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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

[ ] 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

                               WEBMD CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                             <C>
                   DELAWARE                                       94-3236644
           (STATE OF INCORPORATION)                  (I.R.S. EMPLOYER IDENTIFICATION NO.)
          669 RIVER DRIVE, CENTER 2                               07407-1361
           ELMWOOD PARK, NEW JERSEY                               (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
</TABLE>

         (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 [X]     No [ ]

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

     The aggregate market value of the voting stock held by non-affiliates of
the registrant (based upon the closing sale price of $6.50 on March 14, 2001, as
reported on the Nasdaq Stock Market's National Market and, for purposes of this
computation only, the assumption that Microsoft Corporation, Quintiles
Transnational Corp. and all of the registrant's directors and executive officers
are affiliates) was approximately $1,824,460,131. As of March 14, 2001, the
registrant had outstanding 357,112,937 shares of common stock.

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                               TABLE OF CONTENTS

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<S>          <C>                                                           <C>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................    1
PART I
  Item 1.    Business....................................................    2
  Item 2.    Properties..................................................   23
  Item 3.    Legal Proceedings...........................................   23
  Item 4.    Submission of Matters to a Vote of Security Holders.........   25

PART II
  Item 5.    Market for Registrant's Common Equity and Related
             Stockholder Matters.........................................   26
  Item 6.    Selected Financial Data.....................................   28
  Item 7.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations...................................   29
  Item 7A.   Quantitative and Qualitative Disclosures about Market
             Risk........................................................   47
  Item 8.    Financial Statements and Supplementary Data.................   48
  Item 9.    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure....................................   48

PART III
  Item 10.   Directors and Executive Officers of the Registrant..........   49
  Item 11.   Executive Compensation......................................   49
  Item 12.   Security Ownership of Certain Beneficial Owners and
             Management..................................................   49
  Item 13.   Certain Relationships and Related Transactions..............   49

PART IV
  Item 14.   Exhibits, Financial Statement Schedules and Reports on Form
             8-K.........................................................   50
Signatures...............................................................   51
Financial Statements.....................................................  F-1
Exhibits.................................................................  E-1
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WebMD(R) and The Medical Manager(R) are registered trademarks of WebMD or its
subsidiaries.

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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 within the meaning
of section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended. 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 statements that include phrases
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 which 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 future results of
operations" beginning on page 37, 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 expected benefits from our restructuring and integration efforts not
       being fully realized or not being realized within the expected time
       frames

     - the failure to achieve sufficient levels of physician utilization and
       market acceptance of new services or newly integrated services

     - the inability to successfully deploy new applications or newly integrated
       applications

     - the inability to attract and retain qualified personnel

     - outcome of pending litigation and claims

     - general economic, business or regulatory conditions affecting the
       Internet and healthcare communications 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 future results of operations" beginning on page 37 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.

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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 common stock has traded on the Nasdaq National Market under the symbol
"HLTH" since February 11, 1999.

     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.

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, patients and suppliers. Our
products and services promote administrative efficiency and assist in reducing
the cost of healthcare and creating better patient outcomes.

     We have brought together in one company the nation's largest processor of
electronic healthcare transactions, leading provider of physician practice
management systems and most trafficked healthcare Web site. The integration of
these and other businesses acquired by us has been our focus during the past six
months. We are well along in the process of eliminating redundancies,
integrating operations and rationalizing the product lines, projects and
arrangements that were not profitable or strategic to us, as described more
fully under "Restructuring and integration" beginning on page 3. We have turned
our attention to accelerating the growth of our business, making it profitable
and taking advantage of opportunities for cross-selling additional and
integrated products and services to existing customers. For a discussion of
these efforts, see "Current strategic initiatives" beginning on page 6.

     Our core business encompasses the following products and services:

     - Transaction services.  Through our transaction network, we transmit
       electronic transactions between physicians, pharmacies, dentists,
       hospitals, laboratory companies, other ancillary providers and payers. We
       offer value-added solutions designed to increase productivity for both
       providers and payers, to speed healthcare reimbursements and to improve
       communications among healthcare participants. From simple
       point-of-service devices to integrated transaction processing
       applications and Internet solutions, we offer a full suite of products
       and services to automate key business and clinical functions.

      -- The electronic transactions that we facilitate include administrative
         transactions, such as claims submission and status inquiry, eligibility
         and patient coverage verification, and clinical transactions, such as
         lab test ordering and reporting of results.

      -- Most of these transactions are conducted by 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 then sent to the payer's computer. An
         increasing number of these transactions are being transmitted via the
         Internet. In either case, there are important advantages for healthcare
         participants utilizing electronic transactions over paper transactions:
         electronic claims reduce costs and are processed more quickly and
         accurately. We are focused on assisting healthcare participants in
         increasing the number of electronic transactions and reducing the
         number of costly paper transactions.

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     - Physician services.  We develop and market integrated physician practice
       management systems, including administrative, financial and clinical
       applications, under The Medical Manager(R) brand. These proprietary
       systems enable physicians and their administrative staffs to efficiently
       manage their practices while delivering quality patient care in a dynamic
       healthcare environment.

      -- We are integrating our practice management systems with the transaction
         services and portal services that we offer, in order to provide
         integrated transactional capabilities and secure connections between
         physician offices and other healthcare participants.

      -- We continue to improve our products by working with state-of-the-art
         technology, such as graphical user interface, wireless devices, Web
         technology and relational database technology. We are also addressing
         the current needs of the healthcare industry with our electronic
         medical records, real-time electronic data interchange, or EDI, and
         imaging products.

     - Portal services.  We offer a variety of online services for consumers,
       physicians and physician office managers through our Web site, WebMD.com.
       At this site, consumers can access health and wellness news and
       information, support communities, interactive tools and opportunities to
       purchase health-related products and services through WebMD Health. Our
       communities allow consumers to participate in real-time discussion and
       support networks over the Internet. Physicians can access daily medical
       news, continuing medical education courses, medical journals and
       databases and opportunities to purchase other products and services
       through WebMD Practice. Physicians and office managers can use our portal
       to access our Internet-based transaction services through WebMD Office.

      -- In early March 2001, we migrated members of OnHealth's consumer portal
         to WebMD Health and began the integration of OnHealth's content and
         interactive tools into WebMD Health.

      -- We distribute our WebMD Health content and services to leading general
         consumer Internet portals and media distribution partners, including
         MSN, Excite@Home, Terra Lycos and News Corporation. We also provide
         content and services to payers' and other healthcare partners' Web
         sites for use by their affiliated physicians and plan members.

For a more complete description of our transaction, physician and portal
services and the solutions that we offer, see "Our products and services"
beginning on page 8.

     We are in the process of integrating our transaction services, physician
services and portal services into comprehensive solutions that can address the
administrative, financial and clinical management needs of physician practices
and the needs of payers to have more effective channels of communication to
physicians. We believe that by incorporating our solutions into the workflow of
the physician office, we will be well-positioned to create significant
improvements in the way that 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

  General

     In November 1999, Healtheon Corporation 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. For
additional information regarding these transactions, see note 2 to the
consolidated financial statements in this annual report.

     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 as a

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result of all the acquisitions made by us since November 1999 and consolidating
our operational infrastructure into a common platform to more 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. As a result of this
process, we are in discussions with several of our partners in an effort to
redefine the relationships in a manner that better serves the needs of each
party. These discussions have already resulted in revisions to some of our
strategic relationships, including those discussed below. It is possible that,
as a result of continuing discussions, additional relationships may be revised
or terminated, which may result in additional restructuring and integration
charges.

     In connection with our restructuring and integration efforts, we recorded
restructuring and integration charges of $452.9 million, of which $380.0 million
were non-cash charges, in the year ended December 31, 2000. As we continue our
consolidation and integration efforts, we are likely to incur additional costs
relating to asset impairments and write-offs, severance, employee retention
arrangements related to exit activities, moving and relocations that will be
expensed according to the applicable accounting guidelines. We expect our
restructuring and integration efforts will continue during 2001. 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 charges" on page 33 and note 4 to
the consolidated financial statements in this annual report.

  News Corporation

     We revised our strategic relationship with The News Corporation Limited and
its affiliates in late December 2000. Under the revised relationship, we retain
the right to receive $205 million 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. News Corporation
transferred to us its 50% interest in the international joint venture between
WebMD and News Corporation and was relieved of its commitment to provide any
future capital to the international joint venture and its commitment to provide
international media services. We transferred our interest in The Health Network,
a health-focused cable network, to News Corporation. We were 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
our Series A convertible preferred stock, which would have converted into
21,282,645 shares of our common stock. We granted to News Corporation a warrant
to acquire 3,000,000 shares of our common stock at an exercise price of $15 per
share. Included in our restructuring and integration charge for 2000 is a
non-cash charge of approximately $279.0 million as a result of this transaction.

  DuPont

     Also in late December 2000, we agreed to terminate our strategic alliance
with E.I. du Pont de Nemours and Company. Under the terminated agreement, it was
contemplated that DuPont would provide healthcare content to our consumer and
physician portals and would lead the creation of a variety of programs and
services for the pharmaceutical industry. In addition, until March 2004 when the
agreement would have expired, DuPont would have been obligated to continue to
sponsor physician subscriptions to our physician portal and to participate in
our portal distribution relationships and would have been entitled to share in
revenue generated by our healthcare portals. We are exploring the possibility of
future collaboration in the food and nutrition area. In connection with the
termination of the existing agreement, DuPont surrendered a portion of its
warrant to purchase 6,946,966 shares of our common stock and retained a right to
purchase 3,000,000 shares of our common stock at an exercise price of $8.00 per
share. Included in our restructuring and integration charge for 2000 is $33.8
million related to the write off of prepaid content and services related to this
contractual relationship.

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  Microsoft

     On March 22, 2001, we executed a non-binding letter of intent with
Microsoft Corporation to revise our strategic relationship, which was originally
entered into in May 1999. Under the revised relationship, we will work together
with Microsoft to promote WebMD as the primary provider of health programming on
MSN and other Microsoft-affiliated Web sites, as well as to promote Microsoft
technologies as the core platform for ULTIA, our new wireless handheld solution
for physicians. For information about ULTIA, see "Current strategic
initiatives -- Release of handheld solution" on page 6. We will also work with
Microsoft to enable Intergy, our next-generation practice management system, to
run on Windows 2000 and SQL Server 2000. For information about Intergy, see "Our
products and services -- Physician services -- Intergy" on page 12.

     As part of the revised relationship:

     - Microsoft will provide performance-based funding tied to the roll-out of
       ULTIA

     - We will adopt the PocketPC and other Microsoft technologies as our portal
       and wireless development platform

     - We will make Intergy available to run on Windows 2000 and SQL Server 2000

     - We will transition our WebMD.com portal to certain Microsoft technologies

     - Microsoft has agreed to provide consulting services, support and other
       resources in connection with these undertakings

     - We will program the majority of the MSN health channel, and will have a
       majority share of revenue derived from advertising, sponsorship and
       e-commerce on the MSN health channel site and will no longer pay carriage
       fees to Microsoft

     - Microsoft will no longer be responsible for funding the sponsorship of
       subscriptions to our physician portal

     - We will not be required to share with Microsoft revenue generated by
       physician usage of our healthcare portals.

     The revisions to our relationship with Microsoft are subject to execution
of definitive documentation. We cannot provide assurance that definitive
agreements will be executed.

  Others

     We have recently revised our relationship with IDX Systems Corporation, a
provider of physician practice management systems. IDX has agreed that WebMD
will be IDX's provider of electronic claim transactions with commercial payers
for physician groups that connect to payers via IDX's eCommerce Services
gateway. IDX has also agreed to feature to its customers WebMD's full suite of
real-time transaction processing services for commercial payers.

     We are currently well along in the process of negotiating a new arrangement
with AOL Time Warner, Inc. to replace the former arrangement between AOL and
CareInsite. We are also currently in the process of negotiating new arrangements
with Medic Computer Systems, Inc. and others that would replace prior
arrangements and better serve the needs of each party. We cannot provide
assurance that these negotiations will be successful and, if not successful, we
cannot provide assurance that we will be able to have relationships with these
parties.

  Disposition of Porex

     As we announced on September 28, 2000, our board of directors approved
management's plan to dispose of Porex Corporation and related subsidiaries, our
plastics and filtration technologies business that we refer to collectively as
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
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products used in life sciences, healthcare, industrial and consumer
applications. We expect to complete the disposition later this year. We cannot
guarantee that the disposition of this business will be successfully completed
in a timely manner, or at all. Accordingly, the proceeds of such disposition may
not be available when expected, which may limit our ability to execute
strategies important to our company.

     Porex is a leading developer, manufacturer and distributor of porous
plastic products, with an operating history exceeding 35 years. Porous plastics
are permeable plastic structures having omni-directional interconnecting
pores -- that is, porous in all directions to the flow of fluids and gases.
These pores allow the plastic to control the flow of liquids and gases by
filtering, wicking, venting, diffusing or dispensing them. Porous plastic
materials can be molded from several thermoplastic raw materials and are
produced by Porex at its own manufacturing facilities as fabricated devices,
custom-molded shapes, sheets, tubes or rods depending on application or customer
specifications. Porex designs porous plastic components to the specifications of
manufacturing customers for incorporation into their products, including water
filters for industrial use, plastic vents used in automobile batteries, porous
tips or nibs for highlighting pens and colored markers and deodorant and
fragrance applicators. Porex also produces finished products in several market
areas including life sciences, pneumatics and clinical laboratory markets. These
finished products include plastic disposable laboratory products for liquid
handling in clinical and diagnostic research, disposable pipette tips and blood
serum filters. Porex also develops and manufactures proprietary injection molded
medical components and finished medical devices, including components and
devices for intravenous drug delivery systems. Porex's surgical products group
manufactures surgical implant materials used in plastic and reconstructive
surgery.

CURRENT STRATEGIC INITIATIVES

     We are currently focused on continuing to improve connectivity and
communication among healthcare providers, payers, patients and suppliers and
continuing to increase the percentage of healthcare transactions that are
handled electronically, whether through the Internet or other EDI methods. Our
goal remains achieving bi-directional, real-time information flows between
healthcare providers and payers that are fully integrated into the workflow of
the provider. However, our ability to achieve this goal is limited by 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 coordinated and integrated products and
services will provide us with a strong foundation for succeeding in our goals.
Our current strategic initiatives are designed to provide a basis for achieving
these goals, while also pursuing the near-term goal of increasing usage of, and
revenue from, our products and services. Our key current initiatives include:

     - Release of handheld solution.  We are currently preparing for the
       release, in selected geographic areas, of ULTIA, our wireless
       point-of-care solution. 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 Compaq(R) iPaq(R).
       From anywhere in the office, healthcare providers will be able to 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 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, the roll-out of which
         will occur in connection with the roll-out of ULTIA

      -- electronic lab ordering and reporting of results, available through the
         provider's Medical Manager system, which can then be viewed using ULTIA

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      -- their patients' electronic medical records, including 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

      -- medical content from our physician portal.

      In addition, to the extent wireless Internet access is available, ULTIA
      will allow providers to securely access The Medical Manager system and the
      functionalities available in the office through the remote access feature
      of an integrated portal, as described below.

      We believe that our handheld solution has the potential to improve the way
      providers deliver care. In addition, we expect that it will help us
      promote adoption of the transaction and portal services to which it
      provides access. For example, in connection with the roll-out of our
      handheld solution, we plan to roll out our online prescription writer and
      related connectivity services and our integrated portal with remote access
      capabilities, as described below. It is our intention to pursue similar
      handheld initiatives with respect to other practice management systems in
      the future.

      Our March 22, 2001 letter of intent with Microsoft contemplates that
      Microsoft will provide performance-based funding tied to the roll-out of
      ULTIA and our new integrated portal services for physicians and will
      provide consulting services, support and other resources in connection
      with these undertakings. For additional information regarding our
      Microsoft relationship, see "Restructuring and integration -- Microsoft"
      on page 5.

     - Roll-out of integrated physician portal with remote access
       capabilities.  We are preparing to roll out integrated portal services
       that will allow physicians whose offices use The Medical Manager practice
       management system and other systems to remotely access, via the Internet,
       information contained in their office's practice management system. This
       remote access feature will enable 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. We
       also intend to enable this capability for other practice management
       systems.

     - Strengthen relationships with pharmaceutical companies.  We intend to
       continue to try to develop stronger relationships with the pharmaceutical
       industry, both by expanding existing relationships and increasing the
       base of pharmaceutical companies to which we provide services. Our
       strategy is to develop the ability to generate fees from 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. We also intend to partner
       with pharmaceutical companies who can benefit from sponsoring healthcare
       content on WebMD.com and our ability to deliver educational materials and
       other sponsored programs, as well as advertisements, to an online
       audience with attractive demographic characteristics.

     - Market a single solution for claims processing to providers.  We are
       actively extending the functionality of our clearinghouse and expanding
       the distribution of these services through direct and indirect channels.
       The goal of this initiative is to provide a single solution for providers
       and practice management system vendors for sending claims electronically
       to government, Blue Cross and Blue Shield and commercial payers. As part
       of this initiative, 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 intend to
       actively market these expanded services directly to healthcare providers
       and through our practice management system partners.

     - Utilize our portal services to expand our healthcare partner
       relationships.  We believe that our consumer user base represents an
       attractive audience to a variety of partners and potential partners

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       who are interested in influencing consumer healthcare decisions. We
       intend to enable our healthcare partners to take advantage of our portal
       services and broad online distribution platform to bring patients,
       members and customers to their brands. We believe our healthcare partners
       can reduce their costs of acquiring, retaining and servicing their
       customers by integrating our portal content and services into their
       existing marketing and customer service efforts.

     We believe that these initiatives will provide additional revenue streams
to us and accelerate our achievement of profitability. However, there can be no
assurance as to the timing or amount of the financial or other benefits from
particular strategies or initiatives, all of which are subject to the risks and
uncertainties described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors that may affect future results of
operations" beginning on page 37.

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 insurance companies, pharmacy benefit managers,
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

     Our transaction services include the combined connectivity and transaction
services formerly provided by Healtheon, Envoy, Kinetra, MedE America 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, pharmaceutical benefit managers, 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.

     Most of these transactions are conducted by 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 the
clearinghouse, where it is validated for format and completeness then sent to
the payer's computer. An increasing number of these transactions are being
transmitted via the Internet.

     We believe that we are an industry leader in our own 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 compliant provider transaction methods and
applications, as well as offering our payer customers and other healthcare
participants integration tools for transaction translation and data support that
can be used to foster their own compliance.

     Medical, pharmacy and dental administrative services.  Our administrative
services provide connectivity and transaction processing services needed for
providers and payers in the healthcare industry to automate key business
functions and communicate with each other. Through our clearinghouse, we provide
an electronic link, directly and indirectly through other clearinghouses or
healthcare information system vendors, using traditional EDI services and
Internet-based services, to healthcare providers in the medical, pharmacy and
dental markets and to multiple third party payers. 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, patient billing services, credit and
debit card processing and formulary management.
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<PAGE>   11

     Our administrative services reduce paperwork and the need for communication
by telephone and fax, resulting in costs 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, including physicians, dentists, pharmacies and hospitals, access
our transaction services both directly and through their affiliations with
integrated delivery networks, clinics and physician practice management
companies. Providers initiate transactions using our applications, their
practice management systems and other computer systems or networks. Providers
submit transactions to us by modem connections using regular telephone lines,
using dedicated phone lines and over the Internet. We work with numerous
practice management system vendors, clearinghouses and other physician service
providers to provide integrated transaction processing between their systems and
our clearinghouse. These clearinghouse services are provided through a dedicated
network that we maintain consisting of dial-up connections, lines leased from
common carriers and computer networks.

     We maintain direct connections with many healthcare payers, including
Medicare and Medicaid agencies, Blue Cross and Blue Shield organizations,
commercial insurance 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 and dedicated telephone lines, with an increasing
number of transactions transmitted via the Internet.

     Providers can use our services to verify patient enrollment and eligibility
and to obtain authorization for services from payers and for approval of
referrals to other providers at the point of care. 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. Batch claims are
collected throughout the day and submitted to us in bulk, which we then sort,
format and edit to meet a particular payer's requirements before transmission to
the payer. Providers can receive 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 standard administrative pharmacy transaction consists of the inquiry, by
the pharmacy, through a point-of-service terminal or personal computer terminal,
to determine whether the patient is covered by a benefit program. After
eligibility is confirmed, the claim is settled and the payer transmits to the
pharmacy the amount and timing of the pending payment.

     Lab ordering and reporting services.  We provide clinical lab ordering and
reporting services through dedicated terminals and teleprinters and through
Internet-based products. These products support the ordering of clinical tests
and the reporting of test results between providers and labs.

     Prescription writing services.  We plan to provide services to support this
functionality for our handheld point-of-care solution. We have completed a pilot
roll-out of our prescription writing services, which include prescription
writing and routing, drug utilization review, including drug interaction
screening, and access to formularies.

     Launch of WebMD Office.  Through our recently launched WebMD Office
Internet-based service, accessible through WebMD.com, office staff in all
provider settings can access our Internet-based transaction services. In
February 2001, we began to migrate our office staff users to WebMD Office. WebMD
Office is intended to replace all other Internet-based transaction services
previously offered by us.

  Physician services

     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(R) practice
management system, which addresses the financial, administrative, clinical and
practice management needs of physician practices. The system has been
implemented in
                                        9
<PAGE>   12

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 constantly changing healthcare environment. We are currently preparing
for the release, in selected geographic areas, of ULTIA, our wireless handheld
solution. We expect that providers will be able to use ULTIA to access their
Medical Manager systems, as described more fully under "Current strategic
initiatives -- Release of handheld solution" on page 6.

     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 the 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.

     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.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                    PRODUCT                                           DESCRIPTION
---------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                <C>
 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, hospital rounds and over
                                                     150 standard reports
 MMClient                                          - A Graphical User Interface/Windows(R)-based
                                                     Ultra-Thin Client user interface to The Medical
                                                     Manager software connecting to either a Windows
                                                     2000/NT(R) or a UNIX server
</TABLE>

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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                    PRODUCT                                           DESCRIPTION
---------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                <C>
 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
</TABLE>

                                        10
<PAGE>   13

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                    PRODUCT                                           DESCRIPTION
---------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                <C>
 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
 Patient Advisory System                           - Allows the practice to locate and print patient
                                                     education sheets on a variety of topics spanning
                                                     many different medical specialties
</TABLE>

     Managed Care Applications.  Managed Care Applications allow physicians to
contain costs and deliver a higher quality of care in capitated environments.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                    PRODUCT                                           DESCRIPTION
---------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                <C>
 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
</TABLE>

     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.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                    PRODUCT                                           DESCRIPTION
---------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                <C>
 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
 OmniDoc                                           - Automates the documentation of a patient
                                                     encounter at the point of care by allowing a
                                                     provider to easily generate progress notes using
                                                     the Medcin(R) knowledge base, eliminating the
                                                     need for dictation and transcription
 Quality Care Guidelines                           - Automates the process of tracking both the
                                                     curative and preventive services the practice
                                                     has specified that it wishes to perform
</TABLE>

                                        11
<PAGE>   14

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                    PRODUCT                                           DESCRIPTION
---------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                <C>
 Document and Image Management System              - Allows a practice to organize and store forms
                                                     and documents as images, and to instantly
                                                     retrieve these images and associated image
                                                     information to the screen as part of the
                                                     patient's medical record
 DIM(DX)                                           - 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
</TABLE>

     Electronic Connectivity.  The Medical Manager supports, and can be
integrated with, our transaction services as well as similar services from other
connectivity providers. Using The Medical Manager system, providers can generate
reports regarding electronically submitted claims that have been accepted or
rejected.

     Other Medical Manager products.  We offer several other Medical Manager
products, the functionality of which has been customized to the following
specialty markets: radiology vertical market, public health and community health
vertical market and the family planning vertical market.

     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 provide
periodic updates to the users of these systems.

     Intergy.  We are currently in the last stages of developing Intergy, our
new physician practice management system. Designed from the ground up, Intergy
combines a graphical user interface, or GUI, and a relational database
environment with advanced Web-enabled technology to address the current needs of
healthcare providers for administrative and clinical solutions. Intergy has been
designed to provide a user-friendly environment with data storage capacity that
will easily accommodate the largest of our installations. We intend to continue
to develop and support The Medical Manager system following the release of
Intergy.

  Portal services

     Our Web site, WebMD.com, offers a single destination for the exchange of
healthcare information and supports a broad range of healthcare transactions
delivered over our secure, Internet-based platform. WebMD.com provides access to
a free healthcare portal for consumers through WebMD Health and fee-based
services for healthcare professionals through WebMD Practice.

                                        12
<PAGE>   15

     WebMD Health.  Our consumer portal, WebMD Health, provides consumers with
health and wellness news and information, support communities, interactive tools
and opportunities to purchase health-related products and services. Our
communities allow consumers to participate in real-time discussion and support
networks over the Internet. Consumers have free online access to multiple areas
on WebMD Health, including:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
               CONTENT OR SERVICE                                            FEATURES
-------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                          <C>
 WebMD today                                       - Offers proprietary, medically reviewed health and wellness
                                                     news articles written daily by our staff of journalists
 WebMD live events                                 - Offers daily scheduled live chat events, including audio
                                                     and video Webcasts, with healthcare experts and celebrity
                                                     guests discussing relevant health issues, with archives
                                                     from each event added to our searchable database
 Medical information                               - Allows consumers to research current information relating
                                                     to diseases and common health conditions
                                                   - Provides searchable access to easy-to-read content, in our
                                                     medical library, including:
                                                     -- articles in our self-care advisor
                                                     -- drug and herb references from leading publications,
                                                        including Physician's Desk Reference(R)
                                                     -- clinical trials and research study information
                                                     -- an overview of health topics currently in the news
                                                     -- our ask our experts service, where consumers can post
                                                        their health questions for experts
                                                     -- a medical encyclopedia
                                                     -- a patient's guide to medical tests
                                                     -- health topics A-Z, an alphabetical listing of articles
                                                        on specific health conditions and concerns
                                                     -- interactive, illustrated presentations that explain
                                                        common health conditions and diseases
 Member services                                   - Provides access to over 50 support communities allowing
                                                     consumers to share experiences and exchange information
                                                     with other members who share their health condition or
                                                     concern
                                                   - Provides access to chat rooms, message boards and posted
                                                     member columns focused on chronic health conditions and
                                                     relevant health topics
 Health and wellness                               - Offers access to content covering various wellness topics,
                                                     including diet and nutrition, alternative medicine and
                                                     emotional wellness
                                                   - Provides parenting and pregnancy news and information
</TABLE>

                                        13
<PAGE>   16

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
               CONTENT OR SERVICE                                            FEATURES
-------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                          <C>
                                                   - Offers access to various programs developed by Dr. Dean
                                                     Ornish related to nutrition, exercise, stress management
                                                     and relationship information
                                                   - Offers access to information relating to recreational
                                                     fitness activities and sports medicine topics
 Find a physician and health plan                  - Allows consumers to search for a physician, dentist or
                                                     mammography or maternity center in their area
                                                   - Allows consumers to research features of their health plan
 Health-E-Tools                                    - Provides access to over 80 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
 Shopping                                          - Allows consumers access through our online e-commerce
                                                     strategic partners to:
                                                     -- fill pharmacy prescriptions and purchase a wide
                                                        range of health, beauty and wellness products
                                                     -- purchase sports and fitness equipment
 MyHealthRecord                                    - Allows members to establish and maintain a private record
                                                     of their family's health in a single, secure place
                                                   - Allows members to print out health reports and medical
                                                     emergency identification cards for their family
 E-Newsletters                                     - Allows consumers to receive personalized e-mail
                                                     newsletters on general health-related subjects and topics
                                                     targeted to their health concerns
</TABLE>

     WebMD Practice.  Our healthcare provider portal, WebMD Practice, offers
physicians, clinicians and physician office staff online access to daily medical
news, medical reference information, continuing medical education, tools for
creating customized practice Web sites and opportunities to purchase other
products and services. In addition, physicians and their office managers can,
for additional transaction or monthly fees, access our Internet-based
administrative transaction services through WebMD Office, as well as clinical
lab and information services and dictation and transcription services.

     We are preparing to roll out remote access capabilities that will 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 physician portal. This feature will
enable 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. We intend to enable this capability for other
practice management systems in the future.

                                        14
<PAGE>   17

     WebMD Practice provides online access to multiple areas, including:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
               CONTENT OR SERVICE                                            FEATURES
-------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                                                          <C>
 Medical news                                      - Provides original, daily medical news stories written by
                                                     our staff of journalists and reviewed by our staff of
                                                     physicians, as well as reports on business aspects of
                                                     practice management and summaries of current consumer
                                                     health issues of interest to patients
                                                   - Allows physicians to access news and information relevant
                                                     to their specialty area
 Continuing medical education, or CME              - Provides access to accredited CME courses, free of charge
                                                     and fee-based, in a variety of specialty areas and allows
                                                     physicians to track their CME credits against state and
                                                     association requirements
 Medical community                                 - Provides access to information from over 50 medical,
                                                     educational and government associations and organizations
                                                     and links to other useful Web sites
                                                   - Provides information on the latest medical meetings
 Medical library                                   - Provides searchable access to comprehensive medical
                                                     journals and newsletters from well-recognized sources,
                                                     including:
                                                     -- over 9 million abstracts from medical journals
                                                        available in the National Library of Medicine's
                                                        MEDLINE database
                                                     -- Clinical Pharmacology drug database
                                                     -- a medical dictionary
                                                   - Provides access to current disease-specific information
                                                     about diagnoses and treatment
                                                   - Offers access to articles from medical experts in question
                                                     and answer format
 For your patients                                 - Provides access to patient education databases and
                                                     interactive, illustrated patient presentations that
                                                     explain common health conditions and diseases
 Office tools                                      - Allows practices to create their own customized Web site,
                                                     including practice information such as office hours and
                                                     location, telephone number, medical specialty, types of
                                                     health plans accepted, hospital affiliations and a link to
                                                     WebMD Health patient education information
 Purchasing                                        - Provides online access to ordering of medical and surgical
                                                     supplies
                                                   - Provides convenient access to technology services and
                                                     other e-commerce options
 Secure mail                                       - Allows physicians to send and receive e-mail, including
                                                     sending encrypted messages to other WebMD Practice
                                                     subscribers
                                                   - Supports other optional WebMD Practice services, including
                                                     clinical information services
</TABLE>

                                        15
<PAGE>   18

     Based on the revisions to our relationship with Microsoft contemplated in
the March 22, 2001 non-binding letter of intent, which will not include funding
for sponsorship of subscriptions to WebMD Practice, as well as the earlier
termination of DuPont's funding for physician subscriptions, we expect that we
will no longer seek to charge a subscription fee for use of our physician
portal. Instead, we plan to allow physicians access, through our portal, without
charge to our content and to a group of basic services, while charging for usage
of optional or premium services.

     Other features of WebMD.com. WebMD.com allows physicians and consumers to
personalize their home page to deliver content and services relevant to them. It
also provides physicians and consumers with access to content provided by some
of our strategic partners and sponsors. This content is identified as sponsored
content so our users will not confuse it with our other content.

     Our editorial, design and production team, currently consisting of
approximately 50 individuals, includes board-certified physicians, Masters and
Ph.D. level medical editors, award-winning journalists, medical illustrators and
community moderators who produce our original, daily medical news. Our national
news center in Atlanta, Georgia, with a bureau located in the National Press
Building in Washington, D.C., is a press-credentialed news organization. We have
assembled a health advisory board, which consists of expert representatives from
different specialties, who advise us on current news and content topics.

     Revenue opportunities.  Our Web site provides opportunities to generate
revenue from multiple sources, including:

     - Advertising fees.  We generally sell advertising based on the number of
       impressions received by the advertisement and its position on our Web
       site. We may also exchange advertising space on our Web site for
       advertising space or other products and services from business partners.

     - Sponsorship fees.  Companies can sponsor specific pages or sections of
       our Web site, all of which are clearly labeled as sourced from or
       sponsored by the specific sponsor. Sponsorship arrangements are designed
       to support broad marketing objectives, such as brand awareness and
       product introductions. Sponsorships are generally sold for a longer term
       than online advertising placements and are sold based on duration,
       portion of the Web site sponsored and number of impressions delivered.

     - Content syndication and distribution.  We develop, host and provide a
       majority of the content for health channels of our general consumer
       portal partners, including MSN, Excite@Home and Terra Lycos. We generally
       share advertising, sponsorship and e-commerce fees generated on these co-
       branded sites with our strategic partners. In addition, our portal
       partners generally agree to provide a joint credit promoting our content
       on the health channels. We also license our proprietary content and
       interactive tools to a variety of third party Web sites.

     - E-commerce transactions.  We facilitate e-commerce transactions through
       our Web site and, for doing so, typically receive a portion of the
       revenues that are generated. Visitors to our Web site can access products
       and services provided by our strategic partners and other vendors in
       numerous locations throughout the site.

     - Carriage fees.  We distribute content and services of our strategic
       partners within our Web site and within the consumer portal Web sites
       that we have the right to program. In some cases, we receive carriage
       fees for doing so, generally as advances against our share of the
       advertising and/or e-commerce revenues generated by the specific content
       or services.

     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.

                                        16
<PAGE>   19

SALES AND MARKETING

     We market our products and services through direct sales contacts,
participation in trade shows, articles in industry publications and
advertisement, both online and offline. Our national sales force targets
potential customers in each market segment by region. We support our sales force
with technical and sales support personnel. As of December 31, 2000, excluding
Porex employees, we employed approximately 2,900 people in sales and marketing,
including technical and sales support personnel. Our Medical Manager products
and services are sold nationally both by our direct sales force and by a network
of approximately 110 independent dealers of The Medical Manager system.

DEVELOPMENT AND ENGINEERING

     We have developed internally and acquired through acquisitions our
applications and services. As of December 31, 2000, we employed approximately
700 people in development and engineering. Our development and engineering
expense totaled $58.8 million in 2000, $29.7 million in 1999 and $19.0 million
in 1998.

     The markets for 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 subject to rapid technological change. We have many competitors,
including:

     - healthcare information system vendors, including physician practice
       management system vendors

     - 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
       managers that have announced that they are developing Web-based
       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 Web sites

     - general purpose consumer online services and portals and other
       high-traffic Web sites which provide access to healthcare-related content
       and services

     - public sector and non-profit Web sites that provide healthcare
       information without advertising or commercial sponsorships

     - vendors of healthcare information, products and services distributed
       through other means, including direct sales, mail and fax messaging.

                                        17
<PAGE>   20

     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 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. In addition,
some of our existing payer and provider customers and some of our strategic
partners may also 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. 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.

     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.

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 operation of healthcare organizations. Federal and state
legislatures and agencies periodically consider programs to reform or revise the
U.S. 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 applications and
services. We are unable to predict future proposals with any certainty or to
predict the effect they would have on our business.

  HIPAA administrative simplification

     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. Five of these rules were published in proposed form
in 1998, with two of the five recently 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. The HIPAA rules provide that each is
effective 60 days following publication in final form, with compliance required
for healthcare providers, healthcare clearinghouses and large health plans two
years following the effective date. Small health plans are given an additional
year to comply. These rules apply to certain of our operations as well as the
operations of many of our customers. Compliance with these final rules will be
costly and could require complex changes in our systems. The Bush administration
has established an additional period for public comment on the privacy
regulation, and may revise the requirements and/or delay their effective date.

  HIPAA transaction standards

     The HIPAA Standards for Electronic Transactions rule is commonly referred
to as the transaction standards rule. This rule establishes format standards for
eight of the most common healthcare transactions, using technical standards
promulgated by recognized standards publishing organizations. These transactions
include health claims, enrollment, payment and eligibility. Under the new
standards, any party transmitting or receiving any of these eight health
transactions electronically will send and receive data in a single format,
rather than the large number of different data formats currently used.

                                        18
<PAGE>   21

     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 many of our customers and to our relationships with those
customers. We intend to comply with the transaction standards by their
compliance date. This compliance may require costly modifications to some of our
systems, products and services. We believe that we are well-positioned to
effectuate these changes and to facilitate compliance efforts of our customers
and strategic partners. However, there can be no assurance that we or our
customers or strategic partners will be able to do so or that we will be able to
take advantage of any business opportunities that implementation of the
transaction standards may provide to us.

  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.

  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. Due to a technical error in the delivery of the privacy
standards rule to Congress, the effective date has been delayed until April 14,
2001, which also extends the compliance date for most entities to April 14,
2003. Also, on February 28, 2001, the final privacy standards rule was converted
to a final rule with request for comments to permit public comment for a limited
period before the rule becomes effective. This comment period could result in
changes to the final rule, including further changes to its effective date or
compliance date. 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
consents in some cases, and to provide certain access rights to individuals.
This rule may require us to incur significant costs to change our platform and
services, may restrict the manner in which we transmit and use the information,
and may adversely affect our ability to generate revenues from the provision of
de-identified information to third parties.

  Other regulation 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 all 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. The definitions in the various state and federal laws
concerning what constitutes individually identifiable data sometimes differs and
sometimes is 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

                                        19
<PAGE>   22

business, could affect the manner in which we use and transmit patient
information and could increase our cost of doing business.

  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.

  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.

     We currently provide billing services and intend to provide repricing
services to 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. 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 applications or services, or result in delays or cancellations
of orders or in the revocation of endorsement of our applications and services
by healthcare participants.

                                        20
<PAGE>   23

  Regulation by the U.S. Food and Drug Administration

     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. The FDA has issued a final rule under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications, which are each
referred to in this document as a 510(k) application, and otherwise comply with
the requirements of the FDA Act applicable to medical devices. We have attempted
to design our services so that our computer applications and software are not
considered to be medical devices. However, the FDA may take the position that
our services are subject to FDA regulation. In addition, we may expand our
services in the future to areas that subject us to FDA regulation. For example,
Medical Manager Health Systems is distributing in the U.S. a medical image
management device, referred to herein as the "image device," which was granted
clearance by the FDA on August 25, 2000, and is manufactured by Medical Manager
Health Systems in accordance with specifications set forth in the cleared 510(k)
application. Medical Manager Health Systems has created an interface between The
Medical Manager practice management system and the image device and is 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 change
the image device's intended use or significantly change the safety or efficacy
of the product to the extent that a new 510(k) application is required. The FDA
is currently reviewing its policy for the regulation of computer software, 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
above requirements. Except with respect to Medical Manager Health Systems and
Porex, we have no experience in complying with FDA regulations. We believe that
complying with FDA regulations may be time consuming, burdensome and expensive
and could delay our introduction of new applications or services.

     The FDA also regulates pharmaceuticals, including the regulation of
pharmaceutical advertisements or descriptions posted on a Web site or delivered
electronically to physicians or consumers. Many of our advertisers are
pharmaceutical companies and the content of their ads is subject to FDA scrutiny
and regulation. We have attempted to disclaim responsibility for the content of
these ads and to keep the FDA compliance burden squarely on our advertisers. We
cannot guarantee that the FDA will not hold us also responsible in some way for
this compliance, which could adversely affect or restrict our relationships with
our advertisers.

  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 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. We do not maintain professional
liability insurance because we believe we are not a healthcare provider. Any
determination that we are a healthcare provider and acted improperly as a
healthcare provider may result in liability for which we are not insured.

                                        21
<PAGE>   24

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 U.S. and internationally, including
"WebMD," "Web-MD," "The Medical Manager," "Digital Office Manager," "MMClient"
and "MMWin." We use numerous other registered and unregistered trademarks and
service marks for our various products and services in the U.S. and
internationally. We have applied for federal registration of several of our
service marks, including "Health has a Home Page," "WebMD Practice," "WebMD
Health," "Healtheon," "WebMD OnCall," "OmniDoc," "OmniChart," "OmniPresence,"
"ULTIA" and "Intergy," among others, and logos for our Intergy product. We have
also applied for registration of several of our trademarks and service marks,
including "WebMD" and "Health has a Home Page," among others, in numerous
foreign jurisdictions. We cannot guarantee that any of those applications will
mature into registrations. 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 name
"webmd.com" and 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 would 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 U.S. 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 our brand. 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
                                        22
<PAGE>   25

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 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, 2000, we had approximately 4,700 employees, excluding
Porex employees. We also employed, as of December 31, 2000, approximately 180
independent contractors. In connection with our restructuring and integration
efforts, approximately 1,100 employees were identified and notified of
termination during 2000, principally as a result of eliminating duplicate
functions resulting from acquisitions.

ITEM 2.  PROPERTIES

     Our corporate headquarters relocated from Atlanta, Georgia to Elmwood Park,
New Jersey in January 2001. We lease our Elmwood Park offices, which consist of
approximately 40,000 square feet of space, under a lease that expires in March
2006.

     We own or lease additional facilities in Nashville, Tennessee for our
primary data and call centers, in Santa Clara, California and Alachua, Florida
for our development and engineering operations and in New York, New York,
Atlanta, Georgia and Mountain View, California for sales, marketing and customer
support. We currently lease 159 additional locations throughout the U.S. and own
14 facilities.

     In connection with our restructuring and integration efforts, we intend to
further consolidate facilities, including consolidating 13 data centers into
two, nine call centers into one and various sales offices nationwide. For
additional information on costs associated with our facilities integration, see
note 4 to the consolidated financial statements contained in this annual report.

     We believe that our existing facilities and offices are adequate for our
current operations.

ITEM 3.  LEGAL PROCEEDINGS

  Porex Mammary Implant Litigation

     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. Porex
distributed implants manufactured by Koken, a Japanese company. These actions
were brought in various federal and state courts around the country. One action,
Donna L. Turner v. Porex Technologies Corporation, et al., was originally filed
as a class action, but the class claims were dismissed in 1999 and the remainder
of the case was settled. The typical case or claim alleges that the individual's
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. We do not have
sufficient information to evaluate each case and claim.

     Some of the actions against Porex have been dismissed where it was
determined that the implant in question was not distributed by Porex. In
addition, a number of claims have been settled by the manufacturer of the
implants or by the insurance carriers of Porex without material cost to Porex.
As of March 21, 2001, 20 actions and 37 out-of-court claims were pending against
Porex. During calendar year 2000, there were two implant-related claims made
against Porex by individuals as compared with 39 claims during calendar year
1999 and nine claims during calendar year 1998.

     We believe that Porex's existing insurance coverage should provide adequate
coverage against the amount of liabilities that could reasonably be expected to
result from actions or claims arising out of

                                        23
<PAGE>   26

Porex's distribution of implants. However, we cannot provide assurance that
particular cases and claims will not lead to 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, Porex's insurance
coverage may not provide coverage, in whole or in part, to the extent that
certain of such actions and claims seek punitive or compensatory damages arising
out of alleged intentional torts.

  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 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 us with respect to this litigation.

  Ehlert v. Singer, et al.

     This lawsuit was filed against Medical Manager Health Systems, which became
our subsidiary upon Medical Manager's merger with us in September 2000, and some
of its officers and directors, among other parties, on October 23, 1998 in the
United States District Court for the Middle District of Florida. The lawsuit
purports to bring an action on behalf of the plaintiffs and others similarly
situated to recover damages for alleged violations of the federal securities
laws and Florida laws arising out of Medical Manager Health Systems' issuance of
allegedly materially false and misleading statements concerning its business
operations, including the development and sale of its principal product, during
the class period. An amended complaint was served on March 2, 1999. Medical
Manager Health Systems moved to dismiss the amended complaint and the court
ruled in favor of that motion. Plaintiffs have appealed this dismissal to the
Court of Appeals for the 11th Circuit. The oral argument for the appeal was held
in November 2000, but no decision has been issued by the court of appeals. The
lawsuit seeks, among other things, compensatory damages in favor of the
plaintiffs and the other purported class members and reasonable costs and
expenses.

  Quintiles v. WebMD

     Quintiles and WebMD entered into a Data Rights Agreement in connection with
the acquisition of Envoy by WebMD from Quintiles in May 2000. Under the Data
Rights Agreement, WebMD provided

                                        24
<PAGE>   27

certain data to Quintiles through Envoy, which Quintiles used to provide market
research and related products and services to third parties. On February 23,
2001, WebMD provided notice to Quintiles that WebMD's subsidiary Envoy, which
provides electronic transaction services for the healthcare industry, would be
temporarily suspending the provision of data under the Data Rights Agreement
between the parties. The suspension was in accordance with provisions of the
Data Rights Agreement that permit such suspension if WebMD reasonably believes
that providing the data would violate applicable law. In accordance with
procedures set forth in the Data Rights Agreement between the parties, WebMD
intended to suspend sending such data to Quintiles until such time as Quintiles
performed its obligations under the Data Rights Agreement.

     On Sunday, February 25, 2001, Quintiles filed an action for breach of
contract seeking temporary and permanent injunctive relief and unspecified
damages, and obtained an ex parte Temporary Restraining Order from the Superior
Court of Wake County, North Carolina, requiring WebMD to continue to provide
data to Quintiles. WebMD removed the action to the United States District Court
for the Eastern District of North Carolina. On March 13, 2001, the District
Court entered an order continuing the state court temporary restraining order.
In the course of this litigation, WebMD presented opinions of counsel that the
transmission of data pursuant to the Data Rights Agreement violated certain
state privacy laws. Quintiles disputed these legal interpretations. Thereafter,
the access specifications pursuant to which data is transmitted to Quintiles
were modified to further de-identify patient information. In addition, Quintiles
provided to WebMD opinions of counsel that applicable state privacy laws would
not be violated by transmission of data pursuant to the modified access
specifications, together with a proposed undertaking of indemnification by
Quintiles in favor of WebMD, and certifications that the patient information
contained in its existing databases had been de-identified consistent with the
recently modified access specifications. Because determinations whether data has
been sufficiently de-identified depend on complex factual and statistical
analyses, the opinions presented by Quintiles relied on fact-intensive analyses
prepared by statisticians and others.

     A further hearing was conducted by the District Court on March 15, 2001,
and on March 16, 2001, the District Court ordered WebMD to continue to provide
data to Quintiles in the form represented to the court during the March 15, 2001
hearing. That form reflected the recently modified access specifications. On
March 21, 2001, the District Court entered an order continuing in effect the
injunction. Currently, WebMD is providing data to Quintiles pursuant to this
order. We are currently engaged in settlement discussions with Quintiles.
However, we cannot provide assurances that a settlement will be reached. If a
settlement is not reached, we expect to seek appellate review, by the Fourth
Circuit Court of Appeals, of the District Court's order.

  InfoCure Corporation v. WebMD and Envoy

     On March 8, 2001, InfoCure Corporation filed a complaint against WebMD and
Envoy in the Superior Court of the County of Fulton in the State of Georgia. The
complaint asserts, among other things, that WebMD has breached its marketing
agreement with InfoCure by withholding certain rebates owed to InfoCure, by
failing to perform certain services and by soliciting InfoCure's customers. The
complaint seeks damages in excess of $46.5 million. WebMD believes that
InfoCure's positions are without merit and intends to vigorously defend against
the complaint.

  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.

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

     None.

                                        25
<PAGE>   28

                                    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 closing prices for each quarterly period during the last
two fiscal years are as follows:

<TABLE>
<CAPTION>
                                                               HIGH      LOW
                                                              -------   ------
<S>                                                           <C>       <C>
1999
  First quarter (beginning February 11, 1999)                 $ 49.38   $21.75
  Second quarter............................................   105.00    39.94
  Third quarter.............................................    77.63    30.06
  Fourth quarter............................................    51.50    31.50
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
</TABLE>

     On March 14, 2001, there were 5,344 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 Internet and healthcare industries

     - changes in prospects for healthcare reform

     - 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.

                                        26
<PAGE>   29

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
decreases in the price of our common stock.

     In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to us, litigation would be expensive and
would divert management's attention.

     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. Our Series B
convertible redeemable preferred stock pays no annual dividend and shares in any
dividends paid on the common stock on an as if converted into common stock
basis.

                                        27
<PAGE>   30

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 OnHeath
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, 2000 and the consolidated balance sheet
data at December 31, 2000 and 1999 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, 1997 and the consolidated balance sheet data
at December 31, 1998, 1997 and 1996 are derived from, and are qualified by
reference to, audited consolidated financial statements that are not included in
this report.

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                     --------------------------------------------------------
                                                        2000         1999        1998       1997       1996
                                                     -----------   ---------   --------   --------   --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                  <C>           <C>         <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATION DATA:
Revenue............................................  $   517,153   $ 102,149   $ 48,838   $ 13,390   $ 11,013
Costs and expenses:
  Cost of operations...............................      383,565      88,576     43,014     10,446      6,669
  Development and engineering......................       58,788      29,669     19,002     12,267      8,332
  Sales, marketing, general and administrative.....      530,927      82,315     25,605     12,966     10,948
  Depreciation, amortization and other.............    2,186,986     193,067     16,055      6,004      4,153
  Restructuring and integration charge.............      452,919          --         --         --         --
  Loss on investments..............................       39,602          --         --         --         --
  Interest income, net.............................       50,026       3,486        790        288        483
                                                     -----------   ---------   --------   --------   --------
Net loss...........................................  $(3,085,608)  $(287,992)  $(54,048)  $(28,005)  $(18,606)
                                                     ===========   =========   ========   ========   ========
Basic and diluted net loss per common share........  $    (12.61)  $   (3.58)  $  (1.54)  $  (3.88)  $  (2.83)
                                                     ===========   =========   ========   ========   ========
Weighted-average shares outstanding used in
  computing basic and diluted net loss per common
  share............................................      244,688      80,367     34,987      7,223      6,583
                                                     ===========   =========   ========   ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                                        AS OF DECEMBER 31,
                                                     --------------------------------------------------------
                                                        2000         1999        1998       1997       1996
                                                     -----------   ---------   --------   --------   --------
                                                                          (IN THOUSANDS)
<S>                                                  <C>           <C>         <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
  investments......................................  $   490,797   $ 291,286   $ 36,817   $ 21,804   $  7,539
Working capital....................................      606,247     216,304     27,934     14,790      2,505
Total assets.......................................    8,455,631   4,123,668     79,940     53,747     34,407
Long-term obligations, net of current portion......       15,260       2,695      2,984        932      1,210
Convertible redeemable preferred stock.............       10,000          --         --     50,948     39,578
Convertible preferred stock........................      710,746          --         --         --         --
Stockholders' equity (net capital deficiency)......    8,091,985   3,973,672     59,413     (9,930)   (14,553)
</TABLE>

                                        28
<PAGE>   31

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

OVERVIEW

     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 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.

     As a result of the completion of these transactions, our core business
encompasses the following products and services:

     - Transaction services.  We offer value-added solutions designed to
       increase productivity for both providers and payers, to speed healthcare
       reimbursements and to improve communications among healthcare
       participants. From simple point-of-service devices to fully integrated
       transaction processing applications and Internet solutions, we offer a
       full suite of products and services to automate key business and clinical
       functions.

     - Physician services.  We develop and market integrated physician practice
       management systems, including administrative, financial and clinical
       applications, under The Medical Manager(R) brand.

     - Portal services.  We offer a variety of online services for consumers,
       physicians and physician office managers through our Web site, WebMD.com.

     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 as a result of all 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. As a result of this
process, we are in discussions with several of our partners in an effort to
redefine the relationships in a manner that better serves the needs of each
party. These discussions have already resulted in revisions to some of our
strategic relationships. It is possible that, as a result of continuing
discussions, additional relationships may be revised or terminated, which may
result in additional restructuring charges.

     In connection with our restructuring and integration efforts, we recorded
restructuring and integration charges of $452.9 million, of which $380.0 million
were non-cash charges, in the year ended December 31, 2000. As we continue our
consolidation and integration efforts, we are likely to incur additional costs
relating to asset impairments and write-offs, severance, employee retention
arrangements related to exit activities, moving and relocations that will be
expensed according to the applicable accounting guidelines. We expect our
restructuring and integration efforts will continue during 2001. For additional
information regarding our restructuring and integration efforts, see
"Business -- Restructuring and integration" beginning on page 3 and note 4 to
the consolidated financial statements in this annual report.

     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. We expect to
complete the disposition later this year. Accordingly, our consolidated
statements of operation and consolidated statement of cash flows exclude the
results of Porex.

                                        29
<PAGE>   32

     We have rapidly and significantly expanded our operations through
acquisitions. We have completed the following acquisitions as of December 31,
2000:

<TABLE>
<CAPTION>
                                                 SHARES OF OUR           SHARES OF OUR        OPTIONS AND
COMPANY ACQUIRED            DATE ACQUIRED    PREFERRED STOCK ISSUED   COMMON STOCK ISSUED   WARRANTS ASSUMED
----------------            --------------   ----------------------   -------------------   ----------------
<S>                         <C>              <C>                      <C>                   <C>
Medical
  Manager/CareInsite......  September 2000            100                 134,370,010          81,084,865
OnHealth..................  September 2000             --                   4,678,609           1,384,113
Envoy.....................  May 2000                   --                  35,000,000                  --
Kinetra...................  January 2000               --                   7,437,248                  --
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
ActaMed...................  May 1998                   --                  23,271,355           3,383,011
</TABLE>

     All of these acquisitions were accounted for as purchases except for
ActaMed, which was accounted for as a pooling of interests. Our financial
information presented reflects our combined financial position and results of
operations with ActaMed for all dates and periods presented and 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 purchases of WebMD, Inc., MedE America and Medcast, we
recorded total intangible assets of $3.7 billion, consisting primarily of $116.9
million of trademarks, $84.1 million of customer lists, $40.8 million of
acquired technology and $3.4 billion of goodwill. 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 purchase 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 purchase 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 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 purchases 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 a result of our purchase of OnHealth, we recorded total goodwill of
$374.6 million which will be amortized over its estimated useful life of three
years.

     Because we have only recently completed the 2000 acquisitions, it is
difficult to evaluate our business and prospects. Our revenue and income
potential is unproven and our business model is still emerging. As a result, we
believe that our historical financial information may not be an indicator of our
future operating results. We have incurred significant operating and net losses
since we began operations and, as of December 31, 2000, we had an accumulated
deficit of $3.5 billion. We plan to continue to invest heavily in the
integration of our acquisitions, strategic relationships and infrastructure and
applications development. As a result, we expect that we will continue to incur
losses before restructuring and integration charges, depreciation, amortization
and other non-cash items, until the end of 2001.

                                        30
<PAGE>   33

     Revenue is derived from our transaction services, physician services and
portal services. Our transaction services include administrative services, such
as transaction processing for medical, dental and pharmacy claims, and clinical
lab and reporting services, such as lab test orders and results. Healthcare
payers pay us fees for these services, generally on a per transaction basis. Our
transaction fees for payers vary according to the type of transaction and other
factors, such as volume level commitments. Healthcare providers pay us
transaction fees for these services, either on a per transaction basis or as a
flat rate per month. Our transaction fees for providers vary according to the
type of transaction and customer. We may also charge one-time implementation
fees to providers and payers. 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, and
subscription fees to our physician portal, WebMD Practice. Portal services
include advertising, sponsorship, content syndication and distribution and
e-commerce transactions related to our Web site or a co-branded Web site with
one of our online 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, amortization of certain intangible assets, a
portion of facilities expenses and leased personnel and facilities costs.
Additionally, cost of operations includes rebates paid to certain customers
related to transaction 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 engineering personnel, fees to outside
contractors and consultants, a portion of facilities expenses 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, human resources and executive personnel.
These expenses also 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 and costs of
accounting and internal control systems to support our operations.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                               ----------------------------
                                                                2000       1999       1998
                                                               ------     ------     ------
<S>                                                            <C>        <C>        <C>
Revenue.....................................................    100.0%     100.0%     100.0%
Cost of expenses:
  Cost of operations........................................     74.2       86.7       88.1
  Development and engineering...............................     11.4       29.0       38.9
  Sales, marketing, general and administrative..............    102.7       80.6       52.4
  Depreciation, amortization and other......................    422.9      189.0       32.9
  Restructuring and integration charge......................     87.6        0.0        0.0
  Loss on investments.......................................      7.7        0.0        0.0
  Interest income, net......................................      9.6        3.4        1.6
                                                               ------     ------     ------
Net loss....................................................   (596.7%)   (281.9%)   (110.7%)
                                                               ------     ------     ------
                                                               ------     ------     ------
</TABLE>

  Years ended December 31, 2000 and 1999

       Revenue.  Our total revenue increased to $517.2 million in the year ended
December 31, 2000 from $102.1 million in the year ended December 31, 1999. The
increase is due primarily to the revenue sources that were acquired in our 1999
and 2000 business combinations. Transaction services revenue

                                        31
<PAGE>   34

comprised 52.0% of total revenue in the year ended December 31, 2000 compared to
45.3% in the year ended December 31, 1999. This increase is primarily related to
the additional revenue from our acquisition of Envoy in May 2000 and CareInsite
in September 2000. Physician services revenue comprised 23.2% of total revenue
in the year ended December 31, 2000 compared to 2.6% in the year ended December
31, 1999. This increase is primarily related to the additional revenue from our
acquisition of Medical Manager in September 2000 and the full-year impact of
WebMD Practice subscription revenue from our November 1999 WebMD, Inc. merger.
Portal services revenue comprised 19.6% of total revenue in the year ended
December 31, 2000 as compared to 4.0% in the year ended December 31, 1999. This
increase is primarily related to the full-year impact of our November 1999
WebMD, Inc. merger as well as the acquisition of OnHealth in September 2000.
Other products and services revenue comprised 5.2% of total revenue in the year
ended December 31, 2000 as compared to 48.1% in the year ended December 31,
1999. This decrease reflects the phasing out of some of our non-core product
offerings. We expect that revenue will increase in 2001, primarily as a result
of the companies acquired in 2000, as our 2000 results reflect the operation of
these companies for only the portion of the year from their respective
acquisition dates. This increase will be partially offset by the impact of the
revised agreements with News Corporation and DuPont and the revised relationship
contemplated by the non-binding letter of intent with Microsoft, each of which
is described in "Business -- Restructuring and integration" on page 3, and the
revision of other relationships and the phase out of non-core products in
connection with our restructuring and integration efforts.

     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
the year ended December 31, 2000 from $37.2 million in the year ended December
31, 1999. The increase was primarily due to increases in subscription and third
party advertising revenue through our Microsoft strategic alliance and from
health-related content licensed to News Corporation. Revenue from SmithKline
Labs ceased being related party revenue in August 1999 when SmithKline Labs was
sold to Quest Diagnostics, which is not a significant 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. In addition, revenue from News Corporation ceased being
related party revenue in December 2000, when we revised our strategic
relationship and News Corporation surrendered its shares of our Series A
preferred stock.

     Three of our customers, SmithKline Labs, which was acquired by Quest
Diagnostics Incorporated, 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 the
year ended December 31, 2000 from $88.6 million in the year ended December 31,
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. We expect the
cost of operations to increase in 2001 primarily as a result of the companies
acquired in 2000, as our 2000 results reflect the operations of these companies
for only the portion of the year from their respective acquisition dates.

     Development and engineering.  Development and engineering expense was $58.8
million in the year ended December 31, 2000 and $29.7 million in the year ended
December 31, 1999. The increase was the result of a significant increase in the
number of engineers engaged in the development of our applications and services.
Of the increase in development and engineering, $5.1 million was a result of
expenses incurred by the companies acquired in 2000. We expect that development
and engineering costs will decrease in 2001 primarily as a result of the cost
reductions related to our restructuring and integration efforts. We expect this
decrease to be partially offset by the impact of companies acquired in 2000, as
our 2000 results reflect the operations of these companies for only the portion
of the year from their respective acquisition dates.

                                        32
<PAGE>   35

     Sales, marketing, general and administrative.  Sales, marketing, general
and administrative expense increased to $530.9 million in the year ended
December 31, 2000 from $82.3 million in the year ended December 31, 1999. Sales,
marketing, general and administrative expense includes non-cash media and
branding expenses primarily associated with Microsoft and News Corporation of
$87.5 million and $7.9 million for the year ended December 31, 2000 and 1999,
respectively. Additional increases resulted from salaries and related costs of
added sales and marketing personnel and advertising and promotion costs to
increase awareness of the WebMD brand, as well as non-cash amortization of
deferred stock compensation, which increased to $72.5 million in the year ended
December 31, 2000 as compared to $7.6 million in 1999.

     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. We expect that sales, marketing, general and administrative costs will
decrease in 2001 primarily as a result of cost reductions related to our
restructuring and integration efforts. We expect this decrease to be partially
offset by the impact of the companies acquired in 2000, as our 2000 results
reflect the operations of these companies for only the portion of the year from
their respective acquisition dates.

     Amortization of deferred stock compensation, included in general and
administrative expenses, represents the amortization of the difference between
the purchase or exercise price of certain stock option and restricted stock
grants and the deemed fair value of our common stock at the time of those grants
issued by us or assumed in the 1999 and 2000 business combinations. We recorded
amortization of deferred stock compensation of $72.5 million in 2000, $7.6
million in 1999 and $3.4 million in 1998. The deferred stock compensation
balance at December 31, 2000 was $144.5 million. The deferred stock compensation
balance is being amortized based on a graded vesting method over the vesting
period, generally four years, of the option or restricted stock grants.

     Depreciation, amortization and other.  Depreciation, amortization and other
was $2,187.0 million in the year ended December 31, 2000 and $193.1 million in
the year ended December 31, 1999. Property and equipment is being depreciated
over the estimated useful life of the related assets, generally three to seven
years for equipment and up to 39 years for buildings. All of the intangible
assets are being amortized over expected lives of one to fifteen years. The
increase is due primarily to the amortization of intangible assets associated
with the companies acquired in 2000 and 1999. Included in depreciation,
amortization and other are dividends and accretion of discount related to the
Series A convertible preferred stock in the amount of $108.2 million in 2000.
There was no comparable amount in 1999.

     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 consists 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 $70.2 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.

                                        33
<PAGE>   36

     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 and expense.  Interest income has been derived primarily
from cash investments. Interest expense results primarily from our borrowings
and from capitalized lease obligations for equipment purchases. Net interest
income was $50.0 million in the year ended December 31, 2000 and $3.5 million in
the year ended December 31, 1999. The increase for the 2000 period 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.

  Years ended December 31, 1999 and 1998

     Revenue.  Our total revenue increased to $102.1 million in the year ended
December 31, 1999 from $48.8 million in the year ended December 31, 1998.

     Revenue from services increased to $57.4 million in the year ended December
31, 1999 from $27.1 million in the year ended December 31, 1998. This increase
results primarily from the growth of our transaction services and network-based
services. Of this increase, $9.8 million relates to revenue generated by
acquired companies from the merger date, November 12, 1999, through the end of
the year.

     Revenue from services to related parties consists primarily of services we
provided to SmithKline Labs, UnitedHealth Group and Microsoft. Revenue from
these related parties increased to $37.2 million in the year ended December 31,
1999, compared to $21.0 million in the year ended December 31, 1998. Increased
transaction-based services to UnitedHealth Group and SmithKline Labs, which was
phased in during the first quarter of 1999, and revenues from subscriptions and
third party advertising from Microsoft contributed to the significant increases
in revenue. The SmithKline Labs revenue ceased being related party revenue in
August 1999, when SmithKline Labs was sold to Quest Diagnostics.

     Cost of operations.  Cost of operations increased to $88.6 million in the
year ended December 31, 1999 from $43.0 million in the year ended December 31,
1998. These increases resulted mainly from higher 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 these increased service revenues. Of the increase in cost of operations,
$12.0 million is a result of expenses incurred by the acquired companies from
the merger date, November 12, 1999, through the end of the year.

     Development and engineering.  Development and engineering expense was $29.7
million in the year ended December 31, 1999 and $19.0 million in the year ended
December 31, 1998. The increase was the result of a significant increase in the
number of engineers engaged in the development of our applications and services.

     Sales, marketing, general and administrative.  Sales, marketing, general
and administrative expense increased to $82.3 million in the year ended December
31, 1999 from $25.6 million in the year ended December 31, 1998. The primary
reason for the increase resulted from salaries and related costs of added sales
and marketing personnel and advertising and promotion costs to increase
awareness of the WebMD brand. The amortization of deferred stock compensation
expense was $7.6 million in the year ended December 31, 1999, compared to $3.4
million in the prior year. The remainder of the increase resulted from salaries
and related costs of office space and facilities as we added administrative
personnel and executive management.

     Of the increase in sales, marketing, general and administrative expense,
$33.8 million is a result of expenses incurred by the acquired companies from
the merger date, November 12, 1999, through the end of the year.
                                        34
<PAGE>   37

     Deferred stock compensation represents the difference between the purchase
or exercise price of some stock option and restricted stock grants and the
deemed fair value of our common stock at the time of those grants. We recorded
deferred stock compensation of $7.6 million in 1999 and $8.2 million in 1998.
The deferred stock compensation balance at December 31, 1999 was $5.1 million.
The deferred stock compensation balance is being amortized based on a graded
vesting method over the vesting period, generally four years, of the option or
restricted stock grants.

     Depreciation, amortization and other.  Depreciation, amortization and other
was $193.1 million in the year ended December 31, 1999 and $16.1 million in the
year ended December 31, 1998. Property and equipment is being depreciated over
the estimated useful life of the related assets, generally three to seven years
for equipment and 20 to 25 years for buildings. All of the intangible assets are
being amortized over expected lives of one to four years. The increase is due
primarily to the completion of the 1999 business combinations.

     Interest income and expense.  Interest income has been derived primarily
from cash investments. Interest expense results primarily from our borrowings
and from capitalized lease obligations for equipment purchases. Net interest
income was $3.5 million in the year ended December 31, 1999 and $0.8 million in
the year ended December 31, 1998. The increase for the 1999 period was due to
higher average cash balances resulting from the proceeds of our $46.1 million
preferred stock financing in October 1998, the net proceeds of $41.4 million
from our initial public offering in February 1999 and cash balances that were
acquired in the acquisitions in November 1999.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2000, we had approximately $710.5 million in cash and
cash equivalents and marketable securities. As of December 31, 2000, our working
capital was $606.2 million.

     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 as a result of all 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. As a result of this
process, we are in discussions with several of our partners in an effort to
redefine the relationships in a manner that better serves the needs of each
party. These discussions have already resulted in revisions to some of our
strategic relationships, as discussed below. It is possible that, as a result of
continuing discussions, additional relationships may be revised or terminated,
which may result in additional restructuring and integration charges.

     As we announced on September 28, 2000, our board of directors approved
management's plan to dispose of Porex, which we acquired in our 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. We expect to
complete the disposition later this year. The expected net proceeds and the cash
flows of Porex until sold were allocated to assets held for sale in the
allocation of the Medical Manager purchase price and is included in the line
item "assets held for sale" on our balance sheet. Any difference between the
actual and expected amounts will result in an adjustment to goodwill unless
there is a difference caused by a post-acquisition event.

     Cash used in operating activities was $461.6 million in 2000 compared to
$76.0 million in 1999 and $26.6 million in 1998. The cash used during these
periods was primarily attributable to net operating losses of $3,085.6 million
in 2000, $288.0 million in 1999 and $54.0 million in 1998, offset in part by
non-cash charges of $2,766.5 million, $200.7 million and $19.4 million in 2000,
1999 and 1998, respectively, which consist of depreciation and amortization,
deferred stock compensation, non-cash content, services and

                                        35
<PAGE>   38

distribution amortization, loss on investments and the non-cash portion of the
restructuring and integration charge.

     Cash used in investing activities was $361.0 million in 2000, compared to
cash provided by investing activities of $281.2 million in 1999 and $19.1
million of cash used in 1998. Cash used in 2000 primarily related to $286.9
million in net cash paid when we acquired Medical Manager, CareInsite, Envoy 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 $30.2 million in 2000, $27.0 million in
1999 and $6.3 million in 1998. We invest our excess cash in short-term
investments and expect to do so in the future.

     Cash provided by financing activities was $1,027.8 million 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, partially offset
by repayments totaling $1.4 million of line of credit borrowings and bridge
notes. Financing activities provided $48.6 million of cash in 1998, resulting
primarily from proceeds from the issuance of our preferred and common stock,
offset in part by payments on capital lease obligations.

     As of December 31, 2000, we did not have any material commitments for
capital expenditures. Our principal commitments at December 31, 2000 consisted
of obligations under operating and capital leases and guaranteed payments under
our strategic agreements. At December 31, 2000, 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 and capital leases
and our strategic relationships:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                                      AMOUNT
-----------------------                                     --------
<S>                                                         <C>
2001......................................................  $104,793
2002......................................................    96,981
2003......................................................    68,014
2004......................................................    31,936
2005......................................................    15,630
Thereafter................................................    71,532
</TABLE>

     As of December 31, 2000, we had also entered into agreements that provided
for us to share some of our transaction processing, advertising, carriage fee
and e-commerce revenue, net of specified costs applicable to the particular
revenue category, with Microsoft for its sponsorship of physician subscriptions
to WebMD Practice and with several physician practice management system vendors
who have agreed to promote our services to their physician customers. This
revenue sharing applies only to the extent the revenue is derived from
Microsoft-sponsored physicians or from physicians subscribing to the particular
vendor's practice management system. The percentage of revenue shared varies
from contract to contract and based on the type of revenue generated. On March
22, 2001, Microsoft and WebMD entered into a non-binding letter of intent with
respect to revisions to our relationship. See "Restructuring and
integration -- Microsoft" on page 5.

     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 handheld
solution in 2001, for at least the next 12 months. However, we expect to incur
losses before restructuring and integration charges, depreciation, amortization
and other non-cash items, until the end of 2001. 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

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<PAGE>   39

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
are required to adopt 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 is not expected to have a material impact on our financial
condition or results of operations.

     In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44),
"Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25." FIN No. 44 became effective July 1, 2000
and provides guidance for applying APB Opinion No. 25, "Accounting for Stock
Issued to Employees." We adopted FIN No. 44 on July 1, 2000 and applied its
guidance to the September 12, 2000 acquisitions of Medical Manager, CareInsite
and OnHealth, resulting in deferred compensation of approximately $117.4
million, which is reflected in stockholders' equity.

     In January 2000, the Emerging Issues Task Force of the FASB reached
consensus on Issue 99-17, "Accounting for Advertising Barter Transactions," or
EITF 99-17. EITF 99-17 establishes accounting and reporting standards for barter
transactions which involve nonmonetary exchanges of advertising. It requires
that an entity recognize revenue and expenses from advertising barter
transactions at the fair value of the advertising surrendered only when an
entity has a historical practice of receiving cash for similar transactions. We
believe that our current revenue recognition principles comply with EITF 99-17.

     In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2, "Accounting for Website Development Costs," or EITF 00-2. EITF
00-2 establishes how an entity should account for costs incurred to develop a
Web site. It requires that an entity capitalize costs during the Web application
and infrastructure and graphics development stages of development. The consensus
is effective for all costs incurred beginning after June 30, 2000, although
earlier adoption is encouraged. The adoption of EITF 00-2 did not have a
material impact on our financial condition or results of operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

  Our business will suffer if we fail to successfully integrate acquired
businesses and technologies

     We have in the past acquired, and may in the future acquire, businesses,
technologies, services, product lines or content databases. For example, we
completed our mergers with WebMD, Inc., MedE America and Medcast in November
1999, our mergers with Kinetra in January 2000 and Envoy in May 2000 and our
mergers with Medical Manager, CareInsite and OnHealth in September 2000. In
September 2000, our board of directors approved a restructuring and integration
plan, with the objective of eliminating duplication and redundancies as a result
of the acquisitions made by us since November 1999 and of consolidating our
operational infrastructure. We are in the process of integrating and
consolidating the operations, products and services, technologies and personnel
of these companies. In connection with our restructuring and integration
efforts, we recorded restructuring and integration charges of $452.9 million, of
which $380.0 million were non-cash charges, in the year ended December 31, 2000.
As we continue our consolidation and integration efforts, we are likely to incur
additional costs relating to asset impairments and write-offs, severance, stay
bonuses, moving and relocations that will be expensed according to the

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<PAGE>   40

applicable accounting guidelines. We expect our restructuring and integration
efforts will continue during 2001. For additional information regarding our
restructuring and integration efforts, see "Business -- Restructuring and
integration" beginning on page 3 and note 4 to the consolidated financial
statements in this annual report. The successful integration of the acquired
businesses into our operations is critical to our future performance.

     The amount and timing of the benefits of our restructuring and integration
efforts and the success of the contemplated integration and rationalization of
our businesses are subject to significant risks and uncertainties. These risks
and uncertainties include, but are not limited to, those relating to:

     - ability to cross-sell products and services to payers and providers with
       which we have established relationships and those with which the acquired
       companies have established relationships

     - the loss of key personnel

     - diversion of management's attention from other ongoing business concerns

     - potential conflicts in payer, provider, strategic partner, sponsor or
       advertising relationships

     - coordination of organizations that are geographically diverse and have
       different business cultures

     - 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 operating synergies,
revenue enhancements or cost savings could have a material adverse effect on our
business, financial condition and results of operations.

     Integrating any additional acquired organizations and technologies in the
future could also be expensive and time consuming and may strain our resources
and would be subject to the same challenges, risks and uncertainties as our
current integration efforts, as described above.

  We are dependent on strategic relationships to generate some of our revenue

     Our ability to generate revenue will suffer if we cannot establish and
maintain successful strategic relationships.  We have entered into strategic
relationships with leading online and media distribution and healthcare
partners. Successful strategic relationships are an important means to increase
the number of transactions processed over our network, generate traffic on our
Web site and capitalize on additional distribution and revenue opportunities. As
previously announced, we have been renegotiating some of the strategic
relationships we currently have in place and some of these relationships have
been modified or terminated. It is possible that additional relationships may be
modified or terminated, as discussed in "Business -- Restructuring and
integration" on page 3 and note 4 to the consolidated financial statements in
this annual report. We expect that we will face intensified competition for
strategic relationships.

     Disputes with strategic partners and customers may be resolved unfavorably
to us and may harm our relationships.  Some of our strategic partners have
initiated or threatened to initiate litigation or other dispute resolution
mechanisms regarding alleged breaches of our agreements and other claims.
Similarly, in some cases, we have initiated or threatened to initiate litigation
or other dispute resolution mechanisms when we believed our partner or customer
is in breach of its obligations, if we have been unable to resolve the dispute
through negotiations. We cannot provide assurance that these disputes will be
resolved in our favor or, even if resolved in our favor, that we will be able to
preserve the benefits we expected to achieve from our relationships with those
partners, which could adversely affect our financial position and results of
operations.

     We share revenue with our strategic partners and will incur significant
expense in connection with our strategic relationships, and this expense may
exceed the net revenue these relationships generate.  We have agreed to share
some of our transaction processing, advertising, carriage fee and e-commerce
revenue with some of our strategic partners and, in some cases, to make
guaranteed payments to our strategic partners. We may enter into additional
arrangements with current or future strategic partners that require us to
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<PAGE>   41

share revenue, make guaranteed payments or incur other significant expenses. We
cannot give assurances that we will generate sufficient revenue from our
arrangements with strategic partners to offset all required payments and
expenses. Failure to do so could have a material adverse effect on our financial
condition or results of operations.

     We have invested in some of our strategic partners, many of which are in
early stages of development. We have made equity investments in some of our
strategic partners. In many instances, these investments are in the form of
illiquid securities of private companies engaged in e-Health and were made in
conjunction with the parties entering into a strategic agreement. Typically,
these strategic partners entered into agreements that obligate them to purchase
advertising or other services from us. These companies are typically in an early
stage of development and may be expected to incur substantial losses and may not
generate sufficient revenue to pay the advertising and e-commerce fees due us.
In addition, due to recent market volatility, some of these companies have
altered their plans to go public, and others that have gone public have
experienced or may experience significant decreases in the trading prices of
their common stock, adversely affecting the value of our investments. Some of
these companies may go out of business before we are able to sell our
investments.

     We have granted exclusive rights to strategic partners.  We have agreed
that some of our strategic partners will be our exclusive providers of some of
our applications and content. For example, we have entered into strategic
agreements with e-commerce companies to be our exclusive partners supplying
online pharmacy services and medical supplies and to be our exclusive providers
of various categories of content and services. These agreements may limit our
access to other applications and content we might otherwise be able to make
available to subscribers and consumers or to payer and provider customers. Our
inability to offer other applications and content could cause our business to
suffer. In addition, we have granted exclusive rights to strategic partners
which restrict our ability to pursue some business opportunities. For example,
in connection with our acquisition of Envoy from Quintiles, we granted to
Quintiles the exclusive license to use some of the de-identified data available
to us by virtue of our transaction services and some exclusive rights in the
pharmaceutical market.

  Relationships with customers and strategic partners may conflict

     We have developed and rely upon important relationships with payers,
providers, practice management system vendors and strategic partners, some of
which may involve conflicting contractual rights, including conflicts which may
result from our recent acquisitions. As a result of conflicts or perceived
conflicts resulting from our acquisitions or our business plans and strategic
initiatives, we may lose relationships with, or be subject to litigation by,
some other customers and strategic partners, who may then establish
relationships with our competitors. For example, InfoCure, a practice management
system vendor whose products compete with The Medical Manager products, has
initiated litigation against us, alleging breach of contract, tortious
interference with business relations and other claims. We are currently in the
process of negotiating new arrangements with Medic, another practice management
system vendor, that would replace prior arrangements and better serve the needs
of each party. However, we cannot provide assurance that these negotiations will
be successful. If these negotiations are not successful, there could be
litigation or other proceedings that arise out of the relationship or its
termination. Some of our other customers and strategic partners have initiated
or threatened to initiate litigation or other dispute resolution mechanisms to
enforce rights they purport to have as a result of conflicts with our other
relationships or with our business plans or strategic initiatives, or their
belief that these conflicts exist. We cannot provide assurance that these
disputes will be resolved in our favor or, even if resolved in our favor, that
we will be able to preserve the benefits we expected to receive from our
relationships with those partners. In addition, we may not be able to maintain
or establish relationships with key participants in the healthcare and Internet
industries if any of the companies we acquired had already established
relationships with competitors of these key participants.

     If contractual or relationship conflicts or other issues cannot be
resolved, we could lose the benefits of some of our relationships with payers,
providers or strategic partners. Losses of any significant relationships could
harm our business or results of operations.
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<PAGE>   42

  Our ability to generate revenue could suffer if we do not expand our suite of
applications and service offerings

     Healthcare information exchange and transaction processing is a relatively
new and evolving market. The pace of change in our markets is rapid and there
are frequent new product introductions and evolving industry standards. We may
be unsuccessful in responding to technological developments and changing
customer needs. In addition, our applications and services offerings may become
obsolete due to the adoption of new technologies or standards.

     We currently offer a limited number of applications on our Internet-based
platform and some of our service offerings, including our handheld solution, are
not fully developed or launched. We must introduce new applications and services
and improve the functionality of our existing services in a timely manner in
order to attract and retain customers.

     We rely on a combination of internal development, strategic relationships,
licensing and acquisitions to develop these applications and services. Each of
our applications, regardless of how it was developed, must be integrated and
customized to operate with the existing legacy computer systems of payer and
provider customers and our platform. We are currently in the process of
integrating acquired applications and products and services. Developing,
integrating and customizing these applications and services will be time
consuming, and these applications and services may never achieve market
acceptance, which could also cause our business to suffer.

  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 will accept new or newly
integrated products and services from us, including the products and services we
are developing to integrate our transaction services and portal services into
their office workflow, such as our handheld solution. Even physicians 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.

  Our business model for providing Internet-based services is unproven, and we
may not achieve profits from this business

     Our business model for providing Internet-based services is evolving, and
our revenue and profit potential from these services is unproven. We intend to:

     - offer provider and payer customers our Internet-based transaction
       services, to the extent that is appropriate to their needs

     - integrate these transaction services with our Medical Manager practice
       management systems and similar systems provided by others
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<PAGE>   43

     - build usage of our portal services by consumers, physicians and physician
       officer managers

     - generate e-commerce revenue from the sale of healthcare products or
       services of our strategic partners and other suppliers over the Internet.

However, the provision of services over the Internet to the healthcare industry
is a developing business that is inherently riskier than businesses in
industries where companies have established operating histories and there can be
no assurance that our initiatives in this area will be profitable.

  We may not be able to generate significant advertising revenue from our portal
  services

     We derive a portion of our revenue from advertising activities. Advertising
revenue is generally derived from short-term advertising contracts in which we
typically guarantee a minimum number of impressions or pages to be delivered
over a specified period of time for a fixed fee. Advertising revenue may also
include barter transactions, which are exchanges by us of advertising space on
our Web site for goods and services from strategic partners and which might not
generate any cash receipts.

     The Internet advertising market is new and rapidly evolving, and no
standards have been widely accepted to measure its effectiveness as compared to
traditional media advertising. If no standards develop, existing advertisers may
not continue their current level of Internet advertising, and advertisers that
have traditionally relied on other advertising media may be reluctant to
advertise on the Internet. Moreover, filter software programs that limit or
prevent advertising from being delivered to a Web user's computer are available.
Widespread adoption of this software could adversely affect the commercial
viability of Internet advertising. Demand for Internet advertising in general
has, during the first quarter of 2001, been weaker than in recent quarters and
there can be no assurance that such demand will return to the levels seen
previously. Our business would be adversely affected if the market for Internet
advertising fails to develop or develops more slowly than expected.

     Various pricing models are used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and revenue.
The level of traffic on our Web site is likely to be a factor in determining
advertising rates.

  Lengthy sales and implementation cycles for our applications could adversely
affect our ability to generate revenue

     A key element of our strategy is to market our solutions directly to large
healthcare organizations. We will be unable to control many of the factors that
will influence the buying decisions of these organizations. We expect that the
sales and implementation processes will be lengthy and will involve a
significant technical evaluation and commitment of capital and other resources
by our customers. The sale and implementation of our solutions are subject to
delays due to our payer and provider customers' internal budgets and procedures
for approving large capital expenditures and deploying new technologies within
their networks.

  Failure to continue to expand and adapt our platform to accommodate increased
usage could make it difficult to successfully implement our Internet-based
services

     To successfully implement our Internet-based services, we must continue to
expand and adapt our platform and transaction networks to accommodate additional
users, increased transaction volumes and changing customer requirements. Our
infrastructure may not accommodate increased use while maintaining acceptable
overall performance. To date, we have processed a limited number and variety of
Internet-based transactions. In addition, our Internet-based products and
services have only been used by a limited number of physicians and healthcare
consumers. An unexpectedly large increase in the volume of traffic on our Web
site or transactions processed over our networks may require us to expand and
further upgrade our platform. This expansion could be expensive and could divert
our attention from other activities.

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<PAGE>   44

  Performance problems with our systems could damage our business

     Our payer and provider customer satisfaction and our business could be
harmed if we or our customers experience system delays, failures or loss of
data. We currently process our payer and provider transactions and data at our
facilities and rely on a data center operated by a third party to perform EDI
transaction processing, other than real-time EDI transaction processing. This
data center is located in Tampa, Florida and is operated by Verizon Data
Services, with whom we have contracted for these processing services. We rely
primarily on this facility to process batch claims and other batch medical EDI
transaction sets. Our contract with Verizon requires Verizon to maintain
processing capability and a "hot site" disaster recovery system. We have a
contingency plan 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 an adverse
impact on our business.

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

     A material security breach could damage our reputation or result in
liability. We retain confidential information, including patient health
information, in our processing centers. 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 or to alleviate problems caused by breaches. Despite
the implementation of security measures, this infrastructure may be vulnerable
to physical break-ins, 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 damage our Internet-based businesses.

  Performance problems with the systems of our service and content providers
could disrupt our Web site

     We depend on service and content providers to provide information and data
feeds on a timely basis. Our Web site could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information.

  Our Internet-based services are dependent on the development and maintenance
of the Internet infrastructure and the adoption of broadband connections by
physician offices

     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
complimentary 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 numbers of users,
increased frequency of use or more complex requirements, 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 users or more complex
requirements.

     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, the Internet could lose its viability
due to delays in the development or adoption of new standards and protocols to
handle increased levels of activity or due to increased governmental regulation.
The infrastructure and complimentary products or services necessary to make the
Internet a viable commercial marketplace for the long-term may not be developed
successfully or in a timely manner. Our financial condition could be materially
harmed if the Internet is not available to us for the delivery of our services
and products.

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     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 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.

     Some of our 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.

  Our Internet platform infrastructure and scalability are not proven, and we
may not be able to adequately accommodate increased functionality or usage

     To date, we have processed a limited number and variety of Internet
transactions over our platforms. Similarly, a limited number of healthcare
participants use these Internet platforms. Our systems may not accommodate
increased use while maintaining acceptable overall performance. We must continue
to expand and adapt our network infrastructure to accommodate additional users,
increased transaction volumes and changing payer and provider customer
requirements.

  Our business could be adversely affected if we cannot attract and retain key
  personnel

     Our future operating results substantially depend on the ability of our
officers and key employees to manage changing business conditions and to
implement and improve our technical, administrative, financial control and
reporting systems. We need to attract, integrate, motivate and retain highly
skilled technical people. In particular, we need to attract and retain
experienced computer, engineering, marketing, management and other professionals
capable of developing, selling and installing complex healthcare information
systems. We face intense competition for these people.

  We face significant competition for our products and services

     The market for our services is intensely competitive, rapidly evolving and
subject to rapid technological change. 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. Many of our competitors have also announced or introduced Internet
strategies that will compete with our applications and services. We may be
unable to compete successfully against these organizations. For more information
about our competitors, see "Business -- Competition" beginning on page 17.

  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 23.

  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
U.S. healthcare system at both the federal and state levels. 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
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<PAGE>   46

reducing their investments or 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 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-commence 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 18.

  We face potential liability related to the privacy and security of the patient
health information we receive and transmit

     We receive, store and transmit individually identifiable patient
information, which is or may be subject to various complex state and federal
privacy laws, when we provide practice management services to physicians and
when we process healthcare transactions. We have attempted to design our systems
and structure our business relationships to comply with these laws. However,
this area of the law is complex and these state and federal privacy laws are
subject to interpretation by courts and other governmental authorities. In
addition, determining whether we are in compliance with these laws can require
complex factual analyses. For example, see "Legal Proceedings -- Quintiles v.
WebMD" beginning on page 24. Moreover, this area of the law is constantly
evolving and we may be held to new standards that our systems may not
immediately meet or we may be subject to third party claims for privacy breaches
that are inadvertent or the result of these evolving standards. New standards
could require expensive new technologies and could affect our business
operations and relationships. Claims of privacy 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.

     For more information regarding regulation of patient information to which
we may be subject, see "Business--Government regulation" beginning on page 18.

  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

     - characteristics and quality of products and services.

We cannot predict whether 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.

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     For more information regarding government regulation of the Internet to
which we are or may be subject, see "Business -- Government regulation"
beginning on page 18.

  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 U.S. 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 still is 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 18.

  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
operating the business.

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

     Our intellectual property is important to our business. We could be subject
to intellectual property infringement claims as the number of our competitors
grows and the functionality of our applications overlaps with competitive
offerings. These claims, even if not meritorious, could be expensive and divert
management's attention from our operations. If we become liable to third parties
for infringing their intellectual property rights, we could be required to pay a
substantial damage award and to develop noninfringing technology, obtain a
license or cease selling the applications that contain the infringing
intellectual property. We may be unable to develop noninfringing technology or
obtain a license on commercially reasonable terms, or at all. In addition, we
may not be able to protect against
                                        45
<PAGE>   48

misappropriation of our intellectual property. Third parties may infringe upon
our intellectual property rights. If we do not detect any unauthorized use, we
may be unable to enforce our rights.

  The proposed disposition of our plastics and filtration technologies business
may not be completed in the manner expected or at all

     If our proposed disposition of Porex fails to be completed, is not
completed in a timely manner or does not provide us with the proceeds
anticipated, we may not be able to execute strategies that are important to our
business. We cannot guarantee that the disposition of Porex will be successfully
completed in the manner planned, or at all. Failure to successfully complete
this proposed disposition as anticipated or to complete it in a timely manner
could have a material adverse effect on our business, financial condition and
results of operations.

  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 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 U.S., 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(R) 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.

     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

                                        46
<PAGE>   49

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 "Legal Proceedings -- Porex
Mammary Implant Litigation" on page 23.

  Our stock price has been volatile in the past and may continue to be volatile

     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. Changes in the market price of our common
stock may result from numerous factors, including the factors discussed in
"Market for Registrant's Common Equity and Related Stockholder Matters" on page
26. In addition, any change in investors' perceptions of the performance and
prospects of Internet or healthcare information technology stocks may result in
a decrease in the market price of our common stock, whether or not related to or
indicative of our performance or prospects.

  Sales of large amounts of our shares and the lapse of transfer restrictions
could adversely affect prevailing stock prices

     Sales of substantial amounts of our common stock in the public market, or
the perception that these sales may occur, could materially and adversely affect
the prevailing market prices for our common stock and make it more difficult for
us to raise capital through the sale of equity or equity-related securities in
the future. Substantial amounts of our outstanding common stock will become
freely transferable from time to time until the second quarter of 2002, as
contractual restrictions on transfer lapse. Additional amounts of our common
stock will also become available for sale, from time to time, as holding periods
under applicable securities regulations are met.

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 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 principle 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 U.S.
Treasury notes and federal agency notes. We view these high grade securities
within our portfolio as having similar market risk characteristics.

     As a result, we have changed our presentation of market risk from the
tabular disclosure in prior years. The weighted-average interest rate of the
portfolio was 6.24% at December 31, 2000. Principal amounts expected to mature
are $0 million, $129.8 million, $38.8 million, $51.0 million and $0 million for
2001, 2002, 2003, 2004 and 2005, respectively. We had investments totaling
$119.0 million in U.S. Treasury Notes and federal agency notes that were
callable subjecting us to reinvestment risk on these securities.

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

EXCHANGE RATE SENSITIVITY

     Currently the majority of our sales and expenses are denominated in U.S.
dollars and, as a result, we have experienced no significant foreign exchange
gains and losses to date. We conduct only limited

                                        47
<PAGE>   50

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 submitted as a separate
section of this 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.

                                        48
<PAGE>   51

                                    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

     We will provide information that is responsive to this Item 10 regarding
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
"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
"Related Party Transactions," and possibly elsewhere therein. That information
is incorporated in this Item 13 by reference.

                                        49
<PAGE>   52

                                    PART IV

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

     (a)(1) FINANCIAL STATEMENTS, FILED AS PART OF THIS REPORT

          - Report of Independent Auditors

          - Consolidated Balance Sheets as of December 31, 2000 and 1999

          - Consolidated Statements of Operations for the Years Ended December
            31, 2000, 1999 and 1998

          - Consolidated Statements of Stockholders' Equity for the Years Ended
            December 31, 2000, 1999 and 1998

          - Consolidated Statements of Cash Flows for the Years Ended December
            31, 2000, 1999 and 1998

          - Notes to Consolidated Financial Statements

     (a)(2) FINANCIAL STATEMENT SCHEDULES

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

     (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, 2000, the
Registrant filed the following reports on Form 8-K:

     - Report on Form 8-K filed on October 13, 2000 pursuant to which the
       Registrant reported the resignation of Jeffrey T. Arnold as Co-Chief
       Executive Officer and the resignations of Mr. Arnold and James H. Clark
       from its Board of Directors

     - Report on Form 8-K filed on October 31, 2000 pursuant to which the
       Registrant sought to provide guidance to any persons seeking to locate
       documents filed by the Registrant with the Securities and Exchange
       Commission

     - Report on Form 8-K filed on November 8, 2000 pursuant to which the
       Registrant sought to provide guidance to any persons seeking to locate
       documents filed by the Registrant with the Securities and Exchange
       Commission

     - Report on Form 8-K/A filed on November 27, 2000 pursuant to which the
       Registrant provided financial statements and pro forma information
       regarding its acquisitions of Medical Manager and CareInsite

                                        50
<PAGE>   53

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized, on the 30th day of
March, 2001.

                                          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
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
             SIGNATURE                              CAPACITY                       DATE
             ---------                              --------                       ----
<S>                                   <C>                                     <C>
  /s/ Martin J. Wygod                 Chairman of the Board of Directors      March 30, 2001
------------------------------------  and Chief Executive Officer
Martin J. Wygod                       (principal executive officer)

  /s/ Anthony Vuolo                   Executive Vice President and Chief      March 30, 2001
------------------------------------  Financial Officer (principal
Anthony Vuolo                         financial and accounting officer)

  /s/ Mark J. Adler, M.D.             Director                                March 30, 2001
------------------------------------
Mark J. Adler, M.D.

  /s/ Paul A. Brooke                  Director                                March 30, 2001
------------------------------------
Paul A. Brooke

  /s/ Dennis B. Gillings              Director                                March 30, 2001
------------------------------------
Dennis B. Gillings

  /s/ James V. Manning                Director                                March 30, 2001
------------------------------------
James V. Manning

  /s/ Marvin P. Rich                  Director                                March 30, 2001
------------------------------------
Marvin P. Rich
</TABLE>

                                        51
<PAGE>   54

<TABLE>
<CAPTION>
             SIGNATURE                              CAPACITY                       DATE
             ---------                              --------                       ----

<S>                                   <C>                                     <C>
  /s/ Herman Sarkowsky                Director                                March 30, 2001
------------------------------------
Herman Sarkowsky

  /s/ Michael A. Singer               Director                                March 30, 2001
------------------------------------
Michael A. Singer

  /s/ Joseph E. Smith                 Director                                March 30, 2001
------------------------------------
Joseph E. Smith
</TABLE>

                                        52
<PAGE>   55

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
WebMD Corporation

     We have audited the accompanying consolidated balance sheets of WebMD
Corporation (formerly Healtheon/WebMD Corporation) as of December 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity (net capital deficiency), and cash flows for each of the three years in
the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

                                          /s/ Ernst & Young LLP

Atlanta, Georgia
March 21, 2001

                                       F-1
<PAGE>   56

                               WEBMD CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  490,797    $  285,619
  Short-term investments....................................          --         5,667
  Accounts receivable, net of allowance for doubtful
    accounts of $26,205 in 2000 and $2,681 in 1999..........     195,071        51,511
  Current portion prepaid content, services and
    distribution............................................       5,268         5,436
  Assets held for sale......................................     214,556            --
  Other current assets......................................      38,941        15,372
                                                              ----------    ----------
         Total current assets...............................     944,633       363,605
Marketable securities.......................................     219,686            --
Property and equipment, net.................................      90,356        48,384
Prepaid content, services and distribution..................     229,081       273,038
Goodwill, net...............................................   6,329,739     3,111,618
Other intangible assets, net................................     439,455       317,147
Other assets................................................     202,681         9,876
                                                              ----------    ----------
                                                              $8,455,631    $4,123,668
                                                              ==========    ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable.............................................  $    1,838    $       --
  Accounts payable..........................................      17,725        34,514
  Accrued expenses..........................................     270,194       105,615
  Deferred revenue..........................................      45,891         4,891
  Current portion of capital lease obligations..............       2,738         2,281
                                                              ----------    ----------
         Total current liabilities..........................     338,386       147,301
Other long-term liabilities.................................      15,260         2,695
Series B convertible redeemable preferred stock, $.0001 par
  value; 200 shares authorized; 100 shares issued at
  December 31, 2000.........................................      10,000            --
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $.0001 par value; 5,000,000 shares
    authorized:
    Series A convertible preferred stock; 213,000 shares
    authorized; 155,951 shares issued at December 31,
    2000....................................................     710,746            --
  Common stock, $.0001 par value; 2000: 600,000,000 shares
    authorized; 361,233,643 shares issued; 1999: 600,000,000
    shares authorized; 153,569,296 shares issued............          36            16
  Additional paid-in capital................................  11,028,461     4,370,165
  Treasury stock, 5,163,509 shares at cost at December 31,
    2000....................................................     (30,759)           --
  Unrealized gain on marketable securities..................       4,996            --
  Deferred stock compensation...............................    (144,467)       (5,089)
  Accumulated deficit.......................................  (3,477,028)     (391,420)
                                                              ----------    ----------
                                                               8,091,985     3,973,672
                                                              ----------    ----------
                                                              $8,455,631    $4,123,668
                                                              ==========    ==========
</TABLE>

                            See accompanying notes.

                                       F-2
<PAGE>   57

                               WEBMD CORPORATION

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                          ---------------------------------------
                                                             2000          1999          1998
                                                          -----------   -----------   -----------
<S>                                                       <C>           <C>           <C>
Revenue(1)..............................................  $   517,153   $   102,149   $    48,838
  Costs and expenses:
     Cost of operations.................................      383,565        88,576        43,014
     Development and engineering........................       58,788        29,669        19,002
     Sales, marketing, general and administrative.......      530,927        82,315        25,605
     Depreciation, amortization and other...............    2,186,986       193,067        16,055
     Restructuring and integration charge...............      452,919            --            --
     Loss on investments................................       39,602            --            --
     Interest income, net...............................       50,026         3,486           790
                                                          -----------   -----------   -----------
Net loss................................................  $(3,085,608)  $  (287,992)  $   (54,048)
                                                          ===========   ===========   ===========
Basic and diluted net loss per common share.............  $    (12.61)  $     (3.58)  $     (1.54)
                                                          ===========   ===========   ===========
Weighted-average shares outstanding used in computing
  basic and diluted net loss per common share...........  244,688,375    80,366,695    34,986,660
                                                          ===========   ===========   ===========
</TABLE>

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

(1) Includes revenue from related parties of $45,277, $37,210 and $20,956 for
    the years ended December 31, 2000, 1999 and 1998, respectively.

                            See accompanying notes.

                                       F-3
<PAGE>   58

                               WEBMD CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                         STOCKHOLDERS' EQUITY
                                                                            ----------------------------------------------
                                                         CONVERTIBLE
                                                         REDEEMABLE              CONVERTIBLE
                                                       PREFERRED STOCK         PREFERRED STOCK           COMMON STOCK
                                                    ---------------------   ----------------------   ---------------------
                                                      SHARES      AMOUNT      SHARES       AMOUNT      SHARES      AMOUNT
                                                    -----------   -------   -----------   --------   -----------   -------
<S>                                                 <C>           <C>       <C>           <C>        <C>           <C>
Balance at December 31, 1997......................   16,488,860   $50,948    21,002,692   $ 43,756     9,436,724   $     1
Net loss and comprehensive loss...................           --        --            --         --            --        --
Issuance of common stock for option and restricted
 stock exercises..................................           --        --            --         --     3,532,731        --
Repurchase of employee common stock...............           --        --            --         --      (714,896)       --
Issuance of Series B convertible preferred stock
 for warrant exercise.............................           --        --     1,017,229      2,034            --        --
Issuance of Series D convertible redeemable
 preferred stock for asset purchase...............      763,548     2,800            --         --            --        --
Dividends accrued on convertible redeemable
 preferred stock..................................           --       890            --         --            --        --
Conversion of redeemable preferred and preferred
 stock to common stock............................  (17,252,408)  (54,638)  (22,019,921)   (45,790)   39,272,329         4
Issuance of Series A convertible preferred
 stock............................................           --        --     7,683,341     46,101            --        --
Issuance of common stock for asset purchases......           --        --            --         --     2,936,209        --
Repayment of note receivable from officer.........           --        --            --         --            --        --
Deferred stock compensation.......................           --        --            --         --            --        --
Amortization of deferred stock compensation.......           --        --            --         --            --        --
                                                    -----------   -------   -----------   --------   -----------   -------
Balance at December 31, 1998......................           --        --     7,683,341     46,101    54,463,097         5
Net loss and comprehensive loss...................           --        --            --         --            --        --
Issuance of common stock for option exercises,
 warrant exercises and ESPP issuances.............           --        --            --         --     7,113,128         1
Repurchase of employee common stock...............           --        --            --         --      (147,201)       --
Issuance of common stock in connection with
 initial public offering, net of issuance costs of
 $4,602...........................................           --        --            --         --     5,750,000         1
Conversion of preferred stock to common stock in
 connection with initial public offering..........           --        --    (7,683,341)   (46,101)    7,683,341         1
Issuance of common stock for services.............           --        --            --         --         8,020        --
Issuance of common stock for asset purchase.......           --        --            --         --     1,833,333        --
Issuance of common stock and assumption of options
 and warrants in connection with the 1999
 mergers..........................................           --        --            --         --    76,865,578         8
Deferred stock compensation.......................           --        --            --         --            --        --
Adjustment to deferred stock compensation for
 terminations.....................................           --        --            --         --            --        --
Amortization of deferred stock compensation.......           --        --            --         --            --        --
                                                    -----------   -------   -----------   --------   -----------   -------
Balances at December 31, 1999.....................           --        --            --         --   153,569,296        16
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
Issuance of stock in connection with private
 placements, strategic alliances and services.....           --        --       155,951    602,550    17,071,930         2
Reacquisition of warrants in connection with
 termination of a strategic alliance..............           --        --            --         --            --        --
Accretion of preferred stock......................           --        --            --    108,196            --        --
Issuance of common stock and assumption of options
 and warrants in connection with the 2000
 mergers..........................................          100    10,000            --         --   181,485,867        17
Deferred stock compensation.......................           --        --            --         --            --        --
Amortization of deferred stock compensation.......           --        --            --         --            --        --
Purchase of treasury stock........................           --        --            --         --            --        --
Stock compensation for terminations...............           --        --            --         --            --        --
                                                    -----------   -------   -----------   --------   -----------   -------
Balances at December 31, 2000.....................          100   $10,000       155,951   $710,746   361,233,643   $    36
                                                    ===========   =======   ===========   ========   ===========   =======

<CAPTION>
                                                                          STOCKHOLDERS' EQUITY
                                                    ----------------------------------------------------------------

                                                                     NOTE
                                                    ADDITIONAL    RECEIVABLE     DEFERRED
                                                      PAID-IN        FROM         STOCK       TREASURY   ACCUMULATED
                                                      CAPITAL      OFFICER     COMPENSATION    STOCK       DEFICIT
                                                    -----------   ----------   ------------   --------   -----------
<S>                                                 <C>           <C>          <C>            <C>        <C>
Balance at December 31, 1997......................  $     4,502     $(349)      $  (2,151)    $     --   $  (55,689)
Net loss and comprehensive loss...................           --        --              --           --      (54,048)
Issuance of common stock for option and restricted
 stock exercises..................................        5,849        --              --           --           --
Repurchase of employee common stock...............       (2,176)       --              --           --           --
Issuance of Series B convertible preferred stock
 for warrant exercise.............................           --        --              --           --           --
Issuance of Series D convertible redeemable
 preferred stock for asset purchase...............           --        --              --           --           --
Dividends accrued on convertible redeemable
 preferred stock..................................           --        --              --           --           --
Conversion of redeemable preferred and preferred
 stock to common stock............................       94,115        --              --           --        6,309
Issuance of Series A convertible preferred
 stock............................................           --        --              --           --           --
Issuance of common stock for asset purchases......       13,220        --              --           --           --
Repayment of note receivable from officer.........           --       349              --           --           --
Deferred stock compensation.......................        8,160        --          (8,160)          --           --
Amortization of deferred stock compensation.......           --        --           3,376           --           --
                                                    -----------     -----       ---------     --------   -----------
Balance at December 31, 1998......................      123,670        --          (6,935)          --     (103,428)
Net loss and comprehensive loss...................           --        --              --           --     (287,992)
Issuance of common stock for option exercises,
 warrant exercises and ESPP issuances.............       21,919        --              --           --           --
Repurchase of employee common stock...............         (608)       --              --           --           --
Issuance of common stock in connection with
 initial public offering, net of issuance costs of
 $4,602...........................................       41,398        --              --           --           --
Conversion of preferred stock to common stock in
 connection with initial public offering..........       46,100        --              --           --           --
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..........................................    4,120,851        --              --           --           --
Deferred stock compensation.......................        6,261        --          (6,261)          --           --
Adjustment to deferred stock compensation for
 terminations.....................................         (474)       --             474           --           --
Amortization of deferred stock compensation.......           --        --           7,633           --           --
                                                    -----------     -----       ---------     --------   -----------
Balances at December 31, 1999.....................    4,370,165        --          (5,089)          --     (391,420)
Net loss..........................................           --        --              --           --   (3,085,608)
Unrealized gains on securities....................           --        --              --           --           --
Comprehensive loss................................           --        --              --           --           --
Issuance of common stock for option exercises,
 warrant exercises, ESPP and 401(K) issuances.....       35,581        --              --           --           --
Issuance of stock in connection with private
 placements, strategic alliances and services.....    1,019,183        --              --           --           --
Reacquisition of warrants in connection with
 termination of a strategic alliance..............      (33,199)       --              --           --           --
Accretion of preferred stock......................           --        --              --           --           --
Issuance of common stock and assumption of options
 and warrants in connection with the 2000
 mergers..........................................    5,499,835        --        (117,402)          --           --
Deferred stock compensation.......................       83,752        --         (94,435)          --           --
Amortization of deferred stock compensation.......           --        --          72,459           --           --
Purchase of treasury stock........................           --        --              --      (30,759)          --
Stock compensation for terminations...............       53,144        --              --           --           --
                                                    -----------     -----       ---------     --------   -----------
Balances at December 31, 2000.....................  $11,028,461     $  --       $(144,467)    $(30,759)  $(3,477,028)
                                                    ===========     =====       =========     ========   ===========

<CAPTION>
                                                        STOCKHOLDERS' EQUITY
                                                    -----------------------------
                                                                        TOTAL
                                                     ACCUMULATED    STOCKHOLDERS'
                                                        OTHER          EQUITY
                                                    COMPREHENSIVE   (NET CAPITAL
                                                       INCOME        DEFICIENCY)
                                                    -------------   -------------
<S>                                                 <C>             <C>
Balance at December 31, 1997......................     $   --        $    (9,930)
Net loss and comprehensive loss...................         --            (54,048)
Issuance of common stock for option and restricted
 stock exercises..................................         --              5,849
Repurchase of employee common stock...............         --             (2,176)
Issuance of Series B convertible preferred stock
 for warrant exercise.............................         --              2,034
Issuance of Series D convertible redeemable
 preferred stock for asset purchase...............         --                 --
Dividends accrued on convertible redeemable
 preferred stock..................................         --                 --
Conversion of redeemable preferred and preferred
 stock to common stock............................         --             54,638
Issuance of Series A convertible preferred
 stock............................................         --             46,101
Issuance of common stock for asset purchases......         --             13,220
Repayment of note receivable from officer.........         --                349
Deferred stock compensation.......................         --                 --
Amortization of deferred stock compensation.......         --              3,376
                                                       ------        -----------
Balance at December 31, 1998......................         --             59,413
Net loss and comprehensive loss...................         --           (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.....................................         --                 --
Amortization of deferred stock compensation.......         --              7,633
                                                       ------        -----------
Balances at December 31, 1999.....................         --          3,973,672
Net loss..........................................         --         (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 stock and assumption of options
 and warrants in connection with the 2000
 mergers..........................................         --          5,382,450
Deferred stock compensation.......................         --            (10,683)
Amortization of deferred stock compensation.......         --             72,459
Purchase of treasury stock........................         --            (30,759)
Stock compensation for terminations...............         --             53,144
                                                       ------        -----------
Balances at December 31, 2000.....................     $4,996        $ 8,091,985
                                                       ======        ===========
</TABLE>

                            See accompanying notes.

                                       F-4
<PAGE>   59

                               WEBMD CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                              -------------------------------------
                                                                 2000           1999         1998
                                                              -----------    ----------    --------
<S>                                                           <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $(3,085,608)   $ (287,992)   $(54,048)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation, amortization and other....................    2,186,986       193,067      16,055
    Amortization of non-cash prepaid content, services and
     distribution...........................................       87,473            --          --
    Amortization of non-cash deferred stock compensation....       72,459         7,633       3,376
    Non-cash portion of restructuring charge................      380,013            --          --
    Loss on investments.....................................       39,602            --          --
    Changes in operating assets and liabilities:
      Accounts receivable...................................      (31,419)      (20,653)     (3,510)
      Other assets..........................................       16,342        (9,051)      5,184
      Accounts payable......................................      (45,441)      (29,356)      2,857
      Accrued expenses......................................      (90,372)       61,283       4,996
      Prepaid content, services and distribution............        5,171         6,066          --
      Deferred revenue......................................        3,223         3,017      (1,522)
                                                              -----------    ----------    --------
  Net cash used in operating activities.....................     (461,571)      (75,986)    (26,612)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of short-term investments........................           --       (23,954)    (22,529)
  Maturities of short-term investments......................        5,667        35,715      10,401
  Purchases of long-term investments........................      (49,600)           --          --
  Purchases of property and equipment.......................      (30,221)      (27,045)     (6,340)
  Cash paid in business combination, net of cash acquired...     (286,851)      296,450        (652)
                                                              -----------    ----------    --------
  Net cash (used in) provided by investing activities.......     (361,005)      281,166     (19,120)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of notes payable and line of credit borrowings....           --        (1,428)     (2,212)
  Proceeds from issuance of preferred stock.................           --            --      48,135
  Proceeds from issuance of common stock....................    1,065,848        62,711       3,673
  Purchase of treasury shares...............................      (30,759)           --          --
  Principal payments of capital lease obligations...........       (7,335)         (233)       (979)
                                                              -----------    ----------    --------
  Net cash provided by financing activities.................    1,027,754        61,050      48,617
                                                              -----------    ----------    --------
Net increase in cash and cash equivalents...................      205,178       266,230       2,885
Cash and cash equivalents at beginning of year..............      285,619        19,389      16,504
                                                              -----------    ----------    --------
Cash and cash equivalents at end of year....................  $   490,797    $  285,619    $ 19,389
                                                              ===========    ==========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid.............................................  $       651    $      527    $    350
                                                              ===========    ==========    ========
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.........................................  $ 7,014,185    $4,131,907    $ 16,020
                                                              ===========    ==========    ========
  Value of warrant issued in connection with service
    agreement...............................................  $        --    $       --    $    830
                                                              ===========    ==========    ========
  Equipment acquired under capital lease obligations........  $       215    $    9,374    $  6,481
                                                              ===========    ==========    ========
  Deferred stock compensation related to acquisitions and
    options granted.........................................  $   211,837    $    6,261    $  8,160
                                                              ===========    ==========    ========
  Conversion of convertible redeemable preferred and
    convertible preferred stock to common stock.............  $        --    $   46,101    $ 94,119
                                                              ===========    ==========    ========
</TABLE>

                            See accompanying notes.

                                       F-5
<PAGE>   60

                               WEBMD CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2000
            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

     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, Envoy, Medical Manager, CareInsite and
OnHealth acquisitions for the period subsequent to each respective acquisition
date.

     The Company provides 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, patients and
suppliers. The Company's products and services promote administrative efficiency
and assist in reducing the cost of healthcare and creating better patient
outcomes.

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.

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.

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 certificates of deposit.

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 which the Company does not have the intent or ability
to hold to maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value as of the balance sheet date. At December
31, 2000, the Company's investments consisted principally of U.S. Treasury Notes
and Federal Agency Notes. These investments had an aggregate market value of
$219,686 at December 31, 2000. Of the investments at December 31, 2000, debt
securities with a cost of $214,690 were classified as

                                       F-6
<PAGE>   61
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

available-for-sale. Unrealized gains on these securities were $4,996 at December
31, 2000. There were no marketable securities held as of December 31, 1999.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost, net of accumulated amortization
and 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 amortized 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.
Goodwill is being amortized over estimated useful lives of three to four years.
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 fifteen years. The
Company periodically evaluates whether changes have occurred that would require
revision of the remaining estimated useful life of the assigned goodwill or
intangible assets or render the goodwill or intangible assets not recoverable.
If such circumstances arise, the Company would use an estimate of the
undiscounted value of expected operating cash flows to determine whether the
goodwill or intangibles are impaired. To date, no impairment indicators have
been identified.

SOFTWARE DEVELOPMENT COSTS

  Software to be Sold, Leased or Otherwise Marketed

     Statement of Financial Accounting Standards ("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. There were no software costs capitalized in 2000,
1999 or 1998.

  Internal Use Software

     The Company accounts for internal use software development costs in
accordance with Statement of Position No. 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." 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, 2000, net capitalized software costs totaled
$11,184. 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 1999 or 1998.

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 and
pharmacy claims, and clinical lab and reporting services, such as lab test
orders and

                                       F-7
<PAGE>   62
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

results. Transaction fees for providers vary according to the type of
transaction and customer and market segments. Healthcare payers also pay fees to
the Company for these services, generally on a per transaction basis.
Transaction fees for payers vary according to the type of transaction and other
factors, such as volume level commitments. The Company may also charge one-time
implementation fees to providers and payers. Healthcare providers also pay the
Company transaction fees for these services, either on a per transaction basis
or as a flat rate per month. The Company's physician services include sales of
The Medical Manager practice management system, which addresses the
administrative, financial, clinical and practice management needs of physician
practices, and subscription fees to the Company's physician portal, WebMD
Practice. Portal services include advertising, sponsorship, content syndication
and distribution and e-commerce transactions related to our Web site or a
co-branded Web site with one of our online partners.

     Revenue from transaction fees is recognized as the services are provided.

     The Company follows Statement of Position No. 97-2, "Revenue Recognition,"
("SOP 97-2"), as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions," for its software
licenses. Revenue related to software license fees is recognized when a customer
enters into a noncancelable license agreement, the software product has been
delivered, there are 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, SOP 97-2 requires the total contract revenue to be allocated to
the various elements of the contract based upon objective evidence of the fair
values of such elements and allows for only the allocated revenue to be
recognized upon completion of those elements. Amounts billed in advance of
recognized revenue are deferred. Revenue from support and maintenance contracts
is recognized ratably over the contract period, which typically does not exceed
one year. Revenue from transaction services, which are generally priced on a per
transaction or monthly basis, is recognized when the services are performed.

     Revenue from advertising is recognized as advertisements are run on the
Company's Web site or on co-branded Web sites. Subscription revenue, including
subscription revenue from sponsorship arrangements, is recognized as
subscriptions are placed with physicians. 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. Certain agreements entered into by the Company included the issuance
of equity securities by the Company.

     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." Revenue recognized from arrangements
deemed to be nonmonetary exchanges of the Company's products and services for
customer products and services totaled approximately $21,743 and $6,000 in 2000
and 1999, respectively. Revenues from these exchanges are recorded at the fair
value of the products and services provided or received, whichever is more
clearly evident. The costs in 2000 and 1999, respectively, related to these
transactions were $21,743 and $6,000.

CONCENTRATION OF CREDIT RISK

     Three of the Company's customers, SmithKline Beecham Clinical Laboratories,
Inc. ("SmithKline Labs"), which was acquired by Quest Diagnostics Incorporated,
Beech Street Corporation and UnitedHealth Group, each accounted for more than
10% of its revenue in 1999, and together accounted

                                       F-8
<PAGE>   63
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for approximately 40.7% of its revenue for the same period. None of the
Company's customers individually accounted for more than 10% of the Company's
revenue in 2000.

ADVERTISING COSTS

     Advertising production costs are recorded as expense the first time an
advertisement appears. The costs of communicating advertising are incurred and
expensed as the advertisement is broadcast in accordance with Statement of
Position No. 93-7, "Reporting on Advertising Costs." All other advertising costs
are expensed as incurred. Advertising expense totaled approximately $52,779 and
$9,132 in 2000 and 1999, respectively, and was not material in 1998.

INCOME TAXES

     Income taxes have been provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes."

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 in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."

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. On May 19,
1998, in connection with the Company's merger with ActaMed, all outstanding
shares of the Company's convertible preferred stock and ActaMed's convertible
redeemable preferred stock were converted into an aggregate of 39,272,329 shares
of common stock.

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                         ----------------------------------------
                                                             2000          1999          1998
                                                         ------------   -----------   -----------
<S>                                                      <C>            <C>           <C>
Net loss...............................................  $ (3,085,608)  $  (287,992)  $   (54,048)
                                                         ============   ===========   ===========
Basic and diluted:
  Weighted-average shares of common stock
     outstanding.......................................   244,688,375    81,330,212    36,417,963
  Less: Weighted-average shares subject to
     repurchase........................................            --      (963,517)   (1,431,303)
                                                         ------------   -----------   -----------
  Weighted-average shares used in computing basic and
     diluted net loss per common share.................   244,688,375    80,366,695    34,986,660
                                                         ============   ===========   ===========
Basic and diluted net loss per common share............  $     (12.61)  $     (3.58)  $     (1.54)
                                                         ============   ===========   ===========
</TABLE>

     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 169,664,930 in 2000, 63,898,198 in 1999, and 23,020,426 in
1998.

                                       F-9
<PAGE>   64
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SEGMENT INFORMATION

     SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in annual financial statements of public business enterprises and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders.

     The Company is principally engaged in providing connectivity among the
healthcare industry and considers itself to be in a single segment.

     During 2000, the Company completed its acquisitions of Envoy, Medical
Manager, CareInsite, Kinetra and OnHealth. The integration of these acquired
businesses into one company, which provides 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, patients and suppliers, has been the focus of management during the past
six months. See note 4. The revenue associated with these solutions provided by
the Company are aggregated into four primary product groupings, as follows:

<TABLE>
<CAPTION>
                                                        2000        1999       1998
                                                      --------    --------    -------
<S>                                                   <C>         <C>         <C>
Transaction services................................  $268,835    $ 46,300    $33,777
Physician services..................................   120,071       2,704         --
Portal services.....................................   101,576       4,135         --
Other...............................................    26,671      49,010     15,061
                                                      --------    --------    -------
                                                      $517,153    $102,149    $48,838
                                                      ========    ========    =======
</TABLE>

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.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Company is required to adopt 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 (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.
Adoption of SFAS No. 133 is not expected to have a material impact on the
Company's financial condition or results of operations.

     In March 2000, the FASB issued FASB Interpretation No. 44 (FIN No. 44),
"Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25." FIN No. 44 became effective July 1, 2000
and provides guidance for applying APB Opinion No. 25 "Accounting for Stock
Issued to Employees." The Company adopted FIN No. 44 on July 1, 2000.

     In January 2000, the Emerging Issues Task Force of the FASB reached
consensus on Issue No. 99-17 "Accounting for Advertising Barter Transactions"
("EITF 99-17"). EITF 99-17 establishes

                                       F-10
<PAGE>   65
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accounting and reporting standards for barter transactions which involve
nonmonetary exchanges of advertising. It requires that an entity recognize
revenue and expenses from advertising barter transactions at the fair value of
the advertising surrendered only when an entity has a historical practice of
receiving cash for similar transactions. The Company's revenue recognition
principles comply with EITF 99-17.

     In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue No. 00-2 "Accounting for Website Development Cost." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
Web site. It requires that an entity capitalize costs during the Web application
and infrastructure and graphics development stages of development. The consensus
is effective for all costs incurred beginning after June 30, 2000, although
earlier adoption is encouraged. The adoption of EITF 00-2 did not have a
material impact on the Company's financial condition or its results of
operations.

2.  BUSINESS COMBINATIONS

2000 MERGERS

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 $2,906,856,
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 acquired and the liabilities assumed on the basis
of their respective fair values. In connection with the preliminary 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. See note 5.

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
                                       F-11
<PAGE>   66
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 preliminary 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). In connection with the acquisition,
Quintiles issued the Company a warrant to purchase up to 10,000,000 shares of
Quintiles common stock at $40.00 per share, which is exercisable for four years.
Stock received by Quintiles in the transaction is 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 preliminary allocation of 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.

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 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 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 MERGERS

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

                                       F-12
<PAGE>   67
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. 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.

                                       F-13
<PAGE>   68
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SMITHKLINE LABS AGREEMENT

     In January 1999, 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. In addition, in
January 1999, the two companies completed an asset purchase agreement under
which the Company purchased certain assets from SmithKline Beecham Corporation,
used by its subsidiary SmithKline Labs, to provide these 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. On August 16, 1999, SmithKline
Labs was sold by SmithKline Beecham to Quest Diagnostics Incorporated.

ACTAMED

     On May 19, 1998, the Company completed its merger with ActaMed, a developer
and provider of an integrated healthcare network, in a transaction that has been
accounted for as a pooling of interests. Accordingly, the financial information
presented reflects the combined financial position and operations of the Company
and ActaMed for all dates and periods presented. The Company issued 23,271,355
shares of its common stock in exchange for all of the outstanding shares of
common and convertible redeemable preferred stock of ActaMed. The Company also
assumed all outstanding stock options and warrants to acquire 3,383,011 shares
of common stock, after giving effect to the exchange ratio.

     Separate results of the combined entities for the four months ended April
30, 1998 (period ended immediately prior to the merger) were as follows
(unaudited):

<TABLE>
<CAPTION>
                                                               FOUR MONTHS
                                                                  ENDED
                                                              APRIL 30, 1998
                                                              --------------
<S>                                                           <C>
Revenue:
  WebMD.....................................................     $  6,405
  ActaMed...................................................        6,690
                                                                 --------
                                                                 $ 13,095
                                                                 ========
Net loss:
  WebMD.....................................................     $ (6,664)
  ActaMed...................................................       (6,186)
                                                                 --------
                                                                 $(12,850)
                                                                 ========
</TABLE>

     There were no intercompany transactions between the two companies or
significant conforming accounting adjustments.

UNAUDITED PRO FORMA INFORMATION

     The following unaudited pro forma financial information 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

                                       F-14
<PAGE>   69
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                            --------------------------
                                                               2000           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
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)
                                                            ===========    ===========
</TABLE>

3. SIGNIFICANT TRANSACTIONS

NEWS CORPORATION STRATEGIC RELATIONSHIP

     Pursuant to an agreement signed and publicly announced in December 1999 and
closed in January 2000, the Company entered into a strategic alliance with The
News Corporation Limited, Fox Entertainment Group and certain of their
affiliates (collectively, "News Corporation"). The Company issued to News
Corporation 2,000,000 shares of common stock and 155,951 shares of Series A
Preferred Stock, convertible into 21,282,645 shares of common stock. The Company
received from News Corporation cash in the amount of $100,000, domestic and
international advertising and promotion on News Corporation's various properties
with a fair value of $207,000 and $155,000, respectively, to be used over 10
years, and a 50% interest in The Health Network LLC, a health-focused cable
network and in Health & Fitness, which operated a companion Web site,
"thehealthnetwork.com" with a fair value of $231,999. The Company and News
Corporation also entered into a 5-year agreement for the Company to provide
syndicated daily broadcast content for use across various News Corporation
properties for cash payments totaling $12,000 annually.

     In addition to the above, WebMD International LLC, a newly formed entity,
was created. The Company obtained a 50% interest in WebMD International LLC. No
value was assigned to this interest.

     On December 29, 2000, the Company revised its strategic alliance with News
Corporation. As a result, the Company retains 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. 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. During 2000,
the Company recognized $21,324 in advertising expense related to the domestic
media services provided by News Corporation. No accounts receivable were
outstanding as of December 31, 2000.

     In connection with the revisions to the relationship, News Corporation
surrendered 155,951 shares of WebMD's Series A Convertible Preferred Stock,
which would have converted into 21,282,645 shares of the Company's common 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. Included in the
restructuring and integration charge is a non-cash charge of approximately
$279,000 in the year ended December 31, 2000 as a result of this transaction.

MICROSOFT STRATEGIC RELATIONSHIP

     Prior to its acquisition by the Company, WebMD, Inc. entered into a
five-year strategic alliance with Microsoft Corporation ("Microsoft") under
which the Company will develop, host and maintain on its

                                       F-15
<PAGE>   70
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

servers a health channel for MSN, MSNBC and WebTV. Microsoft has committed to
provide a minimum of 125 million impressions to the Company's health channel per
year for the term of the agreement. Over the term of the agreement, the Company
will pay Microsoft an aggregate of $162,000 for the distribution of the
Company's consumer health content and services, or carriage fees. In addition,
Microsoft and the Company have each committed co-marketing funds of $50,000 over
the first two years of the agreement. As of December 31, 2000 and 1999, the
Company had recognized $30,562 and $3,950 as sales and marketing expense related
to the carriage fees.

     Microsoft remits to the Company 100% of 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 places on the
Company's Web site each year during the term until the Company has received that
portion of the $162,000 carriage fees that was payable during that year, and
then will share revenue equally thereafter. The amount equal to the portion of
the $162,000 carriage fees that is payable during each year is a guaranteed
minimum amount. Microsoft is entitled to satisfy its guaranteed minimums by
purchasing or placing advertising on the Company's Web site. The Company has
agreed to make sufficient advertising space available to Microsoft for this
purpose. The Company does not recognize any revenue based on the guaranteed
minimum payment amounts, but recognizes only the actual revenue derived from
third party advertising. The Company recognizes revenue derived from advertising
on the Microsoft health channels, net of commissions, on notification from
Microsoft that the advertisements have been placed on the health channels and
billed by Microsoft. Payments by Microsoft that are made to satisfy the
guaranteed minimums are recorded as a reduction of the carrying value of prepaid
content and services-related parties. During 2000 and 1999, the Company
recognized $5,996 and $1,590 related to health channel advertising revenue and
no revenue related to advertising placed by Microsoft on the Company's Web site.

     Microsoft agreed to sponsor up to 5.0 million subscriber months of
subscriptions to the Company's physician Web site over the term of the
agreement. The Company records revenue as subscriptions are placed with
physicians. The Company pays a commission on all subscriptions placed by
Microsoft. During 2000 and 1999, $16,114 and $1,845 was recorded as revenue
related to subscriptions sponsored by Microsoft. This amount has been recorded
net of commissions.

     The Company shares with Microsoft 50% of net revenue from banner and other
advertising on its physician Web site generated by sponsored subscriptions until
Microsoft has received the amount it has incurred for its sponsored
subscriptions. Thereafter, the Company will share 25% of this revenue with
Microsoft. In addition, the Company will share with Microsoft 15% of its 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 or 1999 relating to this provision.

     The value assigned to the Microsoft strategic agreement was $180,000 upon
the acquisition of WebMD, Inc. by the Company. As of December 31, 2000 and 1999,
the Company had recognized $36,000 and $4,500 as sales and marketing expense for
amortization of this asset. As of December 31, 2000 and 1999, the accounts
receivable from Microsoft was $17,333 and $9,030.

     Microsoft has a warrant to purchase 13,676,389 shares of the Company's
common stock at a price of $30.16. The warrant is fully vested and expires on
May 12, 2004. Additionally, Microsoft owns 11,933,342 shares of the Company's
common stock. As of December 31, 2000, an executive of Microsoft was a board
member of the Company.

     Subsequent to year end, Microsoft and the Company entered into a
non-binding letter of intent with respect to revisions to their relationship.
See note 18.

                                       F-16
<PAGE>   71
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TERMINATION OF DUPONT STRATEGIC RELATIONSHIP

     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 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 prepaid content and services, which is included in the
restructuring and integration charge for the year ended December 31, 2000.

4. 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 as a result of all the acquisitions made by the
Company since November 1999 and consolidating the Company's operational
infrastructure into a common platform to more efficiently service its customers.

     Additionally, 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 its partners, potential conflicts with other agreements as
a result of the numerous acquisitions made by the Company, profitability and
impact on future revenue streams. As a result of this process, the Company is in
discussions with several of its partners in an effort to redefine the
relationships in a manner that better serves the needs of each party. These
discussions have already resulted in revisions to some of the Company's
strategic relationships. It is possible that, as a result of continuing
discussions, additional relationships may be revised or terminated, which may
result in additional restructuring charges.

     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,
which 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.

                                       F-17
<PAGE>   72
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table presents cash activity in the restructuring and
integration related accrual during the year ended 2000:

<TABLE>
<CAPTION>
                                            SEVERANCE    FACILITIES     OTHER       TOTAL
                                            ---------    ----------    --------    --------
<S>                                         <C>          <C>           <C>         <C>
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
                                             =======      =======      ========    ========
</TABLE>

5. ASSETS HELD FOR SALE

     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 and the Company's other plastics and filtration technologies
subsidiaries (collectively, "Porex"). Porex Corporation was a wholly owned
subsidiary of Medical Manager prior to the completion of the 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 Company is
exploring various divestiture alternatives in consultation with its financial
advisors. The disposition is expected to be completed in 2001. The expected net
proceeds and the cash flows of Porex until sold were allocated to net assets
held for sale in the allocation of the Medical Manager purchase price and is
included in other current assets. Any difference between the actual and expected
net proceeds will result in an adjustment of goodwill unless there is a
difference caused by a post-acquisition event.

     Activity in net assets held for sale from the acquisition date to December
31, 2000 is as follows:

<TABLE>
<S>                                                             <C>
Allocation of purchase price................................    $204,356
Estimated net income through disposition....................      10,200
                                                                --------
Balance at December 31, 2000................................    $214,556
                                                                ========
</TABLE>

     Porex had net income of $2,756 from the acquisition date to December 31,
2000. Porex's results of operations and cash flows have been excluded from the
consolidated statement of operations for the year ended December 31, 2000.

                                       F-18
<PAGE>   73
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PREPAID CONTENT, SERVICES AND DISTRIBUTION

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

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        1999
                                                                --------    --------
<S>                                                             <C>         <C>
CURRENT PORTION
Content.....................................................    $  4,589    $  1,478
Distribution................................................         679       3,958
                                                                --------    --------
                                                                $  5,268    $  5,436
                                                                ========    ========
LONG-TERM PORTION
Content.....................................................    $    417    $     --
Services....................................................      87,386       2,215
Distribution................................................     141,278     270,823
                                                                --------    --------
                                                                $229,081    $273,038
                                                                ========    ========
</TABLE>

     Total prepaid content, services and distribution includes $223,163 and
$175,596 as of December 31, 2000 and 1999, respectively, from related parties.

7. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        1999
                                                                --------    --------
<S>                                                             <C>         <C>
Computer equipment..........................................    $ 88,832    $ 44,219
Land........................................................         548         150
Buildings...................................................       5,453       1,664
Office equipment, furniture and fixtures....................      19,975       8,985
Purchased software for internal use.........................      20,197       9,725
Leasehold improvements......................................      19,095       3,092
                                                                --------    --------
                                                                 154,100      67,835
Less accumulated depreciation...............................     (63,744)    (19,451)
                                                                --------    --------
Property and equipment, net.................................    $ 90,356    $ 48,384
                                                                ========    ========
</TABLE>

     Property and equipment included assets acquired under capital lease
obligations with a cost of approximately $11,036 and $9,374 at December 31, 2000
and 1999, respectively. Accumulated depreciation related to the assets acquired
under capital leases totaled $8,557 and $6,040 at December 31, 2000 and 1999,
respectively.

                                       F-19
<PAGE>   74
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. GOODWILL AND OTHER INTANGIBLE ASSETS

     Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                AMORTIZATION    -------------------------
                                                   PERIOD          2000           1999
                                                ------------    -----------    ----------
<S>                                             <C>             <C>            <C>
Goodwill......................................    3-4 years     $ 8,407,226    $3,276,091
Customer lists................................   4-10 years         232,730        84,130
Acquired technology...........................      3 years          70,447        64,747
Trademarks....................................   3-15 years         138,869       116,869
Other.........................................    1-3 years         163,193        80,325
                                                                -----------    ----------
                                                                  9,012,465     3,622,162
Less accumulated amortization.................                   (2,243,271)     (193,397)
                                                                -----------    ----------
                                                                $ 6,769,194    $3,428,765
                                                                ===========    ==========
</TABLE>

9. ACCRUED EXPENSES

     Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        1999
                                                                --------    --------
<S>                                                             <C>         <C>
Accrued professional fees...................................    $ 26,302    $     --
Accrued merger costs........................................      37,722      51,020
Accrued restructuring costs.................................      53,125          --
Accrued compensation........................................      29,288      10,994
Other accrued liabilities...................................     123,757      43,601
                                                                --------    --------
          Total accrued expenses............................    $270,194    $105,615
                                                                ========    ========
</TABLE>

10. COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

     Envoy (which became a subsidiary of the Company upon its acquisition in May
2000) and certain 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 certain 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 such 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
                                       F-20
<PAGE>   75
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

     A lawsuit was filed against Medical Manager Health Systems, Inc. (which
became a subsidiary of the Company upon Medical Manager's merger with the
Company in September 2000) and certain of its officers and directors, among
other parties, on October 23, 1998 in the United States District Court for the
Middle District of Florida. The lawsuit purports to bring an action on behalf of
the plaintiffs and others similarly situated to recover damages for alleged
violations of the federal securities laws and Florida laws arising out of
Medical Manager Health Systems' issuance of allegedly materially false and
misleading statements concerning its business operations, including the
development and sale of its principal product, during the class period. An
amended complaint was served on March 2, 1999. Medical Manager Health Systems
moved to dismiss the amended complaint and the court ruled in favor of that
motion. Plaintiffs have appealed this dismissal to the Court of Appeals for the
11th Circuit. The oral argument for the appeal was held in November 2000, but no
decision has been issued by the Court of Appeals. The lawsuit seeks, among other
things, compensatory damages in favor of the plaintiffs and the other purported
class members and reasonable costs and expenses.

     Quintiles and the Company entered into a Data Rights Agreement in
connection with the acquisition of Envoy by the Company from Quintiles in May
2000. Under the Data Rights Agreement, the Company provided certain data to
Quintiles through Envoy, which Quintiles used to provide market research and
related products and services to third parties. On February 23, 2001, the
Company provided notice to Quintiles that the Company's subsidiary Envoy, which
provides electronic transaction services for the healthcare industry, would be
temporarily suspending the provision of data under the Data Rights Agreement
between the parties. The suspension was in accordance with provisions of the
Data Rights Agreement that permit such suspension if the Company reasonably
believes that providing the data would violate applicable law. In accordance
with procedures set forth in the Data Rights Agreement between the parties, the
Company intended to suspend sending such data to Quintiles until such time as
Quintiles performed its obligations under the Data Rights Agreement.

     On Sunday, February 25, 2001, Quintiles filed an action for breach of
contract seeking temporary and permanent injunctive relief and unspecified
damages, and obtained an ex parte Temporary Restraining Order from the Superior
Court of Wake County, North Carolina, requiring the Company to continue to
provide data to Quintiles. The Company removed the action to the United States
District Court for the Eastern District of North Carolina. On March 13, 2001,
the District Court entered an order continuing the state court temporary
restraining order. In the course of this litigation, the Company presented
opinions of counsel that the transmission of data pursuant to the Data Rights
Agreement violated certain state privacy laws. Quintiles disputed these legal
interpretations. Thereafter, the access specifications pursuant to which data is
transmitted to Quintiles were modified to further de-identify patient
information. In addition, Quintiles provided to the Company opinions of counsel
that applicable state privacy laws would not be violated by transmission of data
pursuant to the modified access specifications, together with a proposed
undertaking of indemnification by Quintiles in favor of the Company, and
certifications that the patient information contained in its existing databases
had been de-identified consistent with the recently modified access
specifications. Because determinations whether data has been sufficiently
de-identified depend on complex factual and statistical analyses, the opinions
presented by Quintiles relied on fact-intensive analyses prepared by
statisticians and others.
                                       F-21
<PAGE>   76
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A further hearing was conducted by the District Court on March 15, 2001,
and on March 16, 2001, the District Court ordered the Company to continue to
provide data to Quintiles in the form represented to the court during the March
15, 2001 hearing. That form reflected the recently modified access
specifications. On March 21, 2001, the District Court entered an order
continuing in effect the injunction. Currently, the Company is providing data to
Quintiles pursuant to this order. The Company is currently engaged in settlement
discussions with Quintiles. However, the Company cannot provide assurances that
a settlement will be reached. If a settlement is not reached, the Company
expects to seek appellate review, by the Fourth Circuit Court of Appeals, of the
District Court's order.

     On March 8, 2001, InfoCure Corporation filed a complaint against the
Company and Envoy in the Superior Court of the County of Fulton in the State of
Georgia. The complaint asserts, among other things, that the Company has
breached its marketing agreement with InfoCure by withholding certain rebates
owed to InfoCure, by failing to perform certain services and by soliciting
InfoCure's customers. The complaint seeks damages in excess of $46.5 million.
The Company believes that InfoCure's positions are without merit and intends to
vigorously defend against the complaint.

     Porex has been named as one of many co-defendants in a number of actions
brought by recipients of silicone mammary implants. One of the pending claims is
styled as a purported class action. 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.

     In the normal course of business, the Company and its subsidiaries 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, the Company does not believe that their outcome will have a material
adverse effect on its financial position.

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, services and distribution obtained for use on its Web site and
certain distribution arrangements. The Company has recorded $66,194 and $15,861
as costs related to these agreements during 2000 and 1999, respectively. The
Company's non-cancelable future commitments under these agreements, a portion of
which are with related parties, are as follows:

<TABLE>
<CAPTION>
                                                     UNRELATED    RELATED
                                                      PARTIES     PARTIES      TOTAL
                                                     ---------    --------    --------
<S>                                                  <C>          <C>         <C>
2001...............................................  $ 45,559     $ 33,375    $ 78,934
2002...............................................    45,277       32,875      78,152
2003...............................................    17,644       34,375      52,019
2004...............................................    10,072        8,750      18,822
2005...............................................     6,286           --       6,286
Thereafter.........................................        --           --          --
                                                     --------     --------    --------
                                                     $124,838     $109,375    $234,213
                                                     ========     ========    ========
</TABLE>

                                       F-22
<PAGE>   77
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LEASES

     The Company leases its office and other facilities under operating lease
agreements that expire at various dates through April 2019. Total rent expense
for all operating leases was approximately $18,358, $4,106 and $2,386 in 2000,
1999, and 1998, respectively. Future minimum lease commitments under
non-cancelable lease agreements (including leases identified as part of the
integration effort) at December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                              GROSS                     NET
                                            OPERATING    SUBLEASE    OPERATING    CAPITAL
                                             LEASES       INCOME       LEASE      LEASES
                                            ---------    --------    ---------    -------
<S>                                         <C>          <C>         <C>          <C>
Year ended December 31, 2001..............  $ 24,196     $ (1,075)   $ 23,121     $2,738
2002......................................    19,523       (1,075)     18,448        381
2003......................................    16,992       (1,075)     15,917         78
2004......................................    14,169       (1,075)     13,094         20
2005......................................    10,419       (1,075)      9,344         --
Thereafter................................    77,911       (6,379)     71,532         --
                                            --------     --------    --------     ------
Total minimum lease payments..............  $163,210     $(11,754)   $151,456      3,217
                                            ========     ========    ========
Amount representing interest..............                                          (193)
                                                                                  ------
Present value of minimum lease payments
  under capital lease obligations.........                                         3,024
Less current portion......................                                         2,738
                                                                                  ------
Non-current portion.......................                                        $  286
                                                                                  ======
</TABLE>

11. RETIREMENT PLAN

     The Company maintains a defined contribution 401(k) plan covering
substantially all of its employees. Participants must be 21 years of age or
older and may contribute up to $10.5 from their earnings annually. There is no
service requirement. The plan also provides for discretionary Company profit
sharing contributions. The Company has not made any such contributions to the
plan through December 31, 2000. In connection with the acquisitions made by the
Company during the fiscal year ended December 31, 2000, the Company assumed
existing 401(k) plans, including plans covering Medical Manager and CareInsite
employees. Such plans were frozen and will be merged into the Company's plan or
will be terminated during the current fiscal year. Medical Manager Health
Systems maintains for its employees a 401(k) plan in which it matches a portion
of the participant's contribution in cash. Porex maintains for its employees the
Porex Technologies 401(k) Savings Plan, pursuant to which the Company matches a
portion of a participant's contribution in the form of the Company's common
stock. OnHealth employees became eligible for the Company's 401(k) plan as of
November 1, 2000, Envoy employees became eligible on July 1, 2000 and Medical
Manager employees, other than employees of Medical Manager Health Systems and
Porex, and CareInsite employees became eligible on January 1, 2001.

12. 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.

                                       F-23
<PAGE>   78
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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.

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
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
outstanding. In connection with the revised strategic alliance with News
Corporation, the 155,951 shares of 2000 Series A Preferred were surrendered to
the Company subsequent to year end. The 2000 Series A Preferred would have
converted into an aggregate of 21,282,645 shares of the Company's common stock.

     Included in depreciation, amortization and other in the accompanying
statement of operations for the year ended December 31, 2000 is $108,196
representing dividends/accretion 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.

                                       F-24
<PAGE>   79
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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:

          - 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

          - 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

          - 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 36,993,352 shares of
common stock at prices ranging from $.01 to $74.22 per share, with a weighted
average exercise price of $23.16 per share. Substantially all of the outstanding
warrants are currently vested and exercisable.

     In January 2000, in connection with a marketing and services agreement
entered into with Medic Computer Systems, Inc., the Company issued Medic 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 Medic achieving
certain performance thresholds. The agreement also provides for additional
warrants to be issued to Medic upon the achievement of certain additional
performance thresholds. As of December 31, 2000, the performance thresholds have
not been achieved. No value has been assigned to the warrants.

     The Company has other agreements which provide for the issuance of up to
250,000 warrants at the then current prevailing market price, should certain
performance thresholds be met. At December 31, 2000, such performance thresholds
have not been achieved and no value has been assigned to the warrants.

     In addition, the Company has agreed to issue warrants to a customer each
year for a five year period ending in January of 2005, with the number of
warrant shares being determined based on certain revenue recognized by the
Company from that customer. The number of warrant shares to be issued is based
on the revenue from that customer, divided by the exercise price of the warrant.
The exercise price of the warrant is determined based on the greater of $30 per
share or the then current market price. The agreement provides that the number
of warrant shares to be issued at the end of the first year is reduced by
100,000, representing the number of warrant shares issued upon closing of the
agreement. There were no additional warrants earned in 2000.

13. STOCK-BASED COMPENSATION

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 6,486,945 shares
of common stock remain reserved for issuance under the Plans.

     In addition to the Plans, the Company has granted options to certain
directors, consultants and key employees. At December 31, 2000, there were
options to purchase 6,857,500 shares of common stock

                                       F-25
<PAGE>   80
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding to these individuals. The terms of these grants are similar to the
terms of the options granted under the Plans.

     On October 20, 1998, the Company offered employees who were granted options
from July 1998 through October 1998 the ability to cancel their original option
grant in exchange for a new option agreement with a new vesting start date and
an option price of $3.55 per share; the deemed fair value of the Company common
stock on that date was $4.80. A total of 3,380,200 option shares with exercise
prices of $4.50, $6.30, $7.00 and $8.00 were eligible to be repriced. A total of
2,057,950 option shares were canceled and reissued.

     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, after the application of the
exchange ratio, and 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 connection with the 1999 mergers with ActaMed, WebMD, Inc., MedE America
and Medcast, the Company assumed all the outstanding options issued under the
respective stock option plans and arrangements, after the application of the
exchange ratio, and reserved 3,100,489; 14,734,986; 468,584 and 164,036 shares
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 2,717,269; 8,637,406; 60,136 and 83,626 shares, respectively, were
fully vested. The remainder of the shares vest based upon the terms of the
original plans, generally four years.

     Shares issued subject to restricted stock purchase agreements totaled
1,098,732 in 1998. All of these shares were issued to employees for cash. The
common stock is subject to repurchase at the original exercise price until
vested, at the Company's option. The shares vest over a period of time as
determined by the Board of Directors for each individual purchase agreement,
generally four years.

     During 1999, 375,000 shares were repurchased from terminated employees. No
shares were repurchased during 2000. In addition, on December 14, 1998, 455,000
shares of common stock issued in July 1998 subject to restricted stock purchase
agreements were rescinded as part of the repricing program. Shares subject to
repurchase totaled approximately 651,000 and 1,247,000 at December 31, 1999 and
1998, respectively.

     The Company recorded deferred stock compensation of approximately $211,837,
$6,261 and $8,160 in 2000, 1999 and 1998, respectively. 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 Company recorded
amortization of deferred stock compensation of approximately $72,459, $7,633 and
$3,376 in 2000, 1999 and 1998, respectively, based on a graded vesting method.
At December 31, 2000, the Company had a total of approximately $144,467
remaining to be amortized on a graded vesting method over the corresponding
vesting period of each respective option, generally four years.

     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.

                                       F-26
<PAGE>   81
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company also recorded stock compensation expense of $53,144 in 2000
primarily related to the resignation of certain executives, pursuant to the
applicable employment and separation agreements. The agreements cover options to
acquire an aggregate of 11,907,251 shares of common stock.

     A summary of the status of the Company's stock option plans for the three
year period ended December 31, 2000 is presented below:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                       -----------------------------------------------------------------------------------------
                                   2000                          1999                           1998
                       ----------------------------   ---------------------------   ----------------------------
                                        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
                       -----------   --------------   ----------   --------------   -----------   --------------
<S>                    <C>           <C>              <C>          <C>              <C>           <C>
Outstanding beginning
  of year............   27,644,846       $ 9.98       11,512,800       $ 2.06         9,200,251       $0.72
  Granted............   41,419,515        15.85        7,407,738        20.41         7,743,881        4.32
  Assumed............   77,994,511        17.18       15,367,606         7.95                --          --
  Exercised..........   (7,769,440)        3.49       (5,501,438)        2.71        (2,433,999)       0.59
  Cancelled..........  (11,244,299)       19.85       (1,141,860)        7.54        (2,997,333)       4.95
                       -----------       ------       ----------       ------       -----------       -----
Outstanding at end of
  year...............  128,045,133       $15.79       27,644,846       $ 9.97        11,512,800       $2.07
                       ===========                    ==========                    ===========
Exercisable at the
  end of the year....   43,800,961       $13.54        9,207,424       $ 3.91         3,535,687       $1.18
                       ===========                    ==========                    ===========
</TABLE>

     The following table summarizes information with respect to options
outstanding and options exercisable at December 31, 2000:

<TABLE>
<CAPTION>
                                                                       WEIGHTED
                                                                        AVERAGE
                                                                       REMAINING
                                                        WEIGHTED      CONTRACTUAL                    WEIGHTED
                                      NUMBER            AVERAGE          LIFE         NUMBER         AVERAGE
EXERCISE PRICES                    OUTSTANDING       EXERCISE PRICE   (IN YEARS)    EXERCISABLE   EXERCISE PRICE
---------------                 ------------------   --------------   -----------   -----------   --------------
<S>                             <C>                  <C>              <C>           <C>           <C>
$ 0.0500-$  6.0000............      21,094,104          $ 3.8754         6.29       10,093,049       $ 3.2878
$ 6.0312-$ 11.5500............      26,196,444           10.0539         8.54        7,231,248         7.2132
$11.5625-$ 13.8462............      21,803,810           13.1278         8.35        6,860,765        13.2774
$13.8750-$ 16.6827............      18,409,124           15.3921         8.00        8,728,229        15.2063
$16.6875-$ 22.8500............      19,545,292           20.2209         7.94        5,456,262        19.2573
$22.9000-$ 53.3800............      19,353,607           31.5243         8.03        5,253,045        31.8750
$53.4500-$105.0000............       1,642,752           61.7713         8.72          178,363        63.9648
                                   -----------                           ----       ----------
$ 0.0500-$105.0000............     128,045,133          $15.7876         7.89       43,800,961       $13.5404
                                   ===========                                      ==========
</TABLE>

PRO FORMA INFORMATION

     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.

                                       F-27
<PAGE>   82
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 method of SFAS No. 123. The
fair value for these options was estimated at the date of grant using the
minimum value method in 1998 and using a Black-Scholes option pricing model in
1999 and 2000 with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                                2000     1999    1998
                                                              --------   -----   -----
<S>                                                           <C>        <C>     <C>
Expected dividend yield.....................................         0%      0%      0%
Expected volatility.........................................       1.0     1.0      --
Risk free interest rate.....................................      5.29%   5.60%   4.90%
Expected option lives (years)...............................   0.5-3.5     3.3     3.5
Weighted fair value of options granted at prices equal to
  market price during the year..............................  $  11.79   $8.08   $0.67
Weighted fair value of options granted at prices below
  market price during the year..............................  $  11.19   $  --   $  --
</TABLE>

     The pro forma information is as follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                      ----------------------------------
                                                         2000         1999        1998
                                                      -----------   ---------   --------
<S>                                                   <C>           <C>         <C>
Net loss:
  As reported.......................................  $(3,085,608)  $(287,992)  $(54,048)
                                                      ===========   =========   ========
  Pro forma.........................................  $(3,280,942)  $(322,999)  $(55,414)
                                                      ===========   =========   ========
Basic and diluted net loss per common share:
  As reported.......................................  $    (12.61)  $   (3.58)  $  (1.54)
                                                      ===========   =========   ========
  Pro forma.........................................  $    (13.41)  $   (4.02)  $  (1.58)
                                                      ===========   =========   ========
</TABLE>

     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 which 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 (the "1998 Purchase Plan")
became effective on the completion of the initial public offering, 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 1,358,154 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 1,006,645 and
635,201 shares were issued under this plan during 2000 and 1999, respectively.

                                       F-28
<PAGE>   83
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. 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:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2000        1999
                                                              ---------   ---------
<S>                                                           <C>         <C>
Deferred tax assets:
  Net operating loss carryforwards..........................  $ 429,736   $ 224,570
  Restructuring costs.......................................     14,188          --
  Research and development tax credit.......................      2,353       2,353
  Other accrued expenses....................................     10,107       6,155
  Fair value of investments.................................     15,094          --
  Allowance for doubtful accounts...........................      9,958          --
  Depreciation..............................................      3,963          47
  Other.....................................................        946       3,208
                                                              ---------   ---------
Total deferred tax assets...................................    486,345     236,333
                                                              ---------   ---------
Valuation allowance.........................................   (277,152)   (117,492)
                                                              ---------   ---------
Net deferred tax assets.....................................    209,193     118,841
                                                              ---------   ---------
Deferred tax liabilities:
  Intangible assets.........................................   (189,484)   (118,841)
  Other.....................................................    (19,709)         --
                                                              ---------   ---------
Total deferred tax liabilities..............................   (209,193)   (118,841)
                                                              ---------   ---------
Net deferred tax assets and liabilities.....................  $      --   $      --
                                                              =========   =========
</TABLE>

     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 $159,660, $76,962, and $21,599 in
2000, 1999, and 1998, respectively.

     At December 31, 2000, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $1,020,709, which expire in 2010
through 2020, and federal tax credits of approximately $6,192, which expire in
2010 through 2015.

     Because of the "change of ownership" provisions of the Internal Revenue
Code and similar state provisions, 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. A portion of these
carryforwards may expire before becoming available to reduce future income tax
liabilities.

15. RELATED PARTY TRANSACTIONS

     Revenue from related parties consists of revenue attributable to Microsoft,
News Corporation, UnitedHealth Group and SmithKline Labs (from January 1, 1998
to August 16, 1999, the date SmithKline Labs was sold to a company which is not
a significant stockholder of the Company).

     In connection with the acquisition of Envoy, on May 26, 2000 the Company
and Quintiles entered into a Data Rights Agreement which provides Quintiles with
an exclusive, perpetual license to certain de-identified transaction and
transaction related data. Under this agreement, Quintiles pays a royalty based
on

                                       F-29
<PAGE>   84
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

gross product revenues and operating income, as defined. No revenue has been
recorded under this agreement. Additionally, the Company and Quintiles entered
into an Internet Product Development and Marketing Agreement that provides for
the Company and Quintiles to design, implement and sell services based on a
portfolio of tools to be made available through a prominent co-branded location
hosted by the Company. The service offerings relate to drug development,
physician detailing and direct-to-consumer. Quintiles has agreed to pay $100,000
for the development of the Initial Toolkit. During 2000, the Company received
$929 under this agreement, which is classified as other revenue. Disputes have
arisen between Quintiles and the Company with respect to the obligations of the
parties under the Internet Product Development and Marketing Agreement. The
parties have commenced the dispute resolution procedures provided for in the
Internet Product Development and Marketing Agreement. We cannot provide
assurances regarding whether this dispute will be resolved in our favor or
regarding whether we will be able to preserve the benefits we expected to
achieve from the Internet Product Development and Marketing Agreement. As of
December 31, 2000, an executive of Quintiles was a board member.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The Company using available market information has
determined the estimated fair value amounts. 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.

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Cash and cash equivalents:
  Corporate securities, U.S. Treasury notes and federal
     agency notes...........................................  $180,047   $ 37,254
  Money market funds........................................   310,750    248,365
                                                              --------   --------
                                                               490,797    285,619
Short-term investments......................................        --      5,667
Marketable Securities:
  Corporate securities, U.S. Treasury notes and federal
     agency notes...........................................   219,686         --
                                                              --------   --------
                                                              $710,483   $291,286
                                                              ========   ========
</TABLE>

     The carrying amounts of cash, cash equivalents and short-term investments
are reasonable estimates of fair value.

     The fair value for marketable securities is based on quoted market prices.

                                       F-30
<PAGE>   85
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The amortized cost and estimated fair value of investments in debt
securities at December 31, 2000, by contractual maturity, were as follows:

<TABLE>
<CAPTION>
                                                                         ESTIMATED
                                                                COST     FAIR VALUE
                                                              --------   ----------
<S>                                                           <C>        <C>
Due in 1 year or less.......................................  $     --    $     --
Due in 1-2 years............................................   128,528     130,626
Due in 2-5 years............................................    86,160      89,060
Due after 5 years...........................................        --          --
                                                              --------    --------
Total investments in debt securities........................  $214,688    $219,686
                                                              ========    ========
</TABLE>

     During 2000, the Company recorded a loss on equity investments in certain
Internet-related companies of $39,600. The Company assessed various factors
related to these investments including the decline in the market price 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 without a proven business model.
Based on this assessment, the Company determined that a permanent impairment
existed in these investments.

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table summarizes the quarterly financial data for the years
ended December 31, 2000 and 1999. 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.

<TABLE>
<CAPTION>
                                                                                      NET LOSS PER
                                                                                         SHARE
                                                                                       (BASIC AND
                                                             REVENUES    NET LOSS       DILUTED)
                                                             --------   -----------   ------------
<S>                                                          <C>        <C>           <C>
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)
1999
  March 31, 1999...........................................  $ 17,555   $   (18,569)    $ (0.30)
  June 30, 1999............................................    22,698       (17,565)      (0.25)
  September 30, 1999.......................................    28,653       (17,109)      (0.24)
  December 31, 1999........................................    33,243      (234,749)      (2.79)
Year Ended December 31, 1999...............................  $102,149   $  (287,992)    $ (3.58)
</TABLE>

18.  SUBSEQUENT EVENTS (UNAUDITED)

     On March 22, 2001, the Company executed a non-binding letter of intent with
Microsoft to revise their strategic relationship, which was originally entered
into in May 1999. Under the terms of the revised relationship, (i) Microsoft
will provide performance-based funding tied to the roll-out of the Company's new
wireless and portal services for physicians, which are integrated with The
Medical Manager physician

                                       F-31
<PAGE>   86
                               WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

office management information systems, (ii) the Company will adopt the PocketPC
and other Microsoft technologies as its portal and wireless development
platform, (iii) the Company will make Intergy available to run on Windows 2000
and SQL Server 2000, (iv) the Company will transition its WebMD.com portal to
certain Microsoft technologies, (v) Microsoft has agreed to provide consulting
services, support and other resources in connection with these undertakings,
(vi) the Company will program the majority of the MSN health channel, and will
have a majority share of revenue derived from advertising, sponsorship and
e-commerce on the MSN health channel site and will no longer pay carriage fees
to Microsoft, (vii) Microsoft will no longer be responsible for funding the
sponsorship of subscriptions to the Company's physician portal, and (viii) the
Company will not be required to share with Microsoft revenue generated by
physician usage of its healthcare portals.

     The revisions to the relationship between the Company and Microsoft are
subject to execution of definitive documentation. No assurances can be given
that definitive agreements will be executed.

                                       F-32
<PAGE>   87

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
    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)
    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)
    3.2       Amended and Restated Bylaws of Registrant, as currently in
              effect (incorporated by reference to Exhibit 3.2 to
              Registrant's Report on Form 8-K filed September 13, 2000)
    4.1       Specimen Common Stock certificate
   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)
</TABLE>

                                       E-1
<PAGE>   88

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
   10.4       Services Agreement dated January 27, 1999 between WebMD,
              Inc. and Gleacher NatWest, Inc., currently known as Gleacher
              & Co. LLC (incorporated by reference to Exhibit 10.37 to
              Amendment No. 1 to Registrant's Registration Statement on
              Form S-4 (No. 333-86685) filed September 30, 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
   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)
   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)
   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
   10.18      Data Rights Agreement dated as of May 26, 2000, as amended,
              between Registrant and Quintiles Transnational Corp.
   10.19      Internet Product Development and Marketing Agreement dated
              as of May 26, 2000 between Registrant and Quintiles
              Transnational Corp.
   10.20      W. Michael Long Employment Agreement (incorporated by
              reference to Exhibit 10.27 to Registrant's Registration
              Statement on Form S-1 (No. 333-70553) filed January 14,
              1999)
</TABLE>

                                       E-2
<PAGE>   89

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
   10.21      Full Recourse Promissory Note dated as of July 11, 1997
              between Registrant and W. Michael Long (incorporated by
              reference to Exhibit 10.25 to Registrant's Registration
              Statement on Form S-1 (No. 333-70553) filed January 14,
              1999)
   10.22      Series B Preferred Stock Purchase Warrant dated as of July
              11, 1997, as amended, between Registrant and W. Michael Long
              (incorporated by reference to Exhibit 99.25 to Registrant's
              Registration Statement on Form S-8 (No. 333-47250) filed
              October 4, 2000)
   10.23      Letter Agreement dated September 12, 2000 between Registrant
              and W. Michael Long (incorporated by reference to Exhibit
              10.2 to Registrant's Quarterly Report on Form 10-Q for the
              quarter ended September 30, 2000)
   10.24      Employment Agreement dated as of September 30, 1998 between
              WebMD, Inc. and Jeffrey T. Arnold (incorporated by reference
              to Exhibit 10.41 to Registrant's Annual Report on Form 10-K
              for the year ended December 31, 1999)
   10.25      Letter Agreement dated May 20, 1999 between Registrant and
              Jeffrey T. Arnold (incorporated by reference to Exhibit
              10.42 to Registrant's Annual Report on Form 10-K for the
              year ended December 31, 1999)
   10.26      Employment Agreement dated September 8, 2000 between
              Registrant and John L. Westermann III (incorporated by
              reference to Exhibit 10.1 to Registrant's Quarterly Report
              on Form 10-Q for the quarter ended September 30, 2000)
   10.27      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)
   10.28      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)
   10.29      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)
   10.30      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.
              33-90795) filed November 12, 1999)
   10.31      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)
   10.32      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)
   10.33      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)
   10.34      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)
   10.35      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)
   10.36      Form of Stock Option Agreement made as of December 7, 1994
              between Medical Manager Corporation and certain individuals
              (incorporated by reference to Exhibit 4.5 to Medical Manager
              Corporation's Registration Statement on Form S-8 (No.
              333-21555) filed February 11, 1997)
   10.37      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)
</TABLE>

                                       E-3
<PAGE>   90

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
   10.38      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)
   10.39      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)
   10.40      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)
   10.41      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)
   10.42      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)
   10.43      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)
   10.44      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)
   10.45      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)
   10.46      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)
   10.47      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)
   10.48      CareInsite, Inc. 1999 Director Stock Option Plan
              (incorporated by reference to Annex H to Registrant's
              Registration Statement on Form S-4 (No. 333-39592) filed
              June 19, 2000)
   10.49      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)
   21         Subsidiaries of Registrant
   23.1       Consent of Ernst & Young LLP, Independent Auditors
   24.1       Power of Attorney (see pages 51 and 52)
</TABLE>

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

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

                                       E-4