                                                                                                                                                                                                                                    
|        | 10.3   |  |  |            |  | Amended and Restated Investors Rights
	Agreement dated as of January 28, 1998 among Registrant and
	certain of Registrants Security Holders (incorporated by
	reference to Exhibit 10.10 to Registrants
	Registration Statement on Form S-1 (No. 333-70553)
	filed January 14, 1999)                                                                                                                                                                                                                                                                  
|        | 10.4   |  |  |            |  | Amended and Restated Investors Rights
	Agreement dated as of January 28, 1998 among Registrant and
	certain of Registrants Security Holders (incorporated by
	reference to Exhibit 10.10 to Registrants
	Registration Statement on Form S-1 (No. 333-70553)
	filed January 14, 1999)                                                                                                                                                                                                                                                                  
|        | 10.5   |  |  |            |  | Warrant to purchase shares of common stock of
	Registrant dated December 29, 2000 issued to Gleacher &
	Co. LLC (incorporated by reference to Exhibit 10.43 to
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 1999)                                                                                                                                                                                                                                                                                                           
|        | 10.6   |  |  |            |  | Warrant to purchase shares of common stock of
	Registrant dated March 9, 2000 issued to Eric J.
	Gleacher (incorporated by reference to Exhibit 10.44 to
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 1999)                                                                                                                                                                                                                                                                                                                 
|        | 10.7*  |  |  |            |  | Distribution and Cross Promotion Agreement dated
	May 6, 1999 among Microsoft Corporation, WebTV Networks,
	Inc., MSNBC Interactive News, L.L.C. and WebMD, Inc.
	(incorporated by reference to Exhibit 10.33 to Amendment
	No. 1 to Registrants Registration Statement on
	Form S-4 (No. 333-86685) filed September 30, 1999)                                                                                                                                                                                                                          
|        | 10.8   |  |  |            |  | Investment Agreement dated May 12, 1999
	among WebMD, Inc., Microsoft Corporation and each of the other
	persons listed on Schedule I thereto (incorporated by
	reference to Exhibit 10.36 to Amendment No. 1 to
	Registrants Registration Statement on Form S-4
	(No. 333-86685) filed September 30, 1999)                                                                                                                                                                                                                                             
|        | 10.9   |  |  |            |  | Warrant to Purchase Shares of Common Stock of
	WebMD, Inc. dated May 12, 1999 issued to Microsoft
	Corporation (incorporated by reference to Exhibit 10.9 to
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 2000)                                                                                                                                                                                                                                                                                                             
|        | 10.10* |  |  |            |  | Agreement dated May 19, 1999 among
	Registrant, WebMD, Inc. and Microsoft Corporation (incorporated
	by reference to Exhibit 10.34 to Amendment No. 1 to
	Registrants Registration Statement on Form S-4
	(No. 333-86685) filed September 30, 1999)                                                                                                                                                                                                                                                                                                     
|        | 10.11  |  |  |            |  | Letter Agreement dated March 27, 2000
	between Registrant and Microsoft Corporation (incorporated by
	reference to Exhibit 10.29 to Registrants Annual
	Report on Form 10-K for the year ended December 31,
	1999)                                                                                                                                                                                                                                                                                                                                      
|        | 10.12  |  |  |            |  | Stock Purchase Agreement dated January 26,
	2000 between Registrant and Janus Capital Corporation
	(incorporated by reference to Exhibit 10.10 to
	Registrants Quarterly Report on Form 10-Q for the
	quarter ended March 31, 2000)                                                                                                                                                                                                                                                                                                                     
|        | 10.13  |  |  |            |  | Healtheon/ WebMD Corporation Registration Rights
	Agreement dated January 26, 2000 between Registrant and
	Janus Capital Corporation (incorporated by reference to
	Exhibit 10.11 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended March 31, 2000)                                                                                                                                                                                                                                                                                   
|        | 10.14  |  |  |            |  | Healtheon/ WebMD Corporation Registration Rights
	Agreement dated January 26, 2000 among Registrant, Eastrise
	Profits Limited, AHN/ FIT Cable, LLC, AHN/ FIT Internet, LLC,
	News America Incorporated and Fox Broadcasting Company
	(incorporated by reference to Exhibit 10.4 to
	Registrants Quarterly Report on Form 10-Q for the
	quarter ended March 31, 2000), as amended by Amendment
	dated February 15, 2001 (incorporated by reference to
	Exhibit 10.1 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended March 31, 2001)

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##### Table of Contents



|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ------- |  |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|No.     |         |  |  | Description
|        |         |  |  |            
|        | 10.15   |  |  |            |  | Healtheon/ WebMD Media Services Agreement dated
	January 26, 2000 among Registrant, Eastrise Profits Limited
	and Fox Entertainment Group, Inc. (incorporated by reference to
	Exhibit 10.5 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended March 31, 2000), as
	amended by Amendment dated February 15, 2001 (incorporated
	by reference to Exhibit 10.2 to Registrants Quarterly
	Report on Form 10-Q for the quarter ended March 31,
	2001)
|        | 10.16   |  |  |            |  | Content License Agreement dated January 26,
	2000 between The News Corporation Limited and Registrant
	(incorporated by reference to Exhibit 10.6 to
	Registrants Quarterly Report on Form 10-Q for the
	quarter ended March 31, 2000)                                                                                                                                                                                                                             
|        | 10.17   |  |  |            |  | Letter Agreement dated December 29, 2000
	between Registrant and The News Corporation Limited
	(incorporated by reference to Exhibit 10.17 to
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 2000)                                                                                                                                                                                                                                       
|        | 10.18   |  |  |            |  | Data Rights Agreement dated as of May 26,
	2000, as amended, between Registrant and Quintiles Transnational
	Corp. (incorporated by reference to Exhibit 10.18 to
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 2000)                                                                                                                                                                                                                   
|        | 10.19   |  |  |            |  | Internet Product Development and Marketing
	Agreement dated as of May 26, 2000 between Registrant and
	Quintiles Transnational Corp. (incorporated by reference to
	Exhibit 10.19 to Registrants Annual Report on
	Form 10-K for the year ended December 31, 2000)                                                                                                                                                                                                 
|        | 10.20** |  |  |            |  | Letter Agreement dated June 18, 2000 between
	Registrant and Martin J. Wygod (incorporated by reference to
	Exhibit 10.20 to Registrants Amendment on
	Form 10-K/ A to Annual Report on Form 10-K for the
	year ended December 31, 2000)                                                                                                                                                                                                                           
|        | 10.21** |  |  |            |  | Amended and Restated Stock Option Agreement dated
	August 21, 2000 between Medical Manager Corporation and
	Martin J. Wygod (incorporated by reference to Exhibit 10.21
	to Registrants Amendment on Form 10-K/ A to Annual Report
	on Form 10-K for the year ended December 31, 2000)                                                                                                                                                                             
|        | 10.22** |  |  |            |  | Amended and Restated Employment Agreement dated
	June 18, 2000 among Medical Manager Corporation,
	CareInsite, Inc. and Marvin P. Rich (incorporated by reference
	to Exhibit 10.26 to Registrants Amendment on
	Form 10-K/ A to Annual Report on Form 10-K for the
	year ended December 31, 2000)                                                                                                                                                                 
|        | 10.23** |  |  |            |  | Healtheon Corporation 1996 Stock Plan and Form of
	Stock Option Agreement (incorporated by reference to
	Exhibit 10.2 to Amendment No. 2 to Registrants
	Registration Statement on Form S-1 (No. 333-70553)
	filed February 10, 1999)                                                                                                                                                                                                                              
|        | 10.24** |  |  |            |  | WebMD Corporation Amended and Restated 1998
	Employee Stock Purchase Plan (incorporated by reference to
	Exhibit 99.27 to Registrants Registration Statement
	on Form S-8 (No. 333-47250) filed October 4, 2000)                                                                                                                                                                                                                                                   
|        | 10.25** |  |  |            |  | WebMD Corporation 2000 Long-Term Incentive Plan
	(incorporated by reference to Exhibit 10.1 to Amendment
	No. 1 to Registrants Registration Statement on
	Form S-4 (No. 333-39592) filed August 1, 2000)                                                                                                                                                                                                                                                           
|        | 10.26** |  |  |            |  | WebMD, Inc. Amended and Restated 1997 Stock
	Incentive Plan, as amended (incorporated by reference to
	Exhibit 10.2 to Registrants Registration Statement on
	Form S-8 (No. 333-90795) filed November 12, 1999)                                                                                                                                                                                                                                                    
|        | 10.27** |  |  |            |  | Envoy Stock Plan (incorporated by reference to
	Exhibit 99.1 to Registrants Registration Statement on
	Form S-8 (No. 333-42616) filed July 31, 2000)                                                                                                                                                                                                                                                                                                               
|        | 10.28** |  |  |            |  | Amended and Restated 1989 Class A
	Non-Qualified Stock Option Plan of Medical Manager Corporation
	(incorporated by reference to Exhibit 10.1 to Medical
	Manager Corporations Registration Statement on
	Form S-1 (No. 333-28654) filed May 18, 1989)                                                                                                                                                                                                             
|        | 10.29** |  |  |            |  | Amended and Restated 1989 Class B
	Non-Qualified Stock Option Plan of Medical Manager Corporation
	(incorporated by reference to Exhibit 10.2 to Medical
	Manager Corporations Registration Statement on
	Form S-1 (No. 333-28654) filed May 18, 1989)                                                                                                                                                                                                             

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##### Table of Contents



|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                  
|------- | ------- |  |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|No.     |         |  |  | Description
|        |         |  |  |            
|        | 10.30** |  |  |            |  | 1991 Director Stock Option Plan of Medical
	Manager Corporation (incorporated by reference to
	Exhibit 4.2 to Medical Manager Corporations
	Registration Statement on Form S-8 (No. 333-46640)
	filed March 24, 1992)                                                           
|        | 10.31** |  |  |            |  | Amended and Restated 1991 Special Non-Qualified
	Stock Option Plan of Medical Manager Corporation (incorporated
	by reference to Exhibit 4.3 to Medical Manager
	Corporations Registration Statement on Form S-8
	(No. 333-36041) filed September 19, 1997)                     
|        | 10.32** |  |  |            |  | Amended and Restated 1991 Special Non-Qualified
	Stock Option Plan of Medical Manager Corporation (incorporated
	by reference to Exhibit 4.3 to Medical Manager
	Corporations Registration Statement on Form S-8
	(No. 333-36041) filed September 19, 1997)                     
|        | 10.33** |  |  |            |  | Medical Manager Corporations 1996 Amended
	and Restated Long-Term Incentive Plan (incorporated by reference
	to Exhibit 10.1 to Medical Manager Corporations
	(Commission File No. 0-29090) Quarterly Report on
	Form 10-Q for the quarter ended September 30, 1998)           
|        | 10.34** |  |  |            |  | Medical Manager Corporations 1996 Amended
	and Restated Non-Employee Directors Stock Plan
	(incorporated by reference to Exhibit 10.2 to Medical
	Manager Corporations (Commission File No. 0-29090)
	Annual Report on Form 10-K for the fiscal year ended
	December 31, 1997)
|        | 10.35** |  |  |            |  | 1996 Class C Stock Option Plan of Medical
	Manager Corporation (incorporated by reference to
	Exhibit 4.1 to Medical Manager Corporations
	Registration Statement on Form S-8 (No. 333-36041)
	filed September 19, 1997)                                                        
|        | 10.36** |  |  |            |  | 1997 Class D Stock Option Plan of Medical
	Manager Corporation (incorporated by reference to
	Exhibit 4.2 to Medical Manager Corporations
	Registration Statement on Form S-8 (No. 333-36041)
	filed September 19, 1997)                                                        
|        | 10.37** |  |  |            |  | 1998 Class E Stock Option Plan of Medical
	Manager Corporation (incorporated by reference to
	Exhibit 4.1 to Medical Manager Corporations
	Registration Statement on Form S-8 (No. 333-72517)
	filed March 15, 1999)                                                            
|        | 10.38** |  |  |            |  | The 1999 Medical Manager Corporation Stock Option
	Plan for Employees of Medical Manager Systems, Inc.
	(incorporated by reference to Exhibit 10.28 to Medical
	Manager Corporations Annual Report on Form 10-K for
	the year ended June 30, 1999)                              
|        | 10.39** |  |  |            |  | Form of Stock Option Agreement between the
	Corporation and each of John H. Kang and Michael A.
	Singer (incorporated by reference to Exhibit 99.5 to
	Amendment No. 1 to Medical Manager Corporations
	Registration Statement on Form S-4 (No. 333-81123)
	filed June 24, 1999)
|        | 10.40** |  |  |            |  | 1995 Avicenna NQ Stock Option Plan, as amended
	(incorporated by reference to Exhibits 4.1 and 4.2 to
	Medical Manager Corporations Registration Statement on
	Form S-8 (No. 333-19043) filed December 31, 1996)                                                                
|        | 10.41** |  |  |            |  | 1998 Porex Technologies Corp. Stock Option Plan
	of Medical Manager Corporation (incorporated by reference to
	Exhibit 4.2 to Medical Manager Corporations
	Registration Statement on Form S-8 (No. 333-72517)
	filed March 15, 1999)                                           
|        | 10.42** |  |  |            |  | CareInsite, Inc. 1999 Officer Stock Option Plan
	(incorporated by reference to Exhibit 10.18 to Amendment
	No. 6 to CareInsite, Inc.s Registration Statement on
	Form S-1 (No. 333-75071) filed June 11, 1999)                                                                  
|        | 10.43** |  |  |            |  | CareInsite, Inc. 1999 Employee Stock Option Plan
	(incorporated by reference to Exhibit 10.17 to Amendment
	No. 6 to CareInsite, Inc.s Registration Statement on
	Form S-1 (No. 333-75071) filed June 11, 1999)                                                                 
|        | 10.44** |  |  |            |  | CareInsite, Inc. 1999 Director Stock Option Plan
	(incorporated by reference to Annex H to the Proxy Statement/
	Prospectus included in Registrants Registration Statement
	on Form S-4 (No. 333-39592) filed June 19, 2000)                                                    
|        | 10.45** |  |  |            |  | Amendment to the Company Stock Option Plans of
	Medical Manager Corporation and CareInsite, Inc. (incorporated
	by reference to Exhibit 99.28 to Registrants
	Registration Statement on Form S-8 (No. 333-47250)
	filed October 4, 2000)                                        

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##### Table of Contents



|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ------- |  |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|No.     |         |  |  | Description
|        |         |  |  |            
|        | 10.46** |  |  |            |  | Letter Agreement dated September 11, 2000
	between Medical Manager Corporation and Marvin P. Rich
	(incorporated by reference to Exhibit 10.50 to
	Registrants Amendment on Form 10-K/ A to Annual
	Report on Form 10-K for the year ended December 31,
	2000)                                                                                                                                         
|        | 10.47** |  |  |            |  | Employment Agreement dated February 1, 1998
	between WebMD, Inc. and K. Robert Draughon (incorporated by
	reference to Exhibit 10.51 to Registrants Amendment
	on Form 10-K/ A to Annual Report on Form 10-K for the
	year ended December 31, 2000)                                                                                                                                                    
|        | 10.48** |  |  |            |  | Letter Agreement dated September 12, 2000
	between Registrant and K. Robert Draughon (incorporated by
	reference to Exhibit 10.52 to Registrants Amendment
	on Form 10-K/ A to Annual Report on Form 10-K for the
	year ended December 31, 2000)                                                                                                                                                       
|        | 10.49** |  |  |            |  | Letter Agreement dated September 12, 2000
	between Registrant and Jack D. Dennison (incorporated by
	reference to Exhibit 10.53 to Registrants Amendment
	on Form 10-K/ A to Annual Report on Form 10-K for the
	year ended December 31, 2000)                                                                                                                                                         
|        | 10.50** |  |  |            |  | Letter Agreement dated October 11, 2000
	between Registrant and Jack D. Dennison (incorporated by
	reference to Exhibit 10.54 to Registrants Amendment
	on Form 10-K/ A to Annual Report on Form 10-K for the
	year ended December 31, 2000)                                                                                                                                                           
|        | 10.51   |  |  |            |  | Domestic Assignment Agreement dated as of
	February 15, 2001 among Registrant, Healtheon/ WebMD Cable
	Corporation, Healtheon/ WebMD Internet Corporation, The News
	Corporation Limited, Fox Entertainment Group, Inc. AHN/ FIT
	Cable, LLC and AHN/ FIT Internet, LLC (incorporated by reference
	to Exhibit 10.3 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended March 31, 2001)
|        | 10.52   |  |  |            |  | International Assignment Agreement dated as of
	February 15, 2001 among Registrant, HW International
	Holdings, Inc., The News Corporation Limited, Eastrise Profits
	Limited and IJV Holdings Inc. (incorporated by reference to
	Exhibit 10.4 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended March 31, 2001)                                                                    
|        | 10.53   |  |  |            |  | Settlement Agreement dated October 12, 2001
	between Registrant and Quintiles Transnational Corp.
	(incorporated by reference to Exhibit 10.01 to Quintiles
	Transnational Corp.s Quarterly Report on Form 10-Q
	for the quarterly period ended September 30, 2001, filed
	with the Securities and Exchange Commission on November 1,
	2001)                                                           
|        | 10.54** |  |  |            |  | Letter Agreement dated September 26, 2001
	between Registrant and Marvin P. Rich (incorporated by
	reference to Exhibit 10.2 to Registrants Quarterly
	Report on Form 10-Q for the quarter ended
	September 30, 2001)                                                                                                                                                                                  
|        | 10.55** |  |  |            |  | Agreement dated October 8, 2001 between
	Registrant and Martin J. Wygod                                                                                                                                                                                                                                                                                                                                 
|        | 21      |  |  |            |  | Subsidiaries of Registrant                                                                                                                                                                                                                                                                                                                                                                              
|        | 23.1    |  |  |            |  | Consent of Ernst & Young LLP, Independent
	Auditors                                                                                                                                                                                                                                                                                                                                                     
|        | 24.1    |  |  |            |  | Power of Attorney (see page 68)                                                                                                                                                                                                                                                                                                                                                                         



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| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| | * | Confidential treatment was received with respect
	to certain portions of this document.



|   |                                            
|-- | -------------------------------------------
|** | Agreement relates to executive compensation

E-5